Safeway Inc. Announces First Quarter 2009 Earnings

Board Approves 21% Increase in Quarterly Dividend
PLEASANTON, Calif.--(Business Wire)--
Safeway Inc. (NYSE:SWY):

Results From Operations

Safeway Inc. today reported net income of $144.2 million ($0.34 per diluted
share) for the first quarter of 2009 compared to net income of $193.4 million
($0.44 per diluted share) for the first quarter of 2008.

"As anticipated, our earnings this quarter were negatively impacted by the shift
in holiday sales, a decline in the Canadian currency exchange rate, a decline in
fuel margins and higher pension expense," said Steve Burd, Chairman, President
and CEO.

"We continued to make price investments to address the needs of our customers in
this difficult economic environment. As a result, we saw an increase in the
number of sales transactions and an improving trend in market share for the
quarter," added Burd. "Because we are confident in the underlying strength of
the business and our cash flow, we are increasing our quarterly dividend by 21%
and repurchasing company stock."

Sales and Other Revenue

Total sales declined 7.6% to $9.2 billion in the first quarter of 2009 compared
to $10.0 billion in the first quarter of 2008. This decline was the result of
lower fuel sales (which was due primarily to lower fuel prices), a decline in
the Canadian exchange rate and a shift in holiday sales.

Identical-store sales for the quarter, excluding fuel, declined 0.7%. After
excluding the weeks affected by the shift in Easter holiday sales,
identical-store sales, excluding fuel, increased to an estimated 0.2%.

Gross Profit

Gross profit declined seven basis points to 28.72% of sales in the first quarter
of 2009 compared to 28.79% of sales in the first quarter of 2008. Excluding the
79 basis point impact from fuel sales, gross profit declined 86 basis points.
This decline was primarily the result of investments in everyday prices, as well
as an elevated level of promotional spending. Investments in everyday prices
will continue, while promotional spending is expected to return to normal
levels.

Operating and Administrative Expense

Operating and administrative expense declined approximately $100 million to $2.4
billion in the first quarter of 2009 from $2.5 billion in the first quarter of
2008. However, due to lower sales in 2009, operating and administrative expense
increased 90 basis points to 25.67% of sales in the first quarter of 2009 from
24.77% of sales in the first quarter of 2008. Excluding the 74 basis point
impact of lower fuel sales in the first quarter of 2009, operating and
administrative expense increased 16 basis points. This increase was primarily
the result of decreased sales leverage (partially due to the shift in holiday
sales), increased occupancy costs as a percentage of sales and increased pension
expense, partly offset by reduced labor costs.

Interest Expense

Interest expense declined to $78.2 million in the first quarter of 2009 from
$84.5 million in the first quarter of 2008 due to a combination of lower average
borrowings and lower interest rates.

Income Tax Expense

Income tax expense was $60.3 million, or 29.5% of pre-tax income, in the first
quarter of 2009. Income tax expense in the first quarter of 2008 was $123.6
million, or 39.0% of pre-tax income. The decline in the tax rate was due
primarily to benefits of $16 million from the favorable resolution of tax
matters.

Stock Repurchases

During the first quarter of 2009, Safeway purchased 3.5 million shares of its
common stock at an average cost of $18.40 per share and a total cost of $64.5
million (including commissions). The remaining board authorization for stock
repurchases at quarter-end was approximately $1.1 billion.

Capital Expenditures

Safeway invested $243.5 million in capital expenditures in the first quarter of
2009. The company opened one new Lifestyle store, completed 10 Lifestyle
remodels and closed three stores. Safeway has reduced planned capital
expenditures in 2009 from $1.2 billion to approximately $1.0 billion and now
plans to open approximately 10 new Lifestyle stores and complete approximately
100 Lifestyle remodels.

Cash Flow

Net cash flow used by operating activities was $151.0 million in the first
quarter of 2009 compared to $41.2 million in the first quarter of 2008. This was
primarily due to an increase in cash used by working capital which was the
result of a shift in holiday shopping.

Net cash flow used by investing activities declined to $252.8 million in the
first quarter of 2009 from $370.7 million in the first quarter of 2008 because
of reduced capital expenditures.

Net cash flow provided by financing activities was $131.0 million in the first
quarter of 2009 compared to $352.9 million in the first quarter of 2008.
Borrowings were less in the first quarter of 2009 compared to the first quarter
of 2008 due to reduced capital expenditures.

Dividend

Safeway announced separately today that its Board of Directors authorized a 21%
increase in the quarterly dividend to $0.10 per share, effective for
stockholders of record on June 25, 2009. The dividend will be paid on July 16,
2009.

