Steve Burd, Safeway's chairman, president and CEO, said in the investor conference that its Lifestyle stores are "23% more productive, in terms of top-line sales growth, than similar remodels" the company has completed at similar costs-per-store in the past. "I think some people were concerned that as we moved through time we would move through the best projects and we would have deterioration in either sales or return on investment, but both of those have actually improved," Burd said.
Safeway plans to spend approximately $1.6 billion in capital expenditures in 2006 to complete the 20 to 25 new stores and the 280 remodeling jobs. That will follow a ramped-up expansion this year in which the company has been converting as many stores as possible to the Lifestyle format. Burd noted that Safeway has 146 construction completions scheduled in this year's fourth quarter.
Commenting on the capital expenditure plans, Burd said, "A year ago this time we piloted our approach to opening and remodeling stores. It's a more expensive process for launching new stores and remodeling stores than anything we've done in our history, but the reason we like doing it is that—whether it's a new store or a remodel—we feel that we have a window of time to establish increased sales, and we need to get at it."
Although new and remodeled stores are notorious for suffering sales slumps after making big splashes initially, Burd said that's not the case with the Lifestyle stores. "Once we finish our promotional period, we're seeing only a small step-down in sales after that," he said.
The Lifestyle format features a decor designed to be more inviting, with subdued lighting, an emphasis on high-quality fresh products and in many cases a large selection of natural and organic foods. Many Lifestyle stores also feature full-service meat counters, bakeries and floral design centers, as well as sushi and olive bars. At the end of 2004 the company had opened or remodeled 142 of its stores to the new format in the United States and Canada, with plans to open or remodel an additional other 300 in the Lifestyle format this year.
Burd said that the 1,800-store chain plans to "rapidly roll out additional Lifestyle stores" as a key component of its 2006 growth strategy.
Safeway expects earnings per share of $1.55 to $1.65, and executives anticipate non-fuel identical store sales growth of approximately 3% in 2006. In discussing the earnings and sales expectations, Burd touched on a number of measures that Safeway has implemented to improve efficiencies. Among them were restructuring of labor contracts and buyouts of senior-level employees, both of which resulted in one-time immediate costs that increased expenses, but those measures will ultimately reduce costs in the long run, the Safeway CEO said.
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