PLEASANTON, CA--(Marketwire - Apr 28, 2011) - Safeway Inc. (NYSE: SWY)
Results From Operations
Safeway Inc. today reported net income of $25.1 million ($0.07 per diluted
share) for the first quarter of 2011. Net income included an $80.2 million
tax charge ($0.22 per diluted share) resulting from the previously
announced decision to repatriate $1.1 billion from Safeway's wholly-owned
Canadian subsidiary. Excluding this tax charge, net income was $105.3
million ($0.29 per diluted share). For the first quarter of 2010, net
income was $96.0 million ($0.25 per diluted share).
"Our first quarter results are in line with our expectations, and we are
pleased with our improving sales trends," said Steve Burd, Chairman,
President and CEO. "Identical-store sales, excluding fuel, improved for the
fifth consecutive quarter and are now positive. We are successfully
passing cost inflation along at retail, while making appropriate price
adjustments to remain competitive."
Sales and Other Revenue
Total sales increased 4.8% to $9.8 billion in the first quarter of 2011
compared to $9.3 billion in the first quarter of 2010. This increase was
the result of higher fuel sales, a 0.4% increase in identical-store sales,
excluding fuel, and a higher Canadian exchange rate, partly offset by
reduced sales due to closed stores.
Historically, Safeway has recorded Blackhawk Network distribution
commissions on the sale of certain gift cards net of the commissions shared
with other retailers. In the first quarter of 2011, Safeway determined
that these commissions should be reported on a gross basis. This change
increased both revenue and cost of goods sold in the first quarter of 2011,
but had no impact on same-store sales, gross profit dollars, or net income.
Previously reported results are not adjusted because the impact is
immaterial.
Gross Profit
Gross profit declined 87 basis points to 27.54% of sales in the first
quarter of 2011 compared to 28.41% of sales in the first quarter of 2010.
Excluding the 87 basis-point impact from fuel sales and the 18 basis-point
impact from the accounting change in gift card commissions, gross profit
increased 18 basis points. This increase was largely the result of improved
shrink, partly offset by investments in price, employee severance charges
and LIFO expense.
Operating and Administrative Expense
Operating and administrative expense declined 81 basis points to 25.30% of
sales in the first quarter of 2011 from 26.11% of sales in the first
quarter of 2010. Excluding the 67 basis-point impact from fuel sales and
the 16 basis-point impact from the accounting change in gift card
commissions, operating and administrative expense margin increased two
basis points. This increase was largely the result of higher labor costs
and an increased reserve for real estate litigation, partly offset by
reduced losses from property impairment and disposal, lower occupancy costs
and reduced store indirect expenses.
Interest Expense
Interest expense declined to $65.7 million in the first quarter of 2011
from $69.7 million in the first quarter of 2010 due to lower average
borrowings and lower average interest rates.
Income Taxes
Income tax expense in the first quarter of 2011 includes a charge of $80.2
million ($0.22 per diluted share) related to the decision to repatriate
$1.1 billion from Safeway's Canadian subsidiary. Excluding this tax
charge, income tax expense declined to 33.0% of pre-tax income in the first
quarter of 2011 compared to 35.3% in the first quarter of 2010 due
primarily to higher earnings from Canadian operations, which have a lower
tax rate.
Guidance
Safeway is reaffirming guidance for the year of $1.45 to $1.65 earnings per
diluted share (including the estimated $0.15 per diluted share negative
impact from the Canadian dividend), non-fuel ID sales growth of 1% to 1.5%,
operating profit margin change of flat to slightly positive and free cash
flow of $0.75 billion to $0.85 billion.
The estimated negative impact of $0.15 per diluted share from the Canadian
dividend consists of $0.22 of tax expense (which was recognized in the
first quarter of 2011), partially offset by a $0.06 benefit from share
repurchases and $0.01 from lower interest expense (both of which will be
recognized over the remainder of 2011). The combined impact of the
dividend and related share repurchases is expected to be accretive to
earnings per diluted share in 2012 and beyond.
Stock Repurchases
During the first quarter of 2011, Safeway purchased 7.7 million shares of
its common stock at an average price of $22.47 per share and a total cost
of $173.7 million (including commissions). The remaining board
authorization for stock repurchases at quarter-end was approximately $1.5
billion.
