Q4 2021 Empire Company Ltd Earnings Call
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Good afternoon, ladies and gentlemen, and welcome to the Empire fourth quarter 2021 conference call. At this time all lines are in a listen only mode, but following the presentation. We will conduct a question and that's a session.
Any time during this call usually quite a immediate assistance. Please press star zero for the operator of.
The call is being recorded on Wednesday June 23rd 2021, and I would like to turn the conference over to Katie O'brien Director of Investor Relations. Please go ahead.
Thank you Sally.
Afternoon, and thank you all for joining us for <unk>.
Today, we will provide a summary comments on a resource and then open the call for questions.
This call is being recorded and the audio recording will be available on the company, but like a heartbeat.
Yes.
And the short summary document a lay of the points of our quarter are available on our website.
Joining me on the call this afternoon.
Michael the Vice President and CEO.
Michael about yeah I'm.
I was here things are a chief operating officer.
Today's discussion includes forward looking statements, we caution that such statements are just the managements assumptions Emily.
On a subject to uncertainties and other factors that could cause actual results.
A review of our unusually for every day for more information on the.
I went out for the call over to Michael.
Thanks, Katie and good afternoon, everyone.
Last year's Q4 results were unprecedented we were at the peak of the Covid panic buying we saw off the chart sales and margin growth. So we knew last year's results were going to be challenging to repeat but we did match them. There are 3 things you should take away from a results today, what we're making consistent progress on executing projects.
Right.
It's probably back last year's outstanding results true, we're driving real sales growth 3 we're maintaining a good cost control, even while investing more in our business are strong cash flow allowed us to make these investments while returning more money to you our owners.
Like all of you I hope things get back to normal share.
Most importantly for the safety of our frontline teammates and customers in our country.
But also because when we returned to normal you will see clearly what a fundamentally stronger company we are.
I want a cover 4 topics today, our capital allocation strategy, our Q4 results.
Our future grocery market expectations, and our progress on projects right.
The first capital allocation Mike.
Mike and I have discussed this with you a lot over the last 4 plus years, we are strong believers in the power of a well execute a capital allocation strategy.
The strength, we have built in our operations of merchandising plus our strategic investments in renovating our stores for more fresh COVID-19 expansion for them.
Net logos have put us in an enviable position.
When Mike and I joined the Empire, we've lapped rigor here and our approach to capital projects today. Our team has the capability to effectively manage capital and organization. We are showing we can identify a great projects with very good returns and we deliver on them consistently over.
Over this time, we've also made 2 excellent acquisitions reduced our net debt and achieved an investment grade rating from a credit agencies for.
Turning capital to shareholders is an important part of our strategy. It's why we have continued to increase the dividend and have been buying back shares.
To that end today, we announced a 15, 3% increase of net players quarterly dividend per share commensurate with our strong cash flows and continued and growing confidence in our business.
We also believe the share buybacks are a useful tool to utilize excess cash today.
Today, we announced the we have renewed our MTI be to repurchase up to $8.5 million shares or 5% of our outstanding shares of <unk>.
Volume in the prior of CIB. This enables us the best buyback of shares issued for the lack of acquisition and a more beyond that.
And we are doing this while still investing of future growth for fiscal 'twenty..2 we will increase our capital spend of $765 million, which includes a lot of those capital projects capital will be deployed to renovate and refreshed current stores continue to build out our farm Boy network in Ontario, and are just start discount network in western.
The advanced our ecommerce expansion and invest in the advanced technology all of my return a dependable investments and Mike will walk for all of this in more detail with you in a second.
Now onto our Q4 results.
As a reminder, we for the first Canadian grocer to publicly anniversary the extreme stock up phase of Covid last year.
More than 2 thirds of our Q4 of last year was impacted by the most extreme levels of stock up buying behavior. We've ever seen same store sales last year for high and volatile ranging from a week the decline in sales for a week for growth of 52%, resulting in unprecedented 18% year over year across the quarter.
With that in mind, we are very pleased with our performance of this corner of throughout fiscal 'twenty, 1 or 2 year of sales stats for Q4 same store sales.
1 of 10, 4% because of the extreme COVID-19 impact on results last year, we believe a comparison to 2 years ago is a more meaningful indicator of a real growth.
This quarter, our sales declined 1.3% and our same store sales with a negative 6.1%.
You know I don't like negative numbers, but don't think anyone expected to see a repeat of last year.
And E Commerce Q4 of last year Saar are established Iga Dot net and Thrifty foods businesses gross 7 fold as expected. We saw these pits the e-commerce business of slow from the size of Q4. This year as all of established E. Commerce players will experience when comparing to the start of the pandemic last year.
However, even with last year's extreme growth in Q4, we still grew overall e-commerce sales by 15%.
This remarkable a net positive increase was driven by the exponential growth of our new for a lot of business in the GTA and I'll speak more on a progress on for a while on a moment.
Covid also had a large impact on gross margin last year, driven by sales of Mexican customer behaviors last year of inventory shortages reduced our supplier partners ability to provide promotional items a customer shifted toward full service for a 1 stop shop in Q4. This year, we held our gross margin rate flow.
Lots of last year without the same extreme COVID-19 tailwind the Ric.
A copy of our service departments, a horizon of initiatives, particularly our promotional optimization offset the sales mix impact from the prior year to achieve this and this year a combined with our sunrise. The early horizon benefits, we delivered a record high rate of 25, 5% our highest gross margin as far back.
As we can look at.
This is impressive performance and I'm. So proud of the margin discipline. We've built in this company over the last for years.
EBITDA margin rate was 7.4% this quarter. The real story here is how we're closing the margin gap to our peers in fiscal 2017, the average GAAP to our peers with a 4.4%.
And only for years, we have reduced that to have 2 of about 1.9% that translates to an increase in adjusted EBITDA margin of approximately 170% of <unk>.
Colossal achievement for our team.
We've shown we can drive meaningful sustainable margin improvement and we will continue to reduce this GAAP through project horizon, and we will not stop there, but we don't work to pass our competitors.
