Careful what you wish for. Safeway
Today, Safeway announced a $1 billion fourth-quarter loss, or $2.37 per share, on $10 billion in sales. A $1.5 billion charge for problems at the acquired chains soaked up all gains. Without the charge, it would have earned $360 million, or $0.80 per share.
For all of 2002, the grocery chain went the wrong way, losing $828 million, or $1.75 per share, on sales of $32.4 billion. A year earlier, the company earned $1.25 billion, or $2.44 per share, on revenue of $31.8 billion.
Now, labor disputes and all, Safeway is looking to unload Dominick's, but it hasn't found a buyer. Other problems include a weaker economy, which drives more food shoppers to discounters such as Wal-Mart
We have two reminders.
First, retailing is a difficult, usually low-margin and competitive business. Over the long haul, retailers are typically saddled with discounted valuation multiples that are low multiples of earnings and a fraction of annual sales. Plus, mature retailers are usually slow growers.
The best way to buy retailers and beat the stock market averages is to buy younger, organically growing leaders expanding steadily and profitably. Often, you can ride a retailer's expansion wave for years -- witness Wal-Mart, Starbucks
Second, few acquisitions made in the late 1990s have paid off for the acquiring company. The next time the stock market soars, be leery of management that too readily buys companies at premium prices. Everyone now says Safeway overpaid for Dominick's and Randall's, exacerbating its problems.
