Q1 2022 Empire Company Ltd Earnings Call
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Good morning, and afternoon, ladies and gentlemen, and welcome to the Empire first quarter 2022 conference call. At this time I'd note that all participant lines are in a listen only mode, but following the presentation. We will conduct a question and answer session.
At any time during this call you'll be quiet in need of assistance. Please press star zero for the operator also note that the call is being recorded on Thursday September nine 2021, and I would like to turn the conference over to Katie O'brien Director of Finance Investor Relations. Please go ahead.
Great. Thank you Cody and good afternoon, and thank you all for joining us for our first quarter conference call.
Today, we will provide summary comments on our results and then open the call for questions.
This call is being recorded and the audio recording will be available on the company's website.
Higher co dossier.
It was a short summary document outlining the points of our quarter available on our website.
Joining me on the call. This afternoon are Michael <unk>, President and Chief Executive Officer, Michael sell Chief Financial Officer, and Chief Operating Officer full survey.
Today's discussion includes forward looking statements are cautioned that such statements are based on management's assumptions and beliefs and are subject to uncertainties and other factors that could cause actual results to differ materially I refer you to our news release and MD&A for more information on these assumptions and factors.
I will now turn the call over to Michael.
Thanks, Katie good afternoon, everyone.
We are pleased with our first quarter results, especially as we cycled extraordinarily strong COVID-19 exceeded sales and earnings last year.
We continue to perform strongly and.
Insistently, our sales and market share with solid our margins matched last year's outstanding performance, which had limited promotional activity last year and are actually up strongly when you exclude fuel our SG&A is solid even as we invest in horizon and our bottom line is strong, especially when you back out last year's real estate games.
These are good results driven by great work from our team and we expect more of this as we progress through horizon.
I don't have much to say actually we're happy with our results and focused on delivering horizon. We continue to lap last year's Covid driven sales bump, but are seeing the behavior change as we expected as vaccine rates increase with that in mind I'll cover two topics today, our performance this quarter and the trends we're seeing in the market.
First our results as I said last quarter two year sales stocks are the more meaningful indicator of sales as we lap COVID-19.
With that in mind, our two year sales stack for Q1 same store sales was eight 1% our same store sales versus last year were negative two 2% total sales increased three 7% as we added logos and fuel pricing and consumption rebounded.
E Commerce sales this quarter were up substantially we.
We continue to believe that winning the E Commerce channel with the right business model combined with strong bricks and mortar offerings is critical it's critical to success in grocery here and as you can see around the world.
We are particularly pleased with our progress in Ontario, Canada as largest grocery market, where we have gone from zero to hero in a very short time as we saw a significant increase in guar sales as it grew rapidly in its first year and added grocery gateway through our <unk> acquisition.
Continue to deliver the best E Commerce experience in Canada to our customers and believe we have the winning formula.
And then Terry we are now closing in on achieving a leading market share in a remarkably short period of time.
We continue to be extremely pleased with our gross margin performance delivering a gross margin rate of 25, 1% just like last quarter. We continue to match last year's outstanding margin performance, even if the promotional activity has picked up again or.
Our food margins are strong. This is a direct result of the progress we're making on horizon as well as the addition of logos and recovery of our service departments are sales mix, especially increased fuel sales created some noise in our margins even as our horizon benefits provided strong margin support and Mike will speak about that more in a moment.
Yes.
With our strong sales and margin performance, we delivered EPS of <unk> 70. This.
This quarter last year, our EPS at a four <unk> net benefit from unusual impacts, including a gain in real estate and payment tied to collective bargaining.
Removing these EPS actually increased and noteworthy four 5% over the prior year, even without last year's large COVID-19 bumps.
As I've said before returning capital to our shareholders is an important part of our strategy.
Results like these allow us to deliver on that over the last three years, we have grown our dividend per share at a compound annual growth rate of 10, 9%. We increased our Mci V. In April after we announced the long goes acquisition and renewed it in July.
After only one quarter with lawn goes we have already repurchased all the shares we issued as part of that transaction.
Next trends, we're seeing in the market.
Last quarter, we spoke about our future expectations as vaccinations accelerated where youre seeing those expectations play out in the market through the quarter first as others in the industry are experiencing customers are shopping a bit more as restrictions ease and vaccinations increase we're seeing traffic up and basket sizes down, but these have not returned to.
The same levels as before Covid.
Second Canadians are starting to shift some spend back to the restaurant and hospitality industries. As we expected. This means customers are spending slightly less on groceries than at the peak of the pandemic.
Third as others have mentioned promotional activity is pretty well back to the same it was pre pandemic.
And fourth we continue to believe customers are seeing the value in our full service offering more than ever we are seeing more pre pandemic customer behaviors, returning such as customers returning to our higher margin prepared foods and service counter offerings. While we are seeing the split between full service and discount banners slightly stabilized.
Certainly not to the degree of pre pandemic norms.
Altogether, we expect same store sales will continue to be elevated when compared to pre pandemic levels, but obviously a bit lower than the unusually high industry sales of fiscal 2021.
As we expected the grocery industry is in a period of transition while the industry undergoes. These changes we remain focused on delivering against our strategic objectives.
This team has done for the last four plus years by keeping this focus our team has achieved an impressive amount in that short period of time a.
