Safeway Inc. (SWY) reported fourth quarter earnings of 53 cents per share, meeting the Zacks Consensus Estimate. However, earnings were down 33% from 79 cents in the prior-year period.
After considering a goodwill impairment charge, the company had a loss of $4.06 per share during the reported quarter. For the full year 2009, Safeway’s earnings came in at $1.74 compared to $2.21 in 2008.
Safeway recorded a year-over-year decline of 8.1% in sales to $12.7 billion in the quarter primarily due to a 4.1% decline in identical-store sales (excluding fuel) and an additional week in the fourth quarter of 2008. Revenues for 2009 declined 7.4% to $40.8 billion.
Due to a lower market capitalization and a weak economy, Safeway recorded a non-cash goodwill impairment charge of $1,974.2 million ($1,818.2 million, net of tax) during the reported quarter. Gross margin of 28.64% for the quarter was 14 basis points lower than the previous year. However, the gross margin declined 16 basis points, excluding the impact of fuel sales.
Operating margin declined to 3.4% from the year-ago level of 4.4% due to decreased sales leverage, lower gains from the sale of property and higher pension expense, partly offset by lower compensation and utility expenses.
Safeway opened 8 new Lifestyle stores, completed 82 Lifestyle remodels and closed 22 stores during the full year. At the end of 2009, about 79% of the company’s stores were converted into Lifestyle stores.
In 2009, Safeway generated operating cash flow of $2.5 billion, higher than $2.25 billion in 2008. The company repurchased 42.5 million shares of its common stock for a total cost of $884.9 million during the year. At the end of 2009, Safeway had $1.3 billion remaining under the board authorization for stock repurchase.
Safeway will provide its guidance for 2010 during the company’s investor conference, scheduled to be held on March 3, 2010.
This is the fourth quarter in a row that the company has recorded a decline in revenues. Factors such as rising unemployment and deflation are primarily responsible for the sluggish performance of the company.
However, a recovery in the U.S. economy will bring back shoppers to Safeway and lead to an improvement in the company’s financials in the long term. We have a Neutral recommendation on the stock.
Read the full analyst report on “SWY”
Zacks Investment Research
