Safeway Inc. Announces First Quarter 2009 Earnings
Safeway Inc. Announces First Quarter 2009 Earnings Board Approves 21% Increase in Quarterly Dividend PLEASANTON, Calif.--(BUSINESS WIRE)--Apr. 30, 2009-- Safeway Inc. (NYSE:SWY):
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.”
Sales and Other Revenue
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 lower fuel sales (which was due primarily to lower fuel prices), a decline in the Canadian exchange rate and a shift in holiday sales.
Identical-store sales for the quarter, excluding fuel, declined 0.7%. After excluding the weeks affected by the shift in Easter holiday sales, identical-store sales, excluding fuel, increased to an estimated 0.2%.
Gross profit declined seven basis points to 28.72% of sales in the first quarter of 2009 compared to 28.79% of sales in the first quarter of 2008. Excluding the 79 basis point impact from fuel sales, gross profit declined 86 basis points. This decline was primarily the result of investments in everyday prices, as well as an elevated level of promotional spending. Investments in everyday prices will continue, while promotional spending is expected to return to normal levels.
Operating and Administrative Expense
Operating and administrative expense declined approximately $100 million to $2.4 billion in the first quarter of 2009 from $2.5 billion in the first quarter of 2008. However, due to lower sales in 2009, operating and administrative expense increased 90 basis points to 25.67% of sales in the first quarter of 2009 from 24.77% of sales in the first quarter of 2008. Excluding the 74 basis point impact of lower fuel sales in the first quarter of 2009, operating and administrative expense increased 16 basis points. This increase was primarily the result of decreased sales leverage (partially due to the shift in holiday sales), increased occupancy costs as a percentage of sales and increased pension expense, partly offset by reduced labor costs.
Interest expense declined to $78.2 million in the first quarter of 2009 from $84.5 million in the first quarter of 2008 due to a combination of lower average borrowings and lower interest rates.
Income tax expense was $60.3 million, or 29.5% of pre-tax income, in the first quarter of 2009. Income tax expense in the first quarter of 2008 was $123.6 million, or 39.0% of pre-tax income. The decline in the tax rate was due primarily to benefits of $16 million from the favorable resolution of tax matters.
During the first quarter of 2009, Safeway purchased 3.5 million shares of its common stock at an average cost of $18.40 per share and a total cost of $64.5 million (including commissions). The remaining board authorization for stock repurchases at quarter-end was approximately $1.1 billion.
Safeway invested $243.5 million in capital expenditures in the first quarter of 2009. The company opened one new Lifestyle store, completed 10 Lifestyle remodels and closed three stores. Safeway has reduced planned capital expenditures in 2009 from $1.2 billion to approximately $1.0 billion and now plans to open approximately 10 new Lifestyle stores and complete approximately 100 Lifestyle remodels.
Net cash flow used by operating activities was $151.0 million in the first quarter of 2009 compared to $41.2 million in the first quarter of 2008. This was primarily due to an increase in cash used by working capital which was the result of a shift in holiday shopping.
Net cash flow used by investing activities declined to $252.8 million in the first quarter of 2009 from $370.7 million in the first quarter of 2008 because of reduced capital expenditures.
Net cash flow provided by financing activities was $131.0 million in the first quarter of 2009 compared to $352.9 million in the first quarter of 2008. Borrowings were less in the first quarter of 2009 compared to the first quarter of 2008 due to reduced capital expenditures.
Safeway announced separately today that its Board of Directors authorized a 21% increase in the quarterly dividend to $0.10 per share, effective for stockholders of record on June 25, 2009. The dividend will be paid on July 16, 2009.
Safeway lowered earnings guidance for the year 2009 to $2.10 - $2.30 per diluted share and identical-store sales guidance, excluding fuel, to 0.5% - 1.5%. Safeway increased free cash flow guidance for the year 2009 to $1.1 billion - $1.3 billion.