Empire to expand FreshCo grocery chain in Western Canada amid restructuring woes

Shares of Empire Co. Ltd. were down six per cent on Wednesday amid news it’s planning to convert up to a quarter of stores in Western Canada to its discount FreshCo banner as it struggles with industry challenges and increased labour costs.

The company made the announcement after it posted a loss in its latest quarter as it was hit by restructuring costs, and said it would incur increased labour costs starting at the end of the third quarter of fiscal 2018 as a result of minimum wage increases in some parts of the country.

CEO Michael Medline said the company’s decision to convert some of its 255 Sobeys and Safeway stores provides an “attractive strategic and financial opportunity for us” to grow market share in the Western provinces in a profitable way.

“Our comprehensive research and analysis shows that the West is fertile ground for ‘small box’ discount.”

Empire said it lost $23.6 million or nine cents per share for the 13 weeks ended Nov. 4 compared with a profit of $33.1 million or 12 cents per share a year ago. Sales in what was the company’s second quarter of its 2018 financial year grew to $6.03 billion, up from $5.93 million.

On an adjusted basis, Empire said it earned $73.9 million or 27 cents per share, up from an adjusted profit of $32.9 million or 12 cents per share in the same quarter last year.

Last month, Empire announced plans to cut about 800 office jobs as part of its plan to improve its operations amid rising challenges in the grocery industry including new rivals, technological change and rising minimum wages.

The company warned during its quarterly results that it may not be able to fully offset the impact of minimum wage increases in Ontario and Alberta that will cost up to $25 million in its 2018 financial year and $70 million in its 2019 financial year.

“We continue to work on further plans to mitigate the full year impacts for fiscal 2019, but there is some risk that we may not be able to fully offset the effects on earnings, considering the short transition period of the cost increases,” chief financial officer Michael Vels said during a conference call Wednesday.

Shares of Empire (TSX:EMP.A) were down $1.56, or 5.97 per cent, to $24.59 at the closing of markets Wednesday on the Toronto Stock Exchange.

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