Safeway's Q3 Results Distorted By Underlying Losses

Safeway , one of the largest supermarket chains in North America, reported a significant drop i n earnings in its Q313 results , citing losses from discontinued operations . T he company also announced that it will be exiting its 72 Dominick's stores in Chicago by 2014 amid sustained losses from the chain.

Safeway has outperformed its rivals in the US so far in 2013, with shares gaining almost 75% between the beginning of the year and the announcement of the Q3 results . As a whole, US food retailers have seen their stock increase this year on the back of rising US consumer sentiment and modest economic growth. While Safeway's results show that net income fell by 45.3% year-on-year during the first nine months of 2013, most of this loss was due to the firm withdrawing from certain operations, such as its enterprise in Canada.

Safeway Outperforming Rivals And Market
Rebased Share Price (31/12/2012= 100)

Safeway 's s ales and gross profit rose 1.1% to US$8 .6bn in Q313 , compared with US $ 8.5bn in Q312. Encouragingly, this was primarily down to an increase of 1.9% in same -store sales (excluding fuel). Gross profit, however, fell from 26.17% of sales in Q312 to 25.81% in the latest results. Safeway attribute s this loss primarily to a reduction in expense and investments in price. Indeed, following a difficult few years after the financial crisis, Safeway has seen revenue inc reases for the last four years. Revenue in FY2012 stood at US$44 .2bn, up 7.7% from FY2010.

Shares rose 2.5% on October 10 , with shareholders buoyed by the group's decision to exit the Chicago market. The move away from the loss-making enterprise will result in a cash tax benefit of US$400 mn - 450mn, according to Safeway.

The US supermarket sector is very competitive, and it perhaps comes as no surprise that some of Safeway's ventures, such as Dominick's in Chicag o, will occasionally fail. The company will be encouraged by the strong third-quarter like-for-like sales growth, but its financial results are distorted by underlying losses. Shareholders have reaffirmed their belief in the company, citing the strong performance in 2013 so far and on the announcement of the firm's Q313 results.

This article is tagged to:
Sector: Food & Drink
Geography: United States

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