Safeway’s Profit Tumbles 48%
Supermarket giant Safeway Inc. said Thursday that its fiscal second-quarter profit fell 48% partly because of restructuring expenses and write-downs related to its troubled Dominick’s chain in the Midwest.
Net income in the quarter ended June 14 dropped to $161 million, or 36 cents a share, from $309.3 million, or 63 cents, a year earlier. The latest earnings fell below analysts’ consensus estimate of 47 cents a share.
Sales at the Pleasanton, Calif.-based company’s stores, including Vons and Pavilions, remained soft, rising 3% in the quarter to $7.7 billion, thanks to new store openings and increased gasoline sales.
Sales of stores open at least a year, a key retail indicator, declined by half a percent. Excluding fuel sales, same-store sales declined 2.2%.
In the quarter, Safeway took a $15.8-million charge for severance costs related to its reduction of 940 jobs, or 13% of its administrative staff, as part of a restructuring to better compete with nonunion rivals such as Wal-Mart Stores Inc.
Safeway’s earnings also were hurt by a $69.8-million charge to reflect the lower value of its Chicago-area chain Dominick’s, which is up for sale. Excluding that charge, net income would have dropped 35% to $199.6 million, or 45 cents a share, just below analysts’ estimates.
“It’s not a deep falloff in business,” Safeway Chairman Steven Burd said in a conference call with investors. “It’s just a sort of protracted lull.”
But Edouard Aubin, an analyst at Deutsche Bank in New York, described the quarterly results as “very disappointing.” He said Safeway’s strategy of heavily discounting only certain items, rather than providing everyday low prices, might be costing it market share.
Burd assured analysts that sales had picked up in recent weeks and said the chain would meet analysts’ consensus earnings of $2.13 a share for the year. But analysts remained skeptical, saying there was too little evidence of recovery to predict a turnaround.
Shares of Safeway fell 55 cents to $19.99 on the New York Stock Exchange.
