Safeway earnings rise as chain girds for possible strike

By Michael LiedtkeAP Business Writer
Wednesday February 28, 2001

SAN FRANCISCO — Supermarket giant Safeway Inc. on Friday announced higher quarterly profits amid weakening sales growth that executives said should continue as consumers react to the economic fallout from this month’s terrorist attacks. 

The chain of 1,759 stores earned $309.2 million, or 60 cents per share, in the three months ended Sept. 8 — a 15 percent improvement from net income at the same time last year of $270 million, or 53 cents per share. The earnings matched the consensus estimate among analysts polled by Thomson Financial/First Call. 

Revenue in the quarter rose 7 percent to $8 billion, but most of the gain stemmed from Safeway’s recent $530 million takeover of Genuardi’s, a 39-store grocery chain in Pennsylvania, New Jersey and Delaware. 

In the most telling measure of growth, Safeway’s so-called “identical store” sales edged up by just 0.8 percent, the slowest pace in two years. This category tracks stores that have been open at least a year without being expanded. 

The Pleasanton-based company’s shares gained $1.22 to close at $39.72 Friday on the New York Stock Exchange. 

Safeway CEO Steve Burd told industry analysts that the company is bracing for sales growth in the 1 percent range in this year’s final quarter. As long as the sales growth doesn’t fall far below that rate, Burd said the company expects to meet the consensus earnings estimate of 81 cents per share for the quarter. 

The final quarter could suffer from a threatened strike at 173 Safeway stores in the San Francisco Bay area. Earlier this week, Safeway made its “last and best” offer to store workers. Union leaders recommended that the employees reject the proposal, which would raise pay by 50 cents per hour. 

If the workers turn down the offer they could strike as early as Oct. 8 and embroil the company in a bitter labor dispute for the second straight year. A year ago, a 47-day strike by truck drivers at Safeway’s Northern California distribution center lowered Safeway’s earnings by $66 million. 

In a conference call Friday, Burd emphasized that management won’t budge from its “compelling offer” to store workers. Safeway already has been hiring potential replacement workers and, in a video delivered to current employees, Burd warned the company is prepared to reduce its latest contract offer if there is a strike. 

“If you are an employee and think rationally about things, you vote for this (offer),” Burd told analysts Friday. 

Safeway store workers in the Sacramento area accepted a nearly identical offer earlier this year. 

Union leaders insist the offer isn’t enough to offset the high cost of living in the San Francisco Bay area, where a mid-priced home sells for $476,000, a 66 percent increase since the store workers signed their last contract in 1997. 

Most of the affected Safeway store workers make $11.07 per hour under the current contract, according to labor leaders. The best-paid clerks make $17.58 per hour, which Safeway says is the highest retail rate in the region. 

“We are not saying that a clerk should make $90,000 per year, but they need to make enough to buy a home or pay for gas if they have to drive into work from somewhere else,” said Dennis Kimber, president of the United Food and Commercial Workers Local 428 in San Jose. 

Safeway paid Burd $2.53 million last year, a 92 percent raise from his 1997 paycheck.