Safeway Comps Fall, Sees Price Pressures

ELLIOT ZWIEBACH

PLEASANTON, Calif. — Stock in Safeway here fell more than 5% yesterday after the company posted a 3.1% decline in same-store sales for the first quarter and said profits fell by a third, adding that short-term profit pressures persist.

The company expects deflation to decline and inflation to increase through the first half of the year but does not anticipate reflecting rising costs in its pricing immediately, Steve Burd, chairman, president and chief executive officer, told analysts Thursday.

Burd made his remarks during a conference call to discuss financial results for the first quarter, which ended March 27. Net income for the quarter was down 33.4% to $96 million, on a 1% increase in sales, to $9.3 billion. During the quarter Safeway saw increased transactions per household and increased items per basket, Burd said. “

We're still in a relatively slow economy, and we can't pass all cost increases on in the form of higher retails right now, but that's just a temporary phenomenon," he said. “It's not because the competitive environment is getting worse, which it isn't, but because we are in an economy where operators are slow to make price movements that may disturb volume, so they make their price movements with much greater care, and they probably adjust everyday retails more quickly than they adjust promotional numbers.

"I think the second half will clearly have inflation in it. We're seeing a bit of a recovery in the U.S. economy, but it's slow, and we don't think things will return to normal until 2011.”

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