STRIKE ADDS TO SAFEWAY LOSS 2004-02-16 (2)

ELLIOT ZWIEBACH

PLEASANTON, Calif.. -- The 18-week-old strike against Safeway in Southern California cost the chain $103 million during its first 84 days, or 35% of the company's total loss, Steve Burd, chairman, president and chief executive officer, told financial analysts last week -- an expense he said he believes is in the best interests of shareholders and employees in the long run.

"I'm absolutely comfortable this is the right thing to do for the business and the best way to protect existing high-paying [union] jobs," he said.

"Health care is a national crisis of sorts that's adding considerably to everyone's costs. The health plan we have in place now is extraordinary, but people lose sight that what we're trying to accomplish in Southern California is to make changes to the plan that are sensible and leave employees with a plan that will be a whole lot better than my [personal health insurance] plan."

Burd said the strike cost Safeway $2.4 million a day in pretax costs during the first four weeks; since then it has fallen to $2 million a day or slightly less, he added.

Burd said the length of the strike has been dictated in part by the gap between the two sides at the bargaining table.

Burd said he does not believe it will take too long for Safeway to regain its market share once the strike is over. "I think in Southern California the time will be somewhere between two weeks and 36 weeks, and we have a marketing plan ready to go."

Asked if customers have been returning to Safeway since the strike began, Burd replied, "Since the first three weeks, our sales have been 30% higher. Those numbers have continued to inch up, and we think they will continue to improve."

Safeway's sales for the 53-week year rose 2.3% to $35.6 billion, with a loss of $169.8 million, compared with a loss of $828.1 million a year ago.

Sales for the 17-week fourth quarter rose 2.7% to $11 billion, with identical-store sales up 0.7% excluding the strike and down 0.8% excluding fuel sales; the company did not release a comparable-sales number including the strike for the quarter or the year. The loss for the quarter was $695.9 million, compared with a loss of $1.05 million a year ago.

The loss included the impact of the strike and of non-cash charges related to the decision to take Dominick's Finer Foods, its Chicago-based division, off the selling block. Excluding those charges, Safeway said it had positive earnings for the year and fourth quarter.

4TH-QUARTER RESULTS

Qtr Ended 1/3/04 12/28/02

Sales $11.0 billion $10.7 billion

Change 2.7%

Comp-store Not Available

Net Income ($695.9 million) $1.05 million)

Inc/Share ($1.57) ($2.37)

53 Weeks 2003 2002

Sales $35.6 billion $34.8 billion

Change 2.3%

Comp-store Not Available

Net Income ($169.8 million) ($828.1 million)

Inc/Share (38 cents) ($1.77)