Safeway Profit Up 26% After Vons Merger

Safeway Inc. on Tuesday said its second-quarter earnings rose 26%, partly reflecting its $2.55-billion acquisition of the Vons Cos. grocery chain.

The second-largest food and drug retailer in North America said profit from operations rose to $134.1 million, or 54 cents a share, from $106.7 million, or 44 cents, in the year-earlier period. Per-share results beat the 52-cent average estimate of Wall Street analysts.

Revenue rose 33%, to $5.25 billion from $3.95 billion, boosted in part by sales at Vons, which Pleasanton-based Safeway acquired in April. Cincinnati-based Kroger Co. is the nation’s largest food and drug retailer.

Safeway shares rose $2.19 to close at $50.25 on the New York Stock Exchange.

In the latest quarter, a charge of $4.2 million, or 2 cents a share, for the early retirement of debt resulted in net income of $129.9 million, or 52 cents a share. Safeway had no gains or charges in the year-ago quarter.

The company said second-quarter earnings were reduced by 7 cents a share from a 2 1/2-month labor dispute at 74 stores in Alberta, Canada. Year-earlier results were 5 cents lower because of labor disputes in British Columbia and Denver.

Including its Alberta stores, sales at stores open at least a year fell 0.1%, largely because of lower prices for some products, the company said.

During the quarter, Safeway said it issued 41.6 million shares for all the Vons stock it didn’t already own. Vons now operates as a Safeway subsidiary.

Safeway also bought back 32 million shares from a partnership affiliated with Kohlberg Kravis Roberts & Co. at $43 a share, or $1.38 billion. This transaction was financed with a new $3-billion bank credit agreement.

During the first half of the year, Safeway and Vons together invested $204 million as they opened 10 new stores and closed 15. They expect to invest more than $800 million during the year to open 40 to 45 stores and remodel 180 shops.

Safeway now operates 1,367 stores in the U.S. and Canada.