A strong summer quarter at its Sobeys grocery division helped Empire Co. Ltd. boost its first-quarter profit to $89.7-million despite challenges facing its real estate operations.
The Nova Scotia-based company said Friday it earned $1.31 per share in the fiscal first quarter ended Aug. 1, up from $75.7-million, or $1.15 per share, a year earlier.
Excluding capital gains and other items, net income was $72.2-million, or $1.05 per share, up from $70.9 million, or $1.08 per share, a year ago.
The company attributed the higher earnings to an 18.6 per cent increase in profit at Sobeys, the national grocery chain that is its main business.
Empire's overall revenue rose 5 per cent to $3.97-billion, an increase of $190.3-million from a year ago. The grocery division accounted for almost all of the revenue, with only $62-million from real estate and investment activities.
Same-store sales at Sobeys Inc. rose by 4 per cent, reflecting growth at stores that have been open at least a year.
The grocery division's operating income was $121.6-million, up $15.3 million, or 14.4 per cent.
"Our performance overall is in line with our expectation and was again driven by Sobeys' operating performance, innovation and disciplined growth," said Paul Sobey, Empire's president and chief executive officer.
The results beat expectations. Analysts polled by Thomson Reuters had forecast earnings of 99 cents per share.
Empire said its real estate operations suffered as expected, reflecting a marked reduction of residential lot sales in Western Canada.
Real estate revenue fell more than 39 per cent to $15.1 million, while segment operating income decreased by more than half to $9.7-million.
Overall, the quarter was marked by no big surprises, although grocery earnings were better than expected and real estate contributions were a little worse than predicted, said David Hartley of BMO Capital Markets.
"The company is clearly managing well through this downturn based on its sales," he said in an interview.
The company's higher same store sales were largely due to price inflation and the impact of additional store space added more than a year ago.
Sobeys margins also improved as the company is benefiting from investments in their stores and their information technology systems.
Mr. Hartley said the ompany and Quebec-based rival Metro Inc. are both thriving partly because market leader Loblaw Cos. Ltd. isn't the mighty competitor it once was.
"It makes it a little easier when the giant is sitting on the sidelines nursing its wounds. Going forward here that may change and that's where I think investors should exercise some caution with non-Loblaw stocks in the sector."
But Mr. Hartley warned the situation could change as Loblaw is working hard to restore its margins to traditional levels and Wal-Mart Canada Corp. may expand its grocery presence.
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