Safeway (SWY)

Annual Results

Net loss for the 52-week year 2009 was $1,097.5 million ($2.66 per diluted share). Excluding the goodwill impairment charge of $1,818.2 million, net of tax ($4.40 per diluted share), net income would have been $720.7 million ($1.74 per diluted share). This compares to net income of $965.3 million ($2.21 per diluted share) in the 53-week year 2008.

The gross profit margin was 28.62% in 2009 compared to 28.38% in 2008. Operating and administrative expense margin was 25.33% in 2009 compared to 24.17% in 2008.

Annual Results

Net income for the 53-week year 2008 was $965.3 million ($2.21 per diluted share) compared to $888.4 million ($1.99 per diluted share) in the 52-week year 2007. Annual earnings per diluted share increased 11% over last year.

Sales increased 4.3% to $44.1 billion in 2008 from $42.3 billion in 2007 primarily because of the additional week in fiscal 2008, increased fuel sales and identical-store sales increases, excluding fuel, of 0.8%.

The gross profit margin declined 36 basis points to 28.38% of sales in 2008 from 28.74% in 2007. Excluding the 11 basis point reduction in gross profit margin due to higher fuel sales, gross profit margin declined 25 basis points.

Operating and administrative expense margin improved 38 basis points to 24.17% of sales in 2008 from 24.55% in 2007. Excluding the 11 basis point improvement due to higher fuel sales, operating and administrative expense margin improved by 27 basis points.

2

Annual Results

Net income for the year 2007 was $888.4 million ($1.99 per diluted share) compared to $870.6 million ($1.94 per diluted share) in 2006. Results in 2006 were increased by income tax benefits of $96.5 million ($0.22 per diluted share) related to interest on federal and state income tax refunds and various other favorable tax items. Sales increased 5.2% to $42.3 billion in 2007 from $40.2 billion in 2006 primarily because of Safeway’s marketing strategy, Lifestyle store execution, increased fuel sales and an increase in the Canadian dollar exchange rate. Identical-store sales, excluding fuel, increased 3.4%.

Gross profit decreased 8 basis points to 28.74% of sales in 2007 from 28.82% of sales in 2006. Higher fuel sales reduced gross profit by 20 basis points. Excluding fuel, gross profit increased 12 basis points primarily because of lower advertising expense, improved shrink, and benefits from supply-chain initiatives, partly offset by investments in price and higher LIFO expense. LIFO expense was $13.9 million in 2007 compared to $1.2 million in 2006.

Operating and administrative expense decreased 29 basis points to 24.55% of sales in 2007 from 24.84% of sales in 2006. Higher fuel sales in 2007 reduced operating and administrative expense by 16 basis points. The remaining 13 basis point decline is primarily the result of reduced employee costs as a percentage of sales and higher gains on disposal of property, partly offset by higher depreciation expense.

2

Annual Results

Net income for the year ended 2006 was $870.6 million ($1.94 per diluted share) compared to $561.1 million ($1.25 per diluted share) in 2005. Sales increased 4.6% to $40.2 billion in 2006 from $38.4 billion in 2005 primarily because of Safeway’s marketing strategy, Lifestyle store execution and increased fuel sales. Identical-store sales, excluding fuel, increased 3.3%.

Gross profit decreased 11 basis points to 28.82% of sales in 2006 from 28.93% of sales in 2005. Higher fuel sales reduced gross profit by 28 basis points. Excluding fuel, gross profit increased 17 basis points primarily because of improved shrink, benefits from product-sourcing initiatives and improved product mix, partly offset by investments in price and increased advertising expense.

Operating and administrative expense decreased 93 basis points to 24.84% of sales in 2006 from 25.77% of sales in 2005. The store exit activities and employee buyouts in 2005 reduced operating and administrative expense by 44 basis points. Higher fuel sales in 2006 reduced operating and administrative expense by 13 basis points. The remaining decline is primarily the result of increased sales and reduced costs as a percentage of sales from store labor, workers’ compensation and pension expense.

2

Annual Results

Net income for the year ended 2005 was $561.1 million ($1.25 per diluted share) compared to $560.2 million ($1.25 per diluted share) in 2004. Sales increased 7.2% to $38.4 billion in 2005 from $35.8 billion in 2004, primarily because of Safeway’s marketing strategy, Lifestyle store execution and increased fuel sales.

2

The gross profit margin decreased 65 basis points to 28.93% of sales in 2005 from 29.58% in 2004. Higher fuel sales reduced gross profit by 39 basis points. The remaining decline is due to grand openings of Lifestyle stores, investment in price, increased advertising expense and higher energy costs.

Operating and administrative expense decreased 53 basis points to 25.77% of sales from 26.30% in 2004. Excluding the unusual items outlined on Table 7, operating and administrative expense decreased 94 basis points. This improvement is the result of restructured labor agreements, increased fuel sales, and reduced workers’ compensation costs, partly offset by labor costs associated with the grand opening of Lifestyle stores and higher energy costs.

Annual Results

Net income for the year ended 2004 was $560.2 million ($1.25 per diluted share) compared to a loss of $169.8 million ($0.38 per diluted share) for 2003.

Net income in 2004 includes a total estimated impact of approximately $304.8 million, after tax ($0.68 per diluted share) from the after-tax charges outlined in Table 1. Excluding these items, 2004 earnings would have been $1.93 per diluted share.

Net loss for 2003 included a total of $1,083.0 million of after-tax charges ($2.43 per diluted share) outlined on Table 1. Excluding these items, net income in 2003 was $2.05 per diluted share.

Sales increased only slightly to $35.8 billion in 2004 from $35.7 billion in 2003, primarily because of the strike and because fiscal 2004 had one fewer week than fiscal 2003. The gross profit margin decreased 44 basis points to 29.58% in 2004 from 30.02% in 2003. Operating and administrative expense decreased 7 basis points to 26.30% of sales from 26.37% in 2003.