Q1 2024 Empire Co Ltd Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the first quarter of 2024 conference call at this time.

In a listen only mode.

The presentation, we will conduct a question and answer session.

Any time during this meeting.

Please.

Operator.

Is being recorded on Thursday September .

I would now like to turn the conference over to Katie Brian .

<unk> Investor Relations. Please go ahead.

Thank you Joanna 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. The call is being recorded and the audio recording will be available on the company's website, but embargo dots yet there.

There was a short summary document outlining the points of our quarter available on our website.

Joining me on the call. This afternoon, Michael Medline, President and Chief Executive Officer, Mike <unk>, Chief Financial Officer, parasitic Mara Chief operating Officer, and Dr. Nathan sudden Chief Development Officer General Counsel.

Today's discussion includes forward looking statements, we caution that such statements are based on management's assumptions and beliefs and are not 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 Bye Bye.

Good afternoon, everyone fiscal 'twenty four is off to a good start this quarter, we delivered positive topline growth, while maintaining strong control over margins.

We also advanced our key strategic priorities, including making several executive leadership changes to enable our go forward plans.

Despite the market volatility we continue to face the strong results delivered in Q1 exemplify our team's ability to consistently execute regardless of the macro environment.

I'm going to keep my comments shortened to the point as I believe our first quarter results speak for themselves.

On three topics today.

Our Q1 results and key market trends and update on our strategic the strategic priorities, including the recent leadership changes at.

<unk> rollout and the release of our sustainable business report.

First our results and market trends our sales excluding fuel grew four 8% this quarter with same store sales of four 1%.

This was supported by stronger top line performance and our full service banners as well as continued double digit sales growth of our discount banner.

Our internal inflation was well below CPI, reaching the lowest rate we have seen in 17 months.

We have positive indications. This trend will continue for example in non fresh categories. We implemented approximately one third of the value of cost increases in Q1 versus the prior year.

Nonetheless, the reality is that we continue operating in uncertain times with high market volatility rising interest rates and inflationary pressures.

Customers are continuing to adapt their purchasing behaviors in this environment, including trading down to cheaper cheaper alternatives and buying on promotion not surprisingly in Q1, we saw greater uptake from customers of our flyer and in store promotions in both our full service and discount banners.

Our team remains focused on providing the best value in offering to customers, including growing our value size offering increasing the number of products with <unk> plus member pricing and expanding our own brand assortment this quarter, which continued to outpace the market with double digit growth.

This quarter, we improved gross margin by 19 basis points, highlighting the discipline of our team while driving top line growth.

With our solid sales performance and margin control, we delivered a 40 basis point increase in adjusted EBITDA margin and adjusted EPS of <unk> 78 in Q1.

I'll move now to an update on our strategic priorities with our turnaround to ear are complete.

We began fiscal 2024 focused on ensuring we are setup to deliver against our renewed strategic priorities.

As part of this effort we made several executive leadership changes in Q1, we placed a number of talented leaders into key new roles. This team will play a pivotal role in helping drive the next phase of Empire's growth as we enhance our stores first focus.

An update on another key strategic priority seen plus.

Just over a year ago, we launched <unk> plus in Atlantic, Canada and at the time the program had approximately 10 million members.

Today, we have successfully completed our national rollout and same classes growing to over 14 million members. We have seen our active loyalty members increased over 30% this year and program, but wariness in affinity continue to grow.

Through this partnership <unk> Plaza has become the second largest loyalty program in Canada and is not done yet in August same class welcomed home hardware to the program.

Onto voila.

This quarter, we successfully launched our CFC three in Calgary and seamlessly integrated grocery gateway into boiler. We are pleased to now be offering <unk> farm boy and long those products across Ontario and <unk>.

<unk> gateway customers have quickly embraced boiler with strong repeat order rates and customer conversions exceeding targets, we continue to see strong customer retention rates and order frequency order.

Our frequency across all of our Cfcs, which helped contribute to our CSC is gaining national market share this quarter.

Moving to my last topic in July we released our third annual sustainability, sorry sustainable business report, we are the first grocer in Canada to have our scope, one and two near term climate targets validated through the science based targets initiative.

As part of our commitment to continuous improvement and transparency. We also published our inaugural task force on climate related financial disclosures aligned report and with that over to Matt.

Thank you Michael Good afternoon, everyone I'm also going to keep my comments short before we open it up to your questions frankly, our adjusted results are very straightforward driven by a quarter of strong consistent execution.

We're happy with our Q1 results with an adjusted EPS of <unk> 77.

Which is seven times higher than last year.

But before we talk about performance, let me walk you through the items, we excluded from our adjusted results as they were significant in Q1 and FX at operating income EBITDA net income and earnings per share.

Firstly, we excluded the gain from the sale of our western fuel business, which was completed on July <unk>.

This transaction resulted in a pretax gain of $91 million, which is reported in other income.

After taxes, the gain was $71 5 million or 28 cents of earnings per share.

Secondly, we excluded expenses associated with our continuing plans to optimize our organization and improve efficiencies.

In Q4 of last year, we started with the merger with grocery gateway into water.

In Q1.

We began looking at our organization and throughout fiscal 'twenty, four we will be incurring costs associated with these plants.

In Q1, we incurred costs of $9 7 million pre tax after tax these costs was $7 1 million or three of earnings per share.

Lastly, we excluded a small amounts of cyber insurance recoveries that we received this quarter the.

The vast majority of our claims are now with our insurers for that review. These are complex claims and we continue to expect additional recoveries throughout fiscal 'twenty four.

These three adjustments reconcile our reported earnings per share of $1 <unk>.

Two our adjusted earnings per share of <unk> 78.

Now.

Let's turn to our financial performance for the quarter.

We delivered same store sales of four 1% leased.

It reflected stronger performance from our full service banners and continued momentum in discount.

<unk> experienced a sales increase of seven 2% compared to the same period last year.

Our gross margin rate, excluding fuel grew by 19 basis points versus last year.

Last quarter I noted that we were starting to benefit from lower supply chain costs and these trends continued in Q1, which was a contributor to our gross margin expansion in the quarter.

Our SG&A rate was 75 basis points higher than last year, but showing an improving trend from Q4.

I've detailed before on these calls the higher SG&A dollar spend was mainly due to planned investments in business expansion, such as <unk> and fresh guy, but this quarter also higher retail labor costs, partially offset by improved leverage from our higher sales.

Operating income from the investments and other operations segment was $6 million lower than last year as a result of lower accuracy and excellent crombie REIT, partially offset by higher development income.

And as Michael mentioned, our EBITDA adjusted EBITDA margin was 40 basis points higher than last year.

Our effective income tax rate was 27, 5% in Q1.

The Q1 tax rate was higher than the statutory rate primarily due to some revaluation of tax estimate no all of which are occurring.

Partially offset by non taxable capital items.

Excluding any unusual transactions or differential tax rate's, a proxy sales we continue to anticipate that fiscal 'twenty four effective income tax rate will be between 25 and 27%.

Our balance sheet remains solid driven by strong free cash flow generation and strong discipline on capital spend.

We continue to strategically allocate our free cash flow to deliver the largest impact to our business in Q1, our capex totaled $124 million.

