ALBERTSONS ACHIEVES COST CUTS; 4Q PERFORMANCE SLIPS

ELLIOT ZWIEBACH

BOISE, Idaho - Albertsons here said last week it has reached its goal of achieving $1.25 billion in cost savings a full year ahead of schedule.

The company, which is in the process of being acquired, also reported a decline in performance for the fourth quarter that ended Feb. 2.

Albertsons set the cost-containment goal in mid-2001. However, with the $103 million in savings achieved in the fourth quarter, the company said it had already reached cumulative savings of $1.26 billion.

Larry Johnston, chairman, president and chief executive officer, said the most significant portion of the savings were generated "by our structural cost reductions and procurement in distribution." He said the savings helped fuel the chain's pricing and promotional initiatives.

Johnston said Albertsons expects to complete the previously announced sale of the company to Supervalu, CVS and a group of investors lead by Cerberus Capital by the middle of the year.

However, in prerecorded remarks to financial analysts reviewing results for the year and quarter, Johnston discussed ongoing initiatives as if no sale were imminent, including the following:

The ongoing rollout of its Avenue kiosk program to other banners beyond Jewel-Osco. The program, which provides customers with 12 customized offers when they enter the store and swipe their loyalty card, was tested at several Jewel-Osco stores and expanded to all combination stores within that division during the quarter. "It is generating very positive feedback from our customers," Johnston said, "[and] the products featured in the program have demonstrated significant sales increases."

An agreement with Snapfish, a service of Hewlett-Packard, that enables consumers to share and store digital photos online for free and to order prints for as low as 10 cents each from their homes.

A test of HP's Photo Smart Express self-service kiosks that quickly produce photo prints.

The launch and subsequent rollout to over 1,500 stores of a "produce taste" campaign, where store directors and produce managers recommend 10 produce items per week to customers through personalized in-store signage, "which helps shift sales from promotional items to items sold at full margin," Johnston said. "The results have been fantastic, with strong increases in both incremental sales and profits."

The rollout to every supermarket in the company of the chain's Salad Place program, which provides all ingredients for a restaurant-quality salad at one location within the store - a program that has resulted "in increased sales and gross profit dollars as well as a reduction in shrink of featured items," Johnston said.

The introduction of restaurant-quality items under Albertsons' Essencia label, including shrimp scampi, sirloin steak tips and scallops alfredo; the launch of Max Velocity, the chain's own-brand energy drink, "which is already outselling the national-brand category leader after only four months on the market," Johnston said; and the introduction of 52 additional products under the Equaline and HomeLife labels.

The fourth quarter and fiscal year had one less week than the comparable periods in the previous year. Net income for the 13-week quarter fell 16.5% to $162 million and was negatively impacted by 3 cents per share for costs associated with Albertsons' exploration of strategic alternatives and 6 cents per share for a change in the method for reflecting early payment discounts related to merchandise purchases. Earnings in the prior year included a 1-cent impact for hurricanes and 1 cent per share for a lease charge.

Sales for the quarter fell 7.5% to $10.2 billion, comparable-store sales fell 0.3% and identical-store sales dropped 0.4%. The company said fuel sales had a positive impact on comps of 30 basis points.

For the year, net income rose 0.5% to $446 million; sales rose 1.4% to $40.4 billion; and comps were up 0.4%, while identical-store sales increased 0.3%. Identical-store sales during the quarter and year were positive for the core and drug divisions and negative for non-core divisions.

The company said it had decided, on advice of its independent public accounting firm, to recognize early payment cash discounts as a reduction of inventory rather than including them in cost of sales as a financing item. As a result, it recorded a $23 million non-cash after-tax adjustment to reflect the change.

Felicia Thornton, executive vice president and chief financial officer, said the impact of the change on prior-year results would be immaterial. "If the company had applied this method historically, the impact would have been an approximate increase in earnings of $300,000 in 2003, $900,000 in 2004, and $300,000 in 2005 on an after-tax basis in each year," she said.

4TH-QUARTER RESULTS

Qtr Ended: 2/2/06*; 2/3/05

Sales: $10.2 billion; $11.1 billion

Change: -7.5%

Comp-store: -0.3%

Net Income: $162 million; $194 million

Change: -16.5%

Inc/Share: 43 cents; 52 cents

52 Weeks: 2005*; 2004

Sales: $40.4 billion; $39.8 billion

Change: 1.4%

Comp-store: 0.4%

Net Income: $446 million; $444 million

Change: 0.5%

Inc/Share: $1.20; $1.19

*Fiscal 2005 was a 52-week year with a 13-week fourth quarter; vs. 53 weeks and 14 weeks in fiscal 2004.