The company behind the Sobeys grocery chain has written down the value of its western business, primarily the Safeway chain, resulting in a loss of $1.36 billion in its latest quarter.

Empire says the loss was largely due to a recognition that the long-term value of the Safeway business is lower than previously estimated.

Sobeys paid $5.8 billion to acquire the Canadian assets of Safeway in 2013, creating a significantly bigger presence in a part of Canada where the Nova Scotia-based company had a relatively small presence compared with other regions.

Excluding the Safeway writedown and certain other items, Empire Co. would have had $82.5 million of adjusted earnings in its fiscal third quarter — down 36.1 per cent from $118.6 million.

The net loss amounted to $5.03 per share, which included a $1.59 billion writedown of goodwill associated with the Safeway purchase.

Fiscal difficulties surrounding Safeway intensified

After adjustments, Empire earned 30 cents per share in the 13 weeks ended Jan. 30.

A year earlier, Empire's fiscal third-quarter had $123.6 million of net income or 45 cents per share and $118.6 million of adjusted earnings, or 43 cents per share.

tp-cgy-sobeys

Sobeys parent company Empire reported a $1.36 billion loss in its third quarter this year. (CBC)

Revenue was up $86.7 million over the 13 weeks ended Jan. 30 to $6.03 billion from $5.94 billion in last year's third quarter, mainly because of food inflation and the acquisition of Co-op Atlantic.

"The challenges that we experienced in the first half of fiscal 2016 related to the integration of our Safeway business only intensified in the third quarter," Empire president and CEO Marc Poulin said in a statement.

Western business sales dropped

He said its Safeway banner and the West business unit saw sales eroded in a difficult economic environment, mainly in Alberta and Saskatchewan.

Poulin also told analysts in a conference call that a new management team for the western business unit will be in place by the end of the company's fiscal year in April.

Among other things, Sobeys has had difficulty winning acceptance for its private-label products among Safeway customers.

Consumer response to a pricing and promotion campaign initiated at the end of January was initially disappointing, according to chief financial officer Francois Vimard, but Poulin added that the company expects the benefits to build over time.