Safeway sales positive thanks to fuel, loyal shoppers
PLEASANTON, Calif. — Sales at Safeway are looking up thanks in large part to fuel gains, but the grocer’s loyalty card program is expected to continue driving that sales momentum into next year as the company rolls out its Just for U digital marketing platform and explores health-and-wellness initiatives.
"The upside in the quarter was driven mostly by better than expected sales, as [identical store sales] of [greater than] 1.5% exceeded consensus and our estimate of just under a 1% increase," Edward Kelly, research analyst for Credit Suisse, wrote in a note Thursday morning. "Bottom line here is that the quarter was much better then very low expectations. While it does not represent an inflection point in the company’s challenging fundamentals, it does provide more comfort in the company’s ability to achieve current years numbers against a low valuation."
Safeway also beat analyst earnings estimates and same-store sale projections.
"Our sales momentum continued to build in the third quarter, and our costs were well-controlled," stated Steve Burd, chairman, president and CEO. "At the same time, we continued to innovate throughout the business to meet our customers’ needs and build their loyalty. Our ‘Just for U’ digital marketing platform and our proprietary Open Nature line of 100% natural foods are good examples of these efforts."
Safeway has currently rolled out its Just for U platform — a personalized deal generator that utilizes purchase histories from Safeway’s loyalty card program — in just two markets. Safeway is rolling that platform into one more market this year and plans to have it available companywide by second quarter 2012, Burd told analysts Thursday morning during a conference call. And while the program has not been heavily promoted within those two markets, Burd added, those are "the two markets where we gained the most this year." Safeway is realizing double-digit sales increases across its most loyal consumers, Burd said.
The company’s overall loyalty card is helping to drive positive lifts in households shopping Safeway. Deals associated with the loyalty card program are "fairly aggressive," Burd said, and are linked to savings at the pumps. Safeway has realized the greatest success in those markets saturated with Safeway fuel stations. "We have some other deals for markets that are not as well-compelemented with fuel," Burd said.
Higher fuel revenue was credited to a 26% increase in the price per gallon of gas as compared to the year-ago and a 13% lift in same-store gallons of gas sold.
Burd also suggested Safeway will be rolling out several health-and-wellness initiatives into 2012. Safeway named its first chief medical officer, Kent Bradley, in September. Bradley has been charged with lowering Safeway’s healthcare outlay for its more than 200,000 covered employees. Simultaneously, Bradley is part of a team at Safeway exploring ways to monetize those health-and-wellness initiatives at its stores. For example, a weight management tool may be one of the initiatives to be introduced in the coming year, Burd said.
For the third quarter ended Sept. 10, Safeway posted sales of $10.1 billion, a 7.4% increase credited primarily to higher fuel sales. Safeway reported a 1.5% increase in identical-store sales (excluding fuel).
Safeway completed five new stores and seven Lifestyle remodels, and closed 11 stores in the quarter. For the year, Safeway plans to invest approximately $1 billion in capital expenditures, while completing 26 new Lifestyle stores and 30 Lifestyle remodels.
S&P lowers WAG to negative, citing failed ESI negotiations
CHICAGO — Standard & Poor’s cut its outlook on Walgreens to negative from stable, citing the lack of progress in the drug store chain’s negotiations with Express Scripts, according to a MarketWatch report published Thursday.
S&P noted that the loss of the Express Scripts contract will result in a meaningful revenue and profit decline in fiscal 2012 in initiating its outlook adjustment.
However, S&P did affirm its ratings on the company, including an ‘A’ corporate credit rating, MarketWatch reported.
Shares of Walgreens were down 18 cents to $32.97 in mid-morning trading.
Comps nightmare ending at Walmart
BENTONVILLE, Ark. — Two years of declining same-store sales at Walmart are poised to end next month when the retailer reports third-quarter results that reflect positive momentum from a wide range of initiatives put in place during the past 12 months, judging from comments made by senior executives during an all-day meeting with analysts on Wednesday.
Executives stopped short of updating the company’s guidance provided at the end of the second quarter, which called for comps to be down 1% to up 1%, but they could hardly contain their optimism in discussing the performance of the U.S. stores division where it was revealed that comps have been positive for the last month of the second quarter and the first two months of the third quarter.
“I’m very excited to talk about the progress we are making in our U.S. business because it is substantial,” Walmart U.S. president and CEO Bill Simon said during Walmart’s 18th annual analysts’ meeting. “We are very optimistic about our sales improvement.”
Simon said the momentum in the company’s business began building in May as the effects of adding back items to the product assortment, improvements in in-stock levels and increased in-store promotional activity helped the company regain lost customer traffic and increased transaction sizes.
Contributing to positive comps in August and September were back-to-school seasonal results that chief merchandising office Duncan Mac Naughton said the company was please with. Looking ahead to the holidays, he suggested Walmart is very well-positioned to maintain sales growth and he disclosed some aggressive marketing plan.
“We are very excited and very well prepared. Our marketing plan for the holidays is quite significant,” Mac Naughton said.
For example, he indicated the company’s television advertising will double its share of voice and suggested to those attending the meeting that if they don’t see a TV spot from Walmart this holiday season they aren’t watching TV. In addition, the company plans seven tab advertisements, 10 free-standing inserts, a toy catalog, a holiday entertaining guide and apparel guide that will be distributed in stores.
“We are really looking forward to the upcoming holiday season,” Mac Naughton said.
Looking ahead to next year, Simon indicated Walmart will continue to accelerate the momentum of existing stores while expanding with new stores. The key driver will continue to be supercenters of which the company has plans for about 130 to 135 new units in addition to between 80 and 100 small format stores, of which the majority with be Neighborhood Market stores with about 20 store being the small Walmart Express concept where results are said to be exceeding expectations.
Walmart plans to spend between $6 billion and $6.5 billion on U.S. expansion next year, out of a total company capital expenditure budget of between $13 billion and $14 billion. The international division receives the second largest chunk of those funds with between $4.5 billion and $5 billion forecast to be spent overseas. Sam’s Club will receive about $1 billion to fund the addition of 10 to 15 clubs and remodeling activity.
Walmart expects its expansion to add between 45 million to 49 million sq. ft. of new selling space which, coupled with domestic and international comp growth, will yield sales growth in the 5% to 7% range and equate to between $22 billion and $31 billion in additional sales.
“Our business is stronger today than it was a year ago and it will be stronger a year from now than it is today,” Wal-Mart Stores president and CEO Mike Duke said at the conclusion of the all day meeting.