Capital Expenditures
Safeway invested $185.1 million in capital expenditures in the first
quarter of 2011. The company opened three new Lifestyle stores, completed
five Lifestyle remodels and closed five stores. For the year, Safeway
plans to invest approximately $1.0 billion in capital expenditures, open 26
new Lifestyle stores and complete 30 Lifestyle remodels.
Cash Flow
Net cash flow used by operating activities was $60.0 million in the first
quarter of 2011 compared to $242.0 million in the first quarter of 2010.
This decrease was primarily due to a lower use of cash by working capital
in the first quarter of 2011 compared to the first quarter of 2010
primarily driven by a lower increase in inventory and a lower reduction in
payables and accruals.
Net cash flow used by investing activities was $188.4 million in the first
quarter of 2011 compared to $192.7 million in the first quarter of 2010
primarily because of reduced capital expenditures.
Net cash flow used by financing activities was $132.8 million in the first
quarter of 2011 compared to net cash flow provided by financing activities
of $416.3 million in the first quarter of 2010 due primarily to a net
reduction in borrowings.
About Safeway
Safeway Inc. is a Fortune 100 company and one of the largest food and drug
retailers in
North America based on sales. The company operates 1,692 stores in the
United States and Canada. The company's common stock is traded on the New
York Stock Exchange under the symbol SWY.
Safeway Conference Call
Safeway's investor conference call discussing first quarter results will be
broadcast live over the internet at www.safeway.com/investor_relations at
8:00 a.m. PT on April 28, 2011. Click on Webcast Events to access the
call. A replay will be available via webcast for approximately one week
following the conference call.
This press release contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such statements relate to, among other
things, estimates of diluted earnings per share, sales growth, inflation,
cost control, impact of Canadian dividend, related interest expense and
related share repurchases, capital expenditures, free cash flow, Lifestyle
stores and financial and operating results. Forward-looking statements are
indicated by words or phrases such as "guidance," "believes," "expects,"
"anticipates," "estimates," "plans," "continuing," "ongoing," and similar
words or phrases and the negative of such words and phrases.
Forward-looking statements are based on our current plans and expectations
and involve risks and uncertainties which are, in many instances, beyond
our control, and which could cause actual results to differ materially from
those included in or contemplated or implied by the forward-looking
statements. Such risks and uncertainties include the following: general
business and economic conditions in our operating regions, including the
rate of inflation or deflation, consumer spending levels, currency
valuations, population, employment and job growth and/or losses in our
markets; sales volume levels and price per item trends; pricing pressures
and competitive factors, which could include pricing strategies, store
openings, remodels or acquisitions by our competitors; results of our
programs to control or reduce costs, improve buying practices and control
shrink; results of our programs to increase sales; results of our
continuing efforts to expand corporate brands; results of our programs to
improve our perishables departments; results of our promotional programs;
results of our capital program; results of our efforts to improve working
capital; results of any ongoing litigation in which we are involved or any
litigation in which we may become involved; the resolution of uncertain tax
positions; the ability to achieve satisfactory operating results in all
geographic areas where we operate; changes in the financial performance of
our equity investments; labor costs, including benefit plan costs and
severance payments, or labor disputes that may arise from time to time and
work stoppages that could occur in areas where certain collective
bargaining agreements have expired or are on indefinite extensions or are
scheduled to expire in the near future; failure to fully realize or delay
in realizing growth prospects for new business ventures, including our
Blackhawk and Property Development Centers subsidiaries; legislative,
regulatory, tax, accounting or judicial developments, including with
respect to Blackhawk; the cost and stability of fuel, energy and other
power sources; the impact of the cost of fuel on gross margin and
identical-store sales; discount rates used in actuarial calculations for
pension obligations and self-insurance reserves; the rate of return on our
pension assets; the availability and terms of financing, including interest
rates; adverse developments with regard to food and drug safety and quality
issues or concerns that may arise; loss of a key member of senior
management; data security or other information technology issues that may
arise; unanticipated events or changes in real estate matters, including
acquisitions, dispositions and impairments; adverse weather conditions and
effects from natural disasters; performance in new business ventures or
other opportunities that we pursue; and the capital investment in and
financial results from our Lifestyle stores. We undertake no obligation to
update forward-looking statements to reflect developments or information
obtained after the date hereof and disclaim any obligation to do so.
