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Sobeys turnaround taking root as parent company beats profit estimates

CEO says the company is making progress, but not out of the woods yet

The parent of Sobeys is reporting a decline in adjusted earnings for the first full quarter since it installed a new chief executive with a mandate to revive the national grocery business.

Michael Medline, a former Canadian Tire executive who was named president and CEO of Empire Company in January, said initial efforts to transform the business were starting to take root.

"Having said that, we are not where we want to be and we are most certainly not out of the woods yet," Medline said in a statement Wednesday with Empire's fourth-quarter financial report.

In total, Empire said it expected to incur approximately $200 million in one-time costs associated with severance, relocation, consulting and minor system developments -- mostly in the first half of fiscal 2018, which began last month.

The goal is to achieve $500 million of annualized cost savings by fiscal 2020 with a simplified organizational structure and reduced costs.

Based in Stellarton, N.S., Empire had a $29.5 million net profit attributable to shareholders for the fourth quarter ended May 6.

After excluding major writedowns reported last year, Empire's adjusted profit declined year-over-year to $50.2 million. That's down from $95.3 million.

Empire's revenue -- which mostly comes from Sobeys -- was down $484.3 million from the same time last year, when the fourth quarter had had an extra week.

Sales dropped to about $5.8 billion -- with $461.2 million of the decline attributed to last year's extra week. Same-store sales were also down 1.1% overall, or 1.6% when fuel sales were excluded.

Analyst Irene Nattel of RBC Dominion Securities wrote in a note to clients that the quarter was weak, but better than expected on balance, with adjusted earnings higher than expected.

The decline in same-store sales excluding fuel was also less than expected, she wrote, but still lags Loblaw and Metro.

Last year's fourth quarter had a loss of $942.6 million, due to asset writedowns that were mostly related to its Safeway acquisition in Western Canada.

Earlier this year, Medline launched Project Sunrise, a three-year transformation intended to simplify the organizational structure and reduce costs.

The Empire board of directors has also increased the annual dividend to 42 cents per share, or 10.5 cents per quarter, starting with the July 31 payment.

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