A few examples at the start of Sunrise, we were honest about two important issues that we needed to resolve one we needed to fix our big Western Canadian businesses. After the Safeway integration and two we needed to grow our share in Ontario, Canada is the largest and fastest growing market and the region in which we have the lowest share today.
Today I can say to you that we have fixed our western business turned it around operational performance sales and profitability have significantly significantly improved and we have more upside to go.
And in Ontario, we have materially grown our market share by improving execution execution in our existing stores expanding farm boys presence launching boiler and partnering with logos our market share in Ontario is growing roughly 30% since fiscal 2017.
Finally, two accomplishments our team is very proud of over the last month.
Firstly, if you live or work in Quebec, especially Im sure Youre aware of the newest member of the Iga family Ricardo Media. After working together for many years I am pleased to officially welcome Ricardo <unk> and Bridget crew to two the family. We're excited to see the innovation and growth fueled by this continued partnership in Quebec and throughout <unk>.
Canada.
Second we released our fiscal 'twenty, one sustainable business report, our sustainable business report outlines our journey and share as much of our progress. It also for the first time includes disclosure against SaaS B, a world, leading disclosure framework to improve visibility and comparability of our performance.
At Empire sustainability, and diversity equity and inclusion have been on our agenda for many years and while there is more to be done I am very proud of the progress, we've made and where we're going and with that I'll hand, it over to Mike.
Thanks, Michael.
Afternoon, everyone.
Yeah.
All of them.
Couple of comments on the quarter.
Performance and then we'll go straight to questions.
Our gross margin rate was strong this quarter.
Even against a tough comp last year.
And if you remove the impact of fuel.
It was 40 basis points stronger than last year.
Overall, we continue to be very satisfied with our margin discipline throughout the business.
The positive impact that horizon initiatives.
Such as our promotional opposition optimization program are having on margins.
SG&A as a percent of sales was 38 basis points higher for a few different reasons why.
I would now like to the law goes business that has higher costs and margins than our average.
We will continue to see this effect until we comp the results next year.
Most of our management teams.
The Empire and logos are working to unlock synergies and are making good progress.
We continued our expansion of Farmboy and Wala in Ontario.
Most of which resulted in higher SG&A.
Finally, depreciation was higher largely due to an increase in right of asset right of use asset depreciation under ifr 16, reflecting an increase in occupancy costs.
These SG&A increases were partially offset by reduced COVID-19 costs in the current year and the non recurrence of the prior year costs related to the Alberta labor agreements.
The effective income tax rate for the quarter was 24, 5%.
And we estimate that the effective rate for fiscal 2022.
We will be between 26, and 28% excuse me the effect.
How about any unusual transactions will differential tax rates on property sales that we may have.
The effective income tax rate for the quarter was positively impacted by non taxable capital items and.
Differing tax rates our various entities.
Earnings per share this quarter was net of <unk> <unk> per share of wallet dilution the same as last year.
Overall, our cost will increase as CFC to Montreal begins operations, we build CFC three and we continue to expand our store pick ecommerce solution across the country.
And CSC one continues to earn the respect and loyalty of our customers with welcoming and welcome new customers and expand the geography, we expect it to reflect positive EBITDA results towards the end of its third year of operations, which will partially offset the impacts of opening new cfcs.
Equity earnings increased year over year due to higher earnings from our Genstar real estate developments.
And higher Combi REIT earnings due to improvements in their bad debt levels.
Post the Covid impacts last year.
Free cash flow continues to be strong this quarter and we have great projects to investigate.
We improved 25 stores this quarter through renovation redevelopment or conversion.
And also as of this week pistol fiscal 2022 year to date, we have repurchased approximately three 3 million shares for consideration of $133 million.
Yes.
So in fiscal 2022 is off to a good start Q1 was a solid quarter, especially when compared to Covid driven results last year.
We know that we will be up against the tough comp of Covid for the next few quarters.
But horizon is on track.
Teams are engaged and working hard.
We are ready for what the remainder of the year has to bring.
Before we get into questions.
It's hard to imagine that we spent a little over a year talking to longer.
First in partnership talks and then for the past five months as part of the powerful.
We've had.
Early interactions already and there's been significant work between the two management teams reviewing synergies and growth opportunities and we're so happy to have been part of the family.
And with that Katie I'll hand, the call back to you for questions.
Great. Thank you Mike Silvey, you May open the line for questions at this time.
Thank you ladies and gentlemen, if you do have a question. Please press star followed by one on your Touchtone phone you will then hear a tweet on prompt acknowledging of your request and if you would like to withdraw your question simply press Star followed by two and if you are using a speakerphone. We ask that you. Please lift the handset before pressing any keys.
Thank you.
And your first question will be from Karen short of Barclays. Please go ahead.
Hi, Thanks, very much I had two questions. The first question is just when you think about the competitive environment today versus pre pandemic.
It sounds like you're trying to you're saying that it has returned to normal. So the question. I had is is how long is the actual environment from an in stock perspective, because one of the things that's happening at least in the U S is that in stock levels are still not back to normal which is making the.
Promotional environment.
And much more muted for a much more extended period of time. So I was wondering if you could kind of contextualize that and then I had one other question.
That's a good question, you're absolutely right, we're not back to where we were before pre pandemic in term of.
In terms of supply from and even from big suppliers.
