Q2 2020 Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Empire second quarter 2020 conference call.
This time, a life sonos and only mode. Following the presentation, we will conduct a question answer session.
If at any time during this call you require assistance. Please press star she already operator.
This call is being recorded.
On Thursday December 12, 2018, and I would now let's turn the conference over to Kt buying director Investor Relations. Please go ahead.
Thank you Joanna good afternoon. Thank you all for joining us for a second quarter conference call. Today, we will provide summary comments on our results and leave as much time, a big time for questions.
This call is being recorded.
And the audio recording will be available on the company's looks I am Parco dot see I.
There's a short summary document outlining the points of our quarter available on our website as well.
Joining me on the call this afternoon or Michael My mind, President and Chief Executive Officer, Michael Both Chief Financial Officer, Empiric Taylor Chief operating.
Office or full service.
Today's discussion includes forward looking statements. We cautioned that such statements are based on management's assumptions and beliefs and are subject to uncertainties and other factors that could cause actual results to differ materially I refer you to our news release and Mdna for more information on these assumptions and factors.
I'll now turn the call over to Michael.
Hi.
Thanks, Cheney and good afternoon, everyone I'm extremely proud of our team they have transformed our company for one would try to quarterly adjusted EPS of 12 cents three years ago to one that are in 58 cents or 52 cents. After you back out the impact of the Krave transaction.
333.
<unk> percent increase any P. S. In just three years.
Most importantly, we felt her brand names improved our customer service over that period.
You know I'm going to do this a bit differently today and I hope to give you a bit more color on the business today I want to talk about seven topics our performance this quarter.
Seeing in the market.
Our EBITDA margin for a lot farm or our store renovation program and our ownership position in crombie.
I'll leave it to Mike can take you through some of the details of our quarter. The results are project Sunrise, The Crombie Oak Street transaction and an update on our capital spending and share repurchases.
Let's start with our performance this quarter sales were up in all regions across all matters. Despite some more competitive and promotional marketplace. Then we have seen at some time.
Same store sales were 2%, we're supposed to customer count and basket size our.
Internal food inflation was approximately 2.4.
And our same store sales were 2%, implying relatively flat tonnage.
We also have several different data points that we used to look at market share. It more granular levels based on these additional data points, we believe our market share held relatively steady during the quarter.
We're working hard to thriller.
Customers were stronger execution and through our strategic initiatives.
You can see from our margins we are not chasing empty calories sales gross margin rate was up 90 basis points for a second quarter last year category resets continued to expand our margin.
Dissipated.
We have not.
At this point and Don what some of our competitors don't have done it when they say they tried to improve the trending up their food sales with margin investments, we're working hard to earn our sales growth through better execution.
However, we do intend to protect and grow our marketshare going forward.
Perhaps we'll then take care.
Maybe.
A few comments about the state of the market and what we're seeing you're watching out for.
We are monitoring consumer spending a promotional activity closely although we had positive tonnage in the last month of Q2, we have seen a slight softening in sales at the end of the quarter and into the beginning of Q3, we think that part of this.
Could be due to the relative health of the Canadian economy, and we are closely watching cherry indicators like employment and the recent communications our Canadian banks. We also saw early inclement weather that can be good for summer retail, but not so much for grocery we.
We continue to be very proud of our margin performance, but we think we.
We could've been a little quicker responding to a more promotional marketplace and so as I said well be making sure we protect our sales going forward well at the same time being smart about it just to be clear, we're only talking about a little fine tuning here [noise].
Second is our EBITDA margin this.
As our most closely watched number quarter after quarter, we continue to chew into the EBITDA margin gap between us and our two major competitors.
We are extremely focused on an overarching goal to close the food EBITDA margin gap with them, we're going to finish the job. We don't believe there's any reason for.
It's not to be able to do it so long as we continue to execute and set a strong strategy.
You say food retail jobs as there are certain structural differences between the three companies. The most important difference is that we have a smaller pharmacy business, which historically has had a higher EBITDA margins in grocery.
Oh no.
Apples to apples basis, our fee IRS 16, EBITDA margin is up 50 basis points over Q2 last year. When you remove the impact of the Crombie re transaction, that's a big move.
Our approach to closing our food EBITDA margin graft office two products, we're focused on improving our cost base.
And has seen a is pretty well there with card.
We had to start with category resets to get us out on the even the playing field and now we need to be more efficient with our categories.
Horizon was the first step and we've made great strides, but we still have away more outside we're also focused on our sales productivity.
We have great people, great assets in great locations across the country and we will now optimized.
Third I wanted to talk about ball, our game changing ecommerce solution.
Well most players in the industry are focused on inefficient store pick models to fulfill their online orders we are building automated warehouses.
Powered biocatalyst world, leading grocery technology will be able to provide customers with convenient short delivery windows beginning early in the morning and running until late in the evening. The system is more flexible then you might think customers can place orders at night for the next morning, All warning for later that same day. This is the only.
