(Reuters) - Empire Co Ltd (EMPa.TO), 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), 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), Canada’s biggest grocer, and No. 3 Metro Inc MRU.TO. All of them have struggled in recent quarters to pass along rising input costs to consumers in the form of higher prices.
Adjusting for an additional week of operations in the fourth quarter last year, Empire’s earnings, net of minority interest, rose 19.3 percent in the latest quarter.
The company is raising its quarterly payout to 24 Canadian cents a share from 22.5 Canadian cents per share.
Adjusted earnings on investments and other operations, which include Crombie Real Estate Investment Trust (CRR_u.TO), residential developer Genstar and Empire Theatres, nearly doubled to C$10.4 million from C$5.8 million a year ago.
Empire shares edged 0.2 percent higher to C$54.10 on the Toronto Stock Exchange.
Reporting by Claire Sibonney