Q3 2020 Earnings Call
Good afternoon, ladies and gentlemen, welcome to the Empire third quarter 2020 conference call.
All lines I know, if and only mode. Following the presentation. We will conduct a question answer session. If at any time during this call you've acquired assistance. Please press star Seo 40, operator.
Oh is being recorded on Thursday, much tougher 2020.
No. It's kinda conference over to Kt Bright director Investor Relations. Please go ahead.
Thank you doing enough good afternoon, and thank you all for joining us for a third quarter conference.
Today, we will provide summary comments on our results leave as much time as they can for question.
This call is being recorded in the audio recording will be available in the company's website I'm hard coat dossier.
Third the short summary document according to points of our quarter available on our website.
Joining me on the call this afternoon.
Well My line, President and Chief Executive Officer, Michael, Though Chief Financial Officer, and Paris, Saint Laurent Chief Operating Officer full service.
Today's discussion includes forward looking statements, we caution 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, an M&A for more information on these assumptions and factors I will now turn the call over to my comments.
[laughter]. There's obviously one thing that is top of mind for all Canadians I never want around the globe [laughter]. Our thoughts are with all of those affected by the krona virus and always concerned about their loved ones.
This is truly unprecedented territory.
The Empire are doing everything possible to support and keep save our customers our communities and our teammates across the country well most of her efforts right now we're focused on dealing with the virus, we have a job to do today to report on Q2, and we will now do so.
Overall, we're pleased where they are you can't was a 46 cents excluding I for F 16, accounting changes it would've been 48 cents.
One thing that's for sure were much stronger now on the bottom line notwithstanding any market conditions. It shows how well we can perform well we're nowhere near our full earnings potential.
This is a relatively complex corridor, we had a lot of moving pieces and it really wasn't very different tail between the first 45 days a quarter and the final 45 days at the quarter.
Mike and I will do our best to simplify our results and highlight the key takeaways I'll leave it to Mike to take you through some details of our quarter first an update on projects Sunrise and an update on our capital allocation and then I'll say a few more words.
[noise] Thanks, Michael.
Good afternoon, everyone.
Well same store sales for the quarter of 48% should be considered in the context. So several factors.
Firstly, we're very pleased with our two year stack costs of 4.1%.
Very strong number which emphasizes that we are lapping some record breaking numbers from last year.
This quarter and next we're Comping are too high same store sales quarters, we've had in the past decade.
As we mentioned in the last quarterly call with you sales did have a slow start in the quarter, but we did see strength in the latter part of the period.
Factors that affected our sales in the quarter included the ramping down several safeway stores in Western Canada, which are being closed for discount conversion.
We saw heightened competitive just competitiveness and discount.
Both the west and Ontario.
In addition to aggressive responses by our competition twin aisle launch of discount in the west.
We also noted some softness.
We'll go to market that we believe is at least partly an impact of a weaker economy.
I mean total food inflation was 2.2%, which reflects price inflation on our mix of products sold at a stores.
Our gross margin rate was up 20 basis points over the last year.
Included in this number are very strong contributions from both category resets and Farmboy.
Which together added approximately 90 basis points to the rate.
There were some offsets to this mostly mix and the effects of lower fuel margins.
To be specific we had strong sale in businesses that have lower structural gross margin such as wholesale and discount.
Come back we had a different mix of corporate versus affiliate own stores and.
I, just said fuel margins.
Related businesses were lower than last year.
These were the most significant offsets, but we also had some smaller impact on margin due to aggressive competition in the market.
We felt we needed to counter.
Overall, we don't see any trend of long term effects that we should be concerned about at this time.
[noise] as we increasingly had fresco stores to the west converting our underperforming Safeway stores, you will continue to see an impact on our results in the short term.
Safeway stores that are closing experienced lower sales and margins as they get closer to their temporary close date as shelves or less full and customers start shopping a different locations.
As the new fresh Kohl's stores opened we are investing an incremental promotions marketing and labor to ensure that our new customers have a positive experience.
We had 11 fresco stores open and operating this quarter.
