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Safeway Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: October 16, 2012 03:00PM
Safeway Inc. (SWY) filed Quarterly Report for the period ended 2012-09-08.
Highlight of Business Operations:Gross profit declined 56 basis points to 26.44% of sales in the third quarter of 2012 compared to 27.00% of sales in the third quarter of 2011. The impact from fuel sales reduced gross profit 11 basis points. The remaining 45 basis-point decline is due primarily to a 14 basis-point decline from costs incurred to launch our just for U loyalty program, an eight basis-point decline from higher shrink, a seven basis-point decline from costs incurred to dispose of the Genuardi's stores, a seven basis-point decline from higher revenue from Blackhawk, which has a lower margin, a six basis-point decline from a change in sales mix and several individually immaterial expenses, partly offset by an eight basis-point improvement due to lower LIFO expense.
In terms of dollars, shrink expense was essentially flat in the third quarter of 2012 compared to the third quarter of 2011. However, shrink was higher, as a percentage of sales, due to lower sales. We do not believe that the increase in shrink, as a percentage of sales, in the third quarter of 2012 compared to 2011 represents a trend.
The gross profit margin was 26.52% in the first 36 weeks of 2012 compared to 27.17% in the first 36 weeks of 2011. Operating and administrative expense margin was 24.36% of sales in the first 36 weeks of 2012 compared to 24.70% in the first 36 weeks of 2011.
exceptions, the ability of Safeway, CSL and their respective subsidiaries to incur certain liens, make certain asset sales, enter into certain mergers or amalgamations, engage in certain transactions with shareholders and affiliates and alter the character of its business from that conducted on the closing date. The Credit Agreement also contains two financial maintenance covenants: (i) an interest coverage ratio that requires Safeway not to permit the ratio of consolidated Adjusted EBITDA, as defined in the Credit Agreement, to consolidated interest expense to be less than 2.00:1.00, and (ii) a leverage ratio that requires Safeway not to permit the ratio of consolidated total debt, less unrestricted cash in excess of $75.0 million, to consolidated Adjusted EBITDA, to exceed 3.50:1.00. As of September 8, 2012, the Company was in compliance with these covenant requirements. As of September 8, 2012, there were $71.5 million in borrowings outstanding and $43.6 million in letters of credit under the Credit Agreement. Total unused borrowing capacity under the Credit Agreement was $1,384.9 million as of September 8, 2012.