No.
But we are able to manage it efficiently I don't thing it's.
It is visible for customer or shelf are full.
You're absolutely right some supplier or we're still in a location with major suppliers.
Our service level isn't that back at that same level, but once again I don't think it will come from is the customer experience in our store.
Thanks for that but going forward you do expect the promotional environment to be more or less.
Relative to 2019 levels.
Like Michael said.
Almost back to the same level of promotion activity.
I think as we're more back to normal.
Normal like like we said last year it was <unk>.
Less promotional where all the reason we know.
And this year, we're almost back to the same level than where our pre pandemic nothing major to call here.
Okay, and then with respect to the remainder of the year, maybe could you just gave a little.
Color on puts and takes to think through on both the gross margin and operating expenses as we go through the year.
Okay.
Sure.
[noise] ICD effective.
The increased fuel sales continuing to create some mix impacts on gross margin rate because.
Although fuel sales did increase so I see there's more room for them to increase as reopening of course, so you should expect that mixing back to reoccur.
The gross margin line.
Where we're comfortable on and actually.
Actually I'm very happy with the progress so far.
Horizon, any ships, which which do come through.
And have come through mostly really margin expansion.
And so far as we were working on promo optimization, absolutely we expect that to.
Improving continue through the year.
Sure.
The sales mix and the impact of renovations.
Have been strong.
We've been happy with those.
Farmboy stores, we've opened a lot of them over the last one.
Months to 18 months are all performing strongly and we expect those to be residual and continuing improvements through the rest of the year.
And I'll, just kind of a business.
Is managing its margins very well and we're continuing to see market share increases in discount in Western Canada, as we open new stores in Western Canada.
Those are those are all positive impacts.
Most of the hand totally generated.
Sure.
We do.
Yes, we do.
We expect to see some mitigation in our.
Our ongoing COVID-19 costs, but they're now down to a relatively low level.
Other than that I'm, not sure I'd call out anything beyond that.
Okay and then just last question for me I think the comment was.
Specifically, you have leading E comm share I think in Ontario's what you said, maybe can you just clarify or if you could provide what you think that share is and then when you make that comment are you including.
Click and collect and that calculation or what.
Mark how are you defining the market.
Yes.
It's Michael.
We conclude everything in that calculation and.
We are accelerating on everyone in the market and we will be a leading e-commerce.
Player if not now very very soon.
We started from zero E Commerce in Ontario.
Basically 12 months ago.
The combination of <unk> and grocery gateway.
US in a great spot.
And I think people, sometimes don't look at ecommerce the right way.
You look across the globe you cannot succeed in the long term without being great at bricks and mortar and ecommerce and is a key part of our strategy not just on the ecommerce side, but to drive our business going forward. So I can't wait to get the other two CSC is open as well and then we can see the kind of success were having in Ontario.
Great. Thanks very much.
Thank you next question will be from Kennan Mackay at ATB capital markets. Please go ahead.
Yeah.
Thank you and good afternoon.
I'm wondering if you could provide some insight from you will see the ebb and flow of.
Working through the pandemic care and just directionally, even some of that consumer behavior and again, how that could evolve in the different.
Different states, especially is going to be really useful even directionally just to understand how you see the range of outcomes through the balance of this year with discounts or the same store sales comps just trying to get a better feeling and triangulate a little more accurately than we can now.
Patrick It's Michael Great question.
I'll start this like I started and answers six months ago that I know soothsayer, but we've been now lets shift.
Pretty darn accurate in terms of what we thought ever since the beginning of the pandemic in terms of.
At least customer behavior.
And.
We're still seeing.
I think people talk too much about the difference between conventional and discount that's not the main driver here the main driver.
As customer behavior and trips to the grocery store and basket size, it's not so much conventional discount that's on the margin compared to some of the other things when people talk about that way too much.
And if not what we see in the market.
Sure.
I don't know where its going in terms of ways throughout the country and hopefully this will start to dry up but I'd say that the each wave is up.
Smaller impact on this industry than the previous wave.
And that's what we've seen throughout that's what we thought would happen and we continue to see that.
Compared to two years ago. This is a different industry, we're seeing elevated.
Elevated performance in our stores.
And online.
But.
But I don't think.
Unless there's some strange phenomenon that I cant foresee right now I don't think theres going be I hope there is not a sudden rush on the grocery.
Everything starts to get better.
I wanted to also.
I've talked about this before.
Although behaviors are getting back to normal they may never get totally back to normal.
And that's something that we've got to watch even in markets, where there is.
Relatively few cases and not too much worry about the pandemic were not seeing exactly the behavior. We saw before we're seeing more people go to the grocery store and spending more money.
Is that helpful. Kendrick is that what you were looking for.
Thanks, So Michael I was glad some some revenue guidance I just one quick further question for me just on the margin profile can you sort of speak to.
Are there any learnings and which one of those learnings flowing in fresh sort of that first quarter went on longer. It's yes, clearly a high gross margin profile in that business in a very fresh flow of business, but any insights you can share whether there have been any learnings or whether you see any real opportunity there on the sort of margins and fresh in your fresh broke all bank forward.
Well, we're very familiar with logos.
Of course, we've been watching that for a long time, but with respect to them.
For all that time.
And they do have to your point, a different mix and different format.
