Q3 2022 Empire Company Ltd Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Empire third quarter 2022 conference call. At this time note that all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session. If at any time during this call you'll be quiet needed assistance. Please press star zero for the operator also note that the call is.
Being recorded on March 10th 2022, and I would like to turn the conference over to Katie Bryan Director of Investor Relations. Please go ahead.
Thank you Sylvia and good afternoon, and thank you all for joining us for our third quarter conference call. Today, We will provide summary comments on our results.
Then open the call for questions.
This call is being recorded and the audio recording will be available on the company's website at Empire code dossier there.
A short summary document outlining the points of our quarter available on our website.
Joining me on the call. This afternoon are Michael Medline, President and Chief Executive Officer, Matt Rondeau, Chief Financial Officer, Michael Bell, Chief Development Officer, and Paris, eight Laura Chief operating officer.
Today's discussion includes forward looking statements, we caution that such statements are based on management's assumptions and beliefs and are subject to uncertainties and other factors that could cause actual results to differ materially.
For you to unusually 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.
Our thoughts today are with all those impacted by the awful crisis in the Ukraine.
There's obviously, a large and proud community of Canadian Ukrainians, many of whom are our teammates and our customers.
We stand solidly with time.
Now onto our third quarter results our team delivered another outstanding quarter earnings per share of <unk> 77.
This is our highest EPS in memory and we achieved it navigating some of the choppy waters, we've seen them a long time.
Slide to MPC and other global and local events that disrupted our communities in the supply chain.
The old cross surge presented new challenges in labor and the inflationary environment continued to impact our industry through it all our team delivered historic performance.
Free cash flow is up 75% this quarter <unk> upgraded our credit rating trend from stable to positive and we substantially completed our fiscal 'twenty two share buyback target.
Meanwhile, as horizon remains on track, including the $500 million of incremental EBITDA by the end of fiscal 'twenty three.
Earlier this week will allow launched its second CFC in Montreal to the public we have never felt better about our business our future and the most encouraging thing is that there is no silver bullet here. Our performance is just based on strong execution across the board.
So today I'll focus on just three topics.
Our results.
How we are successfully managing our business and what the future holds for Empire.
First results sales grew five 1% this quarter same store sales were negative one 7% as we comp severe lockdowns across much of the country last year.
A strong eight 3% over the last two years.
E Commerce sales increased 17% over last year with the addition of grocery gateway and continued growth in <unk>, partially offset by declines in our other e-commerce platforms due to the significant stock ups that happen during last year's locked out.
We continue to improve our gross margin, which was not a foregone conclusion. This quarter, we faced a difficult comp as we drove exceptional gross margin improvement last year. When we started to capture the benefits of our promotional optimization tool.
In addition, this year, we faced cost pressures with the timing of inflation pass throughs increased fuel prices and supply chain disruptions that forced us to rely on alternative supply typically at a lower margin.
Not only did we sustained our strong margins, we improved our gross margin rate excluding fuel grew by 41 basis points and this is exactly the kind of performance that gives us confidence in our future.
EBITDA margin also grew 50 basis points this quarter to eight 1%. This reflects the benefits of our horizon initiatives. The addition of <unk> and an elevated contribution from crombie.
Delivering results like this was possible thanks to the underlying strength, we have built our business with that in mind I would like to spend a few minutes speaking to how we are successfully managing our business to deliver current performance.
And position ourselves for the future.
Every day, our team continues to sharpen our execution and find new ways to bring Empire to the next level last year. We further evolved our vaginal structure to centralize all sourcing responsibilities and this team is already producing tremendous results with that infrastructure, we would be hard pressed to navigate the inflationary pressure in supply chain.
<unk> our business is facing.
We have received an unprecedented number of supplier cost increases over the last few months not only has our team managed to keep prices as low as possible for our customers, but we've also seamlessly executed the required price changes and minimize the impact on our performance all the while our merchants are innovating the customer experience and delivering value through more impact.
Artful promotions and private label.
And our strong supplier partnerships combined with the prodigious efforts of our teammates to ensure products get on shelves are helping us mitigate some of the supply chain challenges our industry is facing.
You receive an industry report report that tracks on shelf availability effectively how stock that retailer shelves are we have continued to keep ourselves stock better than the market average over the last 13 tumultuous weeks as we have through most of the pandemic.
