Q4 2023 Empire Company Limited Earnings Call
In the area.
[music].
Good morning, ladies and gentlemen, and welcome to the Empire fourth quarter 2023 conference call.
At this time note that all participant lines are in listen only mode. Following the presentation. We will conduct a question and answer session and if at any time. During this call you'll require immediate assistance. Please press star zero for the operator I'm sorry stars for the operator also note that the call is being recorded today Thursday June 22nd 2000 and.
'twenty, three and I would like to turn the conference over to Katie O'brien, Vice President Treasury Investor Relations. Please go ahead.
Thank you Sylvie good afternoon, and thank you all for joining us for our fourth quarter conference call. Today, We will provide summary comments on our results and then open the line for questions.
We recorded and the audio recording will be available on the company's website at Empire Kodak CA.
There was a short summary document outlining the points of our course is available on our website.
Joining me on the call. This afternoon are Michael Medline, President and Chief Executive Officer, Matt Ryan Bell, Chief Financial Officer, Pierre St Lara, Chief operating Officer, and Doug <unk>, Chief Development Officer, and General Counsel. 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 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 Mike.
Thanks, Katie good afternoon, everyone.
End of fiscal 2023 marked an important day for Empire company. The end of our three year project Horizon transformation.
After six and a half years, we are very pleased to announce that our turnaround is now complete.
Project Sunrise and horizon, we have delivered over $1 billion in EBITDA improvement since the end of fiscal 2017.
Now have the tools capabilities team and assets needed to compete and win.
We will now transition to our next chapter and focus on consistent and sustained execution of results.
I'm going to focus on four topics today, the completion of horizon. Our go forward strategy, our Q4 results and some key market trends.
First horizon, we deliberate on project horizon, we've deepened our analytical capabilities and built a promotional optimization tool.
Hence our own brands portfolio strengthened our store through renovations and the expansion of fresh go in the West and farm Boy and long goes in Ontario, and launched our new <unk> class loyalty program nationally.
On top of that we launched our Walla E Commerce business, starting with our Cfcs in Toronto, and Montreal to give customers more choice on where when and how they shop and we did this all while facing a global pandemic strong inflationary headwinds and the most challenging end market environment, we've seen in decades.
These efforts resulted in $500 million in annualized incremental EBITDA added to the company translating to an EPS CAGR of approximately 13% at approximately 60 basis points of EBITDA margin growth.
As you know this was the second three year transformation, we've completed over the last six years, we've shared all of the details of our many strategic initiatives with you and deliver at each of them on time and on target or in many cases better than target.
We told you what we're going to do and we've done it the turnaround is complete and we now have everything in place to succeed win and grow market share.
Since the start of project Sunrise in fiscal 2018, we have improved almost 50% of our network through renovations and new stores and we've generated a compound annual growth rate of 26% and adjusted EPS, leading the industry.
I said it after Sunrise and I'm pleased to say it again today there are very few Canadian retailers that have executed the transformation of this magnitude with this level of success and I want to thank from the bottom of my Heart every single Empire teammate who as part of this journey for their herculean efforts.
As for what's to come we will not be publishing details of our next three year strategy going forward as we are now through the transformation going forward, we aim to deliver on our financial framework that grows our adjusted EPS at an average annual rate of.
8% to 11% over the long term through operating earnings growth and share repurchases, we may exceed or Miss these calls in any given year, but that is our goal to achieve this growth we will focus on priorities such as an even greater emphasis on our store network, including our supply chain.
And enhanced focus on digital capabilities and data and a continued drive for efficiency and cost control.
We will do this by continuing to advance our key initiatives, including seen plus store renovations owned brands space productivity and others. While also beginning new strategic programs that support our stores and enhanced customer experience.
From a capital allocation perspective, the business now generates a healthy amount of cash and we will continue to invest your capital wisely.
During our transformation period, we needed to increase our capital investments to develop new tools capabilities and assets now starting in fiscal 'twenty for capital discipline will be more crucial than ever and we estimate we will invest $775 million. This fiscal year, it's intentionally lower than what we planned to spend last year, but at the.
Right level now that we're out of the turnaround and Matt will give you more details on this shortly.
We're announcing a 10, 6% increasing the empires quarterly dividend per share, which brings our five year dividend CAGR to 10% and represents an increase in our dividends for the 28 year in a row.
We also announced that we renewed our NCI to repurchase up to $12 6 million shares representing 9% of our public float we plan to repurchase approximately $400 million of shares in fiscal 'twenty four an increase from the $350 million, we bought back last year.