And the customers are very loyal.
So.
In terms of learnings between the two businesses.
For sure similar to farm Boy.
Pulling all of our expertise.
Relative to private label.
I'll take that.
All of the management teams.
Mediately looked at is obvious.
That's all a bit.
It's about innovation and new products.
And positioning private label. So so that's been something that's been a great area.
Of.
Cooperation and collaboration.
We are looking at.
How we all buy fresh.
We all have different differ.
Different ways of.
Buying more fresh.
Particularly for projects.
And.
And there is a little bit that each business can teach each other on that one we have particular.
Our suppliers, sometimes local sometimes not.
That we can that we can leverage.
Beyond that.
I think it's still we're still getting to know each other.
And exploring other areas of opportunity.
That's great. Thanks, so much Ken so I'll get back in queue.
Scanner.
Thank you next question will be from Patricia Baker at Scotia Bank. Please go ahead.
Well, thank you and Hello, everyone.
I've got a couple of questions first of all Michael for you I'd really like to talk a little bit more about the progress that you've made in Ontario.
Both market share gains that you shared with us so obviously.
Boy plays a role here well all plays a role.
<unk> two point Aldo.
The big changes in the market in Ontario, strategically that you've addressed but can you also point to work that you've done on the brand and perhaps the early days with horizon on store renovation and expansion with TPG was a higher share of organic Dolby business in Ontario as well.
Yes, Thank you and the last part is really important because obviously, we've we set out as we were pretty clear on that we had.
We had some weakness is four and a half years ago in Ontario in the GTA and in E Commerce, and we set out to fix them and we've we've more than fixed them, but we shouldnt and my colleagues would be Mad at me if I didn't also pointed out.
Incredible progress we've made.
<unk> and fresh going, Ontario, and banner, we don't talk a lot about which has been on.
Fire, even before Covid and during Covid and now is food land, where the performance there.
It's just been extraordinary led by.
Three of our great individuals are coming up through the company.
And so I think a lot of it has to do and it always comes down to execution.
In store by our merchants and especially our operators and our store operators and it is night and day in our stores across the country, but especially in Ontario, and our stores.
But the brand investment that we began in 2017, which as you probably know it takes takes time.
And work over and over again is paying off.
The perception of our brands in terms of how they're situated how they are in the community what the pricing is we haven't seen.
Better price perception in our banners.
Well certainly since I've joined.
As we have in the last three to six months.
All of this contributes and an all day.
I haven't.
I never said this before our retail detailing it's true and it's a bunch of different things coming through to to put us in this position where we are.
So much stronger and I am sick of talking about coverage for many reasons, but one reason is because it is I think it is.
We performed really well in Covid and now we're lapping that.
That performance and its and then others might not have performed as well and now they're lapping that and I think it's overshadowing the huge change at Empire company that we've seen and that will shine through very very soon.
Okay, and then my follow up on that Michael two quick things.
Would it be fair to say that when we look at the whole project horizon and that's all about not all about but a big part of that so I think further market share gains and driving the top line. So with respect to the important market of Ontario, you believe that the share gains that you've got or are for the <unk>.
Our sustainable and that you ought to see a path. This is not the end game is a path to further market share gain Oh, Yeah. Oh, Yeah. This is where we are on the move in Ontario, and it has nothing to do with coal, but thats a small I really think people are overemphasizing.
Some of the things now from Covid in their overemphasizing those conventional discount thing instead of looking at execution out there.
I have great confidence across the country.
You didn't point out the west where I think we've made the biggest gains of anywhere in the country.
We had the furthest to go but.
But we have strength all through the country, but we were really not a player in Ontario, where we're a very important player on the move in Ontario now.
Okay and I just wanted to follow up on a point that you just made that you said the brand and that's paying off and maybe it's too early to tell but I know that.
In the quarter.
Uh huh.
What the sponsor of the Olympics and I'm just curious what.
What's the impact of that campaign was on your on your brand do you have any.
Any indication that backwards.
Yes.
It's our first time or the first official grocer The Olympics.
We had we had great exposure as you saw and can't wait for the Winter Olympics, which is even bigger than Canada coming up and we will.
What will be big there too we 100% saw a positive impact. It is the Olympics is the most powerful an exclusive platform.
And so we're lucky to be there.
Hard to quantify these things always financially, especially in the short term, but we have we have really really good ways of tracking impact of our campaigns and market and.
Yeah. This is our first campaign, our first time, we put the brand on this.
<unk>.
I understand it's around the whole marketing team plus or our operators merchants hit it out of the out of the park, we were right at the top of impact among the sponsors.
With the viewing public and I think if you saw our spot during the games.
You would probably agree I think there were probably one of our best spots if not the best part we've ever had so now Sandra has got a beta for Beijing. So.
Well good luck to her Mike if I could just ask one more question for you in the release you indicated that I referenced the fact that while all the metrics that are going better than planned can you speak a bit to get them and then just I'm curious about how.
That experience.
With the Toronto CFC.
Is.
Is informing your plans and expectations for what Youre looking for out of Montreal.
Sure I think.
The first part of your question was it was just some insight into the metrics for the CFC centric, yes, yes, okay.
In this in this respect I would say probably boring is good.
The CFC started off with.
With exceptional metrics.
And then as just either kept those metrics up where we just got better.
