In wake of Sobeys' deal, Safeway reports 1.2% quarterly increase in same-store sales

PLEASANTON, Calif. — Incoming president and CEO Robert Edwards had a busy first-quarter at Safeway — the company last month agreed to sell its Canadian operations to Sobeys, and Safeway initiated an IPO for its Blackhawk prepaid card business. Safeway is now a 73% majority owner in the company. "This is an interesting quarter to report," Edwards told analysts Thursday morning. 

"We are pleased with the significant milestones we achieved this quarter," Edwards said. "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."

Safeway on Thursday reported sales and other revenue declined 1.6% to $8.7 billion in the second quarter of 2013, primarily due to lower fuel sales in 2013 and the disposition of Genuardi's stores in 2012 that was partly offset by an identical-store sales (excluding fuel) increase of 1.2%. Safeway expects to maintain that same-store sales momentum, projecting year-end identical sales will fall between 1.5% and 2%. 

In early afternoon trading, Safeway shares were up more than $1.50 to $26.15 per share.

Safeway is bullish on improving its ID sales based on a pair of initiatives. Later this year, Safeway will be rolling out its much-anticipated wellness initiative. But Edwards reported there were no updates to disclose at this time. In addition to wellness, Safeway will be focusing on tailoring its mix to the many local markets the grocer serves. "Increasingly, you're going to hear us talk about localization and how important that will be going forward," Edwards said. "We need to be relevant to consumers in each market."

Generic utilization will also have less of an impact on ID sales going forward. In the first quarter, the impact of generics was 88 basis-points. In the quarter just reported it was 79 basis-points. "The negative impact will decline in the quarter we just completed to 34 basis-points [in the third quarter]" Edwards said. In the fourth quarter, the generic utilization impact is expected to be as low as 24 basis-points. 

Safeway invested $125.4 million in capital expenditures in the second quarter of 2013 compared to $203.7 million in the second quarter of 2012.


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