Safeway’s 1st-quarter net income rises 22%

Safeway Inc.’s first-quarter profit rose 22% with the nation’s second-largest grocer off to its fastest start in six years, but management said Thursday that it was too early to raise earnings projections for the rest of 2007.

The Pleasanton, Calif.-based company made $174.4 million, or 39 cents a share, during the three months that ended March 24, compared with $142.9 million, or 32 cents, a year earlier.

The results were a penny above the average estimate among analysts surveyed by Thomson Financial.

Revenue climbed 5% to $9.32 billion, about $20 million above the average estimate of analysts.

In a more telling measure of a merchant’s health, Safeway’s identical-store sales -- excluding gasoline -- rose 4.5%, accelerating the growth pace from recent quarters. This gauge reflects the performance of stores that have been open at least a year without undergoing a major overhaul.

It marked Safeway’s best first quarter since 2001, when it earned $283.9 million.

Despite the strong performance, Safeway retained its earlier full-year earnings guidance of $1.90 to $2 a share, excluding one-time expenses and gains.

“We need a little more time before we are comfortable changing the guidance,” Safeway Chairman Steve Burd said.

Unlike some other merchants, Burd indicated Safeway’s sales had remained strong in April.

Safeway shares still fell $1.01, or 2.7%, to $36.99.

After slipping for several years amid competition and labor strife, Safeway has been luring back shoppers by upgrading hundreds of stores to position itself as an alternative to discount retailers such as Wal-Mart Stores Inc. that have muscled their way into the grocery business.

Safeway’s improving fortunes already have become a factor in the grocer’s negotiations on a new labor contract covering most of its employees who work in Southern California stores. The last contract expired March 5.

Encouraged by Safeway’s recent profit, labor leaders are hoping to fare better than they did in 2004 when employees made wage and benefit concessions while the company was struggling. If Safeway were to raise its earnings outlook, it might give labor leaders even more negotiating leverage.

Burd said he was optimistic a Southern California deal could be reached without the acrimony that provoked a costly four-month strike and lockout before the last contract was signed.

“I would describe the progress as slow but steady,” Burd said.