Sobeys parent Empire profit beats expectations

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Empire Co. Ltd., Canada’s second-largest grocery chain, is reporting higher-than-expected profits in its last quarter, with earnings per share up 16.7 per cent.

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The Stellarton, N.S.-based grocery chain — which includes Sobeys, IGA, Foodland, FreshCo and Safeway — increased third quarter sales by about five per cent to $7.4 billion, due to higher fuel sales, increased food inflation and its recent acquisition of Toronto-area grocer Longo’s, the company said in an earnings update on Thursday. Empire also credits gains in the quarter to its three-year Project Horizon strategy, aimed at adding $500 million in annualized EBIDTA by the end of next year partly through “cost and margin discipline.”

That cost discipline is no doubt being tested by rising inflation throughout the food chain this year. Grocery prices were up 6.5 per cent year-over-year in January — the highest food inflation in nearly 13 years, according to the latest consumer price index report from Statistics Canada. Executives in the grocery business say they’ve been flooded with requests from suppliers wanting to raise wholesale prices to offset spikes in the cost of labour and ingredients. The often tense nature of those negotiations has been on display at Empire’s top competitor, Loblaw Companies Ltd., which has been cut off from Frito-Lay products in a prolonged price dispute with PepsiCo Inc.

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“Although it is difficult to estimate how long these (inflationary) pressures will last, the company is focused on supplier relationships and negotiations to ensure competitive pricing for consumers,” Empire said on Thursday.

Empire’s gross margin — calculated as gross profit divided by sales — stayed steady with the previous year at 25.7 per cent. But excluding fuel, gross margin was up 41 basis points in the quarter, which ended Jan. 29.

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Earnings per share increased 16.7 per cent to 77 cents, blowing past forecasts of 67 cents, according to a preview note from Scotiabank analyst Patricia Baker. Empire booked net earnings of $203.4 million, up $27 million or about 15 per cent, over the same period last year.

Same-store sales — a common gauge of year-over-year performance in retail that doesn’t include new stores — fell by 1.7 per cent, excluding fuel. Empire said it was up against a difficult comparison in the quarter, since the previous year’s sales volumes were “unusually high” due to pandemic-related restaurant closures that flooded grocery stores with extra business. Compared to pre-pandemic levels in 2020, same-store sales were up 8.3 per cent in the third quarter of 2022, Empire said. But the company expects another drop in same-store sales growth in the coming quarter, due to another tough matchup to 2021’s pandemic sales.

Empire’s shares rose 0.61 per cent to $44.19 at 12:05 p.m.

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