Now onto our results. We're pleased with our Q4 performance overall, we delivered adjusted EPS of <unk> 72 cents. This quarter. This translates to 18% EPS growth year over year, when excluding the extra 50 <unk> week last year.
This was supported by solid sales growth with same store sales of two 6% and total sales growth of two 7% excluding fuel and the extra week in Q4 of last year.
Our full service business in particular showed a noticeable upswing in same store sales growth versus prior quarters.
With higher unit counts and increased traffic in stores fresh co continued to deliver very healthy sales growth with double digit same store sales.
Our gross margin excluding fuel grew 60 basis points. This was primarily due to horizon initiatives that have provided continuous margin great growth, including the consistent growth of our own brands portfolio. We launched another 100 private label Skus. This quarter for a total of over 1000, new Skus introduced since the start of horizon.
We continue to drive product innovation and value focused offerings through this assortment.
We made significant progress against our strategic priorities. This quarter in late March our banners in Quebec, and Thrifty foods NBC join teen plus marking the final phase of our national rollout.
We were off to a very strong start with sales penetration above target in both Quebec and Thrifty foods overall.
Overall this program continues to exceed expectations across regions and seen plus now has over 13 million members over 3 million New members have joined the program since launching last August .
We also continued to prepare for the integration of grocery gateway into a lot in Q1, which will go live officially in July we are looking forward to providing grocery gateway and while our customers access to each other's assortment by offering long goes as a significant shop in shop on the boiler Platt.
For them.
We also had our first customer deliveries from CFC three in Calgary.
Earlier, this week and are thrilled to be bringing our world class E Commerce grocery business to the great Alberta market.
Moving to market trends, while food inflation remains high we are pleased to see that it is beginning to moderate.
Although we continue to navigate through supply cost increases that are higher than pre pandemic levels.
It appears we reached the peak in our in our Q3 as supplier requests moderated this quarter in both magnitude and volume we expect supplier cost increase requests will continue to moderate over the coming quarters.
This is supported by most ingredient commodities coming off their high such as wheat flour in various cooking oils.
For several quarters, we have said that as inflation abates Empire will be well positioned and in Q4, we began to see early indications of this reflected in our sales performance and in our tonnage.
We are also continuing to see traffic in our stores improve with higher transaction counts in Q4 across all regions.
Although basket sizes are still lower than last year, we are seeing this trend improve.
Our category managers continue to work in collaboration with our supplier partners.
And to leverage the promotional optimization tool, we built to provide value to customers and we're seeing higher promotional penetration than last year as customers stretch their dollars are.
Our team continues to focus on providing value to customers, including by growing our value size products offering deploying seen plus member days across English, Canada, and launching our new serving up value program to offer budget friendly recipes to customers using our complements products.
Although we faced some of our greatest challenges in fiscal 'twenty three I am extremely proud of this team for continuing to deliver results and scrupulously execute against our strategy in the face of significant external headwinds six years ago I'm not sure our business could have withstood shocks of this magnitude, but our annual results in Q4.
<unk> in particular highlight the underlying strength of our business today.
And I truly believe the best is yet to come.
And with that over to Matt.
Thank you Michael good afternoon, everyone.
We are very happy with our Q4 performance delivering an adjusted EPS of <unk>, <unk>, which is 4% higher than last year's 68 cents.
We are very happy with our Q4 performance delivering an adjusted EPS of <unk>, <unk>, which is 4% higher than last year's 68 cents.
Or 11% higher than last year, if you exclude the impact of the 50 <unk> week last year.
Our results are also slightly better than what we communicated at the end of Q3 and very consistent with our expectations with the business beginning to bet from to benefit from a gradual improvement in momentum as inflation begins to abate.
Moving to the top line, we delivered solid same store sales of two 6%, which is a notable improvement versus a flat performance in Q3.
As expected with the cyber security event behind us and with inflation starting to abate, we started to see same store sales momentum return.
In e-commerce after excluding the 50 <unk> week of operations last year total sales from our full platforms with 13, 5% lower than last year.
This is primarily G to omicron last year, which had a large effect on our own.
Legacy non guar businesses.
Sequentially Q4 E Commerce sales were flat versus Q3.
So overall, our specifically again, excluding the impact of the 50 <unk> week last year.
<unk> was 7% lower mainly due to omicron last year, but most importantly, what I continued to grow market share.
Gross margin rate, excluding fuel grew by 60 basis points versus last year.
This progress is consistent with numerous prior quarters now with benefits being generated from our project horizon initiatives, such as promotional optimization and sourcing efficiencies.
We are also starting to benefit from lower supply chain costs versus last year, mainly in transportation.
It's also worth noting that last year's gross margin was adversely affected by the tab on strike, which had a 19 basis points impact last year.
