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Mar 14, 2018

Sobeys resists ‘race to the bottom’ on pricing as profit tops estimates

Sobeys parent Empire 'on track' to regaining balance: Foodservice analyst

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The parent company of Sobeys didn't look any worse for wear in its latest quarter, despite being dragged into Canada's bread price-fixing scandal.

Empire Company's net profit rose to $58.1 million in the three months ending Feb. 3, compared with $30.5 million a year earlier.

On an adjusted basis, Empire earned 33 cents per share. Analysts, on average, expected 25 cents in adjusted per-share profit.

Empire has been in turnaround mode since former Canadian Tire CEO Michael Medline took the helm in January 2017. One of his early initiatives was Project Sunrise, a three-year restructuring designed to yield at least $500 million in cost savings. On Wednesday, the company said the first phase of that process is "on track."

The food-retailing giant was caught flat-footed in December when rival Loblaw admitted to driving up bread prices from 2001 to 2015 in what it called an "industry-wide price-fixing arrangement."



The allegation prompted a fierce response from Medline, who accused Loblaw Chairman Galen G. Weston of making "reckless" claims, and threatened to sue depending on the fallout.

There was no immediate sign of fallout in the company's latest quarter, with sales rising to more than $6 billion dollars, while sales at stores open more than a year rose 1.3 per cent. Empire attributed the top line performance in part to "more disciplined pricing strategies."

“The race to the bottom has been occurring; Walmart is extraordinarily competitive in the market and the margins are pretty razor thin there,” said Exponent Investment Management Portfolio Manager Bill Shaw in an interview with BNN Wednesday.

“If [Sobeys] can get any type of competitive position where they can just get their prices up slightly, it’s a major impact to the bottom line.”

Empire disclosed in Wednesday's management discussion and analysis document that it continues to cooperate with the Competition Bureau in its bread-pricing probe. The company also reiterated its view that it didn't violate the Competition Act while pointing out the class-action lawsuits it faces won't have a material effect on its finances.

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