The net dilutive impact of approximately two cents per share for the quarter.
As our new stores continue to improve and move to more normalized labor and margin run rates. These impacts will decline.
We do expect similar low levels of dilution.
New stores start to left their results and provide some offset to two two to the new store openings.
Overall, we are satisfied with our experience so far in the western market and without discount expansion.
As we open more discount stores and at critical mass and no markets. Our more recent stores are performing better and are experiencing improved ramp ups compared to the only openings.
We also continue to see results from our focus on costs and the impact on SJ.
Although it appears as if our adjusted yesterday as a percentage of sales improved by 180 basis points.
On an apples to apples basis, if you exclude the impact of I have for 16.
Inclusion of phone boys higher labor cost model.
And the labor buyout and conversion of closure cost from the prior year improvement in the SGN a rate was 60 basis points largest driver of this improvement was sunrise cost reductions.
Perfect Sunrise is on track and the finish line isn't site.
We continue to estimate incremental savings of about $250 million in fiscal 2020.
Incremental benefits continue to be earned evenly over each quarter split roughly 80% to gross margin and 20% to ask gena.
[noise] equity earnings decreased over the prior year, primarily due to a prior gain and crumby reach.
On disposal of some of their retail property that increased our share of the earnings last year.
The effective income tax rate was 27.4%.
The prior year was lower due to higher capital gains on property dispositions and a decrease in tax liabilities.
We continue to estimate that excluding the impact of any unusual transactions or differential tax rates on property sales the effective tax rate for fiscal 2020 will be between 26 and 28%.
Our cash flow generation continues to be strong.
To date, a free cash flow a $536 million allowed us to reinvest back into the company in a disciplined manner.
The strength in our cash flow also enabled us to accelerate repurchasing our shares continuing without a strong capital plan.
And recently investing in Colombia reach recent issuance of equity.
This quarter, we repurchased approximately one of the ethylene shares for $48 million and reached our publicly disclose 100 million dollar target.
At this time, we do not plan to purchase any further shares for cancellation in fiscal 2020.
We also continue to believe that our fiscal 2020 capital spend will be approximately $600 million.
As Michael said, a force right now with those that have been affected by the Corona buyers and we hope and pray that you all stay safe.
And with that I will tell now I'll turn the call back to Michael.
Thanks, Mike.
As I was saying there were two very distinct cost to our quarter as we mentioned on our last call. We had a slow start to this quarter. There were a few reasons for this competition with hybrid, particularly in discount there was a deceleration in the economy, notably the west and we could've been even a little quicker to respond to a more promotional effort.
Hmm.
Yes, what we told you in December.
The second half a quarter saw stronger sales and much stronger growth in our bottom line, we feel more optimistic about the sales trend since we saw sales improved just prior to Christmas and right into this quarter.
I'm proud of how the team was able to pivot when we saw softer sales at the beginning of Q2 I'm pleased with the results. We remain disciplined Didnt chase empty calories sales and were very firm on cost control to deliver a strong bottom line.
Many of you have asked us about whether we were impacted by the rail blockades across the country, we had virtually no disruption to our business given that rail is not our primary mounted a transporting merchandise throughout our network.
Today, the Kratos virus has not negatively impacted our business and we're taking all prudent precautious. We will continue to monitor the situation as it evolves and take all necessary actions.
However, beginning on February 28, and accelerating starting on March eight we saw overall elevated sales increases clearly attributable to public concerns surrounding the krona virus, specifically, we began to notice in many regions of the country that for customers were incurred.
Recent purchases in certain non perishable categories, such as household cleaning supplies paper products candid packaged food and health and hygiene products.
Now moving to a different topic the implied tonnage calculation thing the difference between inflation and same store sales is often used as a proxy for market share, but it isn't inherently flawed and stockpile calculation.
As a result, we have several different data points that we used to look at marketshare at much more granular levels based on these additional data points analysis of our competitors' results and Nielsen We believe our overall marketshare held virtually steady during the quarter.
EBITDA margin rate, our most closely watch number increased again in my a strong 50 basis points. When you exclude the impact of IRS 16. This year, the labor bio discount conversion closure costs from last year.
