Sobeys announces third quarter results



    STELLARTON, NS, March 14 /CNW/ - Sobeys Inc. (TSX: SBY) today announced
quarterly basic net earnings per share of $0.51 ($33.3 million) for its third
quarter ended February 3, 2007 compared to the $0.71 ($45.7 million) reported
in the third quarter last year. Included in earnings for the third quarter
ended February 3, 2007 are $7.0 million ($4.9 million for the third quarter of
last year) of costs related to the business process and system initiative
outlined in the Company's fourth quarter 2006 news release. Also included in
earnings for the third quarter of fiscal 2007 are $13.2 million of pre-tax
costs related to the rationalization of our Ontario distribution network and
Atlantic administrative functions.
    Sales for the third quarter were $3.23 billion compared to $3.14 billion
for the same quarter last year, an increase of $94.7 million or 3.0 percent.
Same-store sales increased 1.8 percent in the quarter.

    
    Third Quarter Highlights

    - Sales of $3.23 billion, up $94.7 million or 3.0 percent.

    - Same-store sales increased 1.8 percent.

    - Basic net earnings per share of $0.51 ($33.3 million) compared to $0.71
      ($45.7 million) last year.

    - EBITDA margin of 3.36 percent versus 4.10 percent in the third quarter
      last year.

    - Net profit margin of 1.03 percent compared to 1.46 percent in the third
      quarter last year.

    - Funded debt to total capital of 23.9 percent compared to 20.9 percent a
      year ago.

    - EBITDA to interest expense of 15.1 times versus 13.9 times in the third
      quarter last year.

    - Return on equity of 9.6 percent compared to 10.9 percent last year.

    "Our third quarter results reflect our continued solid same store sales
performance and commitment to sustain our price position as competition
intensified, particularly in Ontario," said Bill McEwan, President and Chief
Executive Officer. "Transformation initiatives over the past three years
enabled the first phase of administrative streamlining and distribution
rationalization in the quarter that we expect to deliver significant
annualized benefits."

    Dividend Declaration

    The Board of Directors declared a quarterly dividend of $0.15 per share on
Sobeys Inc. common shares which will be payable on April 30, 2007, to
shareholders of record on April 13, 2007.

    Management's Discussion and Analysis

    The following is Management's Discussion and Analysis ("MD&A") of the
consolidated financial results of Sobeys Inc. ("Sobeys" or "the Company") for
the 13-weeks and 39-weeks ended February 3, 2007, as compared to the 13-weeks
and 39-weeks ended February 4, 2006. It should be read in conjunction with the
Company's unaudited interim consolidated financial statements and notes
thereto for the 13-weeks and 39-weeks ended February 3, 2007, the audited
annual consolidated financial statements and the accompanying notes for the
52-weeks ended May 6, 2006 and the related annual MD&A included in the
Company's 2006 Annual Report. Additional information about the Company,
including the Company's Annual Information Form, can be found on SEDAR at
www.sedar.com.
    The consolidated financial statements and the accompanying notes have been
prepared in accordance with Canadian Generally Accepted Accounting Principles
("GAAP") and are reported in Canadian dollars.
    These consolidated financial statements include the accounts of Sobeys and
its subsidiaries and variable interest entities ("VIEs") which the Company is
required to consolidate. Included in the Company's 2006 Annual Report, on page
76, is a glossary of terms used throughout this MD&A. The information
contained in this MD&A is current to March 14, 2007, unless otherwise noted.
    This discussion contains forward-looking statements which reflect
management's expectations regarding the Company's objectives, plans, goals,
strategies, future growth, results of operations, performance, business
prospects and opportunities. These forward looking statements include the
following items:

    - Expectations regarding tobacco sales decline which could be impacted by
      changes in the sales and distribution practices of tobacco suppliers;

    - The Company's expectation relating to pending tax matters with Canada
      Revenue Agency ("CRA"), which could be determined differently by CRA.
      This could cause the Company's effective tax rate and its earnings to
      be affected positively or negatively in the period the matter is
      resolved;

    - The Company's expectations that the new distribution centre announced
      for Ontario and the closures of distribution centres in Quebec will
      reduce overall distribution costs, which could be impacted by the
      number of positions eliminated at its Ontario and Quebec distribution
      centres; and

    - The Company's expectations that administrative and business
      rationalization activities in the current quarter and upcoming quarters
      will involve costs and provide annualized cost reductions, both of
      which could be impacted by the final scope and scale of these
      activities.

    Forward-looking statements are typically identified by words or phrases
such as "anticipates", "expects", "believes", "estimates", "intends" and other
similar expressions. These statements are based on Sobeys management's
assumptions and beliefs in light of the information currently available to
them. These forward-looking statements are subject to uncertainties and other
factors that could cause actual results to differ materially from such
statements. These uncertainties and risks are discussed in the Company's
materials filed with the Canadian securities regulatory authorities from time
to time, including in the Risk Management section of the annual MD&A included
in the Company's 2006 Annual Report.
    When relying on forward-looking statements to make decisions, the Company
cautions readers not to place undue reliance on these statements, as a number
of important factors could cause actual results to differ materially from any
estimates or intentions expressed in such forward-looking statements. The
Company does not undertake to update any forward-looking statements that may
be made from time to time by or on behalf of the Company.

    FINANCIAL OVERVIEW
    ------------------

    The financial overview provided below reports on the performance for the
13-weeks and 39-weeks ended February 3, 2007 relative to the same periods last
year.
    Sobeys, its subsidiaries and its VIEs conduct business in four retail food
regions: Sobeys West, Sobeys Ontario, Sobeys Quebec, and Sobeys Atlantic.

    Summary Table of Consolidated Financial Results:

    ($ in millions, except per share data)

                                    13-Weeks Ended            13-Weeks Ended
                                  February 3, 2007          February 4, 2006

                                    $   % of Sales            $   % of Sales
                           --------------------------------------------------
    Sales                  $  3,230.7        100.0%  $  3,136.0        100.0%
    Earnings, before
     interest, income
     taxes and minority
     interest                    54.8          1.7%        78.6          2.5%
    Interest expense              9.8          0.3%         8.3          0.3%
    Income taxes                 11.4          0.4%        25.8          0.8%
    Minority interest             0.3          0.0%        (1.2)         0.0%
    Net earnings                 33.3          1.0%        45.7          1.5%
    Cash flows from
     operating activities        81.3          2.5%        99.4          3.2%

    Per Share, basic
    Net earnings           $     0.51                $     0.71
    Weighted average
     number of shares
     outstanding, basic          64.9                      64.8

    Per Share, diluted
    Net earnings           $     0.51                $     0.70
    Weighted average
     number of shares
     outstanding, diluted        65.5                      65.4

    Dividends              $    0.150                $    0.140


                                    39-Weeks Ended            39-Weeks Ended
                                  February 3, 2007          February 4, 2006

                                    $   % of Sales            $   % of Sales
                           --------------------------------------------------
    Sales                  $  9,788.3        100.0%  $  9,592.3        100.0%
    Earnings, before
     interest, income
     taxes and minority
     interest                   226.0          2.3%       246.4          2.6%
    Interest expense             26.8          0.3%        27.0          0.3%
    Income taxes                 63.1          0.6%        76.0          0.8%
    Minority interest             5.7          0.1%         3.7          0.0%
    Net earnings                130.4          1.3%       139.7          1.5%
    Cash flows from
     operating activities       141.3          1.4%       196.0          2.0%

    Per Share, basic
    Net earnings           $     2.01                $     2.16
    Weighted average
     number of shares
     outstanding, basic          64.9                      64.8

    Per Share, diluted
    Net earnings           $     1.99                $     2.14
    Weighted average
     number of shares
     outstanding, diluted        65.5                      65.4

    Dividends              $    0.440                $    0.405


    The 13-weeks and 39-weeks ended February 4, 2006 have been restated to
reflect the retroactive adjustment related to EIC-156. Please see the section
entitled "Accounting Policy Changes - Accounting for Consideration by a Vendor
to a Customer (Including a Reseller of the Vendor's Products) ("EIC-156")" in
this MD&A.
    The following is a review of Sobeys' performance for the 13-week and  
39-week periods ended February 3, 2007 compared to the same periods last year.

    Sales

    Sales for the third quarter of fiscal 2007 were $3.23 billion compared to
$3.14 billion for the same quarter last year, an increase of $94.7 million or
3.0 percent. During the third quarter of fiscal 2007 Sobeys same-store sales
(sales from stores in the same locations in both reporting periods) increased
by 1.8 percent.
    Year-to-date, sales increased 2.0 percent from the prior year, with
same-store sales growth of 2.4 percent. Same-store sales growth does not
include wholesale sale declines as described below.
    Sales growth, for both the quarter and year-to-date, was driven by the
Company's continued implementation of sales and merchandising initiatives
across the country, coupled with the increased retail selling square footage
resulting from the development of new stores and an ongoing program to enlarge
and renovate existing store assets. Sales growth was also positively impacted
by the acquisition on August 27, 2006 of Achille de la Chevrotière Ltée and
its associated companies ("ADL"). This acquisition included 25 owned or
franchised retail store operations, other wholesale supply agreements and a
distribution facility in Rouyn-Noranda, Quebec.
    The Company continued to experience declines in its wholesale tobacco
sales in the third quarter of fiscal 2007. Wholesale tobacco sales declined
$41.0 million in the third quarter of fiscal 2007 compared to the third
quarter of the prior year ($86.4 million on a year to date basis). Sales
growth was also negatively impacted by the disposition on March 31, 2006 of
the Company's Cash and Carry business in Ontario and Quebec. Cash and Carry
sales in the third quarter last year were $48.1 million ($169.7 million on a
year-to-date basis). As shown in the table below, excluding the impact of the
wholesale tobacco decline, the Cash and Carry disposition, and the ADL
acquisition, sales growth would have been 3.9 percent for the quarter and
3.6 percent on a year-to-date basis.

    Sales Tables
                             13-weeks     13-weeks
    ($ in millions)             ended        ended
                           February 3,  February 4,
                                 2007         2006       Change       Change
                                   ($)          ($)          ($)          (%)
                           -----------  -----------  -----------  -----------
    Financially reported
     sales                 $  3,230.7   $  3,136.0   $     94.7          3.0%

    Impact of Cash and
     Carry disposal                                       (48.1)
    Impact of ADL acquisition                              60.4
    Impact of wholesale tobacco decline                   (41.0)
                                                     -----------
                                          Subtotal        (28.7)
                                                     -----------

                                                     ------------------------
                                                     $    123.4          3.9%
                                                     ------------------------
                                                     ------------------------


                             39-weeks     39-weeks
                                ended        ended
    ($ in millions)        February 3,  February 4,
                                 2007         2006       Change       Change
                                   ($)          ($)          ($)          (%)
                           -----------  -----------  -----------  -----------
    Financially reported
     sales                 $  9,788.3   $  9,592.3   $    196.0          2.0%

    Impact of Cash and
     Carry disposal                                      (169.7)
    Impact of ADL acquisition                             110.4
    Impact of wholesale tobacco decline                   (86.4)
                                                     -----------
                                          Subtotal       (145.7)
                                                     -----------

                                                     ------------------------
                                                     $    341.7          3.6%
                                                     ------------------------
                                                     ------------------------

    Late in the second quarter of fiscal 2007 a major Canadian tobacco
supplier began to sell and distribute directly to certain of the Company's
customers further impacting the decline in sales. This change is expected to
reduce sales on an annual basis by approximately $300 million. Margins on
tobacco sales are significantly lower than on other products therefore the
loss of these sales will not have a material impact on earnings. The Company
continues to explore options to mitigate the financial impact of this
decision.

