Albertsons Profit Drops 36%

Fallout from Southern California’s prolonged grocery strike continued to eat at the bottom line of Albertsons Inc. The nation’s No. 2 grocery chain reported Tuesday that its second-quarter profit fell 36% as it rolled out bigger discounts to lure customers back.

The Boise, Idaho-based grocer, which operates 2,500 stores in 37 states, said that net income fell to $104 million, or 28 cents a share, for the quarter ended July 29, from $162 million, or 44 cents, a year earlier.

Albertsons sales rose 14% to $10.2 billion from $9 billion, largely on its acquisition of Shaw’s Supermarkets in Massachusetts this year.

Albertsons executives estimate that the labor dispute in Southern California cut its earnings from continuing operations by $50 million, or 13 cents a share, in the quarter.

The company also contributed an additional $7 million to two Northern California health and welfare union plans, which reduced earnings by a penny a share.

Wall Street analysts surveyed by Thomson First Call expected Albertsons to post per-share earnings of 33 cents in the latest quarter.

Albertson’s shares fell 52 cents to $24.58 on the New York Stock Exchange.

Two of the nation’s other top supermarket chains, Kroger Co. and Safeway Inc., also struggled to regain market share lost during Southern California’s 4 1/2 -month-long grocery strike. The strike ended Feb. 29 when a new labor contract was ratified by the United Food and Commercial Workers union.

In late July, Safeway reported a 4% drop in its second-quarter profit, largely as a result of the strike. And the company’s same-store sales, which excludes new, closed and replacement stores, fell 4%.

Albertsons said its identical-store sales fell 1.5% in the second quarter, including the strike-affected Southern California stores. And executives estimate that the dispute cost the company $182 million in lost sales during the quarter.

Nevertheless, Albertsons Chief Executive Larry Johnston said he was “pleased with the rate of recovery in Southern California” and said the company was ahead of its internal plan to recoup lost sales.

Johnston said the company planned to continue its aggressive discounting in Southern California stores in the second half of the year to get sales back on track.

But some analysts said that the chain may have lost some customers for good.

“It’s going to be tough” for Albertsons, said Andrew Wolf, analyst with BB&T; Capital Markets. “The customers who are easiest to induce have already come back. It’s the other 10% that have gotten memberships at Costco and are shopping there more often, or have fallen in love with Whole Foods.”

The grocery strike began last October, when members of the United Food and Commercial Workers union struck Safeway’s Vons and Pavilions stores after talks stalled and Albertsons and Kroger’s Ralphs chain locked out its workers in solidarity.

About 59,000 grocery workers were idled at 852 supermarkets in Central and Southern California.

It’s unclear when the three chains will recoup the cost of the prolonged strike. During the call, Johnston declined to pinpoint an economic break-even point.

“We’re just trying to get the volume back to as close as we can to the previous year before the strike happened,” Johnston said.

Albertsons reiterated its profit forecast of $1.40 to $1.50 a share for the year. But on a conference call, Johnston said that “we haven’t seen a big change in the retail environment in the first few weeks of the third quarter.”