Safeway Profit Tops Street; Shares Rise

Safeway Inc reported a quarterly profit that beat analysts' low expectations, benefiting from higher fuel sales and cost cuts, and its shares rose nearly 4 percent.

The second-largest U.S. supermarket company, whose chains include Safeway, Vons and Dominick's, said net income for the third quarter ended Sept. 10 rose 6 percent to $130.2 million, or 38 cents per share.

Earnings per share for the quarter topped the analysts' average estimate by 3 cents, according to Thomson Reuters I/B/E/S.

Revenue rose a bit more than 7 percent to $10.06 billion, primarily because of higher fuel sales, and beat analysts' estimates of $9.86 billion.

Our sales momentum continued to build in the third quarter, and our costs were well controlled, Chief Executive Officer Steve Burd said in a statement.

Gross profit fell 114 basis points to 27 percent of sales. But gross margin was flat, excluding an 88 basis-point hit from fuel sales and a 26 basis-point charge from reporting gift card commissions.

Sales at identical stores -- established supermarkets that have not been replaced or significantly renovated -- rose 1.5 percent, excluding fuel.

Europe's debt crisis, worries about slowing growth in China and stubbornly high unemployment in the United States are contributing to worries that global economies are weakening.

Still, Safeway repeated its full-year earnings forecast of $1.45 to $1.65 per share, including an estimated hit of 15 cents from a Canadian dividend. It also affirmed its target for identical-store sales growth, excluding fuel, of about 1 percent for the year.

Larger rival Kroger Co said in September that its shoppers were getting more cautious, visiting its stores more often but buying cheaper items.

Still, Kroger's identical-supermarket sales for the latest quarter were up 5.3 percent, excluding fuel, due to higher food prices.

While Safeway works to narrow the gap with Kroger, the threat of stiffer competition looms.

Wal-Mart Stores Inc , which sells more groceries than any other retailer, said on Wednesday that it would cut prices to match those of competitors, returning to a strategy from which it has wavered in recent years.

Safeway shares were up 3.7 percent at $18.63 in morning trading on the New York Stock Exchange, while Kroger dipped 0.2 percent and Wal-Mart was unchanged.