Safeway reduces financial forecast
By Michael Liedtke
Associated Press
SAN FRANCISCO — With tougher competition continuing to bite into its sales, supermarket giant Safeway Inc. yesterday warned its financial performance will deteriorate through 2003.
The Pleasanton, Calif.-based grocer said its fourth-quarter earnings will range from 78 cents to 80 cents per share, below the consensus estimate of 82 cents per share among analysts polled by Thomson First Call.
The disappointing fourth quarter will cap a disheartening year for Safeway. The nation's third-largest grocer braced investors for even more letdowns next year.
Safeway said next year's earnings will range from $2.50 to $2.65 per share, far below analysts' consensus estimate of $2.92 per share.
That means next year's profit also will be 4 percent to 10 percent below this year's projected earnings of $2.77 to $2.79 per share. Just five months ago, analysts had been expecting Safeway to earn $3.15 per share this year.
The comedown reflects intensifying pressure from formidable discount merchants, such as Wal-Mart Inc. and Target Inc., that are selling more groceries. The competition has forced Safeway and other traditional grocers to lower their prices more extensively to entice shoppers who have become more cost conscious in an uncertain economy.
"We expect 2003 to be a rebuilding year for Safeway," said Steve Burd, the company's chief executive officer. "The current economy has continued to impact our business, and it is unclear when consumer confidence will strengthen. In the meantime, we are planning to improve our customer offerings to restore steady growth to our business."
Burd's words didn't reassure investors, who have been jolted by previous warnings earlier in the year.
Safeway's shares dropped $2.60, or 11.5 percent, to close yesterday at $20 each on the New York Stock Exchange.
Safeway believes its fortunes will rise along with the economy, but many analysts are worried that customers defecting to mass-market retailers won't come back.
Until recently, Safeway had been better insulated than other major supermarkets from Wal-Mart's expansion into the grocery business. Wal-Mart began its grocery push in areas outside Safeway's main markets, but the nation's largest retailer is now invading Safeway's turf.
