SAFEWAY STRIKE EFFECTS HEAL FAST, RESULTS UP

ELLIOT ZWIEBACH

PLEASANTON, Calif. -- Safeway here last week said its Denver and British Columbia divisions recovered more quickly than expected from store shutdowns in labor disputes, resulting in strong third-quarter sales and earnings.

The chain also disclosed plans to spend about $700 million on capital expenditures in 1997, including 35 new stores and 150 remodels. This year, the company said it expects to spend about $600 million to open 30 to 35 new stores and complete more than 125 remodels. Safeway has been "pleasantly surprised" at the financial recoveries in the two divisions, Melissa Plaisance, senior vice president of finance and public affairs, told SN. "Sales and profits came back quicker than we had anticipated, possibly because competition in those areas didn't heat up as much as we had expected," she said, adding that other Safeway divisions "continued to perform very well due to our ongoing efforts to try to execute well, which customers seem to like."

The chain's strong third-quarter performance stemmed from "the real appeal the stores have developed for customers through a stronger product mix that delivers the items customers want," said Jonathan Ziegler, a securities analyst with the San Francisco office of Salomon Bros., New York. "As a result, the strike recovery came a little quicker because customers were anxious to go back to shopping there once the labor disputes ended." Safeway's quick recovery in Denver and British Columbia "speaks to the strength and power of Safeway's day-to-day conditions at store level and the depth of loyalty among customers," noted Gary Giblen, managing director at Smith Barney, New York.

For the 12-week third quarter ended Sept. 7, net income rose 26.5% to $105.9 million, and net earnings climbed 44.1% to $309 million for the 36-week period, Safeway said. Sales increased 2.8% to $4 billion for the quarter and 4.9% to $11.8 billion for the 36 weeks. Same-store sales -- excluding 86 British Columbia stores closed during the strike -- rose 4.5% in the quarter and 5.3% in the 36 weeks.

The Denver and British Columbia labor disputes have been settled. The 40-day strike-lockout in British Columbia extended through the first 24 days of the third quarter, while the 44-day strike-lockout at 69 Denver-area locations extended through the first 11 days of the period. The combined effect of the two disputes trimmed net earnings about 7 cents a share for the quarter and 12 cents a share for the year to date, Safeway said, adding that a 1995 labor dispute in northern California reduced earnings that year about 2.5 cents a share.

Safeway's 4.5% same-store gain in the third quarter came against a 5.3% rise a year ago and represents the 13th consecutive quarter of same-store increases exceeding 3%, said Debra Levin, an analyst at Morgan Stanley, New York. Safeway expects fourth-quarter comps to climb about 4%, she added.

Although Safeway does not break out results for each division, Giblen said it's clear that improvements are occurring in the chain's Arizona and Washington, D.C., divisions because of same-store results being reported by competitors there. Smith's Food & Drug Centers, Salt Lake City, reported a 5% drop in same-store sales in Arizona, due to improvements at Safeway there, he said. Flat same-store sales at Giant Food, Landover, Md., also likely are attributable to Safeway's resurgence, he added.

Safeway said it cut operating and administrative expenses as a percentage of sales for the 14th straight quarter via increased sales and ongoing efforts to reduce or control expenses.

3RD-QUARTER RESULTS

Qtr Ended 9/7/96 9/9/95

Sales $4.0 billion $3.8 billion

Change 2.8%

Same-store 4.5%

Net Income $105.9 million $83.7 million

Change 26.5%

nc/Share 44 cents 35 cents

36 Weeks 1996 1995

Sales $11.8 billion $11.2 billion

Change 4.9%

Same-store 5.3%

Net Income $309 million $214.4 million

Change 44.1%

Inc/Share $1.29 88 cents

Same-store sales results exclude 86 stores in British Columbia closed during a labor dispute that extended through the first 24 days of the third quarter.