Kroger, Safeway Slip After Analyst Downgrade

NEW YORK - Shares of Kroger Co. and Safeway Inc. fell on Tuesday after Lehman Brothers lowered its ratings on both grocery chains, saying supermarket earnings will be pressured by tough competition and rising operating expenses, according to a Reuters report.

In New York Stock Exchange trading, Kroger shares slid 70 cents, or 4.1 percent, to $16.29, while Safeway shares were down 31 cents, or 1.5 percent, to $20.15. The brokerage firm downgraded Safeway to "underweight" from "equal weight," and lowered its rating on Kroger to "equal weight" from "overweight."

Lehman said per-share earnings growth for Kroger was poor due to a decision to invest in lower prices in a number of markets over the coming year. It also noted that Kroger faces rising pension, insurance and other expenses.

In downgrading Safeway, Lehman cited labor problems in a number of markets. It said Safeway was challenged to make significant investments in price/promotion to woo back customers lost during the 20-week-long strike in Southern California.

The brokerage firm also said both chains were threatened by Wal-Mart Stores Inc.'s move into California and the Pacific Northwest, according to the Reuters report. However, Lehman added that Kroger should compete effectively in coming years due to its strong market share positions and broad geographic reach, successful store formats, and efficient supply chain.
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