Albertson’s Stock Drops 15% as Its Earnings Flatten

Albertson’s Inc. promotes itself as “your store,” but the grocery chain’s surprise disclosure of a sales slowdown convinced many investors Monday to let someone else own the company’s stock.

Albertson’s shares plunged 15% in heavy trading after the Boise, Idaho-based concern said its profit for the summer will be flat compared with a year earlier. The culprits: an unexpected slowdown in the growth of its sales, and Albertson’s continued heavy spending on expansion.

The stock tumbled $6.50 a share to close at $36.125, as 3.9 million shares changed hands in New York Stock Exchange trading.

The setback was a stunner for Wall Street, because Albertson’s--which operates 800 stores, including dozens in Southern California--has long been a steady, profitable performer in the otherwise cutthroat world of big-league grocery chains, where earning two pennies per dollar of sales is considered impressive.

Albertson’s stock had risen sixfold since early 1988, and its sales, earnings per share and net profit margins have far outpaced the industry average for the last five years.

Given that stature, Albertson’s news prompted investors to also dump shares of several other grocery stocks Monday, including Vons Cos., Safeway Inc., Kroger Co. and American Stores Co., the parent of Lucky stores.

The announcement by Albertson’s, which had sales of $12.6 billion in its fiscal year ended Feb. 1, also was surprising because the grocery store industry has been relatively strong in 1996.

A combination of factors--moderate economic growth; store mergers in some parts of the country, which reduced competition; enhanced features in some chains, such as “prepared-food” counters; better tracking of food stocks and other inventory; and cost-cutting measures--have helped boost sales and earnings.

The gains were even more impressive because inflation has remained tame this year, keeping grocery profit margins at their historically low levels.

But analysts had mixed views about whether Albertson’s problems are limited to that chain or are symptomatic of growing weakness in the grocery industry overall.

Larry Jeddeloh, an analyst at the investment firm TIS Group in Minneapolis, said that “the whole industry is slowing down” because of increasing weakness in the national economy, which he asserted is “slowing faster than people think.”

Not so, countered George E. Thompson of Prudential Securities in New York. “The assumption is wrong that every [chain] is impacted by” the factors affecting Albertson’s, he said.

“For example, for Vons [stock] to fall today in sympathy with Albertson’s is ridiculous,” Thompson said. In Southern California, he noted, “there is no overcapacity” in terms of too many stores, “there’s no square footage being added, and the Southern California economy is getting better.” (Vons’ stock lost 87.5 cents to close at $41 a share on the big board.)

Vons executives privately agreed, saying their sales are not slowing and that their profit projections have not been cut.

Rather, Thompson said, Albertson’s sales growth was dented by stepped-up competition in several other parts of the country. In Denver, for instance, Albertson’s has suffered from intense promotions by rivals Kroger and Safeway, which are working to win back shoppers after both chains suffered labor problems there this summer, he said.

Meanwhile, Albertson’s made no apologies for continuing to spend on expansion even if sales are weakening. “The company is committed to these programs and will not sacrifice long-term benefits by suspending them for short-term results,” it said.