Safeway 2001 Annual Report Download - page 4

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To Our Stockholders
We had another good year in 2001, achieving strong
earnings growth while increasing capital expenditures
to fuel future growth. We accomplished these results
despite a slowing economy.
OPERATING RESULTS
Net income increased 14.8% to $1.3 billion ($2.44 per
share) in 2001 from $1.1 billion ($2.13 per share) the
year before. Results for 2001 reflect three after-tax charges
unrelated to operations: $30.5 million ($0.06 per share)
to cover an estimated loss arising from our 15% equity
position in Future Beef Operations Holdings, LLC, a
meat processing company that recently was placed in
Chapter 11 bankruptcy; $25.5 million ($0.05 per share)
for estimated lease liabilities associated with two former
operating divisions that we sold in 1987 and that recently
went bankrupt under new ownership; and $18.0 million
($0.04 per share) for impairment related to our invest-
ment in an Internet grocery company, GroceryWorks
Holdings, Inc. A prolonged strike against Summit
Logistics, a company that operates our northern
California distribution center, reduced 2000 net income
by an estimated $66.6 million ($0.13 per share).
Total sales in 2001 rose 7% to $34.3 billion, primarily
due to our acquisition of Genuardi’s, new store openings
and increased sales at continuing stores. Adjusting for the
strike in 2000, comparable-store sales for 2001 increased
1.8%, while identical-store sales (which exclude replace-
ment stores) were up 1.1%.
Gross profit increased 123 basis points to 30.92% of
sales. In addition to the Summit strike, which depressed
gross margins in 2000, the improvement in 2001 was
due primarily to better buying practices, continued
reduction in “shrink” (product loss) and stronger pri-
vate-label sales.
Operating and administrative expense, including good-
will amortization, rose 81 basis points to 23.37% of sales
in 2001. This increase follows eight consecutive years of
declines, after adjusting for acquisitions. Most of the 2001
increase resulted from unfavorable comparisons in pension
income and property gains; higher real estate occupancy
costs; the acquisition of Genuardi’s, which had a higher
expense ratio than we had; the reserve for estimated lease
liabilities, as noted above; utility rate increases; and higher
workers’ compensation costs.
Our interest coverage ratio (EBITDA divided by inter-
est expense) improved to 8.02 times despite the additional
debt incurred to finance the Genuardi’s acquisition and
additional share repurchases.
SHARE REPURCHASES
During the year we repurchased 18.9 million shares of
Safeway common stock for $781.3 million. As of year-end
2001, we had bought back $1.4 billion worth of our
shares, leaving $1.1 billion available for additional repur-
chases under the $2.5 billion program authorized by the
board of directors. Future repurchases will depend on
market conditions.