Only e-commerce model that scale, well eventually allow us to profitably does deliver an expanded assortment our grocery store over 75% the Canadian population with only four cfcs.
While our focus is on home deliveries, which also do click in class sourced out of the cfcs.
That's what customers want in certain areas, although I must data our data and experience tell us when given the choice customers overwhelmingly prefer delivery to halt.
The flexibility of the hub and spoke network model, where each CFC, if the holiday and smaller cross dock facilities are the spoke.
Allowed us to.
Closer to the customer and we have plans to build on this best in class Ocado infrastructure, we will build even more flexibility overtime to meet customers' needs.
There's a reason that many of the best grocers in the world, including Kroger, the U.S. casino in France, UK, and Sweden calls in Australia market Spencer.
As in the UK E. on in Japan, Our partners with Ocado. The reason being is that are pattern was the most advancing continually innovative small Q e-commerce solution in the world frankly any plan B, it's just not nearly as good.
Well, we study what Canadians are looking for in an online grocery offer it's.
Simple excellent fresh product at competitive prices no substitution delivered to their door exactly when they want it will allow will deliver on exactly that at scale, while I will offer an expansive selection of up to 39000 products, which is way more than any other grocery ecommerce business in Canada.
At 15000 more than your average grocery store, including high quality fresh products at prices comparable to our bricks and mortar. So these are ita stores and online grocery home delivery experience like fallout does not exist in Canada, we're going to grow the markets.
Well I thought.
I'm trying to test and soft launch in the GE and late spring, we're still confident in the Hawala solution that we have already started building our second CFC in Montreal with our partly partner Crombie rig.
This CSC will serve major cities or go back in the auto area and is expected to open in 2021.
For.
Foreign work, which along with wall art is a weapon for winning share in urban markets in Ontario, where we are Underpenetrated faraway has been part of the Empire family for just about a year now and continues to deliver on its industry, leading operational or customer metrics. It is outperforming all of our expectations.
But for now.
Total team at Farmboy is making progress against its plan to double the size of the business into next five years.
Our boy store count will grow at a mix of urban and suburban communities with diverse store size isn't formats to fit the needs of local customers. We opened a new fire boy last week in Burlington and I've announced.
Plans to open another six stores in 2020 and two in 2021 most of these new stores will be in the G. T. A five in downtown trials, one in new marketing and wanted to say Catherine's and one in Ottawa historical range in size from a 12000 square foot urban footprint towards 38000 square foot signature store this will bring.
Boy total announced store count to 37 stores.
And this adjusted the beginning Farmboy isn't different stages of development on more than 25, new stores, and Ontario, a mixture of greenfield conversion and mix developments, we intend to blanket the GKN take market share from incumbents in a market where we have.
Always had low market share farm boys aggressive plan for growth is being well supported by empires infrastructure and capabilities and real estate sourcing and logistics.
Fifth our store renovation program, we haven't ambitious store renovation program that ensures we deploy capital to me.
Most of our bricks and mortar stores over the next seven years, where investment capital at solid returns to revitalize our stores, both discount and conventional our renovations will range from our refreshed tool for reset of the store, but at a minimum you will see enhancements to the core facade.
And modifications.
A key departments to better support our strategy.
So far in this fiscal year, we have touched 28 of our conventional stores and we just finished refreshing all of our fresh go stores and Ontario to the fresco 2.0 model, we will ramp full service renovations out as a result summer renovations are very strong.
And finally, something we don't talk about often our ownership position in Krave Crombie is our largest landolt, Florida. We currently owns 41.5% of Crombie and we are pleased with this level of ownership. We are working even closer with crombie rights management than we have high in the past.
Optimize the value of our partnership Crombie read leaves mixed use development opportunities provide capital to facilitate our strong renovation program and it had a history or sale leaseback of properties, allowing empire to effectively we allocate our capital to higher growth opportunities in other parts of our.
Business.
Great example of our partnership mutually benefiting crombie read an Empire is our JV Street store in the hard to Vancouver Crombie re took ownership of our JV Street store closed and develop a mixed use property.
For Crombie right at the end of fiscal 2020.
We will be opening a brand new 44000 square foot store on the property, which features out to 330 residential rental units that will increase traffic to our stores.
We're pleased with the momentum in our business. It is a testament to the growing strength of our team.
Want to wish you all.
Oh, Great Christmas on holiday season, and if you want to really well over the holidays shopper food at one of our gray banners and with that forward in mice.
Hi, good Michael.
Good afternoon, everyone.
Project Sunrise is on track.
We continue to straight incremental savings.
What about $250 million in fiscal 2020.
As we progress through its final year.
Incremental benefits continue to be earned at a rate of approximately a quarter.
Every every quarter of fiscal 20 split roughly 80% to gross margin and 20% to us.
Yeah.
That'd be resets were completed in our stores at the end of October and the incremental benefits will continue to show no margin line for the rest of fiscal 2020 .
Increasing margin of 90 basis points. This quarter directly reflects those category research initiatives. In addition to the positive effect.
