Safeway Inc. (SWY): This Grocer Still Isn’t Safe

Page 1 of 2

Safeway Inc. (NYSE:SWY) got a big boost last week, in both its stock price and its coffers, but does that make the stock any safer for investors? The grocer’s stock was up as much as 12.5% on news that it was will pocket some C$4 billion thanks to the sale of its Canadian operations. However, the stock might not be so safe.

Safeway Inc. (NYSE:SWY)
The uptick in the stock comes as the cash injection could alleviate some liquidity concerns. Safeway appears to struggling on the liquidity front; its cash on hand is below $300 million and its current ratio is less than 1.0.



The sale of Safeway Canada will help with this liquidity problem, but even with the upcoming cash injection, there is still another fundamental issue; this includes the grocer’s cash flow generating capabilities. Over the past couple of years, Safeway Inc. (NYSE:SWY) has seen growth in free cash flow turn negative, while other major industry players, including Whole Foods Market, Inc. (NASDAQ:WFM), have been on a tear when it comes to churning out cash.



Part of this free cash flow contraction is a result of margin pressure, related to the entry of new nontraditional competitors, such as Whole Foods, as well as pressure from other major grocers The Kroger Co. (NYSE:KR) and SUPERVALU INC. (NYSE:SVU).

Going a step further, Safeway Inc. (NYSE:SWY) has also seen its leverage position deteriorate over the past five years, with its leverage ratio and debt-to-equity ratio having risen drastically over that period.
2008 2009 2010 2011 2012
Leverage ratio 2.6 3.0 3.0 4.1 5.0
Debt-to-equity 0.69 0.88 0.86 1.26 1.79
The latest
Safeway Inc. (NYSE:SWY)is still paying investors a 3.2% dividend yield, but sales are expected to be up only 1.5% in 2013. But the grocer is looking to continue its cost-saving campaign. Safeway has already closed its distribution centers in British Columbia and Vancouver due to continued operating losses. The grocer is also exiting the Philadelphia market, having closed 25 Genuardi stores in 2012.
A better way?
One of the best ways to play the industry is Whole Foods. This organic grocer has been one of the great growth stories of the industry, namely due to its organic and fresh-food concepts. The company posted 2Q EPS of $0.76, compared to $0.64 for the same period last year, on the back of 6.9% higher comparable-store sales.

Whole Foods has also seen improvement in its inventory turnover, meaning it’s selling inventory faster, leading to less waste and markdowns. Days in inventory went from a high of 22 days in 2009 to roughly 16 days over the past 12 months. Sales are expected to be up an impressive 11% in fiscal 2013, thanks to 8% growth in square footage.

The square footage growth should be a key growth driver going forward. Whole Foods opened 16 stores in fiscal 2010, 18 in 2011 and 25 in 2012. The company hopes to open some 32 in 2013 and then 33 to 38 for 2014. The long-run goal is for upwards of 1,000 stores, with expansion opportunities in Canada and the U.K.
Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!