Albertsons Dims Profit Forecast
Albertsons Inc. warned Wall Street on Thursday that its full-year earnings might slip to the low end of its forecast as it continued to recover from the California grocery strike. That spurred a 6% slide in its stock.
The Boise, Idaho-based grocery and drugstore operator said net income rose 20% to $110 million, or 29 cents a share, in its fiscal third quarter that ended Oct. 28, compared with $92 million, or 25 cents, a year earlier.
Analysts noted that some of the gain came from a nonrecurring tax credit and said they were concerned that Albertsons’ same-store sales rose a mere 0.3% during the quarter.
“Investors in retail stocks should be looking at sales and earnings growth,” said Andrew Wolf, an analyst with BB&T; Capital Markets. “Right now, leaders like Albertsons and Kroger [Co.] are really only able to give you one or the other ... but not both.”
Albertsons shares fell $1.58 to $24.20 on the New York Stock Exchange.
In the quarter, the company’s sales rose 15% to $10 billion from $8.7 billion, helped in part by its purchase of Shaw’s Supermarkets in New England and the upscale Bristol Farms grocery chain in Southern California.
Looking ahead, Albertsons Chief Executive Larry Johnston said the company would continue to cut prices to try to lure back customers who strayed during last winter’s supermarket strike and lockout in Central and Southern California.
But Johnston said that as a result of price cuts and costs of promotions, Albertsons’ earnings would probably come in close to the bottom of its profit forecast of $1.40 to $1.50 a share for the year.
Analysts had anticipated a full-year profit of $1.45.
Still, Johnston told analysts during a conference call that the company was seeing “excellent progress” in its recovery plan for Southern California stores.
By the end of the third quarter, Albertsons’ sales and market share in Southern California, where 10% of its stores are located, exceeded those of two years ago.
“We believe this is substantially better than the results being achieved by either Ralphs or Vons,” Johnston said. He was referring to the Ralphs chain owned by Kroger, the nation’s biggest supermarket operator, and Safeway Inc.’s Vons stores. Albertsons, Kroger and Safeway were all affected by the strike and lockout in California.
Part of the improvement for Albertsons has come from a program to lower prices on frequently purchased items. “This is a long-term commitment we’re making to win back customers,” Johnston said.
Meanwhile, sales at 11 Bristol Farms stores in Southern California continued to be strong, and the chain is holding on to sales and margins it picked up during the strike, he said.
Albertsons’ aggressive push to expand its market share is coming at the cost of earnings, analysts said. Jason Whitmer, an analyst with FTN Midwest Research, described the third-quarter earnings as “light.”
Labor contract negotiations are continuing with 24,000 Albertsons workers in Northern California, Chicago, Denver and Las Vegas, Johnston said.
The company has settled contracts for 20,000 workers in Southern California, Chicago, New England and Seattle.
“We’ve been successful in working with our union partners to restructure these contracts to the reality of the future,” Johnston said.