Oh for more.
Adjusted selling and administrative expenses as a percentage of sales was 20.9% this quarter.
If you exclude the impact of IR for 16, and inclusion of fanboys higher labor costs model.
As soon as a percent of sales was essentially flat.
Sunrise savings.
Approximately 25 basis points positively impacted the rate.
Largely through indirect sourcing cost reductions and continued strong improvements.
This was partly offset by lower impairment reversals than the prior year.
Our discount expansion in the West continues as we convert underperforming safely in sobi stores to fresco.
This has a temporary impact on sales and gross margin dollars as the stores closed for conversion for several months.
The first wave of first coastal west have been now for a full quarter.
And where so far I'm pleased with customers reactions and the traffic worse here.
Two years ago, when we first announced the discount expansion.
In the west.
Noted that it wouldn't be slightly dilutive to earnings earnings in the first few years.
This quarter the impact was approximately one cents dilution on earnings per share.
And we continue to believe at this point.
Dilution impact as we build out the strategy will be relatively immaterial.
Equity earnings increase year over year <unk>, principally due to the sale. It was 15 property portfolio by Columbia read that contributed an additional $15.1 billion to equity earnings plus $6.9 million in deferred gain recognition.
In total this positively impacted our share.
Properties earnings by approximately.
Six cents per share after tax, which we would consider to be an unusual effect I'm just not expected to recur.
The effective income tax rate for the quarter was 26% and we continue to estimate that excluding the impact of any unusual transactions for differential tax rates of property sales.
The effective tax rate for fiscal 2020 won't be between 26 and 28%.
Our cash flow generation continues to be strong.
Year to date of free cash flow of $253 million reflects the improvements in our operations and has enabled us to reinvest back into the business and it just.
Disciplined manner.
One example of that reinvestment is a great success, we've had rather retrofitting our stores with LNG lighting.
Which will be in more than 300 stores by the end of fiscal 2020.
Of course, this is better for the plant.
It's also more efficient for us stores.
And significantly improves our customers experience in the store.
We continue to estimate that our fiscal 2020 capital spend will be approximately $600 million.
Additional benefits of our improved cash flow or the ability to repay <unk> ability to repurchase shares and repay debt.
And in the second quarter, we repurchased approximately 930000 shares for $33.1 million and we remain committed to a 100 million dollar target for fiscal 2020 .
In addition to that we also repaid $250 million about credit.
Facilities.
We're now halfway through fiscal 2020.
The teams worked hard to earn especially at your second quarter.
And there is a lot of excitement building as if it gets closer to completing projects sunrise watching our e-commerce fallout platform.
And continue to expand Christian on the west.
And what banner in Ontario.
With that have a great holiday season.
Ill hand, the call back to Kt for questions.
Thank you Mike Joanna you May open the line for questions at this time.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session.
He has a question please press.
<unk> followed by the window on your Touchtone phone.
Well here with me Tom pathology request.
If you are using speakerphone, please let the handset before pricing any Keith.
And the first question is from March Patriot Act Sad to see with my Kids. Please go ahead Mike.
Hey, good afternoon.
So I just wanted to ask on the topline same store sales then your measurement of inflation, both slowed modestly from Q1.
No I think CPI was relatively consistent likely you talked about step up you saw from some of your competitors in that you didnt necessarily follow right away with this shift in the competitive environment sort of the driver.
Of that deceleration in the top line or modest deceleration and it could you just talked about that dynamic a little bit more.
Yeah, I'll elaborate a little bit more and then I'll ask like to talk with the pie and inflation.
I look at I wouldn't overstated, but the work, but we're watching the economy in market very carefully we're watching whether there's been some deceleration.
And then the economy, particularly in Alberta.
We're also seeing whether we need to be more promotional in this market, even as we are more efficient and driving for margins.
We continue to be focused on growing our margins through improved category performance, but the topline.
Certainly also matters, particularly the going forward when we expect in nature.
The increase productivity in our stores.
And then maybe I'll just touch on a few other things just some stuff. We expected first of all we talk about the number of stores were closing the west to convert to fresh go and as we execute with more velocity on that program. We have more square footage after the market temporarily in our store performance is also affected us as the stores ramped down.
Now, which also affects our comps.
These are expected impacts in the right thing for us to do in addition, we're also having some strong comps that we're now lapping in our discount business and also in Saskatchewan. We're one of our competitors was on strike last year I think.
Were company, that's really pushing for to close that EBITDA margin get the margin right.
And I think we were and where their promotional market. We kept pushing for margin, maybe it's maybe a little bit too much.
But that's certainly fine tuning and something that we can kind of just over time.
But that's what we're saying again kind of.
Sort of a end of it sort of a starting in October .
We're in an up till now that's kind of thing we're seeing the market. So we're seeing some so we're seeing a little bit of difference, but I don't want to overstate American maybe Mike if there's anything you want to say, but inflationary if you wanted out in.
