Skip navigation

Safeway Projects Gains on Marginal Inflation

PLEASANTON, Calif. Safeway is well positioned to gain market share as the economy recovers, Steve Burd, chairman, president and chief executive officer, said at the company's annual analyst conference here last week. Safeway expects to benefit from its newly achieved price parity with other conventional operators; the updated condition of its asset base; its basic points of differentiation; and the

PLEASANTON, Calif. — Safeway is well positioned to gain market share as the economy recovers, Steve Burd, chairman, president and chief executive officer, said at the company's annual analyst conference here last week.

Safeway expects to benefit from its newly achieved price parity with other conventional operators; the updated condition of its asset base; its basic points of differentiation; and the vulnerability of some weaker competitors, executives pointed out.

“We see the economy improving and consumers starting to feel a bit better, and that will mean a partial migration back to traditional distribution channels,” Burd said.

A return of inflation will also help sales, Burd said, projecting inflation of 0.4% for the year in terms of prices per item, which encompasses changes in vendor costs, promotions and how a retailer prices goods. Prices-per-item inflation averaged 3% over the last eight years, Burd noted.

Breaking it down by quarters, Burd said he anticipates negative inflation of 1% in the first quarter, and positive inflation of 0.5% in the second quarter, 0.7% in the third and 1% in the fourth.

Providing financial guidance for the year, Safeway said it expects earnings per share will fall in the range of $1.65 to $1.85, compared with a loss of $2.66 in fiscal 2009, and non-fuel identical store sales will be in the range of flat to 1%, compared with a 4.1% decline last year.

With 79% of Safeway's stores already remodeled over the last few years to the lifestyle format, Safeway plans to remodel 80 stores this year and open 20 new locations, to bring the lifestyle format to 85% of its asset base, Robert Edwards, executive vice president and chief financial officer, said.

Most of this year's remodels will require “lifestyle light” remodels, he noted, with Safeway planning to spend $900 million to $1 billion in capital expenditures in 2010, or 2.2% to 2.4% of sales — to open 20 new stores and remodel 80 locations — compared with slightly more than $850 million (2.1% of sales) spent last year to open 10 new stores and complete 80 remodels, Edwards said.

The company anticipates capital spending of $1 billion a year in 2011 and 2012 and $1.1 billion a year in 2013 and 2014, Edwards said — or 2.3% to 2.4% of sales.

“Just to sustain their assets, competitors will have to spend more than Safeway over that period, which should give us an edge,” Edwards said.

He also said Safeway expects “a significant reduction” in new competitive openings — about 250 openings among major competitors this year, compared with nearly 450 in 2008.

Edwards also predicted an accelerated rate of competitive store closures “and an accelerated rate of market rationalization over the next few years.”

“In markets in which Safeway operates, 36% of market share is controlled by non-public companies, and some of those smaller operators are more vulnerable to losing share. Plus, given the stress they're under — with limited access to cash to keep inventories up, reduced operating hours as they seek to lower labor costs, management changes that suggest instability and a drop in store standards — some retailers could exit some markets.”