Pleasanton, Calif., Jul. 17 - Safeway Inc. today reported net income of $234.3 million ($0.53 per diluted share) for the second quarter of 2008 compared to net income of $218.2 million ($0.49 per diluted share) in the second quarter of 2007.
Sales and Other Revenue
Total sales increased 3.0% to $10.1 billion in the second quarter of 2008 compared to $9.8 billion in the second quarter of 2007. This increase was driven by contributions from Lifestyle stores, higher fuel sales and an increase in the Canadian dollar exchange rate, partly offset by a shift in Easter holiday sales which occurred in the first quarter of 2008 compared to the second quarter of 2007. Non-fuel, identical-store sales declined 0.3% due in part to the shift in Easter holiday sales. When adjusted to exclude the estimated impact of the Easter holiday shift, non-fuel, identical-store sales increased 1.0%.
“Our earnings performance this quarter was strong in light of a soft sales environment and the Easter holiday shift. We produced this earnings growth primarily through efficient retail execution, cost reduction and sales mix improvement,” said Steve Burd, Chairman, President and CEO. “Free cash flow for the quarter was also very strong.”
“We are focused on improving our sales momentum by delivering greater value to our customers,” added Burd. “We remain confident in our ability to deliver earnings per share growth of 13-18% for this 53-week year.”
Gross Profit
Gross profit declined 20 basis points to 28.31% of sales in the second quarter of 2008 compared to 28.51% of sales in the second quarter of 2007. Excluding the effect of higher fuel sales (which have a lower gross margin) gross profit margin increased 26 basis points. This improvement was the result of improved shrink and lower advertising expense, partly offset by investments in price.
Operating and Administrative Expense
Operating and administrative expense improved 36 basis points to 23.85% of sales in the second quarter of 2008 from 24.21% of sales in the second quarter of 2007. Higher fuel sales in 2008 reduced operating and administrative expense margin by 26 basis points. The remaining 10 basis point improvement was the result of reduced employee costs, partly offset by lower property gains and higher energy and occupancy costs.
Interest Expense
Interest expense declined to $81.7 million in the second quarter of 2008 from $89.7 million in the second quarter of 2007 due to a combination of lower interest rates and lower average borrowings.
Other Income, Net
Other income declined to $2.0 million in the second quarter of 2008 from $5.4 million in the second quarter of 2007 due primarily to lower operating results at Casa Ley, Safeway’s unconsolidated affiliate.
Income Tax Expense
Income tax expense was $137.6 million, or 37.0% of pre-tax income in the second quarter of 2008. Income tax expense in the second quarter of 2007 was $119.9 million, or 35.5% of pre-tax income.
24-Week Results
Net income for the first 24 weeks of 2008 was $427.7 million ($0.97 per diluted share) compared to $392.6 million ($0.88 per diluted share) in the first 24 weeks of 2007.
The gross profit margin was 28.55% in the first 24 weeks of 2008 compared to 28.89% for the first 24 weeks of 2007. Operating and administrative expense margin was 24.31% in the first 24 weeks of 2008 compared to 24.80% in the first 24 weeks of 2007.
Stock Repurchases
During the second quarter of 2008, Safeway purchased 3.2 million shares of its common stock at an average price of $31.07 per share and a total cost of $100.6 million (including commissions). The remaining board authorization for stock repurchases at quarter-end was $1.3 billion.
Capital Expenditures
Safeway invested $676.8 million in capital expenditures in the first 24 weeks of 2008. The company opened four new Lifestyle stores, completed 68 Lifestyle remodels and closed seven stores. For the year, the company expects to spend $1.70 billion to $1.75 billion in capital expenditures, open approximately 20 new Lifestyle stores and complete approximately 250 Lifestyle remodels.
Cash Flow
Net cash flow from operating activities was $712.9 million in the first 24 weeks of 2008 compared to $652.1 million in the first 24 weeks of 2007.
Net cash flow used by investing activities was $657.0 million in the first 24 weeks of 2008 compared to $692.8 million in the first 24 weeks of 2007.