I don't think so I think that's right.
Inflation.
A 2.4% as you know it's always.
He is below the CPR.
Purchase from stores, just because those indices look up.
A fraction of the skews that we carry.
I think a relatively modest decline from the last period.
And as Michael said.
You know we've been very focused.
Very consistent Oh, the last three years that margins are important to us.
And.
But equally we need to be competitive in the market.
And we'll ensure that <unk>.
Okay, Thanks, and I know, obviously, improving that topline momentum is.
It is a focus especially into the next fiscal year and I guess I'd be interested to hear.
How much you think that will come from sort of more structural shifts in your business like the rolling a fresh go and sort of being through that noise around conversions.
And then obviously the introduction of while large Ontario and.
And how much of that you think will need to come.
From better execution are there on promotions.
In store assortment, you know et cetera.
Yeah.
It's Michael here I think that's a great question going forward I mean, as I said that if I I don't know if you know market I prepare the script before I answer there were prepared remarks, so I talk I talked about.
I would.
I I talked about the fact that.
You can get fake kind of false readings on sales. If you wind you can promote you can hit your margin you can look a little better and tonnage tried resis out over the last number of years because that gets you in trouble and it's not really sustainable over the.
Okay, I do think that we could have been a little bit more promotional item in the back half the quarter going into this quarter, but the real price like you just pointed out is to be better what you do be better at executing while the customer behavior, Brad and in every transaction, we have two to throw the customer I think its.
It's clear that in predicts Sunrise 2.0 that.
The customer is gonna be even more in the forefront that it wasn't the last three years.
Our plan is to build market share through very organized strategic initiatives not just I'm trying to buy the.
Customer flow, while it'll be deep initiatives that we to undertake to be able to build up our out of market share and as you also pointed out I think the moves were making on fresco.
And far Boyd and especially on Walla are going to allow us to take market share as we move forward a lot of your initiatives that we have been planning now for some.
With them almost three years.
We're gonna be starting to bear fruit and as we move into our next three year.
Planning period that that is Ah, we invested early on that which I'm glad we did and that's gonna be that's going to put a little wind in our sales. So there were things were worried about on it but that strategic enough long term, we also run for quarters.
We remain a little concerned about the economy and what we're saying.
Cross country, but mostly in Alberta.
And what were and how we're going to who respond to a more promotional marketplace than we've seen them certainly since I've joined the.
Joined the company.
Is that helpful.
Okay.
Yes, very helpful and I guess, just since you brought it up do you have a timeline in terms of Sunrise 2.0, and when you'll be able to share some of those additional detail.
Yeah.
Because of this spring.
Probably may but we haven't committed to that we're going to figure out the best way to communicate we're.
Just finishing up.
The plan right now, we'll finish it up and the new your win and.
And we'll communicate it too.
To you our owners.
And and probably may but it could be late April or Jim. We're just figure out the timing and when we want to do that.
Yeah I appreciate it thanks, all the best Bank.
Thank you. The next question is from Karen short from Barclays. Please go ahead Kevin.
Hi, Good morning. This is actually Renato Basanta online for Karen actually good afternoon.
Well just wondering if you could flesh out some of your comments about the.
Additive environment.
Specifically, if you can speak to where you might be seeing a step up.
Maybe from a geography and door format perspective that'd be helpful.
We're seeing it across the country.
You see there's different competitors in different regions, what we're seeing it everywhere.
Okay. That's helpful and then just on on SG any.
Can you help us think about the underlying growth rate.
Do you see some noise with I FRS photonblade the restructuring costs reversals.
What's sort of the right right Oh, we should growth rate, we should be thinking.
Looking about going forward when you sort of normalize for all of those factors.
[laughter].
I think looking forward.
Outside of those factors, which we provided quite a bit of color on in our press release.
We're going to.
<unk>.
See some boss positive benefit as we get through the back half of a year.
Lessening impact of course, as we annualize prior reductions.
So we'll see some positive impact still from Sunrise.
Our store labor does increase.
As as our sales improves.
But we do get some benefit obviously, because there's some fixed and some variable elements in there.
As Michael said, though you know most of the World [noise].
That we have to do on SGN a is.
It's pretty well there to close.
So I think we as a company we're going to continue to be very cost conscious.
And we're going to find ways to pair R.R.S.J. down but.
We are.
Pretty close to a steady to steady state run rate on this today, if you factor out those one off so.
And accounting.
I guess that we highlighted in our press release.
Gotcha and that's helpful. And then last one from me I'm.
Just wondering if you could provide a little bit.
Little bit of a preview on Sunrise 2.0.
Obviously, you working through the plan, but.
If you could give us some color maybe directionally.
On the potential size of the program and then maybe just some teasers and what what's the focus will be.
With respect to sales productivity and gross margins that would be helpful. Thank you.
Thank you nice try.
Well because you were 70 <unk>.
Well say that as Mike said, where we think.
We're in we're always watching our us today and.