Now for our expectations looking ahead as more Canadians received a COVID-19 vaccination, we expect for Q3 fits for.
First we expect many trainings to gradually shift some spend back to restaurants, and hospitality industries I've locked out of these workplaces reopen and social gatherings resume share.
Many customers will start to shop more often a shift their basket mix, we expect basket size, well Gee class B class somewhat and transaction counts will increase somewhat.
Some customers become more comfortable shopping in multiple bands.
Customers will also return to buying more prepared food and visiting our service counters as they reopen.
We are already starting to see these trends in our stores.
Third we expect the split between full service and discount banners will stabilize but not return to pre pandemic norms. We have revamped many of them a full service stores I believe customers more than ever see the value of our full service offering.
The Q4, we saw some impact for a market share as some customers return to shopping multiple banners of the began a feel a little safer, but we expect a hold onto substantial market share gains as COVID-19 subsides. We have also noticeably grown our discount presence, adding over 1 million square feet for the discounted network in Western Canada.
To meet the evolving needs of the customers.
In a carry a we know a 95 stores in Western Canada. We have 40 of location confirmed and we are attracting a about 48 stores opened by the end of fiscal 'twenty 3.
As Covid subsides, the Canada is able to safely reopen we believe we are very well positioned to meet these changing customer needs with our diverse network and well aligned offering.
While we expect the grocery industry will shift towards some pre pandemic waves, we do not believe it will fully return to the way it was and we've been pretty accurate in our projections over the last well since the pandemic started we've been pretty open with you.
Finally, an update on project horizon.
As of this quarter were a 1 year into our 3 year strategy.
I'm pleased that we are on track to deliver our goal of $500 million of incremental EBITDA and 100 basis points of EBITDA margin improvement over the 3 years. Despite some early delays due to COVID-19. Our team has done an impressive job catching up our key initiatives. For example, a promotion optimization initiative continues to drive early results other initiatives like stroke.
<unk> starting.
Oh, well established for project Sunrise, but continue to build efficiencies and improve our bottom line and I'll share a few updates right now on a key strategic initiatives for.
First we closed on a purchase of 51% of logos, including grocery Gateway a makeup.
We are thrilled to welcome of the longest teams of the Empire families. This acquisition is important to our strategy to grow our presence in the key greater Toronto area, where we have historically been underpenetrated as well. The addition of grocery gateway complements our goal to win grocery E Commerce in Canada.
And part of it may 17th Mark the halfway point in achieving our commitment to double far for your store base within 5 years, we opened 7 new stores in fiscal 'twenty..1 1 store opened 1 week into fiscal 'twenty 2 in fiscal 'twenty..2 we expect opened 7 net new stores, we continue to be extremely pleased where the acquisition of farm boy.
Which has grown its industry, leading same store sales growth since we acquired them.
Finally, well off of my view on a whole lot does not change quarter to quarter, we of the best solution and are more confident than ever in it yesterday marks the 1 year anniversary of the first delivery to a customer and that customer with me and 1 year in our average customer shops twice a month in their basket size is 3.8.
It was greater than the average bricks and mortar basket.
As I said well out of is growing quickly over the last year. We've worked hard to build our work force a talented delivery teammates fast enough to keep up with growing demand even still our core performance metrics have remained above target.
We remain on track to open a second customer fulfillment center in Montreal in early 'twenty 2.
This is expected to be even smoother than our T. A CFC, we already got customers, helping us the scale faster.
And we're very pleased with our store pick solution very pleased with it.
We've launched in 30 stores in fiscal 'twenty, 1 and if we continue to build a CFC network across Canada. The store pick solution allows us to quickly offer ecommerce in regions, where CFC will not deliver or are not yet built we need to be able to serve customers, where when and how they want a shop and by the end of fiscal 'twenty..2 we expect to have up to 1.
<unk>, 20th stores, which means well have e-commerce options in every province, we are well positioned to win in grocery E Commerce in Canada.
Sometimes I hear concerns were doing too much and maybe for some companies that would be a problem, but we've assembled the best team of Canadian retail there is talent and structure and organization that we never had before we have a bandwidth and see more opportunities to grow sales and improve margins and reduce cost with that said, although we continue to fine.
A new opportunities to improve our business our focus right now remains on horizon. Besides we need to leave some upside for our next 3 year strategy.
And as a final note I want to take this moment of wish the best of cabinets athletes heading to the Olympic games in Tokyo in the summer so vs. As the official and exclusive grocer, a key in Canada and I am So proud of the work we're doing to support our athletes with that I'll hand, it over to Mike.
Thanks, Michael.
Good afternoon, everyone.
I'll provide some additional color on a results or expectations for capital expenditures in fiscal 'twenty, 2 and some comments on expectations for a for.
For next year.
As Michael noted, we do believe the 2 year stack is the best way to interpret our results as we start comparing the time frames that are particularly distorted due to COVID-19 shopping behaviors.
During the Covid, we grew out of sales and market share to a level. We didn't expect to see for several years reflected in the 10, 4% increase in same store sales from the fourth quarter of 2 years ago.
The gross margin rate.
Was it was very strong.
Like I said, the fact that we were able to match last year's strong COVID-19 stuck up driven rate shows the positive impact of a lot of horizon the initiatives and the focus on sustaining the margin focus and our teams.
We continued to sustainably improve our gross margin performance as demonstrated by the increase of a 150 basis points.
Gross margin rate so the sunrise again in fiscal 2018.
We're now well over 2 years into the expansion of a discount to the west.
We've opened 28 Frisco discount stores, the Western Canada, when you a 6 of them conversions of.
A foodservice stores.
All stores opened in the first year continue to improve the results.
And in aggregate of performing better than the full service stores they replaced.
After we opened the first stores in the first year, we focused on operational improvements and margin management.
As a result of that experience gains.
Most of the opening a second year of performing better than those opened in the first.
While the absolute net earnings of the discount business in Western Canada has been relatively immaterial to total earnings so far.
We are seeing strong improvement in EBITDA in sales compared to the full service stores that they replaced.
