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Investments in lower prices to accommodate cash-conscious consumers will result in soft identical-store sales through the end of the year for Pleasanton, Calif.-based Safeway, the grocer said yesterday during its quarterly earnings conference call.
“In this challenging economic environment, we continue to focus on providing our customers with greater value by lowering everyday prices on items people buy most often and offering high-quality private label brands,” said Steve Burd, Safeway chairman, president and CEO. “Investments in lower prices take time to gain sales traction. This is particularly true in today’s environment where our volume increases are more than offset by price investments, an unprecedented level of deflation in two of our largest categories and trading down. Nonetheless, our free cash flow expectations have not changed, giving us significant financial flexibility.”
Safeway’s total sales declined 6.5 percent to $9.5 billion in the second quarter of 2009, compared with $10.1 billion for the same period last year. This decline was the result of lower fuel sales (which was due primarily to lower fuel prices), a decline in the Canadian exchange rate and a 1.5 percent decline in identical-store sales for the quarter, excluding fuel. After excluding the weeks affected by the shift in Easter holiday sales (Easter occurred in the second quarter of 2009 and in the first quarter of 2008), identical-store sales for the quarter, excluding fuel, declined 2.2 percent.
The grocer’s net income for the quarter was $238.6 million, or 57 cents per share, up from $234.3 million, or 53 cents per share, last year, and included a $57.8 million tax benefit from the resolution of a tax matter.
Safeway invested $202.1 million in capital expenditures in the second quarter of 2009. It opened one new Lifestyle store, completed 36 Lifestyle remodels and closed three stores. For the year, the company expects to spend about $1 billion in capital expenditures, open about 10 new Lifestyle stores and complete approximately 90 Lifestyle remodels.
Because of the drop in ID sales and continued impact of the economy, Safeway lowered its earnings guidance for the year 2009 to $1.70 to $1.90 per share, and identical-store sales guidance, excluding fuel, to -1.0 percent to -1.7 percent.
Safeway operates 1,735 stores in the United States and Canada.