UPDATE 2-Safeway forecasts 2013 profit above Street view

Wed Mar 6, 2013 3:09pm EST

By Lisa Baertlein

March 6 (Reuters) - Safeway Inc issued a 2013 forecast on Wednesday that suggests profits at the second-largest U.S. grocery store operator will surpass Wall Street's expectations, and its shares touched their highest level in nearly two years.

Safeway forecast 2013 earnings of $2.25 to $2.45 per share, above Wall Street's average estimate of $2.24 per share, according to Thomson Reuters I/B/E/S.

Excluding a 12 cent per share benefit from credit card settlements in fiscal 2012, the new guidance implies earnings growth of 4 percent to 13 percent, JP Morgan analyst Ken Goldman said.

Some investors are encouraged that Safeway may be turning the corner after a string of lackluster profit reports.

The company, whose chains include Dominick's and Vons, has been working to attract customers and boost sales amid tough competition from traditional grocers such as Kroger Co and discount retailers ranging from Wal-Mart Stores Inc to dollar stores.

Sales in its latest quarter were helped by the expansion of a personalized discount program called "Just for U" and fuel discount partnerships with gas station operators such as Chevron and ExxonMobil.

Going forward, growth in its Blackhawk gift card business and its Property Development Centers (PDC) real estate subsidiary also "should drive continued positive momentum," said Steve Burd, Safeway's chairman and chief executive, who will retire at the company's annual meeting on May 14.

The company - which already has announced plans to take Blackhawk public - also said it is exploring putting its Canadian property assets into a real estate investment trust.

Loblaw, Canada's largest grocer, said in December it planned to put the vast majority of its property assets into a real estate investment trust and some investors are lobbying for Safeway to follow suit.

Safeway, with help from advisers, already has determined that its U.S. assets and PDC are not good candidates for REITs, in part because doing so would require a large upfront cash payment, saddle shareholders with big tax liabilities and take away the company's ability to sell real estate holdings.

Safeway expects to make capital expenditures of about $1 billion to $1.1 billion this year, when it also plans to reduce its debt by $800 million to $4.8 billion.

Shares in Safeway were up 0.9 percent at $24.51 in late trading on the New York Stock Exchange. The stock touched a high of $25.14 earlier in the session, hitting its highest level since July 2011.