Western Canada woes trigger heavy 3Q loss for Sobeys

Still struggling to overcome Safeway integration issues and beset by economic and competitive challenges in Safeway's Western Canada markets, Empire Cos. posted slow sales growth and heavy losses in the fiscal third quarter.

The parent of the Sobeys chain said net losses in the period totaled $1 billion (U.S.), triggered by a $1.3 billion impairment charge related to its assets in Western Canada. Excluding the effects of the write-down, earnings declined by 36.1% to $62.1 million (U.S.) in the quarter, while sales grew 1.5% to $4.5 billion.

Comparable-store sales increased by 0.4%, although comps excluding fuel and Western Canada stores improved by 2.7% in the period, which ended Jan. 30. Western Canada stores saw comps decline by 2.7% in the quarter.

Sobeys officials acknowledged last year that merchandising, promotion, worker training and fresh supply chain issues encountered in integrating the assets of Safeway Canada would impact its near-term performance, but a slow economy in oil-dependent markets and more intense price competition there were additional headwinds in the third quarter.

"From a pure operational perspective, our produce is back in shape, and our private-label sales are uptrending and we have a better understanding of our margins on the perishable side of things and [we're] in better control of that. So, from that perspective, we've made significant improvements," CEO Marc Poulin told analysts in a conference call discussing results Thursday. "What changed is customer behavior in Western Canada is putting oil on the fire ... and we are currently under pressure from a top line perspective which, obviously, is creating all kinds of ripple effects through the bottom line."

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Poulin said the Stellarton, Nova Scotia-based company would fight back on a number of fronts including a current focus on margin and shrink management, cost controls including consolidation of a distribution center in Victoria, British Columbia, and a more simplified approach to the supplier relationship under an initaitive Sobeys is calling Simplified Buy & Sell.

That program, Poulin explained, "is aimed at simplifying, standardizing, and harmonizing the buy and sell structure across Sobeys as a whole. Simplified Buy & Sell will increase concept transparency and enable better category management, ultimately allowing us to strategically improve shelf pricing, competitiveness, and overall price perception across the country."

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