    Business Process and System Initiative and Business Rationalization Costs

    Included in earnings for the third quarter were costs related to the
Company's business process and system initiative as well as business
rationalization costs. In total these costs had a $20.2 million pre-tax
($4.9 million pre-tax in the third quarter of fiscal 2006) impact on earnings
which is equivalent to a $0.20 ($0.05 - Q3 2006) impact on basic earnings per
share.

    These costs include:

    - Business process and system initiative costs - For the 13-weeks ended
      February 3, 2007, $7.0 million ($4.9 million in the third quarter of
      fiscal 2006) of pre-tax costs were incurred related to the business
      process and system initiative outlined in the Company's MD&A included
      in the 2006 Annual Report. The business process and system initiative
      costs primarily include labour, implementation and training costs
      associated with the business process and system implementation as well
      as final costs associated with exiting the Commisso's banner. During
      the third quarter the Company implemented the system in Ontario in
      accordance with its plans. This implementation supports all aspects of
      the Company's Ontario business including operations, merchandising,
      distribution and finance and is an important enabler of further
      initiatives in Ontario including the new distribution facility
      in Ontario as further discussed below. The Company continues its work
      on the business process and system initiative in the Western region.

    - Business rationalization costs - During the third quarter, the Company
      also completed a rationalization of administrative functions in
      Atlantic Canada. This administrative rationalization was completed
      following the recent successful implementation of the Company's first
      phase of the business process and system initiative. Along with asset
      write-offs in excess of 100 people were impacted by this
      rationalization. However, a number of these people were redeployed into
      the Company's retail store network. Pre-tax costs of $7.9 million were
      incurred in this rationalization. The Company expects full year
      annualized expense reductions in fiscal 2008 in excess of these costs.

    - Ontario distribution network rationalization - On November 21, 2006 the
      Company announced plans to build a new distribution centre in Vaughan,
      Ontario. Utilizing automation technology, the new facility is expected
      to significantly increase the Company's warehouse and distribution
      capacity while reducing overall distribution costs and improving
      service to its store network and customers. During the third quarter
      the Company recognized $5.3 million of severance costs associated with
      this rationalization. This new distribution centre, when opened in
      fiscal 2009, is expected to provide annual distribution cost savings
      in excess of the costs incurred this quarter and any additional
      business rationalization or restructuring costs incurred leading up to
      its opening.

    The Company expects to incur additional administrative rationalization
costs in its next two quarters, enabled by its continuing business process and
system initiative. The dollar value of these additional costs will be
quantified and disclosed in future quarters. The Company also expects to incur
distribution rationalization costs in the fourth quarter related to its Quebec
distribution network. The Company recently announced the closure of two small
facilities, one in Anjou and one in the Abitibi region of Quebec.
Rationalization costs related to these facilities of approximately
$5.4 million are expected to be incurred in the fourth quarter and annualized
savings of approximately $5.0 million thereafter.

    Earnings before interest, income taxes, depreciation and amortization (1)

    Earnings before interest, income taxes, depreciation and amortization
("EBITDA") for the third quarter of fiscal 2007 decreased $19.9 million or
15.5 percent to $108.7 million from $128.6 million reported in the third
quarter of fiscal 2006. EBITDA as a percent of sales decreased from
4.10 percent in the third quarter of fiscal 2006 to 3.36 percent in the third
quarter of fiscal 2007. EBITDA is impacted by the business process and system
initiative and the rationalization costs discussed above as well as the
Company's commitment to sustain its price position as competition intensified,
particularly in Ontario.
    Year-to-date EBITDA for the third quarter of fiscal 2007 decreased by
1.4 percent to $386.1 million compared to $391.5 million reported for the same
period last year. Year-to-date EBITDA as a percent of sales decreased from
4.08 percent in the prior year to 3.94 percent in the current fiscal year.

    Earnings before interest, income taxes, depreciation, amortization and
    rent (1)

    Earnings before interest, income taxes, depreciation, amortization and
rent ("EBITDAR") for the third quarter of fiscal 2007 decreased $24.9 million
or 12.2 percent to $179.3 million compared to $204.2 million in the same
quarter last year. The Company leases a substantial portion of its store
locations. Gross rent expense of $70.6 million in the third quarter of fiscal
2007 and $75.6 million in the third quarter of fiscal 2006 is added to EBITDA
to arrive at EBITDAR, a measure of operating performance excluding the impact
of capital and how it is financed. EBITDAR as a percent of sales in the third
quarter of fiscal 2007 was 5.55 percent compared to 6.51 percent in the third
quarter of fiscal 2006.
    On a year-to-date basis, EBITDAR decreased $3.0 million to $606.3 million
a 0.5 percent decrease from the same period last year. EBITDAR as a percent of
sales for the 39-weeks ended February 3, 2007 was 6.19 percent compared to
6.35 percent for the same period last year.
    The Company determined that an adjustment of EBITDAR was required for
prior periods to reflect the elimination of lease expense paid by VIEs for
properties where Sobeys has the headlease. EBITDAR was reduced by $7.9 million
for the third quarter of fiscal 2006 and $43.4 million for the full 2006
fiscal year due to this adjustment.

    (1) See Non-GAAP measures section.

    Earnings before interest, income taxes and minority interest

    Earnings before interest, income taxes and minority interest ("EBIT") was
$54.8 million during the third quarter of fiscal 2007, a 30.3 percent decrease
from the third quarter last year, with an EBIT margin of 1.70 percent compared
to 2.51 percent in the third quarter of fiscal 2006. Included in the third
quarter of fiscal 2007 EBIT was a $3.9 million increase in depreciation and
amortization expense, reflecting the Company's continued capital investments.
Also included in EBIT are the business process, system and rationalization
costs outlined previously.
    For the 39-weeks ended February 3, 2007, EBIT decreased by $20.4 million
to $226.0 million, a decrease of 8.3 percent compared to the $246.4 million
reported last year. EBIT as a percent of sales was 2.31 percent for fiscal
2007 compared to 2.57 percent in fiscal 2006.
    The Company will continue to focus on disciplined cost management
initiatives, supply chain and retail productivity improvements and migration
of best practices across its four regions to continue to fuel and fund
investments to drive sales and improve margins over time.

    Interest expense

    Interest expense increased $1.5 million to $9.8 million in the third
quarter of fiscal 2007, from the $8.3 million in the third quarter last year
due to an increase in long-term debt quarter over quarter. Interest coverage,
which is EBIT divided by interest expense, decreased to 5.6 times compared to
9.5 times in the third quarter last year. This reduction in interest coverage
is due to fluctuating long-term debt levels along with a reduction in EBIT
associated with the one time costs as outlined above. Trailing 12-month
interest decreased $3.0 million to $34.7 million in the third quarter of
fiscal 2007, from $37.7 million in the third quarter of the prior year.
    For the 39-weeks ended February 3, 2007, interest expense decreased
$0.2 million to $26.8 million. Interest coverage decreased to 8.4 times
compared to 9.1 times last year.
    The majority of the Company's debt is long-term and at fixed rates,
accordingly there is limited exposure to interest rate volatility. The Company
is exposed to interest rate risk when arranging new debt.

    Income taxes

    The effective income tax rate for the third quarter of fiscal 2007 was
25.3 percent compared to 36.7 percent in the third quarter last year. The
effective income tax rate for the 39-weeks ended February 3, 2007 was
31.7 percent compared to 34.6 percent last year. The main reason for both the
quarter and year-to-date decrease is due to reductions in the Canadian federal
and certain provincial statutory income tax rates and the application of those
lower rates to future tax balances. In the third quarter of fiscal 2007, a
$2.0 million reduction in future income tax expense was recognized as a result
of these reductions in tax rates. In addition, during the third quarter of
fiscal 2007, an adjustment to taxes payable associated with VIEs reduced the
effective tax rate for the quarter. This will have a nominal impact on the
annual effective rate.

    Net earnings

    Third quarter fiscal 2007 basic net earnings per share totalled $0.51
($33.3 million), a decrease of 28.2 percent compared to the $0.71 per share
($45.7 million) recorded in the third quarter of fiscal 2006. Basic net
earnings per share for the 39-weeks ended February 3, 2007 totalled $2.01
($130.4 million), a decrease of 6.9 percent compared to the $2.16
($139.7 million) reported in the same period last year.
    Net earnings for the 13-week and 39-week periods ended February 3, 2007
included the increased depreciation and amortization expense, and the business
process and system initiative costs as well as business integration and
rationalization costs referred to above. Net earnings also include the impact
of the consolidation of VIEs.

    Quarterly results of operations
    -------------------------------
    The following is a summary of selected financial information from the
Company's unaudited interim consolidated financial statements for each of the
most recently completed eight quarters.

    Financial Information by Quarter
    ($ in millions, except per share information)

                                   Q3           Q2           Q1           Q4
                            (13 weeks)   (13 weeks)   (13 weeks)   (13 weeks)
                                3-Feb        4-Nov       05-Aug        6-May
    Operations                   2007         2006         2006         2006
                           --------------------------------------------------
    Sales                  $  3,230.7   $  3,251.5   $  3,306.1   $  3,125.8
    EBITDA                      108.7        137.9        139.5        136.7
    EBIT                         54.8         82.9         88.3         85.2
    Net earnings           $     33.3   $     47.2   $     49.9   $     49.7

    Per share information,
     basic
    EBIT                   $     0.84   $     1.28   $     1.36   $     1.32
    Net earnings           $     0.51   $     0.73   $     0.77   $     0.77
    Weighted average number
     of shares, basic            64.9         64.9         64.7         64.7

    Per share information,
     diluted
    EBIT                   $     0.84   $     1.27   $     1.35   $     1.30
    Net earnings           $     0.51   $     0.72   $     0.76   $     0.76
    Weighted average number
     of shares, diluted          65.5         65.5         65.4         65.4

    EBITDA as percent
     of sales                    3.36%        4.24%        4.22%        4.37%
    EBIT as percent
     of sales                    1.70%        2.55%        2.67%        2.73%


                                   Q3           Q2           Q1           Q4
                            (13 weeks)   (13 weeks)   (13 weeks)   (14 weeks)
                               04-Feb       05-Nov       06-Aug        7-May
    Operations                   2006         2005         2005         2005
                           --------------------------------------------------
    Sales                  $  3,136.0   $  3,186.2   $  3,270.1   $  3,255.5
    EBITDA                      128.6        132.8        130.1        133.1
    EBIT                         78.6         84.1         83.7         84.6
    Net earnings           $     45.7   $     45.8   $     48.2   $     48.1

    Per share information,
     basic
    EBIT                   $     1.21   $     1.30   $     1.29   $     1.31
    Net earnings           $     0.71   $     0.71   $     0.74   $     0.74
    Weighted average number
     of shares, basic            64.8         64.8         64.7         64.7

    Per share information,
     diluted
    EBIT                   $     1.20   $     1.29   $     1.28   $     1.30
    Net earnings           $     0.70   $     0.70   $     0.74   $     0.74
    Weighted average number
     of shares, diluted          65.4         65.4         65.3         65.3

    EBITDA as percent
     of sales                    4.10%        4.17%        3.98%        4.09%
    EBIT as percent
     of sales                    2.51%        2.64%        2.56%        2.60%

    All quarters prior to the first quarter of fiscal 2007 have been restated
    to reflect the retroactive adjustment related to EIC-156. Please see the
    section entitled "Accounting Policy Changes - Accounting for
    Consideration by a Vendor to a Customer (Including a Reseller of the
    Vendor's Products ("EIC-156")" in this MD&A.


