Q3 2021 Empire Company Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the Empire, a third quarter 'twenty 'twenty One conference call at this time, a lines are and I listen only mode.
Following the presentation, we will conduct a question and answer session.
If at any time during this call you need assistance. Please press star zero for the operator that's.
This call is being recorded on Wednesday March 10th 2021.
I would like to turn the conference over to Katie O'brien Director of Investor Relations. Please go ahead.
Thank you Joanna good afternoon, and thank you all for joining us for a third quarter.
Today, we will provide summary comments are adults.
And I'm, hoping a copper price.
This call is being recorded and the audio.
A recording will be available on the company's website Empire co.
There was a short summary document outlining a fourth of our quarter and the other waterworks.
Joining me on a call. This afternoon are Michael My mind, President and Chief Executive Officer, Mike Labelle, Chief Financial Officer, a tiered Roth Chief operating officer All day.
Today's discussion includes forward looking statements, we caution that such statements are based on management's assumptions, Emily and are subject to a certainties and other factors that could cause actual results to differ materially.
I refer you to a unusually every day for more information from these assumptions and factors.
I will now turn the call over to Michael a loved one.
Thanks, Katie good afternoon, everyone.
I'll keep my comments short today, I don't need to say much about our third quarter results a stand for themselves. However, I do think many people are sorely underestimating how much stronger our business is now regardless of any COVID-19 benefits.
Today I want to focus on a performance this quarter, including early results from horizon and an update on e-commerce.
Before I get into a result, I would like to cover three very important things.
First I want to reiterate how proud I am a our frontline a back off a few minutes. They have continued to serve our customers every day through this pandemic.
Covid has unfortunately become a new normal, but we remain more vigilant than ever and keeping our customers as he made sense.
Secondly recognition a black history month in February at the recent international Women's day, I want to take more to reflect on these important annual celebration.
Remembering a celebrating the people and events a black history is important and necessary.
We must address and rectify a long term institutional bias from racism, we are engaging with marginalized teammates listening learning and taking action to address a black racism and advanced on a culture of inclusion.
Our partnership with a block North initiative remains very important to us it is a guidepost for our actions.
While there has been some meaningful progress on advancing women in the workplace, there's still so much to be done from.
Progression in representation of women, who tends to be a key focus.
It is embedded in our leadership selection and development processes, which is making a real difference for example store level programs have led to increases in women.
Historically male dominated roles.
At Empire, we don't limit our diversity equity and inclusion growth journey to a single months a day, it's ongoing I am so proud of our day Eni team and all our teammates to work supporting our D N a high growth journey.
Now onto our third quarter results.
We are extremely pleased with our performance this quarter, we're delivering on both our top and bottom lines, we have a strong balance sheet and a continued to strengthen it through the last year.
And even through the pandemic with more demands than ever on our team. We are seeing a real start a financial benefits from project horizon.
Sales were up 12% this quarter with same store sales of 10, 7%. We continue to see substantial gains in our national market share and market share growth in every region of the country as our sales growth outpaces competitors.
There are a few reasons sales remain elevated and our market share continues to grow one the latest COVID-19 lockdown did bring a surge of sales in certain regions when initially announced.
The strong improvements in our store operations and merchandising of enhanced our winning customer value proposition.
Three our strategic investments, including farm quite fresh food a lot as well as our store renovation program are performing we are very proud of these investments.
Lastly, this quarter encompasses our busiest time of the year the holiday season.
Our team delivered strong results outperforming the market in this important period.
Our gross margin dollars were positively impacted by a pre sales but.
In addition, gross margin rate was 25, 7% off a truly impressive 134 basis points over last year.
The strong improvement in margin is in large part due to early project horizon resolved.
This includes a tremendous progress we've made with a promotional optimization program. The program is powered by collaboration between our merchants and our advanced analytics team.
The other they have designed new processes and tools to improve promotional planning at.
It already this program is embedded in the day to day business of our merchandising organization.
However, algorithms a long do not make the best decision and are no substitute for a good judgment together a great merchants equipped a improved a form a powerful combination that is driving a compelling customer value proposition.
A smaller portion of the margin improvement come from continued sales mix shift toward our fourth full service spares.
I believe our strong margin performance. This quarter shows that you don't need to set a unilateral letters to your suppliers to do well in this business.
We try to treat our supplier partners with respect and transparency.
We believe this values driven approach garner better results for both sides.
It doesn't mean, we're not pop we are what we negotiate the right way.
I'm extremely proud of our merchants, who put these values into practice every day.
Now Mike will speak more on SG&A in a moment, but I would like to highlight how we have kept our commitment to offer a frontline a distribution center teammates a lockdown opponents, even while much of the industry did not do so.
To us it was certainly the right thing to do in Q3 of this investment was $9 million. Our initial estimate of up to $5 billion only included Manitoba and select regions, a Ontario in Q4 based on current estimates, we expect a lockdown a bonus to be up to $4 million.
Next a few updates on e-commerce and it has been another impressive quarter for our E Commerce business as we continue to hear how much customers loved what this quarter Empire E Commerce businesses grew 315% over last year.
With a continued expansion of wala arrival, a winter and further lockdowns, we saw an impressive increase over the second quarter as well.
Today, I can share updated projections on a financial impact of Waller.
As we previously publicly disclosed our expectation was that ball a with diluted EPS in fiscal 2020 one by 'twenty sets.
However, we now expect our team will over deliver on this estimate with full year EPS dilution up 18 steps in fiscal 2021. Our initial 20 estimate did not include a full cost per store pick, but a revised estimate of 18 sites actually does so its even better than it looks.
This reduced dilution is a direct result of the team's outstanding efforts to ramp up the business quickly to meet customer demand, while maintaining cost discipline.
As we are setting a path well lives a strategic long term investment.
A partnership with Ocado provides us with the best and most customer friendly grocery e-commerce platform on Earth.
