Empire profit rises on higher Sobeys margins

Thu Jun 28, 2012 11:43am EDT
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By Claire Sibonney

(Reuters) - Empire Co Ltd (EMPa.TO: Quote), parent of Canada's Sobeys grocery chain, said on Thursday profit in its fourth quarter rose as higher operating margins compensated for lower overall sales.

Net earnings for the quarter ended May 5 rose 11.6 percent to C$92.1 million ($89.8 million), or C$1.35 a share, from C$82.5 million, or C$1.21, a year earlier. Operating margins rose to 2.98 percent from 2.71 percent.

Consolidated sales fell to C$4.07 billion from C$4.15 billion, reflecting in part a shorter reporting period compared with a year earlier.

Sales at established Sobeys stores, an important measure for retailers, rose 0.7 percent.

Sobeys, like other Canadian grocery chains, is facing a growing challenge from U.S. discount giant Wal-Mart Stores Inc (WMT.N: Quote), which is planning an aggressive expansion in Canada. Wal-Mart's "supercenters" offer a full line of grocery items.

The challenge is expected to intensify next spring when discount chain Target Corp opens its first stores north of the border.

That said, Target's incursion may hurt Sobeys less than its rivals as the Empire chain has an agreement to supply the U.S. discount retailer with groceries.

In addition to Walmart Canada, Sobeys competes with Loblaw Cos Ltd (L.TO: Quote), Canada's biggest grocer, and No. 3 Metro Inc (MRU.TO: Quote). All of them have struggled in recent quarters to pass along rising input costs to consumers in the form of higher prices.   Continued...