It would have been easy for leading grocery chain Albertson's (NYSE:ABS) to have just packed it in when faced with a Southern California grocery strike. The company temporarily calmed investors' fears this morning when it announced first-quarter earnings of $0.15 a share (before discontinued items), which was better than the $0.11 expected by analysts, but significantly lower than the $0.47 it earned last year.

Albertson's and other retailers, such as Kroger (NYSE:KR) and Safeway (NYSE:SWY), are still feeling the effects of the Southern California food strike, which reduced Albertson's earnings by $0.27 per share in the quarter.

Additionally, competitors like Wal-Mart (NYSE:WMT), Costco (NASDAQ:COST), BJ's Wholesale (NYSE:BJ), and Whole Foods Market (NASDAQ:WFMI) all continue to be threats to the company's quest for more market share. (For a detailed description of the industry, check out Supermarkets: Opportunity or Value Trap?)

Albertson's reinforced its earnings target for 2004 in the range of $1.40 to $1.50 per share, which is in the ballpark with analysts' consensus estimate of $1.41. Factors such as increased promotional spending, designed to woo back customers that were negatively affected by the food strike, will likely keep earnings in that range.

Shares of Albertson's are currently trading at 17 times the 2004 estimate of $1.41. With earnings anticipated to be about $0.10 lower than last year, the shares can hardly be viewed as a value play. However, when you look out another year, the shares are trading at only 14 times the $1.68 expected for 2005, which is a discount to the 19% growth that is expected.

Expectations in the supermarket industry these days are as solid as a bowl of whipped cream. Both look good, but you have to realize that the air they are filled with is fragile and hard to sustain. This industry should remain unstable with the potential for additional food-related labor disputes and rampant competition looming just past aisle four.

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.