Safeway disappoints Wall Street

With rivals like Wal-Mart and Target taking market share, the outlook for traditional grocers is bleak.

By Jonathan Berr Oct 11, 2012 1:10PM
Full Shopping Cart in Grocery Store copyright Fuse, Getty ImagesShares of Safeway (SWY) are down 2% in early afternoon trading Thursday after the second-largest U.S. grocery chain reported results that failed to meet Wall Street's low expectations.

Net income at the Pleasanton, Calif., company rose 21% to $157 million, or 66 cents per share in the last quarter, fueled by a one-time gain related to the sale of some of its Genuardi's stores in the Philadelphia area. Sales fell 0.2% to $10.05 billion. Excluding the one-time item, profit would have been 45 cents. On that basis,  Safeway was expected to earn 42 cents on revenue of $10.24 billion.

Safeway, the parent of the namesake chain, along with Vons, Randalls and Tom Thumb stores, tried to put a positive spin on the news. The company affirmed its full-year guidance. CEO Steve Burd noted in the earnings press release that the company's "just for U" shopper loyalty program was "gaining momentum" as evidenced by an increase in store traffic. Same-store sales, a key retail metric, rose 1% in the quarter when fuel is excluded. Wall Street, though, expects beter.

Like rivals Kroger (KR) and SUPERVALU (SVU), Safeway is being crushed by retailing behemoths such as Wal-Mart (WMT) and Target (TGT), which have been making inroads in the grocery business. It was a cut-throat business with razor-thin profit margins even before Wal-Mart and Target appeared on the scene, and competition will only intensify as the giants continue to take market share. Safeway and other traditional grocers have a bleak future.

Jonathan Berr is long Wal-Mart and Target. Follow him on Twitter@jdberr.
2Comments
Oct 12, 2012 12:19AM
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Now it is not just your bonus card you have to have digital coupons to get the bargin price.  I find it annoying either support your bonus card and do not try and add another tatic with digital coupons.  It is very frustrating and that is what sends people to Walmart just the price is the price not several stickers on the item, bonus card discount, digital coupon, etc. 

 

I find Safeways gimmick pricing on soft drinks, you have to buy 4 or 6 of whatever to get the price.  It is a bit frustrating you have to buy a truck load to get a decent price.

 

SImplify your pricing with common sense amounts on sale items.

Oct 11, 2012 2:04PM
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Maybe people the folks that shop there are tired of being ask to give up money for some charity at the check out.
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