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Third-quarter sales edge up at Sobeys

Farm Boy acquisition helps boost results

Russell Redman

March 14, 2019

3 Min Read
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Sobeys Inc. parent Empire Co. Ltd. got a lift from the acquisition of the Farm Boy grocery chain in reporting higher sales for its fiscal 2019 third quarter.

Empire said food retail sales for the quarter ended Feb. 2 totaled nearly $6.25 billion (Canadian), up 3.6% from $6.03 billion a year earlier.

The Stellarton, Nova Scotia-based company attributed the gain to a stronger performance across the business, positive food inflation, increased volume and the inclusion of eight weeks of results from Farm Boy. The $800 million acquisition closed in December. Store closings in Western Canada, lower fuel prices and the deflationary impact of health care reform on pharmacy sales partially offset the sales uptick.

Same-store sales rose 2.5% year over year. The gain was 3.3% excluding fuel and 3.9% not counting both fuel and pharmacy, according to Empire.

Operating income for the food retail business climbed 5.8% to $83.4 million in the quarter from $78.8 million a year ago.

Empire noted that third-quarter gross margin increased to 24.2% from 24% year over year because of early benefits from category resets and the inclusion of higher-margin Farm Boy results, partially offset by the effect of sales mix between banners. Gross margin also was up 30 basis points from the second quarter.

Related:Conversion of Safeway, Sobeys stores to FreshCo on track

"Our execution continued to improve this quarter, building on our run of positive tonnage growth and strong same-store sales across the country. Sales were the strongest we have seen in almost 10 years. Improving margin rates in the third quarter are a harbinger of more progress to come as category reset changes start flowing through to our bottom line," Empire President and CEO Michael Medline said in a statement.

On the earnings side, Empire had third-quarter net income of $65.8 million, or 24 cents per share, compared with $58.1 million, or 21 cents per share, a year earlier. Adjusted net earnings were $72.9 million, or 27 cents per share, versus $89.9 million, or 33 cents per share, in the prior-year period.

Analysts, on average, had projected adjusted EPS of 39 cents, according to Zacks Investment Research.

Empire said adjusted EPS included 12 cents of charges related to labor buyouts in British Columbia and FreshCo conversion costs. The company expects to open 12 FreshCo locations during calendar 2019 in British Columbia and Manitoba. In December 2017, the retailer had unveiled plans to convert up to 25% of its 255 Safeway and Sobeys full-service stores in the region to the FreshCo banner over the next five years.

Related:Empire closes acquisition of Farm Boy chain

Plans also call for Sobeys 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 stores. Ottawa-based Farm Boy, which has 28 stores in southeastern Ontario, operates as a separate unit within Sobeys.

In addition, Empire said its Project Sunrise transformation plan — expected generate at least $500 million in annualized benefits by the end of fiscal 2020 — remains on target. The company said it realized about 20% of the benefits in fiscal 2018 and expects to achieve up to another 30% in fiscal 2019, mainly during the second half.

"The strategic building blocks of our plan continue to fall into place, with momentum on our FreshCo discount expansion plan, very strong performance of our recent Farm Boy acquisition and on-track development of our e-commerce platform in the greater Toronto area,” Medline added.

Overall, Empire’s Sobeys subsidiary owns, affiliates or franchises more than 1,500 stores in all 10 provinces under such banners as Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, Farm Boy 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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