Sobeys Posts 22.1% Profit Gain

JON SPRINGER

STELLARTON, Nova Scotia — Larger stores and better execution helped improve sales and profitability at Sobeys here during the fiscal second quarter, the retailer said last week.

Sales of $3.6 billion (U.S.) increased 4% and net income of $63.7 million rose by 22.1% for the quarter, which ended Oct. 31. Same-store sales improved 2.7%, which officials lauded amid “negligible” inflation. By contrast, Sobeys posted a 5.7% same-store sales gain in the second quarter of fiscal 2009, aided by inflation of about 4%.

Bill McEwan, chief executive officer of Sobeys, said inflation has continued to decline since the quarter ended and the retailer is now operating in a deflationary environment. This has been sparked in part by declining prices in commodities like produce and dairy but also because of regional pricing pressure brought on by promotional activity and responses.

According to McEwan, Sobeys has dealt with the falling prices with exceptional “day to day management” and cost controls. “It's careful management of the details and the pricing structure and the promotions,” he said. “We've been through some deflationary cycles before. This one is more acute and more profound, but our teams are on top of it.”

He said consumers during the quarter began to show some signs of trading down. For example. He said the company was selling fewer multi-packs of steaks and more smaller sizes.

McEwan said the company is already seeing some benefits from a new automated distribution center in Vaughan, Ontario. The center, which became operational recently, has improved order accuracy and simplified deliveries at stores. However, the company will not realize the full benefits of the center until other distribution points in Ontario that are to be converted to fresh distribution as the result of the new center are up and running.

Sobeys is the largest division of Empire Cos., a holding company controlled by the Sobey family that also includes real estate and other investments. Sobeys comprised approximately 98.4% of overall revenue and 94% of net income for Empire in the quarter.