No.
And on time fulfillment.
Substitutions.
And.
And all of the other customer metrics.
It resulted in net promoter scores, which have been remarkably high and remarkably stable throughout the entire process.
Which which is.
I think there is impressive because as you start repeating customers as they start to get more picky.
<unk>.
And it's important to keep a level of service. So all of the customer facing metrics are exceptional inside the CFC.
I've said this to quite a few people I personally quite surprised at how quickly and efficiently. It started up very few teething issues and and that CFC is now operating.
From an efficiency perspective.
Roger to talk with all of the Ocado facilities worldwide.
So from that perspective.
Yes, they keep telling us that a little bit surprised about it but.
But I think that's absolutely right.
And then other metrics that are helping us in one of the reasons that we are improving those those numbers as our shrink numbers are coming down.
As we can get a better handle over purchasing patterns.
Starting to get used to seasonality.
We go through the summer, which is generally a lower time for e-commerce sales and how to manage that.
That capacity that frees up.
How do you generate more sales through through through quiet periods. So so yes.
It's really on track we're just now.
How do we continue to thrill our customers how do we increase the assortment how do we improve price perception, how do we make sure that our promotions are on point et cetera.
On the CFC.
<unk>.
It's really it's not exactly rinse and repeat because it's a different it's a different place it's different customers, we have an installed customer base.
But certainly from a.
From an operational perspective tons and tons of learning, which I'm not going to bore you with.
The most significant difference really is that we have existing customers who are used to a certain level of service and assortment and they loved the iga stores and we're going to have to make sure that we give them.
At least as good as that and certainly our aim is to be better.
They were very discriminating they know what they like and we need to satisfy their needs right off the bat.
Without any learning curve.
Thank you very much.
Thank you.
Next question will be from Michael Van <unk> at TD Securities. Please go ahead.
Alright, thanks, good afternoon.
I wanted to follow up on the E Commerce side.
Maybe you could help me just understand.
Some of the commentary and the.
The press release, you say that online grocery sales in Canada continued to grow.
And then on the <unk> sales remained consistent.
For the company's three ecommerce formats, excluding grocery gateway so are we seeing.
The other one kind of like a comment is the first one on the industry comment or like the last 12 months and then this one in the quarter.
Three divisions, what do you mean by the three.
Three ecommerce formats were consistent.
Thanks, Michael.
I do feel that you're right that that could be somewhat confusing so.
I'll first comment was more industry.
In general and referred to to more of a long term retrospective. So so obviously, the two largest and driven by COVID-19.
There's been a step up in penetration.
And we expect that to continue as we expected over time to grow yes, there was a COVID-19 blip in there so we're not talking about.
E Commerce.
Sales increasing over the Covid numbers, so I can see how that would've been confusing.
What we're just saying is that.
E Commerce is a strong channel.
It has increased materially and we think that's going to keep growing.
In terms of our own performance.
We've.
And maybe we Shouldnt have maybe talk about the format C. We have <unk>, which is new to us at least in growing as it ramps up and getting new customers. We have grocery gateway that we purchased through logos and we have a R. R.
Install fulfillment format, which we started in Atlantic you've been rolling across the rest of the countries.
Our experience in e-commerce in total for the quarter.
Would have been and that would have been a significant increase but a lot of that driven by grocery gateway. If you take grocery gateway out because it's an acquisition that doesn't have a comp for us.
We would've experienced in total so the country roughly flat ecommerce earnings as I said, we are not in a bit of a lull because we're in the summer and secondly.
We also coming off some very material COVID-19 numbers, Quebec business from last year.
Okay and last year, you only had.
Up for I think it was half of the quarter.
So how would that have performed like excluding rollout then in Ontario and BC.
I would assume it was down a little bit given youre lapping really tough comps.
While are continuing to grow.
Right.
Tobacco.
Quebecois off because because of the.
Very significant.
Comp with last year's Covid numbers.
Okay.
Okay great.
And then.
I don't want to go straight to the numbers, but the outlook.
You say youre expecting.
Earnings growth to be less in fiscal 'twenty, one but earnings growth in fiscal 'twenty. One was 25%. So that's a pretty wide range.
Am I reading that correctly and that you expect same store sales to be lower than last year, but also.
Sales and earnings growth to be less than last year or is it earnings Laura I was trying to clarify that so so we outlined when we started horizon.
We would.
As management, we were targeting.
The EBITDA increase but also we felt that that should translate at the bottom line to roughly a 15% compound average growth rate.
<unk>.
And now we are finding ourselves in F 'twenty two.
With a net 21 number that was significantly inflated by Covid.
And all we're saying is.
Don't take the F 'twenty, one number and add 15%.
So, we're not saying that our numbers necessarily going to be lower in F. 'twenty. Two we're just saying, they're not going to be at a 50% growth rate. If you take F. 'twenty one as a base.
Okay. That's clear thanks very much Mike.
Thank you.
Next question will be from Mark Petrie at CIBC World markets. Please go ahead.
Yes, good afternoon.
Just wanted to follow up on your comments, Michael with regards to the Western Canada business.
And.
With regards to that now sort of being fixed in.
Are you basing that moron sort of qualitative evaluations or was it is it more quantitative.
Be it in store level profitability customer feedback.
What's what are you sort of basing those comments on.