Customers can find and purchase more products and more instances in our stores and this provides customers are more effective and just plain better shopping experience.
In addition, we recently promoted peer solar off to the role of Chief operating officer now overseeing all our full service discount and E. Commerce grocery operations. These teams are working more closely together finding efficiencies and focusing on solid execution day in and day out there.
All of our grocery operations supply chain and merchandising to win the customer with every tool in our Arsenal, while driving efficiencies throughout the company and as we find new ways to simplify and focus our operations. It further improves our execution on horizon by giving our teams even more runway to focus on achieving those goals.
Now shifting to look ahead to our future I feel like a broken record, but our business has great momentum and we've never felt better about whats ahead of us as we said we remain confident that we will deliver horizon targets next year, but the benefits don't just stop with horizon ends in fiscal 'twenty three.
Actually material and additional horizons value will continue to be earned in fiscal 'twenty four and beyond we're building tools to dramatically improve the store on customer experience, we're renovating converting and building the best luck in grocery stores in Canada that continue to drive our best returns and we're finding more personalized ways to connect with our customers. These <unk>.
<unk> start generating benefits during horizon, but will really hit their stride in fiscal 'twenty four and beyond thanks to these and other the other investments we're making today, we will reap incremental rewards from project horizon for years to come.
As we begin to think beyond horizon, we are no longer transformation story and we are proud of that we are now consistent operators, we now execute with precision and we have a well earned reputation and his tremendous business partners, we deliver value to our customers. We offer solid returns to our shareholders. After fiscal 'twenty three we will not.
<unk> leased another three year plan, our focus will be on execution and we intend to grow our results at a greater rate than our competitors.
Now before I hand, it over to Matt I want to take a moment to congratulate our Canadian Olympians and Paralympians on a fantastic winter games and wish the best of luck to the Paralympic games competing in the final few days <unk> is the official and exclusive grocer King, Canada and I'm. So proud of all that we're doing to support our athletes.
Now over to you Matt.
Yes.
Thanks, Michael.
Good afternoon, everyone I'm going to provide some color on our third quarter results an update on <unk> and then we'll move to your questions.
Our gross margin was 25, 7%, which is 41 basis points higher than last year when you exclude fuel.
This is largely due to the addition of the higher margin <unk> business and incremental benefits from our horizon initiatives, including expansion of farm boy in Ontario fresh.
<unk> with Western Canada, and our promotional optimization tools.
We're very pleased with our margin performance. Despite a very choppy trading period, while we navigated through increased inflation and supply chain challenges, while still ensuring that we were price competitive.
Our SG&A rate was 21, 9%, which is 40 basis points higher than last year.
As for our last quarter, there were puts and takes here firstly long as has a higher SG&A rate than our average and we will continue to see this mix impact until we comp that results in the first quarter of fiscal 2003.
Secondly, we had higher depreciation due to an increase in right of use asset depreciation and <unk>.
These increases were partly offset by lower cabinet costs.
Our EBITDA margin increased 50 basis points to eight 1%, reflecting our strong gross margin performance and our share of significant gains on the sale of properties buyout Combi wheat.
Our effective income tax rate was 26%, which is lower than our statutory rate primarily due to consolidated structure entities and capital gains.
All of which are taxed at lower rates.
Do expect that the tax rate in Q4 will be consistent with Q3.
Our free cash flow generation continues to be very strong as of this week, we have repurchased $249 million worth of shares and NCI.
And a substantially reached our target for fiscal 'twenty. Two of course, we intend to continue buying back shares in fiscal 2003.
The capital investments, we spent approximately $500 million year to date and remain on track to spend our estimate of $765 million.
Our focus remains primarily on our stores and we continue to be very satisfied with the returns generated from our real estate projects.
This quarter, we renovated 34 stores.
Opened one new farm Boy relocated one farm boy and opened seven new <unk> stores in the west.
Now turning Sunrise, we are focused on fixing problems doors addressing underinvestment and defending our top stores now.
Now that our problem areas have been addressed we are moving from defense to offense investing in renovations that will enable us to sustainably capture market share and increase our profit.
Now before we move to your questions I want to dig a little bit deeper into <unk>.
We remain very confident.
The optimal business model to sustainably deliver a profitable e-commerce grocery business at scale. So let me give you a few updates from the last quarter.