What were you seeing dilution now this investment will pay off when we achieve scale. We expect to have the most profitable approach to grocery E Commerce in Canada, and it will be exclusive to us.
Wrap up I would like to highlight how we have continuously demonstrated that when we set targets for ourselves we meet them.
Our results prove this time and time again.
Our team is working hard to drive our core business and to execute our strategic growth agenda.
We will review our first full year horizon in June for now while we were only nine months into our three year growth strategy, we already have material benefits kicking in with two years still to go we are highly optimistic.
People, sometimes forget that our operational and merchandising execution is so much better than it used to be we proved what we can do by delivering sunrise on time and exceeding targets. We continue to prove this with our strategic investments like for a long Powerpoint both of which are outperforming.
There's a reason we're outperforming the competition and it's a all COVID-19.
With that over to Mike.
Okay.
Thanks, Michael and.
Good afternoon, everyone.
I'll provide some additional color on our results of course, a and so a comments on our fourth quarter.
Cash flows.
And an update on capital expenditures.
Next quarter.
As everyone knows we will start to comp the elevated sales we saw at the beginning of the pandemic.
Last year, we started to see significantly higher sales.
Starting on February 28 day.
Blowing week, so a customers stock up in preparation for a possible stay at home requirements.
As a result, we saw an unprecedented 18% same store sales in the fourth quarter last year.
It's very volatile a weekly sales comps ranging between negative 1% and positive 52%.
The last half of Q4 last year drove the lion's share of that comp increase.
We've not seen this level of buying as elevated since then and a shoppers buying patterns that go through COVID-19.
As a result out of a sales compared to last year. This early in the quarter.
No way an indication of where you are.
Our total sales comps will end up at the end of next quarter.
Because of this volatility even a negative same store sales number for the fourth quarter will not automatically indicating a week of sales just as a novelist outcome because it's a highly unusual quarter last year.
In the first five weeks of the fourth quarter.
Yeah.
Ending last week on a same store sales were 9% compared to last year.
As I said this increases is unlikely to be sustained through the fourth quarter. As a result of a significant COVID-19 driven sales last year.
As Michael said, we had strong gross margins this quarter with a 134 basis point increase from last year.
Going into the fourth quarter.
We continue to be satisfied with a margin rate discipline and the impact of horizon benefits that are improving on a margin.
Of course, it's always a goal to keep pushing on a fishing translation of sales to the bottom line.
Pursue a EBITA margin goals.
The range of improvement and a third quarter. However, it may not be entirely a repeatable in the fourth quarter.
We're also lapping an increase in margin rates last year.
Caused by inventory shortages that did not allow a suppliers to supply all promotional items and as a result, we had a higher percentage of sales a regular price.
On the other hand, we do expect to continue to reflect a ryzen benefits.
And positive impact of a higher higher margin service counters coming back into service since last year.
This quarter there were some significant items SG&A that increased our SG&A as a percentage of sales.
Some of these index will recur into the fourth quarter, but not necessarily into fiscal 'twenty to 'twenty to 'twenty two.
A lot going on in our SG&A line, including a new ecommerce business store conversions higher volumes and COVID-19 impacts on on on labor wages.
First accounting accruals for a store distribution center and backstage team a compensation continued to be higher this quarter and they will be in the fourth quarter as well.
We do not expect to see those expenses at the same levels in fiscal 2022.
Second COVID-19 costs, including a lockdown bonuses are an increase from last year.
These costs from our fourth quarter estimated at between 15 and $20 million will be less in a COVID-19 costs for the fourth quarter of last year of $88 million.
Third the new vault a business now has a full back office SG&A and supply chain costs, reflecting the company's SG&A compared to last year.
While a launched a customer's June 22nd a little over halfway through a first quarter last year.
Yes.
Both expenses associated with the closure of stores and conversion to fresh co stores in Western Canada and farm boy stores in Ontario, a recorded in the third quarter.
And finally, a white abuse assets depreciation under Ifr 16 is higher than last year, reflecting an increase in occupancy costs.
As I said, there were a number of items impacting SG&A with total costs and impacts from your investments in your life a new initiatives.
Another example of these costs that had been elevated and we will continue to invest as a marketing where we have invested to reposition our foodservice and discount bonds with our customers and a.
A cost invest investor day, an awareness of a new ecommerce platform.
And the other investment that also became a fourth quarter is our extremely.
Exciting investment in sponsorship of a Canadian athletes.
2019, we announced a partnership with the Canadian Olympic Committee.
The first ever official grocer a team in Canada.
With the delay of a summer Olympics, we now have both a summer and winter games in the same fiscal year, which we of course did not fully expect.
This is a once in a generation opportunity to grow a brand Canadians during two Olympics in one year and we intend to take full advantage of this exclusive chance.
EBITDA margin in the third quarter increased by 90 basis points over last year due to the 134 basis point increase in gross margin, partly offset by the index of SG&A as a balance.
The effective tax rate from the quarter, a 26, 4% was in line with a statutory rate.
And excluding the effect of any unusual transactions for <unk>.
Tax rate on a property sales, we estimate that the effective income tax rate for fiscal 2021 will be between 26 and 28%.
The earnings per share as Michael said includes four cents per share of wallet, a dilution compared to a <unk> last year.
And [noise].
Four cents per share a fresco and phone boy a conversion in store closure costs compared to none last year.
We're very pleased with Wawa is consistent growth in water volumes a week over week.
Net sales have increased by approximately 100% from Q2 and a total ecommerce sales were up by 315% compared to last year.
This increased pace of sales has reduced our expected EPS dilution estimate from 'twenty.
18th for fiscal 'twenty to 'twenty, one even after accounting for the launch of a <unk> solution, which hasn't I expect a dilutive impact of approximately one central fiscal 2021.
Equity earnings increased year over year, principally due to a higher earnings from can be a REIT, which continues to perform well in spite of COVID-19 headwinds.
