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Earnings Preview: Safeway

Zacks Equity Research

Safeway Inc. (SWY) is set to report fourth quarter and full year 2012 results on Feb 21. Last quarter, this food and drug retailer posted a positive earnings surprise of 7.14%. Let’s see how things are shaping up prior to the announcement.

Safeway’s Growth Profile in the Last Quarter

The company was affected by a slowdown in identical-store sales (excluding fuel) and lower Canadian exchange rate in the third quarter. Larger-than-expected weakening in price inflation influenced identical-store sales. However, volume trends are expected to improve with easing of inflation. Further, its “Just for U” loyalty program posted an encouraging performance.

Safeway also witnessed margin contraction due to higher expenses related to the launch of its loyalty program and change in sales mix in the last reported quarter. Notably, the company has undertaken cost saving initiatives to brace margin pressure. 

Earnings Whispers?

Our proven model does not conclusively suggest that Safeway is likely to beat earnings estimate this quarter. This is because a stock needs to have a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) as well as a Zacks Rank #1, 2 or 3 for this to happen. This, however, is not the case for Safeway as seen below:

Zacks Earnings ESP: The Most Accurate Estimate stands at $0.76 and the Zacks Consensus Estimate is also pegged at $0.76. This comes to a difference of 0.00%.

Zacks Rank #3 (Hold): Safeway carries a Zacks Rank #3 which lowers the predictive power of ESP. The Zacks Rank #3 along with earnings ESP of 0.00% makes the surprise prediction difficult.

Other Stocks to Consider

Here are some other companies that may be considered as our model shows they have the right ingredients to post an earnings beat this quarter:

Abercrombie & Fitch (ANF), Earnings ESP of 1.04% and Zacks Rank #1 (Strong Buy)

Kroger (KR), Earnings ESP of 2.90% and Zacks Rank #2 (Buy)

Walgreens (WAG), Earnings ESP of 2.11% and Zacks Rank #3 (Hold).

Read the Full Research Report on KR

Read the Full Research Report on ANF

Read the Full Research Report on SWY

Read the Full Research Report on WAG

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