OAKLAND, Calif. -- Safeway here said it plans to increase capital spending by more than 14% this year to an amount exceeding $400 million. According to the chain's annual report, the money will be spent to build 25 to 30 new stores and remodel 90 to 100 others. During 1994, Safeway spent $352 million -- up 21% from $290 million spent in 1993 -- to open 20 new stores and remodel 71 units, the report said. The report said Safeway's stores are less expensive to build. "We are getting substantially more value from spending on new stores and remodels through greater use of standardized layouts and central purchasing agreements for building materials, fixtures and equipment," the report pointed out. It also said Safeway has been able to reduce capital expenses further since it began centralizing its information technology operations during 1994 "to eliminate parallel development and create one set of common systems companywide." According to the report, "Spending was less than expected early in 1994, due partly to the elimination of systems development projects no longer needed as a result of the information technology reorganization." New stores opened last year averaged 54,000 square feet, the report said. It also noted that 14% of the chain's stores exceed 50,000 square feet; 55% are 30,000 to 50,000 square feet, and 31% are less than 30,000 square feet. According to the report, smaller stores "remain an important part of the company's store network in smaller communities and certain other locations where larger stores may not be appropriate." The report said all proposed capital projects must meet targeted pre-tax internal rates of return, which measure the incremental cash flows of proposed projects. "To be accepted, new stores and remodels must generally project an IRR in excess of 25%," the report noted. "To date, the aggregate results of projects accepted under this program have met expectations." The report indicated that Safeway ranked first in 1994 among leading publicly traded supermarket chains in several key measures of financial performance, including the following:
Same-store sales growth -- up 4.4%.
Expense ratio reduction -- down 30 basis points to 23.28% of sales as a result of increased sales and ongoing efforts to reduce costs (and excluding a charge for an employee buyout in Alberta, Canada, in 1993).
Working capital reduction -- down $176 million due to lowered warehouse inventory levels and improved payables management.
Operating cash flow margin improvement -- to 27.2% last year, compared with $26.8% in 1993.
Earnings per share growth -- $2.02 before a charge for the Alberta buyout and $1.94 after the charge, compared with $1 per share in 1994.
Share price improvement -- up 50% to $31.875, compared with $21.25 at the end of 1993. The company also noted that total debt, which had remained at $3 billion for three consecutive years, fell to $2.7 billion in 1993 and $2.2 billion in 1994 "due to lower capital spending and stronger cash flow from operations."