No I want to 15 minutes is speaking about two of our key strategic initiatives firewall refresh go far away as a weapon for winning share in urban markets and Ontario, We already are under penetrated the exceptional leadership team a far more it continues to deliver on its industry, leading operational and customer metrics. They are performing even.
Got it better than we anticipated when we acquired farm boring.
And we just opened a new far more in January and say tolerance and it was one out if our boys strongest openings of all time.
Just last week, we converted our first Sobi urban fresh this was our match have store and auto water Farmboy and we expect outstanding improvements. The first weeks results have not let us down we have a very exciting schedule for new store openings and expected to target of at least eight new stores per year to be a highly achieve.
Mobile number going forward.
With our recent success with fresh going away.
Favorite team up there is doing a fantastic job. We're disruptor in the market. We are taking back market share, which is less predictably to a more promotional environment in the west We're building a new brand in the west and as we anticipated and plan for this means investing in margin in marketing to introduce contrary to the fresco Brad and.
Welcome to our stores, while this investment is putting pressure on the margin in our new fresh del stores in the short term, we believe welcoming educating an exciting our new customers is key for long term success and will soon be lapping our first five fresh go west store openings that spanned April in may of last year and as we open more stores.
Execution as Mike said continues to get sharper.
And finally through our three year strategy protests Sunrise, we have reset our foundation and executed our transformation even beyond our collective expectations waiver team a strong internal talent augmented by great external hires like the need overall, though our brand new SPP retail operations for Western Canada.
I'm extremely pleased with the leadership team, we now have in place and I'm very optimistic about our ongoing business prospects and our trajectory.
In May one at a press release whenever conference call discussing our next three year plan and with that back to Katie. Thank you Michael do I know you may open the line for questions at this time.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session. She had a question. Please press the star followed by the one on your Touchtone phone you Love here with me Timeframes acknowledging you request.
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One moment. Please please next question.
First question is from Ivy Macau from RBC capital markets. Please go ahead.
Thanks, and I guess, it's good afternoon, everyone I'm really interested in your description around the performance in the quarter a tale of two halves can you talk about what sort of more specifically might have changed in the macro environment between the first and then second half and then what changed in terms of your response in each of that.
Periods.
[noise] [noise] I think as Michael said I read there was a heightened level of competitive activity in the end markets.
And we've been very focused on maintaining.
Protecting margins.
<unk>.
And there was certainly you know some impact we would we think on our sales.
Right.
Ah that we adjusted for that.
As the end and and.
That's certainly approved a group sales I know Richard.
So then okay.
The.
We saw some improvement in <unk> and <unk>.
Just across the board is all about formats or across all of our markets.
The middle market continues to be.
Relatively speaking softer, but we did see.
Philly.
Consist of improvement.
It's all about fullness, including probably boy.
The end.
Okay.
So then Mike it was so.
The competitive intensity eased and your response.
True just is that.
Oh I see the combination of the two most of the competitive intensity in where we did invest some some incremental margin was now discount business as I mentioned.
Mitchell.
And Farmboy.
It was it was really probably just some more efficient promotions and general improvement in the market towards that.
That's great. Thank you and actually come to the engines of project Sunrise or are you seeing the acceleration that you expected to see Oh are you generally Serbs satisfied with the performance and where might you be kind of the had in where might you be happy.
A little bit more trouble if you are [noise].
Hi, its its Michael I'll take that Mike you can make a pure you can add on I'd say that throughout the three years, which are now nearly off.
We hit on every target we.
Internally side that we communicated to you.
S.J. margin.
I think what surprised us throw back was actually.
Your recovery in sales.
And customer satisfaction with our banners then we had even thought we could have pulled off and so when I look at that forever.
We have everything on time were $50 million are ahead of where we thought we would be.
One hour.
My personal worries and I would I know a concern three years ago was what do we come out of summarizing being an excellent strategic.
Place and when I look at what's going on our full service business, what we've done with fresh go into West and Ontario.
