GROCERY CHAIN SOBEYS TURNS A CORNER.
RETAIL
• Four years after the bungled integration of Safeway and Sobeys led to $ 2.9 billion in writedowns, hundreds of millions of dollars in lost sales and a multitude of disappointed customers, it appears the worst could be over for parent company Empire Co.
It posted better than expected earnings and sales in the fourth quarter reported Wednesday and, most critically, Empire saw its first increase in tonnage — the volume of groceries shipped to its stores — in 17 quarters.
“I am bullish on the future,” chief executive Michael Medline, the former Canadian Tire CEO who was brought in to turn around the retailer 5 ½ months ago, told investors on a morning conference call. Shares rose 10 per cent in afternoon trading.
The Stellarton, N. S.-based grocery retailer Empire announced a three- year turnaround plan l ast month aimed at saving $500 million a year by fiscal 2020 that includes slashing $200 million in one-time costs in the first half of this fiscal year, eliminating duplicate jobs between offices and simplifying its complicated processes with vendors.
“It is already a much easier structure to run,” Medline said, since management began i mplementing the plan in early May.
He cautioned that there is much work yet to be done to repair the damage sustained to the Sobeys brand by the Safeway debacle, which had c ustomers c omplaining about higher prices, empty shelves and the axing of its loyalty program and in-store food brand.
“We are not out of the woods yet … We have to win back customers who we have gravely let down, particularly in Western Canada.”
On a positive note, even though the critical metric of same- store sales declined 1.6 per cent in the period ended May 6, excluding the impact of fuel, the number was fairly consistent across the country, suggesting the Western Canadian stores did not significantly underperform those elsewhere. Grocers’ sales have been hard hit in the last year by core food price deflation, eroding profit margins and resulting in tepid same- store sales industry-wide.
Empire’s overall sales declined to $ 5.79 billion in the period from $ 6.28 billion last year, which contained an extra week in the earnings period.
Earnings were 11 cents per share, or $ 29.5 million, compared with a net loss of $3.47 ($942.6 million) in the same period a year ago, when the company took a $1.3-billion impairment charge due to the problems in Western Canada. Adjusted net earnings fell 47 per cent to $50.2 million, or 18 cents per share, from $95.3 million (35 cents) a year ago. That topped analyst expectations of 12 cents per share and $5.76 billion in sales.
“It looks as though the business is heading in a good direction under new leadership,” said Stewart Samuel, Vancouver- based program director at IGD Canada, a food and consumer goods research firm. “The Sobeys team has had a tough couple of years and morale was low, and these (improved results) would be a boost.”
There has been a “definite improvement” in Safeway stores, Samuel added, particularly at a newer Safeway store format that carries a higher proportion of freshly prepared foods and readymade meals.
“That’s a main growth area where we see a lot of retailers making investments as they target busy families,” he said.