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Safeway Posts Quarterly Profit, Stands by Outlook
February 23, 2006 · Reuters
Safeway Inc., the No. 3 U.S. grocery chain, posted higher-than-expected quarterly results on Thursday, boosted by strong sales at remodeled stores, and stood by its profit forecast for this year.
Shares of Safeway rose 3 percent in early trading.
The company said profit in the fourth quarter was reduced by 12 cents per share due to its plans to close some Texas stores and for employee buyouts, mainly in its Dominick's chain and in Northern California. Excluding those items, the company earned $230.6 million, or 51 cents per share.
Analysts' average forecast called for a profit of 47 cents, according to Reuters Estimates.
On a net basis, fourth-quarter profit fell to $173.5 million, or 39 cents per share, from $202.7 million, or 45 cents per share, a year earlier.
Better marketing, growth at remodeled stores and higher fuel sales helped push sales up 5.8 percent to $12.05 billion, surpassing Wall Street's average forecast of $11.96 billion.
Safeway said identical-store sales, which exclude new or replacement stores, rose 5.1 percent. Identical-store sales are a key gauge of supermarket performance. Excluding fuel purchases, identical-store sales rose 3.7 percent.
Traditional grocers such as Safeway are aiming to stay competitive amid tough price competition from Wal-Mart Stores Inc., the largest U.S. seller of food, as well as the popularity of organic grocers such as Whole Foods Market Inc. among more affluent consumers.
Pleasanton, California-based Safeway is spending about $1.6 billion this year as it builds 20 to 25 new stores and remodels about 280 stores, adding services such as bakeries, floral design centers and sushi bars.
Safeway said it still expects to earn $1.55 to $1.65 per share this year. Analysts expect a profit of $1.57 per share.
Safeway trades at a price-to-earnings ratio of about 16.8 times this year's earnings, while top-ranked rival Kroger Co. trades at 15.7 times this year's expected earnings.
Shares of Safeway rose 70 cents, or 3 percent, to $23.95 in early trading on the New York Stock Exchange.