Strike Hurts Albertsons, Bodes Ill for Competitors

The labor dispute centers on efforts by the grocery chains to cut costs by having workers pay a greater portion of their health care expenses and reducing benefits for new employees. After recessing prior to Thanksgiving, negotiations between the parties resumed this week under the auspices of a federal mediator.

Analysts had already projected that the strike would slash into the grocery chains' earnings. But until Albertsons' report, the companies had given analysts and investors little indication of just how much of an effect the strike was having.

At a meeting with analysts on Thursday, Safeway pointedly declined to estimate the effect the strike was having on its revenue or bottom line. Last month, Albertsons withdrew its full-year earnings guidance, citing the effects of the strike.

The grocery chains are trying to reduce their costs ostensibly to compete with nonunion rivals, particularly Wal-Mart (WMT Quote). But some investors and analysts are worried that the strike may instead up end up weakening the grocery chains ability to compete.

Even without including the direct effect of the strike, Safeway warned Thursday that its earnings next year would fall short of analysts' expectations. Meanwhile, Albertsons declined to give investors any kind of earnings outlook Friday.

"Since the Southern California strike is still ongoing and we can't accurately determine its magnitude or duration, we withdrew our guidance for 2003," Albertsons' CEO Larry Johnston said on a conference call with investors. "We will not be in a position to reinstate that guidance or give future guidance at this time."

Johnston said the company was on track to meet analysts' estimates before the strike. Without the effect of the strike, the company's same-store sales would have increased 0.7%, company officials added.

The company lost ground on expenses in the quarter, largely as a result of the strike, the officials said.