Safeway Q3 Income, Sales Slide

PLEASANTON, Calif. — Safeway here said last week it expects sales and earnings for the fourth quarter to come in at the low end of the guidance it issued earlier this year as it reported lower results for the third quarter ended Sept. 11.

Steve Burd, chairman president and chief executive officer, said lower prices per item would keep earnings for the fourth quarter at the low end of the chain's guidance of $1.50 to $1.70 per share and identical-store sales close to the low end of the negative 1.5% to negative 1% it forecast previously.

However, he said the majority of volume improvements will come “once we cycle through all the U.S. price investments halfway through the quarter, at which point price-per-item should experience continuous movement.”

In addition, as ID sales improve and as “very strong” cost reductions are reflected in gross margins, “we should be in good shape by the end of the fourth quarter,” Burd said.

“Plus you should look forward to volume gradually improving just because of price perception, and targeted marketing efforts will play a key role, as will the return of inflation. All those things bode well and should be fully operational though the vast majority of 2011.”

For the third quarter net income dropped 4.7% to $122.8 million, while sales declined 0.6% to $9.4 billion and identical store sales, excluding fuel, fell 2%; for the 36-week period net income was down 29.7% to $360.1 million, while sales rose 0.3% to $28.3 billion.

Results for the quarter included a charge of $12 million for employee severance resulting from the shutdown of a distribution center in British Columbia, which was offset by a lower tax rate, the company said; for the 36 weeks, net income in 2009 included a $73.9-million tax benefit from a favorable resolution of tax matters.

Asked if Safeway is in a holding pattern on sales, Burd replied, “We saw volume recover in the third quarter, then plateau, rather than simply improve along a smoother path.

“Volume was strong early in the quarter before it tapered off a bit in the U.S. while it improved in Canada, and right now fourth-quarter volume is where it was in the third quarter and we expect it will get better.”

Burd also said Safeway has no plans to roll out smaller-format stores. “We opened two of them and both are making money. But they were never part of our strategy, though we learned a lot from them that we can apply to other stores,” he explained.

Q3 RESULTS