SOBEYS SAYS SOFTWARE PROBLEMS 'BEHIND US'

DAVID GHITELMAN

STELLARTON, Nova Scotia -- Sobeys here said that its problems with a failed software system are behind it.

"We do not have an information systems crisis or problem," Bill McEwan, president and chief executive officer, insisted to investment analysts during a conference call that followed the release of Sobeys results for the year and fourth quarter ended May 5. McEwan called the quarter "a very solid finish to a year of important change and challenge." For the 12-week quarter, earnings rose 9.8% to $16.8 million ($25.4 million Canadian).

Other evidence of the company's solidity cited by McEwan in the conference call included:

Sales increases, on a pro forma basis, after excluding the extra week in the previous year's 53-week year and 14-week fourth quarter, of 5.3% for the year and 7.3% for the quarter.

Earnings per share for the year of 99 cents, excluding a one-time restructuring charge, compared with a consensus expectation of 98 cents and last year's 95 cents.

Same-stores sales increases of 3.7% for the year and 4% for the quarter.

The opening of 51 new or replacement stores and the expansion or renovation of another 92 stores for a 3.8% increase in total square footage.

An estimated capital budget for fiscal 2002 of $365 to $400 million, compared with $334.3 million last year.

The possibility of Sobeys "declaring No. 1 status in Quebec" in several months, in McEwan's words.

However, for the 52-week year, earnings declined 47.6% to $27.8 million, because of a $32.6 million one-time restructuring charge taken in the third quarter to cover the expenses of the failed software program.

In January, Sobeys said it would stop using its computer software system program from SAP AG of Germany. The company said the complexities of the system and a five-day database and systems disruption in December led to its decision.

At the time, McEwan said, "We have determined that there is insufficient core functionality in the SAP software component of our enterprise-wide systems to effectively deal with the extremely high number of transactions in our retail operating environment."

In the conference call discussing the year-end results, McEwan was asked if Sobeys had chosen an alternative to the SAP software, and he replied the company's "best performing [computer] systems were its legacy systems."

But after insistent questioning from analysts, McEwan admitted that Sobeys' Atlantic Canada stores, which had no legacy system to fall back on, were still using the SAP software. However, he insisted that all was well with the company's information systems and Sobeys was not in the market for another software program.

"Our problem is behind us," he declared.

Looking forward, McEwan said the company was moving forward with the following six key operating improvements:

Sobeys has completed its regional market overviews.

The company has also completed the consolidation of its Ontario food service operation in its 265,000-square-foot distribution center in Mississauga, Ontario.

Sobeys is executing a national logistics and distribution plan that aims to reduce the cost of moving product from source to customer as well as improving service levels.

McEwan said the company has already taken over operations of its Milton, Ontario, distribution center from Tibbett & Britten, Toronto, and expects an annual savings of $2 million.

Sobeys has implemented a merchandising program focused on "a more productive vendor relationship" and the improved "sharing of best practices" across the company, according to McEwan.

The company has "agreed on an information technology framework," McEwan said.

Sobeys has launched an "ambitious plan to decomplicate the structure" of the company, according to McEwan.

"We have made significant progress on all these initiatives," he said, "and we are ahead of schedule on most."