The profits alert re-ignited speculation that the group might be the subject of a bid from rival Asda, which called off talks with Safeway last year. Meanwhile the City put Safeway management on notice, giving the board six months to put the company back on track or risk being ousted. "They've lost control," one analyst said. "They were so desperate to deliver sales growth that they have thrown money at the stores. I don't think the City will give them more than six months."
Colin Smith, Safeway's chief executive, denied any direct pressure from investors but added: "It is quite clear that the chief executive takes direct responsibility for the company's performance and I am doing that." He admitted the company had made mistakes but said its performance was improving.
Safeway has been hit by slow sales growth and rising costs which have hit margins. Start-up costs involved in setting up in Northern Ireland have been higher than expected and there will be a pounds 30m charge to cover store closures and redundancies.
This will cut full-year profits to pounds 375m, excluding the pounds 30m of exceptional charges, compared to the previous year's pounds 430m. Analysts had been forecasting pounds 410-pounds 440. There was also a warning on this year's profits. Safeway said they would be constrained by an extra pounds 40m investment in improving price competitiveness, product availability and marketing.
"It's an absolute disaster," one analyst said. "The only thing supporting the shares is the bid speculation." Safeway shares closed 9.5p lower at 355.5p.
In its trading update - which had been delayed for almost a month - Safeway said sales growth over Christmas had been just 1.1 per cent on last year but had improved to 3.2 per cent year on year in the seven weeks to 21 February.
The group is to close 22 of the older Safeway branches and sell or close 22 of the remaining Presto stores that are not suitable for conversion.
Outlook, page 21