Safeway (SWY) fell 8% on Thursday afternoon after reporting disappointing same-store sales and a less-than-convincing earnings beat.
Safeway posted 67 cents of EPS, 3 cents ahead of analysts’ expectations. But the entire beat can be attributed to a lower tax rate and the company’s share buyback, notes Citi analyst Deborah Weinswig. Same-store sales rose 1.5% after excluding gas, and gross margin shrunk to 26.7% from 28%. Clearly promotions are eating away at the company’s margins, even as costs rise significantly.
“We believe the deterioration in gross margin illustrates the difficult competitive environment that SWY is operating in, which is causing the company to compete more aggressively on price,” Weinswig wrote.
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