SAFEWAY SAYS 4TH QUARTER COMPS MAY FALL SHORT

ELLIOT ZWIEBACH

PLEASANTON, Calif. -- Safeway here said last week its fourth-quarter comparable sales are likely to fall slightly below the company's earlier guidance, primarily because implementation of a key breakaway sales initiative is running a few months behind schedule.

Steve Burd, chairman, president and chief executive officer, said identical store sales will probably increase by 3-3.5%, with same-store sales, including replacement stores, rising 3.6-4.1% for the quarter. At the end of the second quarter, Burd had said he anticipated identical sales would be in the 4% range.

"We we remain bullish on sales increases," he said last week, "but we now expect some delay in accelerating those increases."

He acknowledged Safeway will be going up against tough comparisons resulting from the Y2K effect in last year's fourth quarter, when comps jumped 3.7% and identical sales rose 2.9%, accelerated largely by a 9% sales spike in the last two weeks of the quarter, Burd said.

He said the delay in boosting comparable sales to the levels he had earlier anticipated is the result of a slowdown in Safeway's ability to implement one of several breakaway sales strategies -- strategies Burd makes constant reference to but which he has never defined publicly.

"This particular strategy -- which will be the single best breakaway strategy we have -- is heavily dependent on new information technology applications," he said, "and it's taking us longer to install. I thought we'd have the elements in place during the third quarter, but it will be closer to the mid-fourth quarter now, and it should bear fruit throughout 2001."

Without detailing the strategy, Burd said it involves an application of information technology that already exists, "but which I don't think anyone else in the food sector has. But we have it, and we're in the process of refining the reports that will allow us to act on it."

Burd made his remarks during a conference call with securities analysts following release of financial results for the third quarter ended Sept. 9.

Safeway said sales for the 12-week quarter rose 15.2% to $7.5 billion and increased 16% to $22 billion for the year to date, while comps rose 4.9% and identical-store sales increased 4.2% for the quarter; the company does not release year-to-date comparisons.

Net income increased 20.1% to $270 million for the quarter and 19.1% to $792.8 million for the year to date.

In other comments during the conference call, Burd said:

Safeway negotiated longterm contracts with various utility companies a couple of years ago -- "a kind of forward buying," he said -- "so we're not experiencing any utility cost increases right now. And even if there was broad-based inflation in fuel and utility costs that impacted vendor costs, we're in the best position in the food sector to ride it out."