Albertson's Labors Over Results

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It seems that retail stores don't really know what they want to be when they grow up. I can walk into a supermarket, a drugstore, or a discount retailer and, within minutes, the lines are as blurry as the seams of a 90-mile-per-hour fastball. In the world of the one-stop-shopping experience, retailers are becoming so similar that consolidation is probably inevitable.

One such retailer that is feeling a bit of turbulence is Albertson's (NYSE: ABS), which recently settled a crippling Southern California labor dispute. The company reported second-quarter earnings of $0.28 per share, which was sharply lower than last year's $0.44-per-share earnings, primarily as a result of the labor dispute that reduced earnings by $0.13 per share. The labor unrest hurt total sales by $182 million, and same-store sales declined 1.3% (the firm would have reported a slight increase without the dispute).

The labor dispute couldn't have come at a more tenuous time for Albertson's, which is battling Kroger (NYSE: KR) and Safeway (NYSE: SWY) for supermarket supremacy. The company is also feeling the heat from Wal-Mart (NYSE: WMT), Target (NYSE: TGT), and the Brady Bunch-sized food offerings of Costco (Nasdaq: COST).

The bottom line is that consumers have an abundance of choices where they can fill their food, drug, and home goods needs. For instance, if I need a lightbulb, I don't have to run to Home Depot (NYSE: HD) or Lowe's (NYSE: LOW) because I can most likely find one in a supermarket, drugstore, or discount retailer. Many supermarkets, for their part, are still trying to figure out effective ways to differentiate themselves from the big discounters who also offer groceries.

Albertson's expects earnings in the third and fourth quarters to be in the range of $0.31 and $0.35 per share and $0.60 to $0.66 per share, respectively. Shares, which are trading at 17 times the company's forecast of $1.45 per share for 2004, sell at a premium to the company's expected growth rate, but they are fairly valued when the company's 3.03% dividend yield is added to the mix. With the damaging labor dispute behind it, Albertson's must focus on how it can differentiate itself from the rest of the retail world so it can grab onto some sort of competitive advantage.

Grab a cart and wheel on over to aisle Fool for these other views:

• The Next Kmart? by Seth Jayson
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• Struggling Supermarkets, by Dave Marino-Nachison

Fool contributor Phil Wohl spent more than 12 years on Wall Street and now concentrates his writing on more fictional characters. He has no stake in any firm mentioned above.