Safeway loses $1.05B in 4th quarter
By Michael Liedtke
Associated Press
SAN FRANCISCO — Slumping supermarket giant Safeway Inc. reported a fourth-quarter loss of $1.05 billion yesterday, reflecting the grocer's continuing headaches with two rotting acquisitions in Texas and Illinois.
The loss of $2.37 per share contrasted with a profit of $353.6 million, or 70 cents per share, during the same time in the previous year.
Safeway absorbed $1.5 billion in fourth-quarter charges to account for troubles at two grocers, Houston-based Randall's and Chicago-based Dominick's, that it bought for $2.5 billion during the late 1990s.
If not for the charges and losses from discontinued operations, Pleasanton-based Safeway said 2002's final quarter would have produced a profit of $359.4 million, or 80 cents per share.
That figure beat the consensus estimate of 78 cents per share among analysts surveyed by Thomson First Call. Analysts lowered their estimates in November after Safeway management warned the company's results would be disappointing.
Safeway's shares fell 46 cents yesterday to close at $21.53 on the New York Stock Exchange.
Safeway has 15 stores in Hawai'i, including nine on O'ahu, three on Maui, two on the Big Island and one on Kaua'i.
The setback during the three months ended Dec. 28 capped a dismal year for the nation's third-largest supermarket chain.
Besides sustaining losses on the Randall's and Dominick's deals, Safeway battled sagging sales in a sluggish economy that tightened household budgets and drove more shoppers to buy groceries at discounters such as Wal-Mart and Target.
This trend continued to hurt Safeway in the fourth quarter as the company's sales from comparable stores open at least a year dipped 1.3 percent from the same 2001 period. Including newly opened stores, Safeway's fourth-quarter sales totaled $10 billion, an increase of less than 1 percent from the prior year.
To stimulate sales, Safeway and other retailers lowered prices, another factor contributing to the grocer's sliding revenue.
"Deflation in the fourth quarter was almost universal," Steve Burd, Safeway's chief executive, said during a conference call yesterday. "There was hardly a category left out of that."
Burd, though, offered hope that the worst of Safeway's sales slump is over. "We are seeing some evidence that we may have bottomed out," Burd said.
But the improving sales might not translate into better profits, Burd cautioned. Besides facing higher expenses to pay for employee raises mandated in labor contracts, Safeway's profit margins also are decreasing as the grocer struggles to convert to a new system that centralizes the way it buys products for its stores.
The fourth-quarter loss stemmed mostly from accounting rules that forced Safeway to acknowledge the diminishing value of the Randall's and Dominick's chains.
Safeway paid $1.2 billion for Dominick's in 1998 and then bought Randall's for $1.3 billion in 1999. The deals haven't panned out, forcing Safeway to write off big chunks of the acquisition prices.
For all of 2002, Safeway lost $828.1 million, or $1.75 per share, on sales of $32.4 billion. In 2001, Safeway earned $1.25 billion, or $2.44 per share, on sales of $31.8 billion.
