Q3 2024 Empire Co Ltd Earnings Call

Operator: Good afternoon, ladies and gentlemen, and welcome to the Empire Third Quarter 2024. At this time, all lines, phone, Following the presentation, we will conduct the question http://www.spreadsheet.com Spread the love! Class A, This call is being recorded on Thursday.

Good afternoon, ladies and gentlemen, and welcome to the Empire third quarter 2024 conference call. At this time all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session. If at any time. During this call you need assistance. Please press star zero for the operator.

This call is being recorded on Thursday March 14th.

Katie Brine: 2024. I would now like to turn the conference over to Katie Brine, VP of Investors. Thank you, Joanna. Good afternoon and thank you all for joining us for our third quarter conference call. Today we'll provide summary comments on our results and then open the call for questions. This call is being recorded, and the audio recording will be available on the company's website at empireco.ca.

I would now like to turn the conference over to Katie Bryan VP of Investor Relations. Please go ahead.

Thank you Joanna good afternoon, and thank you all for joining us for our third quarter conference call. Today will provide summary comments are though and then open the call for questions.

Is being recorded and the audio recording will be available on the company's website, but I'm kind of closed out there.

Katie Brine: There is a short summary document outlining the points of our quarter available on our website. Joining me on the call this afternoon are Michael Medline, President and Chief Executive Officer, Matt Reindel, Chief Financial Officer, Pierre St. Laurent, Chief Operating Officer, and Doug Nathanson, 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 facts. I will now turn the call over to Michael Medline. Thanks, Katie, and good afternoon, everyone.

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

Joining me on the call. This afternoon are Michael Goodbye, President and Chief Executive Officer, Matt Ryan Bell, Chief Financial Officer per Se or our Chief operating officer, and Doug Baker, 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.

To differ materially I refer you to our news release and MD&A for more information on these assumptions in fact, I will now turn the call over to Michael Bye Bye, Thanks, Jamie and good afternoon, everyone.

Michael Bennett Medline: In Q3, we saw a continuation of the trends experienced in Q2 with some customers pulling back spending as a result of continued economic uncertainty and pressure on Canadians' wallets. However, when you peel the onion and work through some of the complexities, we delivered slightly better results than the prior quarter with positive comps and strong margin control. This is a different Empire Company.

In Q3, we saw a continuation of the trends experienced in Q2 with some customers pulling back spending as a result of continued economic uncertainty and pressure on Canadians wallets.

But when you Peel the onion and work through some of the complexities, we delivered slightly better results in the prior quarter with positive comps and strong margin control.

This is a different Empire company, we have built the capabilities processes and disciplines to stay strong through tougher times and.

Michael Bennett Medline: We have built the capabilities, processes, and disciplines to stay strong through tougher times, and we expect to deliver solid and sustainable results regardless of the macro environment, as reflected in our Q3 performance. I'm going to focus on three topics today, key market trends, including a brief update on our plans to help further stabilize food prices in Canada, our Q3 results, and an update on our strategic priorities. First, market trend. In Q3, we saw the challenging macroeconomic environment continue with interest rates remaining elevated and low consumer confidence. While we were pleased to see food inflation decline by 130 basis points in January versus the prior month to reach its lowest level since August 2021, this ultimately offered little relief to struggling Canadians who are trepidatious about shelter costs amid overall cost of living challenges.

And we expect to deliver solid and sustainable results, regardless of the macro environment as reflected in our Q3 performance.

And our focus on three topics today key market trends, including a brief update on our plans to help further stabilize food prices in Canada.

Our Q3 results and an update on our strategic priorities.

First market trends in Q3, we saw the challenging macroeconomic environment continue with interest rates remaining elevated and low consumer confidence.

While we were pleased to see food inflation declined by 130 basis points in January.

Versus the prior month to reach its lowest level. Since August 2021. Ultimately this offered little relates to struggling Canadians who are trepidation about shelter cost amid overall cost of living challenges.

Michael Bennett Medline: Consumers are under pressure, and in this environment, providing value to customers and helping stabilize food prices is a top priority for Empire. We are seeing the number of supplier cost increase requests continue to trend down, and suppliers are generally moving back to their more normal and expected approach to cost increase submissions. However, there are still sizable increases from select suppliers coming through that will inevitably impact the customer. This is largely driven by some commodities like sugar and cocoa continuing to be very volatile due to ongoing climate and geopolitical factors impacting global supply.

Tumors are under pressure and in this environment, providing value to customers and helping stabilize food prices as a top priority for Empire.

We are seeing the number of supplier costs increase request continue to trend down and suppliers are generally moving back to their more normal unexpected approach of cost increased submissions.

However, there are still sizable increases from select suppliers coming through that will inevitably impact the customer. This is largely driven by some commodities like sugar and Coco continuing to be very volatile due to ongoing climate and geopolitical factors impacting global supply.

