Shareholders of supermarket chain Albertsons (NYSE:ABS) may want to hope that the company's primping and preening results in a sale sooner rather than later. Looking at third-quarter performance, there's not much to get excited about in regards to the company's ongoing operations as an independent company.
Total sales were down very slightly in the quarter, with comp-store sales down 0.4%. While gross margin improved slightly, operating margin fell a bit. Management provided two numbers for earnings from continuing operations -- one that includes the impact of the hurricanes in both years, and one that doesn't in both years. Either way, though, earnings fell more than 20%. Likewise, cash flow performance is tracking below year-ago levels.
Management devoted a fair bit of time talking about efforts like RFID inventory management, increased customer-focused marketing initiatives, and add-ons like an agreement with Hewlett Packard's Snapfish. Unfortunately, I don't think any of this will really make much difference in the long run.
One of the things that concerns me a bit about Albertsons is that management seems to be taking a lower-cost approach to competition. There is, of course, room for low-price contenders in the grocery industry, but I'm not confident that the company can compete effectively against Wal-Mart (NYSE:WMT), Target (NYSE:TGT), or regional low-price stores and produce appealing returns.
More often than not, the customers you really want are going to be more interested in clean, attractive stores with appealing merchandise and good service. Forget the organic stuff -- that's what makes Motley Fool Stock Advisor recommendation Whole Foods (NASDAQ:WFMI) a pleasant shopping experience. Other supermarkets like Kroger (NYSE:KR) and Harris Teeter (owned by Ruddick (NYSE:RDK)) seem to grasp this as well -- at least in my part of the country.
I'm pretty sure that Albertsons will get bought (I'm betting on a private equity group or foreign company at this point), and that should keep a floor under the stock price. But since I'm no fan of buying stocks simply on the hopes that somebody else will come in and buy me out, I'm staying clear of this stock.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
