Albertsons’ Profit Misses Wall St. Forecasts
Albertsons Inc., the grocer that put itself up for sale last week, recorded a fiscal second-quarter profit below analysts’ estimates and stagnant sales amid competition from Wal-Mart Stores Inc.
Net income at the second-largest U.S. grocery chain in the period ended Aug. 4 increased 2.9% to $107 million, or 29 cents a share, from $104 million, or 28 cents, a year earlier. Boise, Idaho-based Albertsons said Wednesday that sales were little changed at $10.2 billion, the company’s worst performance in more than a year.
Chief Executive Larry Johnston’s strategy of lowering prices on basic items such as paper towels narrowed the company’s profit margin. Albertsons, whose chains include Sav-on Drugs and Bristol Farms, is seeking a buyer for part or all of the company after competition from Wal-Mart and a 20-week strike and lockout in Southern California led to a profit decline in three of the last four years.
“Management failed to come up with a winning strategy to fend off the competition at the low end with Wal-Mart and at the high end,” said David Dietze, president of Summit, N.J.-based Point View Financial Services. “There is no strategy other than cutting costs.”
The company was expected to earn 34 cents, the average estimate of analysts surveyed by Thomson Financial. Albertsons reaffirmed that profit from continuing operations for the full year would increase to a range of $1.37 to $1.47 a share from $1.27 last year.
Sales at stores open at least a year fell 0.1%. Gross margin, or the portion of sales left after subtracting the cost of goods sold, narrowed to 28.03% from 28.24% a year ago.
Albertsons had a $3-million loss from discontinued operations, compared with $21 million a year earlier related to the closure or sale of 21 stores.
In addition to a sale of the company, Albertsons is considering selling off more stores. The grocer has been exiting markets where it doesn’t have a No. 1 or No. 2 market share, including New Orleans, Omaha and Jacksonville, Fla.
During the 4 1/2 -month strike and lockout in Southern California that began in October 2003, Albertsons lost consumers to rival chains such as Whole Foods Markets Inc. and Trader Joe’s. Sales as of June had not returned to their levels before the labor dispute.
The cost of winning back shoppers “was extremely high, so profits in Southern California remain well below prior levels,” wrote New York-based Lehman Bros. Inc. analyst Meredith Adler. “The long and bitter strike of 2003-04 pressured market share and profits,” and a full recovery for the big grocers in that market isn’t expected.
The company is also losing customers in areas such as Dallas-Fort Worth, where it’s in a battle with Wal-Mart, analysts said. Wal-Mart has added 1,000 supercenters, which sell groceries in addition to other items, in the U.S. since 2000.
Shares of Albertsons, which operates 2,500 stores in 37 states, fell 27 cents Wednesday to $23.13.
