Safeway Reports $696-Million Loss

Safeway Inc., the owner of Vons and Pavilions, said Thursday that it lost $696 million in its fiscal fourth quarter, including $103 million because of the California supermarket strike. But the strike’s effect was less than Wall Street expected and Safeway’s stock rose.

Steven Burd, Safeway’s chief executive, told analysts that the company’s strike-related losses -- now about $2 million a day -- were trending lower as the dispute entered its fifth month. “We’re seeing customers we haven’t seen for quite some time,” he said, “and I think those numbers will continue to improve.”

Burd’s claim was immediately challenged by the United Food and Commercial Workers union, which struck Vons and Pavilions on Oct. 11, prompting Safeway’s bargaining partners -- Albertsons Inc. and Kroger Co., which owns the Ralphs chain -- to lock out their union workers the next day.

“Consumer support [of the strike] has remained stable ... and you will not see any significant decrease in losses” at Safeway, said Greg Denier, a spokesman for the UFCW International in Washington.

Michael Garland, an investment official with the AFL-CIO, said Safeway’s figures showed that the strike “is a devastating hit to the company.”

Based in Pleasanton, Calif., Safeway released the report for its first full quarter since the dispute began as union and supermarket negotiators met for the second day under the auspices of a federal mediator.

John Arnold, spokesman for the Federal Mediation and Conciliation Service, said both sides bargained into the early evening Thursday and agreed to meet again Friday. “That’s a very positive sign from our perspective,” he said.

Safeway’s overall loss in the quarter ended Jan. 3 was largely because of write-downs and other charges related to the company’s troubled Dominick’s and Randall’s grocery chains in Illinois and Texas, respectively.

In the fourth quarter a year earlier, which also included write-downs and other charges, Safeway lost $1.05 billion.

The UFCW has urged major investors to put pressure on Safeway and the other chains to settle the dispute. But investors cheered Thursday when Safeway said its strike-related operating loss in the latest quarter equaled 23 cents a share -- below the 25 cents or more that some analysts had expected.

Safeway’s stock rose 70 cents, or 3.2%, to $22.49 a share. Kroger shares rose 19 cents to $19.14, while Albertsons gained 42 cents to $24.04. All trade on the New York Stock Exchange.

“We probably overestimated what the sales impact would have been” from the strike, said Jeff Tryka, an analyst with investment firm Delafield Hambrecht in Seattle.

Burd pledged Thursday to stick to the company’s contract goal despite the strike’s costs.

“You should understand we’re all very committed to doing what’s in the best long-term interests of the company,” he said. The stores’ demands are “the absolute right thing to do for the business, and we’re confident that the economics will prove out.”

Burd said that “there is no way to accurately predict when the strike will end” and that Safeway wouldn’t provide 2004 guidance about its financial results because of the strike.

They key issue in the contract dispute is the stores’ effort to slash their employee costs, especially their healthcare expenses, something the chains say they need to do to better compete with nonunion, lower-cost grocery sellers such as Wal-Mart Stores Inc.

The UFCW claims the chains’ demands would gut its members’ healthcare coverage and devastate their standard of living, and Burd has become the main target of their anger.

On Thursday, Burd rejected the notion of permanently replacing the striking Vons and Pavilions workers.

“We believe they’re a cut above other food retailers’ and we prefer to operate our stores with that group,” he said. “So we’re focused on resolving the strike.”

He also maintained that most shoppers avoiding his stores do not have “an overpowering empathy for the strikers,” but rather are “just not wanting to confront” the pickets.

Burd declined to disclose the amount of grocery sales Safeway has forgone during the strike, saying “I will keep the sales effects to myself.” Safeway has 293 stores involved in the strike, or 16% of its 1,817 stores overall.

For all of its stores, fourth-quarter sales rose 3% to $11 billion from $10.7 billion a year earlier, helped by having one additional week in its latest fiscal year.

The AFL-CIO estimated that the company lost at least $500 million in sales during its fourth quarter. Some analysts said that figure might be too high but agreed it was probably more than $300 million.

Those estimates, and earlier figures reported by Kroger and Albertsons, indicate that the three chains combined have surrendered roughly $1.5 billion in sales since the strike began.

“The strike has been extremely effective,” said Howie Foreman, research director of the UFCW. “The folks who work in the supermarkets are not extremely wealthy, and for them to be out this length of time shows the level of determination they have.”

During the 84-minute conference call, one analyst asked Burd to explain whether the fourth-quarter losses from the strike took into account a mutual-aid pact among the three chains, in which they have agreed to share income to weather the dispute.

Burd declined. The stores “elected to keep the mechanical details of that, and the numbers that flow from it, proprietary, so I really can’t comment on that” he said. California Atty. Gen. Bill Lockyer has sued the stores over the pact, alleging it violates antitrust laws. The stores deny that.

Even excluding the strike, Safeway continues to struggle. In the latest quarter, the company said its sales at stores open at least a year and excluding sales of gasoline fell 0.8% from a year earlier.

For its full fiscal year, Safeway lost $170 million on sales of $35.6 billion. The prior year, it lost $828 million on sales of $34.8 billion.

Times staff writer Nancy Cleeland contributed to this report.