Safeway Inc. SWY
Q3 2011 Earnings Call Transcript

Operator: Karen Short, BMO Capital.

Karen Short - BMO Capital: I just wanted to go back to the ID. It looks like given where inflation is at the 4% level, volumes might have actually deteriorated sequentially. Can you maybe just give a little color on that? Is there a category that stands out or is there a geography or anything on that?

Steven A. Burd - Chairman, President and CEO: I would say nothing stands out. I think it was a couple of quarters ago that I commented on the importance of fuel prices relative to grocery prices, and with fuel prices up, what did I say, 26% or 29%, that continues to have a dampening effect on overall consumer behavior. We believe, particularly based on looking at our market share, which was absolutely flat with last year that you have negative volumes really across the channel. I think that with the things that we have planned going forward, we expect that we can ultimately turn those volumes positive even in a soft economy, but right now, we sit with the rest of the industry with volume declines as people make changes in mix and try to respond to this economic environment.

Karen Short - BMO Capital: Last quarter, there was a lot of conversation about a lag in passing on inflation. Can you maybe just give us an update on what you are seeing on that now?

Steven A. Burd - Chairman, President and CEO: I think that people maybe – I don’t know if they misunderstood or they misinterpreted the lag. A lag is nothing new. What you have going on in this particular economy is we have inflation, which is predominately in perishable categories. Some of those categories are essentially pennies of profit opportunities, and some of those perishable categories are gross margin rate sustainable opportunities. So, really it depends a lot on whether the inflation is in (pennies of) profit or whether it's is in the gross margin category. We also have a couple of categories that actually had deflation. Now I can't tell you that some of that wasn’t mix, but we actually had some categories that represented deflation. So I will continue to say is that when we get a cost increase, we consistently pass along, but just as I said in the last couple of quarterly earnings releases, we were sensitive if we're approaching a holiday and we're sensitive on the promotional price, so the promotional price change always change (a second). I think that what you should take away from our quarter results is that we, like everybody else, and we look at everybody else pass along cost increases. We unlike other people have managed a flat gross margin because we've been able to do it in a very efficient way and we're particularly good at managing shrink, and that was a major contributor to quarter.

Karen Short - BMO Capital: And then just any update on just for u, how many markets it's in now and what the goal still is for the end of the year?

Steven A. Burd - Chairman, President and CEO: Just for U is in two markets. I think, we talked on previous calls that we have not done any heavy advertising in either of those markets, and we've been building a platform that we're confident will scale. We'll be rolling that to at least one other market this year, and we will complete the roll out in Just for U sometime in the second quarter of next year. And if I would add one more factoid to that pile, I would tell you that the two markets that we have Just for U in a non-advertised, non-promoted fashion are the two markets where we've gained the most market share.