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California Grocery Strike Dents Safeway Profit

Safeway Inc. (SWY), the No. 3 U.S. grocer, Tuesday reported a sharply reduced first-quarter profit as it struggled to revive business in the aftermath of a costly Southern California strike.

Safeway, based in Pleasanton, Calif., said it earned $43.1 million, or 10 cents a share, in the quarter ended March 27. That compares with a profit of $162.6 million, or 36 cents a share, a year ago.

Excluding items, it said profit was 43 cents a share. Analysts' average estimate was 28 cents a share, according to Reuters Research, a unit of Reuters Group Plc.

Safeway's latest quarter included about two months of disruptions from the 5-month-long labor dispute which also involved rival chains Albertsons Inc. (ABS) and Kroger Co. (KR).

But Safeway said excluding the strike impact and costs to close 12 money-losing stores of a Chicago-based division, its financial performance so far this year was tracking in line with its 2004 profit forecast of $1.95 a share to $2.03 a share, and free cash flow of $700 million to $900 million.

Safeway said it estimates that the strike, which was only resolved at the end of February, cut its first-quarter earnings by $122 million, or 27 cents per share. In addition, costs for Dominick's store closures cut profit by $28.5 million, or 6 cents a share.

Excluding these items, Safeway said it would have earned 43 cents a share. Its total quarterly sales fell to $7.6 billion from $8.0 billion last year. Its identical store sales, which excludes new or replacement supermarkets, edged up by 0.5 percent, helped largely by fuel sales.

But excluding fuel, identical store sales dropped 1.3 percent. Safeway, along with Kroger and Albertsons, have been hard-pressed to spend heavily on promotions to lure shoppers who defected to alternative outlets in one of the most highly contested food markets in the United States.