Due to their high quality portfolio.
<unk> amount, a which is anchored by empire grocery banners.
A rent collection rates a high at 98% did their fourth quarter and continuing through January from.
Have you reached started their calendar 2021 was a record committed occupancy of 96, 4% and a strong property development strategy.
Cash flow generation continues to be strong.
At the beginning of this quarter, we fully retired two debt facilities.
Combined with continued strong EBITDA improved a funded debt to EBITDA of three three times compared to a four one times last year.
The company's credit metrics and financial profile continue to improve due to a stronger operating performance and stable financial leverage.
As of this week, we've repurchased approximately two 8 million shares so far for consideration of a $100 million.
We intend to complete the current N CIB up to 5 million shares.
And when that N. CIB is completed we plan to renew it with a T S X at a higher level of share repurchases.
Year to date, we've spent approximately $450 million a capital investments and we continue to expect to spend between 650 and $675 million from fiscal 2021 about.
About a half of this investment is being spent on renovations a new stores, including the expansion of a fresh go in the west a bundle in Ontario.
$65 million up a total would be sort of a spent on draw a lot, including CFC to construction and rollout of the install a packing solution.
We renovated 19 locations across a network this quarter and we are on track to renovate 30% of our Empire a store network over the course of horizon.
This is a significant disciplined program with a strongest brito.
A renovation program is meeting if not exceeding sales forecasts and business case.
If you look at the earnings presentation document on our website, we've put some with a before and after a pictures a recent renovations, which have improved our customer experience and provide a new assortment in many stores, which is garnering significant enthusiasm from our customers.
In January we announced that we've reached the halfway mark of a western Canada discounts expansion plans.
We opened a 23rd store last week and have plans to open another three to five stores in the fourth quarter.
Moving to achievement of 10 to 15 stores in fiscal 2021.
Next quarter will be the two year anniversary of a first fresh gross fresh from a stores opening in the west.
Farm Boy opened a 36 store last month.
We're on track to open a total of eight stores, including one relocation in fiscal 2021.
Approximately two years since the acquisition, we now have 42 confirmed locations and plans for more.
In March we open a first of all I spoke in a totally co Ontario.
Spokes or a cross dock facilities that allow us to get closer to our customers and improve efficiencies in a cfcs for example by improving a key efficiency metrics such as drops prevent.
The spoke reduces the distance to our customers and increases the amount of deliveries to our customers can make it a shift just.
Particular spoke will release, a long term capacity constraints and it had a very smooth startup.
In December through a crumbly a development partner.
We completed construction a part of the construction of the CFC building in Montreal on time.
Academy, a began their build of the internal grid.
We expect to start testing the system and bringing in products in the second half of calendar 2021.
Our target launch date remains early calendar 2022.
As you can see there's lots of them to go.
We have detailed plans built by a leadership teams singularly focused on a horizon targets and manage it managed by a disciplined PMO teams.
We've managed to restart all of our initiatives that were previously delayed due to COVID-19 unexpected.
And expect to exit fiscal 'twenty, one with momentum on these critical activities.
We're really encouraged by early success, a new capabilities and tools, such as artificial intelligence and a best analytics and the new processes and a merchandising and operations groups.
Horizon progress is on track and there is so much more to come.
With that Katie I'll hand, the call back to you and take questions.
Thank you Mike Joanna you May open a line for questions at this time.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone you will hear actually Tom profit acknowledging a a quest.
You are useless speaker phone please lift the handset before pressing any keys.
First question comes from Patricia Baker at Scotia Bank. Please go ahead.
Good afternoon. Thank you very much for taking my question, Michael I'd like to talk a little bit more on the promotional optimization.
Let me provide a is a win in Q4 and it sounds like it's going to be a gift that keeps on giving so the way that I look at it here. There's a there's two elements there's a data and the analysis you've got that and then of course as you referred to in your opening remarks.
Team.
That worked with both a tool to go live with a promotional effectiveness now but that has always been that Toby if I recall when you first joined the company. You said you were really impressed by the mouth a Dallas, obviously, you know what part of what's happening here is that the mining of the data has improved a significantly but I just want to get your impression if you look at the.
The teams that are managing a promotion.
As you indicated I'll call using their judgment because there's a results that we saw in Q3 demonstrates that the teams a as agile as he wants a b or and how would you compare them to where they were a year a call and then or is there more to come and Andaz success [laughter] a successful.
<unk> builds on the next promotion that you just keep getting better and better.
Yeah, Great question.
When I think about all the time, especially today, we just had a presentation.
We have many presentations, but we had wanted a board today on.
A promotional optimization and it was a.
It was led by merchants at many levels with a company.
For a different levels were represented.
We we swim at that.
I always have a.
What we've done is we've cleaned up the data so it's incredibly usable.
Yeah, we've got.
I want to complement our technology team there.
They're just killing it and we're putting tons a pressure on them then they're responding.
We.
We talked about our data analytics team led by Mark Robert There, they're aces, but there's a no we're not hiring hundreds of people here guys.
Don't need to just you need a you just need a fantastic superstars in data analytics.
And.
But the biggest thing that I've seen and I don't think they notice it as a merchant.
Our merchants a have Jeff embraced this and they're excited about it and now they're the ones driving.
Driving cash more and more analytics and to make good decisions on behalf of our customers. So offers to our customers a sharper and smarter and more appealing and this is a it's not just a market. This is a sales kick like we want a we are a customer we want a winter customers over and take market share.
And the merchant assets.
They know how much better than they are than a year ago. It's a it's.
It's incredible to speaking a different language.
But we're in early day. So you saw the difference it can make to our company. It was a big portion of the 134 basis points that we saw a.
And a these are chest early day. This reminds me a amazing myself a might be in the early days a sunrise when people didn't didn't see what was comics.
And what we saw and in and there's a way we do things on a leadership, especially from you.
A peer sell raw Mohit and Bruce frozen technology.
