Loyalty program, legal settlement helps Safeway net income jump in 4th quarter

PLEASANTON, Calif. – Bring on the deal hunters.

Grocery store operator Safeway said Thursday its customer loyalty program helped its fourth-quarter net income jump 13 per cent in the fourth quarter, far surpassing expectations.

Shares jumped more than 13 per cent in afternoon trading on the better-than-expected results.

Supermarkets have struggled to find the balance between customers’ need for low price food and fluctuating food costs. Also, in addition to competition from retailers such as Target and Wal-Mart, traditional supermarkets are competing more with drugstore chains and dollar stores.

Safeway’s solution has been investing heavily in its “Just for U” customer loyalty program, which offers personalized discounts based on past purchases. The Pleasanton, Calif.-based grocer said Thursday the program is driving market share gains and profits, evidence that the investment is beginning to pay off.

CEO Steven Burd said about 45 per cent of its sales are from people registered for its loyalty program. The goal is 65 per cent. So far the program is performing better than expectations, Burd said.

“Our best customers are becoming increasingly more loyal and buying more items per trip,” Burd said.

The mobile component of the program, which includes apps for most smartphones and an iPad app launched last quarter, has had higher usage than expected. Digital coupons have also performed well, an area that Safeway wants to expand, Burd said.

“As people become more digital, there is an opportunity which we are working hard at to actually get out of the paper ads and make the ad itself personalized for every household,” he said.

Safeway Inc., which runs its namesake chain as well as Vons, Dominick’s and others in the U.S. and western Canada, said that in the three months ended Dec. 29, net income rose 13 per cent to $244 million, or $1.02 per share. That compares with $215.6 million, or 67 cents per share, in the prior year. Excluding a benefit from a legal settlement, it earned 94 cents per share. That handily beat analyst expectations of 76 cents per share, according to a FactSet poll.

A 26 per cent decline in the number of Safeway shares helped make the value of each remaining share higher.

Revenue edged up 1 per cent to $13.77 billion from $13.6 billion in the prior year. Analysts expected $13.69 billion.

Revenue was helped by higher prepaid and gift card sales. Revenue in stores open at least one year, a key retail metric, rose 0.8 per cent, hurt by a customer shift to generic drugs.

For the year, net income rose 15 per cent to $596.5 million, or $2.41 per share. That compares with $516.7 million, or $1.49 per share in the prior year. Revenue rose 1 per cent to $44.21 billion from $43.63 billion in the prior year.

The company did not give specific guidance but CEO Burd said eight weeks into the quarter revenue in stores open at least one year is up 2 per cent, so that figure could be up 1.8 per cent to 2 per cent in the quarter.

“As Just for U matures, and as the fuel and wellness initiatives are rolled out, we feel our volume, our market share, and our (revenue in stores open at least one year) should only continue to improve,” he said.

The company plans to give detailed guidance at an investor event on March 6.

Its shares rose $2.72, or 13.5 per cent, to $22.84 in afternoon trading after rising as high as $23.96 earlier in the session. That was its highest level since July 2011.