Jewel parent reduces forecast

MINNEAPOLIS -- Shares of Supervalu, one of the nation's largest grocers, dropped more than 16 percent Tuesday after it suggested financial pressure was hurting its customers and it reduced its full-year guidance.

The sell-off came as the company behind the Cub Foods, Shop 'n Save, Jewel-Osco, Shaw's and Star Market store brands reported its third-quarter profit rose almost 25 percent.

Chairman and Chief Executive Jeff Noddle said it expects consumer spending will continue to be pressured by inflation, as it was during the third quarter.

Noddle said they were seeing some "trading down," where customers look for cheaper brands to save money. That's good for the customer's bottom line but not Supervalu's. Referring to one of Supervalu's discount brands, Noddle said "Save-A-Lot has performed well this year and I think one of the reasons is because they are attractive to a more stressed consumer."

That made for more stressed investors. Supervalu shares dropped $5.68, or 16.6 percent, to $28.61 after briefly sinking as low as $28.18, their lowest level since the autumn of 2006. They've lost more than 20 percent of their value this year alone.

"We are surprised at the magnitude of this weakness. Operating results were certainly not as bad as they could have been," Goldman Sachs analyst John Heinbockel wrote in a note to clients.

"Today's performance seems to be a commentary on how bad sentiment is for retail stocks, especially defensive names that no longer feel defensive," he wrote.