The acquisition of the grade far boy and our pending opening of where a lot I think that is highly.
I'm much more ahead of where I would have ever expected to be so we're pleased with that you're always.
Okay. My please I've never pleased right I mean, we always want better results, but if we could have signed up for something close to this we would have signed up on the Dod is like the question now is how we finished the John how are we closed over.
Over the next will allow and ER and take there's still a higher level and our national company Whip out [laughter] fantastic supplier relationships to their supplier partners a much stronger.
Foundation to build upon a stronger team and now we can go after a margin sales and some more us today as we go forward, but I don't want to say too much more you walk tuning in made when we talk more about the next three year plan, but I'd say a toe to answer your question.
This company is so much stronger as I said at the beginning of my remarks today in every way shape or form.
That's great Michael and I think you can rest assured watching that.
Okay. Thank you Eric [laughter].
Thank you for the next question.
Karen short from Barclays. Please go ahead.
Hi, Thanks, a couple of questions I'm I'm wondering if you could give a little color I know you said you held share broadly nationally, but can you give a little color on regional I guess tonnage and share trends given that you called it a couple challenging markets.
Yeah, Yeah. Thanks, Erinn, it's Michael we don't usually break that down so, but I think you could tell from what Mike said that we were.
Particularly encouraged in Central Canada, where we were very very strong and then.
We feel we held our own across the rest the country.
Okay.
And then in terms of I guess the virus in the impact there. It's obviously not sit here and there's not as much hysteria bear it certainly is in the United States that.
You know we saw at Cosco did on comps and it seems like that content that they had in February and especially that last week in February maybe something that is actually sustainable for an extended period.
Can you, maybe just talk a little bit about what you're seeing on that front <unk> intensive.
Stockpiling generally.
Yeah I mean.
And now we get it right and our customers are obviously concerned that they want to take care of their families, but we haven't said.
Inordinate stockpiling of goods people are buying what you would predict they were to set themselves up a case, there's some sort of emergency and their families.
So having said that we're seeing clear acceleration in certain categories and and its and it tends to be more acute in certain regions. The ones that are most affected right now with actual proto virus a patients.
And it's absolutely noticeable in certain predictable categories, but those categories are starting to expand as we go forward and I think the last few days, we say about expand a little bit apart from the truly predictable categories I don't want to overstate the entire store impact at this point, but we are seeing accelerated sales trends.
And independent and instead of at a pace that we just haven't seen before.
And so and I think it's really too early to know how customer behavior is going to evolve throughout this this outbreak and what will that come into our business results. It's just too early right now, but I can tell you that.
We're doing everything we can to serve our our customers and communities and our team cross country are doing a great job and I'm, especially proud right now of our supply chain, they're doing this phenomenal job filling michels.
Do you think that well have an impact kind of on inflation going forward just in terms of that.
Than normal demand.
Well good question.
I think the easy answer to that is we don't think so.
Box.
Really reached this really too early to tell you.
We're selling where selling our products it yeah the usual prices.
And.
The stage I [noise].
I wouldn't like to speculate or making predictions.
As to.
As to what we have [noise].
As to what it back we might see how having said that [noise].
One of the impacts.
Not really to buying as opposed to do the Canadian August we can also fairly significantly recently that became a medium to longer term.
Trend.
We'd start to see some increase in procurement costs, a full product coming over the border and and that generally tends to translated some higher inflation at a at retail.
Great and then just last question in terms of them to cfcs and that will be coming on line.
Can you.
Color on like the initial volumes might be when you do finally open then start operating the first CFC and I asked that in the context of.
You know that equivalent volume is basically like an equivalent of opening X number of stores in the market and square footage perspective. So I guess the question really is about how might that may actually change the competitive dynamic in the market initially I.
I think right away when we soft launch, it's not going to be up.
Not going to be a big.
A big turn but when we got start getting that's up to speed.
We believe that well plus far more area is gonna be quite a.
Big advantage and the Cheech area and will lead to market share growth for us and what is currently are weak as marketshare area. So we're going to be on the hot we're gonna be the hunter.
