Safeway Profit Climbs 17% in 1st Quarter

Safeway Inc. said Wednesday that fiscal first-quarter profit rose 17%, as the No. 3 U.S. supermarket chain sold more private-label goods and opened and acquired more stores.

Net income rose to $283.9 million, or 55 cents a share, from $241.9 million, or 48 cents, a year earlier. Sales rose 8.2% to $7.67 billion in the period ended March 24, the company said.

Pleasanton, Calif.-based Safeway boosted sales of its private-label products, which generate about 10% more profit than national brands. It also opened 22 stores during the quarter and acquired the 39-store Genuardi’s chain.

Safeway, which rebounded from a strike at a California distribution center blamed for a drop in fourth-quarter profit, said it will meet annual earnings forecasts.

Per-share earnings met the average estimate of analysts.

Safeway shares fell 95 cents to close at $31.90 on the New York Stock Exchange. They’ve fallen 12% this year.

Safeway, which operates Vons and Pavilions chains, is the largest U.S. supermarket chain after Kroger Co. and Albertson’s Inc. It’s forecast to earn $2.61 a share this year, according to First Call/ Thomson Financial.

Safeway said it will spend $2.1 billion this year to build 90 to 95 stores and remodel about 250 supermarkets. The grocer has 1,747 stores in the U.S. and Canada. Last year, Safeway opened 75 stores and had capital expenditures of $1.8 billion.

Sales at stores open at least a year, a key indicator of a retailer’s business because they exclude new, closed and replacement stores, rose 3.6%, Safeway said. They gained 1.8% in the year-earlier quarter.

Still, Safeway faces tougher comparisons in the second and third quarters. So-called identical-store sales increased 4.4% and 4.2% in the year-earlier second and third quarters, respectively. The company has said it expects identical-store sales to increase 3.5% to 4% this year.

“They’re going to have to kick it up a gear if they want to get to that range,” said UBS Warburg analyst Neil Currie, who rates the shares “hold.”

Gross margin, the percentage of revenue left after subtracting the costs of goods sold, widened to 30.6% of sales from 29.8% as the company improved buying practices, reduced spoiled or stolen goods and increased sales of private-label goods.