Despite soft sales results, Safeway pushes on

PLEASANTON, Calif. This year's flu season has already benefited pharmacy retailers, suggested Safeway president and CEO Steve Burd during a conference call with analysts Thursday morning.

“The regular flu vaccinations are up considerably for us this year,” he said, and that means an increase of foot traffic of customers who may not be loyal Safeway shoppers. “We see that as an opportunity to capture some business.”

While a strong influenza season appears to be a positive force, at least at the beginning of the season, deflation has significantly impacted the West Coast grocer this quarter.

“Safeway’s sales remained soft, driven largely by deflation in dairy, produce and meat, and a sluggish economy,” Burd stated. “However, we are encouraged that our household and transaction counts increased in the quarter, and that volume trends continue to improve. In addition, our year-to-date free cash flow of $865 million is up $366 million, or 73%, over last year.”

Despite those pressures, Safeway remains committed to its capital investment program this year. safeway invested $157.2 million in capital expenditures in the third quarter 2009, opening five Lifestyle stores, completing 16 Lifestyle remodels and closing 10 stores. During the first 36 weeks of 2009, Safeway invested $602.8 million in capital expenditures, with seven new Lifestyle stores, 62 Lifestyle remodels and 16 store closures. For the year, the company expects to spend approximately $1 billion in capital expenditures, open about 10 new Lifestyle stores and complete approximately 85 Lifestyle remodels.

The new and remodeled Lifestyle stores are helping to build the Safeway brand, Burd noted though a homogenous look and feel across the company, “which we’ve never had in this company.”

And Safeway’s smaller footprint model may garner greater attention going forward, Burd said. “We did open our second small vehicle format,” he said, and Safeway is currently ascertaining whether or not the smaller footprint may be an optimal growth vehicle in the future.

Safeway reported net income of $128.8 million ($0.31 per diluted share) for the third quarter 2009, compared with net income of $199.7 million ($0.46 per diluted share) for the third quarter 2008.

“In this difficult economy, we are working diligently to lower costs and meet the needs of our customers with high quality products, lower everyday prices and attractive club card specials,” added Burd.

Total sales declined 7% to $9.5 billion in the third quarter 2009.