This quarter there were some significant items in SG&A, which resulted in a S jewelry as a percentage of sales being 20 basis points higher than last year.
The other all of these items, however will occur in the future of to the same degree.
We had high other higher incentive payments to our teammates in stores distribution centers and backstage we.
We do not expect to see these expenses at the same levels in fiscal 'twenty 2.
The new ball that business now has its full back office SG&A in.
In supply chain cost reflected in the Companys total SG&A and a significantly higher rates from when we initially launched the customers a year ago yesterday.
And these expenses will continue and will grow a list of business.
We also didn't see the same amount of sales leverage the rose due to a higher sales and the stock up period last year.
And through the last year, we also hired new store personnel all the way through fiscal 'twenty, 1 to manage the safety and standardization, which has increased a store labor SG&A.
And finally, a right of use of asset depreciation on the iron for 16 is higher than last year, reflecting an increase in occupancy costs.
Not as material. We also has long been a closing costs this quarter, which will not be repeated.
These SG&A increases were partially offset by lower COVID-19 costs and benefits from a strategic sourcing initiatives the.
The temporary lockdown of borders of $9 billion paid for teammates in regions that had government mandated lockdowns this quarter what was the.
Less than the hero pay paid the old teammates last year.
We expect the SG&A expenses in the first quarter related to the increased cost of maintaining a standardization of safety measures and other COVID-19 expenditures to be between 15 and $20 million less of the first quarter amount last year.
$67 million.
This quarters the effective income tax rate was 19, 7%.
As outlined in a news release of our income tax rate for the quarter.
It was impacted by some revaluations of attack tax balances not all of which will recur in the future net.
Excluding these adjustments.
We expect a tax rate for the quarter would have been between 24 and 25%.
The effective income tax rate for the full year was 25, 8%.
And excluding the effect of any unusual transactions a differential tax rates on property sales were estimating that the effect of income tax rate for fiscal 'twenty, 2 will be between 26 and 28 per cent.
The earnings per share includes <unk>.
<unk> per share of wallet of dilution for the quarter and 18, a sense for the year less than our initial estimate of 22 sets of.
The fiscal 'twenty, 2 we expect to see improvement in the profitability of CFC, 1 in Toronto as volumes continue to increase and costs reduce COVID-19.
The operational efficiencies.
However, the rollout of total cost will increase as CSA 2 in Montreal, because its operations and store pick e-commerce.
Is implemented in up to 19 additional stores across the country.
In total we believe that the impact of all of US continued growth will dilute fiscal 'twenty 2 net earnings by approximately 25 to <unk> 30 per share compared to 18 cents. This year.
Based on a current forecast of sales growth, we expect a fiscal 'twenty 2 will reflect the highest net earnings dilution of the Walmart program and CFC..1 is expected to begin to reflect positive EBITDA results towards the end of the third year of operations, partially offsetting the impacts of opening new cfcs.
Equity earnings increased year over year, mostly due to a higher earnings for Colombia, REIT, which continues to perform well despite the ongoing disruption caused by COVID-19.
From the has built a solid foundation and a well positioned to continue to deliver a with a high quality portfolio.
Over half of which is anchored by Empire grocery betters.
1 of the 20th figure for a problem because they sold for a major developments reached substantial completion, including our own CSC to in Montreal.
Cash flow generation continues to be a strong with free cash flow of $745 million for the GAAP.
Focus on returning cash to our shareholders continues today.
Today, we announced an increase in net price quarterly dividend per share from 13 cents per share to 15 cents of 15.
The 8.3% increase.
Dividend per share has proven by a compound annual growth rate of 10, 9% over the past 3 years.
Also a renewed our share buyback program for buybacks of $153 million a fiscal 'twenty 1.
We intend to more than offset the shares issued as part of the love of the transaction.
Since year end already purchased the equivalent of 1 third of the shares issued in that acquisition.
Capital expenditures of course are a key element of our capital allocation strategy.
Our capital investment for fiscal 'twenty, 1 sorry.
Sorry, a capital investment the estimate for fiscal 'twenty, 1 was between $650 to $675 million and we ended the year at $679 million.
For fiscal 'twenty, 2 we expect to invest approximately 765 million back into the business.
About a half of this investment will be allocated to renovations and new and converted stores with 10 to 15 fresh kind of stores opening in the Western Canada and 7 net new farm Boy stores, you know a material.
The continued to invest in a advanced analytics technology, and other technology systems, which will be approximately 15% of the total investment.
We will invest approximately $80 million and voila, which includes our share of the Montreal and calibrate a CFC build costs.
Up to 19, new store pick up locations.
The additional spokes and associated investments in technology.
Some of it also includes capital for loan growth projects.
As we begin fiscal 'twenty 2 we know the year will continue to be affected by the pandemic, but it's really difficult to predict the net impact of lower results because of Covid.
Got it.
The positive effect.
The project Horizon the initiatives.
We expect the during fiscal 'twenty 2 same store sales what would you a somewhat as the industry volumes decreased compared to the unusually high interest industry sales in fiscal 'twenty 1.
Fuel volumes are also expected to increase as we see travel restrictions produce and economic activity increase.
We believe a margin rates will continue to benefit from horizon. The initiatives along with the addition of logos, which has a higher margin based on the Empire average.
The margin will be partially offset by the effects of sales mix changes between betters due to the due to the expected easing of Covid restrictions.
Gross comparisons in the fiscal 'twenty 2 for the same store sales and earnings per share in particular will be affected as we lap a full year of COVID-19 results embedded in the fiscal 'twenty 1.
Finally, a fiscal 'twenty ones, a year will certainly never forget.
We launched <unk>, a home delivery service in the GTA a store pick up services for the provinces and a new 3 year strategy of project horizon.
We made great strides with a fresh go in front of our expansion plans and welcomed logos for the family.
Going in going into fiscal 'twenty, 2 we are up against the tough comp of Covid.
But we saw a horizon initiatives improved the comparison in Q4.
The fiscal 'twenty, 1 was a solid year and we're looking forward to what we will do in fiscal 'twenty 2.