Very aggressive and getting that market share and we're gonna have all the tools to finally do that we're not we're not telling how many stores, but you can imagine that's what we're up to speed, it's equivalent very many stores.
Okay. Thanks very much.
Thank you. The next question is from the shell Shreedhar from National Bank. Please go ahead.
Hi, Thanks for taking my questions.
Management noted.
You know sometime ago that.
He due to ongoing initiatives at the company.
There's opportunities to grow Empire.
Quicker rate and then the industry.
Deep the backdrop is obviously softened a little bit due to a variety of reasons and just wondering how management feels about that goal and if the backdrop is restricting that going anyway.
We don't think so.
I think we've been pretty consistent did not say, we still have upside die.
I'll costs on margin rates and a and we have a foundation that we believe.
Is solid and just going to enable us to do well.
We also have jumped two to.
<unk> two to narrow in terms of productivity to stores.
We've been pretty clear in saying that our ecommerce business will be dilutive.
Yeah in the in the next several years, but we've also been clear.
We expect our auto older rigs.
To increase it.
Very good read a and with more detail in the commission and that's coming back.
Okay.
And also kind of aligned with that last question.
Two quarters ago management indicated [noise].
One of the priorities.
To get these margins comparable to peers would be to improve sales productivity.
And I know theres other initiatives as well that you'll chat more about in coming quarters, but [noise].
Maybe you could talk about some of the tools that that management thinks that they have at their disposal well implemented over the coming guy quarters or years in order to capture that access sales productivity, just given the market condition fading a little bit from there.
Yeah.
Before I answer that I would say I've I agree with Mike I don't see that momentum going away I don't agree with you on that one.
I would I beg your intelligence to wait till may because we're going to give you a full report on how we're going to do a.
She's marketshare and grow our sales per square feet as part of Oh, It's part of our.
The next three year plan.
Okay, and and just another another quick one here.
The the category resets I know in prior quarters, and indeed I again in the script you noted that you've seen that they're they're working as anticipated and wondering if if if.
If he's category resets are also obviously, helping on the bottom line <unk> are they also helping deliver sales improvement.
And can you can you measure that or is it more about gross margin kind of story.
Scatter reset it's completed which is a great accomplishment.
Yes. So we gave that I think we're more efficient on on shelf productivity.
So we gave more space to better seller then.
Other seller will then there is nothing else. So we're much more productive in sales were more relevant for customer.
And I, just we just complete.
Weve trees. So it's done it's behind us and now we're measuring our performance on sales and margin.
And so far we than ever.
We expected that a bit more.
And ER and we need to leave time to customer to.
Change if you have your based on different assortment, we had in store, but so far we're really pleased with the resolved we observed.
Thank you.
Thank you. The next question is from my pay Chief I'm Sad to see please go ahead.
Hey, good afternoon, I, just wonder if you could actually just give an update in terms of like the state of the CFC today.
[noise].
It's not.
Is in great shape, a its it's a it's a very complicated building as as I think you'll note and I'm pleased to say that were within.
We are too.
Production schedule and ER and if so it's all be built to exactly according to plans.
From from a a timing perspective, so very happy with it and ER and we are and have turned our attention to Oh launch dates a marketing plans are making sure that everything's a loaded.
We would have been loading totes [noise].
Into the into the facility.
You know up to 250000 to them, we need to go in the Oh by the time under capacity so [noise].
All in all of.
Operating a right to plant.
And can you give us any update in terms of how you're progressing on the second CFC and come back.
Sure.
We are [noise].
We're in the planning design and ER and tendering stage.
We would expect.
In the next a short while counted weeks to be able to start awarding tenders and a big begin construction.
Okay. Thanks, you've already given some good color on western Canada, but given the rollout of fresh go and sort of how you've described the competitive activity how does that affect how you think about the positioning for sobi and or the Soviet and Safeway banners, and I guess sort of maybe especially in the context of.
You know, a tough and and probably getting tougher economic environment.
[noise] excuse me.
I don't think it changes our perspective on on out to banners out there and thrifty says what on the audit.