Mainly spent on investments and store renovations construction of new stores.

Investments in advanced analytics technology other technology systems in a boiler cfcs.

As of this week, we have repurchased approximately three 3 million shares for a total consideration of $115 million.

And with that I'll hand, the call back to Casey and we'll open it up for your questions.

Thank you Matt Joanna you May open the line for questions at this time.

Thank you.

Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone you will heal light Sweet home farm technology your request.

To withdraw your question. Please press star followed by the Q.

Ladies and your speaker phone please lift the handset before pressing any key.

First question comes from George <unk> of Scotiabank. Please go ahead.

Yes, good afternoon, Michael and Matt Congrats on a good quarter.

I just wanted to see.

Help us dissect that strong same store sales number a little bit.

How to conventional perform.

Much of that was aided by the <unk> redemption activity.

How much was that was aided by a competitor strike, perhaps temporary closure of some of the some of the locations in Quebec, maybe if you can just help us get a sense of that sustainability of that number on a go forward basis.

First of all thanks for saying that about our quarter, but personally reserves most of the banks he's going to answer it which is here so [laughter].

Alright. Thank you for your question.

Most of the day.

Progress, where we saw it in our same store sales are coming from.

Continuous.

Strong transaction counts in our full service business. So even in Q4 less in Q4 was good Q1 continued to be strong, but the biggest improvement is in the basket size now we're full service business or basket size is back to where it was last year at the same time, so a major a major improvement in our full service business, where we continue.

I would like to repeat that we continue to have higher transaction counts.

And now we are seeing improvement in our basket size. That's the main reason why same store sales has improved during.

During the quarter.

Yeah.

Concerning the strike it did not touched a quarter at all so it's and then next quarter.

And next quarter, it's de Minimis, we have seen 100 grocery stores.

Did not.

Our Q1 same store sales at all.

Okay, and I guess on <unk>, plus redemption, and maybe some closed locations from another competitor and good luck.

<unk> will continue to do a very strong progress on penetration.

And unseen.

Other than expected well above plan.

The conversion has been has been very smooth on a safe or or or change that size very minimal disruption.

<unk>.

Added new promotional tools.

We've seen plus.

Remember our pricing is resonating a lot with customer right now and we're pleased with that because it give benefit to our <unk>.

Best customer so we really like the response of our customer with the new <unk> plus program. So far everywhere in the country, it's consistent across provinces and regions and banner.

And including discount which is new for them.

Okay and on <unk>, specifically I'm following up on that on the press release you mentioned.

Next generation recommendation engine can you maybe talk a little bit.

But what what that means what that can do and I guess ultimately that could translate to.

Higher top line and margins.

Oh, yes.

We're only in.

Hey, guys. Just asked me sports stuff you don't ask me that anymore, but if there was a baseball game.

Although my <unk> are struggling with this.

Would be the first inning and we got so this is an unbelievably.

Powerful engine, we now have in loyalty, which is making a difference like Peter said, but what we are referring to and we shouldn't use so much jargon I think in our press releases this personalization.

And we are early in the first inning of that.

Baseball game there in terms of we're able to use that.

Although it started and we're making some progress it is such an upside for us as we go forward to be able to use the data able to serve our customers better, but I apologize for kind of a try.

As to what we wrote.

I had to actually think about it for a second what that meant so but thanks for asking about it.

Okay. Just last one for me I know this is maybe a left field question, but.

The unlikely event that we may be see deflation next year.

Just wondering how our strategy would change.

If at all.

Okay.

For Canadian sake, let's see let's see inflation stuff in a little deflation to happen.

We're so busy combating inflation every day I'm not sure we have a whole plan on how to deal with the deflation, but I think Peter you've thought about it a little bit we talked.

We expect the inflationary rate continue to go down, especially when we with <unk>.

Across peaks of last year and inflation. So we continue to see.

Cost increases not at the same magnitude than last year.

Like Michael said in his opening remarks.

Something around the <unk> of what we had last year at the same time.

But and that's <unk>.

Less than and number and less in magnitude so and with very.

Very high inflation rate last year, so I expect to see lower inflation rates in there.

The next coming months, so that's what we expect in but business as Mark and the market is so volatile every time, there's an announcement we are seeing customer behavior changing so we need to see.

He's on the ball and.

Monetary depth.

We're trying to predict but it's very tough to predict but the trend is in the right direction for us and we are seeing positive results in our same store sales and transaction counts.

Okay, great. Thanks for your answers.

Thank you. The next question comes from RBC.

RBC capital markets. Please go ahead.

Thanks, and good afternoon, everyone. Just following up on George's question with respect to <unk> plus.

Can you explain to us the types of personalized promotions, you're you're offering now and where do you want this to go where do you want to take that and then also what is the current attachment rate or the percentage of your transactions that now have loyalty attached to them.

Yeah, I'm going to I'm going to ask Pierre to answer the first one but he is going to be very cautious in terms of first of all you don't want to tell our competitors what we're doing.

But the second one is we're basically already at the same level, we were prior to <unk> plus.

Already.

In terms of penetration, where we call penetration.

That's what you're referring to.

Thanks Oliver.

Yeah.

Personalization is is something that I think everybody can read it.

In different articles, so we have a better visibility on what our customer are buying or not buying.

In our network and offer them.

Promotion and product that we believe that with.

Meet their needs.

So could vary a lot depend on is it the families at the single person we have a large range of data that we are using now and we are learning from it and we already started to do personalization at low scale.

Piloting a lot of things and merchandising team and loyalty team are learning everyday and we continue to see progress on.

The results were having with personalization.

And it's where we need to go.

The market will move from mass promotion to personalization and it's exactly how we should manage it going forward then we see a lot of potential of <unk>.

Switching gradually consciously but gradually from mass to Bruce.

That's very helpful. Thank you and then just on a different topic in terms of labor, obviously, we all see what's going on what's going on is as you know Canadian.

Joanna: Thank you, Joanna.

Joanna: 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.

Canadians trying to cope with very high cost of living do you have any significant contracts that are coming for renewal this year.

Joanna: The call is being recorded and the audio recording will be available on the company's website at empireco.ca. There's a short summary document outlining the points of our quarter available on our website.

Hi, it's Michael Thanks for the question I ran yes, we have.

Many labor agreements every single year coming due we just have so many in this grocery industries highly unionized.

Joanna: Joining me on the call this afternoon, Michael Medline, President and Chief Executive Officer, Matt Reindel, Chief Financial Officer, Pierre St. Laurent, Chief Operating Officer, and Dr. Nathanson, Chief Development Officer, and General Counsel.

So in any given year, we have a lot of it and remember last year. We Unfortunately had the first strike we had in a long time with the turbine facility, we were able to come to a fair agreement with our.

Joanna: Today's discussion includes four looking statements. We caution that such statements are based on management assumptions and beliefs, and are not subject to uncertainties and other factors that could cause actual results to differ materially. I refer you to our news release and MDNA for more information on these assumptions factors.

With our teammates and get through it without really impacting customers at all and so theres a bunch coming up.

There'll be in the news I'm sure and usually we settle them.

