Safeway profit falls 6 pct on higher costs but beats Wall Street expectations in 4Q

NEW YORK, N.Y. - Safeway Inc. said Thursday that its profit slipped 6 per cent its fourth quarter as a result of higher costs for the products on its shelves.

As commodity and fuel prices continue to rise in a weak economy, grocers across the industry have been struggling to balance their ability to absorb higher expenses without turning off cost-conscious shoppers.

The Pleasanton, Calif.-based operator of Von's, Dominicks, Safeway and other grocery chains, said it earned $215.6 million, or 67 cents per share, in the last three months of 2011. That compares with net income of $229.6 million, or 62 cents per share, in the same period last year.

The higher per-share results in the latest quarter were the result of a stock buybacks that reduced the number of outstanding shares. Safeway bought back 43.3 million shares of its stock for $858.6 million during the quarter.

Analysts on average expected a profit of 64 cents per share, according to FactSet. Shares of Safeway rose 18 cents to $22.85 in premarket trading.

Total revenue for the quarter was $13.6 billion, up from $12.8 billion a year ago, in part because of higher fuel sales.

Safeway said revenue at stores open at least a year increased 1.5 per cent, when excluding fuel sales. This figure is a key gauge of a retailer's health because it excludes results from recently opened or closed stores.

But the cost of goods sold in the quarter also rose to $10 billion, from $9.2 billion a year ago. Gross profit declined as result to 26.7 per cent of sales, compared with 28 per cent a year ago.

The company noted that its cost controls helped boost its results; operating and administrative expense improved to 23.8 per cent of sales, from 24.8 per cent of sales a year ago.

Looking ahead to 2012, Safeway CEO Steve Burd said he expects the company's "personalized marketing efforts" and innovation for its store brands to help drive sales growth.

Safeway operates 1,678 stores in the United States and Canada.