Safeway shares drop as sales growth slows; profit dips 2.2%

Safeway Inc. said Thursday that fourth-quarter profit fell 2.2% after a year-earlier tax gain. The supermarket chain also said sales growth in the current quarter slowed, pushing its stock down the most in almost four years.

Net income decreased to $301.1 million, or 68 cents a share, while revenue rose 6.8% to $13.4 billion, helped by store renovations, Safeway said. Profit matched the average analyst estimate. A year earlier, a tax gain boosted earnings by 8 cents a share. The chain affirmed its full-year forecast.

Same-store sales, or sales at stores open at least a year, excluding fuel, advanced 2.7% in the quarter, below some analysts’ predictions. Higher food and gasoline prices, the worst housing slump in a quarter-century and a sluggish economy have hurt revenue at supermarkets and retailers.

“Given the head winds facing consumers and food inflation, it’s not surprising that there has been a modest impact to sales,” said Andrew Wolf, an analyst at BB&T; Capital Markets.

Pleasanton, Calif.-based Safeway, which owns the Vons and Pavilions chains in Southern California, said same-store sales growth slowed from 3.5% in the year-earlier period and 3% in the third quarter.

Some investors consider same-store sales an important measure of performance because they show how fast revenue can rise without new locations.

Safeway has seen a modest softening in its same-store sales in the first seven weeks of the first quarter, Chief Executive Steven Burd said. Consumers are “trading down” to lower-priced items, he said.

Shares fell $2.28, or 7.1%, to $29.66, the biggest drop since April 2003.

Safeway, like the biggest U.S. grocery chain Kroger Co., raised prices as costs for commodities such as milk, chicken and wheat soared.

The company reiterated its forecast for per-share earnings to rise to $2.25 to $2.35 this year. It expects same-store sales to grow 3.2%.