The.
The work that we've been doing.
On those conventional banners has been to ensure that if we renovate.
Andrew refresh a those properties.
As quickly as we can.
We've rolled out new branding.
Customer propositions now for both both banners.
Which were which were pretty happy with and and then do you know there both living with ER with their own distinct personalities.
And we don't see see any change in that positioning.
We like both friends or they are they're both have three very significant customer equity in their markets and its a.
For us, it's it's an opportunity and we do we need to invest smartly and make sure that those those two two brands delivered for us.
Okay. That's it thanks I'll pass it on.
Thank you. My next question is from Peter Glass from BMO capital markets. Please go ahead.
Michael felt on the CFC from an accounting perspective, I assume everything's been capitalized at this point because you're not in operation. So when like when when do things changed from an accounting perspective. When you start recording you know the revenues and expenses related to that.
That's that's largely correct, Peter we're capitalizing on construction costs and our.
And all the drug costs of putting the other facility into place.
We are going to happen expensing some.
Some of the pieces, we pay to Adam and and and also the S. Today and the back office employees that we've been a hiring a at a at a significant rates recently, so so we're not we're not actually capitalizing everything that's been recently for some marginal dilution that weve Rick.
I wanted to each quarter.
I love to to all of which has been averaging about a center quarter I think fairly regularly probably ramp up to about two cents in fourth quarter I would imagine.
Okay.
And then I assume it increases from there as you ramp that yes, and then once the facility running you know we start depreciating the facility itself and of course a.
Materially more people pickers a.
Drivers and a and warehouse staff on the on the ground.
Okay, and when you it sounds like.
In May when you hold your next call you're going to provide your plan or you're going to give some.
Indication of what the financial fall out.
That is going to be.
Yes.
Yes, we expect to Okay. And then my last question is just wanted to clarify so and this tale of two stories for the quarter that you're telling where the first half is weak in the second half strong like so in the second half you talked about.
The stockpiling effect, but is there above and beyond that has something changed with the consumer or the competitive dynamics. It sounded like you started experiencing a better market prior to the any krona virus impact on consumer behavior is that true.
So I can clarify.
Huh.
Put aside the crowd of Harris for a second if we can.
Just before Christmas until right into the kroner virus, we saw more buoyancy in our stores with our consumers nothing to do with stockpiling nothing do with krona virus starting on February 28, we started to see.
I don't want to cost I, probably I don't think Canadian this or is it but for most part stockpiling there prepare.
But we saw some some extra action on top of Oh, I was little bit more buoyant season, we had seen in the first half a quarter and now we're saying even more than that.
And Michael do you have an explanation why the consumer.
Rebounded like is there anything you're seeing or just is what it is I.
That's how you and in my decades in retail and and pairs and all of our our retailers. If there. We gave you. The answer is that we have there, but it was a very odd six weeks.
Well with shares is we cannot attributed to all to our competitors or all to us.
And ER and that is starting around December 22.
So it went back to more like normal.
And and <unk>.
You can imagine, but the data we've gone through Peter how I'd like to explain it to better and look a little bit smarter, but we were honestly that were just glad I went back to a more buoyant market starting a just before Christmas.
Okay. Thanks very much.
Q.
Thank you. The next question is from Michael Van <unk> from TD Securities. Please go ahead.
Hi, Thank you.
Just to clarify on that comment for the second half in the corner so.
<unk>.
I'm not quite sure if I'm interpreting are right, but I did it sounded like the first half started off obviously worsen right when it came through but in the second half.
Was it where you actually growing your tonnage in the second huh.
It was it was improving towards the end of the quarter, Michael and I am very close to a very close to turn positive.
Unveil a lot in Ontario, I know you got this the soft launch starting in the spring but.
Given.
The what is likely going to be an increasing demand for home delivery. If it's the virus gets any worse or is there any chance or what's the soonest you could get that going out to the you know to the DTA in general.
Yeah, I mean that we've had discussions on that there's quite a bit I'd I'd say first of all that I'm not quite sure Oh, whether home delivery is and at the end of the day going to trucks totally outperform their stores. It's not it's not clear to me how people are going to react I think it's too early to see what's going to happen.
