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Strikes Against Safeway

By Dave Marino-Nachison
February 12, 2004

Grocery chain operator Safeway (NYSE: SWY) handed out decent fourth-quarter and 2003 earnings numbers today. But the company's performance continues to be marked down by the effects of an ongoing strike that's hurting business in California and stands to reverberate throughout the U.S upon its resolution.

Safeway's quarterly profit, before special items, beat Street estimates. That, along with yesterday's news that labor talks have resumed after a lengthy stalemate, appears to be encouraging investors, who pushed the stock up a few percentage points on a down day for the market. (The four-month-old strike involves some 70,000 workers from Safeway and collective bargaining partners Albertson's (NYSE: ABS) and Kroger (NYSE: KR).)

But the numbers themselves aren't pretty. Yes, quarterly sales increased slightly year over year, but the company attributes most of that to new stores and an extra week in the period. Same-store sales fell even when excluding the effects of the strike. (Safeway provides a range of numbers detailing strike effects, creating the figures by comparing pre-strike internal estimates with actual reported numbers.) Some market estimates have the strike's total impact on grocery store sales passing into nine figures.

Considering the size of the California market, it seems likely that whatever the upshot of this strike may be there'll be ripple effects in other markets. (Check out W. D. Crotty's October Take on the story for more information.) Safeway, meanwhile, continues to take hit after hit. Its November decision not to sell its Dominick's chain resulted in a $391 million after-tax charge in the quarter. CFO Vasant Prabhu left at year's end to join Starwood Hotels & Resorts (NYSE: HOT).

And today, citing uncertainty in California, the company withdrew its earnings guidance for 2004. Safeway shares, however, are creeping back toward pre-strike levels. Investors, it seems, are confident that the strike will pass before long -- and are happily digesting media reports suggesting that the union's position is weakening.

Share news and thoughts on the grocery strike on our Safeway discussion board.

Dave Marino-Nachison is a Motley Fool contributor, and doesn't own any of the companies in this story. He can be reached via email:
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