Safeway Inc. (SWY) reported fourth quarter fiscal 2010 earnings per share of 62 cents, beating the Zacks Consensus Estimate of 58 cents. The company had reported an adjusted EPS of 53 cents in the year-ago quarter.
The adjusted EPS in the fourth quarter of 2009 excludes a $1.9 billion of goodwill impairment charges due to the company’s reduced market capitalization and a weak economy. For the full year, the EPS was $1.55, surpassing the Zacks Consensus Estimate of $1.51, although lower than the previous year’s $1.74.
The company reported sales of $12.8 billion during the quarter, marginally exceeding both the Zacks Consensus Estimate and the previous quarter’s $12.7 billion. The effect of a higher Canadian exchange rate and higher fuel sales were partially offset by a 0.8% decline in identical-store sales (excluding fuel) and reduced sales due to store closures. Safeway recorded $41 billion in sales in 2011, marginally ahead of the Zacks Consensus Estimate and the previous year.
Gross margin of 28.08% for the quarter was 56 basis points lower than the fourth quarter of 2009. However, excluding the 60 basis-point impact from fuel sales, gross profit increased four basis points due to improved shrink, partially offset by reduction in prices that the company experienced in the second half of 2009.
Safeway opened 7 new stores, completed 25 Lifestyle remodels and closed 15 stores during the quarter. The company achieved the target of 60 Lifestyle remodels in 2010. During the quarter, $282 million was spent on capital expenditure.
During the year, Safeway generated operating cash flow of $1.8 billion, lower than $2.5 billion in the previous year. The company repurchased 7.5 million shares of its common stock for a total cost of $170 million during the quarter. Subsequent to the announcement of a $1 billion of stock repurchase authorization in the fourth quarter, Safeway was left with $1.7 billion of authorization at the end of 2010.
Safeway did not provide any guidance for 2011. The company will release guidance on March 8, 2011 during its annual investor conference.
Recommendation
Safeway had been expecting the situation to improve over time banking on better volume and pricing. Result of the fourth quarter shows some light in this parlance. In addition, Safeway has completed the Lifestyle remodels, which should increase revenues in future. With a strong cash balance, the company rewards shareholders in the form of dividends and buybacks.
We are currently Neutral on the stock.
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