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Acquisitions help boost
Safeway profits 19%

The big supermarket
chain's stock gains 5%

Bloomberg News

PLEASANTON, Calif. -- Safeway Inc., the third-largest U.S. supermarket chain, said today its fiscal second-quarter profit rose 19 percent as acquisitions helped to boost sales and cut costs.

Net income rose to $280.9 million, or 55 cents a share, from $236.4 million, or 46 cents, in the year-earlier period. Sales for the quarter ended June 17 rose 17 percent to $7.4 billion from $6.3 billion. Per-share earnings beat the 53-cent average estimate of analysts surveyed by First Call/Thomson Financial.

Shares of Pleasanton, Calif.-based Safeway rose $2.31, or 5 percent, to close at $47.94 on the New York Stock Exchange. They have climbed 35 percent this year.

"They're doing everything right," said Jonathan Ziegler, a Deutsche Bank Alex. Brown analyst with a "strong buy" rating on the shares. "Sales were remarkable."

Safeway cut costs and used its larger size to negotiate better terms with suppliers. The company's sales rose due to the smaller chains that it acquired, including Randall's Food Markets Inc. and Carr Gottstein Foods Cos.

Sales at stores open at least a year rose 4.9 percent. Identical-store sales, which exclude replacement stores, increased 4.4 percent.

The company expects identical-store sales to rise at least 4 percent in the third quarter, Chief Executive Steven Burd said on a conference call. He said sales are expected to keep rising in the fourth quarter, but did not give a forecast.

Safeway has closed unprofitable stores, controlled costs and expanded its selection of perishable items and private label goods, which have higher profits.

The company held more promotions than usual in some markets.

"We saw good opportunities in the quarter to take share in certain markets," Burd said.

Safeway's sales in northern California may have gotten a boost as Albertson's Inc. converted many Lucky stores to the Albertson's banner, which is less known in the area, said Andrew Wolf, a BB&T Capital Markets analyst.

Gross margin, the percent of revenue left after subtracting the costs of goods sold, widened to 29.68 percent from a pro forma 29.55 percent. Year-ago results were adjusted for the addition of the Randall's and Carrs chains, the company said.

The company has about 1,665 stores. In Hawaii it operates 18 supermarkets and plans to open its 19th local outlet later this year in Kihei, Maui.

Safeway bought Randall's for $1.8 billion in cash, stock and assumed debt in September.

That followed its purchase of Carr-Gottstein, an Alaskan grocer and food distributor, for $330 million in April and Dominick's in Chicago for $1.85 billion in 1998.

Randall's integration is exceeding the company's expectations, while Carr's is on schedule, Burd said.

Safeway will consider other acquisitions if the price is right, he said.