VONS POSTS WEEKLY SALES GAINS

ELLIOT ZWIEBACH

PLEASANTON, Calif. -- Safeway here said last week sales at its Vons stores in Southern California have been improving sequentially week over week in the eight weeks since the four-and-a-half month strike-lockout there was settled in early March.

"We see sequential improvement as we move through the weeks, and it's consistent with the pattern we have seen in strikes of similarly significant duration," Steve Burd, chairman, president and chief executive officer, told industry analysts during a conference call to discuss first-quarter financial results.

However, he said he expects the negative impact of the strike to continue through the second quarter and, in all likelihood, into the third quarter as well. "But if you get the sequential improvement, those [impacts] should be minimal as you move through time," Burd said.

Beyond the gradual sales recovery, Burd said Safeway is benefiting "more than we expected" on the cost side at Vons because fewer employees returned to their jobs than Safeway had anticipated.

Sales for the 12-week first quarter fell 5% to $7.6 billion, while comparable-store sales rose 0.5% excluding the strike-affected stores and fell 0.8% excluding the effect of fuel sales; identical-store sales rose 0.1% excluding the strike and fell 1.3% excluding fuel. Burd said sales picked up in the latter part of the first quarter "and continued into the second quarter, with ID store sales excluding Vons [growing] 1.1% in March and April. This sales improvement is broad-based, and we remain optimistic about the remainder of the year."

Net income for the quarter dropped 73.5% to $43.1 million. Safeway said earnings were negatively impacted by the strike, which reduced results by approximately $122 million, or 27 cents per share, and the closure of 12 underperforming Dominick's stores in the Chicago area, which reduced results by $28.5 million, or 6 cents per share.

In other comments during the call:

Burd said representatives of Dominick's and the United Food and Commercial Workers Union are "officially back" at the bargaining table after more than a year of the talks being on hold.

Asked if the company plans to close more than the 12 underperforming units, Burd said that decision will be a function of the ultimate labor agreement. "We'd like the store count to stay intact," he said, "because we think that's in the best interest of everybody in Chicago, including the employees and the union leaders. But we're not in a position, absent an agreement, to say whether the store count stays intact or whether it shrinks."

Safeway said three directors will resign from its board of directors so the company can appoint new independent directors. Two of the directors -- George Roberts and Jamie Greene -- are scheduled to leave the board "as soon as replacements are found," Burd said -- probably sometime in the next 60 days -- while Hector Ley Lopez will be replaced "as soon as practical."

The workers' compensation reform legislation that was passed last month in California should have a positive impact on Safeway's expenses, Burd said, particularly in California, which accounts for 60% of the chain's workers' comp costs -- an amount he estimated to be in excess of $100 million.

"We believe the legislation is going to save us some serious money [in California] because the average claim there is going to cost us considerably less," he said. "I don't think you will see workers' comp go up" through the rest of the year.

1ST-QUARTER RESULTS

Qtr Ended: 3/27/04; 3/22/03

Sales: $7.6 billion; $8.0 billion

Change: -5.0%

Comp-store: 0.5%

Net Income: $43.1 million; $162.6 million

Change: -73.5%

Inc/Share10 cents36 cents