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Safeway profit slips 6 percent on higher costs

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POSTED February 23, 2012 8:29 p.m.


PLEASANTON (AP) — Safeway Inc. said Thursday that its profit slipped 6 percent in the fourth quarter as it paid more to stock its shelves.

As commodity and fuel prices continue to rise in a weak economy, grocers across the industry have been struggling to absorb higher expenses without turning off cost-conscious shoppers.

The Pleasanton, Calif.-based operator of Von's, Dominicks, Safeway and other grocery chains, said it earned $215.6 million, or 67 cents per share, in the last three months of 2011. That compares with net income of $229.6 million, or 62 cents per share, in the same period last year.

The higher per-share results in the latest quarter were the result of a stock buybacks that reduced the number of outstanding shares. Safeway bought back 43.3 million shares of its stock for $858.6 million during the quarter.

Analysts on average expected a profit of 64 cents per share, according to FactSet.

Total revenue for the quarter was $13.6 billion, up from $12.8 billion a year ago, in part because of higher fuel sales.

Safeway said revenue at stores open at least a year increased 1.5 percent, when excluding fuel sales. This figure is a key gauge of a retailer's health because it excludes results from recently opened or closed stores.

The cost of goods sold in the quarter also rose to $10 billion, from $9.2 billion a year ago. Gross profit declined as result to 26.7 percent of sales, compared with 28 percent a year ago.

To mitigate higher costs, Safeway in recent years has been expanding its lineup of store-brand products. CEO Steve Burd said the company will focus on that effort to drive sales growth in 2012.

Safeway is also planning a national rollout of its personalized pricing program by the end of the second quarter. It gives customers discounts based on the purchases they make with their Safeway club cards.

The focus on store-brands and the new pricing program are both intended to help cultivate customer loyalty, which is critical at a time when supermarkets are facing increasing competition from big-box discounters like Wal-Mart.

The company noted that its cost controls helped boost its results; operating and administrative expense improved to 23.8 percent of sales, from 24.8 percent of sales a year ago.

Safeway operates 1,678 stores in the U.S. and Canada. Its shares closed down $1.72, or 7.6 percent, at $20.95.

 

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