    Financial condition
    -------------------
    The Company's financial condition at February 3, 2007 remained strong as
indicated in the following table:

    Capital Structure and Key Financial Condition Measures

    ($ in millions)                     February 3,       May 6,  February 4,
                                              2007         2006         2006
                                        -------------------------------------
    Shareholders' equity                $  1,940.0   $  1,834.3   $  1,794.0
    Total long-term debt (1)            $    609.8   $    490.0   $    474.1
    Funded debt to total capital (3)          23.9%        21.1%        20.9%
    Funded debt to EBITDA (3)                  1.2x         0.9x         0.9x
    EBITDA to interest expense                15.1x        15.1x        13.9x
    Current assets to current
     liabilities                              1.04x        1.00x        0.98x
    Total assets                        $  3,922.9   $  3,738.6   $  3,549.1
    Long-term debt (2)                  $    579.4   $    465.0   $    450.3

    (1) Includes current portion of long-term debt.
    (2) Excludes current portion of long-term debt.
    (3) See Non-GAAP measures section.


    The ratio of funded debt to total capital increased from 20.9 percent to
23.9 percent in comparison with the same period last fiscal year. The increase
is mainly attributable to the issuance of $125.0 million of additional
long-term debt during the second quarter of fiscal 2007 as described in
greater detail below.
    Improvement in the EBITDA to interest expense coverage ratio (15.1 times
versus 13.9 times at February 4, 2006) resulted from a decline in the trailing
12-month EBITDA ($522.8 million compared to $524.6 million for the 12 months
ended February 4, 2006) offset in part by an 8.0 percent decline in trailing
12-month interest expense ($34.7 million compared to $37.7 million for the
12 months ended February 4, 2006).
    Current assets to current liabilities increased to 1.04 times compared to
0.98 times for the same period last year. Sobeys' liquidity position remained
strong at February 3, 2007, with only 9.7 percent utilization (utilized for
letters of credit) of the authorized $300 million revolving bank lines. At
February 3, 2007, the Company had cash and cash equivalents totalling
$172.0 million compared to $145.2 million at February 4, 2006. During the
third quarter of fiscal 2006, the Company renegotiated its $300 million
revolving bank line, extending the term to five years and improving the
effective borrowing rate.
    On October 21, 2005, the Company filed a short-form base shelf prospectus
providing for the issuance of up to $500 million in unsecured Medium Term
Notes ("MTN") over a two year period. On October 28, 2005, the Company issued
a $175 million Series D MTN with a maturity date of October 29, 2035
(30 years) and a coupon rate of 6.06 percent. The proceeds from this issuance
were used to repay the Sobeys' Series A MTN which matured on November 1, 2005
and carried a rate of 7.60 percent. Through a bond forward, the Company had
locked in the rate on the underlying government of Canada 15 year yield for
refinancing $100 million of the November 2005 Series A MTN maturity. The
settlement of this bond forward resulted in a $4.4 million addition to
deferred costs which are being amortized to interest expense over the 30 year
term of the related MTN.
    On October 6, 2006, the Company issued a $125 million Series E MTN with a
maturity date of October 6, 2036 (30 years) and a coupon rate of 5.79 percent,
the proceeds of which will be used for general corporate purposes.

    Liquidity and capital resources
    -------------------------------
    The table below highlights major cash flow components for the 13-weeks and
39-weeks ended February 3, 2007 compared to the 13-weeks and 39-weeks ended
February 4, 2006.


    Major Cash Flow Components


                             13-weeks     13-weeks     39-weeks     39-weeks
                                Ended        Ended        Ended        Ended
                           --------------------------------------------------
                           February 3,  February 4,  February 3,  February 4,
    ($ in millions)              2007         2006         2007         2006
    -------------------------------------------------------------------------
    Net earnings           $     33.3   $     45.7   $    130.4   $    139.7
    Items not affecting cash     76.4         54.6        211.9        172.5
    -------------------------------------------------------------------------
                                109.7        100.3        342.3        312.2
    Net change in non-cash
     working capital            (28.4)        (0.9)      (201.0)      (116.2)
    -------------------------------------------------------------------------
    Cash flows from operating
     activities                  81.3         99.4        141.3        196.0
    Cash flows used in
     investing activities       (95.9)      (133.0)      (384.6)      (303.5)
    Cash flows from (used in)
     financing activities        (7.7)         0.8         83.2        (20.1)
    -------------------------------------------------------------------------
    Decrease in cash and
     cash equivalents      $    (22.3)  $    (32.8)  $   (160.1)  $   (127.6)
    -------------------------------------------------------------------------


    Operating activities

    Cash flows from operating activities were $81.3 million in the third
quarter of fiscal 2007 compared to cash flows from operating activities of
$99.4 million in the comparable period last year. The decrease of
$18.1 million was primarily due to a decrease in the change in non-cash
working capital of $27.5 million. Year-to-date cash flows from operating
activities were $141.3 million compared to $196.0 million in the comparable
period last year.
    The following tables present non-cash working capital changes compared to
the second quarter of fiscal 2007 and the second quarter of fiscal 2006 and
the year-to-date fiscal 2007 compared to the year-to-date of fiscal 2006.

    Non-Cash Working Capital (Quarter-Over-Quarter)


                                                    Q3 F2007 vs  Q3 F2006 vs
                                                       Q2 F2007     Q2 F2006
                                                       Increase     Increase
                                                      (Decrease)   (Decrease)
                           February 3,  November 4,     in Cash      in Cash
    ($ in millions)              2007         2006        Flows        Flows
                           --------------------------------------------------
    Receivables            $    264.9   $    239.5   $    (25.4)  $     25.5
    Long-term debt
     reclassification               -            -            -        (13.6)
    Inventories                 696.6        710.7         14.1         16.1
    Prepaid expenses             49.3         54.6          5.3          0.8
    Income taxes (payable)
     receivable                  20.7         (2.4)       (23.1)        12.2
    Accounts payable and
    accrued liabilities      (1,104.0)    (1,090.8)        13.2        (41.9)
    Impact of rationalization
     costs on working capital    12.6            -        (12.6)           -
    Impact of business
     acquisitions on working
     capital                     (0.1)           -          0.1            -
    -------------------------------------------------------------------------
    Total                  $    (60.0)  $    (88.4)  $    (28.4)  $     (0.9)
    -------------------------------------------------------------------------



    Non-Cash Working Capital (Year-Over-Year)
                                                                  Year-Over-
                                                                        Year
                                                                    Increase
                                                                   (Decrease)
    ($ in millions)                     February 3,  February 4,     in Cash
                                              2007         2006        Flows
                                        -------------------------------------
    Receivables                         $    264.9   $    219.0   $    (45.9)
    Inventories                              696.6        652.5        (44.1)
    Prepaid expenses                          49.3         44.2         (5.1)
    Income taxes (payable) receivable         20.7         19.4         (1.3)
    Accounts payable and
     accrued liabilities                  (1,104.0)    (1,048.5)        55.5
    Impact of rationalization costs
     on working capital                       12.6            -        (12.6)
    Impact of business acquisitions
     on working capital                      (14.2)           -         14.2
    -------------------------------------------------------------------------
    Total                               $    (74.1)  $   (113.4)  $    (39.3)
    -------------------------------------------------------------------------


    In the third quarter of fiscal 2007, receivables increased $25.4 million,
and inventory levels decreased $14.1 million compared to the second quarter of
fiscal 2007. The increase in accounts receivable during the quarter is due to
higher franchise receivable balances. The decrease in inventory reflects lower
inventory requirements following the December selling season. The accounts
payable and accrued liabilities increase of $13.2 million reflects higher
supplier payables and accrued liabilities as construction activities have
increased. The decrease in taxes payable compared to the second quarter
reflects the timing of tax remittances.
    Year-over-year non-cash working capital decreased $39.3 million to
$74.1 million. The increase in receivables, inventory and associated payables
is necessary to support the Company's higher sales volume due to the increased
amount of square footage in its expanded store network.

    Investing activities

    Cash used in investing activities of $95.9 million in the third quarter
was $37.1 million lower than in the third quarter of last fiscal year. The
decrease in cash used in investing activities was primarily the result of a
decrease in property and equipment purchases of $18.1 million, when compared
to the same period last year, reflecting lower capital spending in the third
quarter of fiscal 2007 compared to fiscal 2006. Proceeds on the disposal of
property and equipment also increased by $21.2 million compared to fiscal
2006.
    Company-wide capital investment includes on-balance sheet capital
expenditures, all known capital investments by franchise affiliates and
capital investments by third-party landlords. Company-wide capital investment
totalled $136.0 million for the third quarter of fiscal 2007, a decrease of
$13.0 million over the third quarter of the previous year.
    Year-to-date cash used in investing activities increased $81.1 million to
$384.6 million. The investment in property and equipment in the current year
of $299.5 million was $43.0 million higher than in the same period last year.
The increase in cash used in investing activities was due to a combination of
the purchase of ADL on August 27, 2006 for a purchase price of $79.2 million
and increased deferred costs and other assets of $27.4 million in comparison
with the prior year, offset by a reduction in mortgages, loans and other
receivables of $23.4 million and higher proceeds on disposal of property and
equipment of $39.6 million. Year-to-date company-wide capital investment
totalled $440 million compared to $405 million in the first 39 weeks of fiscal
2006.
    During the quarter, there were 14 corporate and franchised stores opened
or relocated compared to 25 corporate and franchised stores opened or
relocated during the third quarter of last year. An additional nine stores
were expanded during the quarter compared to seven stores expanded during the
third quarter of fiscal 2006. Ten stores were closed during the third quarter
of fiscal 2007 compared to 20 in the third quarter last year. There were five
stores rebannered in the third quarter of fiscal 2007 compared to one store in
the third quarter of last year.
    Net retail store square footage increased during the third quarter of
fiscal 2007 by 252,482 square feet (191,978 square feet opened, 193,326 square
feet for relocated stores, 40,094 square feet for expanded stores less 172,916
square feet closed). At February 3, 2007, Sobeys' square footage totalled
26.3 million square feet a 4.0 percent increase over the third quarter last
year.