Please refer to our reports and filings with the Securities and Exchange
Commission, including our most recent Annual Report on Form 10-K, as
amended, subsequent Quarterly Reports on Form 10-Q and subsequent Current
Reports on Form 8-K, for a further discussion of these risks and
uncertainties.
SAFEWAY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per-share amounts)
(Unaudited)
12 Weeks 12 Weeks
Ended Ended
March 26, March 27,
2011 2010
--------- ---------
Sales and other revenue $ 9,772.0 $ 9,327.1
Cost of goods sold (7,080.9) (6,677.5)
--------- ---------
Gross profit 2,691.1 2,649.6
Operating and administrative expense (2,471.9) (2,435.1)
--------- ---------
Operating profit 219.2 214.5
Interest expense (65.7) (69.7)
Other income, net 3.7 3.3
--------- ---------
Income before income taxes 157.2 148.1
Income taxes (132.1) (52.3)
--------- ---------
Net income before allocation to noncontrolling
interests 25.1 95.8
Add noncontrolling interests - 0.2
--------- ---------
Net income attributable to Safeway Inc. $ 25.1 $ 96.0
========= =========
Income per common share attributable to Safeway
Inc.:
Basic income per share $ 0.07 $ 0.25
========= =========
Diluted income per share $ 0.07 $ 0.25
========= =========
Weighted average shares outstanding:
Basic 366.0 387.8
========= =========
Diluted 366.8 390.0
========= =========
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per-share amounts)
(Unaudited)
March 26, Year-end
2011 2010
---------- ----------
ASSETS
Current assets:
Cash and equivalents $ 411.5 $ 778.8
Receivables 454.3 557.4
Merchandise inventories 2,730.0 2,623.4
Prepaid expense and other current assets 264.6 273.4
---------- ----------
Total current assets 3,860.4 4,233.0
Total property, net 9,812.7 9,910.2
Goodwill 432.6 430.9
Investment in unconsolidated affiliate 182.9 187.2
Other assets 329.5 386.8
---------- ----------
Total assets $ 14,618.1 $ 15,148.1
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes and debentures $ 5.0 $ 505.6
Current obligations under capital leases 30.7 30.7
Accounts payable 2,185.1 2,533.4
Accrued salaries and wages 430.0 468.9
Deferred income taxes 96.9 96.3
Other accrued liabilities 656.1 679.3
---------- ----------
Total current liabilities 3,403.8 4,314.2
Long-term debt:
Notes and debentures 4,375.0 3,843.8
Obligations under capital leases 449.9 456.2
---------- ----------
Total long-term debt 4,824.9 4,300.0
Deferred income taxes 106.2 153.5
Pension and post-retirement benefit obligations 731.4 727.9
Accrued claims and other liabilities 670.7 654.8
---------- ----------
Total liabilities 9,737.0 10,150.4
Stockholders' equity
Common stock: par value $0.01 per share;
1,500 shares authorized; 602.3 and 599.8 shares
issued 6.0 6.0
Additional paid-in capital 4,391.2 4,363.1
Treasury stock at cost; 239.7 and 231.8 shares (6,459.6) (6,283.8)
Accumulated other comprehensive income 137.7 88.0
Retained earnings 6,801.4 6,820.0
---------- ----------
Total Safeway Inc. equity 4,876.7 4,993.3
Noncontrolling interests 4.4 4.4
---------- ----------
Total equity 4,881.1 4,997.7
---------- ----------
Total liabilities and stockholders' equity $ 14,618.1 $ 15,148.1
========== ==========
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
12 Weeks Ended
--------------------
March 26, March 27,
2011 2010
--------- ---------
OPERATING ACTIVITIES
Net income before allocation to noncontrolling
interests $ 25.1 $ 95.8
Reconciliation to net cash flow used by operating
activities:
Depreciation expense 265.1 269.0
Property impairment charges 7.1 17.4
Share-based employee compensation 10.9 14.1
Excess tax benefit from exercise of stock options (0.4) (0.5)
LIFO expense 4.0 -
Equity in earnings of unconsolidated affiliate (1.8) (3.0)
