STELLARTON, Nova Scotia - Sobeys here said last week that it would increase its capital expenditures during fiscal 2007 by more than 35% as it focuses on refurbishing its store network, investing in logistics and assembling land for future store builds.
Spending of around $676 million (U.S.), up from nearly $500 million in fiscal 2006, will pay for 90 store openings, expansions and remodels, with a goal of increasing chainwide square footage by 4% during fiscal 2007, Bill McEwan, president and chief executive officer, told analysts in a conference call last week.
McEwan said the store renovation spending will be focused on what he called "community service and convenience service" stores - or franchised IGA locations, mainly in Ontario. While the company has been converting some IGA stores in metro Toronto to the Sobeys banner, the IGA banner would likely remain for the "community stores" McEwan referenced, Perry Caicco, an analyst for CIBC World Markets, Toronto, told SN.
The retailer would use cash flow, reserves and, if necessary, public equity and debt markets to fund its capital spending, McEwan said.
Sobeys also plans to invest behind technology in Western Canada and Ontario, but will expense those improvements and associated training. McEwan said the process changes - designed to improve communications and streamline back-room functions to lower long-term costs - would lower fiscal-year earnings by 27 to 32 Canadian cents on a per-share basis. Process changes under way in Atlantic Canada will provide their first benefits by year-end, McEwan said.
Some analysts during the conference call questioned the company's practice of expensing these initiatives, rather than including them in capital spending, saying they made it difficult to determine precise earnings.
Sobeys posted sales of $2.8 billion (U.S.) and earnings of $44.2 million (U.S.) during the fourth quarter. Sales during the 13-week quarter declined compared with the 14-week quarter a year ago, but adjusted for the extra week they increased by 3.9%. Same-store sales increased 3.9% during the quarter and 4% during the fiscal year, Sobeys added.
For the fiscal year, Sobeys posted sales of $11.4 billion (U.S.), an increase of 5.4%. Earnings of $168.5 million (U.S.) increased by 1.7%.