Safeway integration taking a bite out of Empire profits
Parent company of Sobeys also cites weak Canadian dollar for earnings decline
The parent company of Canada’s second-largest supermarket chain says its latest earnings were dragged down by a “hiccup” in the integration of its Safeway business, along with the lagging loonie and the slowdown in western Canada.
“It was a challenging first quarter, and we (spent it) aggressively targeting the root causes of those challenges,” said Empire Co. Ltd. chief executive Marc Poulin on an analyst conference call Thursday.
The Stellarton, N.S.-based company, which owns Sobeys grocery store chain, reported a 14-per-cent decline in fiscal first-quarter net earnings after market close Wednesday.
Empire shares tumbled nearly 9 per cent Thursday after reporting earnings net of noncontrolling interest were $108.8 million, or $1.18 per share, in the three-month period ended Aug. 1, compared with $123.1 million, or $1.33 per share, in the comparable year-earlier period.
Adjusted net earnings were $121.7 million, down 5.7 per cent from $129.1 million. Sales edged up $26.5 million, or 0.4 per cent, to $6.25 billion from $6.22 billion.
“Clearly there has been a significant amount of change in our Safeway business as we focus on the integration,” noted Poulin.
Empire scooped up Canada Safeway in 2013 for $5.8 billion. The economic slowdown in the west, where Safeway operates, didn’t help matters in the company’s struggles to integrate the new chain into the Empire fold, he said.
Besides Canada’s “very competitive retail food environment,” the weak Canadian dollar also makes it more expensive to buy foreign produce, Poulin stated.
“Although we had identified the various risks associated with integration, including the amount and pace of change required, we underestimated the impact and the time needed for the organization to adapt to those changes,” he explained.
However, Poulin said he’s confident they have a handle on the integration issues, and is determined to “ensure we bring our performance back in line with our expectations in the coming quarters.”
Empire said the increase in sales was primarily the result of food inflation along with its acquisition of Co-op Atlantic and the associated long-term supply and franchise agreements. He also pointed to Canada’s “very competitive retail food environment”
Meanwhile, Empire held its annual general meeting Thursday morning in New Glasgow and paid tribute to retiring board members, including David and Donald Sobey.
The sons of founder Frank Sobey, however, will continue to be major shareholders and the family is still represented on the board by other generations.
Empire’s key businesses are food retailing and related real estate. With approximately $24 billion in annualized sales and $11.6 billion in assets, Empire and its subsidiaries, franchisees and affiliates employ about 125,000 people.