Safeway to exit Chicago by early 2014, profit falls

Safeway Inc on Thursday said that it plans to leave the Chicago market by early next year and posted a sharply lower earnings for the third quarter.
Shares of Safeway, the second-largest U.S. mainstream grocery store operator, jumped to $33.10 in after-hours trading after closing at $31.57 on the New York Stock Exchange.
Safeway currently runs 72 Dominick’s stores in the Chicago area. Safeway referred to the process as the “disposal of Dominick’s properties” in a statement. It was not immediately clear whether Safeway was selling the stores, shutting them down or taking other measures. A representative for the company was not available to comment.
Rival Supervalu Inc got out of the Chicago market in March, when it sold Jewel-Osco and other chains in different parts of the country to an investor group led by Cerberus Capital Management LP .
Leaving Chicago is the latest strategic move for Safeway, which announced that it was selling its Canadian operations and spun-out of its Blackhawk gift card business earlier this year.
Safeway expects a cash tax benefit of $400 million to $450 million from exiting Chicago, which it can use to partly offset the cash tax expense on the sale of Canadian assets. It expects to use the cash tax benefit and any other cash proceeds from its disposal of the Dominick’s properties to buy back stock and invest in other growth opportunities.
Its net income fell to $65.8 million, or 27 cents per share, in the fiscal third quarter that ended on September 7, down from $157 million, or 66 cents per share, a year earlier.
The decision to sell Dominick’s was reached after the end of the quarter, so the assets have not been classified as held for sale and those operations have not been included in discontinued operations, Safeway said. Dominick’s incurred losses before income taxes of $13.7 million, or 3 cents per share, during the third quarter.
Safeway in June announced the sale of its Canadian operations to Empire Company Ltd , parent of Canada’s No.
2 grocer Sobeys, for $5.7 billion. Safeway continues to hold a controlling stake in Blackhawk Network holdings Inc , its gift card subsidiary that went public in April.