UPDATE 3-Safeway says goodbye to Chicago, profit falls

Thu Oct 10, 2013 7:16pm EDT
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By Jessica Wohl

Oct 10 (Reuters) - Safeway Inc said on Thursday it plans to leave the Chicago market by early next year as it continues to narrow its focus and posted a sharply lower profit for the third quarter.

The shares of Safeway, the second-largest U.S. mainstream grocery store operator, rose to $33.35 after hours after closing at $31.57 on the New York Stock Exchange.

Chicago is a competitive market for food stores. Newer entrants such as Roundy Inc's Mariano's chain, which features piano players in its stores, have gained ground with shoppers looking for a higher-end experience, while Aldi Inc has added more stores that draw cost-conscious customers. Wal-Mart Stores Inc, Target Corp, privately held Meijer Inc and other retailers have also focused more on food sales.

The Dominick's chain in Chicago has been a "noticeable drag" on Safeway's financial results, a "significant drain" on resources and its lowest performing division, Chief Executive Officer Robert Edwards said on a conference call with analysts.

Safeway bought Dominick's in 1998 for about $1.2 billion plus debt. The chain had 116 stores and $2.6 billion in sales back then, when Safeway lauded Dominick's "enviable reputation as a leading retailer in the Chicago region." Safeway now has 72 Dominick's stores in the market, which incurred losses before income taxes of 3 cents per share during the latest quarter.

Safeway has seen "significant interest" since it started to market Dominick's assets and plans to sell all or as many of the stores as it can, Edwards said on the call. Safeway has already sold four Dominick's stores to the company running rival chain Jewel-Osco, it said late on Thursday.

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.   Continued...