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Safeway CEO to analysts: Grocer is not bracing for a buyout

BY Michael Johnsen

PLEASANTON, Calif. — Recent events, which have driven Wall Street analysts to speculate that Safeway is a buyout target, are not interrelated, Safeway chairman and CEO Steve Burd assured analysts Thursday morning during the grocer’s first-quarter conference call.

Analysts pointed to the recent promotion of Robert Edwards to president of the company, an uptick in Safeway’s stock buyback activity, the releasing of sales, earning details for Safeway’s Blackhawk Network (a gift card distribution network) and the implementation of a "double-trigger" option, where top executives would be required to stay with the company through a buyout to qualify for fully vested payouts — suggesting that each instance were like bread crumbs all leading to the only logical conclusion that Safeway is gearing for a corporate buyout.

"Everything that you described — even though you pieced them together and tried to do some sort of connection of dots — is happening [as part of a] normal course," Burd said.

During first quarter 2012, Safeway purchased 46 million shares of its common stock at an average cost of $21.70 per share and a total cost of $1 billion (including commissions). "We really believe in our ability to grow top-line sales," Burd said. "It just made so much sense to get aggressive on that stock buyback."

Regarding the double-trigger mechanism, Burd said, "no one should interpret that we did that because we expect a change in control. It’s really just a migration toward increasing better governance conditions."

Burd suggested Edwards’ promotion to president could be interpreted as a sound succession strategy. "Let’s also consider the fact that I’m 62 [years old] and while I’m not planning to go anywhere soon, it does make sense to create some logical succession opportunities," Burd said.

And Burd said shareholders have been requesting details on Blackhawk operations for years. "One way to give people some insight into its independent value was to provide a lot more information so we elected for the first time to show the EBITDA performance of Blackhawk. As you know, it’s a great story," he said.

"None of this is preparation for some other event. We think that all of this is pretty natural behavior," Burd concluded.

Safeway’s identical-store sales (excluding fuel) were flat for the quarter, while total sales increased 2.4% to $10 billion in the first quarter of 2012, primarily due to higher fuel sales, higher revenue from Blackhawk and additional sales from new stores. "We have been effective in passing along inflation and we’ve gotten adequate support from the vendor community," Burd told analysts Thursday morning. "The first quarter looks very much like how we expect the year to be."

"Strong cost controls helped us meet earnings expectations despite a shift in the New Year’s holiday, weather patterns and high gasoline prices which dampened sales," Burd said. "In addition, operating profit in the quarter would have been essentially the same as last year without the holiday shift. In the last eight weeks, identical-store sales have been running at 1%, and we continue to believe sales will grow as our new marketing initiatives take hold."

Meanwhile, Safeway expects to complete its divestiture of Genuardi’s stores in the second quarter. In January, Safeway announced the planned sale or closure of 27 Genuardi’s stores, including the sale of 16 Genuardi’s stores to Giant Food Stores. Safeway closed three of the Genuardi’s stores and expects to complete the disposition of the remaining 24 Genuardi’s stores in 2012.

Safeway’s guidance for 2012 remains at $1.90 to $2.10 per diluted share, nonfuel indentical sales growth of 1% to 2%, operating profit margin change, excluding fuel, of negative 5 basis points to 5 basis points, and free cash flow of $850 million to $950 million.

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J.MORGAN says:
Sep-02-2012 06:30 pm

From personally knowing people that work in Safeway stores, they recently had hours cut from their weekly allotted work hours for approx 4 weeks to make the figures look better for the shareholders and to improve the companies profitability. From the conversations that I have had with Safeway employees, they were already strapped for the proper time to get the job done before the conference call that said all departments were to have hours cut. From one conversation, 60 hours was to be cut from just he registers alone. How can the stores truly be profitable if they do not have the man hours to run the store properly to meet the customers needs? From my conversations with employee's, the stores are so unorganized and behind in their work load, that it seems unlikely that the company is really profiting except on paper, at the expense of the employee's.

