Q2 2021 Empire Company Ltd Earnings Call
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This call is being recorded on Thursday December 10, 2020, I would now like to turn the conference over to Katy bite Director Investor Relations. Please go ahead.
Thank you and a good afternoon and thank you all for joining us for a second quarter conference call. Today, We will provide summary comments on a result, what we're seeing and the industry today and then open the call for a question.
This call is being recorded and the audio recording will be available on the company's website Empire kosher dossier.
There was a short summary document a line the points a quarter available on our website <unk>.
Joining me on the call. This afternoon are like a and that's fine President and Chief Executive Officer, Michael Dahl, Chief Financial Officer, and Paris, Saint Laurent Chief operating Officer.
Today's discussion includes forward looking statements. We cautioned a such statements are based on managements assumptions and beliefs and are subject to uncertainties and other factors that could cause actual results to differ materially or a free toward easily and I was in a for more information on these assumptions and I will now turn the call over to Mike on that line.
Thanks, Katie and good afternoon, everyone I want to start today by recognize and incredible efforts of our front line team mates and our grocery stores pharmacies and distribution centers.
I am humbled every single day by their tireless efforts to maintain a high even safety and sanitation protocols to keep our stores safe.
Coming to work every day to serve Canadians and.
And this horrible pandemic continues and case counts continue to rise we were Oh, so thankful for their efforts.
Without a line.
Focus on a few key topics today and update all Covisint talk and our stores our performance this quarter and some early updates on a project horizon.
First called it.
Since we last spoke a situation or a co. It has continued to evolve with increased restrictions being a imposed across the country.
We're excited by and there's a potential vaccines for a recognized there was a large wrote a head.
All the trends, we saw and foresaw and five quarters from me.
It's about a shortly but first I want to address the auctions, we continue to take in our stores to protect our teammates and customers.
Even through the summer when case counts declines we did not let our guard down a safety and sanitation and our stores continues to be our top priority with a Canadian winter. Upon us it's important to customers can visit our stores safely with reduced capacity, we're prepared for a potential line ups by re purpose during our Investor day.
Sales for indoor queues, and a small number of locations, where we have seen significant queues wear out and outdoor structural solutions and heat or a sticky customers out of the elements. We're also rolling out innovative virtual queuing technology and certain locations, which allows customers to wayfair turned a shop and the comfort and their vehicles.
[noise] as we committed to earlier this year when a region returns to a government mandate and lock down a closing non essential businesses, we will compensate our front line and distribution center teammates for additional pressure they face when a Manitoba and Ontario governments recently implemented a new locked and restrictions.
It triggered our preset criteria and lost and reagents, we ensured our stores a line with updated guidance, particularly capacity restraints and we implemented a temporary lockdown bonus for our front line and distribution center teammates.
I am so proud of our team who are prepared and responded quickly seamlessly implementing the changes in our stores.
Now an update on a trends, we're seeing what's called a bit.
Full service continues to outperform discount and our company and throughout the industry.
We provide our customers with excellent value and our full service stores have the full breadth and depth a product offering.
We believe many customers to switch channel is there any color would have come to recognize that value and a fully a reason to continue shopping full service post pandemic.
And we can as we continue to invest in our value proposition.
Industry, a seeing material cost pressure on a select number of items lettuce and poultry are prime examples farmers.
Farmers and suppliers are incurring increased costs associated with poor weather increased demand and supply chain challenges due to call that.
These are a real significant commodity increases which are being felt at the store, but outside of that we are pushing back on price increases and continuing to provide excellent value to customers.
Online grocery penetration remains elevated as customers become more comfortable with grocery delivery online grocery sales continue to grow and Canada, although as we predicted and April at a slower pace and when the pandemic began.
Empire as ecommerce businesses grew 241% this quarter.
Let me see reach and enter a government mandated lockdowns combined with winter, arriving we're seeing ecommerce sales ramping up and the first part of Q3.
[noise], we told you in July.
We are accelerating the timing to build and other two cfcs and Western Canada, and I'm pleased to announce our third for a large customer fulfillment center in Calgary, Alberta adjacent to our current Rocky view a distribution center.
This will be our first CFC and Western Canada, and we'll service most of Alberta, including Edmonton.
We expect a site to start delivering to customers and a first half a 2023, but we will serve the region earlier than that would ocado has proven to store pick solution.
Crombie Reid will partner with us and the development of the CFC similar to our Montreal, CFC and Mike will provide more detail shortly.
And then more about Empire is overall performance for the quarter results continue to be strong.
And our last two quarters, we see customers shopping in a fundamentally different weighted to decode it.
We continue to see significantly elevated a grocery sales and gains and empires national and market share.
Much of this is attributable to the sales shopping experience, we have consistently delivered through co good or co.
Customers recognize and value. However, we have also made substantial improvements in our store operations merchandising and marketing designed to thrill, our customers through project Sunrise and the beginnings of project Horizon, we have a very strong team and place, which is running our business better than ever before we are confident highly confident of that.
And sustain our success.
It's a pandemic subsides.
When we spoke in September we said that same store sales excluding fuel at that time, we're sticking with an average range of 8% to 10%.
And the last month of Q2, we saw a same store sales accelerate and we ended the quarter and 8.7%.
We saw a trip to slowly increase through the quarter and while a basket sizes remained high they were slightly less than last quarter pharmacy remained stable and while fuel continues to be impacted by consumption, we see gradual improvement.
We're now halfway through our third quarter during the five weeks first five weeks of Q3, we have seen same store sales excluding fuel continue to accelerate for the quarter to date and being last week, our same store sales have averaged 11%.
