Safeway (SWY)

We warned our clients in March 2000 of problems with Safeway that would prevent the company from continuing to deliver 16%-18% EPS growth on 3%-4% sales growth. Safeway had a history of growth, but often this growth was driven by non-operating sources. For example, the company experienced a temporary boost to sales after remodeling stores and adding services (such as film developing). Acquisitions allowed SWY to extend its private label brands, giving the company a one-time jump due to timing. There was also a history of cost cutting by the company, and a series of pension gains which were netted against costs and lowered total costs. Because these factors were temporary, ultimately growth proved unsustainable.

Current Example: Kimberly Clark (KMB)