Sobeys tries to put $49M software charge behind it Operating earnings up

Hollie Shaw Financial Post, with files from wire services Year-end results for Sobeys Inc. utter a cautionary tale -- technology does not always make a business more efficient.

A large chunk of profit at Canada's No. 2 supermarket chain was wiped out by costs incurred when Sobeys was forced to scrap a $90-million SAP supply chain management system after it broke down.

However, the Stellarton, N.S.-based company's rejigged executive team tried to put the headaches of the last year behind them yesterday during a company conference call.

"We will be easier to do business with, and our sales, profitability and customer satisfaction will grow," said chief executive Bill McEwan. "We're well past anything that you could describe as singificant systems problems."

After posting a charge of $49.2-million for the software troubles, net earnings amounted to $42-million (69¢ a share), down from $80.2-million ($1.43) last year.

Sobey's, which has seen a spate of upper management shifts in the last year, has worked during that time to reduce costs and streamline processes nationally.

Mr. McEwan said the company is aiming for 30% growth in earnings per share for fiscal 2002.

Before the third-quarter charge, full-year operating earnings totalled $91.2-million ($1.50), versus $80.2-million ($1.43) last year.

"They pretty well had to hit that number because they have so little credibility left," said Cynthia Rose-Martel, an analyst at Harris Partners. The investment community is still smarting from Sobeys' surprise news about SAP, which came later than many agreed it should have, she said.

Annual and fourth-quarter sales reached $11.37-billion and $2.84-billion, respectively, up 5.3% and 7.3%. Same-store sales rose 3.7% for the year.

Sobeys operates 400 corporate and 1,000 franchised stores across the country under the banners Sobeys, IGA and Price Chopper.

For the fourth quarter ended May 5, the company's profit was $25.4-million (39¢), up from $23.1 million (41¢) a year earlier.

Ms. Martel says it is difficult for Sobeys to compete against the robust Loblaws Cos. "It certainly wouldn't be my core investment in the sector," she said.

Don Povalaitis of Standard & Poors was more optimistic.

"Down the road, Loblaws poses a challenge and Sobeys does have quite a bit of debt to deal with, but it is still a very strong No. 2," he said. "It has critical mass and is still growing."

At the end of the fourth quarter, Sobeys' debt stood at $604-million, or about 39% compared with the company's total capital. Sobeys increased its store space by almost 4% in fiscal 2001 and plans to add another 5% this year.

http://www.nationalpost.com/financialpost/cadbusiness/story.html?f=/stories/20010628/603358.html

-- Anonymous, June 28, 2001

Answers

SAP had a hard time getting everybody up-to-snuff
for Y2K. That's hardly SAP's fault. These large
systems need to start at least 5 years before the
planned implementation.

-- Anonymous, July 02, 2001