Michael Medline: I will now turn the call over to Michael Medline. Good afternoon everyone, fiscal 24 is off to a good start. This quarter we delivered positive top line growth while maintaining strong control over margins.

We are fair, but as you can guess, we don't take an unreasonable deal.

Understood. Thank you.

Thank you. The next question comes from Mark Petrie at CIBC. Please go ahead.

Michael Medline: We also advanced our key strategic priorities, including making several executive leadership changes to enable our go forward plans. Despite the market volatility we continue to face, the strong results delivered in Q1 exemplify our team's ability to consistently execute regardless of the macro environment. I'm going to keep my comments shortened to the point as I believe our first quarter results speak for themselves. I'll focus on three topics today.

Yeah. Good afternoon, I wanted to just ask about our gross margin and just taking a look at the trends. Excluding fuel you guys have been delivering gains for quite some time of Q1 moderated from what we saw last year.

It's just you know partly a reflection of the gains already being embedded in the business, but can you just discuss any other drivers I know you called out efficiencies in supply chain, but any elaboration would be great.

Michael Medline: Our Q1 results in key market trends and update on our strategic priorities, including the recent leadership changes, scene plus and voila and the release of our sustainable business report. First are results in market trends. Our sales excluding fuel grew 4.8% this quarter with same store sales of 4.1%. This was supported by stronger top line performance and our full service banners as well as continued double digit sales growth of our discount banner.

Yeah. Thanks for the question Mark.

That's a very fair observation.

During the past six years, we've been able to expand operating margins significantly.

But that was horizon and now we're at the point now while we have a very strong sustainable stable business. So.

It's not as easy to significantly increase the margin.

Couple of things to call out number one is that you will notice that our gross margin is not going down and what that tells you is that all of those initiatives that we've delivered over the past six years with sustainable and continue to deliver that same level of performance. So that's number one and that's the most important one.

Michael Medline: Our internal inflation was well below CPI reaching the lowest rate we've seen in 17 months. We have positive indications this trend will continue. For example, in non fresh categories, we implemented approximately one third of the value of cost increases in Q1 versus the prior year. Nonetheless, the reality is that we continue operating in uncertain times with high market volatility, rising interest rates and inflationary pressures. Customers are continuing to adapt their purchasing behaviors in this environment, including trading down to cheaper alternatives and buying on promotion.

Number two is yes, we still continue to expand our gross margin, so 19 basis points for the quarter.

Some of which was driven by supply chain.

<unk>.

We have other initiatives coming.

And in gross margin.

But the days of having the massive increases in gross margin are probably behind us. What we are looking to do now of course is not the right balance between top line sales.

Michael Medline: Not surprisingly, in Q1, we saw greater uptake from customers of our flyer and in store promotions in both our full service and discount banners. Our team remains focused on providing the best value and offering to customers, including growing our value size offering, increasing the number of products with scene plus member pricing and expanding our own brand's assortment this quarter, which continued to outpace the market with double digit growth. This quarter, we improved gross margin by 19 basis points, highlighting the discipline of our team while driving top line growth. With our solid sales performance and margin control, we delivered a 40 basis point increase in adjusted EBITDA margin and an adjusted EPS of 78 cents in Q1.

And improving the underlying performance of the business, which is reflected in gross margin.

That's kind of what our expectation is moving forward.

In addition, what we should see.

It's a mix benefit as a full service business continues to get better and get stronger.

So we should get a mix benefit.

Margin too.

That gives you enough color.

Yeah, Yeah. It does and maybe just further on that on the sort of topic of mix and specifically fuel I don't know if theres anything you can help us with just with regards to the impact of the of the divestiture in Western Canada in terms of impact on sales EBITDA were or even just margin rates.

Michael Medline: I'll move now to an update on our strategic priorities. With our turnaround era complete, we began Cisco 2024 focused on ensuring we are set up to deliver against our renewed strategic priorities. As part of this effort, we made several executive leadership changes in Q1. We placed a number of talented leaders into key new roles. This team will play a pivotal role in helping drive the next phase of empire's growth as we enhance our stores first focus.

Well, it's not going to have a significant impact at all of them.

Well, a big piece of the business, we can give some details offline, but the particularly with regards to gross margin investment not forget our fuels.

A very low margin business.

We will have.

A small impact on gross margin, but nothing worth calling out.

Yeah, Okay, and then Peter just I guess on a related question just with regards to.

Michael Medline: An update on another key strategic priority scene plus. Just over a year ago, we launched scene plus in Atlanta, Canada. And at the time, the program had approximately 10 million members. Today, we have successfully completed our national rollout and scene plus is grown to over 14 million members. We have seen our active loyalty members increase over 30% this year and program and awareness and affinity continue to grow. Through this partnership, scene plus has become the second largest loyalty program in Canada and is not done yet. In August, scene plus welcomed home hardware to the program.

SKU count.

Is there anything sort of notable there is that relatively stable as are most of the changes there sort of fully flowed through and then just from a supplier perspective any change in terms of product availability or what youre seeing with regards to skew.

SKU count or innovation from your from your supplier partners. Thanks.

That's a good question because it's it's key for us in our full service business the assortment and the thing we are seeing over the last couple of mountain quarter, It's an improvement from our supplier two <unk>.

Michael Medline: Onto Voila. This quarter, we successfully launched our CFC 3 in Calgary and seamlessly integrated grocery gateway into Voila. We are pleased to now be offering soby's, farm boy and long goes products across Ontario.

<unk>.

Bring back the assortment that we're looking for because it is key for our differentiation and we're seeing improvement on service level and vote.

What we call the <unk>.

Michael Medline: Grocery gateway customers have quickly embraced Voila with strong repeat order rates and customer conversions exceeding targets. We continue to see strong customer retention rates and order frequency across all of our CFCs which help contribute to our CFCs gaining national market share of this quarter.

Industry so.

Supplier or more are filling our orders are more on time, we are seeing improvement in service level and the SKU count is almost back to where it was pre pandemic.

There are some category, where we are.

Still working on but it's a matter of time that would be back.

Michael Medline: Moving to my last topic in July, we released our third annual sustainability, sorry sustainable business report. We are the first grocer in Canada to have our scope one and two near term climate targets validated through the science based targets initiative. As part of our commitment to continue some improvement and transparency, we also published our inaugural task force climate related financial disclosures aligned report.

The thing I'd like to also mentioned as we continue to expand our assortment and owned brands.

And in the next year, we will expect to.

Expand our assortment in own brand, but because it resonates a lot with customer right now and <unk> continued to over pro formed a market. We continue to deliver solid margin with our own brand and it's another element that contribute to our performance overall on both sales and margin.

Matt Reindel: And with that, over to Matt. Thank you Michael. Good afternoon everyone.

So we're almost back to prevent they make and we will.

Yeah.

Matt Reindel: I'm also going to keep my comments short before we open up to your questions. Frankly, our adjusted results are very straightforward driven by a quarter of strong consistent execution. We're happy with our QOn results with an adjusted EPS of 77 cents, which is 7 cents higher than last year. But before we talk about our performance, let me walk you through the items we excluded from our adjusted results. As they were significant in QOn and affected operating income, EBITDA, net income and earnings per share.

Expand our assortment of owned brand going forward.