Our gross margin dollars were positively impacted by our increased sales our gross margin rate improved 30 basis points over the prior year and was consistent with our strong first quarter Steve.
Improvement in margin rate over last year continues to be largely due to our sales mix shifting toward our full service banners and in addition to some early traction on horizon initiatives.
EBITDA margin this quarter was flat to prior year, and 7.4% and our EPS increased to 60 cents.
A couple of a non obvious differences from last year affects the comp comparison last year had a few benefits that did not repeat this quarter, most notably crombie rates unusually large property disposal price approximately six cents per share after tax.
Moving this item EPS increased 17.6% over prior year and food retail net earnings actually increased 27.3% over prior year.
And finally I want to share some early progress on project horizon, our ambitious three year strategy.
We outlined during our last call just.
Despite a pandemic our team recognizes we have a business to run and a strategy to execute we are confident and the early progress we are making on our horizon initiatives. This is taking some heavy lifting but we are very happy with the performance. The team is a the team is meeting our very high expectations.
I want to give an update on three of our important initiatives, winning Canadian grocery ecommerce expanding farm boy and investing in our store network, Mike will give an update on our cost and margin initiatives.
Today I will share some early operating metrics from well off we don't intend to share. These every quarter I want to provide a baseline today to give context on a how strong the performance of wall a lot has been when.
When we partnered with Ocado, we knew we were getting the best grocery ecommerce technology. Accordingly, we set a high targets for ourselves.
Eager to share results since we launched what we wanted to run the business for several months to confirm early trends well.
While initial sales and penetration have empire and bolstered by covered where we have a truly being impressed if a customer satisfaction and our operational metrics.
Today, our weekly on time delivery score is 98.6%, beating our aggressive target a 95% and our fulfillment the percentage of products order and better delivered is 99.6% exceeding even our 98 point a percent target.
And.
These are fast and world metrics, we're given Canadians and ecommerce solution. They can trust will show up and expected and will deliver the products. They ordered this type of service was not available and the greater Toronto area before from a lot and as we predicted customers are thrilled.
Our net promoter score I'm going to give it to you is an extraordinary 87.
Percentage, we continue to beat our industry best in class target score of 70%.
87%.
We are seeing extremely high customer satisfaction and loyalty this along with positive word of mouth referrals and high very high repeat rates is translating to a strong order volume growth.
Early in Q3, we are seeing continued compounded weekly growth as new customers discover a lot and those who have tried has become a repeat users.
For those familiar with Ontario, well and now covers the greater Toronto and a Hamilton area and has recently extended to include very and well there are over a 100 for a lot of delivery vehicles on the road, serving approximately 85% as a geography, the CFC will ultimately deliver to cash.
It's a risk and she was from a selection of approximately 17000 products and we continue to add products daily.
Now turning to far more since.
Since Q2, we've opened four stores and announced a 53 locations opened and achieve here, including one of the old Archrock billing.
At young and echoing tenant and trial and we relocated a flagship store a train yards and Ottawa. This brings far more a total announced store count to 42 stores with many more to come from the new markets, our shop and train yard stores have extended footprints with larger centers center, a storage space to accommodate from boys excited.
Yeah.
And innovate a private label products, all new stores exceeded managements early for cash despite being opened during the pandemic.
After the holidays. The Farmboy team will open two more stores in January a front and Baptist and trial and in Waterloo front and back office will have expanded grocery and hot food offerings and 38000 square feet.
And another conversion a new build a slot to open early spring for a total of eight store openings and one fiscal year a historic achievement for.
So far and boy management.
Also over the course of Horizon, we plan to renovate approximately 30% of our Empire store network. This quarter, we renovated 18 locations across our network. We continue to develop our network a fresco stores to achieve critical mass in Western Canada. There are now 22 fresco stores open and operating and the west.
And then another eight and different stages of development. We track every renovation. So we can adjust and learn constantly and so far we are very pleased a renovation program is meeting its financial and strategic objectives.
Last but not least I want to take a moment to recognize two members of our team Sandra Sanderson a senior.
Senior Vice President and marketing has been named see amaze marketers a year from Canada, congratulation, Sandra and PR salary.
Who's on the line with me today are you VP and COO full service has been named one of Canada's 50, best executives and 2025, a global sales report our business very deserved we're all very proud of Sanders and cares accomplishments.
You know the team at Empire continues to make important strides moving toward our full sales and earnings potential.
There are still significant room to grow but our team is stronger than ever and dedicated a sterling our customers and achieving our project horizon goals through these challenging times, we wish everyone, a safe and happy holiday season, and with that over to Mike.
Thank you Michael a good.
Good afternoon, everyone.
As we progressed through our third quarter fiscal 2021.
As Michael said, we're seeing a.
Different sales trends and when we spoke to you last September.
We see increased restrictions across the country same store sales excluding fuel have increased.
And so for a quarter of averaged 11%.
With a range of 8% to 13% over those five weeks and December.
[noise], a basket size or increasing while a customer visits a decreasing years people a reduced the number of shops and a per week.
Without a recently instituted locked on boarded a snow and effect from Manitoba and certain regions and Ontario.
And assuming that continue for the entire a quarter.
We estimate that the combined cost could be up to $5 million per quarter.
Including this locked on bonus estimate and the current circumstances. We expect it will we will continue to incur approximately $15 million to $20 million and S.J. expense per quarter and related to the increased cost of maintaining centralization.
And safety measures and other co would expenditures.
This quarter there were some significant items and this usually which resulted in our EPS junior and as a percentage of sales being.
