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Safeway Inc. Announces Third Quarter 2011 Results
Identical-Store Sales Increase 1.5%; Earnings per Share Increase 15%

PLEASANTON, CA, Oct 13, 2011 (MARKETWIRE via COMTEX) -- Safeway Inc. (NYSE: SWY)

Results From Operations Safeway Inc. today reported net income of $130.2 million ($0.38 per diluted share) for the third quarter of 2011 compared to $122.8 million ($0.33 per diluted share) for the third quarter of 2010.

"Our sales momentum continued to build in the third quarter, and our costs were well controlled," said Steve Burd, Chairman, President and CEO. "At the same time, we continued to innovate throughout the business to meet our customers' needs and build their loyalty. Our just for U(TM) digital marketing platform and our proprietary Open Nature(TM) line of 100% natural foods are good examples of these efforts."

Sales and Other Revenue Total sales were $10.1 billion in the third quarter of 2011 compared to $9.4 billion in the third quarter of 2010, due primarily to higher fuel sales, a 1.5% increase in identical-store sales (excluding fuel), a higher Canadian exchange rate and the impact of reporting Blackhawk commissions on a gross basis.(1)

Gross Profit Gross profit declined 114 basis points to 27.00% of sales in the third quarter of 2011 compared to 28.14% of sales in the third quarter of 2010. Excluding the 88 basis-point impact from fuel sales and the 26 basis-point impact from the change in reporting gift card commissions, gross profit margin was flat.

Operating and Administrative Expense Operating and administrative expense as a percentage of sales decreased 103 basis points to 24.53% in the third quarter of 2011 from 25.56% in the third quarter of 2010. Excluding the 71 basis-point impact of higher fuel sales and the 24 basis-point impact from the change in reporting gift card commissions, operating and administrative expense margin decreased eight basis points.

Interest Expense Interest expense declined to $60.7 million in the third quarter of 2011 from $69.4 million in the third quarter of 2010 due to lower average interest rates and lower average borrowings.

Income Taxes Income tax expense was 33.6% of pre-tax income in the third quarter of 2011 compared to 31.0% in the third quarter of 2010. Income tax expense was lower in 2010 due to the resolution of a number of individually small items.

36-Week Results Net income for the first 36 weeks of 2011 declined to $301.1 million ($0.85 per diluted share) compared to $360.1 million ($0.94 per diluted share) in the first 36 weeks of 2010 primarily due to the net negative impact from the Canadian dividend paid in the first half of 2011. The gross profit margin was 27.17% in the first 36 weeks of 2011 compared to 28.36% in the first 36 weeks of 2010. Operating and administrative expense margin was 24.70% in the first 36 weeks of 2011 compared to 25.74% in the first 36 weeks of 2010.

Guidance Safeway is reaffirming earnings per diluted share and free cash flow guidance for the year. Identical-store sales, excluding fuel, are expected to be approximately 1.0% for the year.

Stock Repurchases During the third quarter of 2011, Safeway purchased 10.1 million shares of its common stock at an average price of $19.30 per share and a total cost of $195.2 million (including commissions). The remaining board authorization for stock repurchases at quarter-end was approximately $0.9 billion.

Capital Expenditures Safeway invested $288.4 million in capital expenditures in the third quarter of 2011. The company completed five new stores and seven Lifestyle remodels, and closed 11 stores. For the year, Safeway plans to invest approximately $1.0 billion in capital expenditures, while completing 26 new Lifestyle stores and 30 Lifestyle remodels.

Cash Flow Net cash flow provided by operating activities declined to $710.9 million in the first 36 weeks of 2011 compared to $846.6 million in the first 36 weeks of 2010 due primarily to contributions to pension plans and an increase in inventory, net of payables.

Net cash flow used by investing activities increased to $744.4 million in the first 36 weeks of 2011 compared to $550.6 million in the first 36 weeks of 2010 due primarily to increased cash capital expenditures.

