SWY » Topics » Results of Operations

This excerpt taken from the SWY 10-K filed Mar 2, 2010.

Results of Operations

Economic Outlook    The current economic environment has made consumers more cautious. In 2009, this led to reduced consumer spending, to consumers trading down to a less expensive mix of products and to consumers trading down to discounters for grocery items, all of which have reduced Safeway’s sales. Additionally, in 2009, the Company experienced deflation in certain product categories. These difficult economic conditions may continue in 2010.

Safeway reported a net loss of $1,097.5 million ($2.66 per diluted share) in 2009, net income of $965.3 million ($2.21 per diluted share) in 2008, and net income of $888.4 million ($1.99 per diluted share) in 2007. Fiscal 2009 included a non-cash goodwill impairment charge of $1,974.2 million ($1,818.2 million, net of tax). The impairment was due primarily to Safeway’s reduced market capitalization and a weak economy. The difficult economic environment negatively impacted all of Safeway’s divisions; however, due to their large goodwill balances, the goodwill impairment resulted primarily from the Vons and Eastern divisions.

Sales    Same-store sales (decreases) increases for the past three fiscal years were as follows:

 

     Fiscal 2009     Fiscal 2008 *     Fiscal 2007  
      Comparable-
store sales
    Identical-store
sales **
    Comparable-
store sales
    Identical-store
sales **
    Comparable-
store sales
    Identical-store
sales **
 

Including fuel

   (4.9 )%    (5.0 )%    1.5   1.4   4.4   4.1

Excluding fuel

   (2.5 )%    (2.5 )%    0.9   0.8   3.6   3.4

 

* Based on the same 53-week period in both years.

 

** Excludes replacement stores.

Sales decreased 7.4% to $40.9 billion in 2009 from $44.1 billion in 2008. Fuel sales declined $1,197 million. The additional week in 2008 accounted for $777 million of the decline. Additionally, the change in the Canadian dollar exchange rate resulted in a $407 million decrease in sales. Identical-store sales, excluding fuel, declined as a result of economic conditions, investments in price and deflation. Customer counts increased slightly, and average transaction size decreased during fiscal 2009.

Sales increased 4.3% to $44.1 billion in 2008 from $42.3 billion in 2007 primarily because of the additional week in 2008 contributing $777 million in sales, an increase in fuel sales of $397 million, an increase in identical-store sales and Lifestyle store execution. At the end of 2008, Safeway had 1,276 Lifestyle stores compared to 1,024 at the end of 2007. Customer counts decreased, and average transaction size increased during fiscal 2008.

Gross Profit    Gross profit represents the portion of sales revenue remaining after deducting the cost of goods sold during the period, including purchase and distribution costs. These costs include inbound freight charges, purchasing and receiving costs, warehouse inspection costs, warehousing costs and other costs associated with Safeway’s distribution network. Advertising and promotional expenses are also a component of cost of goods sold. Additionally, all vendor allowances are classified as an element of cost of goods sold.

Gross profit margin was 28.62% of sales in 2009, 28.38% of sales in 2008 and 28.74% in 2007.

The gross profit margin increased 24 basis points to 28.62% of sales in 2009 from 28.38% of sales in 2008. The impact from fuel sales increased gross profit margin 59 basis points. The offsetting 35 basis-point decline was largely the result of

 

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investments in everyday prices and higher advertising expense, partly offset by lower LIFO expense, higher gift card revenue and higher energy costs. LIFO income was $35.2 million in 2009 compared to expense of $34.9 million in 2008.

The gross profit margin declined 36 basis points to 28.38% of sales in 2008 from 28.74% of sales in 2007. Excluding fuel, gross profit declined 25 basis points primarily because of investments in price and higher LIFO expense, partly offset by lower advertising expense and improved inventory shrink. LIFO expense was $34.9 million in 2008 compared to $13.9 million in 2007.

The decline in advertising expense in 2008 was primarily the result of a more efficient mix of advertising media. Improved inventory shrink is the result of long-term efforts.

Operating and Administrative Expense    Operating and administrative expense consists primarily of store occupancy costs and backstage expenses, which, in turn, consist primarily of wages, employee benefits, rent, depreciation and utilities.

Operating and administrative expense was 25.33% of sales in 2009 compared to 24.17% of sales in 2008 and 24.55% in 2007.

Operating and administrative expense margin increased 116 basis points to 25.33% of sales in 2009 from 24.17% of sales in 2008. Lower fuel sales in 2009 increased operating and administrative expense margin 56 basis points. The remaining 60 basis points was primarily the result of decreased sales leverage, increased charges from property impairments and retirements and increased pension expense, partly offset by lower workers’ compensation expense and energy costs.