At anything and I was like doesn't always watching that all the time and which is good and we feel like we're in the <unk>. We're in the region of words right.
Thank you can expect Oh.
[laughter] are far more going its cost of goods holds [noise].
And especially in earlier so the plan.
Okay, and where there is still so much room to improve that and also going after sales productivity in our store, where we think there's some real opportunities.
But I think I think you know that that takes a tiny bit more time, so that you'll see that's going hard at cost of goods sold in the new plan while.
Improve their sales per square feet across the country.
And we got the room to do that as I said, there is not absolutely no reason route to close that EBITDA margin gap.
As far as we can to our competitors and we couldn't do it the first three years.
Well, we're going to we're going to finish the job.
Alright, great. Thanks best of luck.
Thank you have a good Christmas.
Thank you. The next question is from Michael Van <unk> from TD Securities. Please go ahead.
Thank you good afternoon.
I'm.
Just on the category resets, so now that you're pretty much done.
And you put them all and is at the end of October I think you said when you look back at them now how would you write them on a scale, let's say one to 10 as to yeah.
And what kind of thing is do you think you can circle back to you in Sunrise 2.0 to take out additional Cogs.
Sure.
Scott of one to 10.
Going to leave appear to give you that score.
He was he was accountable for it and I don't want to create any.
Ill feeling here.
But you know I think we've said pretty consistently we're comfortable with.
In terms of the next phase.
As Michael said and what can we do next.
Pierre will provide some color in the second but.
We did this very quickly.
If you think about it and and in the midst of <unk>.
Very major reorganization for a company.
And even without knowing how company, but knowing those.
I think.
It's got to be a lot of more upside when you fine tune that category management.
And and as our.
Those are analytics to get better.
And those are merchandisers get better. So you know that that's really what what we're referring to when we say there's still some tailwinds.
And we intend to recapture.
We're in those areas, but you know maybe for some color pure.
Why don't you give us the score.
And tell us.
<unk>.
It's really the.
<unk>.
Yes, the initiatives desk, and then you executed or we see many many years.
A big benefit is I think our assortment is.
Never been updated and it rather than like it is now from coast to coast.
More simpler to manage for our team are much simpler to.
Our customer we get more space to more efficient skews. So I think the predictive done shelf is much better.
You revisit that we cleaned up I would say that data and everything so there's a lot of benefit internally for us.
That's when it will will leverage because the team.
Spend more time to drive sales over time.
And but maybe more at were less complex to deal with four supplier partners. So there's a lot of some benefit over and above all.
All that I'd been if it would generate generator to that initiative. So they were fellow team. So.
Pretty tough with my team, but this one net giving tenant and wont be fair.
Yeah, Yeah, I wasn't trying to say whether you did a good job at it I was just trying to get a sense is that how much is that how much was left to improve upon in the second round as you go back and do what Mike said it in terms of gone.
Back in trying to optimize their perfect.
Yeah.
Customer trends, we always changing so we have Rob is data, we revisiting what data on the regular basis. So I think the next going forward. This would be tweaks in every categories.
Which suppliers. So we just need to adjust our assortments based on customer trends.
The Cogs improvement I'm talking about well will likely very little that'll come from the supplier partners a lot of that's going to come from our own processes.
Disciplines, and and taking costs out being far more efficient, which.
<unk>.
I've seen done before and we have plenty of room to bed would do that.
Okay. Thank you and then on the Capex, you said 600 million for fiscal 20.
With.
The cfcs their Paula.
Spending next year or fiscal 21 and and.
The.
Intention to start renovating your stores, maybe more aggressively do we see that number go higher beyond 2020.
So while we are going to provide explicit guidance on that as a as as we start to close out.
Yeah look at the next one as well as Weve made a habit of doing over the last couple of years, So I don't want to.
Lead into that but just specifically answer your question Michael Yes, it will be higher.
But not.
Excessively higher Michael.
And I've said very consistently.
We believe that.
We do need to reinvest in the company or we need to do Didnt disciplined way and we're going to balance that with <unk> cash flow generation. So yes, you can see it I think.
It's just logical to to.
That will be higher.
But.
But I wouldn't be looking for a major change in our approach or a very significant variation in our investment program.
Alright, thank you.
Thank you. The next question is from the Sosh retire from National Bank. Please go ahead.
Hi, Thanks for taking my questions.
Just back to the competitive environment, and managements and desire to stimulate sales I made that environment I'm.
<unk> is it simple enough to think that when management says we want to stimulate.
Our sales line, maybe a little bit more is it just simple to say simple enough to say that means gross margin investment or are there merchandising tactics that that and management can employ to protect that maybe some color on that.
I mean.
It's.
Michael first of all I'm talking about answer it brought by because I think I've said enough a map it out you.
We have competitors.
Secondly, I think you should also hear from us that we we like having a good gross margin and not moving that around flipping around like.
We did we were three years to improve our gross margin or EBITDA margin or not going to a.
Slip ever got its had.
The same time.
