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RITA TRICHUR

Thursday, March 16, 2006

TORONTO -- Grocery chain operator Sobeys Inc. assured investors yesterday that restructuring of its Ontario operations is on schedule, as it posted a slightly improved third-quarter profit of $45.7-million, even after absorbing costs for the retooling.

The Stellarton, N.S., supermarket operator -- along with its chief rival Loblaw Cos. Ltd. -- has been revamping its stores and supply chain to prepare for the expected onslaught of competition from Wal-Mart Stores Inc.'s supercentres later this year.

"Our steadfast focus on food and improved execution drove strong same-store sales again this quarter," chief executive officer Bill McEwan said in a release.

"In addition, our ongoing productivity initiatives and our extensive Ontario business process, supply chain and systems transformation initiative remains right on track."

Sobeys' quarterly profit was 70 cents a diluted share, compared with $44.8-million or 69 cents in the comparable year-ago period.

Earnings for the period edged up even as the grocer booked $4.9-million in costs for the restructuring of its Ontario operations. Excluding the effect of that and other items, share profit would have come in at 73 cents a share, the company said.

That exceeded an analyst consensus forecast for profit of 71 cents a share, before extraordinary items, compiled by Thomson Financial.

Sales for the quarter ended Feb. 4 were $3.17-billion, up 8.7 per cent from $2.92-billion in the prior-year period. Same-store sales, a key retail metric for stores open at least a year, increased 4.1 per cent.

Sobeys credited the sales growth to its sales and merchandising initiatives, coupled with the increased retail selling space from the development of new stores and a program to enlarge and renovate older stores.

Following the announcement, Dominion Bond Rating Service Ltd. confirmed Sobeys ratings at R-2 (high) and triple-B (high), but cast a sombre outlook.

"Rating trends remain negative as Sobeys continues to confront an extremely challenging competitive position that is unlikely to provide significant opportunity for earnings improvement in the near term," the debt rating agency said.

DBRS also noted the prospect that Wal-Mart Canada Corp. of Mississauga and other mass merchandisers will deepen their foray into Canada's grocery business: "These combined competitive threats will require Sobeys to continue to focus on reducing retail prices while also continuing with an aggressive capital spending program."

Sobeys shares closed up 85 cents or 2 per cent at $38.65 on the Toronto Stock Exchange yesterday.

Sobeys

Q320062005
Profit$45.7-million$44.8-million
EPS70¢69¢
Revenue$3.2-billion$2.9-billion
9-mths.
Profit$139.7-million$138.6-million
EPS$2.16 $2.14
Revenue$9.7-billion$8.9-billion

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