Operating and administrative expense improved 38 basis points to 24.17% of sales in 2008 from 24.55% of sales in 2007. Higher fuel sales in 2008 improved operating and administrative expense by 11 basis points. The remaining 27 basis point improvement is primarily due to reduced employee costs as a percentage of sales partly offset by higher energy costs, currency exchange losses and workers’ compensation costs.

(Loss) Gains on Property Retirements    Operating and administrative expense included a net loss on property retirements of $12.7 million in 2009, a gain of $19.0 million in 2008 and a gain of $42.3 million in 2007. In 2007, the Company sold a Bellevue, Washington distribution center at a gain of $46.6 million and a warehouse in Chicago, Illinois at a gain of $11.2 million. These gains were partly offset by net losses on other property retirements.

Interest Expense    Interest expense was $331.7 million in 2009, compared to $358.7 million in 2008 and $388.9 million in 2007. Interest expense decreased in 2009 and 2008 primarily due to a combination of lower average borrowings and a lower average interest rate.

Other Income    Other income consists of interest income and equity in earnings (losses) from Safeway’s unconsolidated affiliate. Interest income was $2.3 million in 2009, $12.5 million in 2008 and $11.8 million in 2007. Equity in earnings (losses) of unconsolidated affiliate was income of $8.5 million in 2009, a loss of $2.5 million in 2008 and income of $8.7 million in 2007.

Income Taxes    In 2009, Safeway had income tax expense of $144.2 million despite having a pre-tax loss of $953.3 million. The 2009 tax expense reflects the tax effect of the goodwill impairment charge which is largely nondeductible for income tax purposes and, therefore, increases the Company’s effective income tax rate. The impact of the goodwill impairment charge on the tax expense was partly offset by a benefit of $74.9 million from the favorable resolution of various tax matters. The effective tax rates for 2008 and 2007 were 35.8% and 36.7%, respectively.

 

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This excerpt taken from the SWY 8-K filed Feb 25, 2010.

Results From Operations

Safeway Inc. today reported a net loss of $1,609.1 million ($4.06 per diluted share) for the 16-week fourth quarter of 2009. Excluding a non-cash goodwill impairment charge of $1,818.2 million, net of tax ($4.59 per diluted share), net income would have been $209.1 million ($0.53 per diluted share). Net income was $338.0 million ($0.79 per diluted share) for the 17-week fourth quarter of 2008.

“Excluding the non-cash goodwill impairment charge, our results were in line with our expectations,” said Steve Burd, Chairman, President and CEO. “Despite very challenging economic conditions, Safeway generated free cash flow of $1.5 billion in 2009. This exceeded our expectations and is the highest annual free cash flow ever achieved by Safeway.”

In the fourth quarter of 2009, Safeway recorded a non-cash goodwill impairment charge of $1,974.2 million ($1,818.2 million, net of tax). The impairment was due primarily to Safeway’s reduced market capitalization and a weak economy. The divisions affected were primarily Vons and Eastern. The goodwill originated from previous acquisitions.

This excerpt taken from the SWY 8-K filed Oct 15, 2009.

Results From Operations

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

“Safeway’s sales remained soft, driven largely by deflation in dairy, produce and meat, and a sluggish economy,” said Steve Burd, Chairman, President and CEO. “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.”

“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.

This excerpt taken from the SWY 8-K filed Jul 23, 2009.

Results From Operations

Safeway Inc. today reported net income of $238.6 million ($0.57 per diluted share) for the second quarter of 2009 compared to net income of $234.3 million ($0.53 per diluted share) for the second quarter of 2008. Earnings in the second quarter of 2009 included a $57.8 million tax benefit ($0.14 per diluted share) from the resolution of a tax matter.

“In this challenging economic environment, we continue to focus on providing our customers with greater value by lowering everyday prices on items people buy most often and offering high quality private label brands,” said Steve Burd, Chairman, President and CEO.

“Investments in lower prices take time to gain sales traction. This is particularly true in today’s environment where our volume increases are more than offset by price investments, an unprecedented level of deflation in two of our largest categories and trading down,” continued Burd. “As a result, we anticipate soft identical-store sales for the remainder of the year and have reduced our earnings expectations accordingly. Nonetheless, our free cash flow expectations have not changed, giving us significant financial flexibility.”

This excerpt taken from the SWY 10-Q filed May 1, 2009.

Results of Operations

ECONOMIC OUTLOOK The current economic environment has made consumers more cautious. This has led to reduced consumer spending, to consumers trading down to a less expensive mix of products and to consumers trading down to discounters for grocery items, all of which have affected Safeway’s sales growth. Additionally, in this uncertain economy, it is difficult to forecast whether we are entering a period of inflation or deflation. In 2008, Safeway experienced overall inflation. Early indications suggest that there is deflation in certain product categories in 2009, leading to lower inflation compared to 2008. Food deflation has reduced sales growth, while food inflation, combined with reduced consumer spending, could reduce gross profit margins.

