POSTED: 01:30 a.m. HST, Oct 15, 2010
NEW YORK » Safeway Inc.'s third-quarter net income fell 4.7 percent on severance charges and weaker sales, and the national grocery chain said it now expects full-year results to be at the lower end of its guidance.
The company also expects sales excluding fuel to be at the lower end of its guidance, for a decline of up to 1.5 percent. Shares rose in early trading yesterday, however, a sign investors may be relieved the company brought its estimates down to a conservative level. The company cut its guidance in July, but analysts said then it may not have been low enough. Shares rose 64 cents, or 3 percent, to $21.96 in morning trading.
The company said yesterday it earned $122.8 million or 33 cents per share, in the three months ending Sept. 11, down from $128.8 million or 31 cents per share, last year. The company paid out $12 million or 2 cents per share in severance charges.
Revenue fell less than 1 percent to $9.4 billion.
Analysts expected earnings of 31 cents per share on revenue of $9.45 billion, according to Thomson Reuters. These estimates usually exclude one-time items.
The company, like others in the industry, has been struggling between pricing and profitability as it tries to cut prices to attract shoppers, but keep them high enough to still make a profit. It competes against discount retailers including Wal-Mart Stores Inc. and Target Corp. in addition to traditional supermarkets.
Revenue at stores open at least a year, excluding fuel sales, fell 2 percent in the quarter. The company said the drop in the figure was due to a fall in the price per item sold, though it did not say what the decline was. The figure is important for retailers because it measures growth at existing businesses, while excluding new or closed ones.
CEO Steve Burd said the company's price per item trend was improving, and that should continue as Safeway laps price cuts in the second half of last year.
The company now expects earnings per share for the year, which ends in December, to be in the lower end of its range of $1.50 to $1.70. It expects sales excluding fuel to be in the lower end of its range of a drop of 1 percent to 1.5 percent.
Analysts expect the company to earn $1.54 per share this year on revenue of $41.1 billion.
The company cut its forecast in July from its prior range of $1.65 to $1.85 per share, saying it did not expect prices to rebound until the last three months of the year.
Safeway operates some 1,775 stores in the U.S. and Canada, including chains such as Vons stores in California and Nevada, Randalls and Tom Thumb in Texas, Genuardi's in Philadelphia and Carrs in Alaska.