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Safeway’s Q2 ‘in line with expectations’

BY Michael Johnsen

PLEASANTON, Calif. Safeway chairman, president and CEO Steve Burd spent the better part of 40 minutes Thursday morning walking analysts through the company’s financials, and stating that Safeway’s results ought to show some improvements toward the back end of the third quarter as the grocer cycles through its decision to pursue an everyday-low-price strategy last year.

Gross profit declined 32 basis points to 28.55%, Safeway reported, noting that the drop was not influenced by fuel sales. “When you look at gross margin decline … it’s simply the result of not yet having [cycled through] the price reductions we did in the third and fourth quarter [of 2009],” Burd told analysts. “The back half of the third” quarter should improve, he said, “and the fourth quarter should be significantly better as we lap the dollar changes.”

Sales totaled $9.5 billion for second quarter 2010, essentially flat compared with last year. Net income was $141.3 million for the quarter, which met with analyst expectations of 37 cents per diluted share, but was a 40.8% drop from net income of $238.6 million (57 cents per diluted share) for second quarter 2009. However, second quarter 2009 included a $57.8 million tax benefit from the resolution of a tax matter, which accounted for 14 cents per diluted share in net income last year, the company explained.

“Our second-quarter results were in line with our expectations, and we are encouraged by our volume trends in the quarter,” Burd stated. “However, deflation continues in price per item, and is not expected to significantly improve until the fourth quarter. As a result, we have lowered our expectations for the balance of the year.”

Safeway updated its guidance for the year to $1.50 to $1.70 earnings per diluted share, down from its prior outlook of $1.65 to $1.85 a share. The company continues to expect cash capital expenditures of approximately $0.9 billion to $1 billion and free cash flow of $0.9 billion to $1.1 billion.

Safeway invested $192.1 million in capital expenditures in second quarter 2010. The company opened five new stores, completed 17 Lifestyle remodels and closed five stores. For the year, Safeway plans to invest $900 million to $1 billion in capital expenditures, open approximately 15 new Lifestyle stores and complete approximately 60 Lifestyle remodels.

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NRF: Swipe fee fix battle ‘isn’t over’

BY Allison Cerra

WASHINGTON Despite the signing of a financial-reform legislation that will curb the credit and debit card swipe fees paid by retailers and their customers each year, the National Retail Federation said it’s only the tip of the iceberg.

While President Obama on Wednesday signed H.R. 4173, the Dodd-Frank Wall Street Reform Act of 2010 — named for Senate Banking Committee chairman Christopher Dodd, D-Conn., and House Financial Services Committee chairman Barney Frank, D-Mass. — NRF president and CEO Matt Shay said that while the legislation “is a dramatic first step in the fight to control rising credit and debit card fees and has tremendous potential for savings,” he added that big banks may press such regulators as the Federal Reserve “as it drafts the regulations intended to result in the ‘reasonable’ debit card fees sought by Congress.”

Shay said, “Congress realizes that debit cards are simply plastic checks, and has said the Federal Reserve should look at them with paper checks in mind. The result shouldn’t be swipe fees being cut by a quarter or even a half. The result should be plastic checks that get paid at essentially face value.”

Swipe fees –– officially known as interchange fees –– are a percentage of the transaction charged by card company banks each time a card is swiped to pay for a purchase.

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Save-A-Lot enters Hispanic supermarket venture

BY DSN STAFF

ST. LOUIS Save-A-Lot announced that it has teamed up with Hispanic grocery operator Rafael Ortega to form a new company, Adventure Supermarkets. The new company owns and operates six former Save-A-Lot stores in the Houston and South Texas markets under a co-branded format, “El Ahorro Save-A-Lot.”

“We are always looking for innovative opportunities to bring the Save-A-Lot brand to local communities, and we think this affiliation best enables us to serve the Hispanic community in this area,” said Bill Shaner, Save-A-Lot president and CEO. “This relationship is a new business model for the company. Combining Mr. Ortega’s local insights with the power of the Save-A-Lot network of stores and exclusive-label expertise will enhance our ability to provide our Hispanic customers in this part of the country with the products and services they need and want, while positioning the Save-A-Lot brand for growth.”

Ortega has 24 years of experience in serving the Hispanic community in Texas and currently owns and operates 15 El Ahorro Supermarkets and almost 100 La Michoacana Meat Markets, Save-A-Lot reported.

“I am pleased about joining with Save-A-Lot in this opportunity and excited about the potential of our new, blended format,” said Rafael Ortega.

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