Safeway Profits Decline 8.6%

Safeway Stores, which is the object of a takeover attempt by Dart Group, said Thursday that earnings declined 8.6% in the second quarter.

For the 12 weeks ended June 14, Safeway had net earnings of $45.6 million, compared to $49.9 million in the same period of 1985.

Safeway’s earnings would have been even lower if the company hadn’t taken advantage of an accounting change that recognized the overfunding of the company’s retirement plans. That change added $8.2 million to second-quarter net income and $12.9 million to the 24-week period ended June 14.

For the first half of 1986, Safeway had earnings of $72.6 million, down 3.9% from the $75.6 million earned in the same period last year.

Sales for the quarter rose to $4.57 billion from $4.55 billion. For the 24-week period, sales slipped 0.7% to $9.04 billion from $9.1 billion.

Earnings fell in part because of “continuing negative impact of poor oil-related economies” in some areas, such as Texas and Oklahoma, where Safeway operates, the company said. Safeway has 300 to 350 stores in energy-producing areas.

The earnings decline also reflected aggressive competition in certain markets, particularly Denver, the company said.

In addition, the accounting method used to value certain inventories reduced second-quarter after-tax earnings by $4.7 million, compared to $4.1 million in 1985.

Safeway’s second-quarter financial results were “pretty poor,” said Ron Rotter, an analyst with Seidler Amdec Securities in Los Angeles. “The supermarket industry is having difficult times” because inflation is low now, he said. “They really benefit from inflation” because they can raise prices more easily to cover their high fixed costs, he said.

Safeway said it is responding with “strong marketing programs, which, while costly in the short term, are designed to improve sales and regain earnings growth.”

Safeway’s 1986 sales reflected the disposition late last year of foreign operations in Australia, West Germany and Toronto. When those operations are excluded from 1985 sales, 1986 sales from ongoing operations were up 5.7% in the second quarter and 5% for the 24 weeks, the company said.