Safeway says 'so long, Chicago'
October 11, 2013
by Keith Nunes
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PLEASANTON, CALIF. — Safeway, Inc. plans to exit the Chicago market, where the company has 72 Dominick’s stores, by early 2014. The company made the announcement in conjunction with its third-quarter financial results for fiscal 2013 and said the move, along with the sale of its operations in Canada, would maximize shareholder value.
“The decision to sell Canada Safeway and to exit the Chicago market is consistent with Safeway’s priority of maximizing shareholder value,” said Robert Edwards, president and chief executive officer. “These actions will allow us to focus on improving and strengthening our core grocery business. We are continuing to review all of our businesses to optimize our allocation of resources, improve sales and grow operating profits.”
In a conference call with securities analysts on Oct. 10, Mr. Edwards elaborated on Safeway’s reasons for exiting the Chicago region, most notably he said compared to other markets the retailer competes in Chicago is fragmented with a diverse number of independent competitors.
“You know, when we look at sales, the losses we’ve sustained there, market share, and the resources that we are allocating to support that business, the conclusion was we just have not been able to make as much progress as we would have liked,” Mr. Edwards said. “And so we believe that re-allocating our resources to the core assets, we believe, is in the best interest of our shareholders.”
During the third quarter of fiscal 2013, the Dominick’s business incurred a loss of $13.7 million and during the first 36 weeks of the fiscal year the business incurred a loss of $35.2 million.
Safeway said it has already sold four Dominick’s stores in the Chicago area as part of the plan to exit the greater Chicago marketplace. The four stores (two in Chicago proper, one in Homer Glen, Ill., and one in Glenview) have been acquired by New Albertsons, Inc., which operates Jewel-Osco stores in the Chicago area.
When Safeway acquired Dominick’s in 1998, the retailer had 116 stores and annual sales of $2.6 billion. New Albertsons operates 176 Jewel-Osco stores in Iowa, Illinois and Indiana. Safeway said the four stores it has sold will operate under the Dominick’s name for a short transition period.
For the quarter ended Sept. 7, Safeway recorded net income of $65.8 million, equal to 27c per share on the common stock, and a steep decline from the same period during fiscal 2012 when the company earned $157 million, or 66c per share.
Sales for the quarter were $8,622 million, a slight increase compared with fiscal 2012 when revenues were $8,525.8 million.
As a result of Safeway’s exit from Chicago, the retailer said it will receive a cash tax benefit of $400 million to $450 million. The company expects the tax benefit to offset the tax expense of the Canada Safeway transaction.