Net cash flow used by financing activities was $0.8 million in the first 24 weeks of 2008 compared to net cash flow provided by financing activities of $23.4 million in the first 24 weeks of 2007.
Free cash flow increased to $442.0 million in the second quarter of 2008 from $297.5 million in the second quarter of 2007. Free cash flow was $238.0 million in the first 24 weeks of 2008 compared to $66.8 million in the first 24 weeks of 2007.
Guidance
Safeway confirmed guidance for 2008 (a 53-week year) of $2.25 to $2.35 diluted earnings per share and free cash flow of $500 million to $700 million. Safeway revised guidance for identical-store sales growth, excluding fuel, from a range of 2.0% to 2.3% to a range of 1.0% to 2.0%.
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per-share amounts)
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Weeks Ended |
|
|
24 Weeks Ended |
|
|
June 14,
2008 |
|
|
June 16,
2007 |
|
|
June 14,
2008 |
|
|
June 16,
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
| Sales and other revenue |
$ |
10,120.0 |
|
|
$ |
9,823.3 |
|
|
$ |
20,118.8 |
|
|
$ |
19,145.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of goods sold |
|
(7,254.8 |
) |
|
|
(7,022.2 |
) |
|
|
(14,375.3 |
) |
|
|
(13,613.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
| Gross profit |
|
2,865.2 |
|
|
|
2,801.1 |
|
|
|
5,743.5 |
|
|
|
5,531.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating and administrative expense |
|
(2,413.6 |
) |
|
|
(2,378.7 |
) |
|
|
(4,890.0 |
) |
|
|
(4,748.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating profit |
|
451.6 |
|
|
|
422.4 |
|
|
|
853.5 |
|
|
|
783.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense |
|
(81.7 |
) |
|
|
(89.7 |
) |
|
|
(166.2 |
) |
|
|
(179.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
| Other income, net |
|
2.0 |
|
|
|
5.4 |
|
|
|
1.6 |
|
|
|
12.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income before income taxes |
|
371.9 |
|
|
|
338.1 |
|
|
|
688.9 |
|
|
|
616.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income tax expense |
|
(137.6 |
) |
|
|
(119.9 |
) |
|
|
(261.2 |
) |
|
|
(223.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
$ |
234.3 |
|
|
$ |
218.2 |
|
|
$ |
427.7 |
|
|
$ |
392.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic earnings per share |
$ |
0.54 |
|
|
$ |
0.50 |
|
|
$ |
0.98 |
|
|
$ |
0.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted earnings per share |
$ |
0.53 |
|
|
$ |
0.49 |
|
|
$ |
0.97 |
|
|
$ |
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| Basic |
|
437.0 |
|
|
|
440.0 |
|
|
|
438.2 |
|
|
|
440.1 |
|
| Diluted |
|
440.3 |
|
|
|
446.2 |
|
|
|
441.6 |
|
|
|
446.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per-share amounts)
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
June 14,
2008 |
|
|
Year-end
2007 |
| ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
| Cash and equivalents |
|
$ |
326.1 |
|
|
$ |
277.8 |
|
| Receivables |
|
