Safeway Profit Down, Same-Store Sales Up

Safeway Inc. identical store sales increased for their fifth consecutive month and were positive for its first quarter of 2011, but profits are down in the face of competition, the retailer said yesterday during its earnings conference call.

"Our first quarter results are in line with our expectations, and we are pleased with our improving sales trends," said Steve Burd, chairman, president, and CEO of Safeway. "Identical-store sales, excluding fuel, improved for the fifth consecutive quarter and are now positive. We are successfully passing cost inflation along at retail, while making appropriate price adjustments to remain competitive."

Total sales increased 4.8 percent to $9.8 billion for the quarter compared to $9.3 billion last year. This increase was the result of higher fuel sales, a 0.4 percent increase in identical-store sales, excluding fuel, and a higher Canadian exchange rate, partly offset by reduced sales due to closed stores.

Historically, Safeway has recorded Blackhawk Network distribution commissions on the sale of certain gift cards net of the commissions shared with other retailers. In the first quarter of 2011, Safeway determined that these commissions should be reported on a gross basis. According to Safeway, this change increased both revenue and cost of goods sold in the first quarter of 2011, but had no impact on same-store sales, gross profit dollars, or net income.

Safeway’s net income for the first quarter was $25.1 million (7 cents per share), down from $96 million (25 cents per share) last year. This included an $80.2 million tax charge resulting from the previously announced decision to repatriate $1.1 billion from Safeway's wholly-owned Canadian subsidiary. Excluding this tax charge, net income was $105.3 million 29 cents per share).

Safeway invested $185.1 million in capital expenditures in the first quarter of 2011, which included the opening of three new Lifestyle stores, five Lifestyle remodels, and the closing of five stores. For the year, Safeway plans to invest approximately $1 billion in capital expenditures, open 26 new Lifestyle stores and complete 30 Lifestyle remodels.

Safeway operates 1,692 stores in the United States and Canada.