Net cash flow used by financing activities increased to $583.2 million in the first 36 weeks of 2011 from $139.6 million in the first 36 weeks of 2010 due primarily to lower net long-term borrowings and increased purchases of treasury stock in 2011.

About Safeway Safeway Inc. is a Fortune 100 company and one of the largest food and drug retailers in North America based on sales. The company operates 1,681 stores in the United States and Canada. The company's common stock is traded on the New York Stock Exchange under the symbol SWY.

Safeway Conference Call Safeway's investor conference call discussing third quarter results will be broadcast live over the internet at www.safeway.com/investor_relations at 8:00 a.m. PT on October 13, 2011. Click on Upcoming Events to access the call. A replay will be available via webcast for approximately one week following the conference call.

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements relate to, among other things, estimates of diluted earnings per share, sales growth, capital expenditures, free cash flow, Lifestyle stores, margins and financial and operating results. Forward-looking statements are indicated by words or phrases such as "guidance," "believes," "expects," "anticipates," "estimates," "plans," "continuing," "ongoing," and similar words or phrases and the negative of such words and phrases. Forward-looking statements are based on our current plans and expectations and involve risks and uncertainties which are, in many instances, beyond our control, and which could cause actual results to differ materially from those included in or contemplated or implied by the forward-looking statements. Such risks and uncertainties include the following: general business and economic conditions in our operating regions, including the rate of inflation or deflation, consumer spending levels, currency valuations, population, employment and job growth and/or losses in our markets; sales volume levels and price per item trends; pricing pressures and competitive factors, which could include pricing strategies, store openings, remodels or acquisitions by our competitors; results of our programs to control or reduce costs, improve buying practices and control shrink; results of our programs to increase sales; results of our continuing efforts to expand corporate brands; results of our programs to improve our perishables departments; results of our promotional programs; results of our capital program; results of our efforts to improve working capital; results of any ongoing litigation in which we are involved or any litigation in which we may become involved; the resolution of uncertain tax positions; the ability to achieve satisfactory operating results in all geographic areas where we operate; changes in the financial performance of our equity investments; labor costs, including benefit plan costs and severance payments, or labor disputes that may arise from time to time and work stoppages that could occur in areas where certain collective bargaining agreements have expired or are on indefinite extensions or are scheduled to expire in the near future; failure to fully realize or delay in realizing growth prospects for existing or new business ventures, including our Blackhawk and Property Development Centers subsidiaries; legislative, regulatory, tax, accounting or judicial developments, including with respect to Blackhawk; the cost and stability of fuel, energy and other power sources; the impact of the cost of fuel on gross margin and identical-store sales; discount rates used in actuarial calculations for pension obligations and self-insurance reserves; the rate of return on our pension assets; the availability and terms of financing, including interest rates; adverse developments with regard to food and drug safety and quality issues or concerns that may arise; loss of a key member of senior management; data security or other information technology issues that may arise; unanticipated events or changes in real estate matters, including acquisitions, dispositions and impairments; adverse weather conditions and effects from natural disasters; performance in new business ventures or other opportunities that we pursue; and the capital investment in and financial results from our Lifestyle stores. We undertake no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaim any obligation to do so. Please refer to our reports and filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, as amended, subsequent Quarterly Reports on Form 10-Q and subsequent Current Reports on Form 8-K, for a further discussion of these risks and uncertainties.

(1) Prior to 2011, Safeway recorded Blackhawk Network distribution commissions on the sale of certain gift cards net of the commissions shared with other retailers. In the first quarter of 2011, Safeway determined that these commissions should be reported on a gross basis. This change increased both revenue and costs of goods sold in 2011, but had no impact on identical-store sales, gross profit dollars or net income. Previously reported results are not adjusted because the impact is immaterial.

