As Safeway Net Falls 25%, It Trims Full-Year Forecast, but Raises Dividend

Supermarket operator Safeway ( SWY) said Thursday that its first-quarter profit fell 25% from last year.

The Pleasanton, Calif.-based company reported fiscal first-quarter net income of $144.2 million, or 34 cents per share, down from $193.4 million, or 44 cents per share, in the year-ago period. Revenue fell 8% to $9.24 billion.

Both profit and revenue results fell short of estimates. On average, Wall Street analysts expected 40 cents per share revenue of $9.86 billion.

Safeway said that sales fell mainly because of lower fuel prices and negative effects of the stronger dollar on the company's Canadian operations. Excluding fuel sales, the company said that same-store sales, considered the key indicator of a retailer's health, fell 0.7%.

The company lowered its full-year 2009 guidance to $2.10 to $2.30 per share, down from previous estimates of $2.34 and $2.44 per share. On average, analysts expect $2.23 per share.

One piece of good news to come out of the report is that Safeway is raising its dividend by 25%, from 8 cents to 10 cents quarterly.

Safeway shares fell $1.72, or 8%, in morning trading Thursday.

We have avoided shares of SWY since our early June coverage began, when the stock was trading at the $31 level. The company has a dividend yield of 1.50%, based on last night's closing stock price of $21.12. The stock has technical support around the $16 level. If that fails to hold, we could potentially test the $9-$10 mark If the shares can bounce back, we see overhead resistance around the $24 level. We would look elsewhere for a better investment opportunity at this time.

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