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Profits Missed Estimates, But Albertsons Claims It Won't 'Slow Down'

BOISE, Idaho -- While Albertsons' net earnings rose for the second quarter, it still remained below company estimates, leading to a drop in share price of just over 1 percent. But the retailer, which recently put itself up for sale, reaffirmed its guidance for the year, and its determination to keep improving, nonetheless.

"The announcement Friday that we are exploring our strategic alternatives including a possible sale of the company is important," said Larry Johnston, Albertsons chairman, c.e.o., and president. "At the same time, I want to be clear that while we are going through this process we will also be aggressively running this company and continuing to execute on the same strategy that we unveiled when the turnaround began over four years ago. In that regard, we don't plan to slow down or take any time off."

During a conference call in which Johnston would take no questions from analysts, he sought to put the asset sale strategy into context, alluding to the role Albertsons' significant holdings in owned real estate will play going forward. At the same time, he seemed to say that management's strategy might be to trim off underperforming parts of the whole rather than to sell the company outright.

"We are preparing to exit underperforming markets in order to monetize their embedded real estate and business value for shareowners, even harder for operational excellence with programs like Six Sigma and Check The Price," he said. "This will enable us to focus on a strong and growing set of core assets that will form a smaller yet more profitable best-in-class company with leading market positions and a very exciting future."

Albertsons now owns approximately 70 million square feet or more than 60 percent of its nearly 120 million square feet of real estate. This real estate portfolio has been accumulated over the past several decades across its stable of strong local/regional banners, including Shaw's, Jewel, Sav-on, Acme, Osco, and Albertsons in 37 states.

Net earnings for the quarter were $107 million or 29 cents per share, versus $104 million or 28 cents for last year's second quarter. Earnings from continuing operations were $110 million or 30 cents per share, versus $125 million or 34 cents.

Net earnings for Albertsons' first fiscal half reached $207 million or 56 cents per share, versus $140 million or 38 cents during the same period last year. First half earnings from continuing operations reached $217 million, versus $181 million.

During the second quarter, total sales reached $10.2 billion, just slightly higher than last year. Revenue was helped by a continuing recovery in Southern California but was pressured by the deflationary impact of continuing price cuts through the company's "Check The Price" program. The company continued to make investments in improving its price positioning versus non-traditional price competitors.

Comparable store sales were flat for the quarter, while identical store sales fell slightly by 0.1 percent.

The company reaffirmed its previous guidance for fiscal 2005 earnings of between $1.37 and $1.47 per diluted share from continuing operations, and also reaffirmed its outlook for positive comparable and identical store sales for fiscal year 2005.

Other notable highlights during the second quarter were as follows:

-- Following a successful pilot, Albertsons launched and completed a nationwide rollout of Office Depot branded departments in all 2,500 food and drug stores.

-- Dual branding of the store base continued, as 94 new Sav-on or Osco pharmacies were added, bringing the total number of dual-branded combination stores to 1,154 at quarter's end.

-- Expansion of the successful Renaissance drugstore format continued in both standalone and combo stores. At quarter end a total of 144 drug stores and drug sections of combo stores featured elements of the Renaissance format.

-- 38 new products were introduced under the company's Equaline and Homelife private label brands. In addition, the company's Essensia premium corporate brand line of products was successfully launched across the Shaw's family of stores.

-- An agreement was announced with Take Care Health Centers, LLC to conduct a pilot of in-store health centers in six Osco Drug stores in the greater Kansas City market.
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