Monday, July 2, 2012

Sobeys (EMP.A) Did Well in 2012 Even Compared Loblaw Companies LTD (L), Metro Inc (MRU.A)

Empire Company Ltd (tsx:EMP.A) is the parent of Sobeys Stores Limited, the food retailing unit which contributes 99.0% of revenue to the Empire Group (up from 98.3% in 2011 due to the divestment of Wajax property business but that will change next year due to the inclusion of 236 more gas stations as part of operations). Empire Company is still looking like a solid investment (ebitda margin grew the most out of the three companies however it's still in 3rd place at 5.5%).

It upped its dividend payout to 24 cents a share from 22.5 cents which represents an impressive +6.7% jump (had been 20c for a number of quarters prior to that). That beats Loblaw companies LTD last quarterly dividend payout of 21 cents a share back on April 30, 2012 (no growth quarter on quarter) and 21.5c at Metro Inc (up 12.0% from 19.2c which is a nice return). Metro had no problem hiking dividends, with earnings per share up +12 cents (82-->94c) compared to +14 cents at Empire Company (121-->135c) and -13 cents cents at Loblaw Companies Ltd (58-->45c).

Same store sales: Metro 2Q12 (March 2012) +1.0%; Loblaw Companies (march 24, 2012) -0.7%, Empire Company (June 2012) +0.7%

Although sales were down slightly in the last quarter of 2012 (-1.8%), after accounting for the period length being 1 week shorter empire's total sales were actually up +3.0% or $474.9 million (fiscal 2012 only 52 weeks vs 53 weeks in fiscal 2011). Sales were also +3.0% higher for the year after accounting for 2011's extra week & the impact on sales resulting from acquisitions & divestments of convenience stores/gas stations (sales difference between 2011 and 2012 goes from $290m --> $474.9m). Empire Company's EBITDA (unadjusted) ended 2012 on a strong note, up +$14.4m over last year's quarter compared to only +$13.6m for the entire fiscal year (meaning it actually contracted over the previous three quarters). In 4q12 only $10m ($35.3m for the year) in profit came from investments and other operations up from $6.5m in 2011. In the thid quarter, Sobeys food business contributed $3.94 billion to revenue (out of Empire's $3.98b) while in the fourth quarter it was $4.02 billion (out of Empire's $4.07b) which is about 99.0%. In terms of profit, Sobeys was the source of only 89.54% of Emipre's over the last two quarters.
Ebitda margin for last quarter; Metro Inc still leads the industry at 6.9% (up from 6.7%), Loblaws is still in second place at 5.9% (down from 6.6%); Empire Company, though last went up more than the other two: 5.5% (up from 5.06%).

Business at Empire Theatres appears to be strong with revenue from Empire's non food business up +7.2% to $50.6m (from $47.2m); Most of the revenue in that category comes from cinema operations. For fiscal 2012, that revenue reached $204.5m up from $200.5m.
$10M in ebitda gains in fiscal 2012 are attributed to 'dilution gains' from a change in ownership level of Crombie Reit. Normally it's $74.8m (vs $69.4m) but that changes to $64.6m (vs $62.6m) after removing items not considered part of underlying business.
Funded debt fell -$21.6m to just over $1.1 billion (1.3xebitda). Funded debt/total capital fell -1.7 basis points to 25.0%.

Market Share
If we base the market share each has in Canada's food retailing industry on the food revenue of each company during the last two quarters, we can assume Sobeys is at 23% if we believe Galen Weston Sr (Loblaw Companies) when he puts his company's share at 40% (Sobeys sales last six months $7.9632 billion vs Loblaws $14.034 billion last two reported quarters ending March 24). It follows that Metro Inc has 15% of the market (all of its revenue comes from food).

More information about the grocery industry can be found at another website I launched recently at

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