* Q1 EPS from continuing operations 30 cents
* High gasoline prices dampened sales-CEO
* Shares down more than 4 percent
By Lisa Baertlein
April 26 Supermarket operator Safeway Inc
said high gasoline prices dented profits and squeezed
grocery sales in the first quarter, sending its shares down more
than 4 percent on Thursday.
Gasoline sales have low margins and can be a drag on
earnings. In many areas outside large cities, supermarket
companies sell gas and consumers may spend less on groceries
when prices rise at the pump.
During Safeway's latest quarter, gross profit dropped 70
basis points to 26.8 percent of sales. Excluding the 62
basis-point impact from fuel sales, gross profit declined 8
"Strong cost controls helped us meet earnings expectations
despite a shift in the New Year's holiday, weather patterns and
high gasoline prices, which dampened sales," Steve Burd,
Safeway's chairman and chief executive, said in a statement.
Major supermarket chains are struggling with falling sales
volumes as all but the top-earning shoppers remain cautious
about spending. Unemployment remains elevated and about 11
million Americans owe more on their homes than the properties
"Our preliminary assessment is that operationally, (Safeway)
is continuing to lose share and may have take taken another step
back in volumes based on sequential trends," Cantor Fitzgerald &
Co analyst Ajay Jain said in a client note.
The operator of the Safeway, Vons and Dominick's chains said
first-quarter income from continuing operations was $81.6
million, or 30 cents per share, compared with $25.1 million, or
7 cents per share, a year earlier, when Safeway booked a large
charge related to repatriating $1.1 billion from Safeway's
wholly owned Canadian subsidiary.
Total sales rose 2.4 percent to $10 billion -- helped by
higher fuel sales, increased revenue from its Blackhawk business
and contributions from new stores -- but closely watched
identical-store sales, excluding fuel, were flat.
At Safeway, identical-store sales include results from
established supermarkets that have not been replaced or
"In the last eight weeks, identical-store sales have been
running at 1 percent, and we continue to believe sales will grow
as our new marketing initiatives take hold," Burd said.
Safeway's competitors include Kroger Co, the largest
U.S. supermarket operator, and Wal-Mart Stores Inc,
which sells more groceries than any other U.S. retailer.
Earlier this month, Safeway promoted Chief Financial Officer
Robert Edwards to the post of president in charge of its retail
operations, marketing, merchandising, corporate brands,
manufacturing, distribution and finance functions.
At the time, Burd said the move would give him "an
opportunity to concentrate more of my time on innovation and a
range of strategic initiatives that will drive core and non-core
business growth in the long term."
J.P. Morgan analysts said in a client note a short time
later that the comments and other moves by the company suggested
that Safeway could be considering a leveraged buyout or a
reverse Morris trust -- a deal structured to allow a corporation
to avoid taxes when it sells unwanted assets.
Burd said on a conference call with analysts that the
activities called out by J.P. Morgan -- including share
buybacks, calling out Blackhawk results and Edwards' promotion
-- were part of the company's normal course of business.
The CEO also said the company's Blackhawk gift card business
has a lower gross margin rate than Safeway, but is growing
faster than Safeway. Some analysts have suggested that the
company could spin off the Blackhawk business.
Shares of Safeway, the second-largest U.S. supermarket
operator, fell 4.3 percent to $20.67 in midday trading on the
New York Stock Exchange.