                       SAFEWAY INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF INCOME
                  (In millions, except per-share amounts)
                                (Unaudited)



                         12 Weeks Ended                36 Weeks Ended
                 ----------------------------  ----------------------------
                    September      September      September      September
                       10,            11,            10,            11,
                      2011           2010           2011           2010
                 -------------  -------------  -------------  -------------

Sales and other
 revenue         $    10,064.3  $     9,399.6  $    30,032.6  $    28,246.2

Cost of goods
 sold                 (7,347.1)      (6,755.0)     (21,871.3)     (20,234.3)
                 -------------  -------------  -------------  -------------

Gross profit           2,717.2        2,644.6        8,161.3        8,011.9

Operating and
 administrative
 expense              (2,468.9)      (2,402.2)      (7,416.8)      (7,269.8)
                 -------------  -------------  -------------  -------------

Operating profit         248.3          242.4          744.5          742.1

Interest expense         (60.7)         (69.4)        (187.9)        (208.3)

Other income,
 net                       8.7            4.8           15.8           10.5
                 -------------  -------------  -------------  -------------

Income before
 income taxes            196.3          177.8          572.4          544.3

Income taxes             (66.0)         (55.1)        (271.0)        (184.5)
                 -------------  -------------  -------------  -------------

Net income
 before
 allocation to
 noncontrolling
 interests               130.3          122.7          301.4          359.8

Noncontrolling
 interests                (0.1)           0.1           (0.3)           0.3
                 -------------  -------------  -------------  -------------

Net income
 attributable to
 Safeway Inc.    $       130.2  $       122.8  $       301.1  $       360.1
                 =============  =============  =============  =============

Income per
 common share
 attributable to
 Safeway Inc.:

        Basic    $        0.38  $        0.33  $        0.85  $        0.94
                 =============  =============  =============  =============

        Diluted  $        0.38  $        0.33  $        0.85  $        0.94
                 =============  =============  =============  =============


Weighted average
 shares
 outstanding:
        Basic            342.8          376.0          353.2          382.5
                 =============  =============  =============  =============
        Diluted          343.0          376.8          353.7          383.9
                 =============  =============  =============  =============

                       SAFEWAY INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED BALANCE SHEETS
                  (In millions, except per-share amounts)
                                (Unaudited)

                                              September 10,     Year-end
                                                  2011            2010
                                             --------------  --------------
ASSETS

Current assets:
  Cash and equivalents                       $        180.5  $        778.8
  Receivables                                         499.4           557.4
  Merchandise inventories                           2,779.6         2,623.4
  Prepaid expense and other current assets            301.9           273.4
                                             --------------  --------------

  Total current assets                              3,761.4         4,233.0

  Total property, net                               9,764.6         9,910.2

Goodwill                                              431.0           430.9
Investment in unconsolidated affiliate                192.2           187.2
Other assets                                          365.6           386.8
                                             --------------  --------------

Total assets                                 $     14,514.8  $     15,148.1
                                             ==============  ==============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current maturities of notes and debentures $        811.0  $        505.6
  Current obligations under capital leases             31.3            30.7
  Accounts payable                                  2,290.7         2,533.4
  Accrued salaries and wages                          457.6           468.9
  Deferred income taxes                                96.5            96.3
  Other accrued liabilities                           649.8           679.3
                                             --------------  --------------

  Total current liabilities                         4,336.9         4,314.2

Long-term debt:
  Notes and debentures                              3,772.6         3,843.8
  Obligations under capital leases                    433.4           456.2
                                             --------------  --------------

  Total long-term debt                              4,206.0         4,300.0

Deferred income taxes                                 140.4           153.5
Pension and post-retirement benefit
 obligations                                          584.0           727.9
Accrued claims and other liabilities                  677.1           654.8
                                             --------------  --------------

