Safeway unveils pounds 280m share buyback plans as profits fall
Thursday 13 May 1999
Safeway brought its results forward by a week to announce the share re- purchase programme, which will start immediately. The company will buy back up to 10 per cent of its equity as part of a previously announced programme to return pounds 600m to shareholders over three years. Safeway said it was responding to the weakness in the company's share price which is close to a five-year low. The shares closed 3.75p lower at 256p.
Analysts said the buyback made financial sense but said strategic questions about the company remained unanswered. "It all seems sensible stuff but you get the feeling, not that the company has given up the ghost ... but that they have become very introverted," said Paul Smiddy at Credit Lyonnais.
Another analyst commented: "Safeway can survive but can it thrive? It is finding sales growth very difficult to achieve and profits are the same as five years ago."
Safeway, which held merger talks with Asda two years ago, said the proposed pounds 18bn merger between Kingfisher and Asda "would not materially change the competitive landscape of the industry." Colin Smith, the chief executive, said: "I think Safeway has a good brand name but it is underdeveloped. We don't lack scale but we can't just copy Tesco. We have to box clever."
Safeway admitted yesterday that sales targets set 18 months ago are too ambitious in the current low-inflation, highly competitive environment. It plans to achieve pounds 1bn of extra sales by November 2001 rather than 2000 as previously stated.
The comments came as Safeway reported a fall in full-year profits from pounds 375m to pounds 350m last year after a pounds 40m investment in marketing and supply chain initiatives. Underlying sales rose by 3.5 per cent in the period, ahead of the industry average, though growth has tailed off to 2.2 per cent in the second half.
Mr Smith said the group was undertaking a series of measures to boost sales. These include a new triple point promotion on its ABC loyalty card, improved product availability and better links with suppliers.
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