Thursday, June 29, 2017

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By Peter Diekmeyer

Michael Medline, Empire Company’s new CEO, spoke with analysts on Wednesday, reporting on his first full quarter with the organization. The company posted higher than expected profit in the fourth quarter, which drove the stock up over 10 per cent on the day, making it the best day that the company has had in over four years.

Despite showing increased profits, Sobeys' sales declined $5.8 billion during the fourth quarter ended May 6, 2017, down eight per cent from the prior year. Same store sales fell 1.6 per cent, as deflationary and competitive pressures negatively impacted the company’s performance.

Medline used Wednesday’s call to provide greater detail regarding his plans going forward, notably a renewed commitment to the company’s online strategy and a reorganization of Empire’s management structure. “These are exciting times,” said Medline. “While sales are down, we grew tonnage forthe first time in 17 quarters, while showing stabilized margins and cost containment. Having said that, we are not out of the woods yet."

Medline also pointed out that Sobeys' branding challenges were particularly ironic. Leger, a pollster, had named Sobeys as the most admired grocer in Canada.Sobeys is currently in the process of implementing strategies following a recent survey of 6,000 Canadians that will provide a better picture of existing market issues.

Earlier this year, Medline announced the implementation of Project Sunrise – a plan to find annual savings of $500 million by 2020 through, among other efforts, streamlining procurement and breaking down regional silos. Today, the company announced that it will take a one-time $200-million restructuring charge (i.e., severances, consultant costs) in the first half of fiscal 2018, which began last month. The company also announced that annual capital spending will be cut to just $315 million, a level comparable with Metro, which has far fewer stores. 

Late last quarter, Medline announced that Michael Vels would be joining Empire as chief financial officer, while Clinton Key has taken on the role of executive vice-president (technology). The latter is a key posting in the wake of Amazon’s recent acquisition of Whole Foods. “We need to be a strong participant in e-commerce and that includes both click-and-collect and home delivery,” said Medline. “At one time we were leaders, but we took our foot off the pedal.” Sobeys’ ongoing search for a new executive vice-president of marketing will be key to the company’s rebranding efforts.

“You’re going through a period of massive price deflation in the food space, you’ve got acquisition hangovers, you’ve got a turnaround plan to deal with [at Sobeys], and now you have to accelerate your automation and your e-commerce platform,” BlackRock Canada chief investment strategist, Kurt Reiman, said in an interview with BNN. “That’s a lot to digest.” 

Click here to access the June 28, 2017 analyst conference call.

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