Safeway says 2010 profit could miss expectations
Safeway Inc
Pleasanton, California-based Safeway, which operates the Safeway, Vons and Dominick's chains, said it expects to earn $1.65 to $1.85 per share this year. Analysts on average were looking for $1.85, according to Thomson Reuters I/B/E/S.
The company forecast identical-store sales, excluding the impact of fuel sales, would be flat to up 1 percent. Identical-store sales include established supermarkets that have not been significantly renovated or replaced.
Management has developed a history of being somewhat aggressive with guidance, and we view this more realistic/conservative approach as a much needed change, Credit Suisse analyst Edward Kelly said in a note to clients.
While below consensus guidance was not a surprise since many (including us) viewed the Street as too high, the $1.75 mid-point is somewhat lower than expected, Kelly added.
Shares of Safeway were down 1.7 percent to $24.45 in late afternoon trading, after falling as low as $23.92 earlier in the session.
The company continues to battle the perception that its prices are higher than those of rivals like Kroger Co
Safeway also said it expects to spend $900 million to $1 billion cash on capital expenditures this year and anticipates free cash flow of $900 million to $1.1 billion.
As part of its strategy, Safeway has already remodeled 79 percent of its stores.
Chief Financial Officer Robert Edwards told investors that the combination of fewer competitive store openings and accelerating store closures, particularly among small and poorly funded operators, should give Safeway significant opportunity to profitably improve market share.
In the most recent fourth quarter, Safeway reported a profit that was in line with analysts' expectations, despite deteriorating sales and margins.
(Reporting Lisa Baertlein in Los Angeles and Jessica Wohl in Chicago; Editing by Lisa Von Ahn, John Wallace, Tim Dobbyn)
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