Safeway Profit Triples on Strong Sales

Safeway Inc. (SWY), one of North America's largest food retailers, said Tuesday that first-quarter earnings more than tripled from last year's results, which were impacted by a strike in Southern California.

Net income surged to $131.3 million, or 29 cents per share, from $43.1 million, or 10 cents per share, a year ago.

Total sales increased 12 percent to $8.62 billion from $7.68 billion in the first quarter of 2004, when a strike in Southern California hurt results. In addition, Easter holiday sales occurred in first quarter of 2005 compared with the second quarter of 2004.

Analysts surveyed by Thomson Financial were looking for profit of 25 cents per share on sales of $7.96 billion in the latest quarter.

Safeway (search) said gross profit margin declined 99 basis points to 29.2 percent of sales from 30.2 percent last year, due to higher fuel sales, investments in price and increased advertising, which were partly offset by the recovery from the strike in Southern California.

Safeway believes about half of the latest quarter's outperformance was due to Easter sales and operating profits that were recorded in the first quarter, but were reflected in second-quarter analyst consensus estimates. In addition, as a result of the timing of expected investments in marketing and branding, the company expects earnings per share in the second quarter to be similar sequentially.

Safeway predicts that earnings will improve in the third quarter, and confirmed 2005 profit guidance of $1.41 to $1.51 per share. Analysts are forecasting earnings per share of 34 cents and 33 cents in the second and third quarters, respectively, and $1.44 per share for the year.