Our SG&A rate was 89 basis points higher than last year. When you exclude the impact of the 50 <unk> week last year.
Consistent with prior quarters. This was mainly due to planned investments in horizon initiatives, although partly offset by lower incentive accruals.
Other income in Q4 was $14 million higher than last year due to capital gains on our planned sale of a proxy.
Offset by the gain on a lease surrender that we recorded last year.
For the year benefit from other income and real estate income were very much in line with our plans and are a consistent source of income for the company.
EBITDA margin increased by 60 basis points, which is the net impact of all of these various puts and takes.
Our effective income tax rate was 25, 3% in Q4.
For fiscal 'twenty, four excluding effects of any unusual transactions or differential tax rates on property sales.
We are estimating that our effective income tax rate will be between 25 and 27%.
Now, let me talk briefly about the end of horizon, and our financial framework moving forward.
We are very pleased with our performance year on horizon. It is a testament to all of our teammates across the country that despite navigating through a pandemic extremely high inflation on a cybersecurity event that we successfully delivered horizon.
More details can be found in our MD&A, but most importantly empire is now in a strong position to deliver consistent sustainable growth for our stack holders.
With our turnaround now complete the company will be focused on execution excellence and delivering consistent results.
Over the long term, we aim to deliver average annual adjusted EPS growth of 8% to 11% from both net earnings and share buybacks.
In our core food retailing business, we intend to continue improving our sales gross margin, excluding fuel and adjusted EBITDA margin.
We expect income from our real estate and other investments to be relatively consistent on an annualized basis.
There are several priorities, which will enable us to achieve these expectations.
Firstly, a strong focus on our stores, including the continuation of our store renovation program, new stores and enhancing brands program.
Near term initiatives I am brands includes rolling out a set of skus under the shallow brand enhancing our value size assortment and introducing new skus that align with our organic and green initiatives.
Secondly, we will enhance our focus on digital and data, including our expansion plans for the water.
Loyalty programs, we've seen plus improving space productivity and focusing on personalization.
Thirdly, we will focus on driving efficiency and cost effectiveness through initiatives tied to strategic sourcing and supply chain productivity.
Now on to capital allocation.
Our capital allocation strategy is supported by a solid balance sheet and the continued momentum in our business.
We announced earlier today at 10, 6% increase in our dividend.
On share buybacks, we completed our 2023 NCI program last week repurchasing 10 5 million shares since July of last year.
Today, we announced that we have renewed and CIB program to purchase up to $12 6 million shares.
And CIB intention of $400 million in fiscal 'twenty four is higher than last year, reflecting our increased confidence in our underlying business as well as capitalizing on our low valuation.
This year, we invested $797 million in capital.
Just shy of our estimate of $800 million cap.
Capital discipline is paramount to Marc Michael and I.
We expect to invest approximately $775 million in fiscal 2004.
As in prior years, we expect about half of this capital to be allocated to renovations and new stores.
Over the next three years, we plan to renovate approximately 20% to 25% of the network and about 50% of the capital will be allocated to sustainability initiatives, such as refrigeration system upgrades HVAC system upgrades and other efficiency initiatives.
Before I turn the call back to Katie for your questions. Let me update you on our adjusted metrics. So our reported earnings per share and adjusted earnings per share with both 72 cents, which was due to two adjustment items to offset each other.
We had a net recovery from a cyber event, primarily due to insurance recoveries, which was offset by the one time costs associated with the integration of groceries gateway.
<unk>.
And with that I'll hand, the call back to Katie and open the call for your questions.
Thank you Matt you May open the line for questions.
Thank you ladies and gentlemen, if you do have any questions. At this time. Please press star followed by one on your Touchtone phone you will then hear a sweetheart.
Prompt acknowledging your request and if you would like to withdraw from the question queue. Please press star followed by two and if using a speaker phone. We ask that you. Please lift the handset before pressing Andy Keys. Please go ahead and Crestar. One now if you have any questions.
And your first question will be from Charles.
At Scotiabank. Please go ahead.
Yes, good morning, Michael and Matt and congrats on the conclusion of horizon.
I just wanted to ask a little bit on the intra trend quarters. After the quarter on same store sales, maybe how that looks like and we're well into Q1, and maybe talk to that and how the congressional banners are performing.
Hi, George that yeah, thanks for the message on the quarter.
Yes.
We don't give information about the.
About the forward looking quarters, but what I would say is the momentum that we built in Q4.
<unk> has continued into Q1 now.
I kind of need to disclaim that a little bit because as we've been saying.
For quite some time now our expectation is that once inflation start to abate.