The same as last year not all of these items however will.
Will occur in the future to the same degree.
First accounting accruals for a store distribution center and backstage team a compensation will higher this quarter.
Second a well a lot better now has its full back office yesterday and supply chain costs reflected in U.S.J.
<unk>.
Third cobot costs, as we mentioned, our and an increase from last year and finally, the right of use as a depreciation on our for a 16 is higher than last year.
This right of use asset depreciation combining a funding costs would previously have been reflected as occupancy cost and there is to share.
Overall after a 16 continues to have a minimal impact on earnings per share from the first half a year effective they are for a 16 standard change was a.
Dilutive earnings effect of about one cents.
[noise] earnings per share. This quarter included five cents per share of wallet dilution from 31 cents last year.
This is the first full quarter delivering to customers and we're very pleased with a consistent compounded we cope with a weak growth we're seeing since launch.
We continue to expect dilution of approximately 20 cents per share from fiscal 2021.
And of course, so hopefully improving somewhat and that number and the second half depending on the rate of sales growth.
The effective tax rate for the quarter was 26 and a half a percent in line with a statutory rate.
Excluding the effect of any unusual transactions or differing tax rates from property sales, we estimate that the effective income tax rate for fiscal 2021 will be between 26 and 28%.
[noise] equity earnings decreased year over year, principally as a result of decreased equity earnings from Columbia reach as Michael mentioned this was largely due to a prior year getting a columbia.
On a disposal of a parcel of assets, which positively impacted our EPS comparisons last year.
Six cents after tax.
Overall I noticed a from these results have been outstanding compare.
A comparative and many others through the payable.
Cash flow generation continues to be strong.
This has enabled a debt repayments of over a $525 million during and after a quarter and.
That is fully retired two debt facilities.
Additionally, we began repurchasing shares and October and and as of this week, we have repurchased approximately 810000 shares.
For consideration of $29.4 million we.
We will continue to repurchase shares through the remainder of the year.
Looking into account market conditions.
Well, it's a real project horizon is now into a second quarter, we've had some delays in a.
A few initiatives as we invested in additional cost to keep our teammates and customers sales.
That's a covert starts to dissipate, we'll see these cost reduce.
A margin rates of expanded.
What is this due to sales mix and also due to early wins and horizon, just high rise and initiatives.
This quarter, we've had some early wins from a promotion optimization programs and our investments and advanced analytics to help drive a compelling customer value proposition.
We continue to feel very positive encouraged by the value that a small team of data engineers is providing to our merchandise and group.
We also continue to see efficiencies and cost reductions from no strategic sourcing program.
Lastly, on Walla, we announced a third CFC and Calgary, Alberta today.
We reported with Crombie and similar to the Montreal, CFC, probably will build a site to our specifications and we will lease it from them.
Net CFC will be slightly smaller and both the g., a and Marshall will see of sees as it serves a smaller population and authorship.
Crombie will purchase the land and the cost to build the CSC will be split between crombie at Empire. We.
We have not as yet fully finalized a total cost of the Columbia of the facility older Crombie Empire split and should be able to provide more specific updates and this third.
Third quarter.
[noise], we're now halfway through fiscal 2021, the team's working hard keeping store sales and progressing project horizon.
And as much to see in the back half.
And and we look forward to continued progression to buy results with a please have a safe and happy holiday season, and Candy Oh.
And the call back to you for questions.
Great. Thank you Mike Joanna you May open the line for questions at this time.
Thank you ladies and gentlemen, we will now begin a question and answer session should you have a question. Please press the star followed by the one day on your Touchtone phone you will hear a three Tom from technology. You have a question. If you are using speakerphone. Please flip a handset before pressing any key.
Next question comes from a cash shot at Barclays. Please go ahead.
Hi, Good afternoon, and this is actually we're not a sound on for Karen Thanks for taking my questions.
So so my first question is on E Commerce and.
Thanks for all that detail you've already given with respect to a while ago, but just curious if you could provide some color around the who is who the customer is who you are who you are gaining online a maybe.
Maybe a how that customer stacks up against your your traditional customer with respect to demographics or a shopping patterns are there any other notable differences.
And any color there would be helpful.
Mike what are you starting to write.
I doubt, you'll miss anything, but if you do all I'll chime in.
Thanks, and thanks for another a good question.
So the yes.
The customers that we're not we're targeting from Walla, a or a full.
And shop customers. So a in a week, we our intention is to is to capture as much of a weekly show up as possible. So a [noise].
And it's a busy families.
A and a and families filling a filling up their full shop from a week and.
And that is reflected a.
And and basket sizes, the the basket size for US is a is very significant and a.
And a and one and we're not we're not targeting the smaller a high velocity same day show a.
Online order that a.
And with that some of those might be.
A I'd say the demographics or a split right across right across the board and we're.
We're not a premium service.
We oh.
Question is on a very consistent to two grocery stores.
A promotions while different online a.
Our are also targeting a value and a and so we're you know we're not we're not targeting any specific demographics.
We.
We are delivering both downtown too dense high rise condos.
To a suburban.
Shoppers and families.
And that's a consistent feedback has been a.
A that people are very comfortable with the assortment and like the value and they really like the sector. So that they can do a high percentage of day grocery shop from home.
I think I think the only and that was very good obviously, but the only thing I'd add is.
Statistics today show almost no cannibalization of our own business and our own stores and a.
Which is what we expected and said, but we're seeing that as well so.
It's either right on or a better on every number than what you expected and very very pleased.
