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8-K - FORM 8-K - SAFEWAY INC | d242460d8k.htm |
Exhibit 99.1
FOR IMMEDIATE RELEASE
SAFEWAY INC. ANNOUNCES
THIRD QUARTER
2011 RESULTS
Identical-store sales increase 1.5%
Earnings per share increase 15%
Contact: Melissa Plaisance (925) 467-3136
Christiane Pelz (925) 467-3832
Pleasanton, CA October 13, 2011
Results From Operations
Safeway Inc. today reported net income of $130.2 million ($0.38 per diluted share) for the third quarter of 2011 compared to $122.8 million ($0.33 per diluted share) for the third quarter of 2010.
Our sales momentum continued to build in the third quarter, and our costs were well controlled, said Steve Burd, Chairman, President and CEO. At the same time, we continued to innovate throughout the business to meet our customers needs and build their loyalty. Our just for U digital marketing platform and our proprietary Open Nature line of 100% natural foods are good examples of these efforts.
Sales and Other Revenue
Total sales were $10.1 billion in the third quarter of 2011 compared to $9.4 billion in the third quarter of 2010, due primarily to higher fuel sales, a 1.5% increase in identical-store sales (excluding fuel), a higher Canadian exchange rate and the impact of reporting Blackhawk commissions on a gross basis.1
Gross Profit
Gross profit declined 114 basis points to 27.00% of sales in the third quarter of 2011 compared to 28.14% of sales in the third quarter of 2010. Excluding the 88 basis-point impact from fuel sales and the 26 basis-point impact from the change in reporting gift card commissions, gross profit margin was flat.
1 | Prior to 2011, Safeway recorded Blackhawk Network distribution commissions on the sale of certain gift cards net of the commissions shared with other retailers. In the first quarter of 2011, Safeway determined that these commissions should be reported on a gross basis. This change increased both revenue and costs of goods sold in 2011, but had no impact on identical-store sales, gross profit dollars or net income. Previously reported results are not adjusted because the impact is immaterial. |
Operating and Administrative Expense
Operating and administrative expense as a percentage of sales decreased 103 basis points to 24.53% in the third quarter of 2011 from 25.56% in the third quarter of 2010. Excluding the 71 basis-point impact of higher fuel sales and the 24 basis-point impact from the change in reporting gift card commissions, operating and administrative expense margin decreased eight basis points.
Interest Expense
Interest expense declined to $60.7 million in the third quarter of 2011 from $69.4 million in the third quarter of 2010 due to lower average interest rates and lower average borrowings.
Income Taxes
Income tax expense was 33.6% of pre-tax income in the third quarter of 2011 compared to 31.0% in the third quarter of 2010. Income tax expense was lower in 2010 due to the resolution of a number of individually small items.
36-Week Results
Net income for the first 36 weeks of 2011 declined to $301.1 million ($0.85 per diluted share) compared to $360.1 million ($0.94 per diluted share) in the first 36 weeks of 2010 primarily due to the net negative impact from the Canadian dividend paid in the first half of 2011. The gross profit margin was 27.17% in the first 36 weeks of 2011 compared to 28.36% in the first 36 weeks of 2010. Operating and administrative expense margin was 24.70% in the first 36 weeks of 2011 compared to 25.74% in the first 36 weeks of 2010.
Guidance
Safeway is reaffirming earnings per diluted share and free cash flow guidance for the year. Identical-store sales, excluding fuel, are expected to be approximately 1.0% for the year.
Stock Repurchases
During the third quarter of 2011, Safeway purchased 10.1 million shares of its common stock at an average price of $19.30 per share and a total cost of $195.2 million (including commissions). The remaining board authorization for stock repurchases at quarter-end was approximately $0.9 billion.
Capital Expenditures
Safeway invested $288.4 million in capital expenditures in the third quarter of 2011. The company completed five new stores and seven Lifestyle remodels, and closed 11 stores. For the year, Safeway plans to invest approximately $1.0 billion in capital expenditures, while completing 26 new Lifestyle stores and 30 Lifestyle remodels.