However, in a slowing economy, some customers may trade down from dining out in restaurants to shopping more at grocery stores such as Safeway and from purchasing national brand products to purchasing less expensive Safeway private label brands.

Net income was $144.2 million ($0.34 per diluted share) for the first quarter of 2009 compared to net income of $193.4 million ($0.44 per diluted share) in the first quarter of 2008.

SALES Same-store sales for the first quarters of 2009 and 2008 were as follows:

 

     12 Weeks Ended
     March 28, 2009     March 22, 2008
     Comparable-
Store Sales
(Decreases)
    Identical-
Store Sales
(Decreases)*
    Comparable-
Store Sales
Increases
   Identical-
Store Sales
Increases*

As reported

   (4.2% )   (4.3% )   4.7%    4.5%

Excluding fuel sales

   (0.7% )   (0.7% )**   3.1%    2.9%

 

* Excludes replacement stores.
** Estimated to be positive 0.2% after excluding the weeks affected by the shift in Easter holiday sales.

Total sales declined 7.6% to $9.2 billion in the first quarter of 2009 compared to $10.0 billion in the first quarter of 2008. This decline was the result of a $332.1 million decrease in fuel sales (which was due primarily to lower fuel prices), an unfavorable change in the Canadian exchange rate of $301.5 million (in U.S. Dollars), a shift in holiday sales and deflation in produce and dairy. After excluding the weeks affected by the shift in Easter holiday sales, customer counts increased and average transaction size decreased during the quarter.

The following table presents sales revenue by type of similar product (dollars in millions):

 

      12 Weeks Ended  
     March 28, 2009     March 22, 2008  

Non-perishables (1)

   $ 4,331.4    46.9     $ 4,504.4    45.0  

Perishables (2)

     3,524.8    38.2       3,759.4    37.6  

Fuel

     504.5    5.4       836.6    8.4  

Pharmacy

     875.7    9.5       898.5    9.0  
                          

Total sales and other revenue

   $ 9,236.4    100.0 %   $ 9,998.9    100.0 %
                          

 

(1) Consists primarily of general merchandise, grocery, meal ingredients, soft drinks and other beverages, snacks and frozen foods.
(2) Consists primarily of produce, dairy, meat, bakery, deli, floral and seafood.

 

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This excerpt taken from the SWY 8-K filed Apr 30, 2009.

Results From Operations

Safeway Inc. today reported net income of $144.2 million ($0.34 per diluted share) for the first quarter of 2009 compared to net income of $193.4 million ($0.44 per diluted share) for the first quarter of 2008.

“As anticipated, our earnings this quarter were negatively impacted by the shift in holiday sales, a decline in the Canadian currency exchange rate, a decline in fuel margins and higher pension expense,” said Steve Burd, Chairman, President and CEO.

“We continued to make price investments to address the needs of our customers in this difficult economic environment. As a result, we saw an increase in the number of sales transactions and an improving trend in market share for the quarter,” added Burd. “Because we are confident in the underlying strength of the business and our cash flow, we are increasing our quarterly dividend by 21% and repurchasing company stock.”

This excerpt taken from the SWY 8-K filed Feb 26, 2009.

Results From Operations

Safeway Inc. today reported net income of $338.0 million ($0.79 per diluted share) for the 17-week fourth quarter of 2008 compared to net income of $301.1 million ($0.68 per diluted share) for the 16-week fourth quarter of 2007.

“Despite a difficult economic environment, our efforts to control costs helped increase fourth quarter earnings per share by 16% over last year,” said Steve Burd, Chairman, President and CEO. “In addition, we increased annual free cash flow 62% to $681 million. We are stepping up our efforts to provide increased value to our customers by lowering prices on everyday items, while continuing to provide quality perishables and great service.”

The fourth quarter of 2008 was affected by a number of significant items that largely offset each other. Items that reduced diluted earnings per share consisted of increased workers’ compensation expense due to a decline in the discount rate ($0.05 per diluted share), Canadian dollar exchange losses ($0.03 per diluted share) and damages from Hurricane Ike ($0.01 per diluted share). Items that increased fourth quarter diluted earnings per share were a reduction in tax reserves ($0.04 per diluted share) and the additional week in the 17-week fourth quarter ($0.04 per diluted share).

This excerpt taken from the SWY 10-Q filed Oct 8, 2008.

Results of Operations

Net income was $199.7 million ($0.46 per diluted share) for the third quarter of 2008 compared to net income of $194.6 million ($0.44 per diluted share) for the third quarter of 2007.

ECONOMIC OUTLOOK The current economic environment has made consumers more cautious. This trend may lead to reduced consumer spending which could affect Safeway’s sales growth. Additionally, rising food inflation combined with reduced consumer spending could reduce gross profit margins.

