Added sales from the acquisition of gas and convenience outlets helped boost revenue in the third quarter at Empire Co Ltd., parent company of grocery chain Sobeys.
Stellarton, N.S.-based Empire, which will see its business expand this year as the key fresh and frozen grocery supplier of Target Canada?s new stores, had a 6% drop in net profit due to a one-time charge on an equity investment, but beat analyst estimates on an adjusted basis.
Sobeys, the No. 2 grocery chain behind Loblaw Cos. saw its sales at stores open for more than a year, an important retail benchmark known as same-store sales, rise 1.2%.
Key rival Loblaw reported flat same-store sales growth last month in its fourth-quarter earnings report, and said sales growth this year would be hampered by heightened competition and the effects of price deflation on generic drugs.
With Walmart Canada completing its biggest expansion to date in order to fight Target and adding full grocery outlets to all of its large stores, this year stands to be one of the fiercest yet in food retail.
Food price wars have been eating into all grocers? margins, Sobeys said. Excluding the impact of lower margin fuel sales, gross margin was in 24.17% in the third quarter compared with 24.30% in the same period last year.
Mark Poulin, president of Sobeys, said the company does not look at Target any differently than other mass merchants extending their reach into the food business. ?We did some preparation for Target, but in terms of how we will be able to service them on a wholesale basis,? he told analysts on a conference call.
?We are shipping product to them as they open stores. From a competitive point of view, they are another player who is trying to get at the food dollar.?
Sales in the quarter, ended Feb. 2, rose 9% to $4.34-billion.
Excluding sales from 236 gas and convenience outlets in the fourth quarter, Sobeys sales contribution to Empire rose $100.8-million, or 2.6%. Mr. Poulin said Sobeys is looking to capitalize on the convenience store footprint by cross-promoting Sobeys in the gas and convenience centres, and vice-versa.
The company?s initiative to convert all Price Chopper stores to the FreshCo banner is on track to be completed next year, he said. The company began switching the name on its discount model to compete with the Loblaw-owned No Frills banner in 2010 and place a greater emphasis on low-priced produce and ethnic food.
Net earnings at Empire were $75.2-million, or $1.11 per share, compared with $80-million, ($1.17), a year earlier. The company booked a one-time charge from an equity accounted investment of $4.8 million.
On an adjusted basis, the company earned $1.17 per share, compared with $1.07 per share in third quarter a year earlier.
Analysts on average expected earnings of $1.15 per share, according to estimates from Thomson Reuters.
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