This will gradually move the tide in our favor.
But the key word there is gradually this won't happen overnight. So what we're expecting as of fiscal 'twenty four is a gradual and consistent movement of the tide in our favor and that will give us that momentum throughout the year.
I realize it doesn't specifically answer your question because I'm sure you after a number.
But suffice it to say that that momentum is gradually improving.
That's really helpful. Thanks, and Michael can you talk about which areas of the business. We are seeing the highest engagement I guess redemption activity from steam plus or just generally highest engagement is it more discount as a more conventional and once we get the personalization where you'd like it to be can you maybe share what you expect to ultimately contribute maybe just same store sales.
Our margins I guess longer term.
Yes.
We're seeing seen plus positively impact.
Every banner every region, where it's at I would say that because.
Fresh go did not have a loyalty program prior to seeing plas that obviously, it hasnt, even bigger impact for fresh go and it may even have on full serve but we're seeing very good results across full serve community.
Back everywhere <unk> more.
Quebec is obviously most recent addition in.
And I think that the customers there have embraced it and we even got better at implementing it because we had already gone through three other regions.
We haven't disclosed publicly.
Publicly what we think what it will result in but I can tell you that we expect it to.
To drive sales.
And deliver value to the customers and make it a much more sticky relationship.
And fruitful relationship between us and our customers.
And what's great is are all these new customers that are being exposed to us through the same plus program already in these.
Less than 10 months.
Remember that was all stage III had grown over $3 million Youre seeing plus members mostly because.
Because of the new grocery addition.
And now with <unk>.
Home hardware joining them when they started but theyre going to be in full force in the next month or two.
That it's going to be very exciting from a customer point of view some great Canadian brands put together. So I have to tell you there's nothing nothing but good coming at us right now.
I appreciate that thanks, I just want to ask me if I may for Matt on that 11% Etfs.
<unk> is a line of sight there three years.
Maybe I guess more near term how should we think of that EPS growth for fiscal 'twenty four.
Put another way is there anything getting in the way of us maybe not being able to do.
11% this year, assuming obviously the inflation continues to moderate.
So the reason that we say long term.
Is because that's exactly what it is this is a long long time.
<unk> and golf.
And frankly I think after the six year turnaround, where we gave very very specific metrics for a long period of time.
And with the success of that turnaround I think that privilege. So I think we're now at the point, where we can give that long term guidance.
No, we're not saying three five and we're not talking anything specifically about F. 'twenty four.
Yes, I'm sure you can draw your own conclusions with with our momentum.
As we go into next year, but we're not going to give a specific number for 'twenty.
Alright, I appreciate all the color. Thank you.
Thank you and your next question will be from Tami Chen at BMO capital markets. Please go ahead.
Hi, good morning, Thanks for the question.
First is I wanted to start off a bit higher level. So I think.
We all appreciate the.
Do you have that as inflation gradually to celebrate.
Our mix of business should disproportionately benefit.
I wanted to hear how you think about the gross margin even just gross profit dollars.
Decelerating inflation environment because.
So far with this elevated inflationary environment.
Your own brands has grown over national brands.
And so I'm just wondering as we come out of that what are you expecting.
Gross margin and the other question I have is how should we think about wage inflation going forward because I do think unlike some of the other retailers.
It has been Lasalle lagged impact for you guys given much of your workforce is unionized.
Okay. So maybe I'll I'll stop Tommy it's a great question.
And then I'll pass you onto Piazza give a little bit more detail just in terms of how we look at gross margin going forward as we kind of set the.
Horizon initiatives that they've improved gross margin.
Promotional optimization I am brands renovation programs.
We will continue moving forward.
So we're expecting to get incremental benefits from that moving forward and then in addition.
We're also expecting a mixed benefit as you think about as we exit this inflationary period, a full service <unk> it'll be stronger foodservice banner's margin accretive so we should get a mix benefit too.
So yes, we are expecting gross margin to continue to improve but to answer your specific question on brands and others I'll pass you to be at and labor.
Okay.
So for <unk> the impact on our gross margin will be positive.
We are having.
Better margin rate on owned brand and National brand on average.
And we are delivering more also venue.
Any profit went on brand with owned brands and National brands.
So and the growth in own brand right now is higher than national brand growth by significantly so.
<unk> to our gross margin rate and.
Gross margin dollars right now so what that's for.
Thats for gross margin and on brand on the labor side.
As you all know.
We saw minimum wages increase.
Almost in every province over the last year.
But again, we are working on different initiatives to generate efficiencies of soluble without compromising our service to our customers. So we have a roadmap in place to mitigate those increase the best we can and we're not seeing.
