Safeway Inc. Announces First-Quarter 2008 Earnings

Business Wire,  April 24, 2008  

Tags: Safeway Inc.

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PLEASANTON, Calif. -- Safeway Inc. (NYSE:SWY):

Results From Operations

Safeway Inc. today reported net income of $193.4 million ($0.44 per diluted share) for the first quarter of 2008 compared to net income of $174.4 million ($0.39 per diluted share) in the first quarter of 2007.

Sales and Other Revenue

Total sales increased 7.3% to $10.0 billion in the first quarter of 2008 compared to $9.3 billion in the first quarter of 2007. Contributions from Lifestyle stores, an increase in the Canadian dollar exchange rate and higher fuel sales drove this increase. Identical-store sales increased 4.5% in the first quarter of 2008. Excluding fuel, identical-store sales increased 2.9%. Easter holiday sales occurred in the first quarter of this year compared to the second quarter of last year. When adjusted for the estimated impact of the Easter holiday shift, non-fuel, identical-store sales increased 2.0%.

"We are pleased with our earnings performance in the first quarter of 2008," said Steve Burd, Chairman, President and CEO. "Our earnings per share grew by 13% compared to the first quarter of 2007. Part of this growth was due to the shift in the Easter holiday. In addition, our efforts to reduce and control costs contributed to operating margin improvement. At the same time, we invested in lower prices to improve our competitiveness and enhance our consumer offering. We remain confident in our ability to deliver earnings per share growth in the 13-18% range for this 53-week year."

Gross Profit

Gross profit declined 50 basis points to 28.79% of sales in the first quarter of 2008 compared to 29.29% of sales in the first quarter of 2007. Higher fuel sales (which have a lower gross margin) reduced gross profit by 38 basis points. The remaining 12 basis- point decline is the result of investments in price, partly offset by improved shrink and lower advertising expense.

Operating and Administrative Expense

Operating and administrative expense improved 65 basis points to 24.77% of sales in the first quarter of 2008 from 25.42% of sales in the first quarter of 2007. Higher fuel sales in 2008 reduced operating and administrative expense by 29 basis points. The remaining 36 basis point decline was the result of reduced employee costs, partly offset by a labor settlement in Alberta, Canada, and higher utility and occupancy costs.

Interest Expense

Interest expense declined slightly to $84.5 million in the first quarter of 2008 from $89.6 million in the first quarter of 2007 due to a combination of lower interest rates and lower average borrowings.

Other (Loss) Income, Net

Other income declined to a loss of $0.4 million in the first quarter of 2008 from $6.8 million income in the first quarter of 2007 due primarily to lower results at Casa Ley, Safeway's unconsolidated affiliate.

Income Tax Expense

Income tax expense was $123.6 million, or 39.0% of pre-tax income in the first quarter of 2008. Income tax expense in the first quarter of 2007 was $103.8 million, or 37.3% of pre-tax income.

Stock Repurchases

During the first quarter of 2008, Safeway purchased 2.5 million shares of its common stock at an average price of $29.70 per share and a total cost of $74.1 million (including commissions). The remaining board authorization for stock repurchases at quarter-end was $447.0 million.

Capital Expenditures

Safeway invested $373.1 million in capital expenditures in the first quarter of 2008. The company opened one new Lifestyle store, completed 22 Lifestyle remodels and closed four stores. For the year, the company expects to spend $1.70 to $1.75 billion in capital expenditures, open 20 to 25 new Lifestyle stores and complete 250 to 255 Lifestyle remodels.

Cash Flow

Net cash flow used by operating activities was $41.2 million in the first quarter of 2008 compared to net cash flow from operating activities of $19.1 million in the first quarter of 2007.

Net cash flow used by investing activities was $370.7 million in the first quarter of 2008 compared to $391.7 million in the first quarter of 2007.

Net cash flow provided by financing activities was $352.9 million in the first quarter of 2008 compared to $305.7 million in the first quarter of 2007 primarily due to increased borrowings, partly offset by stock repurchases.

Guidance

Safeway confirmed guidance for 2008 (a 53-week year) of $2.25 to $2.35 diluted earnings per share and free cash flow of $500 million to $700 million. Safeway revised guidance for identical-store sales growth, excluding fuel, from a range of 3.0% to 3.2% to a range of 2.0% to 2.3%.

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 1,740 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 first-quarter results will be broadcast live over the Internet at www.safeway.com/investor_relations at 8:00 AM PDT April 24, 2008. Click on Webcast Events to access the live call. An on-demand webcast of the conference call will also be available for approximately one week following the live call.