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Safeway Says 2007 Earnings May Top Wall Street View
December 12, 2006 · Reuters
Safeway Inc. the No. 3 U.S. grocer, said on Tuesday that earnings could top Wall Street expectations in 2007, even as it spends $1.7 billion to open about 25 new stores and remodel about 275 others.
Safeway, at a meeting with analysts and investors, said it expects to earn $1.90 to $2 per share in 2007. Analysts' average forecast is $1.91, according to Reuters Estimates.
Safeway shares rose nearly 3.7 percent in morning trading but had given up more than half of those gains by midday.
The company has already remodeled about 40 percent of its stores to the "Lifestyle" format, which includes bakeries, a produce section reminiscent of an outdoor market, large flower shop areas, and sushi bars.
Safeway said it expects 94 percent of its stores to be set in the "Lifestyle" format in 2009, up from 43 percent in 2006.
The company has also introduced exclusive products such as Rancher's Reserve beef and Signature soups to attract consumers looking for quality foods. It also now sells prepared foods such as grilled panini sandwiches to attract those who dine out or shop at stores such as Whole Foods Market Inc.
Safeway said that in 2007 its previously converted stores, along with product innovations, should help deliver about 3.3 percent growth in sales at "identical" stores, which exclude new or replacement stores. It also forecast long-term identical store sales growth of 3 percent to 4 percent.
The company, whose chains include Vons and Dominick's, forecast long-term annual earnings per share growth of 12 percent to 15 percent.
Safeway hopes that its enhancements, including its own line of organic products, called O, will help fend off tough competition from Wal-Mart Stores Inc. the largest U.S. seller of food, and high-end grocers such as Whole Foods.
The company also said it expects to earn $1.71 per share this year, adjusted for tax benefits seen in the first three quarters. That would represent a 22 percent rise from 2005.
Analysts, on average, expect $1.72 per share.
The Pleasanton, California-based grocer said that during the meeting it would discuss new growth vehicles and the work it has done with its Blackhawk Network subsidiary, which distributes gift cards.
In slides prepared for the meeting, Safeway said Blackhawk has very low capital requirements, should contribute $100 million in pretax income in 2007, and has an annual growth rate in excess of 100 percent.
Safeway, which has 1,767 stores in the United States and Canada, posted a 42 percent rise in fiscal third-quarter profit in October.
Shares of Safeway were up 38 cents, or 1.2 percent, at $32.84 in midday trade on the New York Stock Exchange after climbing as high as $33.65 earlier, their best level since 2002
.