Driving this analytics a.
This is this is our biggest opportunity.
Now a bit they love it theyre going higher from Florida and.
And so this is this is our biggest opportunity always was going to be but we could have done any of this before sunrise.
No absolutely you mentioned that the merchants embracing it.
And Theyre speaking a different language I'm just curious are they speaking a more return oriented language than they would have been a year or two ago.
Sure.
Yeah, Yeah, a very powerful dashboards in front of them now.
They know in a very.
It's a very short time, if promotion a R.
The net of the effectiveness of the promotion so you bring them talking about red for a whole yellow promo in Greek debt.
<unk> co.
We have nevertheless read from what are we a green provoke a.
And it's not the only good part, but it's only good for a supplier partners.
Everybody wants to add a meaningful and effective promotion.
And we want to maximize the impact on customers and we have very low all merchandise very good conversation with supplier now to increase the effective effectiveness in debt.
And Oh meaningful a promotion from customers. So that's a different language, we hearing now and it's very encouraging for the future.
Thank you very much PR and Michael.
Thank you Patricia.
Thank you. The next question comes from Chris Li at Day Chardan. Please go ahead.
Good afternoon, maybe first wanted to Michael just a.
Listening to your opening remarks.
It sounds like a benefit from horizon, where a bigger driver of your gross margin improvement this quarter more so than D. A.
The sales mix impact I guess the first question is that correct in a number two is can you maybe quantify for us a little bit just how much the impact was from a chair if I could please.
Mike.
Thanks, Chris.
I think Michael said it was a significant amount.
You know Covid is still a significant effect.
On the numbers.
And that mix shift is has been a has been significant so.
I think in order it would be a.
B a.
Both both a very significant.
Mix and and horizon benefits.
But.
When I add other call a strategic decisions in like a farm boy.
Discount.
Innovations.
This is not.
Only about a fast analytics you have I started adding in some of those items and then.
Describe some of the share gains that we've made to those initiatives.
I would say yeah in total.
Between sales and gross margin rates horizon was.
Probably a greater a driver so.
I guess, what I'm, saying is very hard to specifically separate out sales impacts we can separate out gross margin rate impacts a little better, but I wouldn't get fixated on just the one thing that we're doing we're doing many things.
Been doing them quite well, even coming out of a sunrise them and we.
So we feel good about material amounts of this quarters result, being repeatable in future quarters.
That's very helpful. And then my other question is.
You know just conceptually speaking as the industry cycles through a very strong comps.
How do you strike a balance between you know not chasing after unprofitable sales.
Vs. Ensuring that you are not losing the share that you have fought so hard to gain this past year.
Peter.
Sorry for a bike you want a do it net a PR they may not.
Go ahead here, obviously, a bunch of say what I wanted to take a question.
How do you I mean, how do we work in.
On a fee maybe some negative outflows each day of cops, especially like probably a a tiny bit because we're a coffee obviously, a big periods, but how do you make sure you don't chase them, but keep your market share.
I think that's the main PPI going forward, we need to look at markets or a more than a.
Our usual kpis like a comp sales versus last year.
So as long as a continued to gain market share.
The LTE way with no empty calorie sales a what was.
Satisfied.
I think the team has a.
As a behind that you keep your eyes for the next year, because we don't want to change a good behavior with a small recently.
So, but we believe that a we will continue to we've done really well from COVID-19.
I'll leave that a customer we continue to shop, our store base other good job with it. So we're confident for the next year for sure.
But yes, we want that same set especially L.
Over the next two three weeks, a we had a big panic buying walks you a same level of sales but.
I think a we will continue to see L T sales and margin.
By measuring true good P. P S.
I think TR debt.
Perfect that's exactly exactly right.
You know a lot a retailer are you here.
And it's always a danger upward.
Chase sales, where they then they chase market, where we're working we're helped by a fantastic team, but also with way more use of data and smarts.
From a category reset.
Our debt, we don't talk like that anymore.
We believe we can grow our market share and grow our margins.
Perfect and then maybe just one very last question.
How much was a full cost for the store pick that were not initially, including you know 24 net dilution estimate.
It was about one cents per share.
Okay. Thanks very much.
Yeah.
Thank you. The next question comes from Irene <unk> at RBC capital markets. Please go ahead.
Thanks, Ben and good morning, everybody I guess, we're now about nine months or almost nine months since you rolled out for a lot in the G. T. A and I was just wondering if you could talk about.
What you're seeing in terms of consumer purchasing.
Purchasing behavior in cancer of how often are they ordering basket size is retention rates.
Anything that you can tell us there.
Mike do you want a.
Have a swing at that.
Sure.
Yeah.
First of all on a week over week.
Sales I think of.
A in virtually every week since we spoke to you last have increased.
And that's a combination of a new customer counts and Uh huh.
And basket size increases as well.
A retention rates are are excellent.
And.
And in our efficiencies the statistics I think it'd be fair to say you know what I mentioned on the call a drops prevent.
A number of picks a gen.
<unk> inside the facility by our robots.
Sure.
A substitution rates.
Our on time delivery rates.
All at or above.
Our our targets.
So you know it is true Super hard to go through every one of those statistics and and probably not a smart competitively do it.
But I think the only item that we we are planning to change materially.
Going forward is that we added about a thousand.
Articles to our circumstances last time, we spoke to you and as we are as we move forward, we still have significant being more room to add a assortments in a in that facility and we intend to do so as soon as the supply chain can make it and a and when the negotiations that.
We have in place for some more specialty items are completed we added a we had a pretty cool line.
All of a inbox, Oliver and by continually a premium meals and a.
Okay. So the other than it has to do so.
That type of innovation and that type of excitement there.
It's really going to generate a lot of a long term success and something that a Sarah and her team are working on a.
With a significant amount of Richardson.
Yeah.
Every week a box of three things I look at most and I'm.
