Albertsons Misses Q4 Targets; To Focus on Differentiation in Future

BOISE, Idaho -- Shares of Albertson's, Inc. tumbled yesterday to 15-month lows after the retailer reported fourth quarter earnings that fell below expectations. Shares on the New York Stock Exchange dropped 4.31 percent, closing at $19.97.

The Boise, Idaho-based company, whose banners include Albertsons, Acme, Shaw's, Jewel-Osco, Savon Drugs, Osco Drug, Star Market, Super Saver, and Bristol Farms, said fourth quarter net earnings from continuing operations increased 44 percent to $186 million, or $0.50 per diluted share, compared to $129 million or $0.35 per diluted share in the prior year. However, the results disappointed both Wall Street and the chain's own management.

Earnings during the fourth quarter were impacted positively by the additions of Shaw's and Bristol Farms, but were impacted negatively, by $0.01 per diluted share, due to additional costs associated with the Florida hurricanes, and by a $0.01 per diluted share non-cash lease charge due to a change in the company's accounting method for leases. Its quarterly and annual results were also impacted by an extra week in fiscal 2004 versus fiscal 2003.

Albertsons' fourth quarter sales grew 29 percent to $11 billion, as compared to $9 billion for the fourth quarter 2003. The company attributed the increase to the acquisition of Shaw's, the progress in recovery from the labor dispute in Southern California, and the impact of its new national merchandising programs.

Total company comparable store sales for the quarter increased 5.3 percent. Even with such increases, however, Albertsons didn't meet expectations that had already been substantially lowered in February, after it warned that fourth-quarter results were coming in shy of forecasts.

Larry Johnston, chairman, c.e.o., and president, didn't mince words. "We were not pleased with the performance we turned in during the fourth quarter," he said in a statement. "Although market and competitive conditions were more challenging than originally forecast, requiring deeper investments than anticipated, especially in the Southern California and Dallas/Ft. Worth markets, in the end we missed our earnings targets and that is unacceptable."

Johnston added nonetheless that he was encouraged by "major strides" made during the quarter and in fiscal 2004, including regaining market share in Southern California, adding Shaw's and Bristol Farms to its portfolio, and introducing an all new price impact format through Extreme, Inc. "With these new banners and formats in our toolbox, we are now better positioned to differentiate our approach in local markets and more effectively compete in this challenging industry moving forward," Johnston noted.

The company also reported that its private label products as a percent of sales increased by 34 basis points compared to the same period last year.

For fiscal 2004, Albertsons reported earnings from continuing operations of $474 million or $1.28 per share, compared to $1.51 per share in the prior year. Total sales increased 14 percent to $40 billion versus $35 billion for fiscal 2003. Comps for the year were up 0.2 percent, while identical store sales decreased 0.3 percent.

Looking forward, the company projected that fiscal 2005 total year earnings from continuing operations will be between $1.33 and $1.43 per diluted share, including a $0.04 incremental impact from expensing stock options. Comparable and identical store sales are expected to be positive for the full year.
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