And with that Katie I'll hand, the call back to you for questions.
Great. Thank you Mike.
The only you may open the lines for questions at the time thank.
Thank you ladies and gentlemen, if you do have a question. Please press star followed by a 1 on your Touchtone phone.
He will then hear a suite of pumps acknowledging your request and if you would like to withdraw your question simply press Star followed by 2 and if you're using a speaker phone. We do ask the 2 please lift the handset before pressing any keys. Please go ahead and press Star 1 now if you have any questions.
And your first question will be from Karen short of Barclays. Please go ahead.
And I just wanted to talk a little bit about the overall environment. So wanted to start with the promotional environment and for Q and expectations for 1 <unk> and beyond and then I wondering if you can weave into what your thoughts are on inflation both on the cost.
The cost and at retail.
In fiscal 'twenty 2 of your perspective, and then I had 1 other question.
Hey, Karen.
I'll take the first question that I'm going to throw it over to Peter and Mike for a if they want a standing on inflation.
And thanks for your question appreciate it we predictably see customers purchasing more promotion right now this year for a few reasons the should be pretty obvious 1 because the customers are not stocking up as a.
Where last year.
2 planned shopping planned shopping is increasing and 3 suppliers are more in control of their production and inventory.
The last year not completely back to normal but more of than last year. So theres more availability on the shelf.
In terms of the competitive environment.
Always been a competitive environment and.
And we don't.
I expect this to change we're not seeing anything strange out there and I don't think it'll be any different from pre pandemic times is as things get the back to normal so.
It's competitive it's a normal that's what we're seeing.
Okay, and then on inflation cost in retail.
And a ticket.
So you have to remember we're coming up it would come for next quarter compared to last year, a different that's a good benchmark for us.
And there are costs that had been added to the various supply chain across the world. Some of those were.
We're a temporary somewhere enough for sure.
For the suppliers always asked for class increase and we have since we have seen our share of those were another sort of thing all of a price.
Price increases low.
And we think the business in general is returning to more normal.
It should result in a more normal inflation rate overtime.
Okay, and then I wanted to just ask a question of that fragile.
So I'm wondering if you could just elaborate a little bit on what if anything changed from an execution perspective for the that's.
Fiscal 'twenty, 1 class of stores to improve the profitability or is that really just more of a function of the pandemic, helping with the improved profitability profile.
So it's not dependent like a.
The discount stores.
Probably would have done better.
Without depending on who the pandemic that's a it was very hard to open them hard to stop them and.
And starting a new business in the new geography was a it was very difficult for the management team and they did an amazing job.
Opening the stores the did under the conditions that they have to deal with so so suddenly they would've preferred to have done all of them.
In a more normalized environment.
The.
The.
The reason that on a second year of sorts of doing better is about operational excellence.
When you when you start in the market.
Got a new management team, you've got a new franchisee.
The the competition response.
Is a is not is not entirely predictable and Youre learning can you just give us a marine message.
And and realigning your supply chain.
Receiving product out of new distribution centers.
So as you roll into the as we rolled into the second year and improve the efficiencies.
<unk> got a labor rates to where our targets were.
Got it a bit smarter without promotions.
All of that 2 of his experience and a new franchisees in a new management team and the Western Canada, we're able to apply to the second year of stores. So it really is just more miles in the saddle.
The management team that's kind of on this rhythm.
And the franchisees, who we're able now to learn from each other from other franchisees in the same region and a.
They're all excited they're doing an amazing job and we were actually very happy with the with the progressive improvement that we're seeing.
And all of the stores in Western Canada.
Okay and then just last 1 for me in terms of the gross margin, obviously, you talked about promotions.
But that was offset by project horizon benefit wondering if there was any way you can quantify the project horizon impact on the.
10 basis points and then on that note I'm, obviously, you had dilution from bylaw in this year, but when I look at the tier of gross margin change versus the prior versus 2019.
It was down pretty meaningfully and I don't think of it that is explained by a dilution.
So the a lot of the ball a.
Impacting the SG&A.
And.
And in fact, the bulk of our gross margin as co.
Healthy.
The.
The impact of the amount of a.
Of horizon, the benefits saw a very hard to separate out and put a number to.
We're going to be in the in the position that we will certainly give you a perspective on how we feel about the success of the growth initiatives.
But we're going to need to be judged by our sales increases of no margin growth.
And a and we the.
The offset the we referred to was last year the margin rates. We felt we were artificially high because.
Of the everyday pricing.
Net of higher.
It was sold out.
And we made we made the.
Yeah.
This quarter, we made up the headwind Mr with improvements in efficiencies of it you know promotions work that was mostly of the analytics of the.
And the work of Delaware on the horizon of initiatives.
Okay, great. Thanks very much.
Thank you next question will be from Patricia Baker at Scotia Bank. Please go ahead.
I think as a must for taking my question good afternoon.
Good afternoon, everyone. Michael I, just want a follow up a little bit on a comment you made in your opening the opening remarks.
1 of the underlying chemical quite a sort of I think that the and this is a brother of embedded.
And the project horizon.
All designed to drive market share increases.
But you look through a quick do you expect that you'll be able to a sustained.
Sustain the majority of the market share increases that you saw a.
In the lab.
In the last year and I'm, just curious about what would be the drivers of out of them more importantly, a.
How are you.
Are you doing anything special to try and then the new.
For the new customers and is there anything that you can share with the.
Yeah, I'll take that a great question and I'm going to answer the first part of I'll say, a pure wants to answer and give everybody a anything to you out of the second part of a separate into 2 pieces I'm in a separate out.
All the progress.
And I'm in a separate out of horizon, because I think the 2 different moving pieces.
Customers turn to us.
During the pandemic more than others.
Because we had the products and they felt we were a safe place to shop and debt our operations were incredibly efficient and productive more than any other time of our history.
So we gained market share through that we brought a new customers who saw the value and what we were doing.
And in terms of pricing in terms of operating.
