* Q2 EPS 50 cents vs Wall Street view 49 cents
* Total sales up 1.9 percent
* Shares fall more than 7 percent
By Lisa Baertlein
July 19 Supermarket operator Safeway Inc
posted a lower quarterly profit on Thursday as it increased
spending on advertising and introduced a new loyalty program to
entice shoppers, and its shares fell 7.2 percent.
The results are the latest sign of how competitors are
coming under pressure from Kroger Co, the largest
supermarket company, and Wal-Mart Stores Inc, the
world's largest retailer. Both have vowed to keep everyday
Supervalu Inc, the third-largest U.S. supermarket
operator just trailing Safeway, last week suspended its dividend
to fund aggressive price cuts aimed at winning back shoppers and
said it was looking at options for overhauling the company,
including a sale. It also reported a 45 percent drop in profits
for the quarter that ended June 16.
Analysts said they were concerned that the pressure was also
hitting Safeway, which operates its namesake chain as well as
Vons and Dominick's.
"We believe the gross margin decline may have been partially
caused by increased competitive activities," J.P. Morgan grocery
analyst Ken Goldman said in a client note issued before that
Goldman added that Safeway for the first time blamed the
launch of its "Just for U" loyalty program as a drag on profits.
Its shares fell 7.2 percent to $15.29 in late morning
trading on the New York Stock Exchange, where it was the
second-worst performer in the Standard & Poor's 500.
Second-quarter income from continuing operations was $121.7
million, or 50 cents per share, down from $146.0 million, or 41
cents per share, a year earlier. Safeway had nearly 32 percent
fewer shares outstanding in the latest quarter.
Analysts on average were looking for a profit of 49 cents
per share, according to Thomson Reuters I/B/E/S.
Safeway's gross profit margin declined 73 basis points to
26.27 percent in the second quarter. Excluding the 47
basis-point impact from fuel sales, margins fell 26 basis points
due primarily to increased advertising and one-time costs from
the introduction of the "Just for U" loyalty program.
Sales rose 1.9 percent to $10.39 billion. Closely watched
identical-store sales, excluding fuel, were up 0.8 percent,
matching some analysts' estimates.