First we announced our fourth.
Customer fulfillment center will CFC as we call it which will be in the greater Vancouver area of British Columbia.
With our full Cfcs, we were able to set approximately 75% of Canadian households, representing 90% of Canadian E Commerce spend.
Second the beauty of our exclusive deal with Ocado is that we have a partner who is investing in research and development and we'll continue to bring efficiencies to our network.
Our full CFC will have new generation robots, lower efficiencies and a lighter environmental and carbon footprint.
If you want to see more I would encourage you to gauge our earnings presentation on our website, there's a link to an ocado video showcasing that new innovations.
Third.
Second CFC in Montreal recently completed employee testing and began transitioning customers in some areas of Quebec Chippewa from Iga Dot net.
Feedback from the employee testing in our initial customers is fantastic they are off to a really strong start.
This will be a phased rollout as we expect that by summer approximately 85% of the Quebec population will have access to water.
Four.
In Q4 of this year, our CSD in Ontario will expect will extend its geography to Ottawa and surrounding areas through an additional spec.
Fifth construction for CFC continues on track and we have added another 20 locations the curbside pickup using <unk> and store fulfillment technology.
So we're really pleased with our e-commerce programs.
The impact on Empire's earnings is on track to be somewhere in the middle of the previously disclosed range of 25% to 30 for fiscal 'twenty two.
We believe that fiscal 'twenty, two will be the most dilated year for <unk> for a couple of main reasons.
Firstly, we have a faster customer ramp up in <unk>, then we have the CFC walk as a reminder, iga netting tabak has an established business that we are transferring over to rollout. So we already have a significant amount of volume to flow through the CFC.
And secondly, we will have minimal additional backstage resources for the new Cfcs as this was all set up for CFC. One. So we are getting a better leverage of that fixed cost.
And it's worth noting that the addition of <unk> will immediately add volume to CFC walk.
So in conclusion Q3 was a very strong quarter and we have strong momentum project horizon is on track. It was designed to deliver $500 million of EBITDA, including the effect of the Royal our strategy and that is what it is doing.
We are pleased to report that we expect our fiscal 'twenty two net earnings to be even higher than October it inflated net earnings in fiscal 'twenty one.
And that's really a testament to our consistent and sustainable execution.
And with that Katie I'll hand, you back for questions.
Thank you Matt Silvie, you May open the line for questions at this time.
Ladies and gentlemen, if you would like to ask a question. Please slowly press star followed by one on you touched on the phone you will then hear a sweet home prompt acknowledging your request and if you would like to withdraw your question simply press Star followed by two and if you're using a speaker phone. We do ask that you. Please lift the handset before.
Andy Keys. Please go ahead and press Star one now if you have a question.
And your first question will be from Kevin Mackay at ATB capital markets.
Thank you and good afternoon, Michael your opening remarks called out the Choppiness end markets could you speak to.
Okay.
Challenges in <unk>. The biggest challenges you managed through a quarter with respect to inflation impact on consumer behavior and the dislocation of the amplify supply chain pressures that you called out.
Yes, I mean, I think the number one challenge in all of retail right now is the supply chain.
And then just.
It hasnt gotten back in shape for many reasons, including high demand.
And the disruptions.
All of that tender.
And so our team is.
All the time.
Trying to find products, where we're short where our great supplier partners, just can't keep up and supply us.
It's causing us to go out and buy more from them.
By more than the market.
And at times really scrambled to make sure that we fulfill our customers' needs.
I think we are doing.
Country I think we are doing.
As good or better job than anyone out there from what I can tell in store.
And as I noted were.
We're above market.
In terms of the third party reports and in terms of on on shelf availability. So happy about that and that's really a testament to our merchants and our and our operators.
In terms of inflation.
Im not sure its too much new to say and it's sort of a reality again that all businesses are across the globe are facing we are retailer as part of our daily jobs to deal with the rising cost of doing business and we have the right people in the right seats now to do that we are have to manage it very very closely and we've never seen anything in our careers to match it.
Periods of high inflation are extremely challenging.
And I'm going to ask Peter in a second to us which helps us to talk to you about how we're navigating through it but it's fair to say that our team has never faced so many at one time.
That were negotiating hard with our supplier partners, who in many cases have very justifiable cost increases to be honest with you.
