Safeway's sales brighten as food retailers recover

04/28/2011 04:02:47 PM
Bruce Blythe

Safeway Inc.’s quarterly identical-store sales rose for the first time in over two years, an encouraging sign for U.S. food retailers that have struggled to recover from the 2008-09 recession.

Identical-store sales rose 0.4% in the first quarter, excluding fuel, Safeway said in an April 28 statement announcing financial results. Safeway’s identical-store sales previously rose compared with the year-earlier period in the fourth quarter of 2008. Sales fell 2.5% and 2% in 2009 and 2010, respectively.

“We are pleased with our improving sales trends,” Steve Burd, Safeway’s chief executive officer, said in a release about the company’s quarterly results.

The retailer is raising prices for many of the items on its shelves to offset climbing commodity costs, he added, without mentioning specific products.

“We are successfully passing cost inflation along at retail, while making appropriate price adjustments to remain competitive,” Burd said.

Traditional supermarkets came under pressure the past two years as consumers cut back and Wal-Mart Stores Inc. stepped up promotions and discounts. Recent improvement for Safeway and other supermarket chains may be a positive development for the fresh produce industry, indicating consumers are spending more on groceries as the economy improves.

Still, Safeway’s first-quarter margins suffered from surging costs for the gasoline it sells. Additionally, competition from Wal-Mart and other discounters may make it difficult for supermarkets to fully pass along higher costs, analysts say.

Pleasanton, Cal.-based Safeway is the second-largest U.S.-based supermarket chain based on sales behind Kroger Co., though Wal-Mart sells more food than both combined. Last year, Wal-Mart’s U.S. grocery business generated sales of about $140.6 billion.

Safeway said expects its identical-store sales in 2011 to rise 1% to 1.5%, excluding fuel. Identical- or comparable-store sales are a key indicator of retailer performance and typically reflect locations open at least a year.

During the first quarter, Safeway’s net income was $105.3 million, excluding a tax charge related to its Canadian subsidiary. That was up 9.7% from $96 million a year earlier. Total sales rose 4.7% to $9.77 billion.

Shares of Safeway, which operates 1,692 stores in the U.S. and Canada, fell 65 cents, or 2.5%, to $24.64 in late trading April 28. The stock is still up almost 10% this year.



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