PLEASANTON -- Safeway made less money in the second quarter of the year after the supermarket company sold its stores in Canada, prompting the grocer to lower its earnings expectations for the year.
Income for the 12-week period ending June 15 fell to $8.4 million, or 3 cents per share. That compares with income of $122.7 million, or 51 cents per share, a year ago.
But when adjusted for one-time items, including the sale in Canada and the hefty tax attached to it, income totaled 51 cents per share, slightly beating analysts' expectations of 50 cents per share.
Store sales also declined for the second quarter in a row, falling to $8.7 billion from nearly $10 billion in revenue for the first quarter of 2013. The grocer posted $8.8 billion this time a year ago. Safeway officials said on Thursday that the decline was due to lower fuel sales at Safeway gas stations and the sale of Genuardi's stores on the East Coast in 2012.
"It's not particularly good," said Bob Reynolds, an industry expert with Reynolds Economics and a former Safeway employee.
Wall Street had expected more than $10.4 billion in sales.
Safeway announced in June it would sell 213 full-service grocery stores in western Canada to Canada-based food retailer Sobeys for $5.7 billion, providing the supermarket giant with a stockpile of cash once the deal closes at the end of the year. But the loss of revenue from those stores prompted Pleasanton-based Safeway to revise slightly down its projections for the year. The company set its forecast at the lower end of its prior outlook of $2.25 to $2.45 per share.
The timing of the sale made for an awkward earnings debut for CEO Robert Edwards, who replaced Steve Burd in May.
"This is an interesting quarter to report," Edwards said on a call with investors.
Safeway is moving along a precarious path as it tries to keep costs low by shedding less profitable stores and adjusting employee benefits while battling competition from big-box discounters such as Target and Walmart stores, as well as drugstores such as Walgreens that have been expanding their grocery sections, according to industry experts. It was just a few years ago that Safeway seemed destined to become another casualty of the upheaval in the supermarket industry, which has been embattled by the rising popularity of niche grocers like Trader Joe's and Whole Foods.
Safeway still fared well on Wall Street Thursday, with the stock climbing 6.8 percent to $26.32. The stock was trading at less than $16 a year ago.
But Reynolds said Safeway could have trouble ahead. The meager increases in store sales aren't keeping up with inflation rates, he said, and the supermarket was raising food prices to try and buoy its profits.
Officials said the next quarter looks sluggish as consumers continue to feel their wallets pinched since the payroll tax holiday expired early this year, and as Safeway spends more on new stores and programs. The company is on track to have 250 stores remodeled by the end of the year, and hit $900 to $950 million in capital spending.
Edwards continued to tout the company's loyalty program, Just for U, and health and wellness initiatives, the brainchild of his predecessor Burd. About 5.8 million households have registered for Just for U, which offers personalized pricing and digital coupons sent to customers' smartphones and tablets. Safeway now has more than 2,000 all-natural or organic products on its shelves, and Edwards said Open Nature, the store's all-natural brand, was on track to bring in $200 million in sales this year.
He added that Safeway's market share grew for the fifth consecutive quarter,
Said Edwards: "We're very pleased with our ongoing operations and we're bullish about the future."
Contact Heather Somerville at 510-208-6413. Follow her at Twitter.com/heathersomervil.