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Albertsons Profit Pounded by Hurricanes, Flat Sales

The grocery company's share of the Southland market continues to trail those of rivals Kroger and Safeway.

November 23, 2005|James F. Peltz | Times Staff Writer

Albertsons Inc., which is on the auction block, said Tuesday that its fiscal third-quarter profit tumbled 30% from a year earlier as the grocery and drugstore giant grappled with flat sales, stiff competition and disruptions from the Gulf Coast and Florida hurricanes.

The results trailed Wall Street expectations for the second straight quarter and underlined the slow-growth problems that prompted Boise, Idaho-based Albertsons to announce Sept. 2 that it would seek a buyer.

If Albertsons wasn't already for sale, "these results in both sales and earnings would be unacceptable to the board," said analyst Mark Husson of HSBC Securities Inc.

In the quarter ended Nov. 3, Albertsons' net income dropped to $77 million, or 21 cents a share, from $110 million, or 29 cents, a year earlier. Revenue was nearly unchanged at $9.95 billion, compared with $9.97 billion.

Albertsons said its earnings from continuing operations -- after adjusting for losses from the hurricanes this year and the ones that hit Florida in 2004 -- fell 22% to $91 million, or 24 cents a share, from $117 million, or 32 cents, a year earlier.

That fell short of the 27 cents expected by Wall Street, according to analysts surveyed by Thomson Financial. After the results were announced, Albertsons shares fell 6 cents to $24.60, giving the company a market value of $9.2 billion.

Albertsons cut the top end of its forecast for full-year earnings from continuing operations, to a range of $1.37 to $1.40 a share from its previous estimate of $1.37 to $1.47.

The company also said that comparable-store sales -- a key retail gauge that measures sales of locations open at least a year -- fell 0.4% in the third quarter from a year earlier.

Despite reports that several bidders are mulling over offers to buy all or part of Albertsons, no agreement has been announced. Albertsons has not said whether there was a timetable for bids to be submitted; analysts have speculated that a deal might be made within the next month or two. But analyst Andrew Wolf of BB&T Capital Markets said that "it certainly doesn't help the company command a better price when your numbers are not meeting expectations."

Albertsons owns 2,476 stores in 37 states. In Southern California it operates 270 Albertsons supermarkets and the Sav-on Drugs chain, which has 332 stores in the region.

The company's main rivals in the Southern California grocery market are Kroger Co.'s Ralphs chain and Safeway Inc.'s Vons and Pavilions stores. Cincinnati-based Kroger, the nation's largest traditional supermarket chain, reportedly is among the firms considering a bid for all or part of Albertsons, although Kroger has not confirmed any interest.

All three companies are still struggling to regain ground they lost during the 4 1/2 -month grocery strike and lockout in Central and Southern California that ended Feb. 29, 2004. Many shoppers switched their allegiance to other grocers during the dispute.

Albertsons, Kroger and Safeway also are battling growing competition from Wal-Mart Stores Inc. and other low-price mass merchants that are aggressively expanding into groceries.

In response, the three supermarket chains have been cutting prices and beefing up promotional efforts, which have cut into their profit margins.

Felicia Thornton, Albertsons' chief financial officer, said on a conference call with analysts that the company had seen "continued recovery from the Southern California labor dispute," but she did not elaborate.

Albertsons Chief Executive Lawrence Johnston did not single out Southern California in his comments to analysts but said that "we continue to feel the strong competitive pressures in markets where we do not have a No. 1 or strong No. 2 market share position."

In Southern California, Albertsons' market share of 16.8% at the end of 2004 was third behind 18.1% for Ralphs and 17.4% for Vons and Pavilions, according to Bear Stearns & Co. and research firm Trade Dimensions. But Albertsons ranked second in some local markets, such as the Inland Empire.

Albertsons also operates several other grocery and drugstore chains around the country under such brands as Jewel-Osco, Osco Drug, Acme, Shaw's and Star Markets.

For the first nine months of its fiscal year, Albertsons' profit rose 14% to $284 million, or 76 cents a share, from $249 million, or 67 cents, a year earlier. Sales rose 4.5% to $30.1 billion.

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