Net pension and post-retirement benefit expense 25.7 29.8
Contributions to pension and post-retirement plans (6.6) (4.4)
(Gain) loss on property retirements and lease exit
costs, net (1.4) 11.0
Increase in accrued claims and other liabilities 25.3 16.4
Amortization of deferred finance costs 1.1 1.1
Deferred income taxes (59.0) -
Other 10.4 3.6
Changes in working capital items:
Receivables 24.4 27.1
Inventories at FIFO cost (102.3) (187.2)
Prepaid expenses and other current assets (12.1) (31.7)
Income taxes 152.0 21.2
Payables and accruals (67.5) (145.4)
Payables related to third-party gift cards, net
of receivables (360.0) (376.3)
--------- ---------
Net cash flow used by operating activities (60.0) (242.0)
--------- ---------
INVESTING ACTIVITIES
Cash paid for property additions (185.1) (192.6)
Proceeds from sales of property 6.0 12.2
Other (9.3) (12.3)
--------- ---------
Net cash flow used by investing activities (188.4) (192.7)
--------- ---------
FINANCING ACTIVITIES
Payments on short-term borrowings, net (0.6) (0.2)
Additions to long-term borrowings 556.4 504.9
Payments on long-term borrowings (532.1) (7.7)
Purchase of treasury stock (133.0) (99.2)
Dividends paid (44.2) (38.8)
Net proceeds from exercise of stock options 22.3 57.3
Excess tax benefit from exercise of stock options 0.4 0.5
Other (2.0) (0.5)
--------- ---------
Net cash flow (used) provided by financing
activities (132.8) 416.3
--------- ---------
Effect of changes in exchange rate on cash 13.9 5.4
Decrease in cash and equivalents (367.3) (13.0)
CASH AND EQUIVALENTS
Beginning of period 778.8 471.5
--------- ---------
End of period $ 411.5 $ 458.5
========= =========
SAFEWAY INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(Dollars in millions)
(Unaudited)
TABLE 1: CAPITAL EXPENDITURES AND OTHER STATISTICAL DATA
12 Weeks Ended
-------------------
March 26, March 27,
2011 2010
--------- ---------
Cash capital expenditures $ 185.1 $ 192.6
Stores opened 3 -
Stores closed 5 13
Lifestyle remodels completed 5 9
Stores at end of period 1,692 1,712
Square footage (in millions) 79.2 79.5
Fuel sales $ 936.5 $ 649.5
Number of fuel stations at end of period 393 388
Increase in sales from change in Canadian exchange
rate $ 82.1 $ 236.1
TABLE 2: RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
(A+B-C) A B C
Rolling
Four 12 Weeks 12 Weeks
Quarters Year Ended Ended Ended
March 26, January 1, March 26, March 27,
2011 2011 2011 2010
--------- ------------ --------- ---------
Net income attributable to
Safeway Inc. $ 518.9 $ 589.8 $ 25.1 $ 96.0
Add (subtract):
Income taxes 370.4 290.6 132.1 52.3
Interest expense 294.5 298.5 65.7 69.7
Depreciation 1,158.5 1,162.4 265.1 269.0
LIFO (income) expense (24.0) (28.0) 4.0 -
Share-based employee
compensation 52.3 55.5 10.9 14.1
Property impairment
charges 61.4 71.7 7.1 17.4
Equity in earnings of
unconsolidated affiliate (14.1) (15.3) (1.8) (3.0)
Dividend from
unconsolidated affiliate 6.1 - 6.1 -
--------- ------------ --------- ---------
Adjusted EBITDA $ 2,424.0 $ 2,425.2 $ 514.3 $ 515.5
========= ============ ========= =========
Total debt at March 26, 2011 $ 4,860.6
Less cash and equivalents in
excess of $75.0 at
March 26, 2011 336.5
---------
Adjusted Debt $ 4,524.1
=========
Adjusted EBITDA as a
multiple of interest
expense 8.23 x
Minimum Adjusted EBITDA as a
multiple of interest
expense under bank credit
agreement 2.00 x
Adjusted Debt to Adjusted
EBITDA 1.87 x
Maximum Adjusted Debt to
Adjusted EBITDA under bank
credit agreement 3.50 x
SAFEWAY INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(Dollars in millions)
(Unaudited)
TABLE 3: RECONCILIATION OF NET CASH FLOW FROM OPERATING ACTIVITIES TO
ADJUSTED EBITDA
(A+B-C) A B C
Rolling
Four 12 Weeks 12 Weeks
