Grocer Safeway’s 2nd-qtr net income drops 40 pct, hurt by competition, declining retail prices

Safeway’s 2nd-quarter net income falls 40 percent

PORTLAND, Ore. — Tough competition and resulting lower grocery prices drove Safeway Inc.’s second-quarter net income down 40 percent, the national grocery chain said Thursday.

Safeway also lowered its forecast for its full-year net income, saying it doesn’t expect prices to rebound until the fourth quarter.

Safeway’s struggle between price and profitability is reflected industrywide. Traditional grocers are in fierce competition to lure shoppers with low prices, sometimes at the expense of their profit margins, which are typically razor-thin.

Making competition still tougher is the recession-driven trend of retailers from dollar stores to big-box retailers like Target Corp. and Wal-Mart Stores Inc. shifting to selling more food.

Safeway said its net income fell to $141.3 million, or 37 cents per share, for the quarter that ended June 19, matching the average expectation of analysts surveyed by Thomson Reuters.

That’s down from $238.6 million, or 57 cents per share, in the same quarter last year, which included a benefit of 14 cents per share related to a tax issue.

Safeway said more shoppers are buying more items. But its total revenue grew less than 1 percent to $9.52 billion. That tops analyst expectations for $9.47 billion.

Steve Burd, Safeway’s CEO, said shoppers are beginning to notice price reductions the company made late last year, which has increased its volume but not its bottom line.

Safeway says its pricing is now on par with competitors in all its markets. But shoppers buying lower-priced items and focusing on the items whose prices Safeway cut last year has hurt its net income.

The company, based in Pleasanton, Calif., said the benefit from a stronger Canadian dollar and higher fuel sales offset softer sales figures.

Safeway now expects to earn $1.50 to $1.70 per share for its full fiscal year, down from its earlier forecast of $1.65 to $1.85 per share. Analysts expect net income of $1.69 per share.

Hapoalim Securities USA, Inc. analyst Ajay Jain said analysts expected Safeway to cut its forecast, but it may not have been conservative enough.

Safeway, which operates Vons and Dominick’s as well as its namesake chain, said it wants to retain its new competitive pricing position moving forward.

Shares of the company fell 35 cents to $19.87 in afternoon trading.