Warning by Albertsons Triggers Sector Sell-Off
Shares of Albertsons Inc. tumbled to a two-year low Thursday as the grocery chain’s reduced profit outlook unnerved investors and fueled concern that the growing dominance of Wal-Mart Stores Inc. would cause traditional grocers even more woes.
The gloomy outlook wiped out more than $2 billion in Albertsons market capitalization and sent shares of rivals Kroger Co. to close off almost 4% and Safeway Inc. to fall 7%. The earnings warning prompted one Wall Street analyst to tell investors to sell Albertson’s stock.
Albertsons, which ranks second behind Kroger in an increasingly competitive supermarket grocery sector, said it expects its third-quarter profit to be 5% to 10% below current estimates because of a steeper-than-expected drop in sales. It also cut its expectations for the full year.
Boise, Idaho-based Albertsons fell $5.11 to $22.31 on the New York Stock Exchange.
Besides an uncertain economy, which is spawning job cuts and has stunted consumer sentiment, the traditional grocery chains also are reeling from Wal-Mart’s push to use lower-priced food to attract customers.
Wal-Mart, the world’s largest retailer, is now the dominant player in the $680-billion U.S. grocery industry, and analysts fear that business for conventional grocers like Albertsons only will worsen.
The discounter said this month that it would open as many as 210 of its food-selling “supercenters” next year, heaping even more woe on grocers.
Merrill Lynch analyst Mark Husson recommended a “sell” on Albertsons shares Thursday, while Andrew Wolf, an analyst at BB&T; Capital Markets, cut his rating on Cincinnati-based Kroger to “hold” from “buy.”
Husson said slumping sales may have caught Albertsons by surprise as the retailer had thought its business would continue to reap benefits from a recent restructuring, which included closing more than 100 stores and trimming payroll.
“In our view, Albertsons can no longer afford to sit back and must initiate heavy gross margin investments beginning in the fourth quarter,” Husson said.
Wolf said the U.S. supermarket industry has become “the most war-like we have seen in the past 10 years,” and there was no “defensive case for recommending investing in [any] of the big three supermarket chains at this time.”
Albertsons forecast third-quarter earnings in the range of 47 cents to 49 cents a share, compared with its previous guidance of 52 cents.
Analysts polled by Thomson First Call had expected Albertsons to report a third-quarter profit 50 cents to 55 cents a share, with a mean at 52 cents. A year ago, the company reported a third-quarter profit of 44 cents.
Chairman and Chief Executive Larry Johnston said Albertsons did not expect “this tough environment to improve in the near term. As we move forward we are going to be very strategic on how we invest in a combination of promotions and price [cuts].”
He said he also would speed up the launch of customer loyalty cards which reward shoppers with discounts while giving the company insights into shoppers’ buying habits. The other focus would be on cost cutting, Albertsons said.
Full-year profit was forecast by First Call analysts to range from $2.08 to $2.34, with a mean at $2.28. In the prior year Albertsons reported a profit of $1.95.
