Safeway 1998 Annual Report Download - page 5

1998 was another year of solid pro g r ess for
S a f e w a y. We improved our operating re s u l t s ,
strengthened our financial position, steppedup
our capital spending program, and completed
one acquisition and initiated another.
Improved Operating Results
Net income was $806.7 million ($1.59 per share )
in the 52 weeks of 1998 compared to $621.5 mil-
lion ($1.25 per share) of income before extraordi-
nary loss in 1997, a 53-week year. Results in 1997
were adversely affected by an extraordinary loss
of $64.1 million ($0.13 per share), arising fro m
the replacement of higher interest rate debt
with lower-rate debt.
Total sales
increased to
$24.5 billion, u p
8.9% from 1997.
Sales of identical
stores (which
exclude replace-
ments) rose 3.7%,
while compara-
ble-store sales
increased 4.1%.
Through year-
end 1998, we had
recorded six con-
secutive years of
positive sales
growth in both identical and comparable stores.
Gross profit increased 57 basis points to
29.10% in 1998, reflecting continuing improve-
ment in buying practices and product mix while
maintaining competitive prices.
Operating and administrative (O&A) expense
as a percentage of sales fell 28 basis points to
22.56%, largely as a result of increased sales
and ongoing eff o r ts to reduce or control costs.
Our O&A expense ratio has declined for six
straight years.
Operating cash flow increased to 8.75% of
sales, the highest level on an annual basis in our
72-year history. While we have improved our
cash flow margin by 368 basis points since the
end of 1992, when we began our turn a round, we
believe we can make further progress.
Stronger Financial Position
I n t e rest expense declined slightly to $235.0 mil-
lion in 1998. Our interest coverage ratio (operat-
ing cash flow divided by interest expense)
i m p roved to 9.11 times in 1998 from 7.18 times
in 1997 due to strong operating results.
During 1998 we also reduced the average
i n t e rest rate on debt through a series of re f i n a n c-
ings, had the investment grade ratings on our
senior unsecured debt re a ff i rmed by Standard &
Poor’s and Moody’s, and maintained negative
working capital for the fifth consecutive year.
Standard & Poor’s added Safeway common
stock to its S&P 500 Index in November 1998.
Accelerated Capital Spending
Capital investments increased to $1.2 billion in
1998, up from $829 million the prior year. We
opened 46 new stores, remodeled 234 existing
To Our Stockholders