Sobeys calls for help as challenges deepen in Q2

Empire Cos., parent of Canada’s struggling Sobeys chain, reported a “very disappointing” fiscal second quarter as it continued to battle aftereffects of its Safeway Canada acquisition and saw profits dive due to sales declines and costs associated with structural changes in how the retailer goes to market.

“These challenges simply reinforce the need for a renewed focus on our business transformation efforts, as well as a significant expansion and acceleration of efforts to reduce costs and complexity throughout our organization,” François Vimard, Empire’s interim president and CEO, said in a statement.

To that end, Sobeys said it has engaged outside consultants to assess its business, advance the scope and scale of cost reductions, and address complexities that it said add unnecessary costs and is preventing the company from acting fact enough to address its challenges. This effort will take several months; their recommendations are expected to presented before Sobeys reports fourth-quarter results.

Canada’s second largest grocery chain has been struggling in the aftermath of its $5.8 billion (Canadian) acquisition of Safeway Canada, which closed three years ago. The deal provided Sobeys with hundreds of stores in Western Canada provinces but integration issues led to supply and promotional challenges, and a subsequent downturn in the oil and gas business in the region pressured sales further. Competitors in the meantime have shown little pity, with Loblaw, Wal-Mart Stores and Metro Inc. all driving sales gains amid a countrywide slowdown in inflation and increasingly price-conscious shoppers abandoning conventional stores for discount alternatives.

Sobeys’ concurrent effort to lower everyday shelf pricing through renegotiations with suppliers – known as the “Simplified Buy & Sell” initiative – has been slow to catch on with shoppers, leading to profit pressures. Vimaud, Empire’s CFO who was named interim president and CEO over the summer when CEO Marc Poulin was let go, said Sobeys was committed to sticking to that effort, however.

Sales for the period, which ended Nov. 5, decreased by 2.1% and non-fuel identical store sales fell by 2.6%, primarily due to struggles in Western Canada but also due to competition and a flight to value among shoppers, Sobeys said. Comps excluding Western Canada were down by 1.2%. Adjusted net earnings for the period crashed by 70.3% to $32.9 million (Canadian) on $5.9 billion (Canadian) in sales.

Quarterly earnings per share of 12 cents (Canadian) missed analyst expectations of 28 cents.