Guidance

Safeway lowered earnings guidance for the year 2009 to $2.10 - $2.30 per diluted
share and identical-store sales guidance, excluding fuel, to 0.5% - 1.5%.
Safeway increased free cash flow guidance for the year 2009 to $1.1 billion -
$1.3 billion.

About Safeway

Safeway Inc. is a Fortune 50 company and one of the largest food and drug
retailers in North America based on sales. The company operates 1,737 stores in
the United States and Canada. The company`s common stock is traded on the New
York Stock Exchange under the symbol SWY.

Safeway Conference Call

Safeway`s investor conference call discussing first-quarter results will be
broadcast live over the Internet at www.safeway.com/investor_relations at 8:00
a.m. PT on April 30, 2009. Click on Webcast Events to access the call. A replay
will be available via webcast for approximately one week following the
conference call.

This press release contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934.Such statements relate to, among other things,
price investments, promotional spending, estimates of diluted earnings per
share, identical-store sales, capital expenditures, free cash flow, financial
and operating results, stock repurchases and Lifestyle stores.Forward-looking
statements are indicated by words or phrases such as "guidance," "believes,"
"expects," "anticipates," "estimates," "plans," "continuing," "ongoing," and
similar words or phrases and the negative of such words and
phrases.Forward-looking statements are based on our current plans and
expectations and involve risks and uncertainties which are, in many instances,
beyond our control, and which could cause actual results to differ materially
from those included in or contemplated or implied by the forward-looking
statements.Such risks and uncertainties include the following:general business
and economic conditions in our operating regions, including the rate of
inflation, consumer spending levels, currency valuations, population, employment
and job growth in our markets; pricing pressures and competitive factors, which
could include pricing strategies, store openings, remodels or acquisitions by
our competitors; results of our programs to control or reduce costs, improve
buying practices and control shrink; results of our programs to increase sales;
results of our continuing efforts to expand corporate brands; results of our
programs to improve our perishables departments; results of our promotional
programs; results of our capital program; results of our efforts to improve
working capital; results of any ongoing litigation in which we are involved or
any litigation in which we may become involved; the resolution of uncertain tax
positions; the ability to achieve satisfactory operating results in all
geographic areas where we operate; changes in the financial performance of our
equity investments; labor costs, including benefit plan costs andseverance
payments, or labor disputes that may arise from time to time and work stoppages
that could occur in areas where certain collective bargaining agreements have
expired or are on indefinite extensions or are scheduled to expire in the near
future; failure to fully realize or delay in realizing growth prospects for new
business ventures including Blackhawk Network Holdings, Inc. ("Blackhawk");
legislative, regulatory, tax, accounting or judicial developments, including
with respect to Blackhawk; the cost and stability of fuel, energy and other
power sources; the impact of the cost of fuel on gross margin and
identical-store sales; discount rates used in actuarial calculations for pension
obligations and self-insurance reserves; the rate of return on our pension
assets; the availability and terms of financing, including interest rates and
our ability to issue commercial paper or public debt or to borrow under our
lines of credit as a result of current financial market conditions; adverse
developments with regard to food and drug safety and quality issues or concerns
that may arise; loss of a key member of senior management; data security or
other information technology issues that may arise; unanticipated events or
changes in real estate matters, including acquisitions, dispositions and
impairments; adverse weather conditions; performance in new business ventures or
other opportunities that we pursue, including Blackhawk; and the capital
investment in and financial results from our Lifestyle stores. We undertake no
obligation to update forward-looking statements to reflect developments or
information obtained after the date hereof and disclaim any obligation to do
so.Please refer to our reports and filings with the Securities and Exchange
Commission, including our most recent Annual Report on Form 10-K, subsequent
Quarterly Reports on Form 10-Q, and subsequent Current Reports on Form 8-K, for
a further discussion of these risks and uncertainties.

SAFEWAY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per-share amounts)
(Unaudited)

12 Weeks 12 Weeks
Ended Ended
March 28, March 22,
2009 2008

Sales and other revenue $ 9,236.4 $ 9,998.8

Cost of goods sold (6,583.5 ) (7,120.5 )

Gross profit 2,652.9 2,878.3

Operating and administrative expense (2,371.4 ) (2,476.4 )

Operating profit 281.5 401.9

Interest expense (78.2 ) (84.5 )

Other income (loss), net 1.2 (0.4 )

Income before income taxes 204.5 317.0

Income taxes (60.3 ) (123.6 )

Net income $ 144.2 $ 193.4

Basic earnings per share $ 0.34 $ 0.44

Diluted earnings per share $ 0.34 $ 0.44

Weighted average shares outstanding:
Basic 428.0 439.4
Diluted 429.2 442.9

SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per-share amounts)
(Unaudited)