Same thing on top line.
Bottom line <unk>.
<unk> scores.
Customer feedback.
And the work we've done to turnaround our stores in terms of renovations.
That's it okay.
Okay.
This is not just my opinion.
Although my opinion is it's usually accurate on those ones, but the.
Hum.
Its topline and bottom line.
Tremendous turnaround of our western business and still have room to go.
Yeah, Okay understood I appreciate it and then actually just one small one.
Following up on all of the <unk> discussion.
I know customer retention is something that ocado talks about a lot and.
Hang their hat on.
Is your customer loyalty still exceeding expectations.
Yes, very very strong.
The Ocado model, which we have here is best in class.
We've got great customer retention.
And related to that.
How have you adjusted your promotional spend.
As for our La has sort of built awareness, obviously still room to room to.
To grow that but how have you adjusted your promotional spend Andrew.
And your tactics and is that sort of online are in line with with your expectations or how has that played out.
And I think I mean, Mark I know you watch the industry pretty well and you're probably looking online and getting offers from us and you've seen that we've been trying different things to make sure that we keep our momentum and especially as we.
As as we come into the.
Summer is usually flow in ecommerce now back to school, we're back in the fall make sure that we continue the momentum we had before.
It is.
We started off because we just wanted to make sure that we were operating well not very promotional.
Were more promotional and try different things to see what work kept what work got rid of what didn't and now we're very happy with the promotional mix right now, but fallout and the like.
Literally hourly data that they GAAP is very very agile in terms of.
Of attracting and retaining customer.
Customers and doing what we have to do out there you saw some of the some of the.
Monthly and annual passes that we put in place as well so.
With our.
With the things that we know what to do in Canada plus.
Probably daily contact with Ocado and talking to the other partners remember almost all of the great retailers on Earth I've tried to get Ocado and so now we are open to.
Best practices across Europe.
Europe, and the United States and soon to be Asia.
So we're not too proud, we'll take whatever works and we're trying all that Canada is a little different and you've got to make sure. It works for you, but I am now happy with.
What the what Theyre doing in terms of promotion it's right on.
I appreciate the comments all the best thanks.
Thanks Mark.
Thank you next question will be from Irene <unk> at RBC capital markets. Please go ahead.
Thanks, and good afternoon, everyone.
I just wanted to shift topics, a little bit for a minute and just talk about what youre seeing in terms of cost push both on the labor side around labor costs and availability, but also the kinds of discussions that you might be having with suppliers.
Now that we're heading into the credit call after labor day period.
And those conversations typically try out.
Sure.
It depends on regions.
Some region its mark.
It's difficult than in others.
Yeah.
Quebec is stuff in DC and the rest of the country.
It's manageable.
I know supplier of some issue in the labor and the ability as well. It's why we are in a location with some of them.
We believe that after summer this situation will improve.
And we have good tactics and plan to improve efficiency in store and making sure that our labor would be used for customer experience in production versus.
None of that non value added tasks.
So it was like that before the pandemic in some provinces.
The next generated through the pandemic.
And now we believe that we will.
Come back to more pre pandemic situation.
And we have a plan to we added planned before prevented Nick we had deposit but now we're working on it to improve efficiencies are solvable and <unk> as well so we have that.
A lot of labor no RAC were.
Very lucky.
Lucky, but I think it's a good decision we've made in the past.
We made a dcs in Calgary.
Are you in Quebec, and I think we're in good position because of it.
But it's not enough we need to continue to work towards that.
That's really helpful.
Which areas do you think have the most opportunity around sort of in store.
Improving in store labor efficiency, and eliminating non value added tasks.
To be honest, it's a cultural thing and I think internally, we can do a lot.
Without compromising customer experience.
The backstage team, there's many opportunity we can improve our performance so doing the right thing for his time as the backstage teammates would change life in store and we strongly believe that we.
At the controller.
That's helpful. Thank you and then just on the inflation question.
What kinds of discussions are you, having and is it your expectation that we'll see another step up in overall consumer.
Thanks.
And what has been the consumer response to date.
Thank you.
No.
We add inflation.
In Q1, almost the same level slightly lower than in the previous quarter Q4, it's very volatile dependent categories.
So in to the Q2 one.
We saw more inflation in dairy and seafood now I think that talc are the challenges meat.
But I think customers adjust their spending behaviors as prices increase.
And often they will purchase other substitute products and it's our job to showcase these different.
Commodities.
At the right price that you're looking at the price Youre looking for.
Jonathan It's a day to day job.
Are you seeing volatility in prices, especially in the commodity side.
And when it's getting to a customer changing their behaviors.
<unk>.
Going after substitute.
And what about center of store at this point it sounds like that's not really been a big factor so far.
Yes.
Ask forecast cost increase from supplier.
We didn't see many cost increase.
It is very important.
And for us to be.
Be selective on taking cost increase and we do our best for our customers all the time.
But some of those increases are going to move to retail for sure.
Especially when we're challenging our supplier partner all the time, they know that it's net new.
But sometime it's <unk>.
<unk> pressure.
Raw material is increasing so we have a robust processes to look at these tasks.
And most of the time, we get we are able to reach an agreement with our supplier and making sure that.
It's.
Well I would say.
Good backup for discuss increase.
