SOBEYS' LOW-PRICE PUSH IMPACTS EARNINGS

STELLARTON, Nova Scotia -- Sobeys here is investing more in lower retail prices than it expected three to six months ago "[because of] our determination to be more competitive than ever before, in increasingly competitive markets," Bill McEwan, president and chief executive officer, said here.That determination was reflected in the company's financial results for the third quarter and 39 weeks ended

STELLARTON, Nova Scotia -- Sobeys here is investing more in lower retail prices than it expected three to six months ago "[because of] our determination to be more competitive than ever before, in increasingly competitive markets," Bill McEwan, president and chief executive officer, said here.

That determination was reflected in the company's financial results for the third quarter and 39 weeks ended Jan. 31, which showed sales up and earnings down.

Sales increased 5.7% to $2.1 billion (U.S.) for the 13-week quarter and 5.1% to $6.2 billion for the year to date, while same-store sales climbed 1.5% for the quarter and 1.4% for the 39-week period. Net income dropped 3.9% to $33.3 million for the quarter and 6.7% to $97.7 million for the year to date.

McEwan said the company invested between 30 and 40 basis points more than it intended to maintain a more competitive posture. "We're getting more aggressive with both traditional and non-traditional competitors, and our price thresholds are changing, and we will continue to be proactively competitive while making necessary adjustments along the way," he told securities analysts in a conference call discussing the chain's financial results.

He said the company intends to rely on productivity gains and improvements in store-level processes and product mix to boost earnings in the long term while continuing to emphasize aggressive pricing. "We're not going to wait to be competitive to get productivity improvements up front," McEwan said.

"Over time, the productivity initiatives will contribute to earnings performance improvements, but over the next one or two years, we will continue to focus on food and driving fresh offerings while concentrating on customer service to drive top-line sales. "We have a steadfast determination to be more competitive than ever before, and although we may get more competitive going forward, we are in this for the long haul."

McEwan said Sobeys will continue to follow a four-pronged strategy: to improve its offerings region by region by focusing on food, fresh and customer service; to be proactive in its pricing and promotions; to focus on communicating its positioning more clearly with consumers; and to identify productivity improvements and best-practices initiatives to fuel sales and earnings growth.

Looking at its operations region by region, McEwan made the following comments:

In Western Canada, he said the conversion of stores to the Sobeys banner is on target -- with 40 conversions in Manitoba and Alberta completed and 15 more due in Edmonton -- along with improved pricing and an expansion of in-store offerings by about 1,500 items.

In Ontario -- "the most challenging region but the one with the greatest opportunity for growth" -- the company has grown market share "modestly" by focusing on better merchandising and more consistent execution at its Sobeys and Price Chopper stores and a broader offering at its IGA and Foodland banners, along with integrating 15 acquired Commisso's stores and that company's distribution facilities.

In Quebec, Sobeys intends to invest in its IGA and IGA Xtra banners, while becoming more competitive.

In Atlantic Canada, the company has opened its new Sobeys Express prototype in two locations -- mini-markets similar to convenience stores with additional varieties of beverages and food-to-go -- and a test at three locations of Sobeys Fast Fuel.

McEwan said the company contemplates sales growth of 6% for the current fiscal year and earnings per share "slightly below" last year's per-share total of $2.06 (U.S.).

3rd-QUARTER RESULTS

Qtr Ended: 1/31/04; 2/1/03

Sales: $2.1 billion (U.S.); $2.0 billion

Change: +5.7%

Comp-store: $1.5%

Net Income: $33.3 million; $34.7 million

Change: -3.9%

Inc/Share: 51 cents; 53 cents

39 Weeks: 2004; 2003

Sales: $6.2 billion (U.S.); $5.9 billion

Change: +5.1%

Comp-store: +1.4%

Net Income: $97.7 million; $104.7 million

Change: -6.7%

Inc/Share: $1.48; $1.59