    Financing activities

    Financing activities during the third quarter used $7.7 million of cash
compared to generating $0.8 million of cash in the comparable period of fiscal
2006. The decrease in cash flow is primarily due to the Company issuing
$6.2 million less long-term debt and making $4.2 million higher repayments of
existing long-term debt in comparison to the third quarter of the prior year.
    Financing activities for the first 39 weeks of fiscal 2007 generated $83.2
million of cash compared to using $20.1 million of cash for the same period
last year mainly as a result of the issuance of a $125 million MTN on October
6, 2006.
    The Company's share capital was comprised of the following on February 3,
2007:

    Authorized                                              Number of Shares
    -------------------------------------------------------------------------
    Preferred shares, par value of $25 each,
     issuable in series as a class                               471,000,000
    Preferred shares, without par value,
     issuable in series                                          500,000,000
    Common shares, without par value                             498,674,959

    Issued
    -------------------------------------------------------------------------
    Common shares, without par value                              65,529,782

    As of March 14, 2007 the Company had common shares outstanding of
65,529,782.

    Accounting Policy Changes
    -------------------------

    The following accounting standards were implemented during fiscal 2007 and
2006:

    Accounting for Consideration by a Vendor to a Customer (Including a
    -------------------------------------------------------------------
    Reseller of the Vendor's Products) ("EIC-156")
    ----------------------------------------------

    Issued in September 2005, EIC-156 addresses cash consideration, including
a sales incentive, given by a vendor to a customer. This consideration is
presumed to be a reduction of the selling price of the vendor's products and
should therefore be classified as a reduction of sales in the vendor's income
statement. These recommendations are effective for all interim and annual
financial statements for fiscal years beginning on or after January 1, 2006.
    Prior to the implementation of EIC-156, the Company recorded certain sales
incentives paid to independent franchisees, associates and independent
accounts in cost of sales, selling and administrative expenses. As
reclassifications, these changes did not impact net earnings.
    Effective in the first quarter of fiscal 2007, sales figures were
retroactively restated as required by EIC-156. The following is a summary of
the restatement of selected consolidated financial statements for each of the
eight most recently completed quarters.


    -------------------------------------------------------------------------
                                   Q3           Q2           Q1           Q4
                            (13 weeks)   (13 weeks)   (13 weeks)   (13 weeks)
                               03-Feb       04-Nov       05-Aug        6-May
                                 2007         2006         2006         2006
    Sales as previously
     reported              $  3,266.8   $  3,286.7   $  3,341.6   $  3,162.6
    Sales after
     reclassification      $  3,230.7   $  3,251.5   $  3,306.1   $  3,125.8
    Reclassification
     between sales and
     cost of sales,
     selling and
     administrative
     expenses              $     36.1   $     35.2   $     35.5   $     36.8
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                   Q3           Q2           Q1           Q4
                            (13 weeks)   (13 weeks)   (13 weeks)   (14 weeks)
                               04-Feb       05-Nov       06-Aug        7-May
                                 2006         2005         2005         2005
    Sales as previously
     reported              $  3,171.9   $  3,218.4   $  3,300.4   $  3,294.7
    Sales after
     reclassification      $  3,136.0   $  3,186.2   $  3,270.1   $  3,255.5
    Reclassification
     between sales and
     cost of sales,
     selling and
     administrative
     expenses              $     35.9   $     32.2   $     30.3   $     39.2
    -------------------------------------------------------------------------


    Accounting by a Customer (Including a Reseller) for Certain Consideration
    -------------------------------------------------------------------------
    Received from a Vendor ("EIC-144")
    ----------------------------------

    During fiscal 2006 the Company adopted the amendment to EIC-144 issued in
January 2005. The amendment requires disclosure of the amount of vendor
allowances that have been recognized in income but for which the full
requirements for entitlement have not yet been met. Certain allowances from
vendors are contingent on the Company achieving minimum purchase levels. In
accordance with EIC-144, the Company recognizes these allowances in income
when it is probable that the minimum purchase level will be met, and the
amount of allowance can be estimated. As of the third quarter ended
February 3, 2007 the Company has recognized $2.1 million (February 4, 2006 -
$2.1 million) of allowances in income where it is probable that the minimum
purchase level will be met and the amount of allowance can be estimated.

    Accounting for Conditional Asset Retirement Obligations ("EIC-159")
    -------------------------------------------------------------------

    This abstract provides guidance on when a conditional asset retirement
obligation should be recognized in accordance with CICA 3110, Asset Retirement
Obligations. The abstract was applied on a retroactive basis effective in the
fourth quarter of fiscal 2006. The abstract requires an entity to recognize a
conditional asset retirement obligation if the fair value of the liability can
be reasonably estimated. A conditional asset retirement obligation refers to a
legal obligation to perform an asset retirement activity in which the timing
and/or method of settlement are conditional on a future event that may not be
within the control of the entity. The obligation to perform the asset
retirement activity is unconditional even though uncertainty exists about the
timing and/or method of settlement.
    There was no effect on the Company of adopting this guideline and the
Company will continue to monitor whether EIC-159 is applicable to future
transactions.

    Critical accounting estimates
    -----------------------------

    Critical accounting estimates used by the Company's management are
discussed in detail in the "Management's Discussion and Analysis" section of
the 2006 Annual Report on pages 41 to 43.

    Related-party transactions
    --------------------------

    The Company continues to lease certain real property from Empire Company
Limited and certain of its subsidiaries and related parties, primarily at
formula-determined rates that approximate fair market value over the life of
the leases. The rates are determined based primarily on the financing of the
actual costs incurred at the time of construction of the leased properties.
During the second quarter the Company sold two properties to a related party
of Empire Company Limited for the purchase price of $21.5 million, which
management of the Company believes is equal to the properties' fair market
value. The properties were then leased back to the Company. The resulting gain
has been deferred and amortized over the term of the related leases. Empire
Company Limited is the majority shareholder of Sobeys, holding 72.1 percent of
Sobeys' common shares.

    Contingencies
    -------------

    On June 21, 2005 the Company received a notice of reassessment from Canada
Revenue Agency ("CRA") for fiscal years 1999 and 2000 related to Lumsden
Brothers Limited (a wholesale subsidiary of the Company) and the Goods and
Service Tax ("GST"). The reassessment relates to GST on sales of tobacco
products to status Indians. CRA asserts that Lumsden was obliged to collect
GST on the sales of these tobacco products to status Indians. The total tax,
interest and penalties in the reassessment amounts to $13.6 million. Lumsden
has reviewed this matter, has received legal advice, and believes it was not
required to collect GST. During the second quarter of fiscal 2006, the Company
filed a Notice of Objection with CRA. Accordingly, the Company has not
recorded in its statement of earnings any of the tax, interest or penalties in
the notice of reassessment. The Company has deposited with CRA funds to cover
the total tax, interest and penalties in the reassessment and has recorded
this amount as a long-term receivable from CRA pending resolution of the
matter.
    In the third quarter, the Company was named as a defendant in a lawsuit
brought by beneficiaries of a multi-employer pension plan. The lawsuit alleges
mismanagement of certain pension plan investments by the trustees of the
pension plan and seeks, among other remedies, payment of $1 billion in damages
from the trustees and the contributing employers, of which the Company is one
of approximately 440. The Company played no role in the management of the
pension plan and intends to contest the lawsuit. Accordingly, the Company has
not recorded in its statement of earnings any amount related to this lawsuit.
    There are various claims and litigation, which the Company is involved
with, arising out of the ordinary course of business operations. The Company's
management does not consider the exposure to such litigation to be material,
although this cannot be predicted with certainty.

    Contractual obligations
    -----------------------

    The Company determined that the gross and net operating lease obligations
previously disclosed in the fiscal 2006 annual MD&A were understated by
approximately $20 million per year over the next seven years. The following
table summarizes the revised obligations as of May 6, 2006:

    -------------------------------------------------------------------------
    ($ millions)               2007   2008   2009   2010   2011   Thereafter
    -------------------------------------------------------------------------
    Gross operating leases    266.6  240.3  218.3  203.3  186.8      1,585.0
    Net operating leases      194.8  176.0  161.2  152.3  141.7      1,293.1
    -------------------------------------------------------------------------

    Risk management
    ---------------

    Risks and uncertainties related to economic and industry factors and the
Company's management of this risk are discussed in detail in the "Management's
Discussion and Analysis" section of the 2006 Annual Report on pages 46 to 49.

    Non-GAAP measures
    -----------------

    There are measures included in this MD&A that do not have a standardized
meaning under Canadian Generally Accepted Accounting Principles ("GAAP") and
therefore may not be comparable to similarly titled measures presented by
other publicly traded companies. The Company includes these measures because
it believes certain investors use these measures as a means of measuring
financial performance. As disclosed in the table below:

    - EBIT is calculated as earnings before minority interest plus interest
      expense and income taxes.
    - EBITDA is calculated as EBIT plus depreciation and amortization of
      intangibles.
    - EBITDAR is calculated as EBITDA plus gross rent expense.


                             13-weeks     13-weeks     39-weeks     39-weeks
                                ended        ended        ended        ended
                           February 3,  February 4,  February 3,  February 4,
    ($ in millions)              2007         2006         2007         2006
    -------------------------------------------------------------------------
    EBIT                   $     54.8   $     78.6   $    226.0   $    246.4

    Depreciation                 53.0         48.1        157.8        142.0
    Amortization of
     intangibles                  0.9          1.9          2.3          3.1
    -------------------------------------------------------------------------
    EBITDA                      108.7        128.6        386.1        391.5
    Gross Rent                   70.6         75.6        220.2        217.8
    -------------------------------------------------------------------------
    EBITDAR                $    179.3   $    204.2   $    606.3   $    609.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    EBITDAR has been restated in prior years to reflect an adjustment in
    lease expense associated with VIEs that have a headlease with Sobeys.

    - Funded debt is all interest-bearing debt, which includes bank loans,
      bankers' acceptances and long-term debt.
    - Total capital is funded debt plus shareholders' equity.


                                        February 3,       May 6,  February 4,
    ($ in millions)                           2007         2006         2006
    -------------------------------------------------------------------------
    Long-term debt due within one year  $     30.4   $     25.0   $     23.8
    Long-term debt                           579.4        465.0        450.3
    -------------------------------------------------------------------------
    Funded debt                              609.8        490.0        474.1
    Total shareholders' equity             1,940.0      1,834.3      1,794.0
    -------------------------------------------------------------------------
    Total capital                       $  2,549.8   $  2,324.3   $  2,268.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    - Company-wide capital investment includes on-balance sheet capital
      expenditures, all known capital investments by franchise affiliates and
      capital investments by third-party landlords.
    - Same-store sales are sales from stores in the same locations in both
      reporting periods.

