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PLEASANTON, Calif. - "We have a growth machine here," Safeway president, chairman, and c.e.o. Steve Burd said yesterday during an earnings conference call here in response to a question about future acquisitions. "We're executing a strategy," he said. "Everything is working, from cost controls to sales increases and margin improvements. We have Blackhawk. We will do acquisitions down the road."
And by the numbers, the strategy is working. The retailer's sales in the fourth quarter of 2006 increased 3.8 percent to $12.5 billion, compared to $12 billion for the same period last year, driven by contributions from Lifestyle stores, and strong perishable and non-perishable performance. Identical-store sales, including and excluding fuel, increased 3.5 percent.
"Our fourth-quarter results demonstrate that our strategy continues to work well," said Burd. "By delivering superior perishables, completing more Lifestyle stores, making investments in price and promotion, controlling our costs, and delivering outstanding service, we are able to bring more to the table for our customers and our shareholders. We plan to continue to build on this momentum in 2007."
Such momentum is helping to expedite the rollout of the Lifestyle stores - Safeway's primary goal for the next two years. "Our capital spend will focus heavily on the remodels and less on new stores," said Burd. "Except when a great opportunity arises."
The retailer's Lifestyle concept now consists of five to six formats, according to Burd, each specifically designed for various demographic profiles, store sizes, and competitive sets.
Safeway's net income jumped to $307.9 million or 69 cents per share for the quarter, compared to $173.5 million or 39 cents per share the prior year. Net income for the quarter was increased by 8 cents per share due to favorable tax items, while net income for the year-ago period was reduced by a net 10 cents per share for store exit activities, employee buyouts, and the favorable resolution of tax issues.
Safeway's marketing strategy, Lifestyle store execution, and increased fuel sales also drove a 4.6 percent increase in the retailer's full-year 2006 sales, to $40.2 billion from $38.4 billion in 2005. Identical-store sales, excluding fuel, increased 3.3 percent.
Net income for the year ended 2006 was $870.6 million ($1.94 per share) compared to $561.1 million ($1.25 per share) in 2005.
During 2006, Safeway invested $1.67 billion in capital expenditures. The company opened 17 new Lifestyle stores, completed 276 Lifestyle remodels, and closed 31 stores. In 2007, the company expects to spend approximately $1.7 billion in capital expenditures, open approximately 25 new Lifestyle stores, and complete approximately 275 Lifestyle remodels.
Safeway confirmed its guidance for 2007 of $1.90 to $2.00 earnings per share and free cash flow of $400 million to $600 million. It expects identical-store sales, excluding fuel, to grow approximately 3.3 percent in the coming year.
Safeway operates 1,761 stores in the United States and Canada.