OAKLAND, Calif. -- Safeway here said last week it reduced operating expenses, raised same-store sales and increased operating earnings more than 51% in the third quarter ended Sept. 10.
It marked the seventh consecutive quarter Safeway has reported improved same-store sales and the sixth straight quarter the chain has achieved lower selling, general and administrative expenses.
Same-store sales rose 3.7% in the quarter and operating earnings totaled $63.7 million, or 52 cents per share. Net income, which includes an extraordinary charge of $2.7 million for early retirement of debt, totaled $61 million.
Sales at the 1,068-store chain increased 2% to $3.63 billion in the 12-week quarter.
"I feel very good about these results," Steve Burd, president and chief executive officer, said in a statement. "It is still a difficult sales environment, and we have demonstrated we can be successful in a tough market."
Safeway said its SGA expenses declined 43 basis points in the quarter to 23.33% of sales. Gross margins improved 26 basis points to 27.42% of sales.
In addition to lowering operating expenses, Safeway also reduced its interest expense by $13.4 million to $48.1 million.
Mark Husson, a securities analyst at J.P. Morgan, New York, said Safeway "produced a series of little rabbits out of a top hat" in the second quarter. "It's not like it was one great big surprise," he said, "but it was just a lot of little surprises."
The surprises, Husson said, were "surprisingly high" comparable-store sales, continued gross-margin strength and a 40-basis points reduction in operating costs. Most analysts, he said, believed Safeway's cost-cutting "would have slowed down by now."
Gary Vineberg, a securities analyst at Merrill Lynch, New York, said Safeway's operating earnings exceeded all of Wall Street's estimates. The consensus operating earnings estimate ranged from 45 to 47 cents per share.