    Dated: March 14, 2007
    Nova Scotia, Canada


    About Sobeys

    Sobeys Inc., (TSX: SBY) headquartered in Stellarton, Nova Scotia, is a
leading national grocery retailer and food distributor. The Company owns or
franchises more than 1,300 stores in all 10 provinces under retail banners
that include Sobeys, IGA, Foodland, Price Chopper food stores and Lawton's
Drug Stores. Sobeys Inc. is committed to providing the most worthwhile
experience for its customers, employees, franchisees, suppliers and
shareholders. More information on Sobeys Inc. can be found at www.sobeys.com.

    Forward Looking Statements

    This news release may contain forward-looking statements about future
performance of Sobeys Inc. These statements are based on Sobeys management's
assumptions and beliefs in light of the information currently available to
them. These forward-looking statements are subject to uncertainties and other
factors that could cause actual results to differ materially from such
statements. When relying on forward-looking statements to make decisions, the
Company cautions readers not to place undue reliance on these statements, as a
number of important factors could cause actual results to differ materially
from any estimates or intentions expressed in such forward-looking statements.
The Company does not undertake to update any forward-looking statements that
may be made from time to time by or on behalf of the Company.

    Conference Call Invitation

    Sobeys Inc. will hold a conference call for investors and analysts on
March 14, 2007 at 2:00 pm (EDT), during which senior management will discuss
the Company's financial results for the third quarter fiscal 2007. To join
this conference call dial 416-644-3416 or 1-800-732-6179. You may also listen
to a live audio webcast of the conference call by visiting the Company's
website located at www.sobeys.com. Replay will be available at this website or
by dialing 416-640-1917 or 1-877-289-8525 and entering reference number
21220809 followed by the number sign until midnight on March 21, 2007.


    -------------------------------------------------------------------------
    Sobeys Inc.                         February 3        May 6   February 4
    Consolidated Balance Sheets               2007         2006         2006
    (in millions)                        Unaudited      Audited    Unaudited
    -------------------------------------------------------------------------

    ASSETS
    Current
      Cash and cash equivalents         $    172.0   $    332.1   $    145.2
      Receivables                            264.9        208.2        219.0
      Inventories                            696.6        626.8        652.5
      Prepaid expenses                        49.3         45.9         44.2
      Mortgages, loans and other
       receivables (Note 3)                   20.8         15.9         15.7
      Income taxes receivable                 20.7          5.8         19.4
                                        -----------  -----------  -----------
                                           1,224.3      1,234.7      1,096.0

      Mortgages, loans and other
       receivables (Note 3)                   60.5         68.4         63.6
      Other assets (Note 2)                  204.4        180.0        161.9
      Property and equipment (Note 4)      1,738.2      1,612.2      1,584.2
      Assets held for realization
       (Note 1r)                               9.0          8.5          8.9
      Intangibles (less accumulated
       amortization of $9.5;
       May 6/06 $7.2)                         31.6         21.5         18.5
      Goodwill                               654.9        613.3        616.0
                                        -----------  -----------  -----------
                                        $  3,922.9   $  3,738.6   $  3,549.1
                                        -----------  -----------  -----------
                                        -----------  -----------  -----------

    LIABILITIES
    Current
      Accounts payable and accrued
       liabilities                      $  1,104.0   $  1,158.8   $  1,048.5
      Future tax liabilities (Note 7)         44.0         46.1         47.9
      Long-term debt due within one year      30.4         25.0         23.8
                                        -----------  -----------  -----------
                                           1,178.4      1,229.9      1,120.2

      Long-term debt (Note 6)                579.4        465.0        450.3
      Long-term lease obligation              23.8         20.8         13.1
      Employee future benefits
       obligation (Note 11)                  101.2         96.0         97.1
      Future tax liabilities (Note 7)         46.0         44.1         31.4
      Deferred revenue                         6.4          3.3          0.9
      Minority interest                       47.7         45.2         42.1
                                        -----------  -----------  -----------
                                           1,982.9      1,904.3      1,755.1
                                        -----------  -----------  -----------

    SHAREHOLDERS' EQUITY
    Capital stock (Note 8)                   908.6        904.8        905.1
    Contributed surplus                        1.3          0.9          0.7
    Retained earnings                      1,030.1        928.6        888.2
                                        -----------  -----------  -----------
                                           1,940.0      1,834.3      1,794.0
                                        -----------  -----------  -----------
                                        $  3,922.9   $  3,738.6   $  3,549.1
                                        -----------  -----------  -----------
                                        -----------  -----------  -----------

    Contingencies (see note 16)
    See accompanying notes to the unaudited, interim consolidated financial
    statements.

    -------------------------------------------------------------------------
    Sobeys Inc.
    Consolidated Statements of Retained Earnings
    39 Weeks Ended                                   February 3   February 4
    Unaudited (in millions)                                2007         2006
    -------------------------------------------------------------------------

    Retained earnings, beginning of period           $    928.6   $    780.3

    Net earnings                                          130.4        139.7

    Adjustment to minority interest (Note 15)                 -         (5.3)
                                                     -----------  -----------
                                                        1,059.0        914.7

    Dividends declared and paid                           (28.9)       (26.5)
                                                     -----------  -----------
    Balance, end of period                           $  1,030.1   $    888.2
                                                     -----------  -----------
                                                     -----------  -----------

    See accompanying notes to the unaudited, interim consolidated financial
    statements.


    -------------------------------------------------------------------------
    Sobeys Inc.
    Consolidated Statements of Earnings

                                    13 Weeks Ended             39 Weeks Ended
    Unaudited (in          -----------------------  -------------------------
     millions except       February 3   February 4   February 3   February 4
     per share amounts)          2007         2006         2007         2006
    -------------------------------------------------------------------------
                                          Restated                  Restated
                                          (Note 1t)                 (Note 1t)

    Sales                  $  3,230.7   $  3,136.0   $  9,788.3   $  9,592.3
    Operating expenses
      Cost of sales,
       selling and
       administrative
       expenses               3,122.0      3,007.4      9,402.2      9,200.8
      Depreciation               53.0         48.1        157.8        142.0
      Amortization of
       intangibles                0.9          1.9          2.3          3.1
                           -----------  -----------  -----------  -----------
    Earnings before
     interest, income
     taxes and minority
     interest                    54.8         78.6        226.0        246.4
                           -----------  -----------  -----------  -----------
    Interest expense
      Long-term debt              9.6          8.1         26.0         25.7
      Short-term debt             0.2          0.2          0.8          1.3
                           -----------  -----------  -----------  -----------
                                  9.8          8.3         26.8         27.0
                           -----------  -----------  -----------  -----------
    Earnings before income
     taxes and minority
     interest                    45.0         70.3        199.2        219.4

    Income taxes (Note 7)        11.4         25.8         63.1         76.0
                           -----------  -----------  -----------  -----------
    Earnings before
     minority interest           33.6         44.5        136.1        143.4

    Minority interest             0.3         (1.2)         5.7          3.7
                           -----------  -----------  -----------  -----------

    Net earnings           $     33.3   $     45.7   $    130.4   $    139.7
                           -----------  -----------  -----------  -----------
                           -----------  -----------  -----------  -----------
    Net earnings per
     share basic (Note 9)  $     0.51   $     0.71   $     2.01   $     2.16
                           -----------  -----------  -----------  -----------
                           -----------  -----------  -----------  -----------
    Net earnings per
     share diluted
     (Note 9)              $     0.51   $     0.70   $     1.99   $     2.14
                           -----------  -----------  -----------  -----------
                           -----------  -----------  -----------  -----------
    Basic weighted average
     number of common
     shares outstanding,
     in millions                 64.9         64.8         64.9         64.8

    Diluted weighted
     average number of
     common shares
     outstanding, in
     millions                    65.5         65.4         65.5         65.4

    See accompanying notes to the unaudited, interim consolidated financial
    statements.


    -------------------------------------------------------------------------
    Sobeys Inc.
    Consolidated Statements of Cash Flows

                                    13 Weeks Ended            39 Weeks Ended
    Unaudited              February 3   February 4   February 3   February 4
     (in millions)               2007         2006         2007         2006
    -------------------------------------------------------------------------

    Operations
      Net earnings         $     33.3   $     45.7   $    130.4   $    139.7
      Items not affecting
       cash (Note 10)            76.4         54.6        211.9        172.5
                           -----------  -----------  -----------  -----------

                                109.7        100.3        342.3        312.2
      Net change in
       non-cash working
       capital                  (28.4)        (0.9)      (201.0)      (116.2)
                           -----------  -----------  -----------  -----------
    Cash flows from
     operating activities        81.3         99.4        141.3        196.0
                           -----------  -----------  -----------  -----------

    Investment
      Property and
       equipment
       purchases                (98.2)      (116.3)      (299.5)      (256.5)
      Proceeds on disposal
       of property and
       equipment                 22.1          0.9         48.9          9.3
      Mortgages, loans and
       other receivables          7.0         (4.7)         3.0        (20.4)
      Decrease (increase)
       in restricted cash         0.3            -          9.6         (7.0)
      Increase in deferred
       costs and other
       assets                   (27.1)       (12.9)       (56.3)       (28.9)
      Business acquisitions,
       net of cash acquired         -            -        (90.3)           -
                           -----------  -----------  -----------  -----------

    Cash flows used in
     investing activities       (95.9)      (133.0)      (384.6)      (303.5)
                           -----------  -----------  -----------  -----------

    Financing
      Issue of long-term
       debt                       5.6         11.8        138.9        195.5
      Repayment of
       long-term debt            (5.2)        (1.0)       (25.2)      (196.0)
      (Decrease) increase
       in minority interest       1.8         (1.1)        (5.1)         3.5
      Increase in share
       purchase loan                -            -         (0.7)        (1.4)
      Issue of capital
       stock                        -          0.3          4.2          4.8
      Dividends                  (9.9)        (9.2)       (28.9)       (26.5)
                           -----------  -----------  -----------  -----------
    Cash flows from
     (used in) financing
     activities                  (7.7)         0.8         83.2        (20.1)
                           -----------  -----------  -----------  -----------

    Decrease in cash and
     cash equivalents           (22.3)       (32.8)      (160.1)      (127.6)

    Cash and cash
     equivalents, beginning
     of period                  194.3        178.0        332.1        272.8
                           -----------  -----------  -----------  -----------

    Cash and cash
     equivalents, end of
     period                $    172.0   $    145.2   $    172.0   $    145.2
                           -----------  -----------  -----------  -----------
                           -----------  -----------  -----------  -----------

    See accompanying notes to the unaudited, interim consolidated financial
    statements.


    -------------------------------------------------------------------------
    Sobeys Inc.
    Notes to the Consolidated Financial Statements
    February 3, 2007                                                Unaudited
    In millions, except share capital
    -------------------------------------------------------------------------

    1. Summary of significant accounting policies

    These consolidated financial statements, have been prepared by management
in accordance with Canadian generally accepted accounting principles ("GAAP"),
and include the accounts of Sobeys Inc. (the Company), all subsidiary
companies, and certain enterprises considered variable interest entities
("VIEs") where control is achieved on a basis other than through ownership of
a majority of voting rights. All of the Company's subsidiaries are wholly
owned. The Company has four operating food distribution regions: Western
Canada, Ontario, Quebec and Atlantic Canada. These regions have been
aggregated into one reportable operating segment as they all share similar
economic characteristics.

