The US’s third-largest supermarket Safeway has reported strong growth in net income on the back of stronger premium sales reported at the retailers newly remodelled Lifestyle stores.

Net income for the quarter rose to US$173.5m, or $0.39 per share, up from $122.5m, or $0.27 per share, reported for the same period of last year. Total sales increased 5.3% to $9.4bn in the third quarter of 2006 from $8.9bn in the third quarter of 2005. Sales at stores a year or more were up by 5%, the retailer said yesterday (12 October).

Contributions from Lifestyle stores, strong perishable and non-perishable performance and increased fuel sales drove this increase, the company said. In a bid to fend off competition from Wal-Mart at one end of the spectrum and Whole Foods Market at the other, last year Safeway created its new format Lifestyle stores, which stock organic produce and premium beef.

“We had another good quarter with strong sales and operating expense leverage,” said Steve Burd, chairman, president and CEO. “We continue to execute on our strategy and are delivering the improved results we expected.”

Gross margins declined to 28.3% of sales, down from 28.6% for Q3 of last year. However, this was offset by a decline in operating expenses, which dropped to 24.5% of sales compared to 25.9% last year.

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Looking to its full year results, Safeway said  it is “comfortable” with analysts’ predictions of EPS of $1.72.