Safeway Revamp Helps Boost Profits

Safeway on Tuesday posted higher quarterly profit, helped by a revamp of its store format and cost-cutting.

The No. 3 U.S. grocer said profit was $194.6 million, or 44 cents a share, in the third quarter ended Sept. 8, compared with $173.5 million, or 39 cents a share, a year earlier.

Analysts on average forecast 44 cents a share, according to Reuters Estimates.

Sales and other revenue rose 3.9 percent to $9.78 billion. Identical store sales, which exclude new and replacement stores, rose 3 percent, excluding fuel sales, the company said.

Like many of its competitors, Safeway has been remodeling stores to a format that adds things like bakeries and enhanced produce sections. It also sells prepared foods like gourmet-style soups to attract customers who would otherwise dine out or shop at grocers like Whole Foods Market .

Safeway has also branched out into other business lines, including its Blackhawk Network, a fast-growing business that distributes gift cards and phone cards at Safeway and other chains.

Safeway also stood by its 2007 earnings forecast of $1.95 to $2 a share. Analysts on average forecast $2.01, according to Reuters Estimates.

Safeway shares were down 0.5 percent in early trading on the New York Stock Exchange. The stock is down about 4 percent this year, compared with a 25 percent increase for rival Kroger and a 1 percent increase for Supervalu .