    (a) Interim consolidated financial statements

    The accounting policies used in the preparation of these interim
consolidated financial statements conform with those used in the Company's
annual consolidated financial statements except as described in Note 1(t).
These interim consolidated financial statements do not include all of the
disclosure included in the Company's annual consolidated financial statements.
Accordingly, these interim consolidated financial statements should be read in
conjunction with the consolidated financial statements for the year ended
May 6, 2006, as set out in the 2006 Annual Report.

    (b) Depreciation

    Property and equipment are recorded at cost.

    Depreciation is recorded on a straight line basis over the estimated
useful lives of the assets as follows:

       Equipment and vehicles           3 - 20 years
       Buildings                        10 - 40 years
       Leasehold improvements           Lesser of lease term and 7 - 10 years

    (c) Cash and cash equivalents

    Cash and cash equivalents are defined as cash, treasury bills, and
guaranteed investments with a maturity less than 90 days at date of
acquisition.

    (d) Inventories

     Warehouse inventories are valued at the lower of cost and net realizable
value with cost being determined substantially on a first-in, first-out (FIFO)
basis. Retail inventories are valued at the lower of cost and net realizable
value. Cost is determined using FIFO or the retail method. The retail method
uses the anticipated selling price less normal profit margins, substantially
on an average cost basis.

    (e) Leases

    Leases meeting certain criteria are accounted for as capital leases. The
imputed interest is charged against income. If the lease contains a term that
allows ownership to pass to the Company or there is a bargain purchase option
the capitalized value is depreciated over the estimated useful life of the
related asset. Otherwise the capitalized value is depreciated on a straight
line basis over the lesser of the lease term and its estimated useful life.
Capital lease obligations are reduced by rental payments net of imputed
interest. All other leases are accounted for as operating leases.
    Lease allowances and incentives are recorded as a deferred credit and
amortized as a reduction of lease expense over the term of the lease. Real
estate lease expense is amortized straight line over the entire term of the
lease including free rent periods related to store fixturing. A store
fixturing period varies by store but is generally considered to be one month
prior to the store opening.

    (f) Goodwill

    Goodwill represents the excess of the purchase price of the business
acquired over the fair value of the underlying net tangible and intangible
assets acquired at the date of acquisition.
    Goodwill and intangible assets with indefinite useful lives are subject to
an annual impairment review. Should the carrying value exceed the fair value
of goodwill or intangible assets (e.g. trademarks) the carrying value will be
written down to the fair value.

    (g) Intangibles

    Intangibles arise on the purchase of a new business, existing franchises,
and the acquisition of pharmacy prescription files. Amortization is on a
straight-line basis, over 10 - 15 years.

    (h) Revenue recognition

    Sales are recognized at the point-of-sale. Sales include revenues from
customers through corporate stores operated by the Company and consolidated
VIEs, and revenue from sales to non-VIE franchised stores, affiliated stores
and independent accounts. Revenue received from non-VIE franchised stores,
affiliated stores and independent accounts is mainly derived from the sale of
product. The Company also collects franchise fees under two types of
arrangements. Franchise fees contractually due based on the dollar value of
product shipped are recorded as revenue when the product is shipped. Franchise
fees contractually due based on the franchisee's retail sales are recorded as
revenue weekly upon invoicing based on the franchisee's retail sales.

    (i) Interest capitalization

    Interest related to the period of construction is capitalized as part of
the cost of the related property and equipment. The amount of interest
capitalized to construction in progress in the current year was $1.2
(February 4, 2006 $0.2).

    (j) Deferred revenue

    Deferred revenue consists of long-term supplier purchase agreements,
rental revenue arising from the sale of subsidiaries and gains on sale -
leaseback transactions. Deferred revenue is being taken into income over the
term of the related agreements.

    (k) Deferred costs

    Deferred costs consist of deferred store marketing, deferred financing and
deferred purchase agreements and are included in other assets.
    Deferred costs are amortized as follows:
       Deferred store marketing - up to 7 years
       Deferred financing - over the term of the debt
       Deferred purchase agreements - over the term of the purchase agreement

    (l) Store opening expenses

    Store opening expenses of new stores and store conversions are written off
during the first year of operation.

    (m) Financial instruments

    The Company uses various derivative financial instruments to hedge its
exposure to interest and foreign exchange rate risks. If documentation and
effectiveness requirements are met, gains and losses on these instruments are
deferred and recognized in earnings in the same period the related hedged risk
is realized (settlement accounting). Amounts received or paid, including any
gains and losses on instruments used to hedge these risks are recognized over
the term of the hedged item. The derivatives are not recorded on the balance
sheet.
    The Company also uses forward contracts to fix the exchange rate on some
of its expected requirements for US dollars for periods of not more than
30 days. Amounts received or paid related to instruments used to hedge foreign
exchange, including any gains and losses, are recognized in the cost of
purchases.

    (n) Future income taxes

    The difference between the tax basis of assets and liabilities and their
carrying value on the balance sheet is used to calculate future tax assets and
liabilities. The future tax assets and liabilities have been measured using
substantively enacted tax rates that will be in effect when the differences
are expected to reverse.

    (o) Earnings per share

    Earnings per share is calculated by dividing the earnings available to
common shareholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is determined based
on the treasury stock method which assumes that all outstanding stock options
with an exercise price below the average market price are exercised and the
assumed proceeds are used to purchase the Company's common shares at the
average market price during the year.

    (p) Foreign currency translation

    Assets and liabilities denominated in foreign currencies are translated
into Canadian dollars at the foreign currency exchange rate in effect at each
period end date. Exchange gains or losses arising from the translation of
these balances denominated in foreign currencies are recognized in operating
income. Revenues and expenses denominated in foreign currencies are translated
into Canadian dollars at the average foreign currency exchange rate for the
period.

    (q) Pension benefit plans and other benefit plans

    The cost of the Company's pension benefits for defined contribution plans
are expensed at the time active employees are compensated. The cost of defined
benefit pension plans and other benefit plans is accrued based on actuarial
valuations, which are determined using the projected benefit method pro-rated
on service and management's best estimate of the expected long-term rate of
return on plan assets, salary escalation, retirement ages and expected growth
rate of health care costs.
    Current market values are used to value benefit plan assets. The
obligation related to employee future benefits is measured using current
market interest rates, assuming a portfolio of Corporate AA bonds with terms
to maturity that, on average, match the terms of the obligation.
    The impact of changes in plan amendments is amortized on a straight-line
basis over the expected average remaining service life ("EARSL") of active
members. For pension benefit plans, the actuarial gains and losses and the
impact of changes in the actuarial basis in excess of 10 percent of the
greater of the projected benefit obligation and the market value of assets are
amortized on a straight-line basis over the EARSL of the active members. For
the Sobeys Supplemental Executive Retirement Plan ("SERP"), the impact of
changes in the plan provisions are amortized over five years. For other
benefit plans, actuarial gains and losses are recognized immediately.

    (r) Assets held for realization

    Certain land and buildings have been listed for sale and reclassified as
"Assets held for realization" in accordance with CICA Handbook section 3475,
"Disposal of Long-lived Assets and Discontinued Operations". These assets are
expected to be sold within a twelve month period and are no longer productive
assets and there is no longer an intent to develop for future use. Assets held
for realization are valued at the lower of cost and fair value less cost of
disposal.

    (s) Use of estimates

    The preparation of consolidated financial statements, in conformity with
Canadian generally accepted accounting principles, requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. These estimates are based on
management's best knowledge of current events and actions that the Company may
undertake in the future. Actual results could differ from those estimates.

    (t) Accounting standards adopted during fiscal 2007

        (i) Vendor consideration
        During the first quarter of fiscal 2007, the Company implemented, on
        a retroactive basis, Emerging Issues Committee Abstract 156
        ("EIC-156") "Accounting by a vendor for consideration given to a
        customer (including a reseller of the vendor's products)". This
        abstract requires a vendor to generally record cash consideration
        given to a customer as a reduction to the selling price of the
        vendor's products or services and reflect it as a reduction of
        revenue when recognized in the statement of earnings.

        Prior to the implementation of EIC-156, the Company recorded certain
        sales incentives paid to independent franchisees, associates and
        independent accounts in cost of sales, selling and administrative
        expenses on the statement of earnings. Accordingly, the
        implementation of EIC-156 on a retroactive basis, resulted in a
        reduction in both sales and cost of sales, selling and administrative
        expenses during the third quarter and year to date of fiscal 2007 of
        $36.1 (February 4, 2006 $35.9) and $106.8 (February 4, 2006 $98.4)
        respectively. As reclassifications, these changes did not impact net
        earnings or earnings per share.

    (u) Accounting standards adopted during fiscal 2006

        (i) Vendor allowances
        During the first quarter of fiscal 2006 the Company adopted the
        amendment to EIC-144 issued in January 2005. The amendment requires
        disclosure of the amount of any vendor allowances that have been
        recognized in income but for which the full requirements for
        entitlement have not yet been met (see Note 14).

    2. Other assets

    Included in other assets is restricted cash of $5.1 (May 6, 2006 $14.7;
February 4, 2006 $7.0) held by VIEs as security for third party loans.

    3.  Mortgages, loans and other receivables

    -------------------------------------------------------------------------
                                        February 3        May 6   February 4
                                              2007         2006         2006
    -------------------------------------------------------------------------
    Loans receivable                    $     64.5   $     66.5   $     61.5
    Mortgages receivable                       0.2          0.3          0.3
    Other                                     16.6         17.5         17.5
    -------------------------------------------------------------------------
                                              81.3         84.3         79.3
    Less amount due within one year           20.8         15.9         15.7
    -------------------------------------------------------------------------
                                        $     60.5   $     68.4   $     63.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Loans receivable

    Loans receivable represent long-term financing to certain retail
associates. These loans are primarily secured by inventory, fixtures and
equipment, bear various interest rates and have repayment terms up to ten
years. The carrying amount of the loans receivable approximates fair value
based on the variable interest rates charged on the loans and the operating
relationship of the associates with the Company.

