SAFEWAY HOPES TO FINALIZE DOMINICK'S DEAL THIS YEAR

Elliot Zwiebach

PLEASANTON, Calif. -- Safeway here expects to resolve the status of Dominick's Finer Foods before the end of the year, Steve Burd, chairman and chief executive officer, told financial analysts last week.

"We think the situation will drag on for a bit longer, but we believe that, sometime in the fourth quarter, some agreement [with the union] will be reached," he said. "It's up to the UFCW [United Food and Commercial Workers] to reach an agreement with the winning bidder."

That bidder is widely believed to be Supervalu, the Minneapolis-based distributor. Safeway has been attempting to sell Dominick's since late last year, after failing to reach a new labor agreement.

"The union leaders have said they prefer someone else [other than Safeway] own that business, and we're OK with that," Burd said. "We're after value, and we find the price to be acceptable and would like to get the deal done. But if it doesn't get done, we'll deal with those realities then."

Burd made his remarks in a conference call to discuss results for the third quarter and 36 weeks ended Sept. 6, which showed sales up, comparable-store sales -- excluding fuel -- down, and net income down for the quarter.

In response to a question, Burd dismissed industry speculation that the hiring earlier this month of R. Randall Onstead Jr. as senior vice president has anything to do with resolving the impasse at Dominick's. Onstead is the former president and CEO of Randalls Supermarkets, Houston, which Safeway acquired in 1999.

A report in Crain's Chicago Business said Onstead was hired to run Dominick's.

Burd said Onstead was hired for his retail expertise, particularly for his flair in the area of perishables. "I've been trying to hire him for some time, and this was my third offer. And he was looking for something else to do, so he agreed to come on board and work on a number of retail projects," he explained.

Sales for the 12-week quarter rose 3.6% to $7.8 billion, primarily due to new store openings and additional fuel sales, the company said, while comparable-store sales rose 0.8% -- including fuel sales -- and fell 0.9%, excluding those sales. Net income on continuing operations fell 2.8% for the quarter to $203.3 million.

For the year to date, sales rose 3% to $23.1 billion, while net income jumped 136.2% to $526.1 million, reflecting the impact of a $700 million charge for an accounting change in the previous year's comparison. Safeway did not report comp results for the 36-week period.

Safeway said Dominick's had a loss of $800,000, compared with net income of $400,000 a year ago, before it was discontinued; for the 36 weeks, Dominick's lost $73 million, compared with net income of $11.8 million a year ago.