Michael Bennett Medline: But, as I mentioned last quarter, we have strongly and successfully pushed back on unjustifiable increases and will continue to do so. When Empire finished its holiday price freeze in February, we doubled down on our promise to bring value to Canadians by launching a new 11-week program to lower prices on approximately 1,000 essential items across our banners nationally. Almost one month in, we're pleased with how it's showing up in our stores and the traction it is gaining with customers. Turning to our results, I believe that our business performed a bit better in Q3 compared to the prior quarter. And I will explain why.

Mentioned last quarter, we have strongly and successfully pushed back on unjustifiable increases and we will continue to do so.

When Empire finished its holiday price freeze in February we doubled down on our promise to bring value to Canadians by launching a new 11 week program to locker lower prices on approximately 1000 to central items across our banners nationally.

Almost one month and we're pleased with how it's showing up in our stores and the traction it is gaining with customers.

Turning to our results I believe that our business performed a bit better in Q3 compared to the prior quarter and let me explain why.

Michael Bennett Medline: Food retail is our primary focus. However, we often have a strong real estate element in our earnings, which acts as a complementary income stream. If we remove the other income and share of equity earnings, which is relatively stable on an annual basis but fluctuates quarter to quarter, our performance in Q3 was slightly stronger than Q2. However, there was also some noise in the quarters, such as the temporary strike at our Vaughan Distribution Facility.

Food retail is our primary focus however, we often have a strong real estate loan went to our earnings for taxes are complementary income stream.

You remove the other income and share of equity earnings, which is relatively stable on an annual basis, but fluctuates quarter to quarter. Our performance in Q3 was slightly stronger than Q2.

There was also some noise in the quarter such as the temporary strike at our von distribution facility, Matt will make sense of all that for you in his remarks shortly.

Michael Bennett Medline: Matt will make sense of all that for you in his remarks shortly. We continue to attract more customers to our stores with higher transaction counts, but we're seeing smaller baskets consistent with the industry. Our promotions are constantly improving and are attractive to our customers while still protecting our margins. Moving to financials, our sales excluding fuel grew by 1.3% this quarter, with same store sales of 1.9%. We see the same store sales gap between full service and discount channels at Empire and in the industry at large gradually disappearing, and we expect this trend to continue.

We continue to attract more customers to our stores with higher transaction counts, but we're seeing smaller baskets consistent with the industry.

Our promotions are constantly improving and are attractive to our customers, while still protecting our margins.

Moving to financials, our sales excluding fuel grew by one 3% this quarter with same store sales of one 9%.

See the same store sales gap between full service and discount channels at Empire and in the industry at large gradually disappearing and expect this trend to continue.

Michael Bennett Medline: We've been expecting, as you know, the gap between full serve and discount to shrink as inflation falls, but even we were surprised by the magnitude of the gap closing this much this quarter. Wallah also continues to grow, with sales up over 15% this quarter compared to last year. SG&A also remains under control and in line with our expectations. While the SG&A rate is higher than we would like, this is a function of the current sales environment. We are actively making decisions to cut overhead in our business. Matt will go into more depth on this in a couple of minutes.

We've been expecting as you know the gap between full serve a discounter strength as inflation falls, but even we were surprised by the magnitude of the gap closing this much this quarter.

<unk> also continues to grow with sales up over 15% this quarter compared to last year.

SG&A also remains under control and in line with our expectations, while the SG&A rate is higher than we would like this.

This is a function of the current sales environment, we are actively making decisions to cut overhead in our business, Matt will go into more depth on this in a couple of minutes.

Michael Bennett Medline: Overall, we delivered an adjusted EPS of $0.62 this quarter. And now, on to our strategic priorities. When we announced our long-term goal to grow adjusted earnings per share by 8 to 11%, one of the key pillars to achieve this ambition was a focus on efficiency and cost control. As we announced in Q1, we have been making organizational changes to optimize our structure and reduce costs. This backstage initiative is largely complete, with the full run rates cost savings to be realized in fiscal 2025. Beyond the cost benefits of this program, I am very pleased with the structure of our teams and the critical talent changes we have made to ensure we are better positioned to execute on our strategy and deliver strong results.

Overall, we delivered an adjusted EPS of <unk> 62 this quarter.

And now on to our strategic priorities when.

When we announced our long term goal to grow adjusted earnings per share by 8% to 11% one of the key pillars to achieve this ambition was a focus on efficiency and cost control.

As we announced in Q1, we have been making organizational changes to optimize our structure and reduce costs. This backstage initiatives is largely complete with the full run rate cost savings to be realized in fiscal 2025.

Beyond the cost benefits of this program I am very pleased with the structure of our teams and the critical talent changes. We have made to ensure we are better positioned to execute on our strategy and deliver strong results.

Michael Bennett Medline: This quarter, we also entered into an agreement to purchase a sizable plot of land in Montreal, which remains subject to due diligence. Securing this land was highly strategic, and for the time being, we will land bank it until we decide whether and when to proceed with site development. The opportunity for such a valuable and well-situated piece of land does not come around often.

This quarter, we also entered into an agreement to purchase a sizable plot of land in Montreal, which remains subject to due diligence.

Securing this land was highly strategic and for the time being we will land bank, yet until we decide whether and when to proceed with site development.

The opportunity for such a valuable and well situated piece of land does not come around often.

