NEW YORK (

TheStreet

) -- Grocery stocks are in the red, even as the rest of the retail sector is climbing, following

Safeway's

(SWY)

disappointing second-quarter earnings results and pessimistic outlook.

Safeway's earnings tumbled 40%, which led the grocer to cut its full-year outlook. The company said it doesn't expect a rebound until the fourth quarter. Safeway now expects full-year earnings in the range of $1.50 to $1.70 a share, down from its prior outlook of $1.65 to $1.85 a share.

During the second quarter, Safeway earned $141.3 million, or 37 cents a share, compared with $238.6 million, or 57 cents, in the year-ago period. This falls in-line with analysts' estimates.

Revenue rose less than 1% to $9.52 billion, while same-store sales declined 2.5%.

Aside from consumer pullback, grocers are facing increasing competition from discounters like

Wal-Mart

(WMT) - Get Report

and

Target

(TGT) - Get Report

, who in recent months have upped their processed and fresh-food offerings.

Shares of Safeway are dropping 2.4% to $19.74, dragging down

Kroger

(KR) - Get Report

, which is falling 1.8% to $20.24, and

Supervalu

(SVU)

, which is slipping 1.1% to $11.04.

-- Reported by Jeanine Poggi in New York.

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