And at the same time, we have to and Theres always a lag or often lag between cost increases and price increases as we as we.
Provide value to our customers. So all of this is challenging to our team I don't think anyone out there is doing a better job and I'm very proud of that period.
Pierre do you want to say a few words.
Just.
And the fact that based on all we our structure.
I think we need to we need to be very adroit right now because of all of those reasons that supply chain inflation.
The way we are structuring now with.
The sourcing team are.
Working on cost increase and sourcing in general.
And in the meantime, our merchandising team can continue to focus on building good promotion on the relevant promotion for customers and managing the margin I think it's why we are in a good spot, but once again need to worry.
And very closely with both sourcing and merchandising and Thats why we are doing right. Now. So we're really pleased that in sourcing thing focusing on managing the volatility of the amount of our supply chain and costing and having a dedicated merchandising continue to be.
Mike.
And meet customer.
<unk> and <unk> and concern and so on.
Sure.
In good spot.
Yes.
Great. Thank you for that and just one quick final question for me I appreciate all the additional color.
Max on Wawa, and its performance and understand you're not going to be providing a dollar sales or otherwise.
For online platform.
Can you just provide some color even directionally on how <unk> is tracking to your internal expectations I understand regarding the planned growth and the original CFP coming on but just trying to get a read on net net where you are versus where you expect it to be with with Waller understanding it's growing.
Trying to.
Get some sort of additional color on where you are.
Sure.
So for.
It's a little bit of a different story.
CFC.
Because obviously CFC to literally just started.
Got it up in operations I think in my.
Comments that told you why we're up to on that is can be a phased implementation launch.
Yes over the next 12 weeks, we will.
Ramp that up.
And the Quebec area by the summer time, we should have 85% of the population available to us. So that's very much in the ramp up phase.
CFC one.
Overall, we're happy with where we.
Is that the business is and I think as we said the net dilution is going to be in that range of 25 to 30, probably somewhere in the middle of that range.
So overall I think we're happy with how that CFC one is progressing.
Thank you I'll get back in queue.
Thanks Peter.
Next question will be from Irene Mattel.
Tom Sorry, RBC capital markets. Please go ahead.
Thanks, and good afternoon, everyone I guess I have two questions. My first is a follow up on that discussion and is really from a tactical perspective.
You mentioned that youre going to be building on the base of Iga.
So it will it be a case, where youre going to sort of just everyone who is in Iga net customer will simply.
Now it will look the same.
Thank you. Please begin your how does that actually work.
Yes so.
Like Matt says the reason, it's 85% there are a few markets where its too far from the CFC vehicles.
To be able to service it but.
Hopefully 12 weeks, we'll have 85% of our of the province served.
It's very simple to move over from <unk> Dot net to Golar.
<unk>.
If you talk to our Quebec business. They are very very pleased with how this is being set up.
The websites even nicer.
The choice of products is greater.
And to everyone, who has tested it as extremely pleased especially peer and Luke.
Were key constituents here, so very very simple.
I mean, the exciting part is.
Yes.
SaaS ticket size in Ontario is.
I don't know, whether KD yogurt, Madam you or not but.
Over three five times larger than our bricks and mortar basket size, which is a lot bigger difference.
<unk> dot net to what we expect to fall off so we're going to expect even from our own customers.
Theyre going to have a better experience our basket size will be larger they'll shop, more iga and bring their basket more to iga than to any competitors.
And at the same time.
We're going to be growing our market share so.
Not only is it.
More profitable for us because it's a way better system way better for customers way bigger basket size will convert people over and we have number one market share in the province, and we expect to take.
Much more market share because now we have by far the best tool.
This one.
We are watching with a.
Like like Hawks, but because of what happened.
Toronto, GTA and our success, there and now because were converting already great customers do even a better platform.
We're not losing any sleep honestly, we're watching it very closely and making sure that the transition goes well.
Thank you that's great and then just shifting gears if you would.
Don't mind, obviously, we're seeing a surge in inflation and certainly our last couple of weeks surge in oil prices that hitting consumer wallet can you talk about what youre seeing in terms of consumer purchasing behavior.
Promotional activity trade down to private label.
<unk> staff.
Barry do you want to.
Yes, we know with that customer.
More sensitive for value in today's environment.
