March 8, 2011 / 2:06 PM / in 7 years

UPDATE 3-Discounts hit profit at Sobeys parent Empire

* EPS C$0.92 vs C$0.99 a year ago

* Revenue rises 1.3 percent, beats expectations

* Same-store sales decline 0.4 percent

* Shares down 3 percent in Toronto (Adds details from conference call; updates shares)

TORONTO, March 8 (Reuters) - Empire Co Ltd EMPa.TO, parent of Canada’s Sobeys grocery chain, reported a lower quarterly profit on Tuesday due to aggressive holiday-season discounting and falling food prices.

The report from the country’s No. 2 grocer rounds out quarterly results from the big three food retailers and shows the heightened competition they now face.

Sobeys competes with Loblaw Cos Ltd L.TO, Canada’s biggest grocer, and No. 3 player Metro Inc MRUa.TO, as well as the Canadian unit of Wal-Mart Stores Inc WMT.N.

At Sobeys, sales at stores open for at least a year, or same-store sales, a key measure for retailers, fell 0.4 percent in the quarter.

Grocers generally benefit from rising food prices, as they can pass on higher costs to consumers. But falling food prices can bring competitive price-cutting and tighter profit margins.

Competitive activity, especially in Ontario, is hurting the bottom line for many retailers as they vie for consumers who are still cost-conscious.

It is expected to heat up still further in Quebec with the introduction of Wal-Mart’s supercenters, which stock food and drugs as well as their other products.

The new front in the food fight has been the discount category, where FreshCo stores from Sobeys compete with Loblaw’s No Frills and Metro’s Food Basics.

Discounting continued well into January, Sobeys noted in a conference call with analysts.

The percentage of goods sold on promotional activity has increased in the past few months, putting further pressure on margins, the company said, but added it expects that to decline in the coming months.

Empire said earnings for the third quarter ended Jan. 29 fell to C$62.8 million ($64.7 million), or 92 Canadian cents a share, from C$68.3 million, or 99 Canadian cents a share, a year before. Adjusted to exclude capital gains and other items, its profit was 88 Canadian cents a share.

Revenue rose 1.3 percent to C$3.88 billion. Analysts on average had forecast earnings of C$1 on revenue of C$3.87 billion, according to Thomson Reuters I/B/E/S.

The stock was down 3 percent at C$51.30 on Tuesday afternoon on the Toronto Stock Exchange. The shares have lost 8 percent of their value in the last three months.

$1=$0.97 Canadian Reporting by S. John Tilak; editing by Janet Guttsman and Rob Wilson

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