2
Cash Flow
Net cash flow provided by operating activities declined to $710.9 million in the first 36 weeks of 2011 compared to $846.6 million in the first 36 weeks of 2010 due primarily to contributions to pension plans and an increase in inventory, net of payables.
Net cash flow used by investing activities increased to $744.4 million in the first 36 weeks of 2011 compared to $550.6 million in the first 36 weeks of 2010 due primarily to increased cash capital expenditures.
Net cash flow used by financing activities increased to $583.2 million in the first 36 weeks of 2011 from $139.6 million in the first 36 weeks of 2010 due primarily to lower net long-term borrowings and increased purchases of treasury stock in 2011.
About Safeway
Safeway Inc. is a Fortune 100 company and one of the largest food and drug retailers in North America based on sales. The company operates 1,681 stores in the United States and Canada. The companys common stock is traded on the New York Stock Exchange under the symbol SWY.
Safeway Conference Call
Safeways investor conference call discussing third quarter results will be broadcast live over the internet at www.safeway.com/investor_relations at 8:00 a.m. PT on October 13, 2011. Click on Upcoming Events to access the call. A replay will be available via webcast for approximately one week following the conference call.
-o0o-
3
This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements relate to, among other things, estimates of diluted earnings per share, sales growth, capital expenditures, free cash flow, Lifestyle stores, margins and financial and operating results. Forward-looking statements are indicated by words or phrases such as guidance, believes, expects, anticipates, estimates, plans, continuing, ongoing, and similar words or phrases and the negative of such words and phrases. Forward-looking statements are based on our current plans and expectations and involve risks and uncertainties which are, in many instances, beyond our control, and which could cause actual results to differ materially from those included in or contemplated or implied by the forward-looking statements. Such risks and uncertainties include the following: general business and economic conditions in our operating regions, including the rate of inflation or deflation, consumer spending levels, currency valuations, population, employment and job growth and/or losses in our markets; sales volume levels and price per item trends; pricing pressures and competitive factors, which could include pricing strategies, store openings, remodels or acquisitions by our competitors; results of our programs to control or reduce costs, improve buying practices and control shrink; results of our programs to increase sales; results of our continuing efforts to expand corporate brands; results of our programs to improve our perishables departments; results of our promotional programs; results of our capital program; results of our efforts to improve working capital; results of any ongoing litigation in which we are involved or any litigation in which we may become involved; the resolution of uncertain tax positions; the ability to achieve satisfactory operating results in all geographic areas where we operate; changes in the financial performance of our equity investments; labor costs, including benefit plan costs and severance payments, or labor disputes that may arise from time to time and work stoppages that could occur in areas where certain collective bargaining agreements have expired or are on indefinite extensions or are scheduled to expire in the near future; failure to fully realize or delay in realizing growth prospects for existing or new business ventures, including our Blackhawk and Property Development Centers subsidiaries; legislative, regulatory, tax, accounting or judicial developments, including with respect to Blackhawk; the cost and stability of fuel, energy and other power sources; the impact of the cost of fuel on gross margin and identical-store sales; discount rates used in actuarial calculations for pension obligations and self-insurance reserves; the rate of return on our pension assets; the availability and terms of financing, including interest rates; adverse developments with regard to food and drug safety and quality issues or concerns that may arise; loss of a key member of senior management; data security or other information technology issues that may arise; unanticipated events or changes in real estate matters, including acquisitions, dispositions and impairments; adverse weather conditions and effects from natural disasters; performance in new business ventures or other opportunities that we pursue; and the capital investment in and financial results from our Lifestyle stores. We undertake no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaim any obligation to do so. Please refer to our reports and filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, as amended, subsequent Quarterly Reports on Form 10-Q and subsequent Current Reports on Form 8-K, for a further discussion of these risks and uncertainties.
