Free Annual Reports
Safeway In A Flat Spot
Grocery chain Safeway (NYSE:SWY) posted a mixed third-quarter earnings report, affected chiefly by lower pricing. Safeway's earnings per share were up slightly, though its net income including charges was actually down. Revenue for the quarter declined in the year-over-year quarter. Safeway said its prices began to improve during the quarter and should continue to do so.
IN PICTURES: 10 Ways To Cut Your Food Costs
Price Deflation The Story
Safeway had been pulling its prices down to battle grocery rivals such as Kroger (NYSE:KR). Revenue for the quarter fell to $9.4 billion from $9.5 billion, feeling the effects of this lower item pricing. There was a 2% decline in same store sales, excluding gasoline sales. Net income was $122.8 million or 33 cents a share, compared to $128.8 million or 31 cents a share in last year's third quarter. These figures include a $12 million charge for this year's quarter, or two cents per share.
More Pricing Power
Safeway CEO Steven Burd said he expects the pricing issue to continue to get better. The company, which had a difficult year in 2009 with falling revenue and a net income loss, has felt the effects of the recession and the price war among grocers. So its third-quarter results at least are along a better trend.
Competitor Kroger has fared somewhat better, with recent revenue and income gains. Another competitor, Supervalu (NYSE:SVU), which saw its worst year in 2008, has been battling back as well. Its revenue is sluggish, but it at least turned in positive net income for 2009. Likewise, rival Winn Dixie (Nasdaq:WINN) has presented a mixed picture in the last year or so.
Upscale grocer Whole Foods Market (Nasdaq:WFMI), on the other hand, is a standout in terms of executing and growing its margins as well as raising revenue. Whole Foods' pricier items and more affluent customers put it in a different competitive class than the other grocers.
What's Ahead For Safeway?
With the rise in food prices already happening across the board due to commodity price increases, the pricing issues should ease somewhat for Safeway and the other mainstream grocers. But pricing power in the face of the still burdened consumer may be problematic for the grocers. With U.S. food stamp usage at an all-time record high, estimated at an average now of 43.1 million people, the grocers aren't looking at a windfall, only a slight easing. At Kroger's investors' conference, CEO David B. Dillon cited that while consumers had been buying more expensive food items, food stamp usage has doubled since the onset of the recession.
High Growth Unlikely
Safeway will have a hard time growing earnings and revenue in the quagmire of this economy, despite the easing of price deflators. The company carries a hefty $4.75 billion in long-term debt against $632 million in cash and equivalents, and its 36-weeks results for fiscal 2010 are running behind its 2009 results. The lackluster fundamentals of both the grocery business and the battered consumer just don't add up to a great performance on the horizon anytime soon for Safeway. (For related reading, see Evaluating Grocery Store Stocks.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 10 Ways To Cut Your Food Costs
Price Deflation The Story
Safeway had been pulling its prices down to battle grocery rivals such as Kroger (NYSE:KR). Revenue for the quarter fell to $9.4 billion from $9.5 billion, feeling the effects of this lower item pricing. There was a 2% decline in same store sales, excluding gasoline sales. Net income was $122.8 million or 33 cents a share, compared to $128.8 million or 31 cents a share in last year's third quarter. These figures include a $12 million charge for this year's quarter, or two cents per share.
More Pricing Power
Safeway CEO Steven Burd said he expects the pricing issue to continue to get better. The company, which had a difficult year in 2009 with falling revenue and a net income loss, has felt the effects of the recession and the price war among grocers. So its third-quarter results at least are along a better trend.
Upscale grocer Whole Foods Market (Nasdaq:WFMI), on the other hand, is a standout in terms of executing and growing its margins as well as raising revenue. Whole Foods' pricier items and more affluent customers put it in a different competitive class than the other grocers.
What's Ahead For Safeway?
With the rise in food prices already happening across the board due to commodity price increases, the pricing issues should ease somewhat for Safeway and the other mainstream grocers. But pricing power in the face of the still burdened consumer may be problematic for the grocers. With U.S. food stamp usage at an all-time record high, estimated at an average now of 43.1 million people, the grocers aren't looking at a windfall, only a slight easing. At Kroger's investors' conference, CEO David B. Dillon cited that while consumers had been buying more expensive food items, food stamp usage has doubled since the onset of the recession.
High Growth Unlikely
Safeway will have a hard time growing earnings and revenue in the quagmire of this economy, despite the easing of price deflators. The company carries a hefty $4.75 billion in long-term debt against $632 million in cash and equivalents, and its 36-weeks results for fiscal 2010 are running behind its 2009 results. The lackluster fundamentals of both the grocery business and the battered consumer just don't add up to a great performance on the horizon anytime soon for Safeway. (For related reading, see Evaluating Grocery Store Stocks.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Greg Sushinsky
Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
Free Annual Reports
