Sales up, Profits Down for Safeway Q2

PLEASANTON, Calif. -- Uncle Sam was the main culprit in a drop in latest quarterly profits for Safeway here, as the grocer saw net income of $218.2 million, or 49 cents per share for the second quarter, compared to $246.2 million, or 55 cents for the same period last year.

The latest period suffered in comparison to last year because the second quarter of 2006 had benefited from a $58.5 million reduction in income tax expense related to an income tax refund.

On a positive note, the retailer's sales increased 4.9 percent to $9.8 billion for the latest quarter, compared to $9.4 billion in 2006. Identical-store sales were up 4.5 percent for the quarter, or 3.7 percent excluding the effect of fuel sales. Contributions from the chain's Lifestyle stores as well as strong perishable and non-perishable performance drove this increase.

"Our positive sales and income trends continued in the second quarter, bolstered by strong performance from both new and seasoned Lifestyle stores," said Steve Burd, chairman, president, and c.e.o. "We are on track to deliver earnings toward the top end of the range we previously provided for the year."

Operating and administrative expense improved to 24.21 percent of sales for the quarter, down from 24.58 percent last year -- an improvement Safeway said was due to increased sales, lower workers' compensation expense, net property gains, and lower store labor as a percentage of sales, partly offset by higher occupancy costs.

Safeway's profit for the first 24 weeks of 2007 was $392.6 million, or 88 cents per share, up from last year's $389.1 million, or 86 cents per share.

Safeway invested $753.1 million in capital expenditures in the first 24 weeks of 2007. The company opened five new Lifestyle stores, completed 82 Lifestyle remodels and closed 26 stores. For the year, the company expects to spend approximately $1.7 billion in capital expenditures, open approximately 20 new Lifestyle stores and complete approximately 260 Lifestyle remodels.

Safeway narrowed its earnings guidance range for 2007 to $1.95 to $2 per share from the previously provided range of $1.90 to $2, and confirmed 2007 annual guidance for both non-fuel, identical-store sales growth of 3.6 percent to 3.8 percent and free cash flow of $400 million to $600 million.

Safeway operates 1,740 stores in the United States and Canada and had annual sales of $40.2 billion in 2006.
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