So with all the we feel good with all the innovation and Redevelopments, we've done in the owned brands and private label New packaging new assortment.
Ill just say were home brand is on fire right now and we're pleased with that.
We are growing much faster than the national brand.
And it's good for customers and it's good for US. We also introduce good offer to customer and we're seeing very good traction on value back and things like that.
So the large assortment, we have nowhere store provide.
Many option.
Customer to mitigate inflation right now and we feel good about that.
So yes, we are seeing customer.
Customer behavior changes Youre looking for.
More value and everything to trying to buy so national brand tool and Brian .
We are seeing everybody.
Switch and choice of protein and we are adjusting our.
Merchandising plan. According to it make sure that were relevant for customer we offer to them what they are looking for.
So yes, we have to be very agile, we set at the beginning and the team is doing a very good job too.
The relevance of our customer.
Without compromising performance.
And are you also seeing so youre seeing an increase in.
And penetration of promotion within the basket.
Yes first of all Youre looking for deals, but once again, we are able to with the largest assortment. We are having in our store to stay relevant for them. So yes. They are looking for.
Good deal within the same time, we have much more than deal to offer to them.
As you as you know there is inflation everywhere fueled prices restaurant prices.
People are seeing inflation everywhere.
We have very strong prepared food offer which is cheaper than going to restaurants.
And year over year, we're seeing good growth there and it's good margin product. So it's good for customers. It's good for us.
We have in mind, all the time to stay relevant for customer and make sure that.
We're leveraging all of our assets to go through that period.
Yeah.
That's great. Thank you.
Okay.
Next question will be from Michael <unk> at TD Securities.
Hi, Thank you.
The gross margin was quite strong, but opex is going to be.
We expect that I guess was also up quite a bit and then if I back out the <unk>.
The cost and the depreciation it looks like it was up about 7%.
So I was hoping you could help me understand how much of this might be tied to long those being added in and then when you look at the organic side of it one of the largest puts and takes.
On the pressures and then how you are managing that.
Sure.
Take a take a pass at that.
So when we look at our SG&A for the quarter Theres nothing.
And.
Particularly of a onetime nature and that I have to say kind of last quarter. We are beginning to get to that kind of run rate of SG&A, but when you look at SG&A year over year, you're right. The one of the major drivers is not mix impact of lung dose.
We will continue to get that until we comp long days next year.
We also have the mix impact of the.
The higher margin businesses.
SG&A businesses, sorry, such as Barb Williams.
And then there is.
Higher occupancy costs so.
Turn on assets Alright.
Alright, right of use depreciation on the IRS data.
It's a combination of those things that like I said, there's some there's some puts and takes in that but there is nothing.
Particularly one time of <unk>.
Nature.
There is no Olympic cost anymore.
Nine Q3 that was.
Earlier in the year.
Okay, and then you mentioned on the <unk>.
The NCI.
That year substantially completed but.
I thought your plan was for eight 4 million shares and Youre done six points for herself.
Am I misunderstanding.
So the current MTI B, we have runs from July to July .
So it doesn't necessarily kind of match perfectly with our fiscal year and are on.
On our budget and our targets for the year.
We will continue to buy shares under the existing NCI B and then we intend to renew that NCI in July .
So it's a little bit confusing when nice T programs down exactly.
Period to period, but for our fiscal year and what we had targeted the buyback. This year, we are substantially complete.
For the fiscal year Okay.
Got it alright, thank you very much.
Sure. Thanks.
Next question will be from Patricia Baker with Scotiabank.
Thank you very much and good afternoon, everyone I have two questions. My first question is on <unk>.
Sure.
Yes, Michael you're mentioning the access to the R&D and that you'll be able to meet the new generation bottle with the Vancouver facility. So Kroger.
Also with talking about using those new generation bots and that that's going to lead to a lower cost to build.
For them on from there later CFC from Goldman Sachs. Thank you. Thank you and then just.
Back to when you first did the.
The partnership with.
Ocado.
On the on the spark platform have you have you taken advantage of any other R&D opportunities.
From Ocado.
Then to now.
I'm going to let Mike Im going to let Mike to answer the question because he is.
We're closely with Ocado and then if there's anything I can add I will.
Okay. Thank you.
Thanks.
The new blocks are.
So for us the most significant impact would be.
There is potentially some differences in how you build the grid.
