Safeway Adds Organic Grocery Sales Outside it's Network

DECEMBER 14, 2007 -- PLEASANTON, Calif. -- Safeway Inc. plans to sell its O Organics line of organic foods outside its store network, following a strategy similar to that of its Blackhawk gift card network, which the retailer now offers to competitors.

During an investors conference here yesterday, Safeway said it is developing partnerships to sell the organic line in Asia and South America. It also recently inked an agreement with food service distributor Sysco Corp. to sell the products to the foodservice segment.

"We're in the process of monetizing that brand," Safeway c.e.o. Steve Burd said.

The O Organics line has grown to 300 items since its 2006 launch. Safeway said it expects the line to reach $300 million in sales for 2007, up from $164 million last year.

Safeway set its 2008 earnings per share guidance at $2.25 to $2.35 for the 53-week year ($2.21 to $2.31 for a comparable 52-week year), and said it anticipates that strong contributions from Lifestyle stores and product innovation will deliver ID sales growth (excluding fuel) in a range of 3 percent to 3.2 percent for the year.

The retailer plans to spend approximately $1.70 to $1.75 billion in capital expenditures in 2008 to build 20 to 25 new Lifestyle stores and remodel from 250 to 255. It expects to generate free cash flow (cash flow from operating activities less cash flow used by investing activities) in 2008 in the range of $500 million to $700 million.

"Innovation has been, and will continue to be, the key to our success," said Steve Burd, chairman, president, and c.e.o. "We have developed highly successful programs to reduce costs, improve service, enhance the quality of products and the shopping environment, and have established new growth vehicles. We believe this will ensure our long-term growth."

Safeway operates 1,738 stores in the United States and western Canada and had sales of $40.2 billion in 2006.