Seeing a major impact on our results based on those increases on wages.
Got it okay. Thank you and my second question is.
The E Commerce segment, I think last quarter was up.
9% in this quarter was down 13% and Theres a lot of noise of course, because this quarter you were lapping a year ago. So I wanted to ask for wildlife specifically can you talk a little bit more about.
That's been performing versus your expectations right now versus what you need to get closer to profitability in Ontario, and Quebec.
Yeah sure another good question.
So, yes, it's a little bit convoluted.
Right, because we're lapping against Omicron amoruso.
Sequentially comparing versus Q3, which includes the Windsor, which is obviously a peak.
Seasonal time, but let me give you specifically the numbers.
I'll start with total E com, so total E com.
<unk>, 19% if you exclude the 50 <unk> week, we were down 13%.
And most of that of course is GTA. The comparison this is on the crop.
Sequentially total ecommerce was flat.
So again showing.
Did progression versus the peak winter period.
For <unk>, specifically title VI was minus 15, 7% normalized for the 50 <unk> week, we were down nine 3% again.
G to omicron.
Sequentially, we were down one 5% versus Q3 and again, that's really GT Q3 containing the winter period.
So overall.
Well I repeat my message from previous quarters, we're really happy with water.
We have said previously the total size of the pie. The total market in Canada is a little bit less than what we had expected that remains to be the case.
Overall, very very happy with its progress.
Okay. Thank you.
Thanks Tommy.
You next question will be from Chris Lee at Deutsche Bank. Please go ahead.
Oh good afternoon, maybe just following up just a few questions on <unk>.
So Steve the earnings dilution of football outcome in line with your expectation in fiscal 'twenty, three and then by sort of some colors on what do you expect the dilution to be in fiscal 'twenty or just maybe even directionally. Thank you.
Well I'll answer that.
Two parts to the question Chris.
So in terms of dilution this year.
If you go back to the messaging during centralizing horizon, we gave very specific guidance, including the dilation figures umbrella as we exit horizon and move into F. 'twenty four we're not giving that level of transparency anymore rollout as a long term investment and we want to keep the focus on a long term <unk>.
<unk> said that.
Yes, Wally the dilution was broadly consistent with what we expected.
Sales were slightly lower than what we had planned so the dilution was slightly worse as well.
But having said that the most important thing is your second part of the question, which is what's the progression moving forward. What I can tell you is what we have seen and what we expect to continue is that each CFC.
Which of course are at different stages of development based on the launch timing are improving their profitability as expected. So CFC ones profit <unk> profit will get better and Thats 24.
And of course, CFC, three which has just been launched.
That will have its peak year of dilation in its first year.
So that's a long winded way of saying that the profitability progression is exactly as we expected it to be CFC by CFC.
Okay, that's great and I know this is part of a difficult question to answer.
In light of this morning's speculation about Amazon potentially interested in buying ocado, how would that impact your partnership with Ocado are there any sort of provisions that will put saggy bank or a change in control.
Yes, thanks for the question and Yeah. That's that's.
Good breaking news question.
Well if this this deal that's being reported does indeed occur I think my first take is it underlines once again that we made the right strategic decision to partner with Ocado that it's the best.
Way to go to market.
If that's true that.
Particular companies interested in acquiring it.
And yes, we have all sorts of.
Legal controls in place and contractual controls in place in terms of our deal with.
Ocado that would continue our agreement with Ocado contained very strong exclusivity language regarding retail grocery and the Ocado operating system in Canada, and any potential sale will not affect that so I think you know.
This is not.
I don't know where this is this deal is going to go forward or not but if it goes forward I feel pretty good about it if it doesn't go forward I feel pretty good. So it doesn't really change my perspective in terms of.
Thank heavens, we made that deal with that.
Great. Thanks, and maybe my last question I think it was <unk>.
Last quarter, Peter you mentioned most of the trade on that Youre seeing is really happening in fresh.
I'll give you an early but based on the latest CPI data seems like question inflation, while still elevated train and gradually back to that mid single digit rate and should continue to trend lower eastern Canadian dollars continues its upward trend. So I guess my question is are you seeing sort of the trade down fresh starting that's starting to stabilize.
Yes. Good question, Chris Yes, I think the worst is behind US we are seeing.
Some positive momentum on fresh, but yes customer remain.
Concerned with their budget and their strength. They are looking for deals and we are seeing that in our promo penetration the week after week, but in fresh in particular I think the worst is behind us and we are seeing positive trend right now.
So so that's.
I think people adjusted theirs.
Spend and now we are seeing a more stable is <unk>.
<unk> on fresh.
