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    Safeway Q3 ID Sales Flat, but Q4 Showing Promise

    CEO Burd says investments in price and cost-cutting efforts are starting to pay off.

    Price is once again in the spotlight, and Safeway Inc.'s increased investment in pricing as well as adjustments in marketing and merchandising are bearing fruit, the grocer said in a conference call following the release of its third quarter performance.

    Safeway said it is now seeing a jump in its fourth-quarter identical-store sales, to 1.5 percent, following a third quarter of only 0.5 percent growth. Identical store sales growth for its third quarter might have been flat, but the fourth quarter is already showing promise as payoff time from strategic moves the company has been making, said chairman, president, and c.e.o. Steve Burd during a conference call with investors yesterday.

    "During the third quarter we took action to provide our customers with better everyday values," said Burd. "As we begin the fourth quarter, our sales momentum is building, with identical-store sales (excluding fuel) currently above 1.5 percent."

    Contributing to this growth is Safeway's ongoing investment in price.

    "The third quarter was probably one of our strongest quarters of price investment yet," said Burd. "But we are just concentrating on the items that matter most to consumers and then we made very significant changes in our corporate brand pricing, which are causing the sales of corporate brands to dramatically outpace those of national brands."

    This price investment includes building marketing solutions around saving money. "We operate with a large number of fueling stations, which allows us to build loyalty promotions that link to fuel," said Burd. "We are taking advantage of what are natural events for consumers and gearing our marketing around that, so that we've been running some promotions for food items that you might consumer on a Sunday football game. So just trying to take advantage of natural consumer events and play our marketing to that."

    Safeway's sales increased 3.9 percent to $10.2 billion for the quarter, up from $9.8 billion last year, an increase driven by higher fuel sales and contributions from Lifestyle stores.

    Net income for the quarter was $199.7 million, or 46 cents per share, up from $194.6 million or 44 cents per share last year. Year-to-date, net income $627.4 million, or $1.43 per share compared to $587.2 million ($1.32 per share) in 2007.

    Safeway invested just over $1 billion in capital expenditures so far this year, opening eight new Lifestyle stores, completing 119 Lifestyle remodels and closing 13 stores. For the year, the company now expects to spend $1.65 billion to $1.70 billion in capital expenditures, open approximately 20 new Lifestyle stores and complete approximately 240 Lifestyle remodels.

    Safeway confirmed its guidance for 2008 of $2.25 to $2.35 earnings per share, free cash flow of $500 million to $700 million, and identical-store sales growth, excluding fuel, of 1 percent to 2 percent.

    Safeway operates 1,738 stores in the United States and Canada.

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