Pleasanton, Calif.-based grocery giant Safeway has reported adjusted net income of US$350.4m (US$0.72 per share) for the Q2 2002, down from US$358m (US$0.69 per share) in the Q2 2001.
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Including an US$36.7m after-tax charge for restructuring and US$4.4m for transition costs related to the centralisation of marketing functions, Q2 2002 net income was US$309.3m (US$0.63 per share). Net income for the Q2 2001 was US$307.3m (US$0.59 per share) including the effects of the impairment charge and goodwill amortization.
Q2 2002 comparable-store sales fell 0.4%, while identical-store sales fell 1.1%. Sales were impacted by continued softness in the economy, an increase in competitive activity, an overly aggressive shrink effort and disruptions associated with the centralisation of buying and merchandising. Total sales increased 1.2% to US$8.1bn from US$8bn in the Q2 2001, primarily because of new store openings.
Gross profit increased 43 basis points to 31.59% of sales in the Q2 2002 from gross profit of 31.16% in the Q2 2001 due to continued improvements in shrink control, buying practices and private-label growth. Operating and administrative expense increased 53 basis points to 23.60% of sales in the Q2 2002 compared to operating and administrative expense of 23.07% in the Q2 2001. Higher real estate occupancy costs, pension expense and employee benefit costs contributed to a 94 basis point increase that was partially offset by a 41 point basis point reduction.
The company repurchased 5.2 million shares of Safeway common stock at a total purchase price of US$225m in the Q2 2002. Safeway’s board of directors has increased the authorised level of the company’s stock repurchase programme to US$3.5bn from US$2.5bn, leaving US$1.6bn available for repurchases under the new authorised level. The timing and volume of future purchases will depend on market conditions.
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By GlobalDataInterest expense declined to US$95.4m in the Q2 2002 compared to US$105.6m in the Q2 2001 due primarily to lower interest rates, partially offset by higher average borrowings because of the repurchase of Safeway stock. EBITDA (which includes the charges stated above) as a percentage of sales was 9.76% for the quarter. The interest coverage ratio remains very strong at 8.27 times for the Q2 2002. Safeway has reduced outstanding debt by US$138m since the beginning of 2002.
Other income was US$4.3m in the Q2 2002, compared to other expense of US$21.6m in 2001.
Sales for the first 24 weeks of 2002 were US$16bn compared to sales of US$15.7bn year on year. The gross profit margin increased 60 basis points to 31.47% of sales in 2002 from 30.87% in 2001. Operating and administrative expense increased 59 basis points to 23.62% of sales in 2002 from 23.03% in 2001.
During the first two quarters of 2002, Safeway invested about US$669m in capital expenditures. The company opened 35 new stores and closed 16 stores. The company expects to spend more than US$1.9bn in 2002 while opening approximately 80 new stores and completing around 200 remodels.
Safeway continues to provide EPS guidance of US$2.86 to US$2.90 for 2002.
