About 50 underperforming Sobeys stores to close, mostly in Western Canada

Canada AM: State of Canada's food industry Retail industry analyst Doug Stephens on the current state of Canada's grocery stores and how they are handling U.S. competition.

STELLARTON, N.S. -- Sobeys' parent company Empire Co. will close about 50 underperforming grocery stores as it tries to squeeze savings from its operations after the multi-billion acquisition of Safeway Canada last summer.

About 60 per cent of the affected Sobeys locations are in Western Canada, said the Nova Scotia-based company as it released sharply lower quarterly results on Thursday.

Included in the financials was a charge of $169.8 million that accounts for administrative and sales costs from the restructuring plan.

The decision comes as Sobeys faces intense price competition from others in the grocery industry, including U.S. retailers like Walmart and Target, which promote rock-bottom pricing on select food items each week at their one-stop shopping spots.

Empire Co. president and CEO Marc Poulin said the Sobeys closures will "strengthen the quality of our store network and is expected, along with other initiatives, to enhance overall performance and net earnings."

However, the grocer said the move will shave about $400 million or about 1.9 per cent off its future annual sales.

Sobeys did not outline how many employees would be laid off as part of the announcement and calls to company representatives were not returned.

Empire has been reshaping the look of its conglomeration over the past few years, having acquired 236 retail gas locations and convenience stores in eastern Canada in 2012 and selling off its movie theatre business last summer.

The company also closed a number of Sobeys stores in Alberta last year as part of the Safeway acquisition agreement with the Competition Bureau.

In its fourth-quarter results, Empire reported a profit of $800,000 net of controlling interest, worth a penny per diluted share. That's a decline from $105.9 million or $1.56 per diluted share a year ago.

Consolidated sales for the quarter ended May 3 were $5.94 billion, up from $4.26 billion a year ago, boosted by the $5.8-billion acquisition of Canada Safeway last summer.

Sobeys' same-store sales were up 0.2 per cent from the prior year.

On an adjusted basis, Empire's profits from continuing operations were $131.3 million, or $1.42 per diluted share, compared with $95.7 million or $1.40 per diluted share.

Those results beat analysts' expectations for adjusted net income of $112.2 million and adjusted earnings per share of $1.29, according to estimates compiled by Thomson Reuters.

Empire (TSX:EMP.A) also increased its quarterly dividend by a penny to 27 cents per share.

The company said its planned Sobeys closures will remove 1.5 million square feet, from the national grocery store market, which CIBC analyst Perry Caicco said is about 0.77 per cent of the overall market, which he estimates at 194 million square feet when factoring in all of the competitors.

"Rapid square footage growth has crimped the Canadian market, and Sobeys has been the first to acknowledge that," said CIBC analyst Perry Caicco in a note.

"It is probable that 20 of these closures will be in the terrible Ontario market," he added.

For its full financial year, Empire said it earned $235.4 million net of non-controlling interest, down from $379.5 million the previous year.

Adjusted net earnings for the full year were $383.1 million, or $4.78 per diluted share, compared with $356.8 million, or $5.24 per share, in 2013.

Shares of Empire were 45 cents lower at $66.65 in late morning trading on the Toronto Stock Exchange.