But to be clear, there's there's work we can't move up that launch otherwise we would have already done so because it's such a great strategy. So we're going to have a spring testing and soft launch I wish it was open it up because it across the virus because I wish. It was open and then roll out to the G. T. A customers are going to begin.
When we're pleased with performance, we have a timetable but for obvious competitive reasons, we're not going into <unk> the vaults the dates.
Okay and are you able to say how long it would take from the time, you're you're happy with the the soft launch to the time you could roll that out to all the postal codes in the Judea.
I know exactly how long, but I've I've been watching people sweated out when we're going to open this and I don't want to I'm going to stop sweating. So there's no reason for me to tell them.
Okay.
Hi.
The fuel margin or.
Impact <unk> seem to.
Seem to benefit gross margins that are you able to quantify that.
I'm sorry.
If you're going to.
Hurt the other way yeah yeah.
Sorry, but can you give us the him back.
I know we're not customers.
Okay.
And just finally, I guess, then the fresh dough conversions as they open.
They tend to be.
Accretive to your same store sales initially.
Or is there like a period at the beginning where they're they're coming in below year ago levels. The ones started there were converted and then they ramp up.
Almost without exception a across the board.
It'd be higher than the normalized sales Oh pistols that they replace unless weve.
I made a modification to the size of the box.
But on an all that on an apples to apples basis that they're actually producing better and higher sales and that and then we expect to a good comp off of that.
Perfect. Thank you.
Thank you.
Thank you. The next question is from Chris Lee from Day Chardan. Please go ahead.
Hi, Good afternoon, just a few quick ones for me hopefully just with respect to M.D. The inflation, that's driven by the the weakening dollar just generally speaking.
Are you able to fully pass on the higher cost so far.
Yeah, maybe just some colors and that would be would be helpful.
We haven't seen any inflation, yet, it's just being such a sohu dot com.
Following the Canadian dollar that and I think everyone is dealing with a lot of other issues. Our supplier partners are busy just.
Yeah.
Fracturing and getting their products to market in many cases, what we're saying is and what Mike said was if if there was there a sustained.
Lower Canadian dollar that people are going to try to pass on cost increases to us and we will act like we always do which is to resist those costs.
Increases as long as we can and then if we have to have two we would have to past model that we would try to avoid that at all costs.
Okay and are you seeing any sort of in direct cost inflation, that's related to the virus in terms of the impact on supply chain and transportation costs and et cetera.
No.
Okay, and just with respect to them the two cents of EPS dilution from the the fresh schools stores me openings I.
I mean, it seems like based on the pace that the stores will be opened over the next few quarters is it fair to assume that to sands will stay.
Well that's at least the next few quarters.
[noise] incremental that's hard to a that's hard to fully forecast at this point because there's some.
Great if improvement unlocking response factors into that so with that caveat I will say that that's reasonable assumption.
Okay, and Mike how big is your wholesale business I know he's done a meaningful part, but obviously had some impact on your margin this quarter.
And so you're correct, it's not it's not overly meaningful to the total business.
But it does it does have the ability of quarter over quarter basis due to change the mix.
Okay is it mid single digits, which you say in terms of the.
Percentage of revenues.
Yes, that's not to.
Segment out of town results.
Okay, and then just maybe just philosophically I mean, given the market sell off obviously your share price. Its also impacted I mean, you guys do have a sudden she didn't <unk> cash flow why wouldn't you guys beacon team be actively you'll share buyback.
We we said that we're not going to do anything until the end about fiscal year, which is a which is fairly fairly close.
We still have the anti be filing obviously extends beyond that.
We just believe that in times of.
Certainty such as what we're seeing.
Shareholders.
Debt holders generally just prefer that management.
Right to assess the situation understand what's going on and then and then then as there's more certainty in terms of future earnings and cash flows that that would be the time to deploy incremental money.
You know.
A lower stock price such as what we've.
She recently because of market action.
