Safeway

With 1,692 stores in the United States and Canada,[1] Safeway is North America’s fourth largest food retailer.[2] It owns a 49% stake in Casa Ley, a major retailer in Mexico, and is involved in a number of other commercial enterprises.

Banners

Vons (California), Pak’n Save (California), Pavilions (California), Simon David (Texas), Randalls (Texas), Tom Thumb (Texas), Genuardi’s (Northeast and Canada), Carrs (Alaska), Dominick’s (Midwest).

Subsidiaries

Blackhawk Network, Casa Ley, Property Development Associates, Groceryworks Holdings.

Employees

At year-end 2010, Safeway employed more than 180,000 persons, of which approximately 80% are covered by bargaining agreements negotiated by no less than nine different international unions.[3] According to the contract directory, the UFCW represents 108,233 Safeway employees.

Financial Performance

Sales

Sales were $41 billion in 2010, up approximately 2% since 2006.[4] Over the last few years, sales had essentially remained stable as Safeway progressed through the process of closing its least profitable operations. Sales generated by existing outlets, excluding stores that closed or opened during the period in question, have been improving for five consecutive quarters and passed into the green this past quarter, growing .4%, excluding fuel, when compared to the same quarter last year. So-called same store sales grew in nine of ten operating divisions. All in all, sales increased 4.8% quarter-over-quarter.

Operating Profits

In 2010, Safeway generated $1,160 million in operating profits, down from $1,345 million in 2009. The company’s operating profit margin typically stands at about 3% to 4%, a healthy figure for a food retailer.5

Net Profits

In 2010, Safeway generated $590 million in net profits, down from $720 million in 2009. Safeway’s net profit margin has fluctuated between 1.44% and 2.19% over the last five years,[5]as compared to an industry average of 1.46% in 2006 and an average of 1.22% for the preceding decade.[6]

Stock Price

As of close on May 31, 2011, Safeway’s stock traded at $24.7, which was 3.1% higher than its price of 23.95 five years earlier. By comparison, the S&P 500 Index (a composite measure of the stock price of the 500 largest publicly traded companies) rose by 4.6% over the same period.[7]

Market shares in key metropolitan markets

Though Safeway is no longer the market leader it once was – it fell from its position as the top U.S. food retailer in 1987 to fourth largest today – it still maintains top-tier market share in many of America’s largest metro areas, particularly on the West Coast.[8]

Metro Area Safeway Share Safeway Rank
Los Angeles-Orange, CA 13.1 2
Chicago, IL 11.4 2
Dallas-Fort Worth, TX 11.5 3
Houston, TX 7.5 4
Philadelphia, PA 6.8 5
District of Columbia 17.9 2
Phoenix, AZ 12.9 3
Riverside-San Bernardino, CA 7.3 5
San Francisco, CA 30.6 1
Seattle, WA 23 1
San Diego, CA 23.3 1
Baltimore, MD 10.5 2

 Executive Compensation

In 2009, the five top-paid employees received a total of $24.2 million in total compensation. Steven Burd, Safeway’s president and CEO, received a total of $10.9 million in compensation. This year, Forbes ranked him as the second best-paid food markets executive in America.[9] Assuming 40 hours per week for 52 weeks in the year, Burd’s equivalent hourly rate of pay was $5,241.

Dividends

In 2010, Safeway paid out $168 million in gross dividends, up from $153 million in 2009. Since 2005, the company has consistently raised dividend rates by 20% per share every 12 months.3 Most recently, the Board of Directors announced a 21% increase from $0.12 per share to $0.145 per share on May 19, 2011.

What Wall Street thinks of Safeway

Analysts are generally positive on Safeway, noting industry-wide success in “passing through rising costs and with little push back from consumers.”[10] Citigroup sees Safeway “moving ahead gradually to stabilize volume, sales, market share, and profits” and is impressed in the company’s successes “in shrink [money lost on trashed products] and to a lesser extent in labor and operating expenses.”[11] Moreover, improving same store sales trends give reason for optimism.

Even more exciting for analysts than Safeway’s sales performance are the oncoming awards for stock holders. Citigroup expects a dividend of $500 million in the current quarter and salivates over the anticipated $405 million in share repurchases, which will decrease the number of common shares and thereby raise their value.11

Some analysts have taken a more cautious approach. Jefferies fears risks “largely related to the economy” and, following negative responses on store manager and pricing surveys, is “moving to the sidelines” to wait for clearer signals from consumers.[12] Hapoalim Securities is unimpressed by recent sales growth, noting that “input costs likely increased at a higher rate during the quarter,” and warns of the impact of “emerging competitive threats” in reference to the entrance of Tesco in 2007.[13]


[1] Fundamentals, Investor Relations, Last accessed May 31, 2011.

[2] 2011 Top 75 North American Food Retailers, Supermarket News, Last accessed April 29, 2011.

[3] Safeway, Inc., February, 2011 Form 10-K.

[4] Safeway (SWY), Wikinvest, Last accessed May 31, 2011.

[5] 2010 Factbook, Safeway, (2010).

[6] “Annual Financial Review.” Food Marketing Institute (2007).

[7] Yahoo Finance, Last accessed June 1, 2011.

[8] “Grocery Distribution Analysis and Guide.” Metro Market Studies (2010).

[9] “America’s Highest Paid Chief Executives.” Forbes (2011).

[10] Deutsche Bank, May 26 2011

[11] Citigroup, April 28 2011

[12] Jefferies, April 27 2011

[13] Hapoalim Securities, April 25 2011