Safeway Ekes Out Sales Gain

PLEASANTON, Calif. — Safeway here said it believes its Just for U targeted marketing program will help reverse what its called a modest share loss in the recently ended second quarter. We just need to get our marketing program into more markets, and we'll be fine, Steve Burd, chairman, president and chief executive officer, told analysts last week after the company posted a 0.5% gain in identical-store

PLEASANTON, Calif.Safeway [4] here said it believes its Just for U targeted marketing program will help reverse what its called a “modest share loss” in the recently ended second quarter.

“We just need to get our marketing program into more markets, and we'll be fine,” Steve Burd, chairman, president and chief executive officer, told analysts last week after the company posted a 0.5% gain in identical-store sales, excluding gas.

Just for U is being tested in Chicago, Northern California and Hawaii. The chainwide rollout has been delayed, however, as Safeway makes some changes to it and gets ready “to scale it to a larger operation,” Burd said.

“But we're on track with our internal targets to get it done,” he explained, with plans to refresh the test markets in the late third quarter or early fourth quarter, followed by expansion into one or two additional divisions by the end of the year and a complete rollout during next year's first quarter.

Burd said Safeway is comfortable with its current market share, despite what he called “a modest share loss” that has held steady for the past three quarters.

When one analyst suggested Safeway may need to be sharper on price if it hopes to gain market share, Burd said, “Do you want us to be below our conventional competition? We are lower than everyone except our primary conventional competitors, and we are even with them, so we think our price position is fine.”

He said ID sales improved during the second quarter and into the third quarter. “We remain focused on building customer loyalty and expect ID sales to continue to improve gradually through the second half of the year” to approximately 1%.

Mark Wiltamuth, managing director at Morgan Stanley, New York, called the ID sales gain “anemic,” adding, “Safeway trimmed comp guidance to 1% from a range of 1% to 1.5%, but we still think it's aggressive.

“Safeway needs to see comps accelerate to close to 1.5% by the end of the year to meet the revised guidance. Given that volume growth seemed to get worse in the second quarter, we think the company could miss its comp guidance for the fourth year in a row.”

For the 12-week quarter, net income rose 3.2% to $145.8 million — due primarily to efforts to reduce costs, Burd noted — while sales increased 7.1% to $10.2 billion, due primarily to higher fuel sales and improved Canadian exchange rates; and ID sales were up 0.5%.

For the half, net income fell 29% to $171 million — due to a first-quarter tax expense of $80.2 million related to the repatriation of earnings from Canada, excluding which sales would have been up 5.9% to $251.2 million — while sales rose 6% to $20 billion. The company did not give an ID sales number for the half.

Inflation was running “north of” 2%, Burd said, which was stronger than expected, with perishables inflation running three to four times higher than non-perishable inflation.