Okay and that's that's helpful. And then and then just wondering if you can speak to what actual sales penetration has been for ecommerce in non.
Stereo or I guess or whatever the actual region is net your your while a CMC cars.
And then any color you can you can provide on utilization and that facility, So and where you are now and how that continues to ramp that that would be helpful.
Yeah, I mean I'll take the first one and then Mike will take the second one but the.
The a and the first one I mean, you can I don't have it in front of me I don't have all the numbers for the entire province, and and the whole industry I think it's quite clear that we.
We're we're probably growing at a high space because.
Because a we put while on this period, but a I'd have to get back to you. So Katie OCA is from a she'll get back to you and what we have from its public and ER and we'll be able to share that.
Mike.
[noise] from a capacity perspective, where we're not we're not disclosing a usage of capacity at this point, it's early days, though.
And as we.
As we said before we think it's going take at least two years to fill.
He a or at least to add capacity to the to the facility.
As a point degree start a becoming profitable and so we're going to spend the next to use a filling capacity and and at this point, we're not a tracking as a percentage as you'd be able to utilization, but it's very very early day. So I think it'd be safe to say that a hill. We've we've barely made a dentist this point and the full capacity of the a of the CMC.
Okay. Thanks, and then and then last one I'm just curious if you can speak to the performance gap.
Between conventional and discount.
And how that sort of trended from versus a one Q a and then specifically any color around the margin and the discount business would also be helpful. Thank you.
Okay. So Mike will give you answer a non answer your second question I'll answer the first one a.
From an overall industry perspective full service banter saw.
A significant gains and coke and coal that a and as I said the ability do that one stop <unk> shop.
The fact that we were able to make up a customer is very safe and comfortable.
[music].
Over the summer we saw a discount gradually start to come back a bit.
And then we saw a full service take off again, I think that Theres a yeah.
It will be a well have to see a later on and how much of this will stick, but somewhere else day.
Dismiss this has been a a real boon for a full service over discount. We also have discount banners and we're proud of how they're doing a full service and our company and and all read a that and almost every region and certainly national is a big difference between full service and discount.
A so that's what we're saying and and we've seen that we've we've consistently been growing market share.
Yeah.
Sure and then a question on the.
On the margin you know a as you know the gross margin on a I'm just comes a structurally lower than full service.
And I think maybe and correct me if I'm wrong I think what you're asking for is how and how comfortable are we what's the margin compared to last year each of those businesses.
And the short answer is we're we're happy with the margins in both businesses were seeing.
As we said a in our press release, a very stable margins.
Our margins actually in the west.
And I'll just kind of business are improving as we said they would a from the a they already starts as many of those stores and non mature.
We're seeing improvements in gross margin as we settle into a cadence and.
And and also a become more effective and efficient with our labor utilization. So a very comfortable with the margin as both businesses at this point.
That's great. Thanks for the color and best of luck and no problem.
The next question comes from a country actually have you seen from <unk>. Please go ahead.
Hey, good afternoon, and you spoke about this at a high level, but I'm interested to hear your commentary around how consumer behavior has evolved a.
With the latest round, a locked down but specifically inside the store. So perhaps you could contrast that with the or what sort of earlier and the pandemic, but kind of curious where are you. So where are you seeing growth underperform and and I guess two areas and specifically interested in would be prepared food and private label.
Great Great question, Pierre is going to take a.
A yes, obviously, we were still seeing a very different behavior than a pre corbett a.
We have a very strong sales and grocery because people doing therefore shopping our stores. So that's a that's a.
Much higher growth and we were a use to see and our store a.
And so the ratio between non fresh and fresh is different than it was last year and fresh a because we have been extremely.
A I'm focused on safety during co did a we aware we closed our surface counters and to keep our is a female.
He made safe we reopened it added this summer and.
And since we reopened it obviously, we are seeing positive trending and a and a daily.
I agree and H.M.R., a I remain extremely strong and meat and seafood a.
But a still day.
I did a at the peak of depend and make obviously, a chemours varies very soft, but its we gaining a.
A customer a backing that and these department gradually every week, but we're still a.
Lower than we were a steel a precluded so grocery very strong and fresh meat seafood very strong and we gradually recovering and nature of our bakery and deli. So that's the situation though.
[noise] and Pierre can you just talked about a private label business or or or maybe it's for from Michael or Mike, but the private label business. Obviously, there's a lot of moving parts. There you guys are in the midst of a have a pretty significant relaunch on that program and you know it's a core part of what you're trying to do and horizon, but also you know just consumer preferences EPS.
Lifted through that and then just wondering how you start a slice through all that and and how the private label rollout or or a renewal is a is going for you guys.
Good question.
We knew a private label was a huge opportunity for us a coast to coast.
Oh, we gain more than a and drive a table and industry Prequaled bid and as you can imagine during quoted we again, even more because a.
People are looking at private they will more than ever. So we were in a good shape before <unk> co of it and now we we were doing extremely well and.
Like you saw we did the rebrand last year.
We we did a really a a efficient.
Marketing campaign this fall and September we've got a very good result with a.
So so and and.
And we have a very strongly and we identified at the puts and takes a couple years ago, a in a rising and it's a key initiative for us a in a rising that were ambitious arrays and initiative. So now with a thing. We're doing is we have a very disciplined approach category by category like we did with a.
Got you a receptor was very successful program from a less and we doing extreme exactly the same thing with private label. So we want to make sure that we have a very strong strategy category by category with our new brands and a strong support from market things. So.
We have and ambitious targets and private label and and and so far we were pleased with progress and we a we.
