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Safeway's sales disappoint amid rising competition

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POSTED April 25, 2013 10:21 p.m.

 

PLEASANTON (AP) — Safeway Inc. reported revenue for the first quarter that missed Wall Street expectations as the grocer worked to hold down prices and stay competitive.

The company, which has more than 1,600 stores under names including Safeway and Vons, has been focusing on low prices as a way to fend off discounters such as big-box retailers and dollar stores, which have been expanding their grocery sections and picking off customers from traditional supermarkets.

In particular, Safeway has been touting its relatively new "Just For U" program, which offers personalized deals based on a customer's past purchases. Kroger, the nation's largest traditional supermarket chain, has a similar program that offers tailored discounts.

Safeway CEO Steve Burd, who's retiring next month, said more customers have been signing up for "Just For U" and that the company is gaining market share as a result. But Safeway nevertheless remains pressured by competition.

Even though its costs to stock shelves rose only modestly during the period, for example, Burd said the company didn't see its rivals passing on their own costs to customers. "And so we have to react to that," he said.

During the period, Safeway's gross profit as a percentage of sales fell in part because of "investments in price," or discounts and promotions intended to boost sales. But in a conference call with analysts, Burd downplayed the effect competitors are having on the bottom line.

"It's like the temperature in your living room," he said. "In the fourth quarter it was 70, and in the first quarter it was 71. We can measure it, but it's not an overwhelming challenge."

Safeway, based in Pleasanton, Calif., said revenue at stores open at least a year rose 1.5 percent during the quarter. Part of the increase was result of shift in the calendar, which moved New Year's holiday sales into the period. The metric is a key indicator of health because it strips out the impact of newly opened and closed locations.

The figure rose 1.7 percent in the U.S, where "Just For U" has rolled out more widely. In Canada, where the program isn't widely available, the figure was flat.

Net income for the period was helped greatly by tax benefits. A lower number of outstanding shares also boosted per-share results.

For the three months ended March 23, the company earned $118.9 million, or 49 cents per share. That's up from $72.9 million, or 27 cents per share, a year ago. Tax benefits contributed 14 cents per share to the latest quarter; 7 cents of that had been expected.

Net sales dipped to $9.99 billion, from $10 billion a year ago, as the company sold its Genuardi's stores.

Analysts on average expect a profit of 35 cents per share on revenue of $10.15 billion.

The company stood by its forecast for the year, with revenue at stores open at least a year expected to grow between 2 percent and 3 percent.

Burd declined to provide an update on the CEO search but said "we think we'll have a CEO on May 15," the day after he's scheduled to retire.

Shares of Safeway were down $5.19, or 18 percent, at $23.07.

 

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