Safeway Earnings: Fifth Straight Quarter of Shrinking Margins

S&P 500 (NYSE:SPY) component Safeway Inc. (NYSE:SWY) reported lower profits in the third quarter. Safeway is a retail supermarket chain in North America. As a food and drug retailer, the company, with its subsidiaries, operates stores that offer a range of grocery products, general merchandise and specialty departments like pharmacies and coffee shops. It also owns and operates distribution, manufacturing and food-processing facilities.

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Safeway Inc. Earnings Cheat Sheet

Results: Net income from continuing operations for Safeway Inc. fell to $108 million (45 cents per share) vs. $130.3 million (38 cents per share) in the same quarter a year earlier.

Revenue: Fell 0.2% to $10.05 billion from the year-earlier quarter.

Actual vs. Wall St. Expectations: Safeway Inc. fell in line with the mean analyst estimate of 45 cents per share. It fell short of the average revenue estimate of $10.33 billion.

Quoting Management: “Our just for U loyalty program continues to gain momentum with our customers, and it is helping them save money every time they shop,” said Steve Burd, Chairman and CEO. “The incremental sales driven by just for U helped to offset lower inflation in the third quarter and improve volume share. We are pleased with our progress in operating profit. While our operating profit margin declined 30 basis points in the quarter, the decline is explained by items that will not continue in the fourth quarter.”

Key Stats:

Last quarter marked the fifth straight quarter that the company saw shrinking gross margins, as gross margin fell 0.6 percentage point to 26.4% from the year-earlier quarter. Over that time, margins have contracted on average 0.9 percentage point per quarter on a year-over-year basis.

A year-over-year revenue decrease last quarter snaps a streak of four consecutive quarters of revenue increases. The best quarter in that span was the third quarter of the last fiscal year, which saw revenue rise 7.1%.

The company fell in line with estimates last quarter after beating forecasts in the previous quarter with net income of 50 cents versus a mean estimate of net income of 49 cents per share.

Looking Forward: Over the past sixty days, the outlook for the company’s performance next quarter has become increasingly unfavorable. The average estimate for the fourth quarter is 76 cents per share, a drop from 77 cents. The average estimate for the fiscal year is $1.99 per share, a rise from $1.95 ninety days ago.

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(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

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