Safeway Q3 Sales, Profits Dip, Expects Stronger Q4

Safeway Inc.’s third-quarter sales and profits may have dropped, but CEO Steve Burd said these figures will jump next quarter as the chain has passes the anniversary of the price cuts it made last year.

"Our third quarter results were in line with our expectations," said Steve Burd, Safeway’s chairman, president, and CEO. "The trend in price per item improved during the quarter. We expect this trend to continue as we anniversary the price investments we made in the second half of 2009. We continue to tailor our offerings to the changing needs of our customers, with innovative consumer brand launches of Refreshe beverages and In-Kind personal care products, while offering lower everyday prices and attractive club card specials."

Total sales for the quarter were $9.4 billion, down slightly compared to $9.5 billion in 2009. A 2 percent decline in identical-store sales, excluding fuel -- due to a decline in price per item -- and reduced sales from store closures were partly offset by a higher Canadian exchange rate and higher fuel sales.

Safeway’s net income of $122.8 million, or 33 cents per share for the quarter were down from last year’s $128.8 million (31 cents per share), driven partly from $12 million of employee severance charges.

Operating and administrative expenses were $2.4 billion in the third quarter, essentially flat compared to the third quarter of 2009. Operating and administrative expense as a percentage of sales increased to 25.56 percent in the third quarter from 25.33 percent last year, largely the result of deflation coupled with expected increases in wages and benefits, and partly offset by lower losses from the combination of property disposals and impairment.

Safeway expects its earnings per share and non-fuel ID sales to be toward the lower end of guidance of $1.50 to $1.70 and -1.0 percent to -1.5 percent, respectively. Additionally, it expects cash capital expenditures of approximately $900 million and free cash flow in the middle of the range of $900 million to $1.1 billion.

The chain invested $170.7 million in capital expenditures during the quarter, completing two new stores, nine Lifestyle remodels, and closing 12 stores. For the year, Safeway plans to open approximately 15 new Lifestyle stores and complete approximately 60 Lifestyle remodels.

Pleasanton, Calif.-based Safeway operates 1,702 stores in the United States and Canada.