(By Balachander) Safeway Inc. (NYSE:SWY) shares tumbled in early trade on Thursday after the food and drug retailer posted an unexpected drop in quarterly sales and contraction of gross margins. Earnings, however, beat market projections.
Earnings per share from continuing operations increased 18.4 percent to 45 cents, beating Wall Street projections of 42 cents.
In the third quarter, Safeway closed one Genuardi's store and sold 16 Genuardi's stores for a gain of $49.0 million after tax, or 21 cents.
Sales and other revenue fell 0.2 percent to $10.0 billion, while market expectations were for a growth of 1.70 percent.
Gross margin shrank 56 basis points to 26.44 percent from 27.00 percent. Excluding the 11 basis-point impact from fuel sales, gross margin contracted 45 basis points due primarily to costs related to launch of the company's just for U loyalty program and costs incurred to dispose of Genuardi's stores.
The fourth quarter to date identical-store sales, excluding fuel, are running at 1.0 percent with slightly improved volumes and higher inflation than in the third quarter of 2012, the company said.
Looking ahead for the full year 2012, the company continues to expect earnings per share in the range of $1.90 to $2.10, while analysts expect $1.98.
SWY shares, which have been trading in the 52-week range of $14.73 to $23.16, shed 6.75 percent to $15.20 in early trade on Thursday.