    4. Property and equipment

    -------------------------------------------------------------------------
    February 3, 2007                                Accumulated
                                                          Depre-         Net
                                              Cost      ciation   Book Value
    -------------------------------------------------------------------------
    Land                                $    150.7   $        -   $    150.7
    Land held for development                130.1            -        130.1
    Buildings                                638.7        154.0        484.7
    Equipment and vehicles                 1,752.5      1,148.7        603.8
    Leasehold improvements                   361.0        235.9        125.1
    Construction in progress                 193.0            -        193.0
    Assets under capital leases               83.1         32.3         50.8
    -------------------------------------------------------------------------
                                        $  3,309.1   $  1,570.9   $  1,738.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    May 6, 2006                                     Accumulated
                                                          Depre-         Net
                                              Cost      ciation   Book Value
    -------------------------------------------------------------------------
    Land                                $    138.6   $        -   $    138.6
    Land held for development                 89.5            -         89.5
    Buildings                                577.4        135.7        441.7
    Equipment and vehicles                 1,707.4      1,062.7        644.7
    Leasehold improvements                   361.0        218.2        142.8
    Construction in progress                 103.7            -        103.7
    Assets under capital leases               78.9         27.7         51.2
    -------------------------------------------------------------------------
                                        $  3,056.5   $  1,444.3   $  1,612.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    February 4, 2006                                Accumulated
                                                          Depre-         Net
                                              Cost      ciation   Book Value
    -------------------------------------------------------------------------
    Land                                $    123.9   $        -   $    123.9
    Land held for development                 95.8            -         95.8
    Buildings                                553.3        136.0        417.3
    Equipment and vehicles                 1,709.3      1,077.7        631.6
    Leasehold improvements                   346.0        215.0        131.0
    Construction in progress                 144.6            -        144.6
    Assets under capital leases               69.1         29.1         40.0
    -------------------------------------------------------------------------
                                        $  3,042.0   $  1,457.8   $  1,584.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    5. Bank loans and bankers' acceptances

    Under the terms of a credit agreement entered into between the Company and
a banking syndicate arranged by the Bank of Nova Scotia, a revolving term
credit facility of $300.0 was established. During the third quarter of fiscal
2006, the expiry date of the revolving unsecured credit facility was extended
from June 22, 2006 to December 20, 2010. All indebtedness and obligations
under the agreement shall be payable in full on December 20, 2010.
    Interest payable on this facility fluctuates with changes in the prime
interest rate.


    6. Long-term debt

    -------------------------------------------------------------------------
                                        February 3        May 6   February 4
                                              2007         2006         2006
    -------------------------------------------------------------------------
    First mortgage loans, average
     interest rate 9.5%,
     due 2008 - 2021                    $     24.6   $     25.8   $     22.3
    Medium Term Notes, interest
     rate 5.8%, due October 6, 2036          125.0            -            -
    Medium Term Notes, interest
     rate 6.1%, due October 29, 2035         175.0        175.0        175.0
    Medium Term Notes, interest
     rate 7.2%, due February 26, 2018        100.0        100.0        100.0
    Sinking fund debentures, average
     interest rate 10.7%,
     due 2008 - 2013                          58.5         63.1         63.5
    Notes payable and other debt at
     interest rates fluctuating with
     the prime rate                           78.7         76.9         76.5
    -------------------------------------------------------------------------
                                             561.8        440.8        437.3
    Capital lease obligations, net
     of imputed interest                      48.0         49.2         36.8
    -------------------------------------------------------------------------
                                             609.8        490.0        474.1
    Less amount due within one year           30.4         25.0         23.8
    -------------------------------------------------------------------------
                                        $    579.4   $    465.0   $    450.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    First mortgage loans are secured by land, buildings and specific charges
on certain assets. Capital lease obligations are secured by the related
capital lease asset.
    Sobeys Group Inc., an indirect subsidiary of Sobeys Inc., has provided the
debenture holders with a floating charge over all its assets, subject to
permitted encumbrances, a general assignment of book debts, and the assignment
of proceeds of insurance policies.
    Sinking fund debenture payments are required on an annual basis. The
proportionate share of related debt is retired with these repayments.
    On October 21, 2005, the Company filed a short form base shelf prospectus
providing for the issuance of up to $500.0 of unsecured Medium Term Notes. On
October 28, 2005, the Company issued new Medium Term Notes of $175.0, maturing
on October 29, 2035. On November 1, 2005, Medium Term Notes of $175.0 were
repaid according to the terms of the agreement. On October 6, 2006, the
Company issued new Medium Term Notes of $125.0, maturing on October 6, 2036.
    During the current fiscal year the Company increased its capital lease
obligation by $3.4 with a similar increase in assets under capital lease.


    7. Income taxes

    Income tax expense varies from the amount that would be computed by
applying the combined federal and provincial statutory tax rate as a result of
the following:

                                    13 Weeks Ended            39 Weeks Ended
                           --------------------------------------------------
                           February 3   February 4   February 3   February 4
                                 2007         2006         2007         2006
                           --------------------------------------------------
    Income tax expense
     according to combined
     statutory rate of
     32.7% (2006 - 34.1%)  $     13.4   $     25.3   $     65.1   $     74.8

    Decrease in income
     taxes resulting from:
      Rate changes effect
       on timing
       differences               (2.0)           -         (2.0)           -

    Increase in income
     taxes resulting from:
      Large corporation tax         -          0.5            -          1.2
                           --------------------------------------------------
    Total income taxes     $     11.4   $     25.8    $    63.1   $     76.0
                           --------------------------------------------------
                           --------------------------------------------------

    February 3, 2007 income tax expense attributable to net income consists
    of:

                                    13 Weeks Ended            39 Weeks Ended
                           --------------------------------------------------
                           February 3   February 4   February 3   February 4
                                 2007         2006         2007         2006
                           --------------------------------------------------
    Current                $     10.6   $     28.5   $     63.3   $     82.2
    Future                        0.8         (2.7)        (0.2)        (6.2)
                           --------------------------------------------------
    Total                  $     11.4   $     25.8   $     63.1   $     76.0
                           --------------------------------------------------
                           --------------------------------------------------
        The tax effect of temporary differences that give rise to significant
portions of the future tax liability are presented below.

                                        February 3        May 6   February 4
                                              2007         2006         2006
                                        -------------------------------------
    Employee future benefit obligation  $     34.7   $     33.6   $     34.8
    Restructuring provisions                   8.3          5.0          5.5
    Pension contributions                    (16.2)       (17.4)       (16.1)
    Deferred costs                           (34.8)       (28.4)       (25.7)
    Deferred credits                         (55.1)       (54.6)       (53.4)
    Goodwill                                  (7.4)        (8.6)        (6.1)
    Fixed assets                             (32.2)       (33.2)       (22.5)
    Other                                     12.7         13.4          4.2
                                        -------------------------------------
                                        $    (90.0)  $    (90.2)  $    (79.3)
                                        -------------------------------------
                                        -------------------------------------

    Current future tax liabilities      $    (44.0)  $    (46.1)  $    (47.9)
    Non-current future tax liabilities       (46.0)       (44.1)       (31.4)
                                        -------------------------------------
                                        $    (90.0)  $    (90.2)  $    (79.3)
                                        -------------------------------------
                                        -------------------------------------


    8. Capital stock
                                                  Number of Shares
                                                  ----------------

    Authorized                          February 3        May 6   February 4
                                              2007         2006         2006
                                        -----------  -----------  -----------
    Preferred shares, par value of
     $25 each, issuable
     in series as a class              471,000,000  471,000,000  471,000,000
    Preferred shares, without par
     value, issuable in series         500,000,000  500,000,000  500,000,000
    Common shares, without par value   498,674,959  498,682,931  498,682,931
                                        -----------  -----------  -----------

                                                  Number of Shares
                                                  ----------------

    Issued and outstanding              February 3        May 6   February 4
                                              2007         2006         2006
                                        -----------  -----------  -----------
    Common shares, without par value    65,529,782   65,426,282   65,401,747

                                             Capital Stock (in millions)
                                             ---------------------------

                                        February 3        May 6   February 4
                                              2007         2006         2006
                                        -----------  -----------  -----------
    Common shares, without par value    $    931.2   $    926.7   $    925.8


    Loans receivable from officers and
     employees under Share Purchase Plan     (22.6)       (21.9)       (20.7)
                                        -----------  -----------  -----------

    Total capital stock                 $     908.6  $    904.8   $    905.1
                                        -----------  -----------  -----------
                                        -----------  -----------  -----------


    During the current fiscal year 103,500 (May 6, 2006 - 145,867 and February
4, 2006 - 121,332) common shares of Sobeys Inc. were issued under the
Company's Share Purchase Plan to certain officers and employees for $4.2
(May 6, 2006 - $5.7 and February 4, 2006 - $4.8). The common share balance
increased by $0.3 (May 6, 2006 - $0.3; February 4, 2006 - $0.3) in relation to
shares issued under the Share Purchase Plan that became fully vested with the
employee during fiscal 2007.
    Loans receivable from officers and employees of $22.6 (May 6, 2006 -
$21.9; February 4, 2006 - $20.7) under the Company's Share Purchase Plan are
classified as a reduction of capital stock. Loan repayments will result in a
corresponding increase in capital stock. The individual loans are non-interest
bearing, non-recourse and are secured by the individual's common shares of
Sobeys Inc. (combined total February 3, 2007 - 642,818; May 6, 2006 -
652,517).


    9. Basic and diluted net earnings per share

                                    13 Weeks Ended            39 Weeks Ended
                           ------------------------  ------------------------
                           February 3   February 4   February 3   February 4
                                 2007         2006         2007         2006
                           ------------------------  ------------------------
    Net earnings           $     33.3   $     45.7   $    130.4   $    139.7
                           ------------------------  ------------------------
    Weighted average
     common shares
     outstanding                 64.9         64.8         64.9         64.8
    Dilutive effect of
     Share Purchase Loans         0.6          0.6          0.6          0.6
                           ------------------------  ------------------------
    Weighted average common
     shares outstanding
     for diluted earnings
     per share calculation       65.5         65.4         65.5         65.4
                           ------------------------  ------------------------
    Basic net earnings per
     common share          $     0.51   $     0.71   $     2.01   $     2.16
    Dilutive effect of
     Share Purchase Loans           -        (0.01)       (0.02)       (0.02)
                           ------------------------  ------------------------
    Diluted net earnings
     per common share      $     0.51   $     0.70   $     1.99   $     2.14
                           ------------------------  ------------------------
                           ------------------------  ------------------------


    10. Supplementary cash flow information

                                    13 Weeks Ended            39 Weeks Ended
                           ------------------------  ------------------------
                           February 3   February 4   February 3   February 4
                                 2007         2006         2007         2006
                           ------------------------  ------------------------
    a) Items not affecting
       cash:
         Depreciation      $     53.0   $     48.1   $    157.8   $    142.0
         Future tax provision     0.8         (2.7)        (0.2)        (6.2)
         (Gain) loss on
          disposal of assets     (0.6)         1.4          2.8          1.4
         Amortization of
          intangibles             0.9          1.9          2.3          3.1
         Stock-based
          compensation            0.2          0.3          0.7          0.6
         Amortization of
          deferred items          6.9          6.4         21.4         22.2
         Employee future
          benefit obligation      1.1          0.6          5.2          4.9
         Long-term lease
          obligation              0.6         (0.2)         3.0          0.8
         Minority interest        0.3         (1.2)         5.7          3.7
         Rationalization costs
          (Note 17)              13.2            -         13.2            -
                           ------------------------  ------------------------
                           $     76.4   $     54.6   $    211.9   $    172.5
                           ------------------------  ------------------------
                           ------------------------  ------------------------

    b) Cash items
         Interest paid:    $      2.8   $      6.2   $     17.6   $     19.3
         Taxes paid:       $     33.8   $     17.2   $     79.3   $     81.0


    11. Employee future benefits

    During the third quarter and year to date of fiscal 2007, the net employee
future benefit expense was $5.8 (February 4, 2006 - $5.4) and $17.4 (February
4, 2006 - $ 16.8) respectively.