But a lot of other things go into it.
Quick build including seismic impacts and that sort of thing.
But they're much more energy efficient.
That's probably the most significant impact for us to be.
Reductions in energy usage as opposed to necessary construction cost.
We're already up in one CFC and fully operating.
In terms of builds.
So this isn't limited opportunity to materially change.
News and.
And the actual infrastructure construction Bill where we have benefited us at Ocado has a very strong pipeline.
Incremental ads and improvements to their algorithms and their internet and software and so I'd say from an R&D perspective.
We benefited the most from.
From upgrades and improvements they've made on that.
Since we started CFC one.
Yes, the only thing I'd add is in terms of the if you go on the Ocado link on our website and you'll see a lot on the picking.
Innovation.
And as far as getting.
And on getting closer to in terms of getting closer to the customer and shortening the delivery windows. Okay.
Thank you.
The reason we love.
Technology.
It was also because of the.
Proprietary on innovative spirit of Ocado and they havent, let us down.
Company that is going to continue to innovate and stay.
Stay ahead of everyone else and we will continue to put in.
Some or many of the innovations that occur as we go along the key though is to get the big sets up in the four markets everything else can fall away from there I think our opportunity because we haven't.
Broken ground, yet is in Vancouver to take some of this as well.
Okay. Thank you for that Mike and Michael and So then my next question really.
Kind of directed at that.
The gross margin was nice to see that you have to build on last year's margin performance there, but we look at promotional optimization, how should we be thinking about that where are you.
Executing against that.
We'll be thinking about something that is the gift that keeps on giving that you will be constantly having reiteration of improving promotional offerings optimizing your promotion.
Okay.
So the promo optimization is related to <unk>. So last year, we launched it the tool our merchants are working with.
With the great adoption go.
So in Hawaii, we prevent and increase our margin a lot last year. This year, it's a combination of both.
We continue to work well with the tool.
The team is in my opinion the team is stronger.
Taking good judgment there more agile.
The playing better with the tool. So it's a combination of strong execution and users of digital.
No.
It's continuous improvement it was unusual last year. This year, we have a better comprehension of the tool.
And the team is is.
As I said at the beginning.
Fact that merchandising team are focusing on propulsion.
Without dealing on cost increase in supply chain issue.
It's very helpful and it's why we get good control of our margin.
Okay. Thank you Pierre.
And maybe just to add one thing.
Yes.
When we launched the promotion optimization tool last year, and we had that significant uptick in margin.
This year, we've matched it.
That was really important for us because what we.
Making sure that we're delivering here a sustainable profit improvement.
Not that we were able to match that level of margin rate from last year demonstrates the sustainability of the tools that we're putting in place the other way.
Real litmus test for us, which we pass.
We're very happy with that.
Okay. Thank you.
Thank you.
Next question will be from Peter Sklar.
<unk> capital markets.
Okay. Good afternoon.
Just on the these new technologies that are cardoso offering up the grid and the robots I'm just wondering why you're not incorporating that in Calgary Calgary.
Calgary is too far down the road in terms of engineering and design at this point.
Well.
That'd be right there.
We've completed the design and the engineering.
And.
There are some things for sure.
I think we will end up either retrofitting put into all of the cfcs.
Things like the automated printed loans for example, which are relatively easy retrofit.
But outside of that it's truly Vancouver that could probably be the first one to have major changes, resulting from that R&D.
Okay, and when I was reading the ocado stuff like they had a little bit of trouble.
Labour issue or they just couldn't get enough drivers.
I may have asked the same question on the last conference call but.
New market here are you able to recruit.
Enough drivers to for all the vans that are running around the city.
We're always transparent during the height of the omicron.
Couldnt fulfill every single order that we were getting.
Online and no one knew you were going online to check on us.
So we were.
We were out three days in terms of ordering which we do not always like we'd rather be able to fulfill our customer orders and a tighter period of time the team at <unk>.
Led by Sarah went into overdrive, and we're able to make all sorts of adjustments. So that we were able to lower that to two days up one day and.
So.
Even during a very very big periods of demand during the height of OMA.
And although labor is tight everywhere.
We're always looking for great people to join us, especially as well.
Right now, it's not an issue that's constraining us, but it was a bit of a bottleneck there for a while.