And we believe that we'll retain a good portion of those customers after work and we've done everything we can some of which the air will not tell you to retain those customers. So good so even if nothing else is happening good we got more market share than we had 2 years ago.
Now turn to where we are.
Per to prepay the time, it can even compared to last year.
Of our operations are a merchandising, but especially our horizon initiatives that are going to co and most of what youre seeing right now from horizon almost all of it is margin improvement because we said that margin improvement would be in the first year and a half of them in the last half of horizon, especially the last year you start to.
You see even more market share.
Right now, it's the operation the merchandising plus a bit but we have more customers try us out like us.
That has driven the market share and then we will build on that and grow market share through our horizon of initiatives and improved I mean, here's all.
We are improving and so is my bedroom and everybody else for the company.
And a and now we've got a longer Parkway is always great.
But that's so that's why I want a separate out because these are 2 different moving pieces. So gained market share we got a keep a good portion of it and I'm going to go after more.
Peter of what do you want to think of Patricia anything you want a willy.
With you very well said.
So we saw it changes the customer to be other independent Nick.
We strongly believe that we keep some of those.
But we spend a minute.
We saw some interesting growth in some categories.
We're seeing good stickiness.
I think customer of discovery.
Better off range, we have been able to build over the last 2 years. So I think we'd been interest from that going forward.
And and yes, Mike others right now are we focusing.
Or is that.
Margin expansion true.
True different initiatives and pricing promo owned brands and now we're working to continue improve our productivity for us yet for <unk>.
For foot so.
We win much better shape than we were pre pandemic.
We keep a.
As much as we can from those decreases.
Okay. Thank you very much focusing for that at this time.
A a follow up question, the Wawa and <unk>.
The plant.
Plans to a.
Rollout of another 90 of a store pick up.
In fiscal 'twenty, 2 I'm, just curious whether a.
That would've been in the original plan or where you guided by the experience that you had the first 30 to roll that out faster.
If if I understand you correctly, Patricia I wanted to make sure I understood. The question.
Oh yeah.
<unk> seen that the rate of.
All of the improvement was in a Richard the original plans of what we're going faster than what we'd originally.
Are you going faster than you anticipated because of you might've seen good experience with the first 1 of them open.
Yes, it's closer to what our original plans, where a I'd say if you had to say how are we doing slightly faster a slightly slowing of actually probably a slightly slower just because.
It's just limited by the pace of which we can.
With the new process into a store.
But we like the outcome we've seen good volumes.
And our customers really like it.
And so that's what that's what is driving us to put it into more stores.
Okay excellent.
Thanks Patricia.
Thank you.
Next question will be from Ken Recti at ATB capital markets. Please go ahead.
Thank you and good afternoon.
Michael you called out in your comments that the.
The idea of Dot com, you'll Quebec business online doing 7 to 10 times.
Lastly, a would've done the prior in August the cooled off for this year could you provide any insight on what obviously you saw a decrease in that business all of that scaffold out with respect to your relative share in that market understanding obviously, you didn't put up the same sort of a gross numbers as the debt.
And then a follow up for that would be how do you think about moving.
Moving that business forward as you launch out of aisle.
While the offering into that market.
In light of lifetime net later this year instead of a trough low cost of 1 day.
Yes.
I think that we've.
Outperformed the market in terms of the in the markets that we've competed in an ecommerce.
You got to remember the Quebec, we had a we have the number 1 market share.
We still have the market the number 1 market share and debt.
It's just moving depending on how salespeople feel leaving their homes.
Back in but you are talking to the 7%.
So in a 10 times the all of the volume that you would normally do.
First of all of a sustainable.
Strength in.
And so that was always a if we knew that was going to come off that kind of a high but what we're seeing is debt.
That the volumes and all of the markets and a.
Commerce are remaining at a higher level than they were much higher level than they were pre pandemic, but offset the heat of what that was.
And we're also.
And you know what.
You asked about.
Quebec.
Our confidence in that interest.
For a different situation.
In that market, we're going to be able to transfer over customers too.
The better solution.
And take more of customers from our competitors.
And what we also see is that.
With a K do you see it but I'm allowed to say this but we see that Oh.
Customers that start shopping us on e-commerce.
And then a more than 1.5 times.
The more weekly with us overall income.
All of our most loyal and our best customers very few customers shop, with only 1 way, especially in Quebec with us they shop at the shop bricks and mortar of the shop ecommerce.
So co.
As a.
As I wouldn't say easy because it's not never easy, but we have a already the biggest market share that will transform transform over to a transfer over to a rollout and then a sufficient makes more money a better service to our customers and then that translates to a brand of to a bricks and mortar. So it's a.
The win win win I'm really happy for that 1.
Great. Thanks for Michael and then if I could just 1 more question just wanted the inflation discussion and any and sort of the expected normalization of sort of a.
Consumer behavior, a increased a restaurant a restaurant a visitation et cetera, how do we think about the evolution here or how are you thinking about the potential evolution of food inflation given that the 1 of the all of the hangs over the loss carry of has been the yeah, the sort of the supply chain and the redirection of a lot of fresh and related into the grocery in house.
Of restaurants, and clearly there'll be increased pension a tightening of the market potentially as more restaurants to get back to something approaching normal hopefully soon in the nicer.
From a social point of view of a perhaps not from.
Or any other reason.
I mean, we're looking at it we don't think it will be a major impact on us.
Okay. Thanks, very much I'll leave it that that's kind of ticket.
The chip.
Thank you.
Next question will be from Irene <unk> of RBC capital markets. Please go ahead.
Thanks, and good afternoon, everyone I'm sort of walking true sort of the improvements that you've made that are driving some of those market share gains you mentioned private label and wondering.
Where you are right now with complement how you feel about that complements relaunch of weather it achieved their objectives.
Yeah.
Very good question. Thank you.
So are we.
We know it referred to private label as owned brands.
F N buyer so.
Oh I'm Ren remained strong in the basket.
Very happy with our progress we renting is growing extremely well.
The business is generating improved results and penny profits are improving.
The old rents, it's a U.
A fortune did we know of that since the.
For us across the country.
