Troubles with Safeway acquisition hit Empire's bottom line

Sobeys owner Empire Co. has written down the value of its western business, primarily the Safeway chain, resulting in a loss of $1.36 billion in its latest quarter.

The loss was largely due to a recognition that the long-term value of the Safeway business is lower than previously estimated.

Excluding that writedown and certain other items, Empire Co. would have had $82.5 million of adjusted earnings in its fiscal third quarter—down 36.1% from $118.6 million.

The net loss amounted to $5.03 per share, which included a $1.59-billion writedown of goodwill associated with the Safeway purchase. After adjustments, Empire earned 30 cents per share in the 13 weeks ended Jan. 30.

READ: In the wake of Safeway purchase, Sobeys moves to cut costs and jobs

A year earlier, Empire's fiscal third-quarter had $123.6 million of net income or 45 cents per share and $118.6 million of adjusted earnings, or 43 cents per share.

Revenue was up $86.7 million over the 13 weeks ended Jan. 30 to $6.03 billion from $5.94 billion in last year's third quarter, mainly because of food inflation and the acquisition of Co-op Atlantic.

Sobeys’ same-store sales rose 0.4% during the quarter. Without the negative impact of fuel sales and the western retail business, they would have gone up 2.7%.

Same-store sales in the Sobeys western business unit were down 2.9%.

READ: Sobeys reorganizes its western business

Sobeys said that several factors contributed to the decline in western sales, including merchandising issues, such as the conversion of private label products, produce supply chain issues, increased promotional activity and tougher economies in Alberta and Saskatchewan.

``The challenges that we experienced in the first half of fiscal 2016 related to the integration of our Safeway business only intensified in the third quarter,'' Empire president and CEO Marc Poulin said in a statement.

He said its Safeway banner and the West business unit saw sales eroded in a difficult economic environment, mainly in Alberta and Saskatchewan.

``Our focus is on rebuilding top-line sales in the West through initiatives such as our Better Produce at Lower Prices initiative introduced into the market at the end of the third quarter.''