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) and Target ( TGT), 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), 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. Follow TheStreet.com on Twitter and become a fan on Facebook.