Following its $2.5-billion takeover of the Lucky Stores supermarket chain, Irvine-based American Stores on Monday reported a 17% decline in profits for the second quarter.
American, which relocated to Orange County from Salt Lake City in July, reported earnings of $30.2 million for the quarter ended July 30 compared to $36.4 million a year earlier. Sales climbed 28.5% to $4.5 billion, compared to $3.5 billion in 1987.
The second-quarter results include operations of Lucky Stores from June 2 forward, as well as costs associated with the acquisition. American intends to combine its Lucky and Alpha Beta supermarket chains.
For the first six months, American's earnings were $57.3 million, down 19.8% from $71.4 million for the comparable period last year. Sales were up 16.6% to $8.1 billion, compared to $6.9 billion in 1987.
Excluding Lucky, American's operating profit jumped 8.2% to $104.3 million for the second quarter. But the company's first-half operating profit, excluding Lucky, dropped 5.5% to $179 million.
American said its sales at stores open for at least two years increased 5.7% for the second quarter and 5.4% for the first half.
The results came as no surprise to Wall Street analysts, many of whom have been expecting lower earnings this year.
"People are looking more at the total for the year, rather than this specific quarter," said John B. Kosecoff, a securities analyst with First Manhattan Co. in New York. "It was anticipated that the Lucky acquisition would be dilutive to earnings this year. For 1988 and 1989, earnings should be below the historic returns."
Among other things, Kosecoff said the debt assumed for the purchase of Lucky has substantially increased American's interest expenses.
Even so, there were indications that American has had some success with its strategy--started in 1986--of reducing prices to increase market share at its Alpha Beta Co., Acme Markets and Skaggs Alpha Beta/Buttrey Food Stores. American said second-quarter sales in all of those subsidiaries were strong, with operating profits above budgeted levels.
Alpha Beta Co.'s operating profit rose 72.4% in the second quarter to $15.3 million from $8.9 million last year. Six-month operating profit for Alpha Beta increased to $22 million from $20 million in the prior year.
Lucky's operating profit from June 2 to July 30 amounted to $39.5 million.
American Superstores, the company's eastern grocery operations, saw operating profits drop 8.9% to $61.4 million from $67.3 million in 1987.
Meanwhile, operating profit for Osco Sav-on doubled to $11.3 million from $5.6 million the prior year.