Okay. That's excellent thanks for all the comments and all the best Thank you.

Bob.

Thank you. The next question comes from Jimmy Chen with BMO capital markets. Please go ahead.

Thanks, Yeah I wanted to go back to the same store sales you said that the biggest driver is the basket coming back to essentially the last year level and I was wondering if you could maybe opine a bit on.

Matt Reindel: Firstly, we excluded the game from the sale of our Western fuel business, which was completed on July 30th. This transaction resulted in a pre-tax gain of 91 million, which is reported in other income. After taxes, the game was 71.5 million or 28 cents of earnings per share. Secondly, we excluded expenses associated with our continuing plans to optimize our organization and improve efficiencies. In Q4 last year, we started with the merger of grocery gateways of Walla.

What's driving that because your competitors are saying that discount continues to be strong and the trade down behavior is still very much in play, but clearly what you're seeing is shoppers T. As full service, bringing some log their basket back today or so like what do you think.

Mike might be driving now like what what's going on there because we seem to be getting a little bit of a mixed messaging on both sides.

[laughter], Okay. That's a good question.

We continue to see a difference between discount and for service that's true.

Matt Reindel: In Q1, we began looking at our organization, and throughout fiscal 24, we will be incurring costs associated with these In Q1, we incur costs of 9.7 million pre-tax. Aftertax, these costs were 7.1 million or 3 cents of earnings for share. Lastly, we excluded a small amount of cyber insurance recoveries that we received this quarter. The vast majority of our claims are now with our insurers for their review. These are complex claims and we continue to expect additional recoveries throughout fiscal 24.

However to explain our performance and our full service business I think it's like too.

Tank, our merchandising team and operations team they have been very good to showcase.

The value we can offer to customer.

Like we are dealing with right now so in.

In terms of promotion.

We adjust our promotion promo mix is well under control we are very competitive on our promotion we are able to manage a true at different promotion tools.

Matt Reindel: These three adjustments reconcile our reported earnings for share of a dollar and 3 cents to our adjusted earnings for share of 78 cents.

We are promoting.

Big size owned brands.

Motion.

Matt Reindel: Now, let's turn to our financial performance for the quarter. We deliver same-store sales of 4.1 percent which reflected stronger performance from our full-service banners and continued momentum in discount. For our experience, the sales increase was 7.2 percent compared to the same period last year. Our gross margin rate, excluding fuel, grew by 19 basis points versus last year. Last quarter, I noted that we were starting to benefit from lower supply chain costs and these trends continued in Q1 which was a contributor to our gross margin expansion in the quarter.

So.

Value proportion I think thats it.

It's a combination of many tactics that drive back the basket so.

Andy do magic, it's a little small things that drive this improvement in my opinion, plus I think <unk>.

Customer are adjusting their budget and again I just want to.

Callout that again.

Our customer remained in our stores, we continue to have strong transaction counts in our full service banners across the country.

Trade down for obvious reasons, but we have been able to showcase the value we can offer outside their normal behaviors and normal purchases.

Matt Reindel: Our SG&A rate was 75 basis points higher than last year but showing an improving trend from Q4. As I've detailed before on these calls, the higher SG&A dollar spend was mainly due to planned investments in business expansion such as Farmboy, Wallar, and Freshgo. For this quarter, also higher retail labour costs were partially upset by improved leverage from our higher sales. Operating income from the investments in other operations segment was 6 million lower than last year.

Where the improvement is coming from.

Okay interesting.

I know you said earlier that promotional penetration in elevated naturally because the consumer is looking for deals, but how about promotional intensity. How would you characterize that it sounded like from your answer to my question. Just now maybe your intensity has gone.

Matt Reindel: As a result of lower equity earnings from Crombie REIT, partially offset by higher development income. And as Michael mentioned, our adjusted EBITR margin was 40 basis points higher than last year. Our effective income tax rate was 27.5% in Q1. The Q1 tax rate was higher than the statutory rate, primarily due to some revaluation of tax estimates, not all of which are occurring, partially offset by non-taxable capital items. Excluding any unusual transactions or differential tax rates on proxy sales, we continue to anticipate the fiscal 24 effective income tax rate will be between 25 and 27%.

Or are you, saying, you're not necessarily on an absolute level of promotional intensity has gone up but rather you're being a bit more.

The nurse and strategic about your promotions in the full service channel.

I don't think the intent.

Intensity I don't see major changes there.

We know and the thing we are seeing in customer behaviors.

It's not a surprise people if people are looking more for deals and our job is to or to offer a damn good deals and maybe there is some deals are less good than other.

Thing that team has been able to find the right deal for their needs and.

Yes, we are seeing more.

Romo penetration, but not more intensity and promote penetration is obvious for largest reason as I said, but they have been able to match balance all of it and adjust our promotion plan to their customer needs. That's all what I can say, but there is pressure on promo for sure but not the intent.

Matt Reindel: Our balance sheet remains solid, driven by strong free cash flow generation and strong discipline on capital spend. We continue to strategically allocate our free cash flow to deliver the largest impact to our business. In Q1, our CAFACs totaled 124 million, mainly spent on investments in store renovations, construction of new stores, investments in advanced analytics technology, other technology systems, and our voila CFCs. As of this week, we have repurchased approximately 3.3 million shares for a total consideration of 115 million.

City.

If I may.

Okay got it that was it for me. Thank you.

Thanks Tommy.

Thank you. The next question comes from Michael.

At TD Cowen. Please go ahead.

Hi, good afternoon.

I wanted to ask you about <unk> plus as well since you've covered a lot of things that I was going to ask.

Matt Reindel: And with that, our hand Thank you, Matt.

But now that you've got seen in Ontario for about a year now and you've got it across different formats can you provide some insight as to how your customers are shopping in multiple banners and then yeah.

Joanna: Joanna, you may open the line for questions at this time. Thank you.

Joanna: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a three-tone prompt of acknowledging your request. If you would like to, with drug requests, can please press star followed by the two. If you are using your speakerphone, please lift the handset before pressing any button.

As the customers look to or can lease consider going back and going more back into those conventional banners.

Kind of tools or what kind of strategies, you might be using to keep them within your own ecosystem.

George Doumet: The first question comes from George Doumet at Scotiabank. Please go ahead. Yeah, I'm going to actually, Michael and Matt, congrats on a good quarter.

Okay.

Okay.

So now we have the so first of all we introduced <unk>, plus and discount banner in less than a year ago.

Michael Medline: I just wanted to, can you help us dissect that strong same source, the old number a little bit. How did conventional perform? How much of that was aided by the seam redemption activity? How much of that was aided by some of the locations in Quebec? Maybe if you can just help us get a sense of that sustainability of that number on a go-forward basis?

So it's fairly new.

Ontario, It's also new not the year.

I'm trying to in November last year.

So it's early days, but we know that people are shopping multiple channel E. Com full service discount <unk> fan boy and now we are seeing because we are offering.

Pierre St. Laurent: I'm going to, first of all, thanks for saying that about our quarter, but the person who deserves most of the thanks, he's going to answer it, which is here. All right, thank you for your question. Most of the progress we saw in our seams to our sails are coming from. Continuous, strong transaction count in our full service business. So, even in Q4 last and Q4 was good, Q1 continued to be strong, but the biggest improvement is in the basket size.