Quarters Year Ended Ended Ended
March 26, January 1, March 26, March 27,
2011 2011 2011 2010
--------- ---------- --------- ---------
Net cash flow provided (used)
by operating activities $ 2,031.7 $ 1,849.7 $ (60.0) $ (242.0)
Add (subtract):
Income taxes 370.4 290.6 132.1 52.3
Interest expense 294.5 298.5 65.7 69.7
Amortization of deferred
finance costs (4.8) (4.8) (1.1) (1.1)
Excess tax benefit from
exercise of stock
options 1.5 1.6 0.4 0.5
Deferred income taxes 90.3 31.3 59.0 -
Net pension and
post-retirement benefit
expense (121.1) (125.2) (25.7) (29.8)
Contributions to pension
and post-retirement plans 19.9 17.7 6.6 4.4
Accrued claims and other
liabilities (45.1) (36.2) (25.3) (16.4)
Gain (loss) on property
retirements and lease
exit costs 39.9 27.5 1.4 (11.0)
Dividend received from
unconsolidated affiliate 6.1 - 6.1 -
Changes in working capital
items (258.9) 67.9 365.5 692.3
Other (0.4) 6.6 (10.4) (3.4)
--------- ---------- --------- ---------
Adjusted EBITDA $ 2,424.0 $ 2,425.2 $ 514.3 $ 515.5
========= ========== ========= =========
TABLE 4: RECONCILIATION OF GAAP CASH FLOW MEASURE TO FREE CASH FLOW*
12 Weeks Ended
--------------------
March 26, March 27, Forecasted Range
2011 2010 Fiscal 2011
--------- --------- --------------------
Net cash flow used by operating
activities, as reported $ (60.0) $ (242.0)
Decrease in payables related to
third-party gift cards, net of
receivables 360.0 376.3
--------- ---------
Net cash flow from operating
activities, as adjusted 300.0 134.3 $ 1,755.0 1,855.0
Net cash flow used by investing
activities (188.4) (192.7) (1,000.0) (1,000.0)
--------- --------- --------- ---------
Free cash flow $ 111.6 $ (58.4) $ 755.0 $ 855.0
========= ========= ========= =========
*Excludes cash flow from payables related to third-party gift cards, net of
receivables. Cash from the sale of third-party gift cards is held for a
short period of time and then remitted, less Safeway's commission, to card
partners. Because this cash flow is temporary it is not available for
other uses, and is therefore excluded from the company's calculation of
free cash flow.
TABLE 5: SAME-STORE SALES
First Quarter 2011
------------------------------------------------
Comparable- Identical-
Store Sales Store Sales
Increases Increases*
----------------------- -----------------------
As reported 4.0% 3.5%
Excluding fuel sales 1.0% 0.4%
*Excludes replacement stores.
SAFEWAY INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(Dollars in millions, except per-share amounts)
(Unaudited)
TABLE 6: RECONCILIATION OF GAAP NET INCOME ATTRIBUTABLE TO SAFEWAY INC. TO
NET INCOME EXCLUDING TAX ON REPATRIATED EARNINGS FROM CANADA
First Tax on First
Quarter Repatriated Quarter
2011, Earnings 2011,
as Reported From Canada as Adjusted
------------ ------------- ------------
Income before income taxes $ 157.2 $ 157.2
Income taxes (132.1) $ 80.2 (51.9)
------------ ------------- ------------
Net income attributable to
Safeway Inc. $ 25.1 $ 80.2 $ 105.3
============ ============= ============
Diluted net income per common
share attributable to Safeway
Inc. $ 0.07 $ 0.22 $ 0.29
============ ============= ============
TABLE 7: RECONCILIATION OF GROSS PROFIT AND OPERATING AND ADMINISTRATIVE
EXPENSE BASIS-POINT CHANGE EXCLUDING FUEL AND GROSS PRESENTATION OF GIFT
CARD COMMISSIONS
First Quarter 2011
------------------------------
Operating and
Administrative
Gross Profit Expense
-------------- --------------
Basis point decrease, as reported (87) (81)
Impact from fuel sales 87 67
Impact from gross presentation of gift card
commissions 18 16
-------------- --------------
Basis point increase, excluding impact from
fuel sales and gross presentation
of gift card commissions 18 2
============== ==============