mitchelmorgan says:
May-10-2012 07:46 am

Great article, thank you. I'm glad I came across your post. I will be visiting the site regularly. Keep up the good work. Mitchel

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NACDS expresses support of ‘chairman’s mark’ of Senate bill to reauthorize PDUFA

BY Antoinette Alexander

ALEXANDRIA, Va. — The National Association of Chain Drug Stores expressed its support for the legislative package that will serve as a starting point for the reauthorization of the Prescription Drug User Fee Act in a letter to the bipartisan leadership of the Senate Committee on Health, Education, Labor and Pensions.

NACDS wrote to committee chairman Tom Harkin, D-Iowa, and ranking member Mike Enzi, R-Wyo., saying “We applaud your leadership in drafting legislative proposals that will ensure that Americans’ prescription medications and medical devices continue to be safe and effective. Nothing is more important than the health and safety of the patients we serve.”
 
The “chairman’s mark” of the bill will provide the baseline for the committee’s debate and consideration of amendments. The bill includes provisions to further enhance the safety and integrity of the prescription drug manufacturing process, to deter prescription drug counterfeiting, to address drug shortages and to assist the blind and visually impaired in accessing prescription label information.
 
Regarding prescription drug manufacturing provisions, NACDS wrote, “these important enhancements include increased oversight, inspections and audit of both domestic and foreign facilities involved with drug manufacturing, as well as those facilities that prepare active and inactive ingredients used in drug products. Also importantly, [the Food and Drug Administration] will have long-sought authority to destroy any drug refused admission into the U.S. if the drug has a reasonable probability of causing serious adverse health consequences or death. We believe this authority is critical to support FDA’s mission.”
 
The bill’s counterfeiting provisions would increase penalties for the “reprehensible acts” of adulterating a prescription drug or dealing in counterfeit prescription drugs. Provisions related to drug shortages would provide the FDA with advance notice from manufacturers so that the FDA may better respond, prevent and mitigate drug shortages. The bill also would create a working group to develop best practices for assisting the blind and visually impaired with accessing prescription label information.

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Shoppers Drug Mart posts Q1 results

BY Antoinette Alexander

TORONTO — Canadian pharmacy retailer Shoppers Drug Mart announced on Thursday a boost in first-quarter sales and earnings, driven, in part, by gains at the front end.

“We are encouraged by our first-quarter operating and financial results. This is a solid performance and a good start to the year in what remains a challenging economic and regulatory environment,” stated Domenic Pilla, president and CEO. “Together with our associate owners and their teams at store level, we continue to work through the impact of regulatory reforms on our business, while never comprising on our commitment to providing the best in patient care and customer service.”

First-quarter sales totaled C$2.39 billion, up 2% compared with the year-ago period. Same-store sales rose 1.5%.

Pharmacy sales were C$1.17 billion in the first quarter, an increase of 1.6% compared with the same period last year, as growth in the number of prescriptions filled continues to be partially offset by a reduction in average prescription value. On a same-store basis, prescription sales rose 1.1% during the quarter.

The company stated that the decrease in average prescription value can be largely attributed to a reduction in generic prescription reimbursement rates, the result of recently implemented and ongoing drug system reform initiatives in certain jurisdictions of Canada, along with increasing generic prescription utilization rates.

At the front end, sales were C$1.23 billion, up 2.5%. The increase was led by strong sales gains in cosmetics and convenience categories, notably food and confection. Shoppers noted that its store network development program, which resulted in a 4.2% increase in selling space compared with a year ago, also was a contributing factor to sales growth in the front of the store. Front-end same-store sales increased 2%.

Net earnings for the quarter totaled C$119 million compared with C$118 million in the year-ago period. On a fully diluted basis, net earnings per share were 56 Canadian cents, compared with 54 Canadian cents in the year-ago period.

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