Safeway’s net income rises 3%

Higher sales at its gas stations and upscale stores helped boost grocer Safeway Inc.’s profit nearly 3% in its third fiscal quarter.

The nation’s second-biggest grocery chain said Tuesday that its profit rose to $199.7 million, or 46 cents a share, for the three months ended Sept. 6, from $194.6 million, or 44 cents, a year earlier.

The results sent Safeway shares up nearly 5% on Tuesday to close at $22.85, gaining $1.08 for the day.

Although Chief Executive Steve Burd called the earnings-per-share gains for the quarter “modest,” he remained pleased with the overall results.

“Frankly, in the current environment, we would regard this as a pretty respectable result,” he said in a conference call Tuesday.

Safeway’s sales rose nearly 4% to $10.2 billion, helped by higher gas sales and contributions from its more upscale stores.

Analysts polled by Thomson Reuters expected earnings of 47 cents a share and sales of $10.08 billion.

Goldman, Sachs & Co. analysts John Heinbockel and Simeon Gutman wrote that Safeway’s results, “though not exactly robust, provided evidence that the company is effectively managing through a difficult environment.”

Although Pleasanton, Calif.-based Safeway, owner of Vons, said it had to absorb higher energy and other operating costs, it offset that with some cost-cutting measures.

The company said it planned to continue cutting costs and increasing value offerings in stores for pinched shoppers. But executives said they didn’t plan to abandon their commitment to higher-end “lifestyle” stores in the midst of the economic downturn.

“Strategies are not supposed to be designed around short-term events, which business downturns are,” Burd said. “We think that the lifestyle store is a good long-term plan for us, and it generates good sales increases along the way.”

Safeway expects 2008 profit to at least match Wall Street expectations. The company confirmed its expectation for the year, which is a 53-week year for the company, of earnings of $2.25 to $2.35 a share.