You see.
[noise] competitors across the country have been seeking sales and a we've been.
Maybe a little slower to react to that which I'm, okay with it but that we can continue to look for ways.
To execute across country to a full marketshare like we have over the last couple of years. So this is a I mean, we're talking fine tuning here like I said, it's a fine dance and merchandising and.
And in any retail, especially grocery in terms of balancing sales and margin and doing a smart way and making it really attractive for our customers, which is a really of the smartest thing we can do.
But but speaking empty calories sales is a short term.
[laughter] investment that does not pay off in the long term.
So we're going to do things are right away.
Okay, Thanks for that and.
Maybe and maybe already alluded to this but the he knows that they consumer backdrop is getting a little bit tougher maybe you can just give us your context on it or is this I am very incremental at this stage or are you seeing.
In a meaningful change quarter to quarter.
Well you know so it's in a short period time, it's so difficult to read of and unfortunately, nobody around this table I don't think is trained as an economist, but we did see some changes don't over emphasize them, but we did see some changes.
Cross country, but especially in Alberta.
We watch with interest or listen to the the or large banks and what they had to say in terms of a consumer sentiment and I think like everyone else out there, where we are watching it and concerned I'm glad theres nothing to panic about.
Right now, but we're concerned.
Okay, and maybe just changing topics here a little debt you mentioned that says that's your Ocado partners are getting a lot of interest in their ecommerce solution.
I'm wondering if there's such thing that's as too much interest and if you perceive that ocado.
How does support teams maybe stretched a best in hand, if you can in fact, the cheaper goals given that they have so much more detail.
Yeah, I know I don't think there's stretched to fans and because it's all in an order one of the reasons that Oh, we moved to tie up exclusivity in cat one was because we wanted the.
We wanted to best ecommerce solution, we didn't want to competitors to have it but we also knew if we moved fast we would be higher in the we knew everyone around the globe is looking at the solution.
<unk> <unk> at that time Warner pre was the only way to get announced before we Didnt was only a couple of months before so we were in negotiations and we felt that a the way that ocado was organized themselves, which I think.
That's very good.
Would be that if we were too late to the paying that it would put us off by a couple of years.
<unk> because they would have different partners across the globe, but they're very well organized and so I don't have that obviously, we don't have that that feeling.
Okay. Thanks.
The color.
Thank you next question is from Ivy metallic from RBC capital markets. Please go ahead.
Good afternoon, everyone.
Okay.
This horse to death, but just you know really on the consumer behavior piece, obviously, there is something going on out there and you mentioned youre.
You know your robust data and analytics capabilities when you [laughter] crowd.
Sure that customer purchasing behavior.
Are you seeing the kinda signs that we sometimes they seemed like trade down are you seeing an uptick in private label kind of are you seeing anything else there that points to shifting consumer.
Like buying patterns in the sort of independent up or buying a little bit more on promotion and are they find more incremental what is experiencing.
Yeah, I mean, it's such a short period of time that this is all occurring in that it's tough to see.
Across country, there's too many other things going on like we had bad weather and we had.
Some things that we're doing we're coming off you know here, but we were doing in terms of closing stores and so much other actions. So like on Oh, that's a great question, but I think we're going have to see a little bit more time to see if any of that is playing out we didn't see any big move away from we didn't see any move away from full service.
Well, it's a discount or anything like that.
If you are you seeing any indicators.
More of a category level or the problem with no net I'd have to talk about Oh. That's at this time and as we said we saw that didn't every format every region.
So it's.
There were so there's nothing specific to.
Some customer segments. So we still are looking at it then but it's too early.
Michael said, we need to longer.
Period of time too.
Conclusion.
Around that.
Thank you appreciate that and then I also want to come back to something.
Thing that you said around around closing the margin gap. So you know actually yeah on on a pretty high FRS basis up about 50 basis points 4.8 on reported basis closer to six clean eight.
How like how.
If in fact, we focus on that 4.8 it would suggest.
There's still a nice chunk to that we can look forward <unk>.
Would you agree with that commentary.
Certainly what I think you've got to test adjust and we've done the math and we'll share with you will gotta gesture, some structural things like pharmacy little bit aren't really a little bit on the fuel, but there's a.
As far as Weve com, we've come a long way, there's still a huge price up there. So I would totally agree with you.
And then any tier determination my call to actually you know cat at that price.
Yeah, I'm not going to commit today, whether we're going to get all but three years or more bid or write off because we're still doing the work on that.
Always knew always knew it was a six your job to be able to close that food retail.
GAAP I think we've performed better I think our team has been better than I could even have imagined at this point, so I'm more confident and restructured right I mean, <unk> kind of done any of this if we were still.
Our regional.
Company or that's only band just over a year, we've been a national company. So now having all the structure in place for people in place the initiatives in place and by the way. We're really we don't waste turned out to swear already under way out a few things here, but I think we got water rights start into the new the new strategy.
And close the gap you know I've always said that we have along yeah all that.