Total liabilities                                   9,944.4        10,150.4

Stockholders' equity:
  Common stock: par value $0.01 per share;
   1,500 shares authorized; 604.5 and 599.8
   shares issued                                        6.0            6.0
  Additional paid-in capital                        4,449.8         4,363.1
  Treasury stock at cost; 264.6 and 231.8
   shares                                          (7,015.5)       (6,283.8)
  Accumulated other comprehensive income              148.0            88.0
  Retained earnings                                 6,977.3         6,820.0
                                             --------------  --------------
    Total Safeway Inc. equity                       4,565.6         4,993.3
  Noncontrolling interests                              4.8             4.4
                                             --------------  --------------
Total equity                                        4,570.4         4,997.7
                                             --------------  --------------
Total liabilities and stockholders' equity   $     14,514.8  $     15,148.1
                                             ==============  ==============

                       SAFEWAY INC. AND SUBSIDIARIES
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (In millions)
                                (Unaudited)

                                                     36 Weeks Ended
                                             ------------------------------
                                              September 10,   September 11,
                                                  2011            2010
                                             --------------  --------------
OPERATING ACTIVITIES
Net income before allocation to
 noncontrolling interests                    $        301.4  $        359.8
Reconciliation to net cash flow provided by
 operating activities:
  Depreciation expense                                794.3           806.1
  Property impairment charges                          33.7            48.7
  Share-based employee compensation                    33.4            37.3
  Excess tax benefit from share-based
   employee compensation                               (1.6)           (0.7)
  LIFO expense                                         21.4               -
  Equity in earnings of unconsolidated
   affiliate                                          (11.1)           (7.7)
  Net pension and post-retirement benefit
   expense                                             78.1            86.6
  Contributions to pension and post-
   retirement benefit plans                          (168.3)          (11.7)
  Loss (gain) on property retirements and
   lease exit costs, net                                2.8            (1.4)
  Increase in accrued claims and other
   liabilities                                         39.4            38.5
  Amortization of deferred finance costs                3.6             3.3
  Deferred income taxes                               (51.7)              -
  Other                                                15.1             0.5
  Changes in working capital items:
    Receivables                                         3.4            34.0
    Inventories at FIFO cost                         (176.7)          (55.4)
    Prepaid expenses and other current
     assets                                            11.2             0.9
    Income taxes                                       94.9           (69.4)
    Payables and accruals                               4.7           (63.9)
    Payables related to third-party gift
     cards, net of receivables                       (317.1)         (358.9)
                                             --------------  --------------
      Net cash flow provided by operating
       activities                                     710.9           846.6
                                             --------------  --------------

INVESTING ACTIVITIES
Cash paid for property additions                     (682.5)         (555.4)
Proceeds from sale of property                          9.3            43.9
Other                                                 (71.2)          (39.1)
                                             --------------  --------------
    Net cash flow used by investing
     activities                                      (744.4)         (550.6)
                                             --------------  --------------

FINANCING ACTIVITIES
(Payments on) additions to short-term
 borrowings, net                                       (0.7)            1.1
Additions to long-term borrowings                   1,128.7         1,461.9
Payments on long-term borrowings                     (907.6)       (1,091.5)
Purchase of treasury stock                           (729.6)         (451.1)
Dividends paid                                       (138.7)         (123.4)
Net proceeds from exercise of stock options            72.8            69.1
Excess tax benefit from share-based employee
 compensation                                           1.6             0.7
Other                                                  (9.7)           (6.4)
                                             --------------  --------------
    Net cash flow used by financing
     activities                                      (583.2)         (139.6)
                                             --------------  --------------

Effect of changes in exchange rate on cash             18.4             5.0

(Decrease) increase in cash and equivalents          (598.3)          161.4

CASH AND EQUIVALENTS
  Beginning of period                                 778.8           471.5
                                             --------------  --------------
  End of period                              $        180.5  $        632.9
                                             ==============  ==============

                        SAFEWAY INC. AND SUBSIDIARIES
                          SUPPLEMENTAL INFORMATION
                            (Dollars in millions)
                                 (Unaudited)


