Safeway Ekes Out a Decent Quarter

(MoneyWatch)  Safeway in recent years has zigged where (at least in retrospect) it should have zagged. It tried going upscale, offering more and better fresh produce, and gourmet selections. In essence, it tried to be the middle-class-man's Whole Foods.

Nobody could have known that the recession would hit consumers so hard so fast, sending so many of them to bargain chains like Wal-Mart and Kroger, but nevertheless Safeway wasn't positioned very well for the downturn.

So it speaks well of the chain that it has switched course so quickly. Safeway on Tuesday announced that profits grew by 2.6 percent on its third quarter. Most of that is thanks to gasoline sales, but even excluding them, same-store sales grew by 0.5 percent ?€" not bad in the current climate.

Safeway has moved quickly to emphasize bargains where it can, and to keep margins as high as possible elsewhere. Excluding fuel, it expects sales growth of between 1 percent and 2 percent for the full year.

I suspect that CEO Steven Burd wasn't really all that disappointed when he told analysts during a conference call today that as "disappointing as the sales were, the marketing adjustments made in quarter three and earlier quarters are delivering much stronger results in the very early part of quarter four."

Quite so. Five weeks into the fourth quarter, same-store sales are up about 1.5 percent, excluding fuel. "We don't think the fourth quarter is a blip on the screen," Burd said. "We think it is a result of a lot of work we have been doing now for more than a quarter."