Based on the sell-off in Safeway (NYSE: SWY) shares last week, you'd think the supermarket operator had laid an egg in the fourth quarter. But while the bottom line clocked in 2.2% lower than last year, careful examination of the numbers shows that the underlying business remains strong.

Safeway's EPS of $0.68 met expectations, and was down a penny from the previous year, which included an unusual benefit of $0.08 per share on favorable tax items. Operating profit rose 9.5% on sales that improved 7%. While gross margins were slightly lower because of more fuel sales -- which carries much lower margins -- that was more than offset by streamlined expenses.

Including fuel, same-store sales rose 4.4% during the quarter; I bet competitors Wal-Mart (NYSE: WMT), SUPERVALU (NYSE: SVU), and Winn-Dixie (Nasdaq: WINN) are envious. For the latest quarter, Wal-Mart's comps grew just 2.1%, and SUPERVALU's and Winn-Dixie's grew 0.5% each. Kroger (NYSE: KR) continues to lead this pack, posting 7.7% comps.

While Safeway's management says it sees a trend of consumers trading down to private-label products, causing the drop in sales growth, this could boost its margins this year.

And speaking of 2008, management stuck to previous earnings-per-share guidance of $2.25 to $2.35. The midpoint of that range would be up 15%, right in line with Safeway's average operating income growth for the past three years.

Safeway looks to be making a lot of right moves these days. Converting all its stores to the Lifestyle format is on track to be completed in 2009, which will free up cash flow for more share repurchases. And this year, look for an announcement about new distribution partnerships for the O Organics line.

I wouldn't label the stock cheap at this point. While the stock market is never completely efficient, I think it gets closest with predictable companies like grocery chains. I don't see anything on the horizon to cause Safeway's shares to leap forward in 2008. But there's virtue in predictable growth. That's why I'd consider this one a stalwart of your core portfolio.

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Fool contributor Timothy M. Otte surveys the retail scene from Dallas. He welcomes comments on his articles, and owns shares of Wal-Mart, but none of the other companies mentioned in this article. The Fool has a disclosure policy.