We had a long way to go but on the positive side, we have the most upside if anyone and we intend outperformed the market.
And I I think people forget how much room, we fix reminding everyone for but we have a.
Longer we have a ways to go to be able to close that and the upsides very very large.
That's great. Thank you and one final one that if they well.
If I may so you talk about excitement and smelling the customer and again, you've kind of an awful lot on the goal and this is clearly a journey, but wondering if you could just talking about some.
Of the initiatives that you may already have rolled out and what we should be looking for.
Well that we use so couple of things that we announced with the caper cards stuff, which is a good a good things too.
Two till the customer, but I think.
Over the last three years, we spend most of our time to organize ourselves internally and structurally.
It's behind US most of it now and we will put our focused on the stores to customers, we have great assets across the country a lot of square footage so.
Team is working out together on the plan to add to be too focused on that so I think thats, where the fund is in retail and the team is very excited to bring new things and you know and then the.
With offering.
We have that great partner with.
Yes, and Skimping you know we made very good strategy acquisition that would leverage.
So there's a lot of good initiative in place now I think I think the other thing I'm really proud as when I first right I would have said to this group that I didn't think that we differentiate at our banners well, but our brands didn't have that brand promise I really like and.
And that we can differentiate between the banners enough I think that the work that marketing with merchandising. It ops are doing but you're starting to see if you walk her stores today.
The Christmas season, and you look at some of the ways that we're differentiating our banners I'm really bringing those to life and a lot of things we're doing around.
Our banners and appealing to our customers were not all the way there yet, but we've made big inroads, especially over the last 612 months.
That's great. Thank you. Thanks.
Thank you. The next question is from Peter Sklar from BMO capital markets. Please go ahead.
As you talk about your E Commerce business you talk in the context of having for fulfillment center. So do you have any.
Can you give us a timeline of when you think you would be building number three and number four.
No. We're gonna we're going to open up Toronto, all our attention is on opening up trial.
Oh, and getting and we're moving that we're moving the dirt in Montreal, we're going to open soon.
You know.
The opportunity here, we're gonna have sat said strategic opportunity in such a weapon and Paula.
But we're gonna have to handle that three open up Toronto see how its going.
And then decide on the timing when we got a pretty full plate.
We have a lot about opportunities as well in the store renovations I was talking about very excited about the returns on star innovations in a short period of time. So we'll have to look at that and see what the timings like but.
I will give us a big head start into a major markets.
And then we got we got at least two to go right.
Yeah, but Michael you committed to number three and four with your agreement with a condo.
No we're not we're committed to.
But I committed to anything other than the having exclusive rights and.
In Canada and to grow at a certain pace and we're not I mean.
We're growing.
We're growing much faster than the pay if in fact that we had talked to a condo, but growing up so there's no issue in that but there's no.
There's no hurry ignored by the thing that Bothering me I know why we think about it a lot is if you've got the greatest.
What happened.
And it takes two years to get it up.
Oh and put it put it into the market you had a good that's a bit of a delayed and also to its favorable exploded through this explore it appears folks that micro fulfillment and all the other things we want to do to be able to own the whole market and ecommerce. So those are all things we're balancing.
But oh, my hope would be to get the other stfcs open at a in a timely manner, but we're not committed we would tell you if we were.
And and I want to have all of our attention on this GTL opening it is really important to our company.
Okay on another topic.
With the fresh go.
Rollout <unk> west.
I'm sure you have some.
You do consumer market research and I'm, just wondering what you're seeing in terms of development of the brand as you know that there was no brand identity for fresh go really out west.
And so I'm just wondering how.
We're doing when you when you undertake your market research and other measures. Yeah. We're doing we're probably doing more market research and I've ever seen in terms of opening up a banner and we're doing really well in that and but you're right. You have to consider this is a new better to this market. So we make we have to take a fixed.
Last when we open then we got continue that for a while our competitors do not enjoy it when we opened in wheel reopening because they've had six months or whatever it is and some of the locations to be able to take some marketshare, which we then take back they resist we fight we get it back and Ah Ah but.
Considering there's a new better in this market, which we knew I think that the work by Oh My first of all the fresco team led by my bad and the work by Sandra any marketing team working together has been the Super. So we look at this very very closely as you can imagine in terms of the customer data on the sales data.
For just opening and where we are and I, albeit early days very very pleased.
Just want to get more open.
But you did see some of that as I said before you see in some of our same store sales in our sales numbers that we had some close stores and that'll all work its way through the system as we as we are opening and closing of doing things like that but there's some.
At a level of effect to our comps as we do that we were off inventory and close down stores.
Okay. Thanks.
And then just lastly can you comment how.
Your internal inflation was trending as you exited the quarter and as you got into the third fiscal quarter.
I was pretty consistent.
Quarter.
A little bit of.
<unk>.
Really not sufficiently material to.
<unk> to take note of.
Okay. Thanks, Michael that's all I have.
Thank you.
