Safeway Inc. (SWY), the No. 3 U.S. grocery chain, on Wednesday gave its first earnings forecast for 2006 and said it plans to spend about $1.6 billion to complete new stores and remodel others next year.

The grocer, which made its comments before a planned meeting with analysts, said it expects to earn $1.55 per share to $1.65 per share in 2006. That view includes an estimated expense of about 7 cents per share related to stock options.

Analysts, on average, have expected 2006 earnings of $1.60 per share, according to Reuters Estimates.

Pleasanton, Calif.-based Safeway also forecast 2006 capital expenditures of about $1.6 billion as it works to complete 20 to 25 new stores and remodel about 280 stores. Square footage growth should be less than 1 percent, the company said.

Safeway has already started to add services such as bakeries, floral design centers and sushi bars at some so-called "Lifestyle" stores to differentiate itself from discounters like Wal-Mart Stores Inc. (WMT).

The company expects strong performance from the Lifestyle stores, along with restructured labor contracts and an improved supply chain, to help profitability in 2006.

Safeway also said that identical store sales, which exclude new or replacement stores, should rise about 3 percent in 2006, excluding sales of gasoline.