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Sobeys Q4 tonnage up as slide slows

Headcount, cost reductions on the way, CEO said

Only weeks into the three-year Project Sunrise turnaround initiative, Sobeys is “nowhere near where we need to be,” CEO Michael Medline said Wednesday, but financial results for parent Empire Cos. suggested a bad situation was getting a little better.

The Stellarton, Nova Scotia-based retailer said tonnage was up for the first time in more than four years during its fiscal fourth quarter despite continued same-store sales declines affected by food price deflation. Margins were stable.

“Our efforts in the quarter to stabilize margins have taken root. We were disciplined with our costs and we saw some real progress on comp store sales,” Medline told analysts during a conference call discussing results for the period ending May 6. “I hate negative comps, but for the first time in 17 quarters we grew tonnage.”

Comps for the period excluding gasoline declined by 1.6%. In Western Canada, where a botched integration of Safeway Canada stores helped to trigger Sobeys nationwide struggles, comps were “just slightly worse than the national average, which is a big improvement,” Medline said.

Medline declined whether to say he had plans to expand the Freshco discount banner to Western Canada, as has been speculated for some time. “Although I see some fertile ground in the west for our discount business, we don't want to be rush to make a decision,” he said. “We have a lot of other priorities. And if we do expand, we won't announce it publically right away as we don't want to give a heads-up to our competitors.”

Project Sunrise is a three-year turnaround initiative announced in May that will focus on reducing costs by about $500 million annually by 2020.

Medline said Wednesday that Sobeys was in phase 1 of the project to “reset the foundation” by simplifying its structure. He said the company would inform employees this week of head count reduction at the VP level. “I’ve got to tell you making these kind of choices and going down in numbers in terms of all levels of the company is not the fun part of the job,” Medline said. “There is a lot of tough conversations that have to be had. For some people they're great conversations as we give chances and more responsibility to others.”

Additional phases of the project include cost reductions and a focus on brands. “We have a strong base to build on, but we are nowhere near where we need to be on brand, customers and marketing,” Medline said.

Empire reported a profit of $29.5 million (Cdn.) or 11 cents a share compared with a loss of $942.6 million or $3.47 per share in the same period last year, due mainly to asset write-offs related to Safeway. Excluding those items, earnings of $50.3 million were down from $95.3 million last year. Food retailing sales for the quarter totaled $5.8 billion (Cdn.), down from $6.3 billion last year.

For the year, Sobeys said food retail sales totaled $23.8 billion (Cdn.), with non-fuel same-store sales down by 2.2%. Excluding Western Canada and fuel, comps fell by 1.2% for the year.

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