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Why Safeway Shares Got Hammered

By Jeremy Bowman - Updated Nov 17, 2016 at 4:25PM

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Safeway (NYSE: SWY) shares were taking their turn in the dunk today, falling as much as 19% after posting a disappointing quarter.

So what: The supermarket chain sacrificed profit during the quarter in order to hold on to customers, as competition from the likes of Wal-Mart and Target continues to rise. Adjusted earnings per share came in at $0.35, $0.01 below estimates, and revenue was off by about 1.5%. Same-store sales increased by 1.5%, which was due, in part, to a shift in the calendar.

Now what: Today's drop seemed to be less of a result of a terrible earnings report, and more of a slight miss coming after strong appreciation in the stock. Before today's drop, sales had nearly doubled since the summer, as the company has tried new strategies to increase sales and remain relevant in a changing industry, including personalized deals and lower prices. The momentum seemed to get ahead of itself, however, as profit growth would not seem to justify a share price of $30. For those who still have profits to take, now might be a good time.

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