Leading food and drug retailer
) plans to take its majority-owned gift-card subsidiary Blackhawk
Network Holdings public by next year. As per this preliminary plan,
the company wants to file a registration statement for an initial
public offering (IPO) of a minority stake in Blackhawk.
Although the number of shares on offer and the price range have yet
to be released, based on the present market conditions the company
expects this transaction to be executed by the first half of
Blackhawk, the worldwide gift card distribution network of
Safeway, provides prepaid products and payment services to
consumers through a network of retail store locations in the U.S.,
Canada, Europe, Mexico, Australia and various online channels.
These prepaid products include closed loop or private branded
cards, open loop or network branded cards, financial services
products and telecom product brands.
The cards are available at grocery, big-box, convenience,
pharmacy and specialty stores, and at Internet retailers including
GiftCardMall.com. Additionally, Blackhawk provides card production
services, a secondary market for prepaid cards and has recently
introduced digital wallet services. Currently, the Blackhawk
network connects to over 500 content providers and over 70,000
active retail distribution locations globally.
The macro environment in the U.S., Canada and Europe is taking a
toll on consumers. The financial markets in these regions declined
and experienced volatility due to uncertainties related to
unemployment rates, energy prices, availability of credit,
difficulties in the banking and financial services sectors, the
decline in the housing market and decreasing consumer
This might have led to reduced consumer spending with some
consumers trading down to a less expensive mix of products and
others turning towards stores with better discounts for grocery
items. These factors put together have a negative effect on
Amidst such a difficult scenario, when the grocery arm of
Safeway is facing increased competition and tough industry
conditions, Blackhawk's gift card business has been quite robust as
people treated gift cards like alternative currency.
Earlier at an investor meeting, the company, with the growth in
demand for gift cards, increased the store value of the cards by
25% in 2011 from 2010. In the second quarter of 2012, Blackhawk
contributed $32 million of the revenue growth from the year-ago
We believe that with the upcoming spin-off of the Blackhawk
business, Safeway should be able to focus on its core business
area. Safeway has already taken steps to make its operations more
streamlined and focused.
Continued operating losses forced the company to close its
distribution centers in British Columbia and Vancouver. Safeway
also decided to exit the greater Philadelphia market to control its
operating expenses and to focus on areas where it has a strong
The company is on track to shed 27 Genaurdi stores, of which it
sold 3 in the second quarter to Giant Food Stores. The company
expects to sell another 16 stores in the next quarter. Further, the
rollout of the company's cost savings program
Just for U' is expected to bring high returns on minimum
We currently have a Neutral recommendation on Safeway, which
carries a Zacks #3 Rank (short-term Hold rating).
SAFEWAY INC (SWY): Free Stock Analysis Report
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