Empire profit falls on property, investment drop

By Susan Taylor

OTTAWA (Reuters) - Empire Co Ltd reported lower quarterly earnings on Friday as stronger grocery sales were more than offset by sharp declines in results from its property and investment units.

Empire, whose major unit is its Sobeys supermarket chain, which is Canada's No. 2 grocer, repeated its previous warning that results from its Wajax Income Fund and Genstar Development Partnership investments would deteriorate in the current financial year.

After initial gains, Empire stock fell C$1.12, or 2.4 percent, to close at C$45.20 on the Toronto Stock Exchange on Friday.

Stripped of capital gains and losses, earnings from Empire's real estate business sank 66 percent to C$5.7 million, while the loss from investments and other operations worsened to C$2.6 million from C$700,000 in the year-earlier period.

Consolidated profit for the company's fourth quarter dipped to C$63.6 million, or 96 Canadian cents a diluted share, from C$66.5 million, or C$1.01, for the same time last year.

Revenue rose 4.2 percent to C$3.71 billion.

Analysts had expected, on average, earnings per share of C$1.18 before items on revenue of C$3.74 billion, according to Reuters Estimates.

Results were hurt by one-time costs of about C$7 million, evenly split by severance expenses for administrative job cuts and higher incentive costs, the company said on a conference call.

"Considering everything that's going on with an economic downturn and some food inflation, it's pretty competitive," said Beacon Securities analyst Sarah Chiasson. "The results from Sobeys are, I'd say, fair to decent.

"Not as strong as I expected, particularly coming off of the last two quarters."

Sales at Sobeys stores open for at least one year rose 4.6 percent in the quarter.

"The majority of the growth, although not as much as in prior quarters, was driven by transaction size versus customer count increase," said Sobeys President Bill McEwan on a conference call with analysts.

"We're quite satisfied with our continued solid, consistent across-the-board same-store sales number."

Analysts said Sobeys must improve its private-label, store-brand products as it seeks growth.

"In the last bunch of quarters they've been strong, so they've done a really good job in bringing new stores and square footage to the market, upgrading their systems and processes and their merchandising," said BMO Capital markets analyst David Hartley.

"They've upgraded their private label, although they're having an issue, I think, with their value brands, because they're not really segregated from their overall umbrella brand."

($1=$1.15 Canadian)

(Reporting by Susan Taylor; editing by Peter Galloway)