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About 50 underperforming Sobeys stores to close, mostly in Western Canada

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Sobeys is closing about 50 underperforming grocery stores across the country as it deals with intense competition and tries to squeeze savings from its operations after the acquisition of Safeway in Canada.

About 60 per cent of the affected Sobeys locations will be in Western Canada, while the rest will be spread out across the country, said Marc Poulin, president and CEO of both Sobeys and its parent company Empire Co.

Other facilities and plants could also be closed once further reviews are completed.

"Clearly, we have learned a lot from this process and will assess our options with a view to do what is right for the business," he said in a conference call, after the Nova Scotia-based company released sharply lower quarterly results on Thursday.

"After all, it's all about maximizing the value to the shareholders."

Sobeys did not say how many employees would be laid off and did not respond to requests for a list of locations to be closed, although a store on Front Street in Toronto was closed Wednesday.

Earlier this year, Sobeys announced deals to sell some 30 stores in Western Canada including 23 that were part of an agreement with the Competition Bureau in connection with its purchase of Canada Safeway last year.

After the Safeway deal, Sobeys launched a widespread review to determine which grocery stores fell short of expectations, with the goal of eliminating ones that showed no sign of improvement, Poulin said.

"Stores that are underperforming do require an awful lot of management attention," he told analysts.

"As hard as it is a hard decision to take, it will allow us to focus attention on stores with more potential."

UFCW Canada, the union that represents employees at more than 350 Sobeys, Safeway, IGA and Freshco stores across the country, said in a statement that it will do everything it can to protect the rights of workers affected by the closings, including enforment of seniority rights and other safeguards in their collective agreement.

"Any and all restructuring must be done in accordance with the terms of the collective agreement and should reflect the fact that these members have helped build Sobeys as a successful company," said Paul Meinema, national president of UFCW Canada, which also represents workers at Sobeys distribution centres in Ontario, Quebec, Manitoba, Alberta and Nova Scotia.

The decision comes as Sobeys faces intense price competition from others in the grocery industry, including U.S. retailers like Walmart and Target.

Closing weaker Sobeys stores will improve the quality of its overall operations and financial results, Poulin said. However, the move will also shave about $400 million or about 1.9 per cent off its future annual sales.

The company said its planned Sobeys closures will remove 1.5 million square feet, from the national grocery store market, which CIBC analyst Perry Caicco said is about 0.77 per cent of the overall market.

"Rapid square footage growth has crimped the Canadian market, and Sobeys has been the first to acknowledge that," said CIBC analyst Perry Caicco in a note.

"It is probable that 20 of these closures will be in the terrible Ontario market," he added.

Empire (TSX:EMP.A) has been reshaping the look of its conglomeration over the past few years, having acquired 236 retail gas locations and convenience stores in Eastern Canada in 2012 and selling off its movie theatre business last summer.

Within its grocery operations, it has already planned the closure of a juice and grocery facility in Alberta at the end of August, and a cheese and ice cream plant in Winnipeg. The company also plans to expand an Ontario facility that handles frozen and dairy products, and consolidate meat and produce into the location in 2016.

Other manufacturing facilities acquired from Safeway are also facing a review for their productivity, Poulin said.

In its fourth-quarter results, Empire reported a profit of $800,000 net of controlling interest, worth a penny per diluted share. That's a decline from $105.9 million or $1.56 per diluted share a year ago.

Included in the fourth-quarter results was a charge of $169.8 million that accounts for administrative and sales costs from the restructuring plan.

Consolidated sales for the quarter ended May 3 were $5.94 billion, up from $4.26 billion a year ago, boosted by the $5.8-billion acquisition of Canada Safeway last summer. Sobeys' same-store sales were up 0.2 per cent from the prior year.

On an adjusted basis, Empire's profits from continuing operations were $131.3 million, or $1.42 per diluted share, compared with $95.7 million or $1.40 per diluted share.

Those results beat analysts' expectations for adjusted net income of $112.2 million and adjusted earnings per share of $1.29, according to estimates compiled by Thomson Reuters.

Empire also increased its quarterly dividend by a penny to 27 cents per share.

On the Toronto Stock Exchange, Empire shares gained 59 cents to $67.69.

Follow @dj_friend on Twitter.

Note to readers: This is a corrected story. An earlier version incorrectly said the quarterly sales excluded the impact of the Safeway acquisition. The earlier version also incorrectly stated the net income for the fourth quarter and full year.

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