Safeway, Cerberus Talks Continue; Earnings Decline In Fourth Quarter

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Net cash flow used by financing activities increased to $1,842.4 million in 2013 from $1,329.1 million in 2012 due primarily to increased payment of debt, partly offset by lower repurchases of stock.

Safeway said it invested $331.2 million in capital expenditures in the fourth quarter of 2013. For the year, Safeway invested $767.4 million in capital expenditures.

During the fourth quarter of 2013 Safeway repurchased 19.5 million shares of its common stock at an average cost of $33.93 per share and a total cost of $663.7 million (including commissions). The remaining board authorization for stock repurchases at year-end was approximately $2.2 billion.

Safeway noted that in light of current events, the retailer is postponing its annual investor conference which had been scheduled for early March 2014. Guidance for the 53-week year 2014, according to Safeway, is predicted to be: ID sales (excluding fuel) – an increase of 1.5 percent-2.5 percent; operating profit margin – negative 10 basis points to flat compared with 2013; diluted earnings per share - $1.15-$1.35 (excluding any debt retirement or stock repurchases in 2014); adjusted EBITDA - $1.66 billion-$1.76 billion; capital expenditures - $800 million-$900 million; and free cash flow - $625 million-$725 million.

In  the follow up conference call after the earnings release on February 19, Edwards noted that Safeway has begun to make significant improvements to its stores including redesigns of the chain’s center-store layouts, upgrades to its premium offerings and expansion of local products, with a greater focus on Hispanic and Asian shoppers.

Edwards said the Safeway is learning from its early experiences in these areas and is modifying programs as it rolls out these initiatives to additional stores much like it with its “Lifestyle” remodels of the 1990s.

Edwards also touted the growth of the chain’s private-brands which reached an all-time high of 28.1 percent of sales in 2013. That figure was aided by Safeway’s new Open Nature product line experiencing sales increase 42 percent to more than $200 million.

“But the No. 1 goal is maximizing shareholder value, as demonstrated with the sale of our Canadian assets and the shutdown of the Chicago division,” he declared.  “So clearly there are weightier matters, and we weigh all that with the board as we evaluate our options.”

Maximizing shareholder value through a Cerberus-led acquisition might be the best method to monetize shareholder gains.