Safeway planning to pass through more inflation

Safeway [4] said Wednesday it expects to pass through most of the inflation it is experiencing during the second quarter after seeing first-quarter income come in “slightly below plan,” partly as a result of not passing along inflation in produce, meat and pharmacy for competitive reasons.

Robert Edwards [5], president and CEO, said Safeway was able to drive first-quarter sales momentum as a result of several ongoing initiatives, adding the chain expects to improve second-half profitability through the direct and indirect cost initiatives it is implementing, which include center store remodels and merchandising premium, Hispanic and Asian products to meet local demographic needs.


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Edwards said Safeway is also continuing to see a rapid pace of growth in organic and natural products, with its controlled-label O Organics and Open Nature growing “approximately two times faster than the rest of the market.”

Safeway reported a loss on continuing operations for the 12-week first quarter of $83.1 million, which included merger-related expenses of $2.5 million and a loss on foreign currency translation of $93.4 million. The company reported net income for the year-ago first quarter was $59.7 million, which included a $17.2 million income-tax reduction on corporate-owned life insurance policies and a $5 million reduction of tax expense due to the resolution of federal income tax matters.

Excluding the unusual items, net income for the quarter was $12.8 million, down 65.9% compared with $37.5 million last year.

Sales and other revenue increased 1% to $8.3 billion, while identical-store sales excluding fuel rose 1.8%, including a 1% increase in price per item and a 0.8% increase in volume. Second-quarter ID sales are running “well above 2%,” Edwards said.

Safeway did not host a conference call with analysts to discuss results for the quarter because of its pending merger with Albertsons, which is expected to close at the end of the fourth quarter.

Under terms of the definitive merger agreement signed last month, Safeway shareholders will receive $32.50 in cash for each share they own, plus a pro-rata distribution of the net proceeds from the expected sale of Property Development Centers LLC and the monetization of Safeway’s 49% interest in Mexico-based Casa Ley.

Safeway said it does not plan to provide updates on the status of PDC or Casa Ley until there are material developments involving their disposition. Both were included in continuing operations for the quarter.

Because Safeway did not distribute the shares it owned in Blackhawk [7] Class B common stock until after the end of the first quarter, Blackhawk results were included in continuing operations. The company said Blackhawk will be reclassified as a discontinued operation beginning the second quarter.

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