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PORTLAND — Budget-conscious shoppers and falling fuel and commodity prices took a toll on Safeway Inc. during its second quarter, and the grocery chain, which doesn't expect the picture to improve soon, lowered its earnings forecast for the full year Thursday.
Safeway fell $1.59, or 8 percent, to close at $18.35 in Thursday trading.
Safeway reported that it earned $238.6 million, or 57 cents per share, for the second quarter, up from $234.3 million, or 53 cents per share, last year. The slight profit improvement was largely due to a $57.8 million, or 14 cents per share, benefit from the resolution of a tax matter.
Total sales declined 6.5 percent to $9.5 billion, including the impact of lower fuel sales.
Safeway CEO Steve Burd said the company saw a major downshift in consumer behavior early in the quarter, with shoppers trading-down to less expensive products. That trend, along with lower pricing for fuel and key commodities like milk and produce were evident in its weaker-than-expected profit because they forced Safeway to lower retail prices.
"We were never predicting the economy would recover in 2009 but weren't expecting another drop," Burd said.
Analysts polled by Thomson Reuters expected the company to earn 56 cents per share on revenue of $9.7 billion. Analyst estimates typically exclude one-time items.
While Safeway already was lowering its prices to be more competitive, those efforts will take time to gain traction with shoppers, the Pleasanton, Calif.-based company said.
Safeway expects sales to remain soft the rest of the year and lowered its earnings guidance. The company now expects to earn $1.70 to $1.90 per share for the year, down from a previous estimate of $2.10 to $2.30. Excluding fuel sales, Safeway expects same-store sales to drop between 1.1 percent and 1.7 percent for the year.
The company's maintained its free cash flow guidance for the year 2009 of $1.1 billion to $1.3 billion. The company repurchased 9.5 million of its shares during the quarter and plans more repurchases during the year.
While disappointed in the quarter's sales, Burd noted that sales volume and average transaction values are heading up, which indicates the grocer may begin gaining market share soon. He emphasized that the company's balance sheet and access to capital remain strong.
"We think we are well positioned, not only to weather what I might call an economic storm," he said. "But we are even better positioned for the economic recovery, which will take place at some point."
