DOW JONES NEWSWIRES
Safeway Inc.'s (SWY) fiscal third-quarter earnings fell 35% as reduced overhead costs weren't enough to offset falling fuel sales, lower prices and the effects of the Canadian dollar.
Supermarkets' performance has lagged behind other retailers amid weak sales as consumers trade down to less-expensive products and lower priced outlets, as well as intense price and promotional competition in the sector. Analysts don't expect much relief until the employment market strengthens.
Safeway, which had tried to attract shoppers with upscale stores and high-quality fresh product, turned to lowering prices and adding promotions in recent quarters to curb falling sales.
Chairman and Chief Executive Steve Burd said, "Safeway's sales remained soft" mostly on lower prices for dairy, produce and meat and a sluggish economy. Still the supermarket chain was encouraged that transaction counts rose and that "volume trends continue to improve."
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. Identical-store sales, which exclude new, remodeled and relocated stores, were down 6.4%, or half that excluding fuel sales and currency changes.
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. Shares of Safeway, which affirmed its downbeat fiscal-year earnings forecast, were up 7 cents premarket at $21.45. The stock is down 9% this year.
-By Tess Stynes, Dow Jones Newswires; 212-416-2481; Tess.Stynes@dowjones.com;