Pair of Acquisitions Weighing Heavily on Safeway’s Earnings

Slumping supermarket operator Safeway Inc. on Thursday reported a fourth-quarter loss of $1.05 billion, reflecting continuing problems from the acquisitions of major grocery chains in Texas and Illinois.

The net loss of $2.37 a share contrasted with net income of $353.6 million, or 70 cents, a year earlier. Sales rose less than 1% to $10 billion from $9.92 billion.

Pleasanton, Calif.-based Safeway, which owns Vons, is trying to sell the Chicago-area Dominick’s chain after failing to negotiate a more favorable labor contract. The company wrote down the value of its Randall’s unit in Texas.

“They’ve clearly not done a great job integrating these acquisitions,” said Dan Donovan, an analyst with American Express Asset Management, which owned more than 4 million Safeway shares in June. “Plus, you have a tough environment.”

Shares of Safeway fell 46 cents to $21.53 on the New York Stock Exchange.

Safeway and other grocery chains are facing increased competition from discounters such as Wal-Mart Stores Inc. and warehouse stores. The chains have cut prices and are offering more promotions as consumers cut spending.

Wal-Mart and Albertson’s Inc. have announced plans to expand in Safeway’s biggest market: California.

To stimulate sales, Safeway and other retailers lowered prices, another factor contributing to the grocer’s sliding revenue. Sales at Safeway stores open at least a year, a key measure of a chain’s growth, fell 1.9%.

“Deflation in the fourth quarter was almost universal,” Steve Burd, Safeway’s chief executive, said during a conference call. “There was hardly a category left out of that.”

Excluding certain costs, Safeway said, it would have had a quarterly profit of 80 cents a share, in line with analysts’ reduced estimates.

Safeway is trying to sell the 113-store Dominick’s chain, which it bought for $1.85 billion in 1998, after same-store sales fell for more than three years. Safeway this year had to lower prices and invest in the Randall’s stores, bought in 1999, to try to attract customers, executives said.

Safeway executives told the investors that they have secured a banker to handle the sale of Dominick’s, which they would prefer to sell as a complete unit. Analysts have said the chain may fetch more than $500 million.

For all of 2002, Safeway lost $828.1 million, or $1.75 a share, on sales of $32.4 billion. In 2001, Safeway earned $1.25 billion, or $2.44 a share, on sales of $31.8 billion.