Sobeys to buy 250 Shell gas stations in Canada

Thu Dec 15, 2011 3:52pm EST
 
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(Reuters) - Empire Co Ltd's Sobeys grocery chain is expanding its high-margin retail gasoline business in Eastern Canada, announcing plans on Thursday to buy 250 gas stations from Shell Canada.

But Empire's shares dropped as Sobeys' gross profit margin fell to 23.91 percent in its latest quarter from 24.73 percent a year earlier. The company said about half the decrease was due to an accounting change.

"We believe the decline in gross margin reflects the highly competitive grocery environment," wrote BMO Capital Markets analyst Peter Sklar in a research note.

Empire's net income also fell sharply in the quarter. Earnings a year earlier were flattered by a gain from the sale of one of its businesses.

Sobeys, Canada's No. 2 grocer, will take over all of Shell's retail outlets in Atlantic Canada and the province of Quebec. The price was undisclosed but Sobeys said it would finance the deal with existing cash balances.

The gas station deal will expand Empire's current stable of 43 gas outlets operating under various banners in Atlantic Canada. Shell will continue to supply the fuel.

The company will continue to operate the outlets under the Shell banner. It aims to leverage Shell's strength as a brand against Sobeys' name recognition in the convenience store business, Sobeys Chief Executive Bill McEwan said in a statement.

STRONG RETURNS ON GAS

Other Canadian retailers have enjoyed strong returns at gas bars thanks to rising fuel prices. In the last quarter, Canadian Tire Corp's results were helped by a 27.4 percent increase in gasoline sales.   Continued...