March 28, Year-end
2009 2008
ASSETS

Current assets:
Cash and equivalents $ 112.4 $ 382.8
Receivables 400.4 515.1
Merchandise inventories 2,730.2 2,591.4
Prepaid expense and other current assets 295.5 254.6
Income taxes receivable 195.3 232.3

Total current assets 3,733.8 3,976.2

Total property, net 10,436.3 10,643.1

Goodwill 2,385.7 2,390.2
Investment in unconsolidated affiliate 207.3 207.1
Other assets 274.3 268.1

Total assets $ 17,037.4 $ 17,484.7

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current maturities of notes and debentures $ 507.2 $ 758.4
Current obligations under capital leases 39.2 40.6
Accounts payable 1,965.9 2,448.5
Accrued salaries and wages 365.0 450.3
Deferred income taxes 110.5 107.2
Other accrued liabilities 580.3 694.2

Total current liabilities 3,568.1 4,499.2

Long-term debt:
Notes and debentures 4,675.5 4,184.2
Obligations under capital leases 506.5 516.6

Total long-term debt 5,182.0 4,700.8

Deferred income taxes 257.4 249.6
Pension and postretirement benefit obligations 590.7 597.2
Accrued claims and other liabilities 655.8 651.7

Total liabilities 10,254.0 10,698.5

Stockholders' equity
Common stock: par value $0.01 per share; 1,500 shares authorized; 591.2 and 590.7 shares 5.9 5.9
issued
Additional paid-in capital 4,143.6 4,128.3
Treasury stock at cost; 165.3 and 161.8 shares (4,841.3 ) (4,776.8 )
Accumulated other comprehensive loss (291.3 ) (228.7 )
Retained earnings 7,766.5 7,657.5
Total stockholders' equity 6,783.4 6,786.2

Total liabilities and stockholders' equity $ 17,037.4 $ 17,484.7

SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

12 Weeks Ended
March 28, March 22,
2009 2008
OPERATING ACTIVITIES
Net income $ 144.2 $ 193.4
Reconciliation to net cash flow used by operating activities:
Depreciation expense 264.4 251.9
Property impairment charges 11.1 12.9
Stock-based employee compensation 14.1 14.0
Excess tax benefit from exercise of stock options - (0.4 )
LIFO expense 1.4 5.4
Equity in (earnings) loss of unconsolidated affiliate (0.2 ) 2.8
Net pension expense 32.3 19.2
Contributions to pension plans (12.2 ) (14.4 )
Loss (gain) on property retirements and lease exit costs, net 6.3 (0.5 )
Increase in accrued claims and other liabilities 4.6 10.0
Amortization of deferred finance costs 1.2 1.2
Deferred income taxes 3.4 6.4
Other (0.2 ) (0.8 )
Changes in working capital items:
Receivables 24.0 13.6
Inventories at FIFO cost (163.2 ) 68.4
Prepaid expenses and other current assets (44.2 ) (43.4 )
Income taxes 30.6 76.9
Payables and accruals (251.5 ) (449.9 )
Payables related to third-party gift cards, net of receivables (217.1 ) (207.9 )
Net cash flow used by operating activities (151.0 ) (41.2 )

INVESTING ACTIVITIES
Cash paid for property additions (243.5 ) (373.1 )
Proceeds from sale of property 1.1 13.0
Other (10.4 ) (10.6 )
Net cash flow used by investing activities (252.8 ) (370.7 )

FINANCING ACTIVITIES
Additions to short-term borrowings 0.1 130.0
Payments on short-term borrowings - (85.0 )
Additions to long-term borrowings 517.2 449.0
Payments on long-term borrowings (286.7 ) (47.0 )
Purchase of treasury stock (64.5 ) (74.1 )
Dividends paid (35.6 ) (30.4 )
Net proceeds from exercise of stock options 0.6 7.3
Excess tax benefit from exercise of stock options - 0.4
Income tax refund related to prior years' debt financing - 2.8
Other (0.1 ) (0.1 )
Net cash flow provided by financing activities 131.0 352.9

Effect of changes in exchange rate on cash 2.4 (1.9 )

Decrease in cash and equivalents (270.4 ) (60.9 )

CASH AND EQUIVALENTS
Beginning of period 382.8 277.8
End of period $ 112.4 $ 216.9

SAFEWAY INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(Dollars in millions)
(Unaudited)

TABLE 1: CAPITAL EXPENDITURES AND OTHER STATISTICAL DATA

12 Weeks Ended
March 28, March 22,
2009 2008
Cash capital expenditures $ 243.5 $ 373.1
Stores opened 1 1
Stores closed 3 4
Lifestyle remodels completed 10 22
Stores at end of period 1,737 1,740
Square footage (in millions) 80.4 80.2

