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Safeway's Q4, Full Year Results Show Profit, Sales Up

PLEASANTON, Calif. -- In a marked improvement of its financial performance for the same period last year, Safeway, Inc. yesterday posted net income of $202.7 million (45 cents per diluted share) for the 16-week fourth quarter ended Jan. 1.

In the 17-week fourth quarter of 2003, Safeway had reported a net loss of $695.9 million ($1.57 per diluted share).

Net income for the year ended 2004 was $560.2 million ($1.25 per diluted share), compared with a loss of $169.8 million ($0.38 per diluted share) for 2003.

Net income for 2004's fourth quarter includes a total charge of about $47.2 million, after tax (11 cents per diluted share), comprising the estimated effect of the Southern California strike, contributions to a Northern California UFCW multiemployer health and welfare plan, and an accrual for rent holidays in accordance with recent SEC guidance. Excluding these items, fourth-quarter 2004 earnings would have been 56 cents per diluted share. Net income in 2004 includes a total estimated impact of about $304.8 million, after tax ($68 per diluted share) from after-tax charges. Excluding these items, 2004 earnings would have been $1.93 per diluted share.

"Our 2004 earnings were largely as expected, and we are very pleased that the cash generated by the business significantly exceeded expectations, allowing us to reduce debt by $1.1 billion," said Steve Burd, Safeway chairman, president, and c.e.o. "During the year, we were also hard at work reinventing our business, dramatically improving the quality of our produce and meat, expanding our offering of proprietary items in deli and foodservice, and developing a store remodeling concept that highlights these changes. Our new remodel program provides a warm and comfortable shopping experience that has been well received by our customers. During 2004 we also made substantial progress restructuring labor contracts, which we believe will allow us to compete more effectively in the future."

Burd added that the company is highly optimistic about the future. "Our first-quarter identical-store sales (excluding fuel and strike-affected stores) are currently running at 1.4 percent, and we expect reported identical-store sales for the full quarter to be 2 percent or better, with an estimated benefit of approximately 1 percent from pre-Easter sales in the last week of the first quarter of 2005. We believe this sales improvement is a direct result of the strategy initiated more than 15 months ago, and we expect these positive sales to continue as the year progresses."

Total sales increased to $11.4 billion in the 16-week fourth quarter of 2004, compared to $11.0 billion during the same period last year, primarily due to recovery from the strike, and increased fuel sales. Excluding sales at strike-affected stores, comparable-store sales went up 1.5 percent and identical store sales (which exclude replacement stores) rose 1.1 percent for the fourth quarter of 2004. Excluding the effect of fuel sales, comparable-store sales decreased 0.3 percent and identical-store sales went down 0.7 percent for the fourth quarter of 2004.

Full-year sales increased only slightly to $35.8 billion in 2004, from $35.7 billion in 2003, primarily because of the strike and because fiscal 2004 was one week shorter than fiscal 2003.

During 2004 Safeway invested $1.2 billion in cash capital expenditures. The retailer opened 33 new lifestyle stores, completed 94 lifestyle remodels and closed 48 stores. In 2005, the company anticipates spending about $1.4 billion in cash capital expenditures and opening about 30 to 35 new lifestyle stores and completing about 275 to 285 lifestyle remodels.

One retail observer, Burt Flickinger, commented that Safeway's results, while a clear improvement over last year, are nowhere near where they should be, citing as evidence of this claim a low volume increase that he said indicates the chain's sales have not bounced back since the strike. What Safeway needs to do to improve its fortunes, Flickinger told Progressive Grocer, is to give its regional operations managers and division presidents more autonomy to fix such ailing banners as Dominicks, Randall's, and Genuardi's; and to work more closely with organized labor to get shoppers back in Safeway stores. If the company can't build sales to pre-strike levels, Flickinger added, it would soon find itself "facing a crisis."

Safeway operates 1,802 stores in the United States and Canada and had annual sales of $35.8 billion in 2004.
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