TABLE 1: CAPITAL EXPENDITURES AND OTHER STATISTICAL DATA

                         12 Weeks Ended                36 Weeks Ended
                 ----------------------------- -----------------------------
                  September 10,  September 11,  September 10,  September 11,
                      2011           2010           2011           2010
                 -------------- -------------- -------------- --------------
Cash capital
 expenditures    $        288.4 $        170.7 $        682.5 $        555.4
Stores opened                 5              2             14              7
Stores closed                11             12             27             30
Lifestyle
 remodels
 completed                    7              9             19             35
Stores at end of
 period                   1,681          1,702
Square footage
 (in millions)             79.1           79.3
Fuel sales       $      1,099.6 $        760.8 $      3,203.4 $      2,138.7
Number of fuel
 stations at end
 of period                  396            393
Increase in
 sales from
 change in
 Canadian
 exchange rate   $         91.6 $         84.4 $        252.7 $        503.8

TABLE 2: RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA

                      (A+B-C)
                      Rolling                          B             C
                       Four              A         36 Weeks      36 Weeks
                     Quarters       Year Ended       Ended         Ended
                     Sept. 10,      January 1,     Sept. 10,     Sept. 11,
                       2011            2011          2011          2010
                   ------------    ------------  ------------  ------------

Net income
 attributable to
 Safeway Inc.      $      530.8    $      589.8  $      301.1  $      360.1
Add (subtract):
 Income taxes             377.1           290.6         271.0         184.5
 Interest expense         278.1           298.5         187.9         208.3
 Depreciation           1,150.6         1,162.4         794.3         806.1
 LIFO (income)
  expense                  (6.6)          (28.0)         21.4             -
 Share-based
  employee
  compensation             51.6            55.5          33.4          37.3
 Property
  impairment
  charges                  56.7            71.7          33.7          48.7
 Equity in
  earnings of
  unconsolidated
  affiliate               (18.7)          (15.3)        (11.1)         (7.7)
 Dividend from
  unconsolidated
  affiliate                 6.1               -           6.1             -
                   ------------    ------------  ------------  ------------
Adjusted EBITDA    $    2,425.7    $    2,425.2  $    1,637.8  $    1,637.3
                   ============    ============  ============  ============

Total debt at
 September 10,
 2011              $    5,048.3
Less cash and
 equivalents in
 excess of $75.0
 at September 10,
 2011                     105.5
                   ------------
Adjusted Debt, as
 defined by bank
 credit agreement  $    4,942.8
                   ============

Adjusted EBITDA as
 a multiple of
 interest expense          8.72  x
Minimum Adjusted
 EBITDA as a
 multiple of
 interest expense
 under bank credit
 agreement                 2.00  x


Adjusted Debt to
 Adjusted EBITDA           2.04  x
Maximum Adjusted
 Debt to Adjusted
 EBITDA under bank
 credit agreement          3.50  x

                       SAFEWAY INC. AND SUBSIDIARIES
                          SUPPLEMENTAL INFORMATION
                           (Dollars in millions)
                                (Unaudited)

TABLE 3: RECONCILIATION OF NET CASH FLOW FROM OPERATING ACTIVITIES TO
 ADJUSTED EBITDA

                    (A+B-C)                          B              C
                    Rolling           A           36 Weeks       36 Weeks
                 Four Quarters    Year Ended       Ended          Ended
                   Sept. 10,      January 1,     Sept. 10,      Sept. 11,
                      2011           2011           2011           2010
                 -------------  -------------  -------------  -------------