What is the bottleneck Michael like what is the constraint drivers or cyber. It is Michelle tickers are ramping well, it's not just people driving right. These are really skilled people who were not.
<unk>.
Greg with customer service understand our standards.
So we just can't.
Take any one off.
And just put them in a truck and expect them to do the job.
So it's not really the driving aspect of it most people can do that.
It's understanding our processes and the standards, we uphold every single day, so that with that with a constraint for a while we put in all sorts of ways now that we're more flexible.
And then question.
Yeah, and then just like another switching topics here I think you still have that strike that work stoppage.
GC in Quebec, I think it's a turbine and could you just explain a little bit more in detail, how you're working around that I assume you're using other dcs and direct drop.
But would that have a noticeable would that have had a noticeable impact.
The results as we go through Q4.
Yes, So let me.
Great question.
Obviously, we're not we're not pleased to have any sort of disruption, but because we don't talk about it you can tell it is not.
Top of mind, because we've really have a great team that's working around it but maybe I'll just start at the beginning which is.
We settle around 60 collective agreements a year and haven't had a strike in 10 years. So this is rather unusual.
And I want to be really clear that the.
Right now the impact on our on our shopping experience for our customers is absolutely minimal.
In Quebec, absolutely minimal if youre in Quebec. Many of you are going our stores and Youll know that it's had almost no impact on how we are serving customers.
When we get a deal that's reasonable for both sides. This this thing will be settled.
And.
Of course, there are incremental cost to our business.
And there will be in this quarter.
But theyre not unreasonably costly and you got to understand that the cost impact.
It's not going to be very material to our results, they're mostly incremental freight costs.
Because we are using our <unk>.
Have a very resilient.
Supply chain.
Thankfully, we are national in scope now not regional like we used to.
Thankfully that be.
Redundancies and systems, we put in place at the beginning of Covid.
Covid.
The pandemic to serve our customers are now putting us in a really good position going forward.
So our contingencies have been great or a national company, we have 25 Dcs.
And also most of our assortment is organized nationally with regional Assortments that we can handle even in this case.
So so far so good we are leveraging our facility in bond and we have other dcs that we can use in Quebec city, even the Maritimes to take care of this so yes incremental cost.
So thats.
Thats.
It can be a tiny bit more costly, but we believe that it's worth it in this case to get to get to a fair agreement with our teammates.
We have a great relationship with our supplier partners. So we will have the products in our stores and we also have a great relationship with our teammates across the country and I can't wait to welcome back.
Our turbine facility when we can settle this up because they're our teammates and we don't like going through this.
But we are we're handling it as best we can.
Okay.
That's it for me. Thank you for your comments thanks, great questions. Thank you.
Next question will be from Chris Li of Bank capital markets.
Hi, good afternoon.
Michael.
Horizon financial target implies sort of low teens EPS growth for fiscal 2003, and this is pretty impressive considering that it is still fairly heavy dilution from Walla next year as you continue to expand so this implies even stronger growth from the core business I know a lot of your confidence is predicated on just accelerating benefits from horizon.
You always have said that <unk> will be the greatest so I guess my questions are.
The strong growth assumption next year is also influenced by market factors like inflation and competition and then secondly, what are the risks that would cause you not.
<unk> achieved that growth target for next year. Thanks.
I think I mean, obviously, we had to do horizon.
Set a horizon targets before we knew there was going to be a global pandemic, we set them before we knew there was going to be the sort of supply chain.
And thats sort of inflation, so actually I think it's even a harder goal because our teams will be working so hard on some other things while theyre still putting in the horizon initiatives.
Whats really gratifying is as we've said, we expect to hit those horizon initiatives through all of that.
But because of some of the things that have been going on.
Some of our work and benefits are are actually postponed and youll see the majority of them occur post F. 'twenty three close and what I'm really excited about is we.
We set these three year targets, which were not saying again, I said, but we don't suddenly stopped because at the end of the fiscal year and for some of our projects many of our projects. The peaks here in 'twenty, four and 25 pounds.
At the same time, we were able to accomplish horizon.
I'd say when I look at.
We're optimistic people, but we also you know.
As we look at risks.
All the time, Matt and Mike are the leaders and leading us through what kind of risk there can be in our business and we when you look at those and can mitigate and plan for them.
But right now we're feeling good but we are seeing such huge.
