Safeway's sales increased in its fourth quarter but profit shrank, which caused the Pleasanton-based grocery company's shares to plunge Thursday.

The supermarket operator earned $215.6 million on sales of $13.6 billion for the October-December quarter. Compared with the year-ago quarter, profit fell 6.2 percent, but sales rose 6.1 percent. Per-share earnings of 67 cents were higher than the same quarter the year before.

"This was a weak quarter," said Meredith Adler, an analyst with Barclays Capital.

Although the company's profit beat Wall Street's predictions, its shares were down 7.6 percent, closing at $20.95.

"Our business continued to grow," CEO Steve Burd said. "As we move into 2012, our personalized marketing efforts and innovation in private label brands should contribute to our growth."

But investors are concerned that rising costs for fuel and commodities, coupled with a sluggish job market, continue to batter consumers. That, in turn, imperils Safeway's financial prospects.

"Safeway's customers are struggling," Adler said. "Weak sales volumes are not unique to Safeway. In terms of sales volume, Safeway is not the worst among retailers, but they definitely are not the best."

During a conference call with analysts, Safeway executives pointed to rising costs as a problem for middle- and low-income grocery shoppers.


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Fuel accounts for just over 8 percent of a consumer's budget, while food is a little over 13 percent, Burd estimated.

"You have fuel going up 25 percent, you have food going up close to 5 percent -- that bucket of goods is going up an average of 12.5 percent," Burd told the analysts.

Some analysts believe Safeway's per-share profit was bolstered by a one-time event, the sale of a distribution center in Canada.

"Adjusted for actual sale of proceeds from property, impairment charges, and real estate gains, our preliminary assessment is that core operating income may have declined by 20 percent or more in the fourth quarter," Ajay Jain, an analyst with Cantor Fitzgerald, wrote in a research note about the results.

Contact George Avalos at 925-977-8477. Follow him at Twitter.com/george_avalos.