Safeway’s Same-Store Sales Pull Stock Lower
Safeway Inc., the No. 3 U.S. grocery chain, reported Monday that its second-quarter earnings met expectations, but disappointing same-store results caused its stock to drop 7%.
Pleasanton, Calif.-based Safeway, which owns the Vons and Pavilions chains, said earnings in its fiscal quarter ended June 16 were $325.1 million, or 63 cents per diluted share, excluding a charge of $30.1 million, or 4 cents per share, for a change in accounting for online store GroceryWorks.com. That compared with $280.9 million, or 55 cents a share, in the same period last year.
Analysts’ estimates, which typically exclude one-time items, ranged from 62 cents to 65 cents a share, with a mean of 63 cents, according to data-tracking firm First Call/Thomson Financial.
“They made their earnings number but the margin trends continue to be troubling and the identical stores came in substantially below guidance,” said analyst Ed Comeau of Credit Suisse First Boston. “We’re starting to see evidence the company’s growth rate is starting to slow down from our projected high-teens rate.”
Sales in the quarter rose 7.7% to $7.99 billion from $7.42 billion a year earlier, primarily because of the acquisition of Norristown, Pa.-based grocery chain Genuardi’s, openings of new stores and increased sales at existing stores, Safeway said.
Sales at stores open at least a year, a key measure of retail performance, rose 1.7%. The company had forecast 2.5% to 3%.
Shares of Safeway, with 1,754 stores, fell $3.55, or 7%, to $44.46 on the New York Stock Exchange.
The sell-off was a result of the disappointing same-store sales, Lehman Bros. analyst Meredith Adler said.
The firm cited increased competition in three significant markets, causing analysts to wonder how aggressive Albertson’s Inc., the No. 2 U.S. grocer, would become in the next 12 months under its new management.
“I could envision near-term market-share disruptions,” said J.P. Morgan analyst Stephen Chick. “Over the long run, Safeway clearly has executed better in the past and probably will continue to, but estimates have to get [revised] downward in the short run.”
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Shares of Safeway have fallen about 30% this year as the No. 3 supermarket operator faces increased competition from rival Albertson’s as well as discount retailers.
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Safeway, weekly closes and latest on the NYSE
Monday: $44.46, down $3.55
Source: Bloomberg News