And most of dose when we agree on are going to retail.
You're right actually there is a lot.
Passed from supplier.
Different reasons, but we continue to challenge these to protect our customers as much as we can.
That's very helpful. Thank you and then just finally, if I may back to the whole subject of E. Commerce, just wondering how you're measuring those market share numbers and where your data is showing you around.
New customers that you are gaining.
Or is that Youre, if you will poaching from from other from other e-commerce suppliers.
Sure I'll start off by saying.
Irene that I'd say remarkably difficult calculation.
Figuring out exactly.
What the e-commerce.
Numbers are free.
Every participant in the market.
Not just the big players is difficult.
And so a lot of lot of our work is in total triangulation.
And and trending in addition to some of the.
The data that we get from.
Sure.
From market research companies, so that's all to say.
It's not necessarily a point estimate.
And clearly something that.
We look at it on more of a trend basis, but if you, but if you look at the numbers.
In terms of what we have visibility to which is ours.
We do finally fundamentally believes that we're getting material share.
And the channel.
And we're getting it from non Chinese customers.
Now that's partly because.
We started with a relatively small share.
Ontario, as Michael said.
But.
I don't think.
People are discriminating.
Not getting customers because they used to.
<unk>, we're getting it because of the.
The brand.
Standing for customer service.
Greater assortment, good pricing and <unk>.
Getting turned on to Walter.
As a real option.
And they're shopping in addition to what they are doing bricks and mortar stores.
That's really helpful. Thank you.
Thank you.
Question will be from Vishal Shah at National Bank. Please go ahead.
Hi, Thanks for taking my questions.
Just with respect to that.
The improvement that was thank.
So you've been noting for several quarters across the business.
Once upon a time for Empire. There was a perception that Quebec was reaching maybe where empire was the strongest maybe the west not the strongest.
Im wondering how all of these regions stack up to one another.
Now is it more uniformly do you still think there's a disparity across the company.
So there is still some disparity, but they're they were closer.
Okay and in terms of the net the net promoter scores that you are seeing is there.
Is there a consistent improvement along with numerous.
Numerous initiatives that you're implementing and along.
Along with your comments at the West is substantial.
Substantially their parents in the state that you inherited some of them are those.
Motor scores improving as well.
Yes.
They are improving.
And we've seen.
It's been a long journey, but we're starting with it.
It's starting to accelerate.
And I've said it before it starts in the store and the people in the store and then all the other things we've been doing.
We shouldnt, we shouldnt under emphasize the changes we made a project sunrise are really starting to pay off and now horizon just at the beginning.
Okay.
And.
With.
Empire has done a lot of work over the last few years at shoring up its market share in the GTA.
As you mentioned in your prepared comments that does our focus for the company are you is the market share.
Where you need it to be a DC.
With your with your multi banner approach in the GTA or.
Or do you think there's still more work to be done there.
We're way way better than we even kind of expect in 2017 because of some of the opportunities like.
Like the Ocado valla opportunity and the ability to buy a farm brands and logos, which we didn't count on to be honest with you. So we're way ahead, but we still have.
No we're not we're not stopping valla, nor farmboy logos expansion that.
But we still have plenty of opportunity.
And our on our more historic banners to grow though so.
I believe that it was.
If I were a betting person.
Which I'm not I would.
I would I would think that we're going to be gaining market share for the next number of years.
Okay. Yeah. Thanks for those comments and maybe just a quick numbers question here.
The gross margin.
Pre fuel up 40 bps was.
A good result in light of the unusual quarter, you had last year and there are lots of moving parts in there there is longer as project horizon, because the service cameras coming back maybe other factors.
Is it possible or are you able to prioritize maybe what the major drivers were for that gross margin.
The.
Certainly.
Yes.
The expansion of farmland logos does have an impact on the net rate.
But the largest part of that was for sure was horizon.
And.
And then everything else.
Beyond that is relatively small.
Okay. Thanks, Thanks for the color much appreciated.
Thanks Michelle.
Thank you next question will be from Peter Sklar BMO capital markets. Please go ahead. Thanks.
First of all on the financial guidance, you're providing what youre, saying is that you expect this year fiscal 'twenty two to be the peak dilution year. So I think that means you expect this year to be the peak year for losses from wall on aggregate.
And then and then the loss rate coming down in fiscal 'twenty three.
Does that work because you've got.
The GTA.
<unk> that should have less losses next year as you ramp it up.
But on the other side of the ledger, you'll be in the peak of losses of the Montreal facility as it begins to ramp up plus you'll be working on on Calgary. So I just don't see how the arithmetic works for you to to make that statement and unless you get a pretty dramatic.
A dramatic ramp up in the financial performance of the of the GTA business. So if you could just give us some flavor around that.
Sure well GTA is consistently improving.
Which which rich.
Clearly on a on a consecutive basis.
Cutting to the.
The dilution material is removal as you move towards a breakeven.
Montreal has talked with.
With an existing base of customers that is very helpful for the business.
And helps us.
With a number of things, including lower shrink less startup cost central bank.
And.
Yeah, So those would be the two most significant moving parts.
And.
We also sorry this is stable.
We've also invested materially in our back office supply chain replenishment.
And all of the.
Administrative and SG&A that we need to run what is really a.
Separate self standing business, we don't have to replicate that when we get into Montreal.