Fuel sales $ 504.5 $ 836.6
Number of fuel stations at end of period 384 365

TABLE 2: RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA

(A+B-C) A B C
Rolling Year Ended 12 Weeks 12 Weeks
Four Quarters January 3, Ended Ended
March 28, 2009 2009 March 28, 2009 March 22, 2008

Net income $ 916.1 $ 965.3 $ 144.2 $ 193.4
Add (subtract):
Income taxes 476.0 539.3 60.3 123.6
Interest expense 352.4 358.7 78.2 84.5
Depreciation 1,153.6 1,141.1 264.4 251.9
LIFO expense 30.9 34.9 1.4 5.4
Stock option expense 62.4 62.3 14.1 14.0
Property impairment charges 38.5 40.3 11.1 12.9
Equity in (earnings) loss of unconsolidated affiliates (0.5 ) 2.5 (0.2 ) 2.8
Adjusted EBITDA $ 3,029.4 $ 3,144.4 $ 573.5 $ 688.5

Total debt at March 28, 2009 $ 5,728.4
Less cash and equivalents in excess of $75.0 at March 28, 2009 37.4
Adjusted Debt $ 5,691.0

Adjusted EBITDA as a multiple of interest expense 8.60 x
Minimum Adjusted EBITDA as a multiple of interest expense under bank credit agreement 2.00 x

Adjusted Debt to Adjusted EBITDA 1.88 x
Maximum Adjusted Debt to Adjusted EBITDA under bank credit agreement 3.50 x

TABLE 3: RECONCILIATION OF NET CASH FLOW FROM OPERATING ACTIVITIES TO ADJUSTED EBITDA

(A+B-C) A B C
Rolling Year Ended 12 Weeks 12 Weeks
Four Quarters January 3, Ended Ended
March 28, 2009 2009 March 28, 2009 March 22, 2008

Net cash flow provided (used) by operating activities $ 2,141.1 $ 2,250.9 $ (151.0 ) $ (41.2 )
Add (subtract):
Income taxes 476.0 539.3 60.3 123.6
Interest expense 352.4 358.7 78.2 84.5
Amortization of deferred finance costs (5.1 ) (5.1 ) (1.2 ) (1.2 )
Excess tax benefit from exercise of stock options 1.1 1.5 - 0.4
Deferred income taxes (168.7 ) (171.7 ) (3.4 ) (6.4 )
Net pension expense (97.7 ) (84.6 ) (32.3 ) (19.2 )
Contributions to pension plans 31.6 33.8 12.2 14.4
Accrued claims and other liabilities (19.0 ) (24.4 ) (4.6 ) (10.0 )
Gain (loss) on property retirements and lease exit costs 12.2 19.0 (6.3 ) 0.5
Changes in working capital items 304.6 225.5 621.4 542.3
Other 0.9 1.5 0.2 0.8
Adjusted EBITDA $ 3,029.4 $ 3,144.4 $ 573.5 $ 688.5

TABLE 4: RECONCILIATION OF GAAP CASH FLOW MEASURE TO FREE CASH FLOW*

12 Weeks Ended Forecasted Range
March 28, 2009 March 22, 2008 Fiscal 2009
Net cash flow used by operating activities, as reported $ (151.0 ) $ (41.2 )
Decrease in payables related to third-party gift cards, net of receivables 217.1 207.9
Net cash flow from operating activities, as adjusted 66.1 166.7 $ 2,150.0 $ 2,300.0
Net cash flow used by investing activities (252.8 ) (370.7 ) (1,050.0 ) (1,000.0 )
Free cash flow $ (186.7 ) $ (204.0 ) $ 1,100.0 $ 1,300.0

* Excludes cash flow from payables related to third-party gift cards, net of receivables. Cash from the sale of third-party gift cards is held for a short period of time and then remitted, less Safeway's commission, to
card partners. Because this cash flow is temporary it is not available for other uses, and is therefore excluded from the company's calculation of free cash flow.

TABLE 5: SAME-STORE SALES

First Quarter 2009
Comparable- Identical-
Store Sales Store Sales
Decreases Decreases*

As reported -4.2 % -4.3 %
Excluding fuel sales -0.7 % -0.7 % **

* Excludes replacement stores.
** Estimated to be positive 0.2% after excluding the weeks affected by the shift in Easter holiday sales.

Safeway Inc.
Melissa Plaisance, 925-467-3136
Christiane Pelz, 925-467-3832

Copyright Business Wire 2009