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SAFEWAY INC. ANNOUNCES 1991 EARNINGS

 SAFEWAY INC. ANNOUNCES 1991 EARNINGS
 OAKLAND, Calif., Feb. 3 /PRNewsire/ -- Safeway Inc. (NYSE: SWY)


today reported net income for the year ended Dec. 28, 1991, of $54.9 million ($0.48 a share), compared to net income of $87.1 million ($0.91 per share) in 1990. Over the last several months, Safeway announced three unusual and significant events that reduced 1991 net income by a total of $78.2 million ($0.68 per share):
 -- A reserve associated with the bankruptcy of AppleTree Markets Inc. reduced net income by $71 million ($0.62 per share).
 -- An extraordinary loss from the early retirement of debt reduced net income by $24.1 million ($0.21 per share).
 -- A gain from the sale of common stock by The Vons Companies Inc. increased net income by $16.9 million ($0.15 per share). Safeway owns 35 percent of Vons' outstanding common stock.
 Excluding the effect of these three events, net income was $133.1 million ($1.16 per share) in 1991.
 Sales were $15.1 billion in 1991, 1.7 percent greater than 1990. Same-store sales (sales of stores operating the entire measurement period in both years) were virtually flat for the year, increasing 0.1 percent and declined 1.2 percent in the fourth quarter of 1991. Reduced consumer spending caused by the recession, low food price inflation and heightened competition in certain markets made it increasingly difficult to achieve sales growth throughout 1991.
 Gross profit was 27.2 percent of sales in 1991 compared to 26.7 percent in 1990. Safeway is continuing to benefit from increased private-label sales, additional store specialty departments and investments in inventory control and purchasing systems. These factors enable Safeway to maintain price competitiveness while strengthening gross profit margins. LIFO expense decreased to $8.1 million in 1991 from $15.1 million in 1990, reflecting a decline in the annual inflation rate.
 Operating and administrative expenses rose only 3.4 percent for both the year and the fourth quarter of 1991 over the comparable periods of 1990. Due to relatively flat sales growth, however, operating and administrative expenses increased to 23.5 percent of sales for the year and 24.1 percent of sales in the fourth quarter of 1991 compared to 23.1 percent and 23.4 percent for the comparable periods of 1990. Scheduled wage rate increases and fixed costs from Safeway's significant capital investments increased overall operating and administrative expenses as a percent of sales.
 On Jan. 9, 1992, Safeway announced a charge to 1991 operating profit in connection with the bankruptcy of AppleTree Markets Inc. The charge reduced Safeway's operating profit by $115 million and net income by $71 million ($0.62 per share), but did not materially affect cash flow or financial position. In 1987, Safeway assigned a significant number of leases to AppleTree as part of the sale of Safeway's former Houston division. Safeway may remain liable in the event that AppleTree is unable to continue making rental payments on those leases. On Jan. 2, 1992, AppleTree filed for Chapter 11 bankruptcy protection to restructure its senior and subordinated debt. The $115 million charge is an estimate of the eventual net lease and related cash payments which Safeway expects to make over the next 16 years. Safeway has reviewed its potential obligations with respect to other divested operations and expects that any similar potential losses would not be significant to Safeway's net operating results, cash flow or financial position.
 Operating profit was $433.3 million in 1991. Excluding the impact of the $115 million AppleTree charge, operating profit was $548.3 million or 3.63 percent of sales in 1991 compared to $535.3 million or 3.60 percent of sales in 1990. Fourth quarter operating profit excluding the AppleTree charge was $148.9 million or 3.19 percent of sales in 1991 compared to $163.8 million or 3.53 percent of sales in 1990. The combination of flat sales and increased operating and administrative expenses, partly offset by improved gross margins, reduced Safeway's operating profit margin in the fourth quarter of 1991.
 Operating cash flow (FIFO earnings before AppleTree charge, extraordinary losses, income taxes, interest, depreciation, amortization and income from unconsolidated affiliates) was $867.4 million or 5.74 percent of sales in 1991 compared to $844.6 million or 5.68 percent of sales in 1990. This analysis provides a measure of the company's ability to generate cash to pay interest and fixed charges and facilitates the comparison of Safeway's results of operations with those of companies having divergent capital structures.
 "The nationwide recession has run deeper and longer than most experts had forecasted," said Peter A. Magowan, chairman, president and chief executive officer. "As a result, it has been increasingly difficult to achieve sales growth during the year. We expect the grocery industry to achieve only modest sales growth in 1992, particularly in the first half of the year. However, we remain confident that over the long-run our industry-leading capital expenditure program will position Safeway to generate strong sales and increase operating profit."
 The capital expenditure program is a key component of Safeway's long-term strategy. Capital expenditures (including operating lease obligations) totaled $635 million in 1991 compared to $490 million in 1990. Safeway's capital expenditures are among the highest in the industry. During 1991, Safeway opened 32 new stores, completed 77 major remodels and closed 36 outmoded stores.
 Interest expense declined to $355.4 million in 1991 from $384.1 million in 1990 primarily due to a decline in floating interest rates and the redemption of Safeway's 14.5 percent Junior Subordinated Debentures. The company also issued $300 million of 10 percent Senior Subordinated Notes in November 1991 and $300 million of 9.65 percent Senior Subordinated Debentures in January 1992 in order to retire $600 million of 11.75 percent Senior Subordinated Notes. As a result, Safeway expects interest expense to decline further in 1992.
 Income from equity in earnings of unconsolidated affiliates was $45.8 million in 1991 compared to $25.5 million in 1990. Safeway's investment in unconsolidated affiliates consists of a 35 percent equity interest in Vons and a 49 percent interest in Casa Ley which operates 40 stores in Mexico.
 As previously announced, the June 1991 sale of additional shares of common stock by Vons to the public (with Safeway neither selling nor buying shares in the offering) resulted in a gain to Safeway of $27.4 million in 1991 (approximately $16.9 million after tax of $0.15 per share). Safeway owns approximately 35 percent of the outstanding common stock of Vons, the leading supermarket chain in southern California.
 Income tax expense was 52.5 percent of pre-tax income in 1991. Without the impact of the AppleTree charge and the Vons gain, Safeway's tax rate would have been approximately 48 percent in 1991 compared to 55.3 percent in 1990. The improved tax rate in 1991 is primarily due to a full year of benefit from a $460 million intercompany dividend paid by the Canadian subsidiaries and related debt restructuring in mid-1990.
 During the year, Safeway recorded an extraordinary loss of $24.1 million after taxes ($0.21 per share) for redemption premiums and the write-off of deferred finance fees from the early retirement of the 14.5 percent Junior Subordinated Debentures and a portion of the 11.75 percent Senior Subordinated Notes. Safeway expects to realize significant savings in future interest expense from the retirement o,,% X \/!9QUI M 9 r-Q M9j$ RF-RM 6021 02/03/92 09:16 EST
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Date:Feb 3, 1992
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