We are offering.

All of those brands and water.

That's the intent.

We want to keep customary nowhere ecosystems of bran.

And now we have the tools with <unk>, plus two to measure that and to behave accordingly.

It's early but I'd say thats, the intention to keep our customers and our ecosystem of brands.

Alright.

I think you remember, we tell us about how the.

Pierre St. Laurent: Our full service business, our basket size, is back to where it was last year at the same time. So major, major improvement in our full service business. But we continue, I would like to repeat that. We continue to have higher transaction counts, and now we are seeing improvement in our basket size. That's the main reason why seams to our sails are improved during the quarter. Concerning the strike, it did not touch the quarter at all, so it's in the next quarter.

Intra DC and as being the <unk>.

Perella over kind of the Omnichannel experience. So what we want is as customers shelf in each of those different.

Channels that shopping in an Empire channel.

On the hook for that keeps them there is the EC so having that loyalty program all of all of our banners and channels I mean, it's early days, but that's obviously what the intention is.

And we start to make progress in that regard okay.

Pierre St. Laurent: But in the next quarter, it's the minimus. We have seen 100 grocery stores. It's not going to be. It did not affect our Q1 seamstorces at all. Okay, and I guess on seam plus redemption, there may be some closed locations from another competitor in Quebec. Oh, they continue to do a very strong progress on penetration and on seam. Better than expected, we above plan. The conversion has been very smooth. Honestly, for change that size, very minimal disruption.

This point in time, it's too early to see if this is the <unk>.

Morale is keeping them.

Within your ecosystem as they move as they just.

Start to change that banners or are.

Our or segments of the market.

Yes, I don't I mean, it's so early I don't want to extrapolate where I said before we're really really happy with the <unk>.

Program, but I don't want to extrapolate from this little history and data as we have in and then have to come back to you and tell you, it's better or whatever I think that well.

We obviously have a way better view.

Pierre St. Laurent: We added new promotional tool with seam plus. Member pricing is resonating a lot with customer right now, and we're pleased with that, because it gives benefit to our best customer. So we really like the response of our customer with the new seam plus program so far. Everywhere in the country, it's consistent across provinces and regions. And banner, including discount, which is new for them. Okay, and on seam, specifically, I'm just following up on that.

Our customers than we've ever had before but I'm not going to pretend we know everything theyre doing at all times yet.

Alright sounds good.

You sold your whatever 15% or so of your gas stations.

Wondering.

What the plans are for the rest of those stations.

Are there other assets that you might be looking to divest that you might consider non core.

I mean I think the.

Our answer on this is consistently.

Fuel stations in the last.

Pierre St. Laurent: On the press release, you mentioned next generation recommendation engine. Can you maybe talk a little bit about what that means, what that can do, and how I guess ultimately that can translate to higher top line in margin. Oh yeah, that's the, I mean, we're only in, you guys just ask me sport stuff, you don't ask me any more, but if there's a baseball game, although my jays are struggling, this would be the first inning, and we got, so this is an unbelievably powerful engine we now have in loyalty, which is making a difference, like Pierre said, but what we're referring to, we shouldn't use so much jargon, I think, in our press releases is purification.

Non strategic in that they didn't have a convenient still attached to them and I would literally just a fuel sites.

Fuel stations in the east have come with a much more refined and substantial convenience stores such a much more kind of strategic piece of our business that right. Now we have no plans to divest of that piece of the business.

Yes, that's it.

For other assets.

No I think we're happy at the moment with our mix of assets Alright.

Alright, thank you.

Thanks, Mike.

Okay.

Thank you. The next question comes from Vishal Shah.

National Bank. Please go ahead.

Pierre St. Laurent: And we are early in first inning of baseball game there in terms of able to use that, although it's starting, and we're making some progress, it is such an upside for us as we go forward to be able to use the data and be able to serve our customers better. But I apologize for kind of a, if that's what we wrote, I had to actually think about it for a second what that meant, so but thanks for asking about it. Okay, it's a lot for me.

Hi, Thanks for taking my questions.

With respect to.

The customer changes that you indicated or suggested that would happened several quarters ago that are happening I think.

You suggested that one inflation stabilizes you anticipate your conventional banners to.

We gained some momentum we've seen that in the results I'm wondering if you've seen the same thing in your E com business.

And if.

Michael Medline: I know there's maybe a left-deal question, but you know, I'm the unlikely event that we maybe see deflation next year, just wondering how our strategy would change, but all. Please, please, for Canadians, let's see, let's see, inflation itself and a little deflation happen. We're so busy combating inflation every day. I'm not sure we have a whole plan on how to deal with deflation, but I think peer-eaf, but a little bit, we talked.

If not maybe what what's what's causing that difference.

I'll talk just generally and then I'll talk about the.

Now reports to him now.

Yeah I'd say.

We called it pretty well when we came out with it nine months ago.

And we talked about that we were saying was.

We had a strong belief as inflation abates, we're going to do very much better.

It was a little tiny bit slower than we would've liked to see for Canadians.

Michael Medline: Now, we expect the inflation rate continue to go down, especially when we will cross peaks of last year in inflation, so what we continue to see cost increases, not at the same magnitude than last year, like Michael said in his opening remarks, something around the third of what we had last year at the same time, but and less in number and less in magnitude, so and we will cross very high inflation rate last year, so I expect to see a lower inflation rate in the next coming months, so that's what we expect, and what businesses market in the market is so volatile, every time there's an announcement, we are seeing customer behavior changing, so we need to see eyes on the ball, and monitor that, we're not trying to predict, but it's very tough to predict, but the trend is in the right direction for us, and we are seeing positive results in our same sources and transaction counts. Okay, great, thanks for your answers. Thank you.

For our business.

I would say that nothing is a straight line right.

It's choppy.

Consumers are skittish out there, but the.

The line.

The momentum is exactly what we called just a tiny bit slower than we would have liked.

But I think that kind of appears ready to say before we're not we're not economists right out of the government the government goes everything.

We don't know everything and.

And.

But I think we called it pretty well right and we are becoming cautiously optimistic that the.

The consumer is.

Becoming is going back to their previous behaviors and that inflation is going to greatly fall in grocery I can't call every other industry, but grocery okay.

And.

Just on the <unk> piece of that.

So <unk> itself in the last quarter grew market share we're.

We're pleased with that customer metrics continued to be strong.

Summer is traditionally soft and we are seeing.

Irene Nattel: The next question comes from Irene Natal, at RBCC AppLockets, please go ahead. Thanks, and good afternoon everyone, just following up on George's questions, with respect to Scene Plus, can you explain to us the types of personalized promotions you're offering now and where you want this to go, where you want to take this, and then also what is the current attachment rate, or the percentage of your transactions that now have loyalty attached to them?

Customer back.

Right now because the back to school fall, etc.

And we added.

Skus and hour shifts you won with water.

We just lounge CFC treated Calgary.

So with fall in cold weather and better assortment.

And we'll continue on this trend to grow market share with what are the best infrastructure to go after the E Commerce business and we continue to believe in it strongly.

