- Safeway Inc. delivered a fourth-quarter profit that met analyst expectations, but the grocer's stock price tumbled to a 52-week low Thursday amid worries that a recent sales slowdown will worsen as the threat of a recession and rising food prices turn more shoppers into penny pinchers.
- Although Safeway stood by its previous forecast of double-digit earnings growth this year, investors zeroed in on data and management comments indicating that consumers increasingly are loading their supermarket baskets with the cheapest groceries available.
- The trend already has contributed to "modest" decline in Safeway's "identical-store" sales during the first seven weeks of 2008, Chairman Steve Burd told analysts during a conference call.
- Safeway's growth under this closely watched benchmark, which tracks sales at stores open for the past year, already has fallen in three consecutive quarters.
- "The worst thing that can happen to a good supermarket operator during a recession is that earnings growth slows. It never turns negative," Burd said. (oh really? let's check back in a year)
- Burd blamed some of the slowing sales growth partly on the proliferation of cheaper, generic drugs as the patents expire on more brander medicines. He also said more customers are saving money by eschewing branded groceries for generic versions made by Safeway.
- The more frugal approach isn't necessarily all bad for consumers. That's because Safeway generally makes more money off the sales of generic drugs and groceries bearing the store's in-house label.
- Besides worrying about their wealth eroding as the economy slows, consumers also appear to be suffering from sticker shock as rising prices for grain and other staples drives up grocery bills, Burd said. He described the current rate of grocery inflation as the highest he has seen during his 15 years as Safeway's chief executive. (inflation? we don't have inflation - ask the Fed - or if we do, it will go away soon enough as the economy slows. We promise)
No position
