Why Safeway Shares Soared
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Safeway shares were charging higher today, gaining as much as 19%, after cruising past earnings estimates in its quarterly report this morning.
So what: Adjusted earnings per share jumped to $0.95, from $0.67 a year ago, beating the Street by $0.19. Revenue at the supermarket chain also inched higher by 1.2%, to $13.77 billion, just barely clearing estimates. Management noted that the quarter was the company's third in a row with market-share gains, and said that same-store sales improved by 0.8%, despite negative impact from generic drugs, gas prices, and a calendar shift. Overall, volumes were up by 0.3%.
Now what: CEO Steve Burd also said that the company's loyalty programs helped drive profits, and a massive share buyback helped inflate per-share profits, as the weighted average number of shares in the quarter dropped by more than 25%, to 237.3 million, from a year ago. Meanwhile, gross profit barely improved, and gross margin actually fell, indicating that this growth may not be sustainable. Safeway's strong gains today are mostly the result of the stock being cheap to begin with; but, with intense competition from the likes of Wal-Mart, Walgreen's, and CVS, I'd like to see a few more strong quarters before I got invested.
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The article Why Safeway Shares Soared originally appeared on Fool.com.Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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