Safeway’s 3Q Profit Rises 12 Percent
(10-11) 12:33 PDT SAN FRANCISCO, (AP) —
Safeway Inc.’s third-quarter profit climbed 12 percent to match analysts’ projections, the latest payoff from the grocer’s recent recipe of cutting labor costs while spending on store improvements to attract more shoppers.
The Pleasanton-based company said Thursday that it earned $194.6 million, or 44 cents per share, during the three months ended Sept. 8. That compared with $173.5 million, or 39 cents per share, in the prior-year quarter.
The results mirrored the average earnings estimate among analysts polled by Thomson Financial.
Revenue rose 4 percent to $9.78 billion, lagging the average analyst estimate of $9.83 billion for the quarter.
In a more telling indication of the grocer’s growth, Safeway said its “identical-store” revenue rose by 3 percent in the quarter, excluding gasoline sales. That was slightly below the pace earlier this year when the growth ranged from 3.7 percent to 4.5 percent. The closely watched yardstick measures sales at stores open for at least a year.
“We are pleased with our performance and we are pleased with our growth story,” Chairman Steve Burd told analysts during a Thursday conference call.
But Burd didn’t feel confident enough to raise Safeway’s guidance for the final quarter. He company indicated the company will make 63 to 68 cents per share during the current quarter to produce full-year earnings of $1.95 to $2 per share. Analysts, on average, are expecting 69 cents per share.
Safeway shares shed 25 cents to $33.02 in afternoon trading. The stock price has slipped by about 4 percent so far this year, even though the company is on track to post its highest annual profit since 2001 when Safeway shares traded about $60.
Burd said he believes the company has been “grossly undervalued” and promised to try to more clearly explain Safeway’s upside during a December investor conference. He also indicated Safeway may spend more money buying back its stock. The company still has $651 million available in its current stock repurchase program.
The slowdown in Safeway’s identical-store sales growth has raised fears about whether inflation worries and consumer anxieties about declining home prices has prompted shoppers to start buying the cheapest food available instead of indulging in more expensive groceries.
Burd said he hasn’t seen any evidence yet that consumers are “trading down,” but acknowledged inflation, particularly for dairy products and fresh produce, remains a concern. He said Safeway successfully passed on its higher costs in the third quarter after trying to limit price increases earlier in the year Д a move that lowered its second-quarter profit by about $9 million, or 2 cents per share.
“I don’t think we are going into a hyperinflation environment,” Burd said. “I think it will settle down (next year).”
After struggling through several years of stiffer competition and soured acquisitions, Safeway’s fortunes have been steadily improving during the past three years.
Some of the gains have been extracted by demanding concessions from store employees Д a tactic that has periodically triggered acrimonious showdowns with the affected workers.
To differentiate itself from discount retailers like Wal-Mart Stores Inc. that have been selling more groceries, Safeway has spent more than $4.3 billion opening new stores and upgrading existing stores since 2004. More than 1,000 of Safeway’s 1,738 stores are now operating under a “Lifestyle” format that emphasizes fresh produce and more prepared meals.