Happy and in fact, Robert performing a retention rate of existing customers tracking new customers and basket size.
So it was just really there's a lot there's no bad news there it's all good.
That's that's great. Thank you and then a sorry can you.
Can we get an update if possible on just a how coffee complementary launch is doing and and you know sort of whether you're continuing to see rising penetration and how that's playing into a e-commerce as well.
Yeah.
On private label, we continue to outperform.
Our our total growth, which is a good sign a.
Once again like I already said a.
Before penetration rate is a <unk>, but that's my favorite my favorite is make sure that.
Private label will play a meaningful.
Growth in every single category and subcategory Theres a lot of.
Opportunity for us and some other less so it's volume we are now and the good news is the only thing is rebuilt category what private label that if you remember we did get a reset in the past now we're doing exactly the same thing with private label a.
So we love it.
A more relevant belief a private label item and without a better cost a good and then rather stable a weekly the main rules you have to do.
Please go.
So you're generating more of a penny profit.
And a meaningful pricing from customers.
That is great. Thank you.
Okay.
Thank you. The next question comes from Mark Petrie at CIBC. Please go ahead.
Yes, good afternoon actually just a couple of follow ups and I appreciate all the comments.
With regards to the dilution on Valla, obviously, you're moving in the right direction. There I mean, just sort of you know if I heard right it sort of sounds like three cents likely for Q4.
Can we sort of extrapolate that kind of a penny a quarter a pace of improvement as to when you might reach breakeven or what are the other variables there.
Yeah, I don't think I'd do that Mark.
We.
The most significant.
Element of of moving to accretion.
For for CFC is gonna be sales increases for sure.
We're on a.
And as I mentioned.
Things like assortment size box basket size customer retention, a last sort of thing is going to go into that.
We are going to also start incurring cost for CFC true.
Next year and our intention.
Once we have solidified our plans is to is to provide a a more granular estimate of what we anticipate our total E. Commerce a impact will be from next year, but I think it's fair to say that as well a continuous to bed down there.
The efficiency ratio has now become you know I never had a better than target and a repeatable week to week.
Where we're driving we're converting them converting the the.
The sales to earnings.
And really what we need to do over the next year is just keep doing what we've been doing and a and cover the fixed costs. So youre right that its.
And it's going to consistently improve.
In our opinion.
But just taking a linear earnings per share a number I don't think it's going to get it done. So we're going to provide a little more information on that probably in the next quarter.
Okay. Thanks, Yeah, I was I was just referring to CFC one.
And sort of putting a CFC to aside and just a note on that topic I think you've said in the past, but just to confirm you expect CFC seem to be less dilutive than CFC won at least incrementally simply because you're now leveraging some of the infrastructure that's in place.
But to the extent that we don't have to repeat the infrastructure you're kind of a cigarette.
Yeah Okay.
And then actually I just wanted to ask specifically just again follow up on a on the private label side a.
Pier a how how far are you through that sort of category management exercise specifically as it relates to private label and then I don't know Mike.
Mike If you can help us just in a you know what was that also a factor in terms of gross margin in Q3, obviously, it's embedded in that horizon number, but just curious any comments.
Good question.
We have a I think it's a flat for this year I think most of the benefits will be in F. 'twenty, two and a 23.
So we at the early stage of capturing but a ship, but theres a lot of job done so far.
We're going buy waves like we did with true Seth it's a very.
A good net debt then leveraging from our past experience with getting a reset. So we're continuing to follow the same type of processes now in wave one and then wood waste when we true like we did what we said.
So, but most of it if it would come in F. 'twenty, two witnessed with Detroit and there are significant.
In this quarter, it's not material.
Okay, Thanks, and absolutely sorry, just to come back to a typical I had one other question, which was you know with regards to adding more skus like I think that is something that our customers are definitely looking for so what is the impediment to doing that I mean, you mentioned negotiations with suppliers, but is it is it strictly sort of ramp up on cash.
Customers and then also a supplier constraints or what what is the impediments to doing that today.
Well, there's no there's no impediment to stopping us from doing it for sure.
We were a little.
Have a picky about making sure that.
If we introduce an assortment into our.
That item into a assortment that.
Debt, our suppliers are going to be able to deliver consistently on time and so our.
Our efficiency rates stay up in terms of no substitution is a long time until a.
And just with.
But with Covid.
Not all of the suppliers, it's been quite a flexible and that's improving day by day and a and we're encouraged by the progress.
That's really that's really hit a mark there's no there's no other reason.
Uh huh.
Over and above that.
Okay I appreciate the comments all the best.
Thanks Mark.
The next question comes from Karen short Barclays. Please go ahead.
Hi, Thanks, very much I was wondering a just a couple of questions in terms of the comp in a quarter to date I was wondering if you could give a little color on basket and traffic in terms of the comp, but then also talk a little bit about.
Variation by Province.
And then you know I know some parts of GTA have started to reopen so is there any color you can give on how that's trended since a little bit more of a reopening and some of the cash.
Thank you operator.
And then I had one other.
So yes.
Yes.
Across the board across the entire country their rates of improvement would be a difference.
Spending on which probably true.
So in Atlantic, which has had.
A unless COVID-19 cases, and in many cases have been in a quite good lending bubble from you know for most of the time not all of it.
Those those rates of improvement haven't been quite as hot.
In Quebec, and Ontario, depending on timing of Lockdowns.
They they would probably on average haven't had the highest rates through the period and then varying rates in the western provinces, depending on again, the timing of their lockdowns and a and b.
On a resulting behavior so.
That's.
Generally speaking a I think as far as we're prepared to go we're not going to quantify.
The numbers and you should probably stay a actually also a highly volatile day, they go up and down depending on on Lockdowns and what are your range.
In terms of a 9% year to date.
A.
Yeah, Theres a theres, obviously changes are in a.
In Ontario.
And and other places where the Lockdowns are being eased.