We will continue to a work on a and so yes, you saw the same thing than than our customers. So.
And a we're pleased with the results so far but we have a very disciplined approach and in print and private label. So we need to make sure that it matter and every category and that's exactly what the team is doing.
And are you able to quantify you know where you're at today in terms of penetration and how that might have changed from a year ago, and and then where you're headed.
A it's it's very bye bye provinces I don't have a number in front of me, a but we gaining percentage and share of private penetration rate.
We were a lower than industry, but we catching up.
But what I missed the big kind of just talking about penetration rate a.
And most important for US is make sure that private label is playing.
A specific road and every single category in some categories. It give nothing adding private label and some other category, it's more relevant and and others. So penetration is one thing, but a a purpose of every single product and every single category. It's the indicator we're looking at.
Okay, Oh, a pipeline, but thank you for all your comments and if I don't get back on all the best of a holiday.
And next question comes from Peter Sklar with BMO capital markets. Please go ahead a.
Good afternoon, and I'm, sorry back to why a lot. Just one question. There you might you had said that you anticipate will take two years to achieve capacity, which is I think consistent with what you've been saying before and how do we think about capacity its capacity like do you think about it in terms of orders per week and I think you've mentioned in the past.
I I I think you mentioned that capacity is 60000 orders per week and that the way to think about it.
So yes, so we're not disclosing a a capacity metrics.
And Oh.
A better disclosure has been that it would take us.
We should expect a new solution for a for two years at least.
As we ramp up the.
The capacity and the facility.
You know after two years, there's still more capacity and that's so we wouldn't be a full capacity up to two years. So we anticipate a rapid build but that's a very large facility and a and.
And it was going to school.
Service the entirety of the GE here so.
And we'll certainly take more than two years to get a capacity but.
We'll have a overcome significant amounts of the fixed cost curve.
By the end of the two years.
Okay and two question is all the capacity and started its all the capital in place now are we.
Are you going to be adding capital incrementally and then also do you expect that the dilution will be less than a year or two then and then it is in year one.
[noise], so we're not going to speculate on that we'd like to see a see a little more about a a rates gross and margins a is.
So a good right.
I think I think we're going to hold up for a for such a good disclosure.
And that's you know we've been I think we've been consistent in saying that you know the 20 cents is a it's a number we're comfortable with for this year, we'd like to see if a can improve on it but it can be pretty close to that and.
And and the second year, Yeah, we hope would be somewhat better, but a but again, where we're still working up a pretty significant fixed cost curve and a.
And a we'd hope to do better, but a disciplined we're not counting on a.
Okay, Alright capital go and and the I see a C. One.
Extra capital that Peter was asking about I think Peter you were asking about right yeah, yeah. Thanks.
Yes, so we were investing and sorry.
Just a and so the one question I was just we're investing in.
And incremental smokes Peter to a to service a.
The entire did you see a more efficiently.
And a and those those do add some some measure of capital in a.
Numbers for this year and next but it is relatively immaterial compared to the size and the cost of the CFC.
As the a capacity ramps up a.
We we do pay Incrementals, a capacity fees to a Kevin but those are expense took a enough capital.
And we will lease more a.
Vehicles, a foot deliberate so the only real incremental capital and for the CFC would be the spokes that we're building, but as I said, they're they're relatively immaterial compared to the day.
The biggest a big distributions and a warehouse.
Okay and.
At a condo I'm sure you know that it's not like they're they've had trouble with their app and their app has been down and I'm not to share if that.
Due to a they don't have the capacity or a fab technology issues, but I'm.
I'm just wondering has that the issues that they're they have with their app with their app I'm sure that.
You're there your licensing a lot of the technology behind the App has that affected your youre up at all.
Well I think from what we're seeing and the UK and and I don't want to speak for them, obviously, they they run their business but.
But.
And for sure they have some very significant a.
A order volumes and a that has a more mature business.
There.
Yes, you know working all the time to improve bottlenecks and and try and take a try and handle the increased a capacity. So a lot I think a lot of the press. We are seeing is just the inability to take on that much from one of your.
And I certainly from a comp perspective.
It's not a it's not an issue about scalability was the optical using a yet and it's working very well for us we.
We did have the advantage of absorbing what was happening in the UK and other places as the first wave came and and so we were able with their help actually we were able to install some queuing technology on a web site and case, we needed it and as it turned upwards and but yes.
That does and some of the changes they have to make to to handle those depressive of new volume to their to their web sites and actually we benefited from that because as we were able to two to two and install and invest and that.
After they did so yes, so we're not seeing any issues with the software, it's a very scalable and rising tide and a very happy with that actually.
Okay, and then lastly, I just wanted to ask you about the strong November that you're seeing with.
The 11% comp and just wondering if you would I don't Michael I'd like to hear you reflect a little bit on that on what you think is happening is that are you, having a particularly strong promotional calendar or is it just a consumers are shopping early for Christmas. So they're stretching it out I'd be really interested to hear your thinking on that.
[music].
Well. Thank you I could thanks for giving me the opportunity actually to answer that question, because I think sometimes covert overshadows.
And is that overshadow, which maybe a great where you're going under the radar right now the unbelievably much better.
Merge operations and marketing that we have going on at a cross Empire company and and all of our banners and all of our bears a.
Having said that I think that salary increases.
Our and and.
As we saw a.
Fear a row of a terrible virus, we can we can see it and our sales and they don't only manifest themselves and lock down and completely locked down regions that Canadians watch the news and they feel for each other and that.
You can watch the National every night or whatever you want to see TV and you can a and you can see how people are very very concerned right now for their safety and for their families safety and so it's a combination I think of a better.