|
469.8 |
|
|
|
577.9 |
|
| Merchandise inventories |
|
|
2,656.7 |
|
|
|
2,797.8 |
|
| Prepaid expenses and other current assets |
|
|
395.1 |
|
|
|
354.0 |
|
|
|
|
|
|
|
|
| Total current assets |
|
|
3,847.7 |
|
|
|
4,007.5 |
|
|
|
|
|
|
|
|
| Total property, net |
|
|
10,563.2 |
|
|
|
10,622.0 |
|
|
|
|
|
|
|
|
| Goodwill |
|
|
2,403.9 |
|
|
|
2,406.3 |
|
| Prepaid pension costs |
|
|
59.4 |
|
|
|
73.2 |
|
| Investment in unconsolidated affiliate |
|
|
212.0 |
|
|
|
216.0 |
|
| Other assets |
|
|
322.6 |
|
|
|
326.0 |
|
|
|
|
|
|
|
|
| Total assets |
|
$ |
17,408.8 |
|
|
$ |
17,651.0 |
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
| Current maturities of notes and debentures |
|
$ |
1,205.6 |
|
|
$ |
954.9 |
|
| Current obligations under capital leases |
|
|
44.8 |
|
|
|
42.5 |
|
| Accounts payable |
|
|
2,286.1 |
|
|
|
2,825.4 |
|
| Accrued salaries and wages |
|
|
443.2 |
|
|
|
506.7 |
|
| Deferred income taxes |
|
|
87.9 |
|
|
|
88.0 |
|
| Other accrued liabilities |
|
|
664.8 |
|
|
|
718.9 |
|
|
|
|
|
|
|
|
| Total current liabilities |
|
|
4,732.4 |
|
|
|
5,136.4 |
|
|
|
|
|
|
|
|
| Long-term debt: |
|
|
|
|
|
|
| Notes and debentures |
|
|
4,058.3 |
|
|
|
4,093.5 |
|
| Obligations under capital leases |
|
|
542.8 |
|
|
|
564.2 |
|
|
|
|
|
|
|
|
| Total long-term debt |
|
|
4,601.1 |
|
|
|
4,657.7 |
|
|
|
|
|
|
|
|
| Deferred income taxes |
|
|
267.1 |
|
|
|
254.7 |
|
| Pension and postretirement benefit obligations |
|
|
224.8 |
|
|
|
236.7 |
|
| Accrued claims and other liabilities |
|
|
668.1 |
|
|
|
663.7 |
|
|
|
|
|
|
|
|
| Total liabilities |
|
|
10,493.5 |
|
|
|
10,949.2 |
|
|
|
|
|
|
|
|
| Stockholders' equity: |
|
|
|
|
|
|
|
Common stock: par value $0.01 per share; 1,500 shares authorized; 590.4 and 589.3 shares issued |
|
|
5.9 |
|
|
|
5.9 |
|
| Additional paid-in capital |
|
|
4,094.7 |
|
|
|
4,038.2 |
|
| Treasury stock at cost; 155.0 and 149.2 shares |
|
|
(4,593.1 |
) |
|
|
(4,418.0 |
) |
| Accumulated other comprehensive income |
|
|
216.9 |
|
|
|
246.2 |
|
| Retained earnings |
|
|
7,190.9 |
|
|
|
6,829.5 |
|
| Total stockholders' equity |
|
|
6,915.3 |
|
|
|
6,701.8 |
|
|
|
|
|
|
|
|
| Total liabilities and stockholders' equity |
|
$ |
17,408.8 |
|
|
$ |
17,651.0 |
|
|
|
|
|
|
|
|
|
|
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
24 Weeks Ended |
|
|
|
June 14,
2008 |
|
|
June 16,
2007 |
| OPERATING ACTIVITIES |
|
|
|
|
|
|
| Net income |
|
$ |
427.7 |
|
|
$ |
392.6 |
|
| Reconciliation to net cash flow from operating activities: |
|
|
|
|
|
|
| Depreciation and amortization |
|
|
512.1 |
|
|
|
478.9 |
|
| Property impairment charges |
|
|
25.7 |
|
|
|
18.7 |
|
| Stock-based employee compensation |
|
|
27.7 |
|
|
|
22.9 |
|
| Excess tax benefit from exercise of stock options |
|
|
(1.3 |
) |
|
|
(7.2 |
) |
| LIFO expense |
|
|
13.2 |
|
|
|
4.6 |
|
| Equity in loss (earnings) of unconsolidated affiliate |
|
|
4.0 |
|
|
|
(7.7 |
) |
| Net pension expense |
|
|
38.9 |
|
|
|
33.1 |
|
