PLEASANTON, CA- Grocery chain owner Safeway Inc.’s new lifestyle concept is apparently paying off in higher profits. The nation’s third largest grocer, which opened four lifestyle stores and converted 69 others during the third quarter, reaped a 42% profit in the quarter ended Sept. 9 as the chain realigned its strategy to attract more customers from both discount and high end supermarkets.

Safeway expects to eventually convert all of its 1,767 stores to the concept, which offers shoppers a more upscale atmosphere, organic goods and special, proprietary brands. Safeway reported a net income of 173.5 million, or 39 cents a share for the quarter, an increase of $51 million over the $122.5 million or 27 cents a share, earned in the third quarter of last year.

Sales for the period increased 5.3% to $9.4 billion, up from $8.9 billion in sales during the third quarter of 2005. Sales at stores open at least a year were also up 5% for the quarter. Excluding fuel sales, same store sales were up 3.7%.

The company said it expects same store sales for non-fuel stores to range from 3.1% to 3.3% for the year, an increase in its earlier 3% projection. Safeway said it is also “comfortable” with its 2006 earnings estimate of $1.72 per share.

Driving the third quarter increase was strong sales at its lifestyle stores, strong performance in perishable and non-perishable items and increased fuel sales, the Pleasanton, CA company said.

“We would characterize this quarter as another very good quarter for us, leading to what we believe will be a strong performance on the year.” Steve Burd, Safeway’s chairman, president and chief executive officer told investors and analysts in a conference call.

Burd says it was the seventh consecutive quarter that Safeway has had gains in market share. The results follow an 84% gain in second-quarter profit and a $174.9 million gain in net income for the first36 weeks of 2006.

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