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October 11, 2013

US: Safeway to exit Chicago as profits fall

Safeway Inc has revealed mounting losses and said it will exit Chicago - where its business is losing money - in order to increase its focus on core operations.

Safeway Inc has revealed mounting losses and said it will exit Chicago – where its business is losing money – in order to increase its focus on core operations.

The US retailer booked a steep drop in earnings during the first nine months of the year yesterday (10 October). Net income fell to US$193.1m, down from $352.5m in the comparable period of last year. The bottom line was hit by lower income from discontinued operations. The company also booked an impairment charge in the third quarter associated with an investment in its Canadian warehouses that was abandoned with the sale of the business to Sobey’s.

Operating profit in the nine months to 7 September dipped to $325.5m, down from $367.3m in the comparable period of last year. Sales slid to $25.82bn, down from $25.86bn in the first nine months of 2012.

Looking to the full year, Safeway lowered its guidance. The company said it now expects proforma adjusted EBITDA of $1.67-$1.70bn, compared to $1.74bn in 2012 and previous guidance of $1.7-$1.73bn. Adjusted diluted EPS forecasts were also lowered to $0.93-$1, compared to previous guidance of $1.02-$1.12 and $0.99 in 2012.

Safeway also revealed it intends to exit the Chicago market, where it operates 72 Dominick’s stores, by early 2014.

Dominick’s incurred losses before income taxes of $35.2m in the first 36 weeks of 2013, the company said. Safeway expects the move to result in a cash tax benefit of $400-$450m, which will be used to partly offset the tax expense associated with the sale of Safeway Canada. Any proceeds from the disposal will be used to buyback stock and “invest in growth opportunities”, the company revealed.

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