Irene Nattel: Yep, I'm going to ask Pierre to answer the first one, but he's going to be very cautious in terms of, first of all, you don't want to tell a competitor what we're doing, but the second one is we're basically already at the same level, we were prior to Scene Plus already, in terms of penetration, what we call. Foundation. That's what you're referring to. Thanks. I will prove. Personalization is something that I think everybody can read it in different articles, so we have a better visibility on what our customer are buying or not buying in our network, and we'll offer them promotion and product that we believe that will meet their needs.

Okay. Thank you for that and.

Regarding regarding blah blah. After after the next CFC launches is that it for substantial infrastructure investments for Lala and and.

And.

And if so then what would be the next steps are to accelerate to that business. So that sales are.

I want them to be.

Yeah, that's pretty well the last step at this time.

At the same time I believe at some point we're.

We're gonna Rollouts can be booming and it will it.

It may justify more investment or or will fill up CFC one tomorrow.

Some more those are those are really good problems that occurs but after after Vancouver.

Irene Nattel: So could vary a lot. The pen of, is it a family? Is it a single person? We have a large rate of data that we are using now, and we are learning from it, and we already started to do personalization at close scale. We are piloting a lot of things, and merchandising team and loyalty team are learning every day, and we continue to see progress on the results we have with personalization, and it's where we need to go.

That's it and so that the capital is invested.

I'd say 90, 599%.

Irene Nattel: The market will move from mass promotion to personalization, and it's exactly how we should manage it going forward, and we see a lot of potential of switching gradually, consciously, but gradually from mass to personal. That's very helpful. Thank you.

We might do a few folks here and you know that's about it.

What will it cover maybe.

What percentage of the population will those four cover now 90% of the E com or 90%.

So which is pretty good poor foreshadow, 90% of the population and.

And everything you look at strategically shows that this is going to grow it's growing slower perhaps over the last couple of years.

Then we would expect it but I think we're in good shape.

Okay.

After that fourth CFC.

Installed it and is it a period of time after which the exclusivity date. If it is can you just remind me on on how that works.

Michael Medline: And then just on a different topic, in terms of labor, obviously, what's going on is, you know, Canadian's trying cope with very high cost of living. Do you have any significant contracts that are coming for renewal this year?

No.

I have a confidential document I'm not allowed to share, but I can think of.

No.

Well enough that we're we like exclusivity for a long long time.

So that's all I'll say.

Michael Medline: Hi, Michael. Thanks for the question I read. Yeah, we have many labor agreements every single year coming due. We just have so many in this grocery industry is highly unionized. So any given year, we have a lot, and remember last year, we unfortunately had the first strike we had a long time at the Terabon facility, and we were able to come to a fair agreement with our teammates, and get through it without really impacting customers at all. And so there's a bunch coming up. There'll be in the news, I'm sure, and usually we settle them. We are fair, but as you can guess, we don't take an unreasonable deal. Understood.

Michael Medline: Thank you.

Thanks, and thanks for your time thanks.

Thanks.

Thanks Vishal.

Yeah.

Thank you and the last question comes from Chris Li at Asia, Dan. Please go ahead.

Hi, Good afternoon, everyone, maybe I'll, just maybe start off with a follow up questions on the basket size getting stronger.

I'm just wondering if there are certain categories that are helping that growth and I know in the past we've talked about session was one category, where you saw more tradeoffs in the beginning but theres only so much frozen and Ken that people can eat so as inflation moderates is that sort of one category that stands out that youre seeing.

That basket being.

Being stronger.

It's a good question I don't have the number in front of me by category, but one thing I can see is where we said the biggest trade down it wasn't fresh categories.

Mark Petry: The next question comes from Mark Petry at CIBC. Please go ahead. Yeah, good afternoon. I want to just ask about Gross Margin, and just taking a look at the trends, excluding fuel. You guys have been delivering gains for quite some time. A Q1 moderated from what we saw last year. I assume it's just, you know, partly a reflection of the gains already being embedded in the business, but can you just discuss any other drivers? I know you called out efficiencies in supply chain, but any elaboration would be great.

Where people made.

Sadly cost cut in but now we are seeing at.

Adjustment and we are seeing fresh sales going up.

Again, I think there is something also related to the efficiency of our promotion and their relevance to a promotion that hell bring back pressure sales.

So, but yes, I think because fresh has been more impacted with trade downs, it's fair to assume that.

Matt Reindel: Yeah, thanks for the question Mark. Yeah, so it's a very fair observation. You know, during the past six years, we've been able to expand our Gross Margin significantly, but that was horizon. And now we're at the point now where we have a very strong, sustainable, stable business. So it's not as easy to significantly increase the margin. There's a couple of things to call out. Number one is that you'll notice that Gross Margin is not going down.

Part of the progress we've made have been done in fresh.

Because non fresher remained consistent.

Even in peak of inflation. So people may trade downs with overall non fresh category remained strong and sales and tonnage versus fresh. So I think it's mostly coming from fresh category, where we've made progress.

Okay. That's helpful. Maybe a related question is I'm not sure.

Matt Reindel: And what that tells you is that all of those initiatives that we've delivered over the past six years were sustainable and continue to deliver that same level of performance. So that's number one. And that's the most- That's an important one. Number two is, yeah, we still continue to expand our gross margin. So 19 basis points for the quarter, some of which was driven by supply chain. And we have other initiatives coming in gross margin.

Look at your own internal data.

Are you seeing any notable slowdown in restaurant sales. These days is consumers looking to save money and if that is if that is the case is that benefiting yourselves.

Is that do you think that's one of the reasons.

That you're seeing stronger.

Same store sales.

I think it's a fair assumption.

Bill will address their budget.

And cutting revenue restaurant, that's where everybody again, I like I like working with averages.

Matt Reindel: But the days of having those massive increases in gross margin are probably behind us. What we are looking to do now, of course, is to have the right balance between top line sales and improving the underlying performance of the business, which was reflected in gross margin. So that's kind of what our expectation is moving forward. In addition, what we should see is a mixed benefit as our full service business continues to get better and get stronger. So we should get a mixed benefit on gross margin. How that gives you enough color. Yeah, yeah, it does.

Every customer has different priorities and I respect that.

But yes, we are seeing good momentum in fresh category.

Mike.

And I would like.

Daily H&R.

People are coming back.

Our country and its a very good options to manage their budget.

That's a low cost when they don't want to do Cook at home, So and we have an amazing assortment that we're storing H&R because of our full service presence across the country.

Matt Reindel: And maybe just further on that on the sort of topic of mix and specifically fuel. I don't know if there's anything you can help us with just for regards to the impact of the divestiture in Western Canada in terms of impact on sales, EBITDA, or even just margin rates. Well, it's not going to have a significant impact. It wasn't a big piece of the business. We can get some details offline. But particularly with regards to gross margin, but not forget the fuel's a very low margin business. So it will have a small impact on gross margin, but nothing worth calling out. Yeah, okay.

So.

I think it's a fair assumption that this fall.

Our restaurant business could have some challenges, but we're there to meet customer demands for sure with our assortment.

Okay, that's great and maybe I have a follow up questions on food inflation.

