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Sobeys reports earnings jump in second quarter

CEO bullish on progress of strategic transformation, retail expansion

Russell Redman

December 14, 2018

4 Min Read
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Empire Company Ltd., parent of Canadian grocer Sobeys Inc., saw net earnings surge in its fiscal 2019 second quarter as some of its strategic initiatives began to take hold.

For the quarter ended Nov. 3, net income totaled $103.8 million (Canadian), or 38 cents per diluted share, compared with a net loss of $23.6 million, or 9 cents per diluted share, a year earlier, Empire said Thursday. Adjusted earnings were $110.4 million, or 40 cents per diluted share, versus $73.9 million, or 27 cents per diluted share, in the prior-year period.

Analysts, on average, had projected adjusted EPS of 32 cents for Empire’s second quarter, according to Zacks Investment research.

"In what has been our strongest quarter since we began the transformation of Empire, we are extremely pleased with the top- and bottom-line numbers the team put up on the board. Our trajectory and momentum continue to trend in the right direction with strong sales and tonnage growth, stabilized margins, a significant decline in our costs and a 48% earnings improvement [adjusted EPS]," Empire President and CEO Michael Medline said in a statement.

Empire said its Project Sunrise transformation plan, which stands to generate at least $500 million in annualized benefits by the end of fiscal 2020, is on track and meeting management's expectations. The company realized about 20% of the benefits in fiscal 2018, and executives expect up to another 30% to be achieved in fiscal 2019, primarily during the second half.

"We have a ways to go, but we are setting ourselves up for long-term success through strategic moves such as Project Sunrise, FreshCo 2.0, our Ocado-driven e-commerce platform and the recent acquisition of Farm Boy,” Medline added.

At the top line, sales came in at $6.21 billion, up 3.1% from $6.03 billion a year ago. Sobeys accounts for virtually all of Empire’s revenue, which also includes income from the Crombie REIT and real estate partnership. Empire said the sales gain reflects a stronger performance across the business; higher fuel sales, driven by increased gasoline prices; and positive food inflation.

Same-store sales rose 2.5%, excluding fuel, and were up 3% excluding pharmacy sales. Empire noted that comparable-store sales grew in most areas of the country, and volume increased for the second consecutive quarter. The increases were partly offset by the impact of store closings in western Canada during the first half of fiscal 2019 and the deflationary impact of health care reform, the company said.

Food retail net earnings totaled $96 million in the second quarter, compared with a $31.9 million net loss in the year-ago period. Adjusted net income was $102.6 million versus $65.6 million a year earlier. Operating income rose to $162 million from an $11.7 million operating loss. On an adjusted basis, operating income was $171.1 million versus $124 million a year ago.

For the fiscal 2019 first half, Empire tallied sales of $12.67 billion, up 3% from $12.30 billion in the 2018 first half. Net earnings were $199.4 million, or 73 cents per diluted share, compared with $30.4 million, or 11 cents per diluted share in the prior-year period. The company said adjusted net income was $210.6 million, or 77 cents per diluted share, versus $161.4 million, or 59 cents per diluted share, a year earlier.

Sobeys announced earlier this week that it closed the $800 million acquisition of Farm Boy, an Ottawa-based fresh grocer that operates 26 stores in southeastern Ontario. Stellarton, Nova Scotia-based Empire said Farm Boy plans to open its 27th store in Oakville, Ontario, on Dec. 13 and its 28th store in Toronto early next year.

Empire has said it aims to step up the rollout of the Farm Boy concept in greater Toronto and southwestern Ontario through new construction and conversions of some current Sobeys locations. In fiscal 2018, Sobeys unveiled plans to expand its discount banner to western Canada and convert up to 25% of its 255 Safeway and Sobeys full-service stores in the region to its FreshCo banner over the next five years. The first two Manitoba FreshCo stores are on track to open in Winnipeg, Manitoba, next spring.

Overall, Sobeys owns, affiliates or franchises more than 1,500 stores in all 10 provinces under such banners as Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods and Lawtons Drugs. Its retail network also includes over 350 fuel locations.

About the Author

Russell Redman

Senior Editor
Supermarket News

Russell Redman has served as senior editor at Supermarket News since April 2018, his second tour with the publication. In his current role, he handles daily news coverage for the SN website and contributes news and features for the print magazine, as well as participates in special projects, podcasts and webinars and attends industry events. Russ joined SN from Racher Press Inc.’s Chain Drug Review and Mass Market Retailers magazines, where he served as desk/online editor for more than nine years, covering the food/drug/mass retail sector. 

Russell Redman’s more than 30 years of experience in journalism span a range of editorial manager, editor, reporter/writer and digital roles at a variety of publications and websites covering a breadth of industries, including retailing, pharmacy/health care, IT, digital home, financial technology, financial services, real estate/commercial property, pro audio/video and film. He started his career in 1989 as a local news reporter and editor, covering community news and politics in Long Island, N.Y. His background also includes an earlier stint at Supermarket News as center store editor and then financial editor in the mid-1990s. Russ holds a B.A. in journalism (minor in political science) from Hofstra University, where he also earned a certificate in digital/social media marketing in November 2016.

Russell Redman’s experience:

Supermarket News - Informa
Senior Editor 
April 2018 - present

Chain Drug Review/Mass Market Retailers - Racher Press
Desk/Online Editor 
Sept. 2008 - March 2018

CRN magazine - CMP Media
Managing Editor
May 2000 - June 2007

Bank Systems & Technology - Miller Freeman
Executive Editor/Managing Editor
Dec. 1996 - May 2000

Supermarket News - Fairchild Publications
Financial Editor/Associate Editor
April 1995 - Dec. 1996 

Shopping Centers Today Magazine - ICSC 
Desk Editor/Assistant Editor
Dec. 1992 - April 1995

Testa Communications
Assistant Editor/Contributing Editor (Music & Sound Retailer, Post, Producer, Sound & Communications and DJ Times magazines)
Jan. 1991 - Dec. 1992 

American Banker/Bond Buyer
Copy Editor
Oct. 1990 - Jan. 1991 

This Week newspaper - Chanry Communications
Reporter/Editor
May 1989 - July 1990

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