And we're still working on it so and as I've mentioned in the past penetration.
None of our main focus in on brands it's a.
About playing the right road in the category and the profitability byproduct.
That's how a main purpose.
Is how we'd be in the south would drive the business actually with debt.
So that that's really helpful. Thank you.
And can I take it for that from your comments that you are in fact.
That you are in fact able to achieve the margin advantage with your own brands that you had been targeting.
Absolutely.
It's 1 of RN program is 1 of the initiative of Verizon. So 1 granted will contribute to the margin expansion.
That's great. Thank you and then just a switching over to a fresh co you know the boats in the release and in the remarks that although the stores in Western Canada are not delivering a material EBIT.
The contribution they are certainly outperforming the conventional stores. They are replacing so how should we think about I guess, the maturation cycle of those stores and the path to delivering a more meaningful EBITDA contribution.
Yeah.
I think I think the easiest way to put the Irene as we as we gain more a critical mass in the markets.
We expect the.
We expect a do you for.
So as to improve in all of the stores.
We do have.
It gives me.
A point of view as well that the.
It has restrictions continue to ease.
We in the west.
That will be in a in better shape to.
The increase of our sales and an.
And increased the number of customers in the stores.
So it really is just just consistent increase in consistent improvements. So as I mentioned the stores are on a good cadence and a good.
The range of improvement and really just continue with that.
So it has a great. Thanks, Mike and then just 1 final 1 of it I know it's been what about.
I guess 6 weeks.
Net long goes has officially come into the family just wondering about sort of a anything may be able to share with us in terms of your thoughts around the integration around you know the sharing of best practices around you know just anything you can share on the past yes.
Yes, sure sorry, not the sort of operation because I know the if it's a very understandable, but you know what I mean.
Yeah, I know what you mean, yeah.
And you know of a.
It's early days, but where it's we had a great plan.
Any of his team.
And our team in terms of of how to work together we.
<unk> synergies, we're working on getting those synergies.
We're working together and discussing ways to run supply chains.
And comparing notes on the E Commerce and I got a tell you a.
Hey, a farm boy embargo of things like for like a treat to a partner with them.
And and you know what.
As always our goal is just where we're a big company and we're hungry for Fox to drive a too crazy.
And once again were doing it were.
We're simple folk Irene were simple for we just if something works, we just keep doing a M.
And a farm boy right, so well I mean, what did we do we went to jail of Jeff, but we gave them a venue.
What do you want what do you want a picture of the menu.
And and and they can make sure that the logos.
Looking at the menu too and they've got a figure out how much they want to eat at 1 time, but theres just so much when you bring these companies together and to have leaders like Jr. Jack and Anthony long ago, I mean these approach a.
They know what they're doing and in for.
The peer in the jail at dinner last night together and they were talking private label in produce and just what what Oh forget what we can bring to them what they can break out for has been awesome and 1 of the peer talks about on brands a lot of it is or learnings from a Jeff York and Jr. Along with our great team of just keeps getting better.
So it's just a that's not something that keeps me up at night.
I didn't think so thanks so much.
Thank you.
Thank you next question will be from Michael Van Ice of TD Securities. Please go ahead.
Hi, good afternoon.
Hey, Michael.
I wanted to talk go back to that the what youre seeing in the quarter and what Youre seeing for fiscal 'twenty, 2 so far but.
Because you talked about in the gross margin discussion you talked about some make a pressure on the margin for mix between banner, So I'm assuming.
Talking about a a shift towards discount.
<unk> has already started.
Is that accurate.
Hi in terms of the mix comment that that would be correct.
But relatively minor in the quarter.
Okay. So has that picked up recently as we've seen cases come down and mobility increase in and what do you. What are you doing to try to keep that customer because you did mention that you plan on keeping a lot of that market share is your are you fighting to keep that market share within the conventional banner or to capture.
And discount that the as these customers.
The change change channels.
Okay.
I think a think of it as a lot of of what Michael just said a.
Previously.
The <unk>.
Customers are in our stores. The number 1 price is too is to use a improved execution.
Like the new batteries that we have.
Tom buoyant.
And logos and of course, the new stores, we have of Frisco.
To maintain them within the the Empire ecosystem and a.
There is.
Clearly over time as consumers.
Shop more banners.
We're gonna have to be a sharper.
And we're gonna have to execute well, but we've set ourselves a target of maintaining and sustaining as much of that sales.
The benefit as we can.
And it is really about execution and making sure that all of a horizon of work, particularly work we're doing on analytics.
A personalization.
And in other initiatives like that a key.
Keep the keep the customers with the Sydney Empire of family.
Yeah, I don't want a I mean, I think that's a good answer.
Just don't want to overstate a sometimes it all of these things are very small and incremental and they start but when you read them in.
No not a slab at the median but when you read them in the media they seem like a huge Titanic shifts, which just don't happen like that so we can't comment on quarters before the 1 we're talking about but but.
Things change very very slowly in this business of customers or are very sticky.
And but I also want to say, we were growing market share pre pandemic, we grew market share.
Through the pandemic and we intend to grow market share post pandemic the issue is.
How much of that and we don't have every answer we tried out of a crystal ball, but we've been pretty darn good as I've said since the beginning of the pandemic. There just trying to get how much returns to a little bit of a normal and how much does it and that I know.
As you know and you guys have your own GAAP, because we have ours.
We're bullish but we do get over a realist to we know we know what we can keep them of what we're not going to keep and then we'd go after some more so I just don't want a overstated, it's just not as a fantastic.
As people make it out to be.
Okay.
On the a the.
E Commerce side. So you've got your first spoke location up and running can you discuss the economics of those coke locations. What are the key benefits in delivery time or costs or whatever and are these and he's also initially dilutive and then the and then the improved <unk>.
The ability of with volumes as well I'm assuming.
Sue.
The primary reason for smoke Michael as to the first of all improve your range, which a.
With which they do the second.
But really more important reason for having 1 of us to reduce the congestion at the.
At the CFC.
As the volumes increase.
It's just.