Okay. Thank you have a great summer and all the best.
Thank you thanks, Chris.
And next question will be from Mark Petrie at CIBC. Please go ahead.
Hey, good afternoon, I wanted to follow up on the topic of the cfcs in the ramp up I'm wondering if you could sort of contrast, the expectations for ramp up across the three.
Im trying to Montreal, Calgary, and I'm thinking of things like SKU ramp ups or number of Skus that introduction the relative.
Rose in in volume expectations marketing spend.
Kind of metrics.
Yes.
It's Michael I mean I'm just.
There's a huge difference we opened up CFC, one Toronto in the midst of the highest one of the highest levels of pandemic.
And even in June 2020, we only had 10000 skus, but that was just.
To serve customers. So we opened up earlier.
Then when we were completely ready and.
In contrast, Alberta, getting 20000, Skus and growing.
And in terms of marketing spend I wouldn't say the marketing spend is higher in fact, I think it's probably lower.
But because we have all the experience of how to open and how to how to market. It it's more efficient.
Obviously, we're more and more confidence in the operating.
System and the way to go to market.
And and also and we had a bit of a difference in from Toronto win that we had we already had a lot of stores doing e-commerce in Alberta, which we did to setup. So we'd already have some customer base.
Figured out in Alberta.
But I.
I mean, I don't think I think we're getting better and better and I think when we open in Quebec, we were very strong as well, but this is even stronger I think than like any opening of anything that's new store or even the CFC take awhile to gear up.
From my experience in retail is that Alberta markets. Good ecommerce market. So I look forward to seeing how we do.
Yes.
Okay. Thanks for that.
Also hoping you can give a little bit of commentary just with regards to.
The same store sales growth cadence.
In Q4.
You noted it was bit of a.
Noisy period, just in terms of what Youre lapping.
Especially in the early part of the quarter and so was it consistent.
That type of growth of two six through the quarter or was there a variance kind of month to month.
It was broadly consistent again very gradually increasing through the quarter. So yeah pass smiling to my right here. Because this is this is what we have kind of.
Plans and what we hope occurs throughout all of that 24 is this gradual improvement in momentum as inflation abate. So yeah. We were really really pleased with <unk> because that's exactly what we saw it just gradually improve momentum through the quarter.
Okay perfect. Thank you and then my last question is just around SG&A.
Gross and I guess, specifically SG&A dollar growth.
I mean, it was pretty well controlled in Q4, especially adjusting for DNA you called out incentive accruals I was wondering if you could quantify the impact of that and then I know, you're obviously not giving guidance specifically, but wondering if you could talk about the dollar growth youre expecting in fiscal 'twenty four.
Is it possible that it's.
In line with 23 or above or below or how you might think about that thanks.
Thanks, Mike So on SG&A dollars say, yes, it's a little bit lumpy because of the comparison year on year because of the 50 <unk> week.
The way I look at at <unk>.
SG&A dollars actually win.
It went down.
Very slightly but obviously last year, we had this week so on a normalized basis, our SG&A dollars went up by about $19 million.
And most of that as a continued investment in our horizon initiatives.
We will not call them horizon initiatives anymore, but.
But that long term medium term investments.
Depreciation was higher year on year due to a ramp up in Capex, which as you know we're controlling.
Moving forward and then incentives were lower I'm not going to tell you the number.
Julien I understand why but so incentives were a little bit lower year on year.
Now the second part of your question as to what we would expect leaving forward.
Yes, we are expecting SG&A dollars to increase.
So first of all we expect to grow next year. So you know when we think about retail labor and the variable component of SG&A that will continue to grow continue to grow and as we've consistently said that we're not going to take our foot off the gas in terms of our strategic investments.
CSC three will come online.
She will increase SG&A.
So there's those continued.
Continued investments on the any other thing just to call out is.
The west fuel divestiture.
So when that deal is confirmed by the competition authorities, that's a high sales low SG&A.
Business that will have to adjust for.
So those are kind of some of the moving parts, but yes, we do expect SG&A in dollars to increase next year.
For the reasons I just mentioned.
Okay I appreciate the comments and all the best.
Thanks, a lot.
Next question will be from Vishal Shah at the National Bank. Please go ahead.
Hi, Thanks for taking my questions I was hoping you could help me better understand in particular or what's driving your improvement in comp and even through the quarter to gradual improvement.
I know, we've talked a lot about it.
Already through the call but.
The consumer situation with the mortgages renewing still tough inflation is still high. So is this just a general industry comment with the inflation not getting higher.
Right or is it an empire improvement situation.
And anything you can help me to understand what in particular is driving that improvement that you saw.
King.
