ALBERTSON'S SAYS IT'S PICKING UP MOMENTUM

ELLIOT ZWIEBACH

BOISE, Idaho -- Albertson's here said last week it believes it is picking up momentum in stemming the downward spiral of sales and earnings that resulted from integration issues, with financial results likely to improve as the year progresses.

"We've made a lot of progress in the last three months, and we feel good about the momentum created in the fourth quarter, which is carrying over into the current year," Gary G. Michael, chairman and chief executive officer, said. "Our business is healthy, and we think the strategies we've put in place are solid.

"We're not running downhill with the wind at our backs, and we're certainly not going uphill either, but the momentum has shifted for us."

Michael made his remarks during a conference call to discuss financial results for the year and fourth quarter ended Feb. 1 -- a 52-week year with a 13-week fourth quarter, compared with a 53-week year and a 14-week fourth quarter in fiscal 1999.

Sales for the year fell 1.9% to $36.8 million and net income jumped 89.4% to $765 million, largely as a result of getting past merger-related costs that had drained earnings. Excluding the extra week and the divestment of 145 stores a year ago, Albertson's said sales for the year were up 3.8% and same-store sales rose 0.6%, while net income before merger-related costs and a onetime charges related to the divestitures fell 8.9% to $870 million.

For the fourth quarter, sales fell 3.6% to $9.5 billion and net income dropped 16.7% to $220 million. Excluding the extra week and the divestitures, the company said sales increased 3.9% and comps rose 0.3%, while net income before merger-related costs fell 20.7% to $246 million.

The company said merger-related costs and the onetime charge amounted to $105 million after tax for the year, or 25 cents per share, while merger-related costs totaled $26 million after tax for the quarter, or 6 cents per share.

Michael said Albertson's is cautiously optimistic about results for the current year, with earnings per share of $2.20 for the year and 45 cents for the first quarter.

Looking ahead, Michael said, "There's still a lot of doom and gloom in the marketplace as consumer confidence continues to plunge, and those kinds of worries have an effect. High energy prices are a particular concern, and money to pay energy bills comes out of disposable income, so there's less money out there."

Michael acknowledged that Albertson's has had difficulty driving traffic into its stores over the past 18 months, "and that's what our people have been working on, and we believe we're doing the right things to [resolve that problem]. As a result, efforts to increase our focus on market share have been at the forefront in the last three or four months, and we've seen indications of progress.

"We've always been good at execution, but the emphasis now is on more consumer research and believing what consumers tell us so we know exactly what our problem areas are. So we go out into the field and talk to consumers about their perceptions, and that research helps the divisions focus on the right things instead of taking a shotgun approach," Michael said.

Peter Lynch, president and chief operating officer, said, "We've completed the first round of research to benchmark the company, and we're using that feedback to respond to the changing needs with new sales and service initiatives.

"In the center store, for example, we're using those tools for better decisions on pricing, promotions and optimizing space. In one division, we've reset adjacencies and implemented schematics that have improved identical grocery sales and total sales significantly. That isn't happening in all markets, but we've established the potential for stockkeeping unit rationalization."

Lynch listed several other initiatives that Albertson's is pursuing, including the following:

Realigning management to push decision-making from the regional to the divisional level -- a process that was completed during the fourth quarter. "It's still too early to judge the results," he said, "because we're still on a learning curve."

Improving merchandising. "We're studying layouts of stores to improve item selection in perishables and the center store, and we're working with vendors for unique center-store promotions."

Increasing the focus on corporate brands, including the introduction of three new premium labels -- Village Market meats, Timberwood wines and Identity bath lines -- that accounted for $10 million in sales during the fourth quarter.

Eliminating inconsistencies across the company. "It seems like a very basic strategy, but because we've completely changed the complexion of the company over the last two years, certain inconsistencies have developed that we're now committed to minimizing."

Increasing pharmacy business, including the installation of a common planogram at 65% of pharmacy operations at both freestanding stores and in-store departments. Lynch noted that pharmacy accounted for 15% of total sales.

Focusing more on fuel centers, which show "great potential for future growth, while serving as a vehicle for cross promotions between the store and the fuel center." Most fuel centers include a convenience store, he added, "and we've developed a 3,000-square-foot prototype convenience store."

Utilizing data from business-to-business functions to cut costs. Lynch noted that Albertson's participation in five auctions with its retail partners in the World Wide Retail Exchange "saved us 10%."

Mike Reuling, vice chairman, said Albertson's is attempting to reduce the costs of opening new stores, "and in one market, we've been able to reduce our costs per new store by $5 a foot," he said.

Reuling also said Albertson's is expanding its Chicago distribution center "to eliminate inefficiencies resulting from transferring items to outside storage."