Safeway reports sales rise

Safeway: "good first half profit advance" on the way

The UK supermarket operator Safeway has reported strong second quarter trading, with like-for-like sales growing 5.1% in the 16 weeks to 14 October.

"This growth, together with the increase achieved in the first quarter, will enable us to report a good first half profit advance," the company said in a statement.

Analysts said Safeway has had some success in winning new customers since abolishing its ABC loyalty card scheme in April and concentrating on cutting prices.

But they said the amount of new customers Safeway could expect to attract was limited and more of them would have to spend more, if the supermarket was to make good progress.

Pricing out of line

Investment bank ABN Amro has cut its rating of Safeway shares to "reduce" from "hold".

"Customers that they have attracted through their promotional activity recently need to be converted to big spending main shop customers," ABN Amro said.

"We think that is going to be very difficult for them given their pricing background, which is still out of line with their competitors."

In one initiative intended to help achieve this, Safeway recently offered a 10p-a-litre discount on petrol to customers spending £40 or more on a shopping trip.

Safeway said its total like-for-like sales in the first half were 5% improved.

Gross and net margins had improved slightly despite extra investment in commercial strategy, Safeway said.

"Profit in our second quarter was well ahead of last year."

Next phase

Safeway said it was planning the next phase of the development for the business.

This would include store formatting, expanding ranges, services such as restaurants, dry cleaning and photo-processing, and store extensions and remodels.

"We are transforming Safeway - competing on our own terms. We continue to win more clients, grow sales and we are now starting to deliver strong profit recovery," chief executive Carlos Criado-Perez said.

The statement was issued ahead of the planned issuing of interim results on 23 November.

Safeway shares responded positively to the statement, opening 5p higher at 280p.