Safeway

Cost reductions have boosted Safeway’s second-quarter profits by 7 per cent but the supermarket operator has lowered its full-year same-stores sales forecast, sending shares down almost 11 per cent.

The company said second-quarter net income rose to US$234.3m against US$218.2m in the year-earlier period. Total sales were up 3 per cent to US$10.1bn, boosted by contributions from its new Lifestyle stores with bakeries and prepared foods, higher petrol sales and an increase in the Canadian dollar exchange rate.

Safeway’s same-store sales have been hit by the weak economy and stiffer competition from the discount store sector. Companies like Wal-Mart are attracting a growing number of supermarket customers with low-priced groceries.

“Unfortunately, timing is everything, and the upscale image `of the Lifestyle format` is now putting the company at a disadvantage with the consumer,” one analyst said.

Safeway has lowered its forecast for 2008 same-store sales growth, excluding petrol sales, from a range of 2-2.3 per cent to a range of 1-2 per cent. Chief executive Steve Burd said that while he did not expect the economy to improve in the near term, he did expect benefits from the company’s cost-saving efforts to pay bigger dividends in the second half of the year.

“We don’t think the economy will get better; we think we will get better,” he said.