What leap one potentially to say well you should maybe some more but I think it's a we're just better off to be prudent and and wait until the spirit of uncertainty is behind us and we have we have more.
We have more confidence and potentially doing back to the market. We've been very consistent in saying that we are going to.
Every year.
Some of our capital for share buybacks, that's not changed and Oh I think you can expect to see guidance from us a fairly shortly.
Okay. That's fair and then I guess my last one for Michael is obviously, you've been seeing all along that you think you'll your margin should be comparable to your competitors adjusting for various structural differences. So on the calling me in.
Is it reasonable to assume that have to do causality will come away, having a better appreciation or what the margin gap is then and would you be cool fines to sort of give some guidance in terms of how much of the gap you able to there over the next step three years.
I think that's a fair assumption.
Okay, So and I my very last one and a small I mean, when there's the leap year actual data is that he doesn't have an impact on your on your same store sales. This is quoted in Q4.
Okay. So I.
Certainly I wonder if I can total sales, but from a same store sales perspective, but it just becomes a.
Last day.
Okay. Thanks, so much in hope they've been C. <unk> C from the from the buyers.
Yeah, you too.
Thank you. The next question is that participate come from Scotiabank. Please go ahead.
Thank you very much I've two questions for you Michael first of all in your in your remarks, you noted a new hire a into west can you repeat the name and then maybe give us some background on this new car.
Yeah, our names, but need a thorough low and just.
Phenomenal operator.
We just are you can you can Google where she was because it's not.
I want I don't want to name all the countries suicide at all but a just a.
Just a wonderful operator as soon as we met her we do we have to.
How to get her she's.
She's bilingual, but she's based in Calgary no the western market like the back of her hand.
Started the as a young woman.
As a part time job is a cashier at Safeway.
And now she's coming home to a to look after the stores. So it's a nice story and a we just felt that.
We need it even more leadership in Western Canada understand our customers at our stores and have a closer eye on what's going on there and a cat I can't say, but the those changes the world yet she's only be rather weak but [laughter].
She she she may change the world, but she she is very strong operator, and you just can't have enough strong operators are there is representative so.
Okay I agree with that I can my second question is on your third strategic initiative, which of course is it well and Michael you noted that you're going to be aggressive with this and you'll have you'll use the right tools to get chair. Obviously this implies a solid marketing plan I was going to ask you a as we look to after 20 when will we see the marketing spend accelerate but.
You've obviously indicated earlier that you're not going to give us any hints or anyone else any hints about when you know we'll see the launch the perhaps could you can you just share with us a little bit how you're thinking about of lot of marketing the context of the overall so sobi marketing is there a shift of the marketing dollar from one to the other or is this a completely separate incremental spend.
First of all you've hit on how big is top of mind would be at one of them things I'm, most interested in with power or marketing telling people about the best ecommerce solution in the world and we got to get them to try I went to try if they're going to be hook and so it's really key to excite people to get them to a a quicker we can get up to capacity of us.
I see a.
Better for customers and a better for us for sure.
I. This is incremental marketing spend it's a new business, we're not going to take away marketing, a which is working very well right now from our full service discount right or related businesses, we're a pretty good at making their dollars work and.
I've personally been spending a lot of time with Sarah and her team and our marketing team and some others to ensure that this a that we grab attention right away its different though right there's going to be a rollout. So there's rollout marketing then there's there's full GCA marketing and then there's.
I'm going to go on marketing and there's three different ways I don't want to say too much more than that except that it's.
Probably the best thought out marketing plan I've seen in my career, so very impressed with what the teams to.
Okay. Thank you great good like I.
Thank you thanks for asking.
Thank you there no further questions at this time ill now turn the call back over to Katie Payne for closing comments.
Thank you Joanna ladies and gentlemen, we appreciate your continued interest in Empire. If there any unanswered questions. Please contact me my phone our email.
We look forward to having you join us for fourth quarter fiscal 2020 conference call on June 18. Thank you.
Ladies and gentlemen, this concludes the conference call for today, we thank you for participating and we ask that you. Please disconnect your lines and joining us today.