Ahead of the Bell: Supervalu Inc.

NEW YORK (AP) - Supervalu Inc.'s choice of profits over wooing more customers with low prices will hurt performance in future years, an analyst said Wednesday as he cut estimates on the national grocery chain.

Janney Capital Markets analyst Jonathan Feeney said the company's first-quarter results, released Tuesday, beat estimates and included higher gross margins because the company, which operates Albertsons, Jewel-Osco and other grocery chains, is choosing to sell more profitable items rather than entice shoppers with promotions and less expensive products.

That is common right now, Feeney told clients in a note Wednesday. But he cut his estimates for the next two fiscal years because he thinks the trade-off won't work with store traffic still weak.

"We think this strategy could be a slippery slope as long as the competitive environment remains tough and inflation nonexistent," he said.

The company maintained its forecast for adjusted income of $1.75 to $1.95 per share for the fiscal year. Analysts expect $1.73 per share, according to Thomson Reuters.

Feeney said maintaining the guidance is "remarkable - bordering on breathtaking" and indicates the company plans to keep reducing promotions. Retailers are wooing shoppers with deals and other promotions to keep them spending.

On a non-adjusted basis, Supervalu did cut its forecast - to a range of $1.61 to $1.81 per share, down from $1.65 to $1.85. Those figures include 7 cents per share each for the cost of store closures and a labor dispute at Shaw's.

He cut his target share price to $12 from $14 and reduced his estimate for adjusted full-year earnings per share to $1.71 from $1.75.