March 10, 2016 11:52 am
Updated: March 11, 2016 12:44 pm

Sobeys takes big hit on Safeway supermarkets amid slowdown in West

Sobeys has struggled to integrate Safeway supermarkets into its business, the grocer said.

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STELLARTON, N.S. – Shoppers in Western Canada can expect to pay a little less for groceries as a sluggish economy has forced the company behind the Sobeys and Safeway grocery chains to rethink prices in the western provinces.

Empire Company Ltd.’s (TSX:EMP.A) Safeway banner and its western business unit have seen sales erode in a difficult economic environment, mainly in Alberta and Saskatchewan, president and CEO Marc Poulin said during a conference call Thursday after the company reported third-quarter earnings.

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“We’re not dealing with the same customer psyche that we were dealing with, you know, even a year ago. The behaviour of the customer has changed in Western Canada and we have to acknowledge that,” Poulin said.

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The company plans to bring down prices long term on fruits, vegetables and meat after initiating a pricing and promotion campaign in January.

Poulin said the western business unit’s back-office team will have finished its transition to new roles by the end of the company’s fiscal year in April.

Empire wrote down the value of its western business, primarily the Safeway chain, resulting in a loss of $1.36 billion in its latest quarter. The loss was largely due to a recognition that the long-term value of the Safeway business is lower than previously estimated, the company said.

Sobeys paid $5.8 billion to acquire the Canadian assets of Safeway in 2013.

Writedown

Excluding the Safeway writedown and certain other items, Empire would have had $82.5 million of adjusted earnings in its fiscal third quarter – down 36.1 per cent from $118.6 million in the comparable year-earlier period.

The net loss amounted to $5.03 per share, which included a $1.59-billion writedown of goodwill associated with the Safeway purchase.

After adjustments, Empire earned 30 cents per share in the 13 weeks ended Jan. 30.

A year earlier, Empire’s fiscal third-quarter had $123.6 million of net income or 45 cents per share and $118.6 million of adjusted earnings, or 43 cents per share.

Revenue was up $86.7 million over the 13 weeks ended Jan. 30 to $6.03 billion from $5.94 billion in last year’s third quarter, mainly because of food inflation and the acquisition of Co-op Atlantic.

The company’s stock was trading below its 52-week low Thursday afternoon, down $3.54 or more than 13 per cent at $23.23 on the TSX.

© 2016 The Canadian Press

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