We we have no comment at this point as to what those trends will be and where they're going to go over just over a short term we're just.
I think it'd just be wrong for us to try and estimate that we.
We've given you.
The actual facts.
With just the early weeks from a quarter, but I really cant provide any further.
At least numerical guidance on that at this point.
I think the only thing I might.
The only thing.
Maybe like an a.
To what Mike said, which was a completely accurate is it's not.
The flames are on the margin right, they're not on a like they're not they don't swing.
We often weigh down on Lockdowns, it's more like a margin.
And so I don't want you to go away thinking that we.
Do we go from 20th Zero, and then does that that doesn't happen it's.
It's just it's just a little things.
And so you know we're still seeing elevated.
Elevated full service.
Market share gains at all of that just a little minimal movements across the country, where things change.
I don't want a overstate it.
Okay. Thanks, and then I I don't know if that you've given us a fight you have had missed this and what is the actual cost of the a investment and the Olympics from I guess.
Expense perspective, and then how do you think about a return on that investment.
Yes.
So I'll put the a question to Michael.
On the returns.
We're not disclosing a total cost of debt.
It's.
There's clearly media and a sponsor.
I'm such a cost but at the same time, we're also not a.
Necessarily a investing in some of the other media properties, we might have otherwise done without the Olympics. So so it's not a it's.
It's not a straight to add a wheel.
All becoming more efficient in some of our other marketing expenditures as well.
Well, we're not providing the estimate for that.
And on a return.
A lot so I've had a a lot of experience from <unk>.
Previous experiences.
In branding and the Olympics.
And that's why Empire has taken such a big stand in terms of a sponsoring especially sports because I think part of the a.
Part of a rejuvenation has been on the brand and what we've done in terms of sponsorships hard to quantify.
I can just say that day.
Exclusive grocery partner.
And.
Of the Olympics, and the Olympics or the biggest.
Because as soon as we could grab that we grabbed it because I know how powerful that is and it's an exclusive platform and.
And fans and for our people and that makes a great for customers. It's a great business, but it's also a from our people inside the company very exciting to support our our athletes so a if.
It has a big impact sometimes hard to quantify because it's just it's fran et cetera, but we well we'll take full advantage of this exclusive opportunity.
Opportunity I know I I I I agree I agree it's a great opportunity I guess I was wondering if you had any metrics on top line a potential as well because obviously there has been a history I'm not in other categories.
From a big Bend.
And Canada, no one had ever wrapping Olympics before I mean, it wasn't exactly a.
It was hot it's a hot property in every other part a retail except nobody had ever done and groceries surprisingly or not none that I've ever remember.
So I think we have a huge opportunity here.
And yeah of course, we have we have goals and we have a great marketing team. That's all over it merchandisers, who are all over it and so that's built into our our plants.
Great. Thank you. Thanks.
Thanks for a great question.
The next question comes from the South Shanghai from National Bank. Please go ahead.
Hi, Thanks for taking my questions.
Just a to paint the same wall here and going back to gross margins.
Obviously, we don't see that kind of a common.
On a regular basis in that sector. So with respect to the initiatives that you've implemented I'm wondering if you've had any customer feedback on kind of be a the movements that you've made on your promotion are you seeing any changes on net promoter score one way or the other.
As a gauge the customers' reception to these initiatives.
Uh huh.
It's a good question and I think once again the pistons gave her bosses marketshare. So would that mean the thing we are doing our.
Meaningful from customers we.
Monitoring price perception and what are you seeing a pause.
Positive movements so.
I think overall the feedback so it's tough to a customer too.
You don't have the data we have to build a meaningful promotion, but their perception remain strong and seems like a slight improvement, but the right.
The real TPI and once again, it's it's a market share.
So and you know we've seen good results in Q3, but it's net new.
In Q2, we've got good results also on margin.
And.
So it just a continuous improvement we accelerated.
With margin and market share gains.
So it's not something new in Q3, it's just a continuous improvement on what we working on since a year or two.
And we're at early stage of a ryzen so are we expecting.
A continuous improvement again.
Oh, Okay, yeah. Thank you for that color.
And just a few quicker ones here with respect to a sale or are you a management indifferent to a sale on for a lot or your existing store base platform and maybe if you can expand upon why if if you do have a preference.
Well, so far we haven't had to make any choice.
Well take a well take will take a both places like we are today.
I mean right now until we got to scale, it's probably slightly better to sell in a store in terms of a bottom line, but as we got to scale that it's gonna get closer and closer to that we're indifferent.
We want just to thrill our customers.
And most customers.
I'm, an example, I shop, a shot for tomorrow, and a sharp well.
And a most customers don't think of it like if they just think of a shopping they think of it as having opportunities to buy a different places they don't usually choose one or the other some customers during COVID-19 may have chosen.
If you go in Congress more heavily at the bleakest facts.
But I don't see a like we don't want to make a choice wherever a customer feels most comfortable a we'd love to welcome them in and.
Every indication I've ever seen ever seeing is a when they become a.
E Commerce customer a the halo effect on your bricks and mortar go way up and a but it's.
In a basket sizes are bigger than a commerce.
Margins slightly better than bricks and mortar right now, but we'll take them any way we get them.
Great question, though we picked up a that a lot.
Yeah, thanks for that color and that exercise.
As you reflect on that.
On the pandemic and potential lasting changes to the consumer.
I'm wondering if you can talk about your real estate strategy and a Q4 see any changes, perhaps more suburban perhaps a lower real estate costs in urban centers that makes those regions more appealing is there any insight you can share or is it business as usual.
Okay.
Right.
That's what we're looking at right now I mean, where we believe there will be laughing a packs not only in our sector, which is grocery that we do believe we're quite happy to be heavily in full service right now, while furiously expanding or just kind of a fresh fish fresh gallbladder.
But we're going to we're going to keep looking at this because.
There's going to be lasting impact it's a question of how big that impact us.