Yes, great question and I can't comment on our competitors I mean, I just know what we're seeing out there and that we're seeing.
We're seeing inflation slowing as I mentioned in the script and I think that in.
And the fact that we had some weird.
Covid stuff happening last year.
Plus the fact that we have all sorts of executing.
Our bedroom wave, we have a great loyalty program, we're doing better in our stores, we've got better merchandising our ops are doing well that's a bunch of different things, there's not one silver silver bullet out there.
But I would say that the improvement throughout the quarter is a combination of.
Yes.
Continuing I hope to get better, but a lot of it has to do with the fact that the.
But we're seeing full serve strengthened as inflation even starts to abate.
These are tough times out there for everyone.
You're absolutely right.
When you look at what people are paying in terms of mortgages or for rich.
Anything else. These are still tough times it is not over and hopefully we'll be through it soon.
Okay. So.
Just to follow up on that so you are seeing.
More strength in conventional but at the same time, you are seeing promotional intensity increase.
And that does that align with the understanding that you had at the time that you indicated to us that women's if inflation starts the cadence starts slowing you anticipate.
Our conventional business is starting to improve.
It's remained volatile right now so we're not out of the wood inflation remained high.
We are seeing as I said earlier, some normalization on fresh.
But we need to.
We remain extremely focused to manage those changes.
So.
The penetration I think.
The penetration is the challenge because people are looking for deals intensity.
Don't think so I think.
It's remained competitive like it wasn't like it will be but the penetration.
And we have to be careful on that and our team are doing an amazing job.
To manage it and to provide relevant value to our customers through different program, we've launched over the past year.
Especially with <unk> plus.
Member pricing and all of that type of thing.
It's new tools, we have and to make sure that we are providing value to our customer.
Without affecting our overall results.
Okay. Thank you for that color, that's very helpful and just changing topics here on capital.
Capital allocation.
A lot of cash commitments this year, you've got the dividend going up you've got to buyback.
The Capex program.
So how should we think about management's orientation with respect to leverage levels and the cash outlays.
Are you satisfied with the level of leverage that you have in terms of levels.
Or do you want to bring that down.
And if so.
Whats the right level that Empire should run at.
Yes, it's a great great question, Vishal and something that we've spent a lot of time looking at because if you think about it the I mean.
Our ability to do share buybacks is based on our amount of cash. So it is something that we've looked at in great detail.
We do expect.
Our cash flow generation to return to what I would call normal and in F. 'twenty, four which generates a lot of cash F. 'twenty three as you correctly stated was a bit of an unusual year.
Our expectation is that.
Credit ratios for example, our leverage ratios will remain approximately the same.
Hope that that'll improve very very slightly.
And as you know, we would never do anything to threaten our investment grade ratings.
A lot depends on our ability to generate cash next year, but we do expect that that's going to return to like I said, what I would refer to as normal.
Great question.
And the buyback you anticipate to be fully active on that.
Yes.
Yes.
Thanks, a lot.
Thanks Vishal.
Thank you.
Thank you next question will be from Michael Van <unk> at TD Cowen. Please go ahead.
Alright, thank you.
Would you mind talking a little bit about the.
Some of the differences in the consumer behavior geographically because we've seen some.
Credit card data that would suggest that the BCC customer is certainly more pressured than beyond the Quebec customer for example, and I'm wondering if that's something that you are seeing as well.
Right.
We don't see major differences by regions to be honest.
That's really the only difference we are seeing regionally it's on labor.
So labor shortages are more pronounced than <unk> seen in Quebec, maybe but in term of customer behavior, we're not seeing major differences.
Right.
Okay. That's interesting thank you and then.
When you look at the year E Commerce sales trends and I know they improved a little some sequentially and they've held up from the winter, but when you look at it relative to your peers your peers are.
Comping flat to slightly higher on the same on an apples to apples basis.
And yours are declining.
What could explain that difference.
Yes.
No because whenever we're looking at Mark I think we've talked about it.
Matt can talk more about if you want but in terms of in terms of the market and how we're doing some of it may be different timing I don't know, we'll have to take a look but.
We're pretty confident in terms of our ability to hold and grow market share here.
I was just and it's a very interesting question.
The only thing I would.
Also I would point out is we have a very different customer.
I think we said before that.
Payers are getting after the kind of the BDC with a very small basket.
Whereas for our customer average basket sizes as we said before is three five times the size of the somebody in a store so.
So that's kind of.
Really what the main differences, though I think it's just a different timeframe and a different customer.
Yes.
Okay, and then just finally should.
Caddo change ownership.
And.
I know this is highly speculative, but if the new owners if there wasn't you honor and they had less.