However, in a slowing economy, we anticipate that some customers may trade down from dining out in restaurants to shopping more at grocery stores such as Safeway and from purchasing national brand products to purchasing less expensive Safeway private label brands. Additionally, rising fuel prices may lead some consumers to switch from shopping at more remote club and discount stores to Safeway’s more convenient neighborhood locations.

SALES AND OTHER REVENUE Total sales increased 3.9% to $10.2 billion in the third quarter of 2008 compared to $9.8 billion in the third quarter of 2007. This increase was driven by a $243.3 million increase in fuel sales and contributions from Lifestyle stores. Identical-store sales increased 2.8% including fuel and 0.5% excluding fuel. Customer counts decreased and average transaction size increased during the quarter.

Safeway’s marketing strategies have evolved in recent years and are based on consumer research and competitive analysis. This helps us carry the right products (such as organic products and our revitalized corporate brands) at the right prices (including our club card specials), increasingly merchandised in a warm and inviting shopping environment (our Lifestyle stores). We have communicated this message through our “Ingredients for life” advertising campaign. We believe all of these elements have contributed to our sales growth.

Through past experience, we have further improved our Lifestyle store execution by refining the layout and décor of the Lifestyle format and improving our store opening promotions. We believe this has contributed to our sales growth.

Same-store sales increases for the third quarters of 2008 and 2007 were as follows:

 

     12 Weeks Ended  
     September 6, 2008     September 8, 2007  
     Comparable-
Store Sales
Increases
    Identical-
Store Sales
Increases*
    Comparable-
Store Sales
Increases
    Identical-
Store Sales
Increases*
 

As reported

   2.9 %   2.8 %   3.2 %   2.9 %

Excluding fuel sales

   0.6 %   0.5 %   3.2 %   3.0 %

 

* Excludes replacement stores.

The amount and percentage of total sales and other revenue contributed by food, drug, general merchandise and other and by fuel sales are shown below:

 

     12 Weeks Ended  

(dollars in millions)

   September 6, 2008     September 8, 2007  

Food, drug, general merchandise and other

   $ 9,091.4    89 %   $ 8,949.9    91 %

Fuel

     1,077.9    11 %     834.6    9 %
                          

Total sales and other revenue

   $ 10,169.3    100 %   $ 9,784.5    100 %

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

GROSS PROFIT Gross profit represents the portion of sales revenue remaining after deducting the cost of goods sold during the period, including purchase and distribution costs. These costs include inbound freight charges, purchasing and receiving costs, warehouse inspection costs, warehousing costs and other costs of Safeway’s distribution network. Advertising and promotional expenses are also a component of cost of goods sold. Additionally, all vendor allowances are classified as an element of cost of goods sold.

Gross profit declined 102 basis points to 27.49% of sales in the third quarter of 2008 compared to 28.51% of sales in the third quarter of 2007. Higher fuel sales (which have a lower gross margin) reduced gross profit margin by 55 basis points. The remaining 47 basis point decline was the result of investments in price, higher LIFO expense and higher energy costs, partly offset by improved shrink and lower advertising expense.

The decline in advertising expense was primarily the result of a different mix of advertising media and may not necessarily continue in the future. Improved shrinkage is the result of long-term efforts which we do expect to continue into the future.

Vendor allowances totaled $566.4 million for the third quarter of 2008 and $560.8 million for the third quarter of 2007. Vendor allowances totaled approximately $1.8 billion for the first 36 weeks of 2008 and $1.7 billion for the first 36 weeks of 2007. Vendor allowances can be grouped into the following broad categories: promotional allowances, slotting allowances and contract allowances. All vendor allowances are classified as an element of cost of goods sold.

Promotional allowances make up nearly three-quarters of all allowances. With promotional allowances, vendors pay Safeway to promote their product. The promotion may be any combination of a temporary price reduction, a feature in print ads, a feature in a Safeway circular or a preferred location in the store. The promotions are typically one to two weeks long.

Slotting allowances are a small portion of total allowances, typically less than 5% of all allowances. With slotting allowances, the vendor reimburses Safeway for the cost of placing new product on the shelf. Safeway has no obligation or commitment to keep the product on the shelf for a minimum period.

Contract allowances make up the remainder of all allowances. Under the typical contract allowance, a vendor pays Safeway to keep product on the shelf for a minimum period of time or when volume thresholds are achieved.

OPERATING AND ADMINISTRATIVE EXPENSE Operating and administrative expense improved 82 basis points to 23.69% of sales in the third quarter of 2008 from 24.51% of sales in the third quarter of 2007. Higher fuel sales in 2008 reduced operating and administrative expense margin by 49 basis points. The remaining 33 basis point improvement was the result of reduced employee costs, partly offset by higher energy and occupancy costs.

INTEREST EXPENSE Interest expense declined to $80.0 million in the third quarter of 2008 from $89.2 million in the third quarter of 2007 due to a combination of lower interest rates and lower average borrowings.

