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Grocery stocks spoil
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August 23, 2000: 3:29 p.m. ET
Food retailers' shares dip on Albertson's 2Q warning, analyst downgrades
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NEW YORK (CNNfn) - Investors checked out of grocery stocks Wednesday, which were spoiled after Albertson's Inc. warned it would miss its second-quarter revenue target.
A host of Wall Street brokerages cut their ratings on the Boise, Idaho-based grocery and drug store chain after the company said late Tuesday that lower-than-expected comparable store sales would cause it to report quarterly earnings of 50 cents a share rather than the 62 cents analysts had projected, according to earnings tracker First Call/Thomson Financial.
 Shares of Albertson's (ABS: Research, Estimates) dipped 4 to 22-7/16 in afternoon trading Wednesday. That followed downgrades from BB&T Capital Markets, Morgan Stanley Dean Witter, Deutsche Banc Alex. Brown, Goldman Sachs and UBS Warburg all downgraded their ratings on the company.
Quarterly sales totaled $9.2 billion, a 4.6 percent increase compared to the year-ago quarter, but comparable store sales, a closely watched figure that measures sales at stores open at least a year, only increased 1.4 percent the company said.
The company attributed the lower earnings to a decline in comparable store sales in July, increased expenses and growing pressure from competitors.
Edward Comeau, a retail analyst with Donaldson Lufkin & Jenrette, said in a research note Wednesday that Albertson's faces tough competition from new Wal-Mart supercenters in the Rockies and the South, as well as increased competition from Safeway and Kroger.
"We are not surprised by this pre-announcement as we had been concerned that Albertson's previous fiscal-year 2000 earnings guidance of $2.70 presented a difficult hurdle for the company to clear," Comeau said. "We believe the core issue is not the company's ability to reduce expenses or integrate American Stores, but rather it lies almost entirely in its marketing capabilities.
Although Albertson's announcement affected virtually all food retailing stocks Wednesday, Comeau said he believes the problems are company-specific and not a sector-wide problem.
Peter Lynch, Albertson's president and chief operating officer, said the company has undertaken a restructuring program to achieve its goal of reducing costs by $250 million in 2001 and capital expenditures by half a million over the nest two-and-a-half years.
"July was a tough month for us, and the remainder of the year looks like it will be just as challenging," Gary Michael, the company's chairman and chief executive officer, said. "But we believe that we have the right plans and the best people in our industry to build sales in every market, reduce spending, consider thrift as a way of life and continue to provide the best service and value to our customers."
Analysts have been cautious in assessing food retailers' stocks of late as increasing competition from other entrants and in particular Wal-Mart (WMT: Research, Estimates), coupled with decreased consumer spending, high oil prices and a generally slowing economy have all hurt sales and have sparked pressure for consolidation.
Jacksonville, Fla.-based Winn Dixie (WINN: Research, Estimates) is another grocery retailer that has seen its stock plummet from the mid-40s in May to the mid-teens, reflecting investor frustration with its poor management and poorly planned expansion, analysts have said.
And Carteret, N.J.-based Pathmark, saddled with debt after the federal government nixed Dutch conglomerate Royal Ahold's planned takeover of the company, declared Chapter 11 bankruptcy earlier this year. The company, which is privately held, hopes to emerge from its refinancing as a public company.
Shares of other food retailers were hurt by Albertson's announcement Wednesday. Safeway (SWY: Research, Estimates) was down 2-7/16 to 49-9/16 Wednesday while Kroger's (KR: Research, Estimates) shares fell 1 to 22. Winn-Dixie's shares fell 9/16 to 14-7/16. Great Atlantic & Pacific Tea Co. (GAP: Research, Estimates) shares slipped 3/4 to 14-5/8. 
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Albertson's
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