Safeway tops 2Q earnings expectations, raises outlook |

Safeway tops 2Q earnings expectations, raises outlook

SAN FRANCISCO – Safeway Inc. beat analysts’ earnings expectations for the second quarter and raised its outlook for the remainder of the year, providing the strongest indication yet that the nation’s third-largest grocer has finally recovered from years of labor strife and sales erosion. Its shares surged to a 52-week high on Thursday’s news.The Pleasanton, Calif.-based company said it made $246.2 million, or 55 cents per share, in the three months ended June 17. That represented an 84 percent increase from net income of $134 million, or 30 cents per share, at the same time last year.This most recent quarter’s results included a $58.5 million lift from interest earned on a previously announced income tax refund.Without that one-time boost, Safeway said it would have earned 42 cents per share – a figure that topped the average estimate of 36 cents among analysts polled by Thomson Financial.Safeway also outstripped analysts’ sales projections. The grocer racked up $9.37 billion in sales for the period, a 6 percent increase from last year. The average analysts’ estimate had been $9.26 billion.Bolstered by the strong quarter, Safeway predicted it will earn 10 cents per share more than management had been anticipating. Excluding gains from the income tax refund, Safeway now foresees annual earnings of $1.65 to $1.75 per share.Virtually all the upside will occur in the final quarter, Safeway Chairman Steve Burd told analysts during a Thursday conference call.Safeway shares surged $2.18, or 8.5 percent, to $27.85 in early afternoon trading on the New York Stock Exchange – a new high for the past year. The stock’s 52-week low is $21.67.”If I were to say this was a good quarter, that would be a pretty big understatement,” Burd boasted to analysts.The performance marked Safeway’s strongest showing since the supermarket chain fell into a deep sales funk that began in 2001 as discounters such as Wal-Mart Stores Corp. and Costco Wholesale Corp. ramped up their efforts to sell less expensive groceries.The stiffening competition prompted Burd to slash employee costs in an effort to gain more flexibility to lower prices.More recently, he has been investing heavily to change the look and feel of Safeway’s stores to reel in more shoppers looking for something other than the more mundane experience offered by discount merchants.Burd’s cost-cutting provoked a bitter confrontation with labor leaders representing Safeway’s store workers and even threatened the CEO’s job in 2004 when a group of dissident shareholders rebelled against him.The revolt occurred after Safeway lost a combined $998 million during 2002 and 2003, reflecting the fallout from a series of acquisitions engineered by Burd and the toll of a costly strike in Southern California.Burd, Safeway’s CEO since 1993, fended off the attacks and now can draw a measure of redemption from the grocer’s comeback.In a key measure of its health, Safeway’s so-called “identical store” sales climbed by 5.6 percent from last year. This gauge reflects the business at stores that have been open at least a year without being remodeled.Safeway attributed 1 percent of the improvement in identical-store sales to the Easter holiday occurring in the second quarter – something that didn’t happen last year.Despite Safeway’s progress, the company’s market value remains $19 billion below where it stood before the grocer’s troubles began.

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