Inside This Issue - News
Wary consumers take toll on Safeway
March 5th, 2012
PLEASANTON, Calif. – Rising gasoline and food prices hurt Safeway Inc.’s sales in the fourth quarter, as consumers had less money to spend on discretionary purchases in its stores.
"We believe the [unit] volume declines are the direct result of both rising fuel prices and rising food inflation," Safeway chairman, president and chief executive officer Steve Burd told analysts during a conference call.
Burd added that he expected volume declines to be common among food retailers, and said that Safeway’s market share — as the company measures it — has remained steady compared with last year.
Safeway reported net income of $215.6 million for the fourth quarter, down from $226.6 million in the prior-year period. Although increased gas prices lifted sales, their low margins were a drag on Safeway’s profits, which were also impacted by a change in the way the company reports gift card commissions. Burd attributed increased last in, first out (LIFO) expense to the transition from a year of deflation to a year of higher-than-normal inflation.
Total sales increased 6.2% to $13.6 billion for the quarter, due mainly to higher fuel sales and the impact of the change in reporting gift card commissions. Identical-store sales (excluding fuel) rose 1.5%.
Net income for the fiscal year declined to $516.7 million from $589.8 million the year before.
In discussing the results, Burd was upbeat.
"Our business continues to grow," Burd said. "With ID sales growth remaining steady and costs well controlled, we increased earnings per share 8%. As we move into 2012, our personalized marketing efforts and innovation in private label brands should contribute to our growth."
The increase in earnings per share in the fourth quarter was due to Safeway’s aggressive stock buybacks during the quarter and the year.
Safeway purchased 43.3 million shares of its common stock (at a cost of $858.6 million) in the fourth quarter, and bought 76.1 million shares (at a cost of about $1.6 billion) during the course of the entire fiscal year. Such share purchases continue — Safeway says it spent $626.2 million to buy back 28.7 million shares between the end of its 2011 fiscal year and February 22, 2012.
Safeway has boosted its capital spending as well. In the fourth quarter the company spent $412.2 million and opened 11 new Lifestyle stores, completed 10 Lifestyle remodels and closed 14 stores.
For the year, the retailer’s capital spending totaled about $1.1 billion. During the course of the year Safeway opened 25 Lifestyle stores. The company also completed 29 Lifestyle remodels and closed 41 stores.