INCOME TAX Income tax expense was $112.3 million, or 36.0% of pre-tax income, in the third quarter of 2008. Income tax expense in the third quarter of 2007 was $112.4 million, or 36.6% of pre-tax income.

This excerpt taken from the SWY 8-K filed Oct 7, 2008.

Results From Operations

Safeway Inc. today reported net income of $199.7 million ($0.46 per diluted share) for the third quarter of 2008 compared to net income of $194.6 million ($0.44 per diluted share) for the third quarter of 2007.

This excerpt taken from the SWY 8-K filed Jul 17, 2008.

Results From Operations

Safeway Inc. today reported net income of $234.3 million ($0.53 per diluted share) for the second quarter of 2008 compared to net income of $218.2 million ($0.49 per diluted share) in the second quarter of 2007.

This excerpt taken from the SWY 10-Q filed Jul 17, 2008.

Results of Operations

Net income was $234.3 million ($0.53 per diluted share) for the second quarter of 2008 compared to net income of $218.2 million ($0.49 per diluted share) in the second quarter of 2007.

ECONOMIC OUTLOOK The current economic environment has made consumers more cautious. This trend may lead to reduced consumer spending which could affect Safeway’s sales growth. Additionally, rising food inflation combined with reduced consumer spending could also put pressure on gross profit margins.

However, in a slowing economy, we anticipate that some customers may trade down from dining out in restaurants to shopping more at grocery stores such as Safeway and from purchasing national brand products to purchasing less expensive Safeway private label brands. Additionally, rising fuel prices may lead some consumers to switch from shopping at more remote club and discount stores to Safeway’s more convenient neighborhood locations.

SALES AND OTHER REVENUE Total sales increased 3.0% to $10.1 billion in the second quarter of 2008 compared to $9.8 billion in the second quarter of 2007. This increase was driven by contributions from Lifestyle stores, an increase in fuel sales of $138.1 million and an increase of $132.2 million (in U.S. dollars) due to a change in the Canadian dollar exchange rate, partly offset by a shift in Easter holiday sales which occurred in the first quarter of 2008 compared to the second quarter of 2007. At the end of the second quarter of 2008, Safeway had 1,096 Lifestyle stores compared to 838 at the end of the second quarter of 2007. Non-fuel, identical-store sales declined 0.3% due in part to the shift in Easter holiday sales. When adjusted to exclude the estimated impact of the Easter holiday shift, non-fuel, identical-store sales increased 1.0%.

Safeway’s marketing strategies have evolved in recent years and are based on consumer research and competitive analysis. This helps us carry the right products (such as organic products and our revitalized corporate brands) at the right prices (including our club card specials), increasingly merchandised in a warm and inviting shopping environment (our Lifestyle stores). We have communicated this message through our “Ingredients for life” advertising campaign. We believe all of these elements have contributed to our sales growth.

Through past experience, we have further improved our Lifestyle store execution by refining the layout and décor of the Lifestyle format and improving our store opening promotions. We believe this has contributed to our sales growth.

Same-store sales increases (decreases) for the second quarters of 2008 and 2007 were as follows:

 

     12 weeks ended  
     June 14, 2008     June 16, 2007  
     Comparable-
Store Sales
Increases/

(Decreases)
    Identical-
Store Sales
Increases/

(Decreases)*
    Comparable-
Store Sales
Increases
    Identical-Store
Sales
Increases*
 

As reported

   1.0 %   0.9 %   4.9 %   4.5 %

Excluding fuel sales

   (0.2 %)   (0.3 %)   4.0 %   3.7 %

Excluding fuels sales and estimated Easter holiday shift

   1.1 %   1.0 %     **     **

 

* Excludes replacement stores.

 

** There was no Easter holiday shift in 2007 since Easter fell in the second quarter of both fiscal 2007 and fiscal 2006.

 

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This excerpt taken from the SWY 10-Q filed Apr 28, 2008.

Results of Operations

Net income was $193.4 million ($0.44 per diluted share) for the first quarter of 2008 compared to net income of $174.4 million ($0.39 per diluted share) in the first quarter of 2007.

SALES Total sales increased 7.3% to $10.0 billion in the first quarter of 2008 compared to $9.3 billion in the first quarter of 2007. Contributions from Lifestyle stores, an increase in the Canadian dollar exchange rate and higher fuel sales drove this increase. Identical-store sales increased 4.5% in the first quarter of 2008. Excluding fuel, identical-store sales increased 2.9%. Easter holiday sales occurred in the first quarter of this year compared to the second quarter of last year. When adjusted for the estimated impact of the Easter holiday shift, non-fuel, identical-store sales increased 2.0%.

GROSS PROFIT Gross profit represents the portion of sales revenue remaining after deducting the cost of goods sold during the period, including purchase and distribution costs. These costs include inbound freight charges, purchasing and receiving costs, warehouse inspection costs, warehousing costs and other costs of Safeway’s distribution network. Advertising and promotional expenses are also a component of cost of goods sold. Additionally, all vendor allowances are classified as an element of cost of goods sold.