As you know last week Kroger in the U S noted that the pace of disinflation is occurring at a faster rate than they originally expected when we look at Canada at least the Statscan number it seems like inflation is slowing but it's very moderate.

Michael based.

Based on your internal data are you seeing something over the horizon that would suggest that maybe the pesos.

Pierre St. Laurent: And then, Peter, just on a related question, just with regards to SKU Count. Is there anything sort of notable there? Is that relatively stable? Are most of the changes there sort of fully flowed through? And then just from a supplier perspective, any change in terms of product availability or what you're seeing with regards to SKU Count or innovation from your supplier partners? Thanks. That's a good question, because it's key for us in our full service business, the assortment.

Slowing inflation can accelerates.

The coming months have you seen anything all that sources to work for Boise.

Okay.

Preface it by saying I'm economist, but everything we're seeing is a slowing inflation rate in Canada.

We hit the lowest.

We've hit the lowest inflation rate last quarter and recent periods that we've seen in 17 periods.

And we continue to see that trend I'd say, if you look back a year I would've thought it would be lower than this.

And I did say in my script.

Our our inflation is quite a bit lower than what's being reported in CPI.

Pierre St. Laurent: And the thing we are seeing over the last couple of months and quarter, it's an improvement from our supplier to bring back the assortment that we're looking for, because it's key for our differentiation. And we're seeing improvement on service level in both what we call the otis in the industry. So the supplier or more are filling our orders or more on time, we are seeing improvement in service level. And the SKU Count is almost back to where it was pre-bending. There's some category where we are still working on, but it's a matter of time that would be back.

So.

And I can only I only know us, but that's what we're seeing so yeah. We are.

I guess we've been.

So many times lately that we go to <unk>.

Scared of saying anything, but I think we're heading in the right direction.

Got you Okay and then my last question is I apologize. If you mentioned this already I'm. Just wondering if you can comment on your same store sales how is it trending sort of fiscal Q2 to date is it is it similar to what you achieved in Q1.

I think we are we're not going to talk with the <unk>.

Pierre St. Laurent: The thing I'd like to also mention is we continue to expand our assortment in on-brands. And in the next year we will expect to expand our assortment in on-brand, but because it's resonating a lot with customer right now. On-brand continue to overperform the market, we continue to deliver solid margin with our on-brand, and it's another element that contributes our performance overall on both sales and market. So, we're almost back to preventing it, and you will expand the work sort, and I don't want to bring it going forward.

We're currently in.

I don't think its the right thing to do.

Okay, that's where at least I tried thanks, thanks, a lot guys all the best.

Good try on the train is coming through <unk>, So you might not even be able to hear it.

Thanks.

Thank you there are no further questions I will turn the call back over to Katie Brennan for closing comments.

Great. Thank you Joanna we appreciate your continued interest in Empire. If there are any other any unanswered questions. Please contact me by phone or email, we look forward to having you join us for our second quarter fiscal 2020 for a conference call on December 14th Tuck ins.

Mark Petry: Okay, that's excellent. Thanks for all the comments and all the best. Thank you, Bob.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating please disconnect your lines.

Yeah.

Unknown Executive: So, like, what do you think might might be driving that like what's going on there because we seem to be getting a little bit of a mixed messaging on both sides. Okay, that's a good question. We're continue to see a difference between discount and for service, so that's that's true.

Unknown Executive: However, to explain our performance and our full service business, I think I'd like to thank our merchandising team and operation team. They have been very good to showcase the value we can offer to customer in a period like we are dealing with right now. So, in terms of promotion, we adjust our promotion. The promo mix is well under control. We are very competitive on our promotion. We are able to manage it through a different promotion tools.

Unknown Executive: We are promoting big size, owned brands, promotion, so value proportion. I think it's a combination of many tactics that drive back the basket. So, and they do magic. It's a lot of small things that drive this improvement in my opinion. Plus, I think customer are adjusting their budget. And again, I just want to call out that again. Our customer remain in our stores. We continue to have strong transaction counts in our full service banners across the country.

Unknown Executive: They did trade down for obvious reasons, but we have been able to showcase the value we can offer outside their normal behaviors and normal purchases. So, that's where the improvement is coming from. Okay, interesting. So, I know you said earlier that promotional penetration is elevated naturally because the consumer is looking for deals. But how about promotional intensity? How would you characterize that? It sounded like from your answer to my question just now.

Unknown Executive: Maybe your intensity has gone up, or are you saying you're not necessarily on an absolute level promotional intensity has gone up, but rather you're being a bit more than us and strategic about your promotions in the full service channel. I don't think the intensity I don't see major changes. The thing we know and the thing we are seeing in customer behaviors is not a surprise here, but people are looking more for deals.

Unknown Executive: Our job is to offer them good deals and maybe there are some deals that are less good than other and I think the team has been able to find the right deal for their needs. And yes, we are seeing more promo penetration, but not more intensity and the promo penetration is obvious for our just reason, as I said, but they have been able to balance all of it and adjust their promotion plan to the customer needs. That's what I can say, but there's pressure on promo for sure, but not on the intensity if I may. Okay, got it.

Unknown Executive: That was it for me. Thank you. Thanks, Tamy.

Michael Van Eist: Thank you. The next question comes from Michael Van Eist at TD Cowan. Please go ahead.

Michael Medline: Hi, good afternoon. One of the ask you about seeing plus as well, since you've covered a lot of things that I was going to ask, but now that you've got seen an Ontario for about a year now, and you've got it across different formats, can you provide some insight as to how your customers are shopping multiple vendors and then as the customers look to or can at least consider going back and going more back into those conventional banners, what kind of tools or what kind of strategies you might be using to keep them within your own ecosystem.

Michael Medline: So now we have the, so first of all, we introduce seen plus in discount banner less than a year ago. So it's fairly new. Ontario, it's also new. It's not a year. We launch and try you in November last year. So it's early days, but we know that people are shopping multiple channel, e-commerce, full service, discount, long goes, fanboy. And now we are seeing, because we are offering all those brands in water, that's the intent.

Michael Medline: We want to keep customers in our ecosystem of brand. And now we have the tools with seen plus to measure that and to be able accordingly. So it's early, but definitely that's the intention to keep our customers in our ecosystem of brands. I remember, I remember we talked about how the, when we introduced seen as being the umbrella over kind of the omnichannel experience. So what we want is a customer shop in each of those different channels that they're shopping in an empire channel.

Michael Medline: And the hook that keeps them there is the, is seen. So having that loyalty program over all of our banners and channels. So I mean, it's early days, but that's obviously what the intention is. And we start to make progress in that, in that way. Orga. Okay. And at this point in time, is it too early to see if this, if the umbrella is keeping them within your ecosystem as they move, as they start to change banners or, you know, or segment to the market?

Michael Medline: Yeah, I don't, I mean, so early, I don't want to extrapolate. We're, I said before, we're really, really happy with the scene program, but I don't want to extrapolate from as little history and data as we have. And then I have to come back to you. And tell you it's better or whatever, I think that we obviously have a way better view of our customers than we've ever had before. But I'm not going to pretend we know everything they're doing at all times yet. All right, sounds good.