Better a execution.
Execution by us and by Unfortunately, a fear of co Rick.
I bet a spread on what we're seeing now having.
Having said that I do not think that where am I do not see this as a overly promotional atmosphere or that we didn't go chasing any sales that a and it's always it's always competitive but we're sticking to our game plan here on that so it's not I wouldn't say, it's been driven by a higher promotion.
Intensity.
Okay. Thanks for your comments, that's all I have.
Your next question comes from having a child RBC capital markets. Please go ahead.
Thanks, and good afternoon, everyone and and.
And just wanted to beat a dead flat costs and the E.
Commerce cost and drive and just a bit more.
Ladies and gentlemen that and thinking about it is okay.
We talked a great deal and your wanting year too, but as we get into year, three and the Montreal CFC opens and then we add a calgary and and the intra we thought the curbside delivery just wondering how we should be thinking about the cost cadence and the instant 20 cents a certainty.
Fully loaded number each year for the next two years or can it be higher cash how should we be thinking about that.
Thanks, Irene Nice easy question.
Thanks, Mike.
So a.
So you're correct that a you know as Montreal 'cause lives for sure.
Hi, Yes, good same same non.
Dynamic.
A about needing to add volume to get get up to cost growth, having said that we are transferring across a.
And fairly significant a number of a of customers.
And then a ready access to a JADAK which is helpful.
And then a and then when we start up in Calgary, a same thing a you know.
Hi, fixed costs and and you're starting with a.
It was low volume.
So so each of those you know following cfcs are going to be dilutive as they start up.
But having said that at the same time to your point a drawn from for example, a it will be coming coming off the a.
To call it the ramp up not just fixed cost curve and ER and the and the variable non.
Earnings will become more and more and more and more significant share.
You know what we did say when we started here.
Is that we felt that.
On a ramp up and the way, we were going and build our E. Commerce business was going to be very manageable from a cash flow and perspective and from an income statement perspective, so we weren't going to ask and our shareholders to a two to endure a significant reductions in our.
And our earnings to fund a.
A any kind of a startup we still feel that way and we're still very confident.
And we can manage our annual income statements and a way that's a you know eight.
Hey, responsible and secondly in total through the horizon timeframe.
It's still going to deliver.
Double digit earnings per share increases every year so.
You know I think that would probably lead you Irene too.
To the conclusion that a whether its 20 cents or a slightly more sites and that's where we're going to try and manage a.
Very closely to a fairly consistent income statement that we wouldn't anticipate door.
Or expect material changes.
No material negative changes as a result of bringing a next to CMC is up because we are yeah.
Moving to bring them up and the same time as the only once a good profitable.
That's really helpful. Thank you. Thank you very much like a niches and start thinking training and near term, but they're rolling co pay and shutdowns and yes. The challenge as a managing a lower store traffic, even as we're probably going to have a higher demand over the Christmas.
Ariad, how are you thinking and you talked a little bit about some of the initiatives that you're putting in place and how should we be thinking about that how are you thinking about tonnage growth as a country. That's.
And I'm trying to appear and I are looking at each other to see who can best answer. This so I I've decided Pierre can best interest to this so [laughter] and seems like well. Thank you care a multifaceted question right and so it's interesting.
Yeah.
But so far so.
So good that would see a.
We are fully implemented a.
And a maximum customer and our store across the country.
Even with these metrics.
And that's we defined store by store based on square footage and cash share.
A and and specifically out and every single store. It was not that a number for every single store. It was really done store by store based on there.
And Oh.
And capacity so it's already in place.
And.
Have you seen that a very thought 15% we need to revise some of these metrics, but it wont affect a lot of store and like Michael said in his a introduction.
We already have a solution physical Sullivan solution with infrastructures and.
And and a virtual queuing would be very helpful and if it's required a.
So no we're not seeing and we have less transaction. So when we have this transaction and it's good for the efficiency and store and when we have multiple transactions the challenges to exit customer and that's one day inside the store and so we're not seeing big issue with that with that were ready to a sort of customer.
I I come from nervous about that.
Okay, and that's really helpful. Thank you and I.
That's a customer and I. Thank you for [laughter] option to being able to just and then my car and not free [noise] a.
And and and just thinking about and I know a temporary near channel question, but just thinking about Christmas itself. How are you are you changing and all the way in which a stocking stores and just you know in anticipation of a greater number of smaller gatherings and possibly.
Higher sell through a more premium products.
And that's the that's a net and interesting question everything we facing and all the day. So we we had that question for a thing a for a labor day. We had that's a question for Thanksgiving and honestly, we were a positively surprise.
Sales in all of these events.
A because in theory people, our net altogether and that there is no big family dinner, but in sales, we did much better even and other we [laughter] our sell through was higher than last year, which is which is interesting. So I think people would just start do their shopping earlier and.
The good news is all a worst already across the country simple <unk> since October 31st a soul and I think a if you walk a worst store across the country you would see a.
All good and merchandising and place we're ready for stuck up.
And so Oh a and.
I based on what we observed and and previous holidays a.
I I think will be will be surprisingly a.
Net impressed by sales again, I hope, it's a we're ready.
But a I think people with a more frequent and good dinner and then just a big one.
Interestingly were seeing a obviously.
Obviously, maybe maybe not obviously, but we're seeing demand for.
Smaller turkeys.
Pacing normal demand for larger turkeys means people are planning on smaller events and and we saw that a thanksgiving to a large extent and so a there's some shifts like that that we see but overall in terms of tonnage and some of the other metrics.
