Safeway Sales Trends Improve

PLEASANTON, Calif. — Safeway said its price reductions, private-brand sales and targeted marketing programs resulted in improving trends late in the fourth quarter of 2010 that have continued through the first 7 weeks of the first quarter. Net income for the 16-week quarter that ended Jan. 1 was $229.6 million, compared with a loss of $1.6 billion a year ago that included a non-cash goodwill impairment

PLEASANTON, Calif. — Safeway [4] said its price reductions, private-brand sales and targeted marketing programs resulted in improving trends late in the fourth quarter of 2010 “that have continued through the first 7½ weeks of the first quarter.”

Net income for the 16-week quarter that ended Jan. 1 was $229.6 million, compared with a loss of $1.6 billion a year ago that included a non-cash goodwill impairment charge of $1.8 billion resulting from reduced market capitalization and the weak economy, the company said; excluding the charge, net income was up 9.8%.

Sales for the quarter rose 0.9% to $12.8 billion, largely on the strength of higher fuel prices and an increase in the Canadian exchange rate, the company said. However, identical-store sales, excluding fuel, dropped 0.8%, which was the best quarterly performance of the year.

For the year, net income, excluding the impairment charge, fell 18.2% to $589.8 million, while sales increased 0.5% to $41.1 billion and ID sales, excluding fuel, fell 2%.

Steve Burd, chairman, president and chief executive officer, said the decline in fourth-quarter ID sales was largely due to a drop of 1.9% during the first few weeks of the quarter, which overlapped the company's significant price investment effort a year earlier, “while weeks 45 through 52 of the year had a 1% positive ID.”

Nine of Safeway's 10 divisions are showing better IDs in the first quarter, he added, and seven of the 10 divisions are showing positive IDs, excluding fuel.

The sales improvements are coming primarily from the chain's most loyal shoppers, Burd noted.

“What we're seeing is a bifurcated recovery,” he explained, “with consumers at the upper and upper-middle income levels increasing their purchases while those in the lower incomes are still facing a lot of uncertainties about their jobs. As a result, it's the price guys who are struggling.”

He said the company will outline its financial guidance for the year at its annual investor conference, which is scheduled for March 8.

Ajay Jain, an analyst with Hapoalim Securities, New York, said Safeway's fourth-quarter results “missed the mark,” with earnings increases coming from property gains, a lower tax rate and Casa Ley, its Mexican subsidiary — “the same factors that helped deliver a cosmetic earnings beat in the third quarter.

“The core issue for Safeway going forward remains market-share related, and we expect incremental competitive threats in 2011 and 2012.”

Speaking with analysts to discuss financial results, Burd said inflation is running between 0.5% and 0.7% through the first few weeks of the first quarter, “and we're passing those increases along to consumers, as are virtually all other retailers.”