| Contributions to pension plans |
|
|
(21.6 |
) |
|
|
(18.2 |
) |
| Loss (gain) on property retirements and lease exit costs, net |
|
|
4.9 |
|
|
|
(14.6 |
) |
| Increase in accrued claims and other liabilities |
|
|
16.6 |
|
|
|
14.4 |
|
| Amortization of deferred finance costs |
|
|
2.3 |
|
|
|
2.6 |
|
| Deferred income taxes |
|
|
6.4 |
|
|
|
- |
|
| Other |
|
|
1.8 |
|
|
|
4.0 |
|
| Changes in working capital items: |
|
|
|
|
|
|
| Receivables |
|
|
5.0 |
|
|
|
(31.0 |
) |
| Inventories at FIFO cost |
|
|
115.6 |
|
|
|
66.3 |
|
| Prepaid expenses and other current assets |
|
|
(27.0 |
) |
|
|
(54.7 |
) |
| Income taxes |
|
|
(12.0 |
) |
|
|
10.1 |
|
| Payables and accruals |
|
|
(245.0 |
) |
|
|
(155.2 |
) |
| Payables related to third-party gift cards, net of receivables |
|
|
(182.1 |
) |
|
|
(107.5 |
) |
| Net cash flow provided by operating activities |
|
|
712.9 |
|
|
|
652.1 |
|
|
|
|
|
|
|
|
| INVESTING ACTIVITIES |
|
|
|
|
|
|
| Cash paid for property additions |
|
|
(676.8 |
) |
|
|
(753.1 |
) |
| Proceeds from sale of property |
|
|
43.5 |
|
|
|
87.9 |
|
| Other |
|
|
(23.7 |
) |
|
|
(27.6 |
) |
| Net cash flow used by investing activities |
|
|
(657.0 |
) |
|
|
(692.8 |
) |
|
|
|
|
|
|
|
| FINANCING ACTIVITIES |
|
|
|
|
|
|
| Additions to short-term borrowings |
|
|
5.0 |
|
|
|
- |
|
| Additions to long-term borrowings |
|
|
449.5 |
|
|
|
433.4 |
|
| Payments on long-term borrowings |
|
|
(247.1 |
) |
|
|
(305.4 |
) |
| Purchase of treasury stock |
|
|
(174.7 |
) |
|
|
(120.0 |
) |
| Dividends paid |
|
|
(60.6 |
) |
|
|
(50.7 |
) |
| Net proceeds from exercise of stock options |
|
|
23.4 |
|
|
|
53.9 |
|
| Excess tax benefit from exercise of stock options |
|
|
1.3 |
|
|
|
7.2 |
|
| Income tax refund related to prior years' debt financing |
|
|
2.8 |
|
|
|
6.3 |
|
| Other |
|
|
(0.4 |
) |
|
|
(1.3 |
) |
| Net cash flow (used) provided by financing activities |
|
|
(0.8 |
) |
|
|
23.4 |
|
|
|
|
|
|
|
|
| Effect of changes in exchange rate on cash |
|
|
(6.8 |
) |
|
|
3.6 |
|
|
|
|
|
|
|
|
| Increase (decrease) in cash and equivalents |
|
|
48.3 |
|
|
|
(13.7 |
) |
|
|
|
|
|
|
|
| CASH AND EQUIVALENTS |
|
|
|
|
|
|
| Beginning of period |
|
|
277.8 |
|
|
|
216.6 |
|
| End of period |
|
$ |
326.1 |
|
|
$ |
202.9 |
|
|
|
|
|
|
|
|
SAFEWAY INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(Dollars in millions)
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| TABLE 1: CAPITAL EXPENDITURES AND OTHER STATISTICAL DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Weeks Ended |
|
|
24 Weeks Ended |
|
|
|
June 14,
2008 |
|
|
June 16,
2007 |
|
|
June 14,
2008 |
|
|
June 16,
2007 |
| Cash capital expenditures |
|
$ |
303.7 |
|
$ |
367.2 |
|
|
$ |
676.8 |
|
$ |
753.1 |
|
| Stores opened |
|
|
3 |
|
|
4 |
|
|
|
4 |
|
|
5 |
|
| Stores closed |
|
|
3 |
|
|
19 |
|
|
|
7 |
|
|
26 |
|
| Lifestyle remodels completed |
|
|
46 |
|
|
59 |
|
|
|
68 |
|
|
82 |
|
| Stores at end of period |
|
|
1,740 |
|
|
1,740 |
|
|
|
|
|
|
|
