Empire Slumps Most on Record on Safeway Struggle in the WestBy
Sobeys operator took C$1.7 billion writedown on west business
`Psyche' of western Canadian customer has changed: CEO Poulin
Empire Co., owner of the Sobeys grocery store chain, slumped by a record 15 percent after taking a C$1.7 billion ($1.3 billion) writedown on its struggling Safeway operations in western Canada.
Shares of Empire tumbled C$3.94 to close at C$22.83 at 4 p.m. in Toronto, the biggest loss since at least 1988. The stock is now down 11 percent for the year, making Empire the worst-performing stock among peers in the Standard & Poor’s/TSX Consumer Staples Index.
“We’re not dealing with the same customer psyche that we were dealing with even a year ago,” Marc Poulin, Empire’s chief executive officer, said in a conference call to discuss the results. “The behavior of the customer has changed in western Canada, and we have to acknowledge that.”
The Stellarton, Nova Scotia-based company, which also holds investments in commercial and residential real estate alongside its grocery operations, posted a C$1.37 billion ($1 billion) loss for its fiscal third quarter ended Jan. 30, the first quarterly loss in Bloomberg data going back to at least 2005.
Same-store sales rose 0.4 percent in the quarter, with the weakness due to lower fuel prices and the struggles of Safeway in western Canada. Excluding those factors, same-store sales growth would have come in at 2.7 percent, the company said.
Consumers in western Canada, particularly oil-rich Alberta, have been hard-hit by the collapse in crude prices over the past year as struggling energy producers including Canadian Natural Resources Ltd. have had to cut costs and shelve production to stay afloat. Canadian oil and gas companies have cut capital spending in Canada 46 percent from year-ago levels, according to government data.
“It is clear that ongoing earnings growth concerns primarily attributable to the weakened Alberta economy and Canada Safeway integration issues remain significant hurdles,” Jim Durran, a retail analyst at Barclays Capital who rates the stock the equivalent of hold, said in a note to clients Thursday. “The shares will remain a laggard until the company shows clear signs that sales and margin pressures at Canada Safeway are behind them and Alberta spending declines flatten.”
Empire faced particular difficulties with disappointing consumer reaction to increased promotions in the quarter, Poulin said. The integration process with Safeway, acquired in 2013, also posed challenges for the workforce, he said.
The stock has three buys, six holds and one sell, according to data compiled by Bloomberg.
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