PLEASANTON, Calif. (AP) -- Safeway Inc.'s third-quarter profit fell 35 percent because of price-cutting and lower sales at its supermarkets.
Despite the squeeze, the profit topped Wall Street expectations, sending shares up $1.67, or 7.8 percent, to $23.17 in morning trading.
The Pleasanton, Calif.-based company said Thursday that it earned $128.8 million, or 31 cents per share, down from $199.7 million, or 46 cents per share, a year earlier.
Revenue declined 7 percent to $9.46 billion from $10.17 billion, partly because of falling fuel prices and a decline in sales at stores open more than a year.
Analysts polled by Thomson Reuters expected 29 cents in earnings and revenue of $9.46 billion.
Safeway lagged its rivals in cutting prices as the recession deepened and lost some of its customers as more shoppers started to focus almost exclusively on price. Its release Thursday emphasized that it is lowering prices and offering more specials to draw customers back into its stores.
The effort seems to be working, as Safeway said more customers are coming in, even if they are spending less.
Safeway says the weak economy is still weighing on shoppers, who have cut back on their spending and traded down to less expensive products.
Lower prices for fuel and commodities, such as milk, forced Safeway to lower prices to be more competitive. Besides dairy, the company cited lower prices for produce and meat as costing it revenue.
Although falling food prices have hurt Safeway's profitability, the company still backed its 2009 profit outlook. Safeway expects earnings between $1.70 and $1.90 per share. Analysts predict $1.73 in profit.
Copyright 2009 The Associated Press.