(Adds details from conference call, background, updates trading)
By Lisa Baertlein
Feb 21 (Reuters) - Safeway Inc said Thursday a new personalized discount program boosted sales in the first quarter of 2013 compared with the fourth quarter, sending shares up nearly 14 percent on the New York Stock Exchange.
The second-largest U.S. supermarket chain, which operates the Safeway, Vons and Dominick's supermarkets, also reported stronger-than-expected fourth-quarter profit and said it saw no impact from a recent U.S. payroll-tax hike, which had eaten into the take-home pay of many shoppers.
Investors had been looking for signs of progress from Safeway, which 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.
If trends hold for the remainder of the week, Safeway's identical-store sales will be up 2 percent for the initial eight weeks of the first quarter of 2013, Steve Burd, Safeway's chairman and chief executive, said on a conference call with analysts.
Safeway's identical-store sales were up 0.8 percent, excluding fuel, in the fourth quarter.
At Safeway, that closely-watched measure includes results from established supermarkets that have not been replaced or significantly renovated.
The company's shares were up 13.5 percent at $22.84 in afternoon trading on the New York Stock Exchange.
While some retailers and restaurants have attributed softening sales to a hike in payroll taxes that came into effect on Jan. 1, curbing spending by some consumers, Safeway saw no such impact, Burd said.
"We cannot see any blip in our numbers as a result of the payroll tax kicking in," he said.
Like many of its rivals, Safeway has a club card membership program that gives shoppers discounts on groceries and points for purchases. Those points can be redeemed for discounts on gasoline.
The company recently debuted a new personalized shopper program called "Just for U." It tailors deals for members, based on their tastes and shopping habits.
Burd said 5.4 million households had signed up for "Just for U," which insulated the company from any payroll tax hit and helped boost sales.
"Keep in mind that a 'Just for U' user can save anywhere from 10 percent to 20 percent off a normal club card pricing," said Burd, who will retire at the company's annual meeting on May 14.
Safeway's income grew more than 13 percent to $244 million, or $1.06 per share, in the fourth quarter through Dec. 29.
Excluding gains from legal settlements, the company earned 94 cents per share in the fourth quarter, handily beating analysts' average target of 76 cents per share, according to Thomson Reuters I/B/E/S.
Stock buybacks, net of incremental interest expense, increased earnings per share by 17 cents in the quarter.
Quarterly sales rose to $13.77 billion from $13.60 billion a year ago.
Safeway shares have been boosted by speculation that the company could sell or spin off its Canada operations.
Adding to that speculation, 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.
Executives said they would discuss real estate and issue full-year forecasts at its annual investor conference March 6. (Reporting by Lisa Baertlein in Los Angeles; Editing by Jeffrey Benkoe and Bernadette Baum)