ALBERTSON'S POSTS STRONG 2ND QUARTER

MARK TOSH

BOISE, Idaho -- Albertson's here continues to ring up some of the strongest financial results of any of the major supermarket operators.

Albertson's, the fourth-largest food and drug chain in the nation, last week reported a 23.5% increase in net income in the second quarter ended Aug. 4. That caps a strong first half in which Albertson's net earnings grew 15% and volume advanced 7.5%.

The chain attributed the quarter's strong earnings performance to increased sales, which were up 7.9%, and distribution-system efficiencies.

Net totaled $93.7 million, or 37 cents per share, in the 13-week quarter. This compared with net of $75.9 million, or 30 cents per share, in the year-ago period.

Albertson's results easily exceeded Wall Street's earnings-per-share estimate of 34 cents. The company's stock price had gained 50 cents at mid-week.

In a statement, Albertson's said the strong results were due to "increased sales in existing stores achieved through an everyday-low-price strategy and strong in-store merchandising programs." Increased efficiencies in the expanded distribution system and tighter expense controls also contributed to the improved results, the company said.

Same-store sales increased 3.1% in the quarter.

Jack Russo, a securities analyst at A.G. Edwards, St. Louis, said it was "a very powerful, a very strong quarter" for Albertson's, with earnings per share 2 cents above his estimate of 35 cents.

"This year the key is what's going on in Florida, where Albertson's is self-distributing to its stores after opening a distribution center in Plant City in March," he said. Self-distribution, Russo said, can make "all the difference in the world" for a retailer.

"There are less out of stocks and certainly they are doing it more efficiently and probably on a less costly basis," he said.

Another strong area for Albertson's, Russo said, is its sales-building effort at store level. The increase in comparable-store sales is a "highly respected number" given the current pressures in the industry, he said.

"I've been telling people that [Albertson's] is not the biggest chain in the country, but they are the best," he said. "Over the last three years they have distinguished themselves from the rest of the pack. They are the premier operator."

Gary Vineberg, a securities analyst at Merrill Lynch, New York, said it was an "excellent quarter" for Albertson's. "The momentum they have is very impressive," he said.

With its 25.1% increase in operating profit, which totaled $166.4 million in the quarter, Albertson's maintained "the gap between themselves and everybody else," Vineberg said.

Albertson's pricing "remains sharp," he said, with the higher gross margins coming from an investment in infrastructure.

Debra Levin, a securities analyst at J.P. Morgan, New York, agreed it was a strong quarter for Albertson's. "The distribution centers are contributing very nicely to the gross margin," she said.

At the retail level, Levin said margins are "actually flatish," which indicates the company is making every effort to remain price competitive.

Overall the gross-margin rate improved 83 basis points to 25.13% of sales in the quarter, Albertson's said. Operating expenses increased seven basis points to 19.56% of sales.

Levin said Albertson's is benefiting from its everyday-low-price strategy and local merchandising efforts. Sales trends, however, have slowed down a bit since the second quarter ended, she said.

"Management is only expecting 2% or 2.5% sales [increases] for this quarter," she said. The smaller increase is a result of tougher comparisons with the year-ago third quarter and a price reduction program in certain categories, Levin said.

"They have lowered prices on nonfood merchandise in order to become increasingly competitive with discount-store operators like Wal-Mart and Kmart," she said. "And it takes a while before you get a pickup in sales."

Albertson's reported second-quarter sales of almost $3 billion, which compared with the year-ago total of $2.8 billion. Comparable-store sales -- which includes replacement stores opened in the past year -- rose 3.5%, according to Albertson's.

Albertson's has 689 stores in 19 Western, Midwestern and Southern states. The retailer opened 14 stores during the second quarter, raising the total of new stores opened this year to 20. Seven stores were closed during the first half. Additionally, on Aug. 15 Albertson's acquired a single store in Kennewick, Wash..

2ND-QUARTER RESULTS

Qtr Ended 8/4/94 7/29/93

Sales $3 billion $2.8 billion

Change 7.9%

Same-store 3.1%

Net Income $93.7 million $75.9 million

Change 23.5%

Inc/Share 37 cents 30 cents

26 Weeks 1994 1993

Sales $5.9 billion $5.5 billion

Change 7.5%

Same-store 3.1%

Net Income $172.5 million $150 million

Change 15%

Inc/Share 68 cents 59 cents