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    Safeway Lowers Financial Outlook

    PLEASANTON, Calif. - Citing the negative impact that marketing expenses and the continuing effect of the Southern California strike/lockout would have on its performance next year, Safeway, Inc. yesterday lowered its financial outlook below analysts' expectations.

    PLEASANTON, Calif. - Citing the negative impact that marketing expenses and the continuing effect of the Southern California strike/lockout would have on its performance next year, Safeway, Inc. yesterday lowered its financial outlook below analysts' expectations.

    At its annual investor conference, the chain issued earnings per share guidance of $1.50 to $1.60, not including the expensing of stock options next year. Since the estimated impact of expensing stock options is nine cents per share for the year, Safeway's reported earnings per share are expected to be in the range of $1.41 to $1.51, the company said yesterday. Analysts had forecast guidance of $1.63 to $1.67, according to published reports.

    Safeway said factors affecting performance included a slow recovery from the harmful effects of the strike at its Vons stores, as well as a significant increase in brand building and other marketing investments designed to boost sales. Next year, the Vons strike is projected to have a lingering impact on earnings of about 20 cents per share, compared with pre-strike results; and incremental marketing expenditures are projected to reduce earnings by about 20 cents per share.

    The company noted that it expected to generate non-fuel identical-store sales growth of 1.2 percent to 1.5 percent in 2005, excluding Vons, in the first quarter.

    Safeway added that it intended to spend about $1.4 billion in cash capital expenditures in 2005, to open 30 to 35 new stores, and to remodel 275 to 285 stores. Square footage growth is expected to be approximately 1 percent. Safeway expects to generate free cash flow next year in the range of $500 million to $700 million, mainly because of higher expected net cash flows used by investing activities in 2005 over 2004.

    "We made substantial progress in differentiating our offering in 2004, and we plan to step up those efforts in 2005," said chairman, president, and c.e.o. Steve Burd in a statement. "We have made dramatic improvements in our perishable departments, have grown our proprietary products substantially, and have confirmed the value of our store remodel program. We also expect to benefit from the significant progress we made in restructuring our labor contracts and from our improved organizational structure. In 2005 we plan to make substantial brand building and other marketing investments to improve sales momentum. We are confident that these actions will restore growth to our business in 2005 and beyond."

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