Safeway Releases Q3 Earnings… Will Dump Chicago Dominick’s Chain
It seems that Dominick’s, a major player in the Chicago retail grocery scene since the 1920s, has become a liability and money loser for its parent company Safeway Inc. (NYSE: SWY). While announcing less than stellar Q3 earnings yesterday, the company noted that:
“It intends to exit the Chicago market, where it operates 72 Dominick’s stores, by early 2014. This will result in a cash tax benefit of $400 million to $450 million which will be available in the short-term to partly offset the cash tax expense on the sale of the net assets of Canada Safeway Limited (“CSL”). We expect to use the cash tax benefit and any other cash proceeds from the disposal of Dominick’s properties to buy back stock and to invest in growth opportunities.
Exiting the Chicago market will also trigger a multi-employer pension withdrawal liability which is generally paid evenly over twenty years. We estimate that the present value of the required quarterly cash payments is up to $375 million and that the present value of the related tax benefits is up to $145 million.”
Safeway added that Dominick’s had incurred losses in the third quarter of $13.7 million, or $0.03 per diluted share. In the first 36 weeks of 2013 the company posted a loss of $35.2 million, or $0.09 per diluted share.
Safeway acquired the Chicago supermarket icon in 1998 for $1.2 billion. Dominick’s has consistently lost market share since the Safeway takeover, with Safeway closing stores in response. Various problems have plagued the beleaguered chain over the past 15 years ranging from complaints about selling expired foods, to lack of sales and overall poor performance. Safeway attempted to sell the chain in 2002, but was shot down after a bitter pay and benefits dispute with employees represented by the United Food and Commercial Workers union.
As for its Q3 earnings, Safeway reported income from continuing operations of $0.07 per share, down from $0.16 per share in the prior year. The consensus estimate was for EPS of $0.16. The company lowered its full year adjusted EPS forecast to between $0.93 and $1.00, from prior expectations of $1.02 to $1.12. The consensus estimate is for EPS of $1.09.
Shares in Safeway are up over 6.5 percent today in above average volume. The company hit a new 52-week high today of $33.64 on news of the impending divestiture of Dominick’s coupled with the company’s third quarter earnings report.
Disclosure: The author has no position in the stocks mentioned in this article, and does not intend to initiate any position in the next 48 hours.
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