Empire Company Limited (TSX:EMP.A) is the owner of Sobeys, Safeway, Price Chopper, Foodland, and other grocery brands in Canada. It is Canada’s second-largest grocer with more than 1,500 stores nationwide.
The company is still reeling after its 2014 $5.8 billion takeover of Safeway didn’t go as planned.
As management merged the two companies together, Safeway customers complained about everything from a lack of product on shelves to the switch from Safeway’s store brand products to Compliments, Sobeys’ store brand. Empire was forced to take more than $3 billion in writedowns, a lot for a company with a market cap of $5.9 billion.
Shares currently trade hands at $21.48 each, only barely above the 52-week low of $18.64.
But not everything is bad. After accounting for the non-cash losses, Empire still posted a healthy operating profit of some $600 million over the last year. And on traditional value ratios such as price-to- sales and price-to- book value, it trades at a far lower valuation than its peers.
The company is also doing a nice job expanding into other areas of retail. It operates a chain of gas stations in Atlantic Canada. It also has liquor stores, primarily in Western Canada. These stores tend to have better margins than grocery.
Empire pays investors a dividend of 1.9%, which is a nice consolation prize while waiting for the turnaround. The company has also become much more serious about giving investors dividend raises, upping the payout every year since 2011.
