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Analysts Not Surprised at Herkert Ouster

Craig HerkertNEW YORK — Financial analysts who follow Supervalu were not surprised to learn Monday morning that the company’s chief executive officer had been fired, but also said they didn’t expect Craig Herkert’s successor would necessarily find the going much easier.

Wayne SalesThe troubled Minneapolis-based retailer on Monday fired Herkert (right) and replaced him with Wayne Sales (left), its chairman. Supervalu at Herkert’s direction three weeks ago stepped up a turnaround effort amid a rapid deterioration in sales and profits during its fiscal first quarter. Sales at that time was named to oversee an effort to review strategic alternatives for the company, which he will continue to do as CEO, Supervalu said.

“We welcome a change at the CEO level, but believe challenges may prove to be insurmountable at this stage for even the most exceptional food retail executive given Supervalu’s market share losses, lack of brand equity, and lack of resonance with the customer,” Karen Short, an analyst for BMO Capital, said in a research note.

Related story: Supervalu Fires Herkert; Sales Named CEO

The fact that Sales has retail turnaround experience with Canadian Tire was viewed as a positive, but analysts Monday were cautious.

“We feel that both the rapid deterioration in the company's operating performance as well the extraordinary decline in Supervalu’s stock performance since Craig Herkert's appointment three years ago makes these latest developments somewhat inevitable,” Ajay Jain, an analyst for Cantor Fitzgerald said in a research note. “While Herkert inherited a very troubled situation following the Albertsons acquisition in 2006, the lack of retail turnaround expertise in Supervalu's management team has also exacerbated the structural issues related to the Albertson's stores, in our opinion.”

SN Infographic: Supervalu by the Numbers

John Heinbockel of Guggenheim Securities said the shakeup will likely demand more of existing executives, such as newly named head of operations Kevin Holt. “Although it is hardly ideal to make a CEO change in the midst of such a challenging turnaround effort in a difficult operating environment, we do not regard Herkert’s departure as a meaningful incremental negative,” Heinbockel said in a research note. “The company was clearly not performing well and Herkert was never really able to get momentum established. We would liken it to a sports team in the midst of a bad losing streak — sometimes the organization needs to hear a new voice in order to improve morale. It is hard for us to see how this change will harm the business.”

Heinbockel reiterated his view that the most likely outcome of the strategic review process would be the sale of Save-A-Lot to a private equity firm, with Supervalu using the proceeds to pay down debt.

Supervalu stock was up by 12.5% Monday to $2.24 per share.

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