<unk>.
Less incentive let's call it two to focus on their next.
External customers, who wanted to focus on their own.
One growing their own e-commerce business.
What kind of.
Protection does embraer happen in terms of like the length of the support agreement.
Within your facilities.
We have a lot in the long.
And I got it.
<unk> Chief Development Officer is also our general counsel and he is nodding away here.
So.
I really don't.
Look at this as solid speculative it would take or is there a deal who is the buyer.
Cut down that would be very problematic.
For that.
Entity, if they were to do that in fact, I would I would think that would not be the case kind of in the international CFC that is a very important piece of that business.
Why they were not the only partner.
So I'm not yes.
I'm not I'm not going to lose too much sleep and then about first of all on something that Hasnt happened, but secondly, something which if it does happen I am sure that.
Keith.
Putting the best offering in the market to our customers.
Alright, thank you.
Thanks. My question. Thank you next question will be from Irene Mattel at RBC capital markets. Please go ahead.
Thanks, and good afternoon, everyone and lots of great color. Thank you just a couple of points of clarification.
So trying to understand the commentary around the cadence of investment charge on a call it transition.
As you opened CFC three but CSC won.
To gain.
Make sure the Mr market is a little bit challenging so should we be assuming.
Similar overall dilution or maybe a little bit more.
Yeah, a little bit less.
Well I think I'll have to leave that with you I mean to be honest with you.
Ed.
We're really trying to move away from giving spin.
Specific guidance on dilation dilation.
Your overall trend is right now so as we said when we launched the CFC that.
<unk> point that the violation and as you get volume passing through the CFC dilation decreases and ultimately passed the breakeven and then you make money.
CSC one is well on its way <unk> is on its way and <unk> three is just starting.
And the.
The other initiatives, we're looking at of course will improve that path to profitability.
The merger of grocery gateway into blood off for example in CFC, one and the other one nation efficiency initiatives, we're looking at.
Across all of our portfolios will all help.
Yes, that's about as far as we're going to as much guidance as we are going to give at this point.
Yes.
Understood. Thank you. The next question I had.
When you initially announced in class you noted that there was significant if you will.
Hence.
<unk> value.
An existing <unk> plus customers in part because theyre, just they had limited ways in which to regain share.
As you look at sort of the evolution are you actually seeing the benefit of.
In your sales.
Redemption, using pent up points.
It's a great question.
And I'm going to give you a very early answer which is a very simple yes.
But then I'm going to give you a little bit more detail. So firstly thats. The two things that really excited us about the transition one was the fact that there was all this all of these points in the market. Many many many millions of points in the market.
Could be now use the empire stores.
But there was also a large number of existing <unk> customers, who are not shopping at Empire Combi.
Combination of those two.
We believed would actually result in us having incremental net new customers to our bonus.
So.
When I said the easy answer is yes, it's because the data that we see so far is showing that we are taking new customers into our stores and using those points in our stores.
But it's early as we said a lot with the same program and not even a year into its journey yet. So this is something that we with our partnership with the <unk> program itself with closely monitoring.
Because we do expect that increase in demand early signs very good.
Is that it is early.
I don't want to either overstate the benefit yet.
That's really helpful. Thank you and then just sort of tying the whole issue of promotional intensity Athene Clos.
I understand I recognize its relatively early days.
Hi.
Presumably youre being able to keep.
Sure. If you will kind of move some of that straight up dollars and cents promotional activity to point small suppliers or personalized can you talk about where you are in that journey.
Yes, so it's a new promotion promotional tool.
The team is working well too.
Managed and mix of promotion.
Of course, we are investing.
Meaningfully in <unk> plus.
To give value to our loyal customer and.
It's good for both sales and margin. So we are seeing improvement in the transaction count quarter to quarter.
We are seeing improvement on the basket size quarter to quarter.
So that means it's not only seen plus activities, but it's the overall promotional mix management.
With new tools, so like we said earlier with promo accumulation. So now the scene loyalty promotion or into or promotional optimization tool. So we are managing all those promotion through optimization tool and it's why we're.
Are able to generate.
Good sales and margin.
So it's a combination of multiple factors that drive that performance and simpler.
It's a new addition to our tools.
And we're leveraging it right now and it's well received by customer.
Hey, there were expectations so far.
That's great. Thank you.
Thank you at this time I would like to turn the call back over to Katie Brian . Please go ahead.
Thank you Sylvie we appreciate your continued interest in Empire, if there any unanswered questions. Please contact myself or email we look forward to having you join us for our first quarter fiscal 2020 conference call on September 14th.
Zane.
Thank you ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
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