Net cash flow
 provided by
 operating
 activities      $     1,714.0  $     1,849.7  $       710.9  $       846.6
Add (subtract):
 Income taxes            377.1          290.6          271.0          184.5
 Interest
  expense                278.1          298.5          187.9          208.3
 Amortization of
  deferred
  finance costs           (5.1)          (4.8)          (3.6)          (3.3)
 Excess tax
  benefit from
  share-based
  employee
  compensation             2.5            1.6            1.6            0.7
 Deferred income
  taxes                   83.0           31.3           51.7              -
 Net pension and
  post-
  retirement
  benefit
  expense               (116.7)        (125.2)         (78.1)         (86.6)
 Contributions
  to pension and
  post-
  retirement
  plans                  174.3           17.7          168.3           11.7
 Accrued claims
  and other
  liabilities            (37.1)         (36.2)         (39.4)         (38.5)
 Gain (loss) on
  property
  retirements
  and lease exit
  costs, net              23.3           27.5           (2.8)           1.4
 Changes in
  working
  capital items          (65.5)          67.9          379.3          512.7
 Other                    (2.2)           6.6           (9.0)          (0.2)
                 -------------  -------------  -------------  -------------
Adjusted EBITDA  $     2,425.7  $     2,425.2  $     1,637.8  $     1,637.3
                 =============  =============  =============  =============

TABLE 4: RECONCILIATION OF GAAP CASH FLOW MEASURE TO FREE CASH FLOW*

                              12 Weeks Ended            36 Weeks Ended
                         ------------------------  ------------------------
                          Sept. 10,    Sept. 11,    Sept. 10,    Sept. 11,
                             2011         2010        2011**        2010
                         -----------  -----------  -----------  -----------
Net cash flow provided
 by operating
 activities, as reported $     523.3  $     537.5  $     710.9  $     846.6
(Increase) decrease in
 payables related to
 third-party gift cards,
 net of receivables            (16.7)         2.8        317.1        358.9
                         -----------  -----------  -----------  -----------
Net cash flow provided
 by operating
 activities, as adjusted       506.6        540.3      1,028.0      1,205.5
Net cash flow used by
 investing activities         (339.1)      (157.0)      (744.4)      (550.6)
                         -----------  -----------  -----------  -----------
Free cash flow           $     167.5  $     383.3  $     283.6  $     654.9
                         ===========  ===========  ===========  ===========

                              Forecasted Range
                                Fiscal 2011
                         ------------------------
Net cash flow provided
 by operating
 activities, as adjusted $   1,755.0  $   1,855.0
Net cash flow used by
 investing activities       (1,000.0)    (1,000.0)
                         -----------  -----------
Free cash flow           $     755.0  $     855.0
                         ===========  ===========

*Excludes cash flow from payables related to third-party gift cards, net of
 receivables. Cash from the sale of third-party gift cards is held for a
 short period of time and then remitted, less Safeway's commission, to card
 partners. Because this cash flow is temporary it is not available for
 other uses, and is therefore excluded from the company's calculation of
 free cash flow.



** In the 36 weeks ended September 10, 2011, free cash flow was reduced by
 $168.3 million of contributions to defined benefit pension and post-
 retirement plans and $97 million of taxes paid on Canadian dividends.


                        SAFEWAY INC. AND SUBSIDIARIES
                          SUPPLEMENTAL INFORMATION
                                 (Unaudited)

TABLE 5: IDENTICAL-STORE SALES*
                                                           12 Weeks
                                                             Ended
                                                        Sept. 10, 2011
                                                  --------------------------
As reported                                                  4.9%
Excluding fuel sales                                         1.5%

*Excludes replacement stores.

TABLE 6: RECONCILIATION OF GROSS PROFIT AND OPERATING AND ADMINISTRATIVE
 EXPENSE
BASIS-POINT CHANGE EXCLUDING FUEL AND GROSS PRESENTATION OF GIFT CARD
 COMMISSIONS

                                                  Third Quarter 2011
                                           --------------------------------
                                                             Operating and
                                                             Administrative
                                             Gross Profit       Expense
                                           ---------------  ---------------

Basis-point decrease, as reported                     (114)            (103)
Impact from fuel sales                                  88               71
Impact from gross presentation of gift
 card commissions                                       26               24
                                           ---------------  ---------------
Basis-point decrease, excluding impact
 from fuel sales and gross presentation of
 gift card commissions                                   -               (8)
                                           ===============  ===============

Contact:
Melissa Plaisance
(925) 467-3136
Christiane Pelz
(925) 467-3832


SOURCE: Safeway Inc.