What might cause choppiness in our business.
The supply chain has every retailer concerned about being able to get products on time and at a good cost.
That's going to be a risk we look to refer the at least for the next year or is this probably continues.
And it looks like this is going to be a highly inflationary market for times to come.
We're not economists, but we speak to economists and Thats, what they are predicting and what we're hearing so those are the two big things with my confidence in our level of execution and us being Empire are very high they are really global or almost industry concerns and risks that worry me more.
Not about our own our own business, our own set of execution, because we have plans to improve our business.
I think other than some of these great.
Great project Flex based pro space productivity, which are going to be giving us great benefits, especially in F. 'twenty four 'twenty five what I'm. Most excited now that we have this great infrastructure in place or some of the other projects we have.
And if you go across our country Youll see.
Really great renovations in our stores.
Youre going to see better execution and.
Real credit to Pierre and his team, but especially to appear that.
While we were going through Sunrise, and what Youre doing horizon.
We left some of the store execution and some of the supply chain issues alone. So we wouldn't disrupt our business. While we were while we were turning around the company.
We have a lot of opportunity now they appear as.
Exploring and it is going to be executing on in terms of serving our customers better but also being far more efficient.
So some might say hey, you're fired.
Yours into turning this company around but now I think a lot of the times I'm thinking that the good things are still to come now that we have the infrastructure in place that we can build on so very excited about that and I should also mention.
What we're doing on our <unk>.
Investments in.
In data analytics and personalization, we still haven't really at.
I don't know if were in the first inning of a baseball game on those where we're just starting that so lots of upside, but we got a lot of work to Florida work to do and these are tough markets.
Okay, great helpful and all the best Thank you.
Chris.
Next question will be from Vishal <unk> radar.
Bank.
Hi, Thanks for taking my question.
Was wondering on the difference between the difference between delivery and in store grocery and having slate differently given last mile.
Large component of delivery cost.
<unk> gone well.
We hire.
And I know about.
With you to keep the rollout pricing some of that same store pricing. So I was hoping to get some context is there a big difference there and how they are inflating.
So how is that models.
Got it.
Thanks for the question, Alex I would say no big difference.
Okay. Okay.
Okay and then.
On the same topic.
I was hoping you could update me on the on the spoke model.
Sure.
For bond, how many folks you had.
The cost of installing them.
Typically given in previous sessions.
Hey, what was the last part of the question that how what.
How specifically do they improve mutations.
Okay.
<unk>.
We're still in the process of building out the total network.
At this stage most of the deliveries will still come from from the <unk>.
Overtime.
You're going to have.
Maybe four or five in Toronto.
They are relatively low cost to build out.
They're not very sophisticated facilities.
<unk> receive.
Straight trucks from the CFC.
Which are coming in large freighters.
Perfect.
And then they are being transferred.
Through the facility.
So the cross dock nature.
Two the delivery vehicle.
And that.
Designed to.
Two things really.
Emanates congestion up in the CFC.
It enables us to replace the product closer to the final destination cuts down the total number of miles driven file delivery trucks.
And it's more efficient for our drivers because they don't have to go up.
After the CFC to start the route based offering.
Okay.
So all of that adds up to.
First of all nice efficiency improvement as the cost of the delivery and it also reduces congestion and complexity out of the CFC by.
By moving large amounts of products out of the CFC overnight.
Okay. So as you can see these folks we'll go costs wherever you can solve the CFC.
Through time.
Sorry, Michelle we're having trouble hearing you I.
I don't want to guess at what you asked can you can you just repeat that one more time.
Yes, sorry, sorry about that.
My question was essentially the spokes will be installed in every market, where you have CFC is that a correct way to view it.
Yes.
Yes, and then we will have some markets like as Matt said Ottawa, where.
Sure.
Well actually service the entire city.
Spoke.
Enough of the CFC, but yes.
We expect to have folks across the country in every location that we have a CFC.
Okay got it hey, thanks for the thanks for the answers.
Yourself.
Thank you and at this time, we have no further questions. So I would like to turn the call back over to Brian .
Thank you Tobey. We appreciate your continued interest in Empire. If there are any unanswered questions. Please contact me by phone or E. Mail, we look forward to having you join us for our fourth quarter fiscal 2022 conference call on June 22nd toxin.
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.
Hum.
Okay.