Stiff competition in the retail industry, especially the grocery channel, has led to a price war among the industry players. Each player tries to offer lowest prices possible since customers look for lowest food prices when they shop. On the other hand, rising input costs have been a matter of concern. Hence, margins have shrunk and many retailers are finding it difficult to survive.
One such company is Safeway (SWY, Financial) which has finally given up and now plans to sell its business to Albertsons. Nonetheless, the company has been making efforts to combat competition and put up a decent performance. Although its first quarter results were mixed, there are hopes for a better future for the company.
By the Numbers
Driven by higher same store sales, revenue increased 1% to $8.3 billion over last year’s quarter. Same-store sales is one of the key measures to gauge a retailer’s performance since it excludes the effect of store openings and closures during the period. This metric grew 1.8% for the quarter as an increase in prices added 1% and volumes inched up marginally by 0.8%.
One of the most remarkable segments was the private label brands such as O Organics and Open Nature. These brands are growing rapidly since sales of organic products are on the rise. This is mainly because customers have become increasingly health conscious. Therefore, they now prefer food made of natural and organic ingredients even if it means to pay a premium.
The gross margin for the period stood at 26.1% from 26.5% last year as higher input costs shrunk margins. The rise in costs weighed on the bottom line also leading to adjusted earnings of $0.06 per share as against earnings of $0.16 per share.
Even peer Supervalu (SVU, Financial) posted its quarterly results last week wherein it beat estimates on the top line as well as the bottom line. Its revenue rose 1.4% and earnings recovered to $0.18 per share as compared to a loss last year. Supervalu, too, witnessed rising sales of fresh products and plans to expand this department in the future. Also, lower prices offered at Save-A-Lot stores have been one of the key drivers.
Road Ahead
Safeway announced its plans to merge with Albertsons by the end of this year. This merger will lead to a combined entity with a wide network of stores. The resultant entity will have 2,400 stores in total.
Also, the company said it plans to pass on the higher input costs to customers by further raising its product prices. This should help in expanding margins as well as boosting the bottom line. Moreover, Safeway declared that the same-store sales in the current quarter have already risen above 2% which reflects growing sales at its stores.
Additionally, the food retailer will also remodel its stores in order to make it more attractive and easy to navigate. This should again help in driving customer traffic at its stores.
Ending Thoughts
Although Safeway has had tough quarters before, it seems to have chalked a way out. Its plans to merge make investors hopeful about the retailer. Moreover, its efforts to drive its top line higher should be helpful. One should keep track of this company so that any opportunity of improvement in its performance, especially after the merger, can be grabbed.
