ALBERTSONS LOWERS GUIDANCE; INDUSTRY STOCKS TAKE TUMBLE

DAVID GHITELMAN

BOISE, Idaho -- Albertsons here sneezed last week and much of the industry felt a chill.

In the late hours of Oct. 30, Albertsons said it was revising its earnings expectations for the third quarter (which ended the next day) down 5% to 10% below its previous guidance as a result of "a steeper-than-expected sales decline."

The announcement sent not only Albertsons' stock into a tailspin (declining 19.2% to $22.17 in the course of trading on Oct. 31), but also appeared to have affected the share prices of most major supermarket companies. Kroger fell 4.1% to $14.78 and Safeway 7.4% to $23.02, more than wiping out the gains those companies had made earlier in the week following a favorable report by an investment analyst.

Also on Oct. 31, Nash Finch Co., Minneapolis, said it was postponing the release of its third-quarter earnings, originally scheduled to be reported that day, until Nov. 18. The company, which gave no reason for the postponement in its announcement, could not be reached for further comment. Nash Finch shares declined 17.2% to $12.46.

The day before, a widely publicized analyst report that said Wal-Mart Stores, Bentonville, Ark., would not be able to sustain its current growth rate, particularly in the event of an economic recovery, had sent that company's stock down 4.7% on Oct. 30.

During a conference call with analysts to discuss the revised guidance, Larry Johnston, Albertsons' chairman and chief executive officer, said heightened competitive activity combined with declining consumer confidence had led to the sales shortfall.

Albertsons said it expects same-store sales for the quarter to decline approximately 2%.

The company, scheduled to report complete results for the third quarter on Dec. 9, added that it now anticipates earnings per share from continuing operations, adjusted for goodwill amortization, of 47 cents to 49 cents. Per share earnings for the full year from continuing operations, adjusted for goodwill, are expected to be in the $2.10 to $2.14 range.

To reverse that trend, Johnston said Albertsons will increase its gross margin investment to build sales through reduced pricing and more aggressive promotional activities. Pricing changes, he added, would involve both lower shelf pricing and more high-low promotions, the blend of the two shifting with the demands of individual markets.

Johnston said Albertsons will continue rolling out its loyalty card program into additional markets. Because of the cards, he noted, "every day we garner more information about our customers and are able to invest our money more strategically."

He noted that Albertsons' sales had been hurt by sales initiatives at an unnamed competitor he referred to only as "a major traditional supermarket chain."

In response to questions, Johnston said the company would not rule out additional store closings. "Store closings are a way of cleansing the retail portfolio," he observed. "We continue to look at every asset in our company, and we won't be afraid to make the tough calls. But we feel good about the portfolio we have now."

He also said Albertsons continues to look for takeover candidates. "I can say that, in this tough economic environment, we are seeing more and more opportunities for mergers and acquisitions," he noted, "and these transactions will be at lower multiples and be more quickly accretive than ever before."