Sobeys Posts Q3 Sales Gains

STELLARTON, Nova Scotia Despite encountering challenges of rapid price deflation and a round of fierce holiday price competition, Sobeys eked out gains in same-store sales and operating income during its fiscal third quarter, the retailer said last week. The results came despite cycling a year-ago period with 4% inflation and the benefit of a labor strike affecting one of its competitors, noted Bill

STELLARTON, Nova Scotia — Despite encountering challenges of rapid price deflation and a round of fierce holiday price competition, Sobeys eked out gains in same-store sales and operating income during its fiscal third quarter, the retailer said last week.

The results came despite cycling a year-ago period with 4% inflation and the benefit of a labor strike affecting one of its competitors, noted Bill McEwan, chief executive officer of Sobeys, speaking in a conference call reviewing financial results of Empire Co., Sobeys' parent company.

Food retail sales for the quarter, which ended Jan. 30, were $3.7 billion (U.S.), an increase of 0.9%, with same-store sales increasing by 0.3%. Price deflation during the quarter was about 1.5%, McEwan said, vs. 4% inflation last year. Operating income of $97.7 million increased 0.7% compared with the same period last year, and net earnings improved 18% to $61.9 million.

McEwan credited Sobeys' momentum to “a series of strategic, management and operational improvements we have made over the last several years,” including more effective labor management, more efficient distribution and what McEwan termed as “nimble” pricing and promotional programs.

These efforts, including the ramping up of an automated distribution center in Ontario, helped Sobeys reduce costs for the second straight quarter.

Perry Caicco, an analyst for CIBC World Markets in Toronto, said Sobeys was “relatively unscathed” by a holiday-season price skirmish initiated by competitor Metro Inc. “Turkeys got hammered for a few days and Sobeys lost a bit of volume, but everything got back to normal quickly,” Caicco said in a research note.

Caicco added that he anticipated competition would be relatively benign in the months ahead as Canada's leading food retailers proceed cautiously amid deflation.

“Prices in Canada will stay high (relative to costs) until there is meaningful alteration in the competitive landscape, and so far nothing is on the horizon,” Caicco said. He added that a discounter such as Aldi could one day provide that spark.

“There was some activity around Christmas time that we would consider slight panic, and we think that's stabilized,” McEwan said. “You really have to watch what you're doing in a deflationary environment, and the tendency is to chase sales. [But] deflation is deflation and there's no sense chasing that which is not there.”