Sobeys parent company Empire Co. Ltd.EMP-A-T -7.45%decrease reported sales and earnings growth in its grocery business in the second quarter, while income from investments and other operations led to an overall decline in profits.
The Stellarton, N.S.-based retailer reported on Thursday that net earnings fell to $181.1-million or 72 cents per share in the quarter ended Nov. 4, compared to $189.9-million or 73 cents per share in the same period last year.
Empire recorded a $20.6-million insurance recovery related to a cybersecurity breach that hit the company last November. It also recorded $16.8-million in restructuring costs related to a plan to improve efficiencies in the company. Not including those items, adjusted net earnings were lower, at $178.3-million or 71 cents per share. Both sales and adjusted earnings per share came in below analysts’ estimates for the quarter.
The company, which owns chains including Sobeys, Safeway, IGA and FreshCo, reported that both sales and profits were up in its grocery operations, with adjusted net earnings in the food retailing segment rising 8.5 per cent to $171.5-million. Income from its investments and other operations declined, mostly because fewer property sales led to lower equity earnings from Empire’s interest in Crombie Real Estate Investment Trust.
Grocery retailers have faced scrutiny over whether they are doing enough to fight food inflation. Growth in grocery prices slowed in October, when prices were up by 5.4 per cent on an annual basis. That was a significant improvement compared to peak levels of more than 11 per cent in late 2021 and early 2022. But even food inflation slows down, shoppers are still faced with significantly higher grocery bills than compared to a couple of years ago.
In an appearance before the House of Commons agriculture committee last week, Empire chief executive officer Michael Medline expressed frustration at being compared to other grocers who have higher profit margins. He also noted that Canada has done better than other countries when it comes to food price growth.
“Although our country’s food inflation has been among the lowest in the world, and Canada is among the most competitive nations on earth when it comes to grocery retail, this provides little comfort to Canadians who are struggling,” he told the committee.
In October, Empire was among the grocery chains who complied with a request from the federal government to submit plans to stabilize prices, though some critics pointed out the plans mostly included strategies the sector already employs, such as discounts and price matching. Like other food retailers, Empire reported that its internal measures of food inflation have continually fallen slightly below the the food price growth tracked by Statistics Canada’s Consumer Price Index.
“Although it is difficult to estimate how long these inflationary pressures will last, the company continues to focus on supplier relationships and negotiations to ensure competitive pricing for customers whose shopping behaviours become more price sensitive in a heightened inflationary environment,” the company stated in a press release on Thursday.
Empire’s sales grew by 1.4 per cent in the second quarter compared to the prior year, to nearly $7.8-billion. Grocery sales were up, especially in the company’s FreshCo discount stores. But some growth was offset by the effects of Empire’s sale of its 56 gas stations in Western Canada in the first quarter, leading to lower fuel sales in the second quarter compared to the prior year. Sales from Empire’s e-commerce service, Voilà, increased by 15.4 per cent in the quarter.
Same-store sales – an important industry metric that tracks sales growth not tied to new store openings – grew by 2.2 per cent in the quarter, or 2 per cent excluding fuel. That represents slower growth compared to a year ago, but in a press release on Thursday the company said that same-store sales growth has improved in the first five weeks of the current quarter.
Empire is continuing to make claims under its cyber insurance policies related to last year’s breach. The company’s management said they are anticipating further insurance recoveries throughout this fiscal year, according to a press release on Thursday. Empire has previously estimated the cost of the breach will represent approximately a $32-million impact after insurance recoveries, and that estimate remains unchanged.
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