You know, we we're well set up for it to be honest for you and I don't think we have to change our strategy very much at all but we're going through that right now are a real estate team working with our our operators are looking at that right now and but I don't think it will make a big difference, but you got a keep looking at these things I think you're absolutely right. We have to look at the true.
Yes.
And so far the trends are really helping us. So I think they'll continue to help us and then we have to a we'd have to look forward and really optimize.
Okay. Thanks, a lot and congrats to a team on a corner.
Thanks, Michele I appreciate it.
Your next question comes from Peter Sklar BMO capital. Please go ahead.
Just a couple of questions left.
Michael.
Like it's no secret that loblaw was more aggressive on price on on the discount side. So I'm. Just wondering you know from your perspective like.
Do you feel that pressure and do you have to.
Just your from.
Emotional direction or is it just you know.
The shift is on automatic pilot and you just sales you know, it's true I think which is a kind of noise in the backdrop.
[laughter].
That's like that's got a being one of the best questions I've been asked.
But can you ever on automatic pilot, where we we watch like Hawks everything that goes on in this industry.
At the same time.
Playing our own game at a kind of tuning out some other noise on the sides has really been serving us well as you can see them in a in a quarter where we.
Well I've never seen a quarter like this really boosted our margins like this in and grew market share and all the other things and that's that's on top of Covid benefits. So.
You know we saw no increase when you lose market share.
Your swing around a little bit if you tried to do some things.
Kudos to that I guess, but.
And we saw some more of a front page promotional activity in certain areas and discount which is a lost market share and we saw a real heavy marketing spend from competitors, but I think.
You know February adjusted a tiny bit, but not very much. We think others are going to have to adjust to round out a little bit. So that's a way we look at it but if we got a we're not on autopilot, we're always looking but I think we got it right.
I think we got the right tactics and other carriers peer and might've gotten a discount and so on.
And a well a lot.
They know what they're doing.
Okay.
The other thing I wanted to ask you about if I could just challenge you on one thing is true like.
You know how some of your competitors have been demanding a additional price from the from the supply base and a and Empire, it's not like you're taking a more.
I don't know call it.
Possible or a business night business like relationship with your suppliers, but like.
If you look at it.
That project Sunrise and like the category reset.
A big corporate its suppliers a high co.
Like in that context didn't you go back to suppliers and that's the price. So I'm just wondering how it.
What your thoughts are when I put it to you that way.
Say it one more time.
Well.
You're saying that unlike your competitors that like you're not demanding.
[noise] price from your suppliers like they're not demanding a 2% price across the board you're being much more of you being a much more responsible but what I'm challenging you on as part of project.
Alright, so I would've thought you would've gone for some pretty you know for some pretty aggressive price from your suppliers. So it's been a true you you really did have a go at your suppliers.
Wondering like a comment when I put it that way.
I've never had a gray.
A question.
I've never had a net but were costs that were going to negotiate and I don't think we work in a number of years ago. I think we got taken advantage of and we didn't know our own business well enough and we didnt we didnt.
You've seen you've seen how we've improved our.
A bottom line and some of that is because we were were fair, but top but I think that's a way to look at D.
Peter is is there's a in our opinion and there's other opinions I suppose there's a right way to do business and there is a wrong way to do business and and.
We try as much as we can to be transparent fair.
But not everyone's happy I got a got a.
A few emails this week from suppliers.
That had a lost some business because a.
Either on either on a well, it's always a quality and pricing and all that so a week. So it can be more competitive and so not everybody is going to be happy with us.
At the same time, there is a way to do it and I know our supply partners understand that they are they're into hard negotiation there a darn good day.
We're good at it now and that's the way we do it but we're trying to build a pie up right. We're trying to work with them to throw the customers have more innovation.
And pick up a cost a pass it onto the customers and our weight is better in our opinion and you know I think you can look over the last four years, you'll see that our weighted is probably a better way. If you look at it we brought her margins EBITDA margins, while at the same time trying and not a successfully as we can to be fair.
Our transparent and a devalued space.
I gave a speech a.
It got a little bit of a tension at the Empire a club in October.
And I said, it which is that a.
You know I said, a desk, which is that a.
The Covid showed us how we can work together better we think we can grow the pie.
But we're not going to where we're not going to give up being tough and negotiate a tough.
And we've been very clear on that are our customers and our investors.
Expect us to outperform and beat the competition, where you just want to do it from a different way that we think is more successful.
If other and why is there a different way that's up to them.
Okay. That's a good answer thank you.
Thanks, a lot, but boy, we've got some great questions today.
Thank you. The next question is from Ken Recti at a T V capital. Please go ahead.
Yeah.
Okay.
Kevin Your line is open you May proceed with your question.
Thank you and good afternoon, No question, Michael I guess I've got a keeps the trend going.
Hum.
From a.
Just kind of a does a slightly different way to an earlier question. So you called out a share and share gains and the like can you even directionally give any insights on just how much of a benefit full service has been sort of through the pandemic with a one stop shop protests, but perhaps more importantly, how you see that evolving.
'twenty 'twenty, one both a geo footprint a volatile a increased discount but also is concerned I haven't stopped to rebalance and we find whatever normal is and I don't think the new normal.
I think normally is the the normal of all debt. We also know exactly what that's going to look like because you brought any any insight direction you otherwise all math I mean, how sticky is a power position on a rebalancing.
Well I mean, there's a mixture of whats going on a lot a mixing going on which is a cold.
Good day.
Household a full service at the same time, we stopped our game up appreciably over the year last year, we would've done so anyway.
You know we've been if you look back at our Investor calls since day, one year ago to almost a week, we've been pretty darn accurate in our projections of Covid impact generally so it's a very beginning of a pandemic.
And we've said, we really like being a full service and in a new normal we expect will really like being in full service at the same time as I said, we're expanding our great discount fresh co business.