Gross profit declined 50 basis points to 28.79% of sales in the first quarter of 2008 compared to 29.29% of sales in the first quarter of 2007. Higher fuel sales (which have a lower gross margin) reduced gross profit by 38 basis points. The remaining 12 basis-point decline is the result of investments in price, partly offset by improved shrink and lower advertising expense.

Vendor allowances totaled $622.1 million for the first quarter of 2008 and $591.0 million for the first quarter of 2007. Vendor allowances can be grouped into the following broad categories: promotional allowances, slotting allowances, and contract allowances. All vendor allowances are classified as an element of cost of goods sold.

Promotional allowances make up nearly three-quarters of all allowances. With promotional allowances, vendors pay Safeway to promote their product. The promotion may be any combination of a temporary price reduction, a feature in print ads, a feature in a Safeway circular, or a preferred location in the store. The promotions are typically one to two weeks long.

Slotting allowances are a small portion of total allowances (typically less than 5% of all allowances). With slotting allowances, the vendor reimburses Safeway for the cost of placing new product on the shelf. Safeway has no obligation or commitment to keep the product on the shelf for a minimum period.

Contract allowances make up the remainder of all allowances. Under the typical contract allowance, a vendor pays Safeway to keep product on the shelf for a minimum period of time or when volume thresholds are achieved.

OPERATING AND ADMINISTRATIVE EXPENSE Operating and administrative expense improved 65 basis points to 24.77% of sales in the first quarter of 2008 from 25.42% of sales in the first quarter of 2007. Higher fuel sales in 2008 reduced operating and administrative expense by 29 basis points. The remaining 36 basis point decline was the result of reduced employee costs, partly offset by a labor settlement in Alberta, Canada, and higher utility and occupancy costs.

INTEREST EXPENSE Interest expense declined slightly to $84.5 million in the first quarter of 2008 from $89.6 million in the first quarter of 2007 due to a combination of lower interest rates and lower average borrowings.

 

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This excerpt taken from the SWY 8-K filed Apr 24, 2008.

Results From Operations

Safeway Inc. today reported net income of $193.4 million ($0.44 per diluted share) for the first quarter of 2008 compared to net income of $174.4 million ($0.39 per diluted share) in the first quarter of 2007.

This excerpt taken from the SWY 8-K filed Feb 21, 2008.

Results From Operations

Safeway Inc. today reported net income of $301.1 million for the fourth quarter of 2007 compared to net income of $307.9 million in the fourth quarter of 2006. Diluted earnings per share was $0.68 in the fourth quarter of 2007 compared to $0.69 in the fourth quarter of 2006. However, diluted earnings per share in the fourth quarter of 2006 was increased by $0.08 due to various favorable tax items.

This excerpt taken from the SWY 10-Q filed Oct 16, 2007.

Results of Operations

Net income was $194.6 million ($0.44 per diluted share) for the third quarter ended September 8, 2007. Net income in the third quarter of 2006 was $173.5 million ($0.39 per diluted share). This represents a 13% increase in earnings per share.

SALES AND OTHER REVENUE Total sales and other revenue increased 3.9% to $9.8 billion in the third quarter of 2007 compared to $9.4 billion in the third quarter of 2006. Excluding the effect of fuel sales, comparable-store sales increased 3.2% and identical-store sales increased 3.0%.

GROSS PROFIT Gross profit represents the portion of sales revenue remaining after deducting the cost of goods sold during the period, including purchase and distribution costs. These costs include inbound freight charges, purchasing and receiving costs, warehouse inspection costs, warehousing costs and other costs of Safeway’s distribution network. Advertising and promotional expenses are also a component of cost of goods sold. Additionally, all vendor allowances are classified as an element of cost of goods sold.

Gross profit margin increased 21 basis points to 28.51% of sales in the third quarter of 2007 compared to 28.30% in the third quarter of 2006, primarily because of lower advertising and supply chain expense.

Vendor allowances totaled $560.8 million for the third quarter of 2007 and $567.9 million for the third quarter of 2006. Vendor allowances totaled $1.7 billion for the first 36 weeks of 2007 and 2006. Vendor allowances can be grouped into the following broad categories: promotional allowances, slotting allowances, and contract allowances. All vendor allowances are classified as an element of cost of goods sold.

Promotional allowances make up nearly three-quarters of all allowances. With promotional allowances, vendors pay Safeway to promote their product. The promotion may be any combination of a temporary price reduction, a feature in print ads, a feature in a Safeway circular, or a preferred location in the store. The promotions are typically one to two weeks long.

Slotting allowances are a small portion of total allowances, typically less than 5% of all allowances. With slotting allowances, the vendor reimburses Safeway for the cost of placing new product on the shelf. Safeway has no obligation or commitment to keep the product on the shelf for a minimum period.

