Safeway profit rises, shares up 5 percent
LOS ANGELES (Reuters) - Supermarket operator Safeway Inc (SWY.N) posted a higher third-quarter profit, helped by cost controls that sheltered earnings from weak consumer spending, and its shares rose more than 5 percent.
The company, whose chains include Safeway, Vons and Dominick's, also stood by its full-year forecast on Tuesday. It said current quarter sales have shown some improvement, a trend it expects to carry over into the coming year.
"In a deteriorating consumer environment it's not a bad result," said UBS Investment Research analyst Neil Currie. "The company seems to be finding some costs to cut in order to make up the numbers."
Safeway's net income for the 12-week third quarter ended September 6 rose to $199.7 million, or 46 cents per share, from $194.6 million, or 44 cents per share, a year earlier.
The Pleasanton, California-based company said it reaped savings from better-than-expected theft control and lower advertising spending, among other things.
Total sales were up 3.9 percent at $10.2 billion.
The results fell just short of analysts' consensus estimate for earnings of 47 cents per share, according to Reuters Estimates. Analysts had also expected sales of $10.06 billion.
"They've been a little bit caught out because they went upscale," Currie said, referring to the roll-out of higher priced Lifestyle stores that sell more prepared and gourmet foods.
The timing of that expansion has come under question as U.S. consumers struggle to make ends meet with a housing slump and higher fuel and food prices.
"There is a need now to have a better price image. Trying to find that balance between price cuts, sales growth and cost controls is going to be a challenge for the company," Currie said.
IMAGE IMPROVEMENT
Safeway said it has been making prices on high-demand products and brands more competitive as it battles a consumer perception that its prices are expensive.
Identical-store sales rose 2.8 percent, or 0.5 percent excluding fuel sales. Safeway defines identical stores as those operating in the same period during the current and previous years. The figure does not include replacement stores.
Gross profit margin fell 102 basis points to 27.49 percent of sales in the quarter. Higher fuel sales -- which have a lower gross margin -- reduced gross profit margin by 55 basis points.
Safeway said it still expects 2008 same-store sales growth, excluding gasoline sales, of 1 percent to 2 percent. Continued...
