Stock Research and Analysis

by Dave Sekera, CFA

Bulls Say

Safeway launched a "just for u" initiative to improve its existing Club Card loyalty program, which should reignite market share.
The significant capital invested in the Lifestyle upgrades gives Safeway one of the freshest store bases in the industry, which should help to recapture consumers lost during the recession to low-price operators.
Now that the Lifestyle remodel program is complete, there should be less capital spending. At roughly five years of age, the store portfolio should be nearing peak EBITDA margins, resulting in higher free cash flow. Read more 

Bears Say

Safeway lacks a relevant pricing strategy. It lost customer traffic to low-cost operators during the recession and has not gained traction with the higher-end consumers of grocers like Whole Foods.
Returns on capital have been in steady decline and should continue to be since the Lifestyle remodel investment failed to provide enough of a sustained revenue lift to generate the anticipated rate of return.
Investors are not properly factoring the competitive risk for Wal-Mart's small-store expansion, which encroaches upon traditional supermarket trade areas. Read more 

Management

Safeway's corporate governance is mixed, but the executive compensation committee is composed entirely of independent directors. Most of the executive pay is tied to company performance. The variable cash compensation structure breaks down between capital   Read more 

Profile

Safeway is one of the largest food and drug retailers in North America based on sales and operates 1,335 stores in the United States.  Read more 

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