Safeway: Fourth Quarter Earnings Could Catapult Shares

| About: Safeway Inc. (SWY)

Safeway (NYSE:SWY) is slated to report its 2011 fourth quarter results (containing an additional four weeks) this Thursday before the opening bell. The food retailer should handily beat analyst estimates, as management is well known for under promising and over delivering.

The company is expected to earn 64 cents on revenues of $13.48 billion, representing a 3% increase in earnings and a 5.5% rise in sales from last year's fourth quarter, but should notch out a nice upside surprise of 70 cents in earnings (a 10% beat, just like last year) on sales of $13.45 billion (a slight miss).

This earnings release could well be the catalyst to catapult the shares through its previous heavy resistance area of $26 (triple top) and a mount a challenge of the $30 vicinity, assuming its 2012 guidance is stout. Guidance will be issued on Tuesday, March 6th, when SWY holds its 2012 Investment Conference.

The math behind the earnings: The supermarket operator's fourth quarter should show a 83 basis point reduction in gross profit margin to 27.25% (a bad thing) and a 101 basis point slide to 24.25% in operating and administrative costs (a good thing). The earnings amount is also predicated on a income tax rate of 36.6% (a 420 basis point rise), $60 million of interest expense (a 33% reduction) and a 14% decrease in its outstanding shares, from 398 million to 343 million (the biggest factor to juiced up earnings).

Disclosure: I am long SWY.