Michael Medline: You sold your whatever 15% or so of your gas stations. I'm wondering what the plans are for the rest of those stations and are there other assets that you might be looking to divest that you might consider non-core. I mean, I think the orange on this is consistent. The, you know, our fuel stations in the West were non-strategic in that they didn't have a big convenience store attached to them. They were literally just a fuel site.

Michael Medline: Our fuel stations in the East have come with a much more refined and substantial convenience store, so it's a much more kind of strategic piece about business. So right now we have no plans to divest about these are the business. Yeah, that's it. Kind of as for other assets. No, I think we're happy at the moment with our mixed assets.

Michael Medline: All right. Thank you.

Unknown Executive: The next question comes from the shall shooter at National Bank. Please go ahead. Hi. Thanks for taking my questions with respect to the customer changes that you indicated or suggested that would happen several quarters ago. They're happening. I think you suggested that one inflation stabilizes you anticipate your conventional banners to gain some momentum. We're seeing that in the results. I'm wondering if you're seeing the same thing in your e-con business and if not maybe what's what's causing that difference.

Unknown Executive: I'll talk to generally and then here I'll talk about the well out report to him now. Yeah, I see you know, we I can keep called it pretty well when we came out nine months ago. And we talked about that we were seeing was as we had a strong belief as inflation debates were going to do much better. I think it was a little tiny bit slower than we would have liked to see it for Canadians and for our business.

Unknown Executive: And I'd say that nothing is a straight line, right? It's choppy. The consumers are skittish out there. But the line, the trend, the momentum is exactly what we call this tiny bit slower than we would have liked. But I think that it appears right to say before we're not a comment, we're not the government, the government knows everything. We don't know everything. But I think we called it pretty well right. And we are becoming cautiously optimistic that the consumer is becoming, is going back to their previous behaviors.

Unknown Executive: And that inflation is going to greatly fall in grocery. I can't call every other end. St, but we know girls are okay. And just on the ball, our teeth are bad. So, well, well, it's health in the last quarter, grew marketer. So, we're pleased with that. Customer metrics continue to be strong. Summer is traditionally soft, and we are seeing customer back right now, because back to school, fall, etc., and we added skews in our CFC-1 with water.

Unknown Executive: We just launched CFC-3 in Calgary. So, with fall and cold weather and better assortment, and we'll continue on this trend to grow market share with water. It's the best infrastructure to go after the e-commerce business, and we continue to believe in it strongly. Okay, thank you for that.

Michael Medline: And regarding Voila, after the next CFC launches, is that it for substantial infrastructure investments for Voila? And if so, then what would be the next steps to add accelerant to that business, so that the sales are where you'd want them to be? That's pretty well the last step at this time. At the same time, I believe at some point, we're going to, Voila's going to be booming, and it may justify more investment, or we'll fill up CFC-1 and we'll need some more.

Michael Medline: Those are really good problems, that occurs. But after Vancouver, that's it, and so that the capital's invested, I'd say, 95, 99 percent. We might do a few boats here. You know, that's about it. What will it cover? Maybe what percent of the population will those four cover now? 90 percent of the e-commerce. 90 percent. So, which is pretty good, four shares, 90 percent of the population. And you know, on everything you look at strategically shows that this is going to grow. It's grown slower, perhaps over the last couple of years, than we would expect it, but I think we're in good shape.

Michael Medline: Okay, and after that fourth CFC is installed, is it a period of time after which the exclusivity phase, and if it is, can you just remind me on how that works? I have a confidential document, I'm not allowed to share, but I think that you know us well enough that we like exclusivity for a long, long time. So, that's all I'll say.

Unknown Executive: Thanks. Thanks for your time. Thanks. Thanks for showing.

Chris Lee: Thank you, and the last question comes from Chris Lee at Deshardin. Please go ahead.

Unknown Executive: Good afternoon, everyone. Maybe I just maybe started with a follow-up questions on the basket size, getting stronger. I'm just wondering if there are certain categories that are helping that growth. And I know in the past we talked about fresh was one category where you saw more trade down in the beginning, but there's only so much frozen and canned food that people can eat. So, as inflation moderates, is that sort of one category that stands out that you're seeing that basket being being stronger.

Unknown Executive: It's a good question. I don't have the number in front of me by category, but one thing I can say is where we saw the biggest straight-down was in fresh categories. People made straight-downs, but overall non-fresh categories remain strong in sales and in tonnage versus non-fresh. So I think it's mostly coming from fresh categories where we made progress.

Unknown Executive: Okay, that's helpful. Maybe a little bit of a question is, I'm not sure if you look at your own internal data. Are you seeing any notable slowdown in restaurants sales these days as consumers looking obviously to save money? And if that is the case, is that should benefiting your sales and is that you think that's one of the reasons that you see stronger sales interest sales? I think it's a fair assumption.

Unknown Executive: People will adjust their budget in getting probably a restaurant. Not for everybody, again, I like working with averages. Every customer has different priorities, and I respect that. But yes, we are seeing good momentum in fresh category, like Delhi, HMR, people are coming back. In our counter, it's a very good option to manage their budget at a low cost when they don't want to do cook at home. And we have an amazing assortment of our store in HMR because of our full service presence across the country. So I think it's a fair assumption that this fall, the restaurant business could have some challenges, but we're there to meet customer demands for sure with our assortment.

Unknown Executive: Okay, no, that's great.

Unknown Executive: And maybe I have a follow-up questions on food inflation. You know, as you know, last week, Kruger in the U.S, noted that the pace of this inflation is so occurring at a faster rate than the origin expected. When we look at Canada, at least if that can number, it seems like inflation is slowing, but it's very moderate. By the way, you know, based on your internal data, are you seeing something over the horizon that would suggest that maybe the pace of slowing inflation can accelerate in the coming months?

Unknown Executive: Are you seeing anything of that source to what Kruger is saying? [inaudible] and we continue to see that trend. I'd say if you looked back a year, I would have thought it would be lower than this. And I did say in my script that our inflation is quite a bit lower than what's being reported in CPI. So I only know less, but that's what we're saying. So yeah, we've been bitten so many times lately that we get a little scared of saying anything, but I think we're heading the right direction.

Michael Medline: Gosh, okay. And my last question is, I apologize if you've mentioned this already. Just wondering if you can comment on, you know, your signature sales, how is the trending sort of fiscal Q2 today? Is it similar to what you achieved in Q1? No, we don't. I think we, we're not going to talk with like the quarter we're currently in. It's just a, I don't think it's the right thing to do.

Unknown Executive: Okay, that's where at least I tried.

Unknown Executive: Thanks, thanks a lot guys, all the best. Good try. And the train is coming through. So you might not even be able to hear us.

Joanna: Thanks. Thank you.

Katie Brine: There are no further questions. I will turn the call back over to Katie Brine for closing comments. Great. Thank you, Joanna. We appreciate your continued interest and empire. If there are any other and unanswered questions, please contact me by phone or email.

Katie Brine: We look forward to having you join us for a second quarter fiscal 2024 conference call on December 14th. Talk soon.

Joanna: Ladies and gentlemen, this concludes your conference call for today.

Joanna: We thank you for participating and we ask that you please disconnect your lines.