Safeway Profit Falls, To Exit Chicago Biz Early 2014; Shares Up

(RTTNews) - Safeway Inc. (SWY) Thursday reported a lower profit for the third quarter, hurt largely by weak margins, a software impairment charge and lower property gains. Earnings for the quarter missed analysts expectations, while revenues came in ahead of estimates.

Despite lower profit and earnings miss, the supermarket chain's shares rose six percent in after-hours trade after the company revealed exiting the Chicago market by early 2014.

Safeway currently operates 72 Dominick's stores in the Chicago region. The company must have deemed it appropriate to exit the Chicago region than bear losses. Dominick's incurred net loss of $8.4 million or $0.03 per share in the third quarter.

The company expects the Chicago exit to result in a cash tax benefit of $400 million to $450 million, which it plans to to partly offset the cash tax expense on the sale of Canadian assets.

Safeway said it intends to use the cash tax benefit and any other cash proceeds from the disposal of Dominick's properties to buy back stock and invest in growth opportunities.

The decision to exit Chicago operations comes on the back of previous strategic initiatives taken by the grocer including the sale of its Canadian division and spin-off of Blackhawk, its prepaid gift cards and payment service business.

In July, Safeway agreed to sell its Canadian division to Canada-based grocery retail giant Sobeys Inc. for C$5.8 billion in cash. Safeway currently holds a majority stake in Blackhawk Network Holdings Inc (HAWK), which went public in April.

Pleasanton, California-based Safeway's third-quarter profit dropped to $65.8 million or $0.27 per share from $157.0 million or $0.66 per share a year ago.

The company recorded an impairment charge of a warehouse information software project of $6.1 million or $0.03 per share.

Excluding this impairment charge, income from continuing operations slipped to $0.10 per share from $0.16 per share last year. On average, fourteen analysts polled by Thomson Reuters expected earnings of $0.16 per share for the quarter. Analysts' estimates typically exclude special items.

Sales and other revenues for the quarter inched up to $8.62 billion from $8.53 billion a year ago. Twelve analysts expected the company to generate revenues of $8.52 billion for the quarter.

Gross margin for the third quarter dropped to 25.81 percent from 26.17 last year, due primarily to shrink expense and investments in price.

Looking forward to the full year 2013, the company lowered its adjusted earnings outlook to a range of $0.93 to $1.00 per share from its previous estimate of $1.02 to $1.12 per share. Excluding Dominick's operating results, guidance for adjusted earnings is $1.05 to $1.12 per share. Analysts currently expect earnings of $1.09 per share for the full year.

SWY closed Thursday at $31.57, up $0.77 or 2.50%, on the NYSE. The stock further gained $1.97 or 6.24% in after-hours trade.