4
SAFEWAY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per-share amounts)
(Unaudited)
12 Weeks Ended | 36 Weeks Ended | |||||||||||||||
September 10, 2011 |
September 11, 2010 |
September 10, 2011 |
September 11, 2010 |
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Sales and other revenue |
$ | 10,064.3 | $ | 9,399.6 | $ | 30,032.6 | $ | 28,246.2 | ||||||||
Cost of goods sold |
(7,347.1 | ) | (6,755.0 | ) | (21,871.3 | ) | (20,234.3 | ) | ||||||||
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Gross profit |
2,717.2 | 2,644.6 | 8,161.3 | 8,011.9 | ||||||||||||
Operating and administrative expense |
(2,468.9 | ) | (2,402.2 | ) | (7,416.8 | ) | (7,269.8 | ) | ||||||||
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Operating profit |
248.3 | 242.4 | 744.5 | 742.1 | ||||||||||||
Interest expense |
(60.7 | ) | (69.4 | ) | (187.9 | ) | (208.3 | ) | ||||||||
Other income, net |
8.7 | 4.8 | 15.8 | 10.5 | ||||||||||||
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Income before income taxes |
196.3 | 177.8 | 572.4 | 544.3 | ||||||||||||
Income taxes |
(66.0 | ) | (55.1 | ) | (271.0 | ) | (184.5 | ) | ||||||||
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Net income before allocation to noncontrolling interests |
130.3 | 122.7 | 301.4 | 359.8 | ||||||||||||
Noncontrolling interests |
(0.1 | ) | 0.1 | (0.3 | ) | 0.3 | ||||||||||
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Net income attributable to Safeway Inc. |
$ | 130.2 | $ | 122.8 | $ | 301.1 | $ | 360.1 | ||||||||
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Income per common share attributable to Safeway Inc.: |
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Basic |
$ | 0.38 | $ | 0.33 | $ | 0.85 | $ | 0.94 | ||||||||
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Diluted |
$ | 0.38 | $ | 0.33 | $ | 0.85 | $ | 0.94 | ||||||||
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Weighted average shares outstanding: |
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Basic |
342.8 | 376.0 | 353.2 | 382.5 | ||||||||||||
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Diluted |
343.0 | 376.8 | 353.7 | 383.9 | ||||||||||||
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5
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per-share amounts)
(Unaudited)
September 10, 2011 |
Year-end 2010 |
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ASSETS |
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Current assets: |
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Cash and equivalents |
$ | 180.5 | $ | 778.8 | ||||
Receivables |
499.4 | 557.4 | ||||||
Merchandise inventories |
2,779.6 | 2,623.4 | ||||||
Prepaid expense and other current assets |
301.9 | 273.4 | ||||||
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Total current assets |
3,761.4 | 4,233.0 | ||||||
Total property, net |
9,764.6 | 9,910.2 | ||||||
Goodwill |
431.0 | 430.9 | ||||||
Investment in unconsolidated affiliate |
192.2 | 187.2 | ||||||
Other assets |
365.6 | 386.8 | ||||||
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Total assets |
$ | 14,514.8 | $ | 15,148.1 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Current maturities of notes and debentures |
$ | 811.0 | $ | 505.6 | ||||
Current obligations under capital leases |
31.3 | 30.7 | ||||||
Accounts payable |
2,290.7 | 2,533.4 | ||||||
Accrued salaries and wages |
457.6 | 468.9 | ||||||
Deferred income taxes |
96.5 | 96.3 | ||||||
Other accrued liabilities |
649.8 | 679.3 | ||||||
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Total current liabilities |
4,336.9 | 4,314.2 | ||||||
Long-term debt: |
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Notes and debentures |
3,772.6 | 3,843.8 | ||||||
Obligations under capital leases |
433.4 | 456.2 | ||||||
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Total long-term debt |
4,206.0 | 4,300.0 | ||||||
Deferred income taxes |
