Albertsons Posts 49% Increase in 4th-Quarter Net Income

Albertsons Inc. said Tuesday that its fiscal fourth-quarter profit rose 49% largely because of acquisitions, but the grocery chain cut its earnings forecast for this year, sending its stock to a 52-week low as it continued to recover from last year’s bitter Southern California supermarket strike and lockout.

The nation’s second-largest grocer said net income increased to $194 million, or 52 cents a share, in the period ended Feb. 3, from $130 million, or 35 cents, a year earlier, matching the consensus estimate of analysts surveyed by Thomson First Call.

Sales grew 29% to $11.1 billion, driven by last year’s acquisitions of the Shaw’s chain in New England and the upscale Bristol Farms markets in Southern California.

Overall, sales at stores open at least a year -- a key measure of growth -- grew 5.1% in the quarter.

Boise, Idaho-based Albertsons is the only major chain in Southern California to regain sales lost during the 2003 grocery strike, according to fourth-quarter data it cited from Information Resources Inc.

The return to pre-strike sales, however, has not brought an accompanying return of pre-strike profit. Albertsons offered deep discounts in the Southland to lure customers back from chains such as Trader Joe’s and Costco. That took a bite out of profit and probably will affect profitability in the year ahead.

“Recovering our share in Southern California was successful, but more costly than anticipated,” said Larry Johnston, Albertsons’ chief executive, on a conference call with analysts. Gross profit margin in the fourth quarter was unchanged from a year earlier at 27.8% despite the company’s aggressive cost-cutting plan.

Analysts said that Albertsons, and rivals Safeway Inc. and Kroger Co., were increasing promotions and slashing prices to improve sales at the expense of gross profit margins.

“Last year was a challenging year and the competitive environment was much stronger than anticipated,” Johnston said.

For the year, Albertsons’ net income fell to $444 million, or $1.19 a share, from $556 million, or $1.51. Sales rose 13.6% to $39.9 billion.

This year, Albertsons expects conditions to be just as tough. For 2005, the company forecast earnings from continuing operations of $1.33 to $1.43 a share, well below the $1.55 consensus estimate of analysts.

“Here’s a company that is forecasting no growth after basically a recovery year,” said Dave Dietze, president of Summit, N.J.-based Point View Financial, which manages $92 million in assets, including Albertsons shares. There is “no real plan that investors can digest that suggests there is a strategy to materially improve results.”

The disappointing forecast sent Albertsons shares to a 52-week low of $19.92 before closing at $19.97, down 90 cents, on the New York Stock Exchange. The stock has fallen 16% this year.

Analysts say Albertsons faces a much more uphill battle in the year ahead than Safeway and Kroger, which have more dominant market share in most markets around the country.

“Albertsons remains our least favorite name among the big three conventional grocers,” wrote Robert Campagnino of Prudential Equity Group in New York.

Jason D. Whitmer of Midwest Securities, who rates Albertsons shares “neutral,” said, “They are doing what they can to make progress ... [but] it’s not enough to move them forward that much.”

Bloomberg News was used in compiling this report.