Thank you. The next question is fun, Chris Lee from Chardan. Please go ahead, Chris Hi, Good afternoon, guys. Just that one question that for me just wondering what do you should look on transportation cost.
For for next year on you know thought Ramel last week mentioned shipping rates are going up because I know 2020, I'm not sure if that does that would impact.
You guys have seen we the impact other retailers.
I think the best way to answer to that.
At this point, we don't see that as being a material impact on our company.
In the next 12 months or so we may be how many of you wrong on that but.
It's not that's not a cost pressure that we have in the front end about radar here.
Okay. That's great. That's all from in happy holidays, guys happy holidays to greatly talked me Chris. Thank you.
Thank you. Your next question is found Patricia Baker from Scotia Capital. Please go ahead.
Oh, Thank you very much for letting me on glass.
And I have couple of two questions or two topics, where you Michael a of your seven so the first one is probably and I don't remember.
If it was you or Mike, who said that you're right you're at various stages of development door negotiation with I think.
25 properties for a Fox <unk> locations preferred point I'm, just curious whether if you look back you know two a year ago. Just after you closed on the deal.
Being at that level.
Oh transactions for from plays out.
Further had than you thought you'd be at this time.
That's a difficult want to answer because.
It would be easy to say that we yes, we're further into <unk>.
You know part of our thinking.
And part of gel and and Jeffs thinking.
When we combined our two companies.
Was that we could.
Take their rate of expansion.
But they had in their plans.
Suddenly.
By using the power and the capability the scale of real estate group and our access to properties. So.
So really what.
What we're seeing.
Is the successful.
Execution of that Oh that belief that hope and so.
I think.
Well I know the.
Well we are is it's accelerated from what the farm we plan was without so these.
But as beating our expectations about what we thought the two companies could do to.
Together.
Okay that makes a lot of sense, Mike and then maybe that's a good segue to my second question.
Michael I you you.
Could it crombie as one of your seven topics of discussion on the call and I've talked about Krabi more than you have on other calls you opened by same you currently have a 41 and half.
Positioning you're happy with that so assuming what you're saying there's that perhaps you know for the foreseeable future there will be no sell down in Colombia, nothing up an appropriate level for you to own. Let's just wondering if you could spend a little bit further on somebody you talked about working with crombie differently. So can you talk about let's just give us a little.
One information about how that next empire stronger as it grocery operator going forward, Yeah, I mean, I'll say, a few things I send it over to Mike, but I mean I come from my background, where the real estate department at work, so well with the right at a previous company I was with it was really great relationship and and so when I came.
Over and as Dawn, Donnie quo, and and I, and then when Mike sorry, Mike and glad and somebody others over there now Clinton whose over there.
It's just such a great opportunity to work together cooperatively for the best obviously for the fiduciary duty or what each of it.
Different entities, and I would say that andone, but probably say the saying that the relationship between our read and our real estate group and our real estate group has been phenomenal. Just phenomenal is is working like Ed I'm told in the way that it's never worked together before and.
It's a it reminds me a lot of five previous experience when that was working so well and that just creates so much opportunity I think you know we've become a good so busy turning around you know our results here at Empire, we forget sometimes the the power of about right and we don't talk about it a lot and.
We're very pleased with their performance, we're very pleased with the developments were really like how it returned capital loss and that we can have better location for our stores and they like us in many ways to such a symbiotic relationship and you pick all that's always great I would say that but the way, it's working and I would give a lot of credits where.
Real estate group, the Mike and to the people over there. This is a big upside for us and we're very pleased with the ownership and very pleased though that's how it's going over there nice to hear anything I mean, you spent a lot of time as well.
I'd say responsible for ensuring that are works.
[laughter] [laughter].
[laughter].
So I'm just say it's going great.
But on a more serious note.
The two companies exists for for their respective shareholders clearly so.
It's probably has strategy so do we but.
Heavily linked.
Because of the grocery.
Properties Doctor and and they are <unk> isn't just a long list of opportunities and collaboration that you would do.
If you were managing it probably is expect to see so so most of the what does that clarify expectations.
Starting.
Yes.
Being transparent with some.
Each other strategies, where we could take what are the ones and make it equal three so.
Yes, that's a.
I think that's just smart.
Yes and.
And ensuring that we have the right people.
Properly incentivized and motivated to to get that doesn't really was Hello, Michael My went to edit and how we made sure that it was just as good as could be.
I really appreciate that and I like the notion that you're working on making one plus one equaled three months.
[laughter].
And.
Her her but I'd say that before I was excited [laughter].
I was 42% okay.
[laughter] experts have a great holiday you as well.
Thank you.
Thank you no further questions at this time I will now turn it back over for closing comments.
Thank you Joanna ladies and gentlemen, we.
For your continued interest in Empire, if there any unanswered questions. Please contact the I phone or email, we look forward to having a join us for a third quarter fiscal 2020 conference call I'm right well happy holidays.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating.
And we ask that you. Please disconnect your lines.
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