Which we always wanted to do my experience as a retailer that's been in a well we have a lot of studies and we can look at them, but my experience as a retailer it's a once a retailer gets momentum.
It's hard to stop them.
So a customer start coming to your stores you start winning them over you get better things you get the confidence and and I.
I said twice in my script today, but I want to say it again, a key to our success will not be COVID-19.
It will be project horizon and be executing that.
That will be what drives us.
Thank you Michael just one quick follow up if I could squeeze a inhale a one quick additional question rather.
It's not a pick up in Alberta, a lot I'm I'm, just I'm a contact with a C. A T. Three a the timing around T. A C. Three being I think first half of 2023 could you just help us understand the the thinking there the evolution and whether or not it's safe to say, we won't see curbside pickup necessarily a cross country, but it's more opex.
And a stick in markets, where you've got a lead time, a long lead time to a your next CFC opening just want to make sure were correct in thinking about the oil curbside launches in a very select number of markets.
Well, it's a good question by the way Kendrick, but Mike why don't you.
Well you are just asking.
Can you also provide a good answer.
So.
So that's right a we.
We were going to.
Yeah, there's really still a pack.
At some point in time, it's not just gonna be a curbside pickup.
Which is really more of a COVID-19 term, a but store pick.
Ultimately, it's going to a fit into a e-commerce strategy in places, where a CFC will probably have a service efficiently.
So you know that's why we're seeing a Atlantic Canada.
Being a focus for us.
In the west to your specific question.
It's going to be a while before that CMC is up and running and so we're going to provide customers with a boiler experience in a fence and a and they're gonna be just thrilled when they convert a.
Into a CFC that's gonna have a wider assortment in just the same a high quality ball a server. So so it's a it's a bit of a beachhead for a CFC those will ultimately be there, but even after which there will likely still use store pick in places, where it's to remote or too suddenly populated.
As a CFC to be effective.
It's always going to be a one of the arrows in our corporate but it's not going to be the main one.
Thank you that's that's great color and congrats on the Prince I'll leave at that.
Thanks, Thanks, so much.
Thank you and the last question comes from Michael Van <unk> from TD. Please go ahead.
Yeah. Thank you a good afternoon.
Wanted to focus first on fresh go and if you could give us an update as to how the conversions are performing.
On a more recent stores compared to the initial conversions and are you seeing improvements because of experience and a burnings.
Or is that diluted by them.
By the possibility that you started with a higher return stores.
Yeah.
Alright, Thanks, Michael so.
We didn't actually necessary to start with a higher with a total stores. That's a nice thing we're looking at it.
We spent a long a time figuring out.
Firstly, sorry. This is a directly the answer to your question So I apologize.
Our initial plan was maybe only a focus on D. C. And then we decided that it made more sense.
To be presented and in more markets, which is why we ended up in Saskatchewan.
And a N V series of course, not all but a so so we haven't actually tier a D will want according to advantage towards other stores. So that that wasn't really there really wasn't part of the decision making it was all about.
It made more sense for the business to be.
Given a customer demographics and opportunity.
I'd point out two things in terms of how the recent stores are doing compared to the initial ones.
From a just a in efficiency and in a ramp up.
And in a general store conditions.
A recent storms have been way better than a first time and that makes it a lot a sense because if you think about it we now have an experienced management team a isn't.
He is an experienced group of Oh franchise operators in the West I have learned from initial.
And they're just getting better and better and better every time, they're all store a so so just because of that.
Those experiences a bit better around margins or approved and in any way being a word.
Being much more effective in terms of how we promote and how we price.
Offsetting that though is.
He is a we haven't done the same grand openings that we did in a first stores had a journey.
We haven't been able to because of Covid.
So it's been a quieter.
Launch from any of the stores.
<unk> said that even with you know like a redo.
Reduced marketing.
Because we didn't want to hold a crowd the stores and have a lineups like we did with their other grand openings.
As a result have been really good and a and we're comfortable with them. They just a they're just now a slower ramp up than you.
Learning a stores, which had the big splashy Grand openings a.
On balance, though I'd.
From a bottom line perspective the other.
More recent stores are having a more efficient ramp ups from the only one.
Okay, Great and then on envoy a lot.
You talked earlier about our expectation to have the most profitable ecommerce approach in Canada. Once you hit scale can you give us an idea.
The penetration level a year you figure you need to get to that scale.
And when you're at that level.
Would you be expecting a cut your bricks and mortar square footage at the same time.
So we don't have a.
A real number Michael from a penetration perspective.
For us it's about winning it's about winning the channel we expect a over index in the a cam.
And the online channel.
Yes.
And.
A stage, where you're in a business a tracking a weekly sales increases and just pushing them as hard as we can.
The second question.
Korea is do we think that's going to cannibalize.
A bricks and mortar nor are we gonna have to change on layouts.
We don't think so at this point.
I think it's a it's a large enough market.
And we're not gonna have a at least in the next five years I don't think it will have the type of debt.
Market shares a penetration rates that are going to require changes in bricks and mortar stores, but having said that as we're rolling out new stores like envoy for example, they're much more online proof than a.
And a larger conventional a store because a.
They provide the experience and they provide a assortment that's not a one.
100% replicable in Angola.
In Quebec, we think we strongly feel inside of our franchise partners that theres going to be more of a handle effect.
So we're gonna be providing existing hygiene customers with a a very very much higher quality options than they're currently getting.
Online with a new improved assortment and we actually think we're going to grow the total pie there and and the losers are not going to be our stores, they're going to be the competition.
Alright, thank you.
Okay.
Thank you.
At this time I will now turn the conference call back over to Katie O'brien for closing <unk> closing comments.
Thank you Joanna ladies and gentlemen, we appreciate your continued interest in a park if there any unanswered questions. Please contact me by phone or email.
Look forward to having a join us for a fourth quarter of fiscal 'twenty 'twenty One conference call on June 23rd toxin.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your line.
Jonathan that's a good day.