It just becomes the logistically impossible.
We have you know all of the small cube dams are waiting and lining up to take each of the orders the way every every.
Every day of your so the economics of it for us because as you get to a point, where the congestion at the CFC, mostly fans loading a.
A becomes a significant that's when the scope of make the.
Spoke makes sense and then you would reduce the congestion the spokes or not.
A massively expensive the relatively small pieces of real estate.
There.
Principally cross dock facilities.
And they don't.
In terms of the the total results of the wall of business.
They're not that the materials in terms of changing the trajectory of the earnings so the rollout business doesn't see a dip in the earnings when the opening of smoke.
The that shows up on the radar.
I mean I'm not downplaying the.
The impact because it was just part of the business model.
But they're just not at the same level of cost and complexity is obviously is the absolute debt.
The big suggestions.
Right.
The delivery times.
Hum.
Good.
At the margin.
At the margin.
We still we still need to take the product for the CFC each of the spoke and you still got that transit.
Which you don't save.
It's not a the spokes or not.
Our inventory of locations, that's still the CFC and so at the margin it'll improve the time.
It's a it really.
It really improves the efficiency more of and improves the time to deliver.
Okay, and how many do you expect to have a fees when you get to the scale of that you expect over the next few years.
I think.
The bridge.
The right to be wrong here, but I think the the plan was roughly for in the G. SEC.
But the plus a 1 on either side of the us.
Plus or -1 of them out of sort of us.
Okay.
And then and then we would also sorry of we'd also have a scope of spoke sorry.
And just sort of a Ottawa.
Auto line as well.
Okay and actually the last question when.
When you start I guess going forward now with a long goes.
Our revenue will be included in your same store sales over the next 4 quarters or are you going to wait until they've been there for 13 months or for 12 months.
It will include the.
Okay.
Excellent. Thank you.
Thanks.
Thank you next question will be from Mark Petrie at CIBC capital markets. Please go ahead.
Yeah, Thanks, and good afternoon I just wanted to follow up here just with regards to the comment on private label is it fair to say that it's still relatively early days in terms of the overall contribution from that initiative to the horizon targets or is the progress of material at this point.
It's early.
We for roughly the same price the same process we.
We did for category reset so we were doing things by week by category, we completed the wave 1.
So that's 1 of its store in the near future and then were working all with you on the week 2 and we've treated so we would be in September. So during the year, we should see incremental margin expansion true.
These initiatives so early days, so far in the lower margin.
Okay. Thanks, and then with regards to the efforts on a promo effectiveness and efficiency I guess supported by the.
The data analytics and new initiatives. There would you say that the gains so far have been pretty low hanging fruit and improvements from here get a little tougher or how are you looking at that.
Okay.
No I think a very encourage by the adoption of the tools by the team.
Yeah.
Some surprise, obviously, because the underlying is very powerful to crush a lot of data.
No I don't think there is low hanging fruit and more difficult things like being debt free yet accustomed progress and it's all about every single a promotion and we have different seasonality so over.
Overtime, we will continue to improve a.
Our rois on promotion.
And the investment on both sides of our signing of a supplier of sites every piece of also with.
The support from our supplier partners. They are highly interested by as a result, we asked so far and we will improve boats a lie at both on both sides of the ROI for them and for us So a more meaningful for Moshe and mortgage.
Okay. Thanks, and then I got a couple of questions just envelope I'm just wondering.
What have you seen with regards to customer retention.
And what are the patterns that you've seen in terms of people trilingual of law and then involving a shopping.
As your execution is also of the bowls.
Yeah.
Hey.
Incredibly high rates of retention so the kids he got somewhat of a try rollout.
Yeah, It wasn't a try it the.
The level of retention is extremely high.
And then as a program they buy more and more <unk>.
Product for my spend a higher percentage of their total shop.
Okay.
In many cases, it's a very high percentage of total shop.
As you you may have seen a cause he for all of these things pretty closely mark that R. R.
Product choices, especially on crashes.
Really good now and that we're seeing that really pop.
And so now all of the metrics that you just got to get someone to try it and a at least a.
Most of them get hooked.
And relative to your expectations or plans how aggressive you have you been in ramping up the marketing and promotion side of it I guess, both you know.
Around retention, but also around attracting new customers.
I think I'd say medium I would say that because scale for us is really important we want to attract the customers, but we don't want a do it.
Stupidly, where we're just we're just kind of customers because we are offering some ridiculous deal we're offering value we have delivery passes we have.
We have.
All sorts of offers that are really innovative in terms of marketing to customers and we just had our first anniversary.
Offered to our longtime customers as well so I'd say a medium I think.
Really want to turn off the number of customers, we could be more aggressive, but I think we're doing it in a really smart way.
Okay. Thanks, and then just the last 1 maybe a with regards to the sort of flattish outlook for EPS growth. This year, and then the longer term or a 3 year target for 15 per cent.
Tiger can.
Can you just help us understand sort of what the key levers would accelerate a.
The next year, I guess, you sort of Michael talked about same store sales growth or market share gains accelerating but I would guess that would be supported by a gross margins continuing to expand in and is better SG&A leverage a key part of the plan or is it mostly a topline and gross margin.
Hey, Mark I, just have trouble of getting up the mute button there.
I think.
I think we've said consistently from the outset that we're gonna be a very focused on the SG&A line of reducing the costs.
But hey, you know the.
The majority of the improvement in horizon over the next a few.
A few years or at least over the did the horizon period is going to be in a top line and a margin rate.
Okay.
Okay fair enough. Thanks, a lot of appreciate it.
Thanks.
Thank you next question will be from Vishal Shah of National Bank. Please go ahead.
Hi, Thanks for taking my questions with respect to your promo effectiveness initiatives and the data analytics.
Is that part of the reliance on a on a partner of system for a loyalty data is that a hindrance at all or are you able to get all the data you would need in the matter of Geneva.
No I mean, I think we've made great inroads with our partner.
But it can always be better and we're always looking for better ways to do it but I think that the.
So I think there'll be a relationship we had it's been much much better.