Contract allowances make up the remainder of all allowances. Under the typical contract allowance, a vendor pays Safeway to keep product on the shelf for a minimum period of time or when volume thresholds are achieved.

OPERATING AND ADMINISTRATIVE EXPENSE Operating and administrative expense was 24.51% of sales in the third quarter of 2007, down three basis points from 24.54% in the third quarter of 2006. This improvement is primarily due to increased sales, lower workers’ compensation expense, and lower utility expense and store labor as a percentage of sales, partly offset by higher depreciation expense, lower gains on disposal of properties and higher debit and credit card fees.

INTEREST EXPENSE Interest expense declined slightly to $89.2 million in the third quarter of 2007 from $90.0 million in the third quarter of 2006 due to lower indebtedness, partly offset by higher average interest rates.

INCOME TAX EXPENSE Income tax expense was $112.4 million, or 36.6% of pretax income, in the third quarter of 2007. Income tax expense was $101.8 million, or 37.0% of pretax income, in the third quarter of 2006.

 

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36-WEEKS ENDED SEPTEMBER 8, 2007 COMPARED WITH 36-WEEKS ENDED SEPTEMBER 9, 2006 Net income for the first 36 weeks of 2007 was $587.2 million ($1.32 per diluted share) compared to $562.6 million ($1.25 per diluted share) in the first 36 weeks of 2006. Net income in the first 36 weeks of 2006 benefited from a $58.5 million ($0.13 per diluted share) reduction in income tax expense related to an income tax refund.

The gross profit margin was 28.76% in the first 36 weeks of 2007 compared to 28.68% in 2006. Operating and administrative expense was 24.70% in 2007 compared to 24.87% in 2006.

This excerpt taken from the SWY 8-K filed Oct 11, 2007.

Results From Operations

Safeway Inc. today reported net income of $194.6 million ($0.44 per diluted share) for the third quarter ended September 8, 2007. Net income in the third quarter of 2006 was $173.5 million ($0.39 per diluted share). This represents a 13% increase in earnings per share.

This excerpt taken from the SWY 10-Q filed Jul 23, 2007.

Results of Operations

Net income was $218.2 million ($0.49 per diluted share) for the second quarter ended June 16, 2007.

Net income in the second quarter of 2006 was $246.2 million ($0.55 per diluted share), which benefited from a $58.5 million ($0.13 per diluted share) reduction in income tax expense related to an income tax refund.

SALES AND OTHER REVENUE Total sales and other revenue increased 4.9% to $9.8 billion in the second quarter of 2007 compared to $9.4 billion in the second quarter of 2006. Identical-store sales increased 4.5% for the second quarter of 2007. Excluding the effect of fuel sales, identical-store sales increased 3.7%. Contributions from Lifestyle stores as well as strong perishable and non-perishable performance drove this increase.

GROSS PROFIT Gross profit represents the portion of sales revenue remaining after deducting the cost of goods sold during the period, including purchase and distribution costs. These costs include inbound freight charges, purchasing and receiving costs, warehouse inspection costs, warehousing costs and other costs of Safeway’s distribution network. Advertising and promotional expenses are also a component of cost of goods sold. Additionally, all vendor allowances are classified as an element of cost of goods sold.

Gross profit margin decreased 15 basis points to 28.51% of sales in the second quarter of 2007 compared to 28.66% in the second quarter of 2006. Higher fuel sales (which have a lower gross profit margin) accounted for 14 basis points of the gross profit margin decline.

Vendor allowances totaled $579.0 million for the second quarter of 2007 and $573.6 million for the second quarter of 2006. Vendor allowances totaled $1.2 billion for the first 24 weeks of 2007 and $1.1 billion in the first 24 weeks of 2006. Vendor allowances can be grouped into the following broad categories: promotional allowances, slotting allowances, and contract allowances. All vendor allowances are classified as an element of cost of goods sold.

Promotional allowances make up nearly three-quarters of all allowances. With promotional allowances, vendors pay Safeway to promote their product. The promotion may be any combination of a temporary price reduction, a feature in print ads, a feature in a Safeway circular, or a preferred location in the store. The promotions are typically one to two weeks long.

Slotting allowances are a small portion of total allowances, typically less than 5% of all allowances. With slotting allowances, the vendor reimburses Safeway for the cost of placing new product on the shelf. Safeway has no obligation or commitment to keep the product on the shelf for a minimum period.

Contract allowances make up the remainder of all allowances. Under the typical contract allowance, a vendor pays Safeway to keep product on the shelf for a minimum period of time or when volume thresholds are achieved.

OPERATING AND ADMINISTRATIVE EXPENSE Operating and administrative expense improved 37 basis points to 24.21% of sales in the second quarter of 2007 from 24.58% in the second quarter of 2006. This improvement is primarily due to increased sales, lower workers’ compensation expense, net property gains and lower store labor as a percentage of sales, partly offset by higher occupancy costs.