Metrics. It would look a look like a <unk> I think there is absolutely right that people are and he told me to celebrate and they're going to do it a different way, but they're going to celebrate Safeway a player.
And a but still you know we have a lot to be grateful for stuff I guess so.
I'd say and thanks, I'll get back and it cant that cash thank you and happy holidays and stay safe.
And sorry.
Your next question comes from Vishal Shreedhar from National Bank. Please go ahead.
Hi, a thanks for taking my questions and I guess I'll just a continued a trend about asking on a lot.
And then so obviously a.
A management is very a happy with the growth numbers that we indicated a.
And I was wondering if you have a sense and what's driving the growth.
This or the or at least if you can prioritize higher targets. A was is it a high net promoter score and SKU additions that marketing operational improvement and something that stands out.
[laughter].
So the question is like a <unk> why are we seeing such a good results right away.
Exactly and I think it's a multitude of things some of which you talked about I think that when you.
Okay.
Well I was going to do a great whether there was.
[laughter], a corona virus or no current a virus because it's a it's like say, it's a best most traffic for best It's a best its a best in the world and so people are going to figure that out we.
Unfortunately, there was a virus and more people want and shop online and and try to initial.
Initially and then once they try and they are they become hooked.
I think a a the fact that it is robot picked has helped us.
And not just from an efficiency, but because it it is and it feels and is safer I right at the end of a day, where the do.
The net promoter score, which is kind of an amalgamation of every day.
With a.
It's because people do not have access to a reliable service that treats a customer with respect and.
And I've got to also give credit to the amazing.
Men and women, who drive a trucks and deliver the products.
They are even more popular and are.
A little robots. They are a they are phenomenal and that a and they're passionate because they believe in and why.
What they're doing and a and it's a level of service is extremely high so I'd say that and you can you get all the Ocado system is the best in a world, but the way that we were we put that in and the decisions. We made in terms of.
How we price competitively how are we have a barrel a best delivery price how are we a our teammates are friendly and passionate and.
And a safe its a whole pie and how we market and and go to a and go to market. It's all those things together. So it's not just a system. It's it's a business as well as a system.
Yeah. Thank you for that and then maybe just switching topics here a little bit.
Markets that stock markets have started to.
Look to a looks like a day one called a 19 is behind us presumably at that time restaurants travel will start coming back and that that might place a little bit of pressure on gross and demand.
And is there anything you know looking in the future is anything a a grocer can do with costs and merchandising marketing data analytics and so on and so forth to keep customers excited and coming back cash during that time period, yeah. Its called project horizon, a [laughter] and all the things we're doing but I'd say, let me go back on that one which is.
Well, you know hoped a god and everything comes back to a tender.
And our momentum at restaurants start being frequented.
And that Canadians and get back we were doing just fine. Thank you very much and Empire company without any pandemic.
And a this is no fun for us.
We're glad we're in a central service, we're proud of our.
Our competitors and the whole industry to be honest with you a but we're especially proud of how we performed and and kept our values, but I think that we'll be able to show how far we've come even more when a pandemics over there will be some lasting changes and customer behavior.
But will also be rolling into project horizon, and some of the other operational.
Improvements, we're putting in place right now so.
Can't wait for it to be over and can't wait to see a free to see what kind of a company. We are we are when this is over.
Okay, and then I think you may have touched on this line.
Just a one of your peers.
Comments about and price competitiveness and stuff at the industry and suggested that discount might be setting up a little bit wondering what you're seeing and their site.
Yeah, we're not a it's always a competitive marketplace, we're not seeing any difference a today than we have historically seen at all.
Okay, I think stuff and that color.
The next question comes from Patricia Baker at Scotiabank. Please go ahead okay.
Well good afternoon, everyone. Thanks for taking my question.
Michael you indicated that despite a co that they compete very very focused on project a horizon and.
Yeah, and pleased with how that's progressing in want to be a elements project right and of course, a d. store renovations and note that did 18 stores a in the quarter can you just provide us a with an overview of what.
Specifically the renovation project income Thats, what are the elements that we have a a kind of a visualization and how the stores and different right.
Great I'll turn from Mike and then a pair as a nod hilla at a.
Wonderful.
Sure.
And we're running a lot of time and I think we're going to go a bit over a case and try and secret and temper a little question. So I'll try not to have my habitual long answer here.
So the short answer is all the renovations do a different.
We've actually split them into a 14 years tier 1234 reservation a.
From a tier one would be a a complete a we work of the store and.
And a you know they they both see the facade the interior textures fittings, and as a whole bunch and makes sense and and.
And those and those are people storms that a you know that are.
Either and particularly tired or and or in high growth areas, where we believe that the aesthetics.
And that extensive a renovation will pay back and a return on the iron a hard to us well.
All the way down to a t. and full renovation, which is still fairly expensive and it's not just a I told a paint a.
And.
Focus is on the facade focuses on the common areas and the customers value that would be fixed a changes et cetera. So what I'm trying to say is a it's not a one size fits all.
From what is always a consistent about them as a we've done a lot of work on our banner brands and our strategies and.
And I'll go to market, a positioning and a on every one of the renovations, you'll see new elevations and I'll storefronts a.
It'll be a consistent with the a tellers and a law and and the water a projection of the new Safeway brand with a new Sobi is a look and feel.
A quick we've rolled out in every market same a food land and.
Very successful banner for Us a week.
We are really really liked a to a better and mostly a rule a but.
But very successful a motivated a group of franchisees and we're putting quite a bit of money and to food line.
Franchises as well so.
