Safeway posts lower profit amid stiffer competition

Thu Jul 19, 2012 10:27am EDT

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(Reuters) - Supermarket operator Safeway Inc (SWY.N) posted a lower quarterly profit on Thursday as it increased spending on advertising and introduced a new loyalty program to win shoppers, and its shares fell more than 5 percent.

Kroger Co (KR.N), the largest supermarket company, and Wal-Mart Stores Inc (WMT.N), which sells more groceries than any other retailer, each have vowed to keep everyday prices low and are putting pressure on smaller players like Safeway and Supervalu Inc (SVU.N).

Safeway, whose grocery store chains include Safeway, Vons and Dominick's, said second-quarter income from continuing operations came to $121.7 million, or 50 cents per share, down from $146.0 million, or 41 cents per share, a year earlier. Safeway had nearly 32 percent fewer shares outstanding in the latest quarter.

Analysts on average were looking for a profit of 49 cents per share, according to Thomson Reuters I/B/E/S.

Safeway's gross profit margin declined 73 basis points to 26.27 percent in the second quarter. Excluding the 47 basis-point impact from fuel sales, margins fell 26 basis points due primarily to increased advertising and costs from the introduction of the "Just for U" loyalty program.

Sales rose 1.9 percent to $10.39 billion. Closely watched identical-store sales, excluding fuel, were up 0.8 percent, matching some analysts' estimates.

Shares of Safeway, the second-largest U.S. supermarket operator, fell 5.4 percent to $15.63 in morning trading on the New York Stock Exchange.

(Reporting By Lisa Baertlein in Los Angeles; Editing by Maureen Bavdek and Lisa Von Ahn)

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