September 10, 2015
Sobeys CEO admits “self-inflicted wounds”
Grocer’s results tank due to Safeway acquisition integration “hiccups,” tough competition, closures and the economic downturn
Marc Poulin, Empire Company Limited’s CEO told analysts in a conference call this morning that the company needs to guard against “self-inflicted wounds,” in the wake of sluggish revenues, earnings and same-store-sales at its Sobeys’ arm.
Sales at Empire increased by just 0.4 percent, to $6.2 billion during its first quarter ended August 1, 2015, and same-store-sales by just 1.2 percent, due almost exclusively to price increases. Both totals were less than internal food inflation at Sobeys, which ran at 2.4% during the period, meaning that volumes actually fell. Profits also plunged, with fully diluted earnings per share off by nearly 15% to $1.18 per share, compared to $1.33 during the same quarter last year.
Poulin cited a slew of reasons for the declines, including store closures, divestitures and lost volumes at its wholesale division (due in part to the Target closings). Continued strong competitive challenges, a highly promotional environment and the falling loony, which affects import prices, were also cited.
Sobeys has also been hard hit by the fall in oil prices, which have hurt fuel sales, as well as grocery sales at its outlets in Canada’s energy rich western regions, particularly in 15 stores where the impact was “measurable.”
However it was Sobeys’ troubles in integrating its IT systems with its recently acquired Safeway operations, which Patricia Baker, an analyst with Scotiabank described as a ‘big hiccup,” that drew the most attention. Analysts grilled Poulin over his admissions that management had been “over-optimistic,” in estimates regarding the time it would take to integrate the Safeway stores, which acquired in 2013.
These integration hiccups were apparent in two areas. First, Sobeys has had to slow promotions of its private label sales in the wake of what Poulin describes as the “natural phase of customers adapting to the Compliments brand,” which has now been fully phased into the former Safeway outlets. Sobeys’ buyers have also had to adjust to the process of purchasing produce for the former Safeway operations, work that in the past had been sub-contracted out.
Empire/Sobeys executives appear to be doing well though. According to the company’s management information circular released in late July, Poulin’s salary and other compensation will double to $8.6 million during 2015, from $4.8 million in 2014.
Francois Vimard, chief financial and administrative officer, Simon Gagné, chief human resources officer, Jason Potter, who is in charge of western operations, and Claude Tessier, president of IGA operations, all of who’s 2015 compensation packages ranged between $2.8 million and $3.8 million, saw similar percentage increases.
The analyst call took place immediately after Empire’s annual general meeting, which marked the last days of work for David F. Sobey, who is 84, and Donald C.R. Sobey 80, in their posts as directors, following careers that lasted more than half a century. According to a company statement the family will continue to be represented on the board by several of their children.
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Peter Diekmeyer Communications Inc.