Safeway Profits from Higher Gas Prices

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Safeway Profits from Higher Gas Prices

07/24/2006
Grocery retailer Safeway reported that higher gas prices actually helped the chain achieve a bigger-than-expected jump in quarterly profits.

Safeway's sales rose 6.4 percent to nearly $9.4 billion for the second quarter, ended June 17, beating Wall Street's expectations.

CEO Steve Burd said in a conference call that the grocery industry is "somewhat insulated" from the general economy and that in some ways, Safeway has actually benefited from rising fuel costs. Consumers are cutting back on the number of trips to restaurants and turning to supermarkets for premade items, such as fresh soups and buying more groceries for at-home preparation and consumption. Also, he noted that Safeway's gas stations charge less than nearby competitions, helping to drive traffic to the stores even though fuel margins are lower than sales of other products it sells. Fuel sales rose more than 21 percent to $765 million.

Profit rose to $246.2 million, and identical-store sales rose 5.6 percent in the quarter. Excluding fuel sales, same-store sales were up 4.2 percent.

Safeway operates 1,770 stores in the United States and Canada. It is adding about 20 new stores and remodeling another 280 under its Lifestyle format, which includes bakeries, floral centers and sushi bars.