Sobeys parent company's profit falls by more than 50%

"Our business results are unacceptable,'' says Francois Vimard, interim chief executive for Empire
12/15/2016

The owner of the Sobeys grocery business has hired consultants to recommend cost cuts across the company, which has struggled to remain profitable since its 2013 acquisition of Safeway's stores in Western Canada.

"Today, our business results are unacceptable,'' Francois Vimard, interim chief executive for Empire, said Thursday in a call with analysts.

The national retailer, based in Stellarton, N.S., saw its second quarter profit fall by more than 50 per cent from last year.

Empire's net income for the quarter ended Nov. 5 was $33.1 million or 12 cents per share, and adjusted earnings were $32.9 million or 12 cents per share. A year earlier, Empire's net income was $68.5 million or 25 cents per share and adjusted earnings were $110.7 million or 40 cents per share.

Vimard said the organization is working aggressively to tackle the challenges it is facing and it will take time to see results.

He became chief executive after the departure of Marc Poulin, who was CEO when Empire paid $5.8 billion for Canada Safeway in an effort to expand its position in Western Canada. The company did not give a reason for Poulin's departure in July, but it followed the end of its 2016 fiscal year that racked up $2.13 billion in net losses.

Empire says the consultants will advance the scope and scale of its cost reductions.

"No rock will be unturned,'' Vimard said, adding the consultants will assess everything that has an impact on business costs.

It will take a few months for the work to be completed. A decision is expected no later than Empire's fiscal fourth quarter, which ends in the spring. Vimard said it's too soon to say when Empire will implement any changes.

He said it will benefit the company to see its operations through the eyes of an outsider and to be forced to tackle some internal paradigms it may have avoided addressing in the past.

Empire's path to stabilizing its business is likely longer and more costly than investors had previously anticipated, wrote Irene Nattel, an RBC Dominion Securities Inc. analyst, in a note. Meaningful changes to Empire's complex structure are unlikely to make an impact on its income statement until its 2019 fiscal year, she wrote, which begins mid-May 2018.

The company is also considering rolling out a discount grocery banner in Western Canada where the struggling economy has impacted its food sales. It already operates FreshCo in Ontario, but has no similar lower-priced chain in the west.

Second quarter sales—mostly from the Sobeys grocery business—fell to $5.93 billion from $6.06 billion.

Its same-store sales in the quarter were down 1.2 per cent, excluding the impact of lower fuel prices and the troubled western business unit. Excluding the impact of fuel prices only, same-store sales including the West were down 2.6 per cent.

Vimard wouldn't comment on the timing of a potential discount banner launch in the west, but said the company is taking the option seriously.

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