Safeway returns to 4th-quarter profit

AP News
Posted: Feb 24, 2011 12:31 PM
Safeway returns to 4th-quarter profit

Safeway Inc. returned to a profit in the fourth quarter as price cuts, store-brand products and reduction in waste and theft helped boost the national grocery chain's performance.

The results beat Wall Street estimates, and its shares fell 5 cents to $22 in morning trading Thursday after rising as high as $22.90 earlier in the session. Over the past year, the stock has traded between $18.73 and $27.04.

Safeway, like others in the sector, has looked to trim prices to lure shoppers, yet keep them high enough to still make a profit.

While it competes against traditional supermarkets, its rivals also include discounter retailers like Wal-Mart Stores Inc. and Target Corp., which are increasingly emphasizing groceries.

The time of price cuts may be coming to end as product makers raise their prices and pressure grows for grocers to pass along those increases. CEO Steven Burd told investors on a conference call that's starting to happen.

"We pass those along to consumers," Burd said. "We monitor (other retailers') price increases, and ... virtually all retailers are passing it along."

Burd said in the fourth quarter, Safeway stopped absorbing the cost increases. "If we get a 15 cents a gallon increase in milk, the retail goes up 15 cents."

Safeway reported net income of $229.6 million, or 62 cents per share, for the three months ended Jan. 1. A year earlier it lost $1.61 billion, or $4.06 per share, on a hefty charge for the reduced value of its assets. The goodwill impairment charge totaled $4.59 per share.

Safeway's latest performance surpassed the 58 cents per share forecast of analysts surveyed by FactSet.

Revenue edged up 1 percent to $12.8 billion from $12.69 billion. That tops Wall Street's estimate of $12.45 billion.

Safeway said its quarterly revenue was helped by better fuel sales and an increase in the Canadian exchange rate, but that those factors were offset by lower sales due to store closings and a 0.8 percent drop in revenue from stores open at least a year, excluding fuel.

Revenue from stores open at least a year is a key gauge of a company's health because it measures results at existing stores instead of newly opened ones.

For the full year, Safeway reported net income of $589.8 million, or $1.55 per share. It lost $1.1 billion, or $2.66 per share, in the previous year.

Annual revenue climbed 1 percent to $41.05 billion from $40.85 billion.

The company said it will provide its 2011 earnings outlook on March 8 at its annual investor conference.

Safeway has 1,694 stores in the U.S. and Canada, including chains such as Vons stores in California and Nevada, Randalls and Tom Thumb in Texas, Genuardi's in Philadelphia and Carrs in Alaska.