ANALYSTS FRET OVER STATE OF INDUSTRY

NEW YORK -- The announcement last Wednesday by Safeway, Pleasanton, Calif., that it anticipated shortfalls in sales and earnings caused a decline in Safeway shares and those of other retail-food stocks at midweek -- a development securities analysts said may signal the beginning of a down cycle for the sector.

through this kind of thing periodically; it's just the nature of the business," he explained.

According to Lisa Cartwright, an analyst with Salamon Smith Barney, New York, "This situation is permanent. Some companies' stock may bounce back a little bit, but I don't see any expansion of multiples for the group as long as conventional retailers are losing share to other channels."

Cartwright also noted that it doesn't inspire investor confidence when Wal-Mart, Costco and BJ's report double-digit, same-store sales increases while supermarkets report virtually flat comps.

Gary Giblen, senior vice president and director of research for C L King Associates, New York, said investors might turn to other defensive industries "if they perceive that supermarkets are no longer a safe haven."

Safeway's announcement last week prompted Kroger Co. and Albertson's to issue statements to reassure investors that Safeway's problems did not reflect their own.

Cincinnati-based Kroger said it expects earnings per share for the first quarter ended May 25 to exceed consensus estimates of 44 cents per share, excluding onetime items. It also said it expects identical food store sales, excluding fuel, to be "slightly positive." Kroger said it plans to report first-quarter results on June 25.

Boise, Idaho-based Albertson's reaffirmed its second-quarter earnings outlook of 53 cents per share before special charges, a 13% increase, and $2.31 per share for the fiscal year, a 12% increase.

Jonathan Ziegler, Santa Barbara, Calif.-based managing director for Deutsche Banc Alex. Brown, New York, said he expects food stocks to bounce back as prices decline. "For Safeway, the downdraft will unravel and you'll probably get a 'dead cat' bounce, but the announcements by Kroger and Albertson's will probably help those stocks," he told SN.

Safeway shares fell 15% last Wednesday to close at $31.76; Kroger shares fell 6.1% to $19.07, and shares of Winn-Dixie, Jacksonville, Fla., fell nearly 4% to $17.64.

It was a bad day for two other retail food stocks, with Albertson's shares dropping 4.7% to $30.50 following a report by Mark Husson, a securities analyst with Merrill Lynch here, that Albertson's valuation could falter unless it boosts food sales; and A&P shares falling 6.1% to $19.07 on news that filing of its annual report would be delayed indefinitely while the company continues an internal investigation of its accounting principles. The report, which had been postponed from May 24, was expected to be released June 8.