140.4 | 153.5 | ||||||
Pension and post-retirement benefit obligations |
584.0 | 727.9 | ||||||
Accrued claims and other liabilities |
677.1 | 654.8 | ||||||
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Total liabilities |
9,944.4 | 10,150.4 | ||||||
Stockholders equity: |
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Common stock: par value $0.01 per share; 1,500 shares authorized; 604.5 and 599.8 shares issued |
6.0 | 6.0 | ||||||
Additional paid-in capital |
4,449.8 | 4,363.1 | ||||||
Treasury stock at cost; 264.6 and 231.8 shares |
(7,015.5 | ) | (6,283.8 | ) | ||||
Accumulated other comprehensive income |
148.0 | 88.0 | ||||||
Retained earnings |
6,977.3 | 6,820.0 | ||||||
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Total Safeway Inc. equity |
4,565.6 | 4,993.3 | ||||||
Noncontrolling interests |
4.8 | 4.4 | ||||||
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Total equity |
4,570.4 | 4,997.7 | ||||||
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Total liabilities and stockholders equity |
$ | 14,514.8 | $ | 15,148.1 | ||||
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6
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
36 Weeks Ended | ||||||||
September 10, 2011 |
September 11, 2010 |
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OPERATING ACTIVITIES |
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Net income before allocation to noncontrolling interests |
$ | 301.4 | $ | 359.8 | ||||
Reconciliation to net cash flow provided by operating activities: |
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Depreciation expense |
794.3 | 806.1 | ||||||
Property impairment charges |
33.7 | 48.7 | ||||||
Share-based employee compensation |
33.4 | 37.3 | ||||||
Excess tax benefit from share-based employee compensation |
(1.6 | ) | (0.7 | ) | ||||
LIFO expense |
21.4 | | ||||||
Equity in earnings of unconsolidated affiliate |
(11.1 | ) | (7.7 | ) | ||||
Net pension and post-retirement benefit expense |
78.1 | 86.6 | ||||||
Contributions to pension and post-retirement benefit plans |
(168.3 | ) | (11.7 | ) | ||||
Loss (gain) on property retirements and lease exit costs, net |
2.8 | (1.4 | ) | |||||
Increase in accrued claims and other liabilities |
39.4 | 38.5 | ||||||
Amortization of deferred finance costs |
3.6 | 3.3 | ||||||
Deferred income taxes |
(51.7 | ) | | |||||
Other |
15.1 | 0.5 | ||||||
Changes in working capital items: |
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Receivables |
3.4 | 34.0 | ||||||
Inventories at FIFO cost |
(176.7 | ) | (55.4 | ) | ||||
Prepaid expenses and other current assets |
11.2 | 0.9 | ||||||
Income taxes |
94.9 | (69.4 | ) | |||||
Payables and accruals |
4.7 | (63.9 | ) | |||||
Payables related to third-party gift cards, net of receivables |
(317.1 | ) | (358.9 | ) | ||||
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Net cash flow provided by operating activities |
710.9 | 846.6 | ||||||
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INVESTING ACTIVITIES |
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Cash paid for property additions |
(682.5 | ) | (555.4 | ) | ||||
Proceeds from sale of property |
9.3 | 43.9 | ||||||
Other |
(71.2 | ) | (39.1 | ) | ||||
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Net cash flow used by investing activities |
(744.4 | ) | (550.6 | ) | ||||
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FINANCING ACTIVITIES |
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(Payments on) additions to short-term borrowings, net |
(0.7 | ) | 1.1 | |||||
Additions to long-term borrowings |
1,128.7 | 1,461.9 | ||||||
Payments on long-term borrowings |
(907.6 | ) | (1,091.5 | ) | ||||
Purchase of treasury stock |
(729.6 | ) | (451.1 | ) | ||||
Dividends paid |
(138.7 | ) | (123.4 | ) | ||||
Net proceeds from exercise of stock options |
72.8 | 69.1 | ||||||
