NEW YORK – Albertsons Inc. (ABS) Wednesday said quarterly profit plunged due to a recent Southern California strike and said it is working to be more competitive on pricing with discounters like Wal-Mart Stores Inc. (WMT).
The No. 2 U.S. grocer said net income fell to $36 million, or 10 cents a share, in the fiscal first-quarter ended April 29. A year ago it earned $172 million, or 47 cents a share.
Excluding discontinued operations, the company earned 15 cents per share. On that basis, the analysts' average estimate was 11 cents a share, according to Reuters Estimates.
Albertsons, along with rivals Safeway Inc. (SWY) and Kroger Co. (KR), is in the midst of a costly effort to woo back shoppers who defected to rival stores in a five-month strike that crippled all three grocers in California.
Edouard Aubin, a Deutsche Bank analyst, said Albertsons latest result underscored a tough market plaguing traditional grocers. He said Albertsons sales growth appeared to have deteriorated from the fourth-quarter when identical store sales, before the strike effect, rose 0.9 percent.
In the latest quarter, Albertsons identical-store sales, which exclude new or replacement stores, fell by 0.1 percent, excluding the strike effect.
"The story is really not changing much. Wal-Mart is expanding faster than (traditional) grocers are able to cut costs and that's a structural issue that's going to be around for the next two to three years," said Aubin, who has a "hold" rating on Albertsons.
Nick Kormeluk, Albertsons vice president of investor relations, said the grocer would work hard to narrow its pricing with discounters like Wal-Mart, now the dominant player in the $775 billion U.S. groceries industry.
"We still have some work to do on price in relation to where the discounters are," he told Reuters.
Even so, Albertsons Chief Executive Officer Larry Johnston said in a statement the sales recovery in Southern California was "ahead of plan," thanks in part to the launch of a loyalty program that rewards customers with discounts and other incentives.
He told analysts in a conference call that Albertsons would roll out 39 national promotions across the country through the rest of 2004 to keep pace with rivals slashing prices in the cutthroat industry.
Shares of Albertsons rose 24 cents, or 1 percewn, to $23.81 on the New York Stock Exchange (search).
Albertsons said costs tied to the labor dispute cut first-quarter profit by 27 cents a share. It did not disclose if earnings had been helped in any way by a contribution from a loss-sharing deal that the three chains struck before the dispute was resolved in late February.
The Boise, Idaho-based grocer said it still expects earnings for the year ending January 2005 to range from $1.40 and $1.50 a share. Analysts's average estimate for the full-year is $1.41, according to Reuters Estimates.
Initially, the analysts had expected full-year profit of as much as $1.67 a share but the labor dispute had forced Albertsons to withdraw its earnings forecasts last November, sending analysts' projections in disarray.
Albertsons 2004 profit outlook includes an expected benefit from its $2.5 billion acquisition of Shaw's, the No. 2 grocer in the densely populated New England region, a company statement said.
It added that total quarterly sales fell to $8.7 billion from $8.9 billion a year ago, reflecting a strike-induced sales loss of about $386 million on overall first-quarter sales.
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