Steve Burd, the chief of US retail giant Safeway Inc, has admitted he feels more confident about his business than in previous months – despite uncertainty over how far food prices could fall.
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Safeway’s shares closed up by over 6% last night even as the group booked slumping third-quarter profits and lower sales.
Nevertheless, Burd said he “felt better” about the outlook for Safeway compared to the previous quarter. Despite falling same-store sales, he pointed to improving “household and transaction counts” and also hinted that consumers were starting to trade up again in some categories.
However, the Safeway chairman, president and CEO acknowledged that sales were under pressure from deflation in dairy, meat and fresh produce – and admitted it was difficult to predict how prices would move in the weeks ahead.
“Volume trends are good, transactions good – I just wish we could predict deflation a little bit better,” Burd told analysts yesterday.
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By GlobalDataSafeway held its profit guidance for the full year firm, repeating its target of earnings of $1.70-1.90 per diluted share. However, Burd indicated that, if deflation worsened, profits could be under threat.
“If deflation were to get worse then those [earnings] numbers would get worse, so deflation is probably the single biggest factor and it’s an unknown. It affects more than ID sales. It affects profitability. I have not witnessed a deflationary environment of this magnitude in my entire career.”
Burd said deflation in dairy and fresh produce has slowed slightly in the first weeks of Safeway’s fiscal fourth quarter but said the trend had “picked up” in meat.
However, he outlined reasons for optimism by pointing to shoppers starting to buy more expensive products in categories like coffee and wine.
Burd also said Safeway would look to further build its higher-margin, private-label portfolio under the recently-appointed own-label chief Joe Ennen.
“We frankly enjoy selling the private label and the extra margin it gives us. We just beefed up that area by hiring a guy from Frito-Lay to go in. He’s just going to be a great asset to the company and I think help us grow private brand even faster.”
Quotes from the conference call were taken from a transcript provided by Seeking Alpha. For the full transcript visit the Seeking Alpha website.
