Safeway Q3 Sales, Profits Up, But Investors Want More

PLEASANTON, Calif. - A 42 percent increase in profits wasn't enough to please Wall Street, and Safeway's share price dropped yesterday as its latest quarterly performance failed to surpass forecasts.

Shares of the retailer, based here, closed yesterday down 1.42 percent, or 42 cents per share.
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Still, contributions from Lifestyle stores, strong perishable and non-perishable performance, and increased fuel sales boosted Safeway sales for the quarter ended September 9. Total sales for the quarter increased 5.3 percent to $9.4 billion from $8.9 billion last year. Identical-store sales increased 5 percent, or 3.7 percent excluding fuel sales. The retailer's net income for Q3 was $173.5 million, or 39 cents per share, up from $122.5 million or 27 cents per share last year.

"We had another good quarter with strong sales and operating expense leverage," said Steve Burd, chairman, president, and c.e.o. "We continue to execute on our strategy and are delivering the improved results we expected."

Safeway's cost-cutting measures continue to pay off; operating and administrative expense declined to 24.54 percent of sales for the quarter, from 25.90 last year, a gain which the company attributed to increased sales and lower employee costs as a percentage of sales.

Net income for the first 36 weeks of 2006 was $562.6 million ($1.25 per share), up from $387.7 million (86 cents per share) for the same period last year. Gross profit margin, however, dropped to 28.68 percent in 2006 from the previous year's 28.84 percent.

Operating and administrative expense for the period dropped from 25.67 percent of sales in 2005 to 24.87 percent this year.

During this time period, Safeway invested $1.1 billion in capital expenditures, opening nine new Lifestyle stores and completing 149 Lifestyle remodels. For the year, the company expects to spend approximately $1.65 billion in capital expenditures and open approximately 20 new Lifestyle stores and complete approximately 275 Lifestyle remodels.

Safeway said it was "comfortable" with the 2006 consensus earnings estimate of $1.72 per share.
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