UPDATE 1-Safeway sales miss Street view, shares tumble

* Third-quarter EPS from continuing operations $0.45 vs Street view $0.42

* Total sales $10.05 billion vs. Street view $10.24 billion * Shares down nearly 5 percent

(Adds results, details on competition, stock activity)

Oct 11 (Reuters) - Safeway Inc , the second-largest U.S. supermarket chain, reported quarterly sales that missed Wall Street's view, and its shares fell nearly 5 percent.

Traditional grocers like Safeway and Kroger Co are fighting for every sale amid tough competition from Wal-Mart Stores Inc and other retailers.

Safeway's sales miss came as it was launching a new shopper loyalty program aimed at luring customers to its stores.

The operator of supermarkets such as Safeway, Vons and Dominick's said fiscal third-quarter profit from continuing operations was $108 million, or 45 cents per share, down from $130.3 million, or 38 cents per share, a year earlier.

That result topped analysts' average forecast by 3 cents per share, according to Thomson Reuters I/B/E/S.

During the quarter, Safeway closed one Genuardi's store and sold 16 Genuardi's stores for an after-tax gain of $49 million. Including that gain, it earned $157 million, or 66 cents per share, in the quarter, ended Sept. 8.

Gross profit declined to 26.4 percent of sales from 27.0 percent a year earlier, due in part to costs associated with rolling out its "Just for U" loyalty program.

Sales slipped to $10.05 billion from $10.06 billion, hurt by the loss of the Genuardi's store sales a lower Canadian exchange rate, factors that were partially offset by higher sales of gasoline.

Analysts were expecting sales of $10.24 billion.

Closely watched identical-store sales, excluding fuel, rose 0.1 percent during the third quarter and are up 1 percent in the current quarter due to "slightly improved volumes and higher inflation," Safeway said in a statement.

Safeway shares fell nearly 5 percent to $15.50 in morning trading on the New York Stock Exchange.

(Reporting By Lisa Baertlein in Los Angeles; Editing by Gerald E. McCormick)

((lisa.baertlein@thomsonreuters.com)(+1 213 955 6742))