Okay, and then answer your question Patricia really exactly that's my talk very helpful. Okay, and just what are your mother's day and your experience with a three stores and then I'll just close and like what are you doing a click and collect and you indicated that you would be taking that to Alberta in Atlanta, CFC and that's something that was a little loved Alberta, and this fiscal year or a leader.
Right.
Too early days, a in Nova Scotia was a new upon a.
So we were just bedding down our a our operational procedures and making sure that the a and the Frontend works and a and lead the Ocado software.
Connections to our systems were or a property built so a so having said that some small beginning but but very very pleased with a outcome. So a customers love it.
They really like the a day alternative.
You know theres still a house stores, but but also a but also a shopping online which is a it's clearly a tell you something you want to do a cheap so we feel very good about it and we'll start I think next February March channel.
And rolling out Didnt earnest a across the other stores and that would include a out west.
Okay excellent thanks, a lot Mike.
Your next question comes from Michael Van <unk> from TD Securities. Please go ahead.
Yeah, I'll try and keep from brief I.
I guess, a quick one that started a bonus accruals and you took in Q2 I believed there you're catching up from Q why if im correct, but are there also are they going to continue and around.
I guess, maybe a half the pace and the second half of the year.
Hard to say a Michael you know it depends on it depends on outcomes and depends on a [noise].
Depends on results a.
But yes, those cost you a likely to be elevated a four well the rest of a year.
But not due to a point not at the same a level I caught I cant say it'll be a exactly half a.
Because you know we call it at this point a fully understand a it.
Exactly what our results will be and a.
And these are these are required to share today, a cools the draft make you too.
As a says most people understand in fact, a last fiscal year, we ended up.
A with one one quarters was a co good results and and as a result, our a store associates and a distribution associates or you know a paid a.
Incremental a compensation as a result, and that's in addition to is a very significant euro pay that we paid a lot people, but at the same time, we kept the a yeah.
It was a compensation for.
For management, and Ben and back office people this year, a yeah, a similar dynamics.
And we're going to have to make those decisions you know at the end of the a really halfway through it.
And what we're going to be required does it sends a pledged to a crew. These these are non so here and albeit as you point out at a lower level and a and final a compensation will depend on how well people have done compared to their horizon objectives, and a and and how they perform throughout the year.
Okay. Thank you and and then the net promoter score of I think it was 87 net you quoted.
Where are you sourcing that from and how has that changed over the few months that you've been and operations.
Hi, its Michael with that's our own internal.
Obviously survey of our a our customers they fill out a survey farms, where that's all the time, we do a lot and all of our businesses.
And how has it changed it is not changed one iota.
From the first delivery onward, we're continuing even as we expand and weighted more deliveries and Oh.
We are seeing consistently a.
Yes, I've ever seen best in class net promoter scores.
Yeah.
All right and then just finally on the market share gains and ambassadors to the other guys as well, but everybody's.
Claiming market share gains, but there's quite a bit different from same store sales performance from yes.
Your your immediate peers, Costco and others. So how do you measure this and who do you think you're taking share from.
Well I'm not I'm, not going out and we take it from third party sources.
Yeah. This is not just a.
Let's see and maybe it's not backed up and my my girls and PR definitely would never do that either and so these are third party sources, we're taking market share.
I I don't from competitors under the bus so a right now, but I would do you think you're taking share from from I don't want a specific names, but do you think you're taking it from a larger players from independence other channels.
I think we are taking it from a if I if I look at the national Roosevelt's all over and there's different competitors and different regions. Obviously as you know we're taking it from almost everyone and a but we're taking more from the a somewhat a larger players.
Alright, thank you.
And a fair lifting and if you made me say that.
[laughter].
And next question comes from Chris Lee from day shutdown. Please go ahead.
Thanks for squeezing me and just a couple of quick ones that maybe a question for Michael how do you see a private label performing on well now it seems like a line is a channel that can really a race customer awareness Oh a pipe enable.
You're absolutely right, we're highlighting our our price or a complements products, especially on and well I've got its on page incredibly good traffic, great traction and you're absolutely right and a yeah. The other payers that stands out as a farm boy a page as well so yeah [laughter] absolute.
Okay, great penetration on private label and it's a great way to expose our.
And our Super and and growing private label platform to more customers.
Okay and that's that's helpful. And then maybe one for Mike as we look out the next two quarters as and she started last a positive margin impact from sales mix do you believe margin will continue to grow as the horizon benefits such accelerate sleek and achieve your goal of 100 basis point improvement.
Hi, a fiscal 2023.
It's a blend.
Okay. So you still confident that and and then in terms of the share buyback do you have a target and then.
The last time I think you did about a $100 million are you talking similar level just a shift this time.
Yeah, we're not a we're not going to put a target out there. So it was rezoned last time, but what.
And I can point out to you is that.
Our current and see I'd be the graphs filed a you know dependent on stock price, obviously would enable us to purchase a probably up to about a $180 million so that would be.
Again, depending on the stock price would be a would be a maximum allowable.
Under the current and Seattle.
Great. Thanks, a Merry Christmas and all the best next year.
Thanks, Chris same to you.
Thank you that's a good.
Thank you a question and answer session I will now turn the call back over to Katie price for closing comments.
Great. Thank you Diana ladies and gentlemen, we appreciate your continued interest and Empire. If there are any unanswered questions. Please contact me my phone and email and look forward to having you join us for a third quarter fiscal 2021 conference call a Max 10 toxin.
Ladies and gentlemen, this concludes a conference call from today, we thank you for participating and we ask that you. Please disconnect your lines.