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Safeway's first quarter profits jump amid cost controls; stock price drops
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PLEASANTON  (AP) — Grocery chain Safeway Inc. reported a sharp jump in net income for the first quarter, helped in part by strong cost controls.

But shares fell 3.1 percent, or 67 cents, to close at $20.93 Thursday as results came below Wall Street expectations. The retailer also reported that revenue at stores opened at least a year, a key indicator of the health of a retailer, was flat compared with a year ago.

Safeway, like many grocers, is struggling to absorb higher commodity and fuel costs without turning off its cost-conscious shoppers. Food makers have raised prices during the past year as costs for ingredients rose, which in turn raises the prices they charge grocers. And in most cases, grocers are passing those costs on to shoppers. The company has tried to offset those pressures by expanding more into store-label products.

The Pleasanton, Calif.-based retailer, which operates its namesake stores, Vons, Dominick's and other chains, said Thursday it earned $72.9 million, or 27 cents per share, in the three months ended March. 24. That compares with $25.1 million, or 7 cents per share, last year.

A hefty tax charge in the year-ago quarter made the latest results look much greater. Excluding the tax charge, year-ago net income would have been $105.3 million, or 29 cents per share.

Revenue rose 2.4 percent to $10.0 billion, up from $9.77 billion in the year-ago period. Revenue at stores opened at least a year rose 1.6 percent, but was unchanged when excluding fuel sales.

Analysts, on average, expected profit of 30 cents per share on revenue of $10.08 billion, according to FactSet.

"Strong cost controls helped us meet earnings expectations despite a shift in the New Year's holiday, weather patterns and high gasoline prices, which dampened sales," said Steve Burd, chairman and CEO, said in a statement.

In January, Safeway announced the planned sale or closure of 27 Genuardi's stores, including the sale of 16 Genuardi's stores to Giant Food Stores LLC. During the quarter, Safeway closed three of the stores and incurred impairment and lease exit losses of $8.6 million. Safeway expects to complete the disposal of the remaining 24 Genuardi's stores in 2012 for an estimated gain of about $67 million and net cash proceeds of $102 million.

The company says it's still expecting profit for the full year to range from $1.90 to $2.10 per share. Analysts expect $1.94 per share, according to FactSet.