Coming out of 2011, Safeway looking toward higher comps, stronger pharmacy biz
PLEASANTON, Calif. — Pharmacy and identical-store sales were identified as positives for Safeway, which discussed its fourth-quarter results with analysts on Thursday.
However, a 4.4% drop in gross profit margin, from 28.3% to 27%, drove Safeway shares down significantly this morning — as of early afternoon shares were down by almost $2 to around $21 per share, or just under a 10% decline. Early reports noted that the juxtaposition between rising fuel costs and inflationary food costs, coupled with a cost-conscious, value-driven consumer, placed Safeway’s ability to maintain profit margins between a rock and a hard place.
"When you have a 25% increase in [the cost of] fuel, and you have something close to a 5% increase in food … fuel is a touch more than 8% of a consumer’s budget and then you have food which is a little more than 13%," Safeway chairman, president and CEO Steve Burd said late Thursday morning during an analyst call. "That bucket of goods purchased goes up an average of 12.5%," he said. "Based on the market share data that we have, [this dynamic is impacting] virtually all food retailers."
So far into Safeway’s first quarter fiscal 2012, Safeway market share is on the rise despite the "same kind of softness in sales," Burd said. Part of that increase can be traced, however, to an influx of pharmacy patients out of the Walgreens/Express Scripts situation. "We didn’t see it in the first couple of weeks … but we’ve seen it ever since. It’s significant," Burd said. But Safeway also is organically growing its pharmacy business, Burd added. "It’s tough to generate positive [identical-store sales] in the script business … but we’re able to do that. Part of that benefit is the strong vaccination business we have; part of that is an increased focus on specialty. So we expect pharmacy business for us to be quite good this year."
On Thursday morning, Credit Suisse analyst Ed Kelly was still bullish on Safeway, noting that Safeway’s prevalence in the California market will be a strong positive to the grocer’s bottom line in the coming year. "West Coast supermarket sales — as reported by Nielsen — have outpaced national industry sales by 150 basis points in the last two months," Kelly wrote in a Thursday morning note. "While industry sales nationally have been weak, it appears California (35% of Safeway stores, but likely over 50% of earnings) has been better. It’s too early to call a recovery in the region, but any sustained improvement would be a large positive for the stock."
Overall sales were up 6.3% to $43.6 billion for the fiscal 2011 year ended Dec. 31. Identical-store sales were up 4.4% for the year; however, excluding fuel sales, same-store sales were up 1%. Safeway has been seeing significant gains in fuel sales in the past two years, Burd said. While volume across branded gasoline stations is down 3%, Burd said, Safeway’s fuel volume is up 15%. "That’s the second year in a row that we’ve been running volume increases to that magnitude," he said. "People have been responding to our fuel program."
NACDS launches site to promote 14th Annual NACDS Foundation Dinner
ALEXANDRIA, Va. — In an effort to promote the 14th Annual National Association of Chain Drug Stores Foundation Dinner, the association announced on Thursday the launch of a new website that promotes the event as “one night for health’s dawn.”
The 14th Annual NACDS Foundation Dinner will be held Nov. 27 in New York City. In 2011, the event raised $1.77 million for scholarships, research and charitable activities from 114 benefactors.
“The NACDS Foundation is advancing exhilarating projects to make a positive impact on public health. NACDS Foundation Dinner donors deserve to know that their engagement is a catalyst for forward-thinking initiatives that seek nothing less than to transform patient care and to help people live their lives more fully,” stated NACDS Foundation president Kathleen Jaeger.
“Just this January, the NACDS Foundation announced a bold new $750,000 grant opportunity to study the health impact of pharmacist-provided medication management in medical homes or accountable care organizations. This is the kind of timely, relevant and meaningful research that is made available uniquely by the NACDS Foundation Dinner,” Jaeger added.
This research initiative builds on a complementary 2011 NACDS Foundation research project testing interventions aimed at reducing patient primary nonadherence medication rates. The research is under way with partners from Harvard University and the University of Mississippi.
In addition, the NACDS Foundation will be rolling out a new Faculty Scholars Program. This program will provide five selected pharmacy school professors with, among other resources, research grants to support community-based healthcare research.
Sales challenging, but profits up and outlook rosy at Target
MINNEAPOLIS — Target overcame modest fourth-quarter sales growth to report profits that exceeded its earnings guidance and also provided a better-than-expected outlook for 2012.
The company report adjusted earnings per share of $1.49, a full 10 cents better than analysts’ consensus estimate of $1.39, and said its 2012 adjusted profit would fall in the range of $4.55 to $4.75, well ahead of analysts’ estimated of $4.25. The company reported earnings on an adjusted basis to reflect sizable expenses related to pre-opening costs associated with the 2013 entry into the Canadian market. If those costs are included, fourth-quarter profits would be reduced by 6 cents per share and the 2012 profit guidance range would drop by 50 cents. Analysts tend to focus on the adjusted figures as a more accurate measure of underlying profitability because start-up costs related to Canada will eventually be recovered in the form of profits in future periods.
Fourth-quarter same-store sales increased 2.2% and total sales increased 3.3% to $20.9 billion. For the year, Target’s sales increased 4.1% to $68.5 billion.
“Target generated strong financial performance in 2011, overcoming sluggish economic growth, restrained consumer spending and an intensely promotional holiday season,” Target chairman, president, and CEO Gregg Steinhafel said. “For the full year, our U.S. businesses generated 14.3% growth in adjusted earnings per share, and we experienced our strongest growth in comparable-store sales since 2007.”
He added that the company will continue to focus on bringing the “expect more, pay less” brand promise to life by providing unique, well-designed merchandise while driving value and loyalty through the company’s 5% Rewards and REDcard Free Shipping programs.
Target ended the year with 1,763 stores.