Safeway Inc. Earnings: Margins Suffer for Five Quarters Straight, but Net Income Climbs

S&P 500 (NYSE:SPY) component Safeway Inc. (NYSE:SWY) reported its results for the first quarter. Safeway is a retail supermarket chain in North America. As a food and drug retailer, the company, with its subsidiaries, operates stores that offer a range of grocery products, general merchandise and specialty departments like pharmacies and coffee shops. It also owns and operates distribution, manufacturing and food-processing facilities.

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Safeway Earnings Cheat Sheet for the First Quarter

Results: Net income for Safeway Inc. rose to $72.9 million (27 cents per share) vs. $25.1 million (7 cents per share) in the same quarter a year earlier. This is a more than twofold rise from the year-earlier quarter.

Revenue: Rose 2.4% to $10 billion from the year-earlier quarter.

Actual vs. Wall St. Expectations: Safeway Inc. reported adjusted net income of 30 cents per share. By that measure, the company fell in line with the mean estimate of 30 cents per share. Analysts were expecting revenue of $10.06 billion.

Quoting Management: “Strong cost controls helped us meet earnings expectations despite a shift in the New Year’s holiday, weather patterns and high gasoline prices which dampened sales,” said Steve Burd, Chairman and CEO. “In addition, operating profit in the quarter would have been essentially the same as last year without the holiday shift. In the last eight weeks, identical-store sales have been running at 1%, and we continue to believe sales will grow as our new marketing initiatives take hold.”

Key Stats:

Last quarter was the fifth in a row that the company saw shrinking gross margins, as they fell 0.7 percentage point from the year-earlier quarter to 26.8%. Over that time, margins have contracted on average 1.1 percentage points per quarter on a year-over-year basis.

Revenue has risen the past four quarters. Revenue increased 6.2% to $13.6 billion in the fourth quarter of the last fiscal year. The figure rose 7.1% in the third quarter of the last fiscal year from the year earlier and climbed 7.1% in the second quarter of the last fiscal year from the year-ago quarter.

The company met estimates last quarter after toppling them in the two previous quarters. In the fourth quarter of the last fiscal year, it topped the mark by 3 cents, and in the third quarter of the last fiscal year, it was ahead by 3 cents.

Last quarter’s profit increase comes after net income dropped in the prevoius quarter. In the fourth quarter of the last fiscal year, net income declined 6.1% to $215.6 million.

Looking Forward: For next quarter, analysts have a more positive outlook about the company’s expected results. The average estimate for the second quarter is 47 cents per share, up from 42 cents ninety days ago. Over the past three months, the average estimate for the fiscal year has climbed from $1.82 per to share to $1.95.

(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

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