("=UPDATE: Safeway 3Q Profit Falls 35% on Soft Sales" at 10:06 a.m., EDT, incorrectly referred to Safeway's price perception in the second paragraph. The correct version follows)
By Paul Ziobro
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Safeway Inc.'s (SWY) fiscal third-quarter earnings fell 35% as a combination of low prices and high unemployment continued to pressure sales, though reduced overhead costs helped the supermarket chain top estimates.
Safeway has joined other supermarkets in slashing everyday prices in the midst of the recession, hoping to attract shoppers who are trying to trim their grocery bills. Safeway has garnered additional households and transaction counts and sales volumes are improving, but the chain is still trying to shake a perception as a higher-priced supermarket compared to the competition.
"It's one thing to today have your price in line, but the problem is that everyone's cut prices," Kevin Dann & Partners analyst Mario Barraza said. "It takes time for this to work."
Shares of Safeway, which affirmed its downbeat fiscal-year earnings forecast, rose 6.44% in recent trading to $22.81. Other grocery chains also moved up. Kroger Co. (KR) added 3.1% to $23.55 and Supervalu Inc. (SVU) rose 1.09% to $15.79.
While price cuts can keep consumers spending, analysts don't expect grocers to see much relief until the employment market strengthens.
Safeway's Chairman and Chief Executive Steve Burd said Safeway's sales "remained soft," as deflation persisted in dairy, produce and meat, but transaction counts and volume trends were encouraging.
For the quarter ended Sept. 12, Safeway reported a profit of $128.8 million, or 31 cents a share, down from $199.7 million, or 46 cents a share, a year earlier.
Revenue decreased 7% to $9.46 billion on lower fuel sales, which dropped 34% on price declines and effects of the Canadian dollar. Identical-store sales, which exclude new, remodeled and relocated stores, fell 3% excluding fuel.
Analysts polled by Thomson Reuters most recently forecast earnings of 29 cents on revenue of $9.46 billion.
Gross margin rose to 28.3% from 27.5%, and dipped 0.06 percentage point excluding fuel sales.
Safeway operates 1,730 stores in the U.S. and Canada, including regional chains Vons, Randalls, Tom Thumb, Genuardi's and Carrs.
-By Paul Ziobro, Dow Jones Newswires; 212-416-2194; paul.ziobro@dowjones.com
(Tess Stynes contributed to this article)