Safeway Lowers Forecasts for 4th Quarter and Beyond

A sluggish economy is eating into the earnings of Safeway Inc., the nation’s third-largest supermarket chain.

The Pleasanton, Calif.-based company, which operates the Vons chain in Southern California, said Friday that profit will be less than expected in the fourth quarter and into next year.

“The current economy has continued to impact our business, and it is unclear when consumer confidence will strengthen,” Steve Burd, chairman and chief executive of the nearly 1,800-store grocery chain, said in a statement.

Safeway trimmed its fourth-quarter earnings expectations to 78 cents to 80 cents a share. Six weeks ago, the company anticipated fourth-quarter profit of 82 cents a share.

The grocery company now expects to end the year with per-share earnings in the $2.77 to $2.79 range and expects to make $2.50 to $2.65 a share in 2003. Both are below the consensus estimates of $2.81 for 2002 and $2.92 for next year, according to an analyst survey by Thomson First Call.

Shares of the Safeway fell 11.5%, or $2.60, on the New York Stock Exchange to close at $20, a six-year low. The company’s shares have fallen 52% this year.

Burd said Safeway plans to improve its selection of products in an effort to draw customers back to its supermarkets. He called 2003 a “rebuilding year.” Safeway is the third of the top three domestic supermarket chains to lower its profit forecasts in recent months.

A migration of consumers to big discount chains such as Wal-Mart Stores Inc. and warehouse retailers such as Costco Wholesale Corp. has hurt Safeway, market leader Albertson’s Inc. and second-place Kroger Co., which owns the Ralphs chain.

Additionally, changing consumer buying patterns, including customers purchasing less expensive brands or products instead of higher-profit items, have hurt the big supermarket chains, analysts said.

Albertson’s shares fell 3.6% to $19.82 on the Safeway news. Kroger stock dipped 5.9% to $14.10. Both trade on the NYSE.