US retailer Safeway Inc has said its underlying sales are improving after flat like-for-like sales weighed on profits in the in the first quarter of 2012.

The company, which runs 1,675 stores in the US and Canada, reported lower gross and operating profit for the 12 weeks to 24 March.

Sales increased 2.4% to $10bn thanks to higher fuel sales but identical-store sales were flat.

Gross profit slid 0.3% to $2.69bn while operating profit declined 13.4% to $189.8m.

However, Safeway reported a jump in net profit thanks to a lower tax bill year-on-year. Its income tax costs were a third lower than a year earlier, leading net income to rise from $25.1m a year ago to $72.9m.

“Strong cost controls helped us meet earnings expectations despite a shift in the New Year’s holiday, weather patterns and high gasoline prices which dampened sales,” Safeway chairman and CEO Steve Burd said. “In addition, operating profit in the quarter would have been essentially the same as last year without the holiday shift. In the last eight weeks, identical-store sales have been running at 1%, and we continue to believe sales will grow as our new marketing initiatives take hold.”

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Shares in Safeway closed down 3.1% at $20.93 yesterday.

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