Safeway Cuts Sales Forecast as Shoppers Switch from Brands to Private Label

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Safeway Cuts Sales Forecast as Shoppers Switch from Brands to Private Label

Safeway Inc. yesterday trimmed sales projections - including a reduction in its ID sales guidance -- citing increases in store brand sales and drop in discretionary buying.

"We're revising our ID sales guidance," said Safeway president, chairman, and c.e.o. during yesterday's earnings conference call. "The current guidance stands at 2 to 2.3 percent. Given the numbers in the second quarter, and given what we think it takes to build that momentum back in this kind of environment, we are changing the sales guidance on IDs from 1 percent to 2 percent."

However, Burd reminded analysts that the drop in ID sales because of the shift to corporate brands is not necessarily a bad thing.

"When you look at Safeway today, and you look at really the strength of our corporate brands portfolio, a major way we bring value to consumers is to focus on corporate brands," he said. "And so we continue to see growth in corporate brands relative to national brands. We have been encouraging that shift even though we know it hurts IDs, we are encouraging it because that's what consumers want to stick with. That said, you know, we're not happy with our ID sales, and, you know, clearly have plans to improve our momentum as we move through the balance of 2008."

Total sales for the grocer increased 3 percent to $10.1 billion in the second quarter of 2008 compared to $9.8 billion last year, an increase driven by contributions from Lifestyle stores, higher fuel sales, and an increase in the Canadian dollar exchange rate, partly offset by a shift in Easter holiday sales which occurred in the first quarter of 2008 compared to the second quarter of 2007, said Safeway.

Non-fuel, identical-store sales declined 0.3 percent due in part to the shift in Easter holiday sales. When adjusted to exclude the estimated impact of the Easter holiday shift, non-fuel, identical-store sales increased 1 percent.

"Our earnings performance this quarter was strong in light of a soft sales environment and the Easter holiday shift," said Burd. "We produced this earnings growth primarily through efficient retail execution, cost reduction, and sales mix improvement. Free cash flow for the quarter was also very strong."

Net income was $234.3 million, or 53 cents per share for the quarter, up from $218.2 million, or 49 cents per share last year.

Year to date (24 weeks) sales were $20.1 billion, up from $19.1 billion last year, and net income for the period was $427.7 million, or 97 cents per share, up from last year's $392.6 million, or 88 cents per share.

Safeway invested $676.8 million in capital expenditures year to date, and opened four new Lifestyle stores, completed 68 Lifestyle remodels and closed seven stores. For the year, the company expects to spend $1.70 billion to $1.75 billion, open approximately 20 new Lifestyle stores and complete approximately 250 Lifestyle remodels.

The grocer confirmed its guidance for 2008 (a 53-week year) of $2.25 to $2.35 earnings per share.

Safeway operates 1,740 stores in the United States and Canada.