Safeway sees sales rising, but profits pressured

Safeway digested an unprecedented amount of change during the second quarter and still managed to achieve solid profit improvement and a respectable amount of sales growth while strengthening its balance sheet.

The company said sales from continuing operation during the period ended June 15 declined 1.6% to $8.7 billion from $8.8 billion, but the drop was due largely to reduced fuel prices and the disposal of stores under the Genuardi’s banner. The company’s identical store sales actually increased 1.2%. Meanwhile, income from continuing operations, adjusted to exclude several non-recurring items, increased 43% to $68.1 million, or 28 cents a share, from $47.6 million, or 20 cents a share.

The financial performance occurred during a quarter that saw Safeway digest considerable change. On April 24, the company’s Blackhawk Networks subsidiary, a leading provider of prepaid gift cards through the Gift Card Mall platform, completed an IPO which reduced Safeway’s ownership position to 73% from 95%. A few days later, Robert Edwards was named president and CEO to replace Steven Burd, who had previously announced his retirement. Then on June 12, Safeway announced that it had sold its 223 unit Canadian subsidiary to Sobey’s, a food retailing division of Empire Company Limited.

“We are pleased with the significant milestones we achieved this quarter,” said Edwards. “The substantial cash proceeds we expect to receive from the sale of our Canadian operations combined with the completion of the Blackhawk IPO will allow us to broadly enhance stakeholder value. At the same time, our continuing U.S. operations demonstrated strong year over year earnings growth in the second quarter, and we continue to gain share in our U.S. markets with a 20 basis-point improvement in the supermarket channel and a two basis-point improvement in the all-outlet channel."

Looking ahead, Safeway said it expects full year identical store sales in the range of 1.5% to 2% and also cautioned that earnings per share could be toward the low end of a previously provided guidance range of $2.25 to $2.45.

Safeway ended the quarter with 1,412 stores.