Safeway ( SWY ) adjusted earnings
per share (EPS) of 35 cents missed the Zacks Consensus Estimate by
a penny in the first quarter of 2013. However it exceeded the
year-ago EPS from continuing operations by 16.7%. The company's
reported EPS for the quarter (which include a one-time income tax
benefit of 14 cents per share), has been pegged at 49 cents.BLACKHAWK NETWK (HAWK): Get Free ReportHOT TOPIC INC (HOTT): Free Stock Analysis
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Total sales remained flat year-over-year at $10.0 billion in the
first quarter, slightly missing the Zacks Consensus Estimate of
$10.2 billion. Growth was led by a 1.5% increase in identical-store
sales (excluding fuel), and partially offset by the disposition of
Genuardi's stores and soft fuel sales in 2013.
Gross margin in the first quarter contracted 14 basis points (bps)
year over year to 26.7%. However, excluding the impact from fuel
sales of 15 bps, gross margin declined 29 bps as benefit from the
generic wave in the pharmaceutical industry and lower advertising
expenses were negated by investments in price.
Operating and administrative expenses declined 5 bps to 24.9% of
sales in the reported quarter. Excluding the impact from fuel sales
of 17 cents, operating and administrative expense margin dropped 22
bps on the back of lower depreciation, utilities and other store
Operating margin fell 10 bps to 1.8% in the quarter. Operating
profit, excluding fuel, dipped by 7 bps.
Safeway ended first quarter of 2013 with $295.0 million in cash
and cash equivalents, which more than doubled year over year. Net
cash flow provided by operating activities increased 2.5% from the
prior year to $555.2 billion due to greater use of cash for working
capital. In the reported quarter, Safeway incurred $144.9 million
in capital expenditures.
Safeway made no share repurchase during the first quarter of 2013.
We note that the company repurchased 57.6 million shares for
$1,240.3 million (including commissions) during 2012 and is now
left with $0.8 billion of authorization to buy back shares.
Safeway reiterated its guidance for 2013. It expects EPS to be in
the range of $2.25-$2.45. Non-fuel ID sales growth is anticipated
to be between 2% and 3%. Operating margin, excluding fuel, is
expected to be flat to up 10 bps. Fee cash flow guidance is
forecast in the range of $850 million to $950 million.
Safeway reported a strong first quarter on the back of market
share gains in the U.S. Its strategy to improve identical-store
sales on the heels of 'Just for U' loyalty program yielded positive
results. The loyalty program was a major positive catalyst leading
to increased market share and profitability.
Following the settlement of the IPO price of Safeway's
majority-owned subsidiary Blackhawk Network Holdings,
Inc. ( HAWK ), this wing has
reported separately, beginning this quarter.
The stock carries a Zacks Rank #2 (Buy). Other stocks such as
Hot Topic Inc. ( HOTT ), and
The Kroger Co. ( KR ), carrying a Zacks
Rank #1 (Buy), are expected to do well and warrant a look.