Okay, and when did the Calgary cost start Mike.
Much later.
And F 'twenty three.
Hey.
And then just my last question on a different topic.
You brought up a couple of times in your discussion today about promotional optimization.
That's been one of the factors in your financial improvement what are you talking about there are you, saying that like what is are you hiring more skilled merchants are using new analytical tours tools how are you.
You brought in consultants, who are looking at demand elasticity, what actually is going on there.
Alright.
With element.
Promo optimization promo.
I'm, sorry, I thought you were talking about the pardon.
When you say what's going on.
It really is informing.
Our merchandize is across the board now so not just not just somebody who had merchandising beat.
It focuses in on a on a.
A category like likely to obviously, but it is the calculations and the outputs.
And the sensitivities that.
Flex.
Rolling the effects through the entire store so it forces.
Which is very new for our business.
Yeah.
Ed.
I think it's a big part of becoming greater category management. It forces a category manager.
Really understand the impact they are making on the store outside of the category to start with.
And and.
It sounds really obvious, but it's pretty powerful.
And then because of the fact that it's very rich in data and it enables.
US too to do a lot of scenario analysis.
Virtually almost real time alright.
Alright, it completely changes the discussions with suppliers.
And we can talk about a five or seven difference on a promotion or a funding level with a supplier and show them almost in real time.
Where they are incorrect.
As to what their impact the impact of their promotion is going to be on that category and how starting total and it enables our R. R.
Tactical negotiations on promotions with suppliers to be materially better.
And the reason, we think this is going to get better and better over the year and overtime as airlines at the beginning of that.
And we're still in the call it the trading period.
In many respects when you look at those higher level discussions and those those improved.
Negotiation so.
It's.
It is as simple as putting incredibly strong.
Insightful data into.
Into the hands.
People that were already pretty good category management, but it's bringing it altogether and.
An ecosystem and a cross store set of processes that we're finding most of the power.
When people are becoming much more business spend as opposed to just wondering about the next week's promotion.
Okay. Thank you that's all I have.
Thank you Nick.
Next question will be from Chris Lee at <unk>. Please go ahead.
Thanks for squeezing me in.
Afternoon.
Can you update us on where you are in your journey with own brands I know it was a huge initiative last year.
Much of the.
Benefits have been realized in the margin so far and is doing still a lot more benefits to come. Thank you.
Yes.
Home Bren.
In spite of a horizon.
We are on track on benefits.
We rebuild category. So we went in.
<unk> two <unk> store.
In the next few months.
On track to deliver benefits.
From all brands into the Horizon project, So really pleased with the progress of rebranding and like I said there.
In previous quarters, the rebranding is completed.
We're now building rebuild.
Yes, ortman make sure of that.
The assortment is relative in every single category.
We are very happy with the results so far.
Penetration continued to be better.
The margin continued to be better.
We see an improvement year over year.
So.
We expect to finish that to rebuild this fiscal year and get all the benefit in the next fiscal year.
Okay, Great. That's very helpful. And then maybe another question I had is just your horizon plan implies I think EPS of roughly $3 a share in fiscal 'twenty, three which would imply that's really nice ramp up from this year's level. I guess my question is how confident are you that this will be achieved since I think the back half of the horizon.
<unk> plan is largely predicated on sales growth and market share gains, which are obviously a bit more risky because it is not fully within our control.
Are there other levers you can pull to achieve that target, even if sales do not pan out the way you expect thanks.
So.
That's a that's all.
An interesting question.
Chris.
It could be.
There's a little flip it and say.
Both.
Both myself and Michael and the team we have.
We basically plan for success.
So if you're really.
You're really asking so we're not we're not going to accept payments in here. So.
One way or the other.
No.
Our job and our expectation and it's been our expectation.
To hit the targets.
That is that that is still our expectation and we don't.
We feel we need to deviate from that.
Whatsoever.
But having said that.
It's a generic answer doesn't help you much.
Sorry, Michael actually said to us we haven't.
Conversation about this not that long ago.
If you if you parcel out your strategy into three segments right like we have inevitably.
The second is the hottest one because.
There's a lot of set up in a lot of.
Maybe easier I'm not sure it's easier but.
The first year goes according to plan your targets become a lot higher and you have to hit them.
But do you need to have momentum heading out of utility of three and so a lot of the heavy lifting of the foundations of the details of what you put in place in year two.
As is the most important part of that three year period.
And it's.
It's not quite like Youre, just harvesting in tier three but you really need to get you too right.
And so far we feel good about it we are on track.
We have great plans.
Our teams are engaged.
And so far so good so.
This is a matter of execution and we're executing on a number of items.
Yes that makes that makes to some extent, it's been a little bit lower risk because not just relying on one thing to happen at the same time, that's a lot of balls to keep them there.
But so far where we're doing well from an execution perspective. So we see no reason why we can't hit our goals and we expect to.
That's helpful. Thanks, Mike and best of luck.
Thank you. Thank you. Thank you and at this time I would like to turn the call back over to Ms. Bryan.
Great. Thank you Tobey. We appreciate your continued interest in Empire. If there are any unanswered questions. Please contact me by email.
We look forward to having you join us for our second quarter fiscal 2022 conference call on December Tony on December nine.
Dan.
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.
Okay.
Thank you.
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