    12. Business acquisitions

    The Company acquires franchisee stores and prescription files. The results
of these acquisitions have been included in the consolidated financial results
of the Company, and were accounted for through the use of the purchase method.
As illustrated in the table below the acquisition of certain franchise stores
resulted in the acquisition of intangible assets. The method of amortization
of intangibles is on a straight-line basis over 10 - 15 years.


                                    13 Weeks Ended           39 Weeks Ended
                           ------------------------  ------------------------
                           February 3   February 4   February 3   February 4
                                 2007         2006         2007         2006
                           ------------------------  ------------------------
    Franchisees
    -----------
    Inventory              $      0.1   $        -   $      3.3   $        -
    Property and equipment          -            -          2.0            -
    Intangibles                     -            -          3.1            -
    Goodwill                        -            -          0.3            -
    Other assets                 (0.1)           -            -            -
                           ------------------------  ------------------------
    Cash consideration     $        -   $        -   $      8.7   $        -
                           ------------------------  ------------------------
                           ------------------------  ------------------------

    Prescription files
    ------------------
    Intangibles            $        -   $        -   $      2.4   $        -
                           ------------------------  ------------------------
    Cash consideration     $        -   $        -   $      2.4   $        -
                           ------------------------  ------------------------
                           ------------------------  ------------------------


    On August 27, 2006, the Company acquired substantially all of the food
distribution assets of Achille de la Chevrotière Ltée and its associated
companies ("ADL") for an amount of $79.2. The assets acquired include 25 owned
or franchised retail store operations and other wholesale supply agreements
and distribution facilities in Rouyn-Noranda, Quebec. Sixteen of the
franchised retail store operations are considered VIEs under the Company's
policy (see Note 15). They have been included in the consolidated results of
the Company. The acquisition was accounted for using the purchase method with
the results of ADL being consolidated as of the acquisition date. Management
carried out a detailed analysis and changes were made to the preliminary
allocation of the excess of consideration paid over the net assets acquired as
disclosed in the second quarter of fiscal 2007. The measurement and allocation
of intangible assets was also completed in the third quarter of fiscal 2007.
During the third quarter there was an amendment to adjust the allocation to
intangibles from $21.5 to $6.8 and goodwill from $21.7 to $41.3 to reflect the
finalized valuation of ADL. The final purchase price allocation, which has
incorporated management's assessment of fair value, is as follows:


    Consideration:
      Cash                                                        $     75.8
      Acquisition costs                                                  3.4
                                                                  -----------
      Total consideration paid                                    $     79.2
                                                                  -----------
                                                                  -----------

    Net assets acquired as at August 27, 2006:
      Total current assets                                        $     28.0
      Total long-term assets                                            27.7
      Total current liabilities assumed                                (20.0)
      Total long-term liabilities assumed                               (4.6)
                                                                  -----------
      Total net assets acquired                                   $     31.1
                                                                  -----------
                                                                  -----------

    Excess consideration paid over net assets acquired            $     48.1
                                                                  -----------
                                                                  -----------

    Allocation of excess of consideration paid over net assets
      Intangible assets - Agreements                              $      6.3
                          Other                                          0.5
      Goodwill                                                          41.3
                                                                  -----------
                                                                  $     48.1
                                                                  -----------
                                                                  -----------


    13. Stock-based compensation

    Deferred Share Units
    --------------------
    Members of the Board of Directors may elect to receive all or any portion
of their fees in Deferred Share Units ("DSUs") in lieu of cash. The number of
DSUs received is determined by the market value of Sobeys Inc. common shares
on each director's fee payment date. Additional DSUs are received as dividend
equivalents. DSUs cannot be redeemed for cash until the holder is no longer a
director of the Company. The redemption value of a DSU equals the market value
of a Sobeys Inc. common share at the time of the redemption. At each interim
or annual period that the Company prepares its financial statements, it
revalues this liability. At February 3, 2007, there were 61,727 (February 4,
2006 - 43,307) DSUs outstanding. During the year, the stock-based compensation
expense was $0.5 (February 4, 2006 - $0.5).

    Share Purchase Loans
    --------------------
    The Company has a Share Purchase Loan plan for employees of the Company
whereby loans are granted to purchase common stock. These loans have been
treated as stock-based compensation in accordance with Emerging Issues
Committee Abstract 132.
    The compensation cost relating to the third quarter and 39 weeks to date
of fiscal 2007 Share Purchase Loans was determined to be $ nil (February 4,
2006 - $0.1) and $0.9 (February 4, 2006 - $1.1) respectively with amortization
of the cost over 5 years. The total increase in contributed surplus in
relation to the Share Purchase Loan fiscal 2007 is $0.7. The contributed
surplus balance was reduced by $0.3 in relation to shares issued under the
Share Purchase Loan that have been treated as stock-based compensation that
became fully vested with the employee during fiscal 2007. Shares become vested
when the employees' outstanding loan balance is reduced. The compensation cost
was calculated using the Black-Scholes model with the following assumptions:

                                                           2007         2006
                                                           ----         ----
        Expected life                                   5 years      5 years
        Risk-free interest rate                             3.9%         3.5%
        Expected volatility                                19.0%        22.0%
        Dividend yield                                      1.6%         1.4%


    14. Vendor allowances

    The Company receives allowances from certain vendors, whose products are
purchased for resale. Included in these vendor programs are allowances for
volume purchases, exclusivity allowances, listing fees, and other allowances.
Certain allowances from vendors are contingent on the Company achieving
minimum purchase levels. The Company recognizes these allowances in income in
accordance with EIC-144 when it is probable that the minimum purchase level
will be met, and the amount of allowance can be estimated. By the third
quarter of fiscal 2007 the Company recognized $2.1 (February 4, 2006 - $2.1)
of allowances in income where it is probable that the minimum purchase level
will be met and the amount of allowance can be estimated.


    15.  Variable interest entities

    Variable interest entities are defined under Accounting Guideline 15
"Consolidation of Variable Interest Entities" (AcG-15) as entities that do not
have sufficient equity at risk to finance their activities without additional
subordinated financial support, or where the equity holders lack the overall
characteristics of a controlling financial interest. The guideline requires
that the VIE be consolidated with the financial results of the entity deemed
to be the primary beneficiary of the VIE's expected losses and its expected
residual returns.

    The Company has identified the following entities as VIEs:

    Franchise Affiliates
    --------------------
    The Company has identified 269 (May 6, 2006 - 273; February 4, 2006 - 294)
franchise affiliate stores whose franchise agreements result in the Company
being deemed the primary beneficiary of the entity according to AcG-15. The
results for these entities were consolidated with the results of the Company.

    Warehouse and Distribution Agreement
    ------------------------------------
    The Company has an agreement with an independent entity to provide
warehouse and distribution services for one of its distribution centres. The
terms of the agreement with this entity require the Company to consolidate its
results with those of the Company pursuant to AcG-15.
    The Company has consolidated the results of these franchise affiliates and
the entity providing warehouse and distribution services effective at the
fourth quarter of fiscal 2005.
    In the third quarter of the prior year a charge of $5.3 to retained
earnings was required to reflect additional minority interest in the VIEs.


    16. Contingencies

    On June 21, 2005, the Company received a notice of reassessment from
Canada Revenue Agency (CRA) for fiscal years 1999 and 2000 related to Lumsden
Brothers Limited (a wholesale subsidiary of the Company) and the Goods and
Service Tax (GST). The reassessment related to GST on sales of tobacco
products to status Indians. CRA asserts that Lumsden was obliged to collect
GST on sales of tobacco products to status Indians. The total tax, interest
and penalties in the reassessment was $13.6. Lumsden has reviewed this matter,
has received legal advice, and believes it was not required to collect GST.
During the second quarter of fiscal 2006, the Company filed a Notice of
Objection with CRA. Accordingly, the Company has not recorded in its statement
of earnings any of the tax, interest or penalties in the notice of
reassessment. The Company has deposited with CRA funds to cover the total tax,
interest and penalties in the reassessment and has recorded this amount as a
long-term receivable from CRA pending resolution of the matter.
    In the third quarter, the Company was named as a defendant in a lawsuit
brought by beneficiaries of a multi-employer pension plan. The lawsuit alleges
mismanagement of certain pension plan investments by the trustees of the
pension plan and seeks, among other remedies, payment of $1 billion in damages
from the trustees and the contributing employers, of which the Company is one
of approximately 440. The Company played no role in the management of the
pension plan and intends to contest the lawsuit. Accordingly, the Company has
not recorded in its statement of earnings any amount related to this lawsuit.
    There are various claims and litigation, which the Company is involved
with, arising out of the ordinary course of business operations. The Company's
management does not consider the exposure to such litigation to be material,
although this cannot be predicted with certainty.


    17. Business rationalization costs

    During the third quarter the Company completed a rationalization of
administrative functions in Atlantic Canada. The Company also began to incur
costs associated with the development of a new grocery distribution centre in
Vaughan, Ontario. These costs primarily relate to severance in both the
Atlantic and Ontario regions along with fixed asset and inventory write-offs.
The Company expects to incur additional administrative rationalization costs
in the next two quarters associated with the Vaughan distribution centre and
distribution rationalization costs related to its Quebec distribution network.
The dollar value of these additional costs will be quantified and disclosed in
future quarters. The costs associated with the organizational change are
recorded as incurred as cost of sales in the statement of earnings before tax
as follows:

                          Begin-
                           ning                     Ending
                          Liabi-   Incur-            Liabi-  Antici-
                           lity      red     Paid     lity    pated    Total
                         ----------------------------------------------------
    Severance
      Atlantic           $    -   $  4.7   $    -   $  4.7   $    -   $  4.7
      Ontario                 -      5.3        -      5.3        -      5.3
      Quebec                  -        -        -        -      5.4      5.4
    Other costs               -      1.1        -      1.1        -      1.1
                         ----------------------------------------------------
                              -     11.1        -     11.1      5.4     16.5

    Asset write-offs                 2.1                          -      2.1
                         ----------------------------------------------------

                         $    -   $ 13.2   $    -   $ 11.1   $  5.4   $ 18.6
                         ----------------------------------------------------
                         ----------------------------------------------------


    18. Comparative figures

    Comparative figures have been reclassified, where necessary, to reflect
the current year's presentation and to record the effects of retroactive
application of certain new accounting standards.
    




For further information:

For further information: Sobeys Inc. Investor Contact: Paul A. Jewer,
CA, Vice President, Finance & Treasurer, (902) 752-8371, ext. 2220,
investor.relations@sobeys.com; Sobeys Inc. Media Contact: Andrew Walker, Vice
President, Communications & Corporate Affairs, (905) 293-6711


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