Safeway to Feel Effects of Past Strike in 2005

Safeway Inc. warned Wednesday that lingering effects of the Southern California grocery workers strike and lockout would continue to damp its profit next year.

The Pleasanton, Calif.-based operator of 1,815 supermarkets in the United States and Canada said it expected earnings of $1.41 to $1.51 a share for 2005. Analysts had forecast $1.67 a share, according to Thomson First Call.

The company said 2005 earnings would be reduced by 20 cents a share from pre-strike levels because of diminished sales after the labor problems ended at the company’s Vons chain last winter, and an additional 20 cents for increased marketing expenses as it seeks to lure back shoppers. Its estimate also includes a charge of 9 cents a share for the expensing of stock options. Prudential Equity Group analyst Robert T. Campagnino cited Safeway’s guidance as reason to believe that “long-standing difficulties persist” for the company.

“Taken together, we see the company’s guidance as modestly disappointing, but still broadly in line with our ’05 forecast of $1.51” earnings per share, Campagnino said in a report Wednesday.

Safeway said it anticipated a gradual recovery from the strike and a significant increase in brand building and promotions. Excluding Vons’ first-quarter sales, the company said, revenue at supermarkets open at least a year was expected to rise 1.2% to 1.5% in 2005.

Separately, Safeway said it planned to spend $1.4 billion in 2005 to open 30 to 35 new stores and remodel as many as 285 others.

The nation’s third-largest grocer is facing competition from discount giant Wal-Mart Stores Inc. It is also battling for market share with supermarket operators Kroger Co. and Albertsons Inc. The three big chains have been trimming prices to win back customers after the strike and lockout involving the United Food and Commercial Workers union in Central and Southern California, which ended in February.

Albertsons recently cited the continuing need to discount as a reason the company’s earnings may slip to the low end of its forecast of $1.40 to $1.50 a share for the year. Discounting has also hurt the profit margin at Kroger. The company reported a 29% jump in third-quarter earnings Tuesday, but that fell short of analysts’ expectations.

“There is a real dogfight for market share,” David Dietze, president of Point View Financial, told Bloomberg News. “They want to hold on to their customers even if it hurts their profits.” Dietze manages $80 million in assets, including Safeway stock.

Safeway shares fell 20 cents Wednesday to $18.65 on the New York Stock Exchange.