PLEASANTON -- Safeway's revenue missed Wall Street expectations for the first quarter of the year, sending stocks plunging Thursday and raising questions about the supermarket chain's turnaround.
The company announced sales of less than $10 billion for the first three months of 2013, which was below analyst consensus projections of $10.2 billion and a slight dip from a year ago. Shares plummeted more than 18 percent in Thursday morning trading but recovered slightly to close the day down 13.9 percent. The loses were a sharp contrast to Wednesday, when Safeway stock hit a two-year high.
Safeway profit rose from last year, aided by tax benefits, and the company earned $118.9 million, or 49 cents a share. Excluding tax benefits, per-share earnings were 35 cents. That's up from 27 cents a share, or $72.9 million, a year ago. Analysts had predicted 36 cents a share for the first quarter.
Industry analyst David Livingston said flat revenue is a bad sign for any supermarket, which must increase sales at least 3 to 4 percent annually just to cover inflation and costs of doing business.
Safeway attributed some of the decline to its 2012 sale of the Genuardi's stores in the Northeast and lower fuel sales in 2013. Company officials said they would not revise their ambitious 2013 forecast and are standing by predictions that profit will hit $2.25 to $2.45 a share, ahead of Wall Street estimates of $2.24 a share.
"Sales in the first five weeks of the year are not a good indicator" of the company's 2013 outlook, CEO Steve Burd said on a call with investors.
Net cash flow increased to $555.2 million in the first quarter of 2013, up from $541.8 million a year ago. The Pleasanton-based company is also carrying a $5.3 billion debt load, a cause of concern for some investors.
Wall Street has in general been more cheerful about Safeway over the past few months as the company's loyalty and fuel discount programs take root with early signs of success.
Zacks, which provides financial research and analysis, projected high growth and "bright future prospects" for Safeway.
"Safeway has been steadily on track for the past five years," said Phil Lempert, industry analyst and editor of SupermarketGuru.com. He said the company's organic and all-natural brands have done well against alternatives such as Whole Foods. "The chain is in great shape and I would anticipate continued growth as long as they follow the path (Burd) has set."
It was just a few years ago that Safeway seemed destined to become another casualty of the upheaval in the supermarket industry, which has been fractured by increased competition from cheaper, big-box stores such as Walmart and niche grocers like Trader Joe's.
Safeway's biggest victory of late has been its "Just for U" customer loyalty program, which offers personalized pricing and digital coupons sent to customers' smartphones and tablets. Burd said Just for U is adding 20,000 households a week and is on pace to have more than 6 million users by the end of the year.
Lempert said the program is "changing how we save money, and, frankly, making traditional coupons passé."
Safeway also continued the rollout of its fuel rewards program in the first quarter through a partnership with more than 650 Chevron stations in Northern California. Nearly all Safeway markets will have the fuel rewards program by July, the company said.
But Livingston cautions that the fuel and loyalty programs are intended to distract customers from high grocery prices.
"It confuses the customer, giving them the illusion they are getting a real discount," he said. "It's more psychological, which is what is needed to compete with Walmart."
Thursday's earnings call was the last for Burd, who will retire next month after leading Safeway for two decades. Company officials declined to answer questions about his successor, but said a new leader would be in place after the annual stockholder meeting May 14.
Burd is stepping down on the heels of the gangbuster initial public offering from Blackhawk Network, a Safeway spinoff that produces the gift cards sold at the checkout aisle. Blackhawk, which Safeway founded in 2001, made its IPO debut this month to the tune of $230 million.
Safeway unloaded the lion's share of the 10 million shares offered, and used the cash to pay down some of its debt. The grocery said Thursday that its earnings from Blackhawk will drop slightly, with its ownership dipping from 95.4 percent to 93.8 percent.
Contact Heather Somerville at 925-977-8418. Follow her at Twitter.com/heathersomervil.