And if we get we got a lot of data that we need a sum.
To be perfectly honest with you of Michelle we have all of the data in the world.
It's a matter of what we do with that data and that we do internally.
Now and debt and.
That's fueling the all of our horizon initiatives without data so that could it be a little better sure, but that's not that's not the sticky part of a sticking point is to take what we have and make it efficient.
Okay.
Michael maybe a thoughts on just a strategic orientation Empire.
Empire is acquisitions, mainly focused in the conventional would mean a no.
I was focused on GTA, let's say that's a.
The fastest growing demo ing and the grants minorities and they tend to shop at a discount more I'm wondering a if this is something that the empire reflects on and if they feel with a mix of <unk>.
Kind of conventional with the appropriate in the GTA.
No.
But after a few ways 1 is.
1 is we're just.
Digesting our partnership for the long ago.
Second we feel that our.
Offering to a.
A 2 all Canadians.
Yes.
A shallow but also initiatives. So we don't talk a lot of boat because in terms of alcohol service is having.
It's really great way of great plans to be able to capture that.
You know, we're always looking for opportunities I, suppose, but I think that we have of.
The assets, especially in the GTA.
The 2 women the GTA.
We set out in 2017 of as I said in a strategic plan knowing that we didn't have those assets and that we needed to grow ecommerce.
We've done we've done everything we have to do now we just got to execute the hell out of it.
Okay. Thanks, a I'll do that.
Thank you.
Thanks to you. The next question will be from Peter Sklar BMO capital markets. Please go ahead, okay. Thanks.
Just have a few quick questions on boiler Microbalance, you said that the last 18 cents for the full year and I believe you gave the loss for the third the fourth quarter, but I missed it.
More sense Peter.
Sorry say that again.
For sense for.
Okay.
And then can you talk a little bit about the accounting for the launch of the Montreal CFC like it's.
It's <unk>.
Launching in the next calendar year.
When is the launch date and how do you deal with costs up until that time is everything capitalized or are there expenses that are falling to the bottom line.
So.
A we don't have an exact date were saying early in 'twenty 2.
And and will be for specific about that as the construction schedules a progress more and a and we get a.
Testing done with the installation of the Ocado.
Technology systems.
Because.
And I know that wasn't your question and we have a number of key.
Customers many customers the.
A quick converting over and those customers need to see.
As good or better experience.
With the launch of the CFC and we're going to make sure that were of 100% already. So so we're brooks thing of a flexible on the exact date is the first water because we want to make sure of our customers have a great experience.
In terms of the accounting, it's a it's a.
As you might imagine anything that is a.
Say for example, a design cost.
Or a a construction cost is capitalized.
Any of the back office.
SG&A that we're adding and we're all going to be adding debt as we go through a 22 would be expensed.
And then any.
Any expenditures that debt.
The Crumby a.
It doesn't all behalf of ultimately a is realized in the form of at least when we take possession.
Okay and then.
Michael Medline I believe I heard you say that you're going to try and a convert people from Iga net over to for a lot the boiler CFC in Montreal is that correct.
Yeah.
In the territory, where the.
Uh Huh yeah covers.
So how does that work because I believe iga as a franchise system in and.
In Quebec, So so how do you deal with the franchisees on that issue.
I think it.
We had a discussion with trunk shows the debt.
Topics since many years.
So we all the lines.
The purpose of adding in the automated CFC.
So.
A franchisee are well engaged and our strategy.
Our net seeing any issue by doing it by the way we have a huge a.
In Quebec market, the not the only in our business, but in general the.
The unemployment rate is very low there's a lot of.
Shortage in retail in general.
So a dealer.
Peter will use their resources to serve customer coming into the store and with Serge ecommerce customers on the most and the more efficient choice CFC. So it's a win win.
Through the CFC without more window of it of Reis open. So we have more chance to meet the demand.
And like.
Like Michael said the.
When we look at the profile of these customer they're more loyal to the entire ecosystem.
By 1.5 times.
So there's a win win for us for them.
A lower cost and the most and the better efficient so these.
These things has been share with dealers over the last 2 years. So we have very good discussion, we had very strong relationship with them.
There really weren't engaged and debt strategy.
Okay, and then just lastly, the cfcs require a lot of labor, particularly drivers given the labor environment is that holding up.
The unfolding of these businesses at all.
A labor labor is tight all over the price, but we're doing a great job being able to find a.
Drivers of great people to work in our CFC and for.
But theres no doubt the labor tightening.
Yeah, Okay. That's all I have thank you.
Thank you.
Thank you and your next question will be from Chris Lee at these all day. Please go ahead.
Thanks for squeezing me in just a 1 quick question on pillar II.
I know food waste is a big expense in a known Ocado has best in class food wastage of sales 4%.
Just curious where are you now in that journey for CFC, 1 and as improvement in shrink 1 of the key drivers to allowing you to a cheap EBITDA positive towards the annual target of 3 thank you.
Yeah.
We're happy with with our experience.
To date, we started off as you can imagine Chris.
The new business in a when a customer of us Michael Medline a.
I can imagine the and he didn't buy everything of available so a shrink numbers and the.
The other days were high.
As we've gained volumes and a head of course, a couple of comfortable with kind of a customer with our suppliers of Sri.
The numbers of produced.
And.
And I think it would be fair to say that we're not at a targets, but we're getting much closer.
So part of the improvement.
Through F. 'twenty, 1 has certainly been shrunk.
But it's not the most significant.
Driver of that number for F. 'twenty 2 because of the CFC is actually a you're doing.
Much better than when we started and while there certainly can be better it's tight today, it's just kind of get tighter.
Great. Thanks.
Thanks, very much and the best of luck.
Thanks, Chris I appreciate it.
Thank you and at this time is Brian we have no further questions. Please proceed.
Great. Thank you sell me, ladies and gentlemen, we appreciate your continued interest in Empire is there any unanswered questions. Please contact me by Tom Rocky Mountain, we look forward to having you join us for our first for fiscal 2020 conference call September 9th Tuck in.
Thank you ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
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