Excess tax benefit from share-based employee compensation |
1.6 | 0.7 | ||||||
Other |
(9.7 | ) | (6.4 | ) | ||||
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Net cash flow used by financing activities |
(583.2 | ) | (139.6 | ) | ||||
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Effect of changes in exchange rate on cash |
18.4 | 5.0 | ||||||
(Decrease) increase in cash and equivalents |
(598.3 | ) | 161.4 | |||||
CASH AND EQUIVALENTS |
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Beginning of period |
778.8 | 471.5 | ||||||
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End of period |
$ | 180.5 | $ | 632.9 | ||||
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7
SAFEWAY INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(Dollars in millions)
(Unaudited)
TABLE 1: CAPITAL EXPENDITURES AND OTHER STATISTICAL DATA
12 Weeks Ended | 36 Weeks Ended | |||||||||||||||
September 10, 2011 |
September 11, 2010 |
September 10, 2011 |
September 11, 2010 |
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Cash capital expenditures |
$ | 288.4 | $ | 170.7 | $ | 682.5 | $ | 555.4 | ||||||||
Stores opened |
5 | 2 | 14 | 7 | ||||||||||||
Stores closed |
11 | 12 | 27 | 30 | ||||||||||||
Lifestyle remodels completed |
7 | 9 | 19 | 35 | ||||||||||||
Stores at end of period |
1,681 | 1,702 | ||||||||||||||
Square footage (in millions) |
79.1 | 79.3 | ||||||||||||||
Fuel sales |
$ | 1,099.6 | $ | 760.8 | $ | 3,203.4 | $ | 2,138.7 | ||||||||
Number of fuel stations at end of period |
396 | 393 | ||||||||||||||
Increase in sales from change in Canadian exchange rate |
$ | 91.6 | $ | 84.4 | $ | 252.7 | $ | 503.8 |
TABLE 2: RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
(A+B-C) Rolling Four Quarters Sept. 10, 2011 |
A Year Ended January 1, 2011 |
B 36 Weeks Ended Sept. 10, 2011 |
C 36 Weeks Ended Sept. 11, 2010 |
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Net income attributable to Safeway Inc. |
$ | 530.8 | $ | 589.8 | $ | 301.1 | $ | 360.1 | ||||||||
Add (subtract): |
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Income taxes |
377.1 | 290.6 | 271.0 | 184.5 | ||||||||||||
Interest expense |
278.1 | 298.5 | 187.9 | 208.3 | ||||||||||||
Depreciation |
1,150.6 | 1,162.4 | 794.3 | 806.1 | ||||||||||||
LIFO (income) expense |
(6.6 | ) | (28.0 | ) | 21.4 | | ||||||||||
Share-based employee compensation |
51.6 | 55.5 | 33.4 | 37.3 | ||||||||||||
Property impairment charges |
56.7 | 71.7 | 33.7 | 48.7 | ||||||||||||
Equity in earnings of unconsolidated affiliate |
(18.7 | ) | (15.3 | ) | (11.1 | ) | (7.7 | ) | ||||||||
Dividend from unconsolidated affiliate |
6.1 | | 6.1 | | ||||||||||||
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Adjusted EBITDA |
$ | 2,425.7 | $ | 2,425.2 | $ | 1,637.8 | $ | 1,637.3 | ||||||||
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Total debt at September 10, 2011 |
$ | 5,048.3 | ||||||||||||||
Less cash and equivalents in excess of $75.0 at September 10, 2011 |
105.5 | |||||||||||||||
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Adjusted Debt, as defined by bank credit agreement |
$ | 4,942.8 | ||||||||||||||
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Adjusted EBITDA as a multiple of interest expense |
8.72 | x | ||||||||||||||
Minimum Adjusted EBITDA as a multiple of interest expense under bank credit agreement |
2.00 | x | ||||||||||||||
Adjusted Debt to Adjusted EBITDA |
2.04 | x | ||||||||||||||
Maximum Adjusted Debt to Adjusted EBITDA under bank credit agreement |
3.50 | x |
8
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 Sept. 10, 2011 |
A Year Ended January 1, 2011 |
B 36 Weeks Ended Sept. 10, 2011 |
C 36 Weeks Ended Sept. 11, 2010 |
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Net cash flow provided by operating activities |
$ | 1,714.0 | $ | 1,849.7 | $ | 710.9 | $ | 846.6 | ||||||||
Add (subtract): |
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Income taxes |
