Updated: October 11, 2012 10:04AM
Dominick’s parent Safeway Inc. says its profit margin slipped in the third quarter as it spent money on launching a new customer loyalty program, an investment the supermarket operator said should drive sales going forward.
Shares of Safeway fell about 4 percent in morning trading, to $15.60.
The sale of its Genuardi’s chain helped offset the decline and pushed the company’s net income up 21 percent.
The Pleasanton, Calif.-based company, which also owns Vons and other grocery chains, has been rolling out its “just for U” program in an attempt to hold onto shoppers in an increasingly competitive environment. In addition to big-box retailers such as Target, traditional supermarkets are trying to fend off drug store chains and dollar stores that are expanding their food selections.
Safeway said revenue at locations open at least a year edged up a 0.1 percent during the period. The company said the lower-than-expected figure was primarily the result of a bigger-than-expected drop in price inflation, which was offset by improvement in volume from the new loyalty program.
Safeway said the new program is expected to continue driving sales during the current quarter. So far, the company said sales at established locations are running up 1 percent. The measure is a key indicator of health because it strips out the impact of newly opened and closed locations.
For the quarter, the sale of its Genuardi’s stores resulted in a $49 million after-tax gain and lifted its profit by 21 percent for the quarter. The company earned $157 million, or 66 cents per share, for the three months ended Sept. 8. That compares with $130.2 million, or 38 cents per share, a year ago, when there were fewer outstanding shares.
Excluding discontinued operations, the company earned 45 cents per share. That was higher than the 43 cents per share analysts expected.
Total revenue declined to $10.05 billion, from $10.06 billion, primarily as a result of the Genuardi’s sale and an unfavorable exchange rate for its stores in Canada.
Shares of Safeway fell 6 percent to $15.31 in morning trading.