INTEREST EXPENSE Interest expense declined to $89.7 million in the second quarter of 2007 compared to $91.6 million in the second quarter of 2006 due to lower indebtedness, partly offset by higher average interest rates.

 

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INCOME TAX EXPENSE Income tax expense was $119.9 million, or 35.5% of pretax income, in the second quarter of 2007.

Income tax expense was $50.9 million, or 17.1% of pretax income, in the second quarter of 2006. Income tax expense in that quarter was reduced by a $58.5 million ($0.13 per diluted share) benefit related to an income tax refund.

This excerpt taken from the SWY 8-K filed Jul 19, 2007.

Results From Operations

Safeway Inc. today reported net income of $218.2 million ($0.49 per diluted share) for the second quarter ended June 16, 2007.

Net income in the second quarter of 2006 was $246.2 million ($0.55 per diluted share), which benefited from a $58.5 million ($0.13 per diluted share) reduction in income tax expense related to an income tax refund.

This excerpt taken from the SWY 10-Q filed Apr 27, 2007.

Results of Operations

Net income was $174.4 million ($0.39 per diluted share) for the first quarter ended March 24, 2007 compared to $142.9 million ($0.32 per diluted share) for the first quarter of 2006.

SALES Total sales and other revenue increased 4.8% to $9.3 billion in the first quarter of 2007 compared to $8.9 billion in the first quarter of 2006. Identical-store sales increased 4.8% for the first quarter of 2007. Excluding the effect of fuel sales, identical-store sales increased 4.5%. Sales were strong in both perishable and non-perishable products.

GROSS PROFIT Gross profit represents the portion of sales revenue remaining after deducting the cost of goods sold during the period, including purchase and distribution costs. These costs include inbound freight charges, purchasing and receiving costs, warehouse inspection costs, warehousing costs and other costs of Safeway’s distribution network. Advertising and promotional expenses are also a component of cost of goods sold. Additionally, all vendor allowances are classified as an element of cost of goods sold.

Gross profit increased 19 basis points to 29.29% of sales in the first quarter of 2007 compared to 29.10% in the first quarter of 2006. The increase in gross profit margin is primarily the result of lower advertising expense, savings from distribution initiatives, and improved shrink, partly offset by investments in price.

Vendor allowances totaled $591.0 million for the first quarter of 2007 and $565.4 million for the first quarter of 2006. Vendor allowances can be grouped into the following broad categories: promotional allowances, slotting allowances, and contract allowances. All vendor allowances are classified as an element of cost of goods sold.

Promotional allowances make up nearly three-quarters of all allowances. With promotional allowances, vendors pay Safeway to promote their product. The promotion may be any combination of a temporary price reduction, a feature in print ads, a feature in a Safeway circular, or a preferred location in the store. The promotions are typically one to two weeks long.

Slotting allowances are a small portion of total allowances (typically less than 5% of all allowances). With slotting allowances, the vendor reimburses Safeway for the cost of placing new product on the shelf. Safeway has no obligation or commitment to keep the product on the shelf for a minimum period.

Contract allowances make up the remainder of all allowances. Under the typical contract allowance, a vendor pays Safeway to keep product on the shelf for a minimum period of time or when volume thresholds are achieved.

OPERATING AND ADMINISTRATIVE EXPENSE Operating and administrative expense improved 11 basis points to 25.42% of sales in the first quarter of 2007 from 25.53% in the first quarter of 2006. This improvement is primarily due to increased sales and lower costs as a percentage of sales from store labor and workers’ compensation.

INTEREST EXPENSE Interest expense declined to $89.6 million in the first quarter of 2007 compared to $93.0 million in the first quarter of 2006 due to lower indebtedness, partly offset by higher average interest rates.

INCOME TAX EXPENSE Income tax expense was $103.8 million, or 37.3% of pretax income, in the first quarter of 2007.

 

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This excerpt taken from the SWY 8-K filed Apr 26, 2007.

Results From Operations

Safeway Inc. today reported net income of $174.4 million ($0.39 per diluted share) for the first quarter ended March 24, 2007 compared to $142.9 million ($0.32 per diluted share) for the first quarter of 2006.

This excerpt taken from the SWY 8-K filed Feb 22, 2007.

Results From Operations

Safeway Inc. today reported net income of $307.9 million ($0.69 per diluted share) for the fourth quarter of 2006. This compares with net income of $173.5 million ($0.39 per diluted share) for the fourth quarter ended December 31, 2005.

Net income in the fourth quarter of 2006 was increased by $0.08 per diluted share due to various favorable tax items. Net income in the fourth quarter of 2005 was reduced by a net $0.10 per diluted share for store exit activities, employee buyouts and the favorable resolution of various tax issues.

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