377.1 | 290.6 | 271.0 | 184.5 | ||||||||||||
Interest expense |
278.1 | 298.5 | 187.9 | 208.3 | ||||||||||||
Amortization of deferred finance costs |
(5.1 | ) | (4.8 | ) | (3.6 | ) | (3.3 | ) | ||||||||
Excess tax benefit from share-based employee compensation |
2.5 | 1.6 | 1.6 | 0.7 | ||||||||||||
Deferred income taxes |
83.0 | 31.3 | 51.7 | | ||||||||||||
Net pension and post-retirement benefit expense |
(116.7 | ) | (125.2 | ) | (78.1 | ) | (86.6 | ) | ||||||||
Contributions to pension and post-retirement plans |
174.3 | 17.7 | 168.3 | 11.7 | ||||||||||||
Accrued claims and other liabilities |
(37.1 | ) | (36.2 | ) | (39.4 | ) | (38.5 | ) | ||||||||
Gain (loss) on property retirements and lease exit costs, net |
23.3 | 27.5 | (2.8 | ) | 1.4 | |||||||||||
Changes in working capital items |
(65.5 | ) | 67.9 | 379.3 | 512.7 | |||||||||||
Other |
(2.2 | ) | 6.6 | (9.0 | ) | (0.2 | ) | |||||||||
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Adjusted EBITDA |
$ | 2,425.7 | $ | 2,425.2 | $ | 1,637.8 | $ | 1,637.3 | ||||||||
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TABLE 4: RECONCILIATION OF GAAP CASH FLOW MEASURE TO FREE CASH FLOW*
12 Weeks Ended | 36 Weeks Ended | |||||||||||||||
Sept. 10, 2011 | Sept. 11, 2010 | Sept. 10, 2011** | Sept. 11, 2010 | |||||||||||||
Net cash flow provided by operating activities, as reported |
$ | 523.3 | $ | 537.5 | $ | 710.9 | $ | 846.6 | ||||||||
(Increase) decrease in payables related to third-party gift cards, net of receivables |
(16.7 | ) | 2.8 | 317.1 | 358.9 | |||||||||||
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Net cash flow provided by operating activities, as adjusted |
506.6 | 540.3 | 1,028.0 | 1,205.5 | ||||||||||||
Net cash flow used by investing activities |
(339.1 | ) | (157.0 | ) | (744.4 | ) | (550.6 | ) | ||||||||
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Free cash flow |
$ | 167.5 | $ | 383.3 | $ | 283.6 | $ | 654.9 | ||||||||
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Forecasted Range Fiscal 2011 |
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Net cash flow provided by operating activities, as adjusted |
$ | 1,755.0 | $ | 1,855.0 | ||||||||||||
Net cash flow used by investing activities |
(1,000.0 | ) | (1,000.0 | ) | ||||||||||||
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Free cash flow |
$ | 755.0 | $ | 855.0 | ||||||||||||
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* | Excludes cash flow from payables related to third-party gift cards, net of receivables. Cash from the sale of third-party gift cards is held for a short period of time and then remitted, less Safeways commission, to card partners. Because this cash flow is temporary it is not available for other uses, and is therefore excluded from the companys calculation of free cash flow. |
** | In the 36 weeks ended September 10, 2011, free cash flow was reduced by $168.3 million of contributions to defined benefit pension and post-retirement plans and $97 million of taxes paid on Canadian dividends. |
9
SAFEWAY INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(Unaudited)
TABLE 5: IDENTICAL-STORE SALES*
12 Weeks Ended Sept. 10, 2011 |
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As reported |
4.9 | % | ||
Excluding fuel sales |
1.5 | % |
* | Excludes replacement stores. |
TABLE 6: RECONCILIATION OF GROSS PROFIT AND OPERATING AND ADMINISTRATIVE EXPENSE
BASIS-POINT CHANGE EXCLUDING FUEL AND GROSS PRESENTATION OF GIFT CARD COMMISSIONS
Third Quarter 2011 | ||||||||
Gross Profit | Operating and Administrative Expense |
|||||||
Basis-point decrease, as reported |
(114 | ) | (103 | ) | ||||
Impact from fuel sales |
88 | 71 | ||||||
Impact from gross presentation of gift card commissions |
26 | 24 | ||||||
|
|
|
|
|||||
Basis-point decrease, excluding impact from fuel sales and gross presentation of gift card commissions |
| (8 | ) | |||||
|
|
|
|
10