On Aug 16, we reaffirmed our long-term Neutral recommendation
) following an eventful second-quarter. The food and drug
retailer carries a Zacks Rank #3 (Hold).
On Jul 18, Safeway announced tepid second-quarter results.
Adjusted EPS from continuing operations was 28 cents, up 40% year
over year. However, after including the impact of discontinued
operations (primarily the Canadian operations), Safeway posted
adjusted EPS of 51 cents. The Zacks Consensus Estimate was pegged
at 50 cents.
Total sales declined 1.6% year over year to $8.7 billion, well
below the Zacks Consensus Estimate of $10.5 billion. Despite a
1.2% rise in identical-store sales (excluding fuel), top line
decreased due to soft fuel sales and disposition of Genuardi
stores in 2012.
Additionally, Safeway decided to divest its Canadian operations
in June and settled the Blackhawk initial public offering (IPO)
earlier in April. We believe that margin pressure is an area of
concern as Safeway's Canadian operations have been more
profitable than the U.S. operations. Furthermore, lower income on
account of the Blackhawk IPO is another cause of concern.
As a result, Safeway envisages EPS to hover around the lower end
of the previous guided range of $2.25-$2.45. On the other hand,
based on the assumptions of no gains from the sale of Safeway
Canada, the company expects adjusted EPS in the range of
On the positive side, the Just for U program continues to be seen
as a major catalyst driving profitability and market share gains.
Moreover, Safeway's several strategic initiatives should improve
its growth profile. We are optimistic that cost-control measures
should yield positive results moving forward.
Stocks to Consider
While we remain on the sidelines for Safeway, other stocks such
Koninklijke Ahold N.V.
Etablissements Delhaize Fr
The Kroger Co.
) warrant a look. While AHONY carries a Zacks Rank #1 (Strong
Buy), the other two are Zacks Rank #2 (Buy) stocks.
AHOLD N V ADR (AHONY): Get Free Report
DELHAIZE-LE (DEG): Free Stock Analysis Report
KROGER CO (KR): Free Stock Analysis Report
SAFEWAY INC (SWY): Free Stock Analysis Report
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