| Square footage (in millions) |
|
|
80.2 |
|
|
79.8 |
|
|
|
|
|
|
|
| Fuel sales |
|
$ |
1,025.5 |
|
$ |
887.4 |
|
|
$ |
1,862.1 |
|
$ |
1,538.0 |
|
| Number of fuel stations at end of period |
|
|
366 |
|
|
351 |
|
|
|
|
|
|
|
|
Increase in sales from change in Canadian exchange rate |
|
$ |
132.2 |
|
$ |
25.2 |
|
|
$ |
346.3 |
|
$ |
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TABLE 2: RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A+B-C)
Rolling
Four Quarters
June 14, 2008 |
|
|
A
Year Ended
December 29,
2007 |
|
|
B
24 Weeks
Ended
June 14, 2008 |
|
|
C
24 Weeks
Ended
June 16, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
|
$ |
923.5 |
|
$ |
888.4 |
|
|
$ |
427.7 |
|
$ |
392.6 |
|
| Add (subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
| Income taxes |
|
|
552.7 |
|
|
515.2 |
|
|
|
261.2 |
|
|
223.7 |
|
| Interest expense |
|
|
375.8 |
|
|
388.9 |
|
|
|
166.2 |
|
|
179.3 |
|
| Depreciation and amortization |
|
|
1,104.4 |
|
|
1,071.2 |
|
|
|
512.1 |
|
|
478.9 |
|
| LIFO expense |
|
|
22.5 |
|
|
13.9 |
|
|
|
13.2 |
|
|
4.6 |
|
| Stock-based employee compensation |
|
|
53.2 |
|
|
48.4 |
|
|
|
27.7 |
|
|
22.9 |
|
| Property impairment charges |
|
|
34.1 |
|
|
27.1 |
|
|
|
25.7 |
|
|
18.7 |
|
|
Equity in loss (earnings) of unconsolidated affiliate |
|
|
3.0 |
|
|
(8.7 |
) |
|
|
4.0 |
|
|
(7.7 |
) |
|
Dividend received from unconsolidated affiliate |
|
|
8.9 |
|
|
8.9 |
|
|
|
- |
|
|
- |
|
| Adjusted EBITDA |
|
$ |
3,078.1 |
|
$ |
2,953.3 |
|
|
$ |
1,437.8 |
|
$ |
1,313.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total debt at June 14, 2008 |
|
$ |
5,851.5 |
|
|
|
|
|
|
|
|
|
|
Less cash and equivalents in excess of $75.0 at June 14, 2008 |
|
|
251.1 |
|
|
|
|
|
|
|
|
|
| Adjusted Debt |
|
$ |
5,600.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA as a multiple of interest expense |
|
|
8.19 |
|
x |
|
|
|
|
|
|
|
|
Minimum Adjusted EBITDA as a multiple of interest expense under bank credit agreement |
|
|
2.00 |
|
x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjusted Debt to Adjusted EBITDA |
|
|
1.82 |
|
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)
Rolling
Four Quarters
June 14, 2008 |
|
|
A
Year Ended
December 29,
2007 |
|
|
B
24 Weeks
Ended
June 14, 2008 |
|
|
C
24 Weeks
Ended
June 16, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net cash flow from operating activities |
|
$ |
2,251.3 |
|
|
$ |
2,190.5 |
|
|
$ |
712.9 |
|
|
$ |
652.1 |
|
| Add (subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
| Income taxes |
|
|
552.7 |
|
|
|
515.2 |
|
|
|
261.2 |
|
|
|
223.7 |
|
| Interest expense |
|
|
375.8 |
|
|
|
388.9 |
|
|
|
166.2 |
|
|
|
179.3 |
|
| Amortization of deferred finance costs |
|
|
(5.0 |
) |
|
|
(5.3 |
) |
|
|
(2.3 |
) |
|
|
(2.6 |
) |
|
Excess tax benefit from exercise of stock options |
|
|
32.4 |
|
|
|
38.3 |
|
|
|
1.3 |
|
|
|
7.2 |
|
| Deferred income taxes |
|
|
(137.2 |
) |
|
|
(130.8 |
) |
|
|
(6.4 |
) |
|
|
- |
|
| Net pension expens |