Safeway 3Q Profit Falls on Charges From Restructuring

Pleasanton, Calif., Safeway Inc. reported Tuesday that profit fell in the third quarter, due mostly to a charge linked to a restructuring of its Texas operations.

Quarterly profit slipped to $122.5 million, or 27? a share, compared to $159.2 million, or 35? a share, last year. Sales increased 7.3% to $8.95 billion from last year’s $8.34 billion. Increased fuel sales, marketing initiatives and the chain’s Lifestyle store execution were credited with driving the sales increase.

“We are pleased with the progress we made this quarter on several fronts,” said Steve Burd, chairman, president and CEO, Safeway. He noted that the company initiated the restructuring of its Texas operations, made “significant progress” in dealing with labor unions in Chicago and completed an employee buyout in the San Francisco Bay area.

In Texas, Safeway plans to close 26 underperforming stores and remodel its remaining locations into the “Lifestyle” format.

The chain made note of rising fuel and energy costs in its earnings release. Although Safeway avoided a portion of this increase with the use of fixed-price natural-gas and electricity contrasts, the net impact of higher fuel and natural-gas prices increased store-utility costs, store-supply costs and distribution costs. It also lowered operating profits from fuel stations. Safeway estimates that higher energy costs reduced net income by approximately $23 million in the third quarter of 2005.