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Canadian Sobeys Focused on Cutting Costs

STELLARTON, Nova Scotia – Sobeys, Inc., Canada's No. 2 supermarket chain, reported yesterday an increase in second-quarter profit that fell short of analysts’ expectations, and acknowledged the need for continuous cost-cutting in such a highly competitive market.

In a conference call with analysts, c.e.o. Bill McEwan said the company will concentrate on competing for market share, while cutting costs at the same time to improve profits. He said savings from improved distribution, inventory management, and a boost to its private label business have yet to show in the company’s financial results.

For the second quarter ended Oct. 30, net income rose 9.5 percent to C$47.3 million ($38.6 million). Same-store sales rose 3.5 percent, which was more than twice the pace of Loblaw, Sobeys’ main competitor. Revenue hit C$2.97 billion.

"We are pleased with our progress on key merchandising and productivity initiatives as well as our improved in-store execution and operational performance," McEwan said.

Last year's second quarter included costs related to a major power failure in Ontario, a long-standing real estate lawsuit, and closure costs for two distribution centers.

Along with Loblaw, Sobeys faces the pervasive threat of Wal-Mart, which entered Canada in 1994 with the acquisition of Woolco stores. Wal-Mart operates 235 discount stores and six Sam's Club stores in Canada, according to the company’s Web site.

Sobeys owns or franchises more than 1,300 stores in all 10 provinces under retail banners that include Sobeys, IGA Extra, IGA, and Price Chopper.

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