Michael Bennett Medline: This may increase our CapEx spend from $775 million to approximately $885 million this year for this one-time purchase. And now for an update on some of our key customer and sales-driving initiatives, for a lot continues to gain momentum at each of the three CFCs, with fulfillment rates of 99.5%, a broad assortment offering, and excellence and freshness, with customers claiming the produce is delivered as well as if they picked it themselves. It's no surprise that we see the total number of orders increasing with strong customer retention rates. This continues to be the best grocery e-commerce solution in Canada, and customers continue to give us strong NPF scores quarter after quarter. In fact, the highest I've seen in my time in retail. And as a reminder, our average basket size on Voila is over three times the size of a full service store basket.

This may increase our capex spend from $775 million to approximately $885 million this year.

Here for this one time purchase.

And now for an update on some of our key customer and sales driving initiatives.

Fallout continues to gain momentum at each of the three cfcs with fulfillment rates of 99, 5% abroad assortment offering and excellence in fresh with customers, claiming the Proteus is delivered as well as if they picked it for themselves.

No surprise that we see the total number of orders increasing with strong customer retention rates. This.

This continues to be the best grocery E Commerce solution in Canada and customers continue to give us strong NPS scores quarter after quarter in fact, the highest I've seen in my time in retail.

And as a reminder, our average basket size on boiler is over three times the size of a full service store basket. So these are highly valuable customers.

Michael Bennett Medline: So these are highly valuable customers. Theme Plus also continues its strong progress this quarter, and we surpassed 15 million members, a 50% increase since Theme Plus launched at Empire. Theme Plus is now in over 70% of Canadian households, with over 2,000 Theme Plus card swipes every minute and a redemption every two seconds.

<unk> also continues its strong progress this quarter and we surpassed 15 million members, a 50% increase since seen plus launched at Empire.

<unk> plus is now in over 70% of Canadian households, with over 2000, <unk> card swipes every minute and a redemption every two seconds.

Michael Bennett Medline: The end of this month marks the first full year of C++ being launched at Empire banners across Canada, and while we've seen so much growth, this is, of course, just the beginning. We are now rapidly turning our efforts toward personalization to develop a more robust and customized loyalty program. In a topic we haven't spoken about much publicly is our new central kitchen, often referred to as a commissary. First, we'll be opening one in Calgary in the first half of F-25. In partnership with Crombie Reef, we have built a state-of-the-art facility that will service Alberta and surrounding provinces, bringing an elevated selection of ready-to-cook, ready-to-heat, ready-to-eat meals into our stores.

At the end of this month marks the first full year of seeing plus being launched at Empire banners across Canada, and while we've seen so much growth.

This is of course, just the beginning we are now rapidly turning our efforts towards personalization to develop a more robust and customized loyalty program.

And our topic, we haven't spoken about much publicly is our new central kitchen, often referred to as the commentary.

First we will be opening in Calgary in the first half of F. 'twenty five in partnership with Crombie REIT. We have built a state of the art facility that will service, Alberta and surrounding provinces, bringing at elevated curation of ready to cook ready to heat ready to eat meals into our stores.

Michael Bennett Medline: This concept has been developed within our merchandising team, leveraging expertise from Farm Boy, Thrifty Foods, and our internal team to create an offer that will be fresh, delicious, and market-leading. We will gradually introduce products from a central kitchen to our store network to provide greater consistency, expanded variety, fresher products, better forecasting, better flexibility, less food waste, and reduce costs for items produced in a highly food-safe facility. This opening in Calgary is just the beginning, and I look forward to sharing more soon. Before I hand it over to Matt, one last thing. Just over five years ago, we purchased Farm Boy, which has been a fantastic deal and partnership for us, both financially and strategically. A small group of key Farm Boy senior management held on to a piece of the company at the time of purchase, and in February, as had always been planned, we acquired the remaining 12%. The key management remains at Farm Boy, and we continue to share and benefit from the learnings from them. We are thrilled with what Farm Boy has accomplished in the last 5 years, growing from 26 locations to 48, with the newest store in Oshawa opening today.

This concept has been developed within our merchandising team leveraging expertise from farm Boy Thrifty foods, and our internal team to create an offer that will be fresh delicious and market leading we.

We will gradually introduced products from a central kitchen to our store network to provide greater consistency expanded variety fresher products better forecasting better flexibility less food waste and reduce costs for items produced in a highly food safety facility.

This opening in Calgary is just the beginning and I look forward to sharing more soon.

Before I hand, it over to Matt One last thing just over five years ago, We purchased <unk>, which has been a fantastic deal and partnership for us both financially and strategically.

A small group of key Farmboy senior management held onto a piece of the company at the time of purchase and in February as it always been planned we acquired the remaining 12%.

The key management remains a farm boy and we continue to share and benefits from the learnings from them.

We are thrilled with what <unk> accomplished in the last five years growing from 26 locations to 48 with the newest store in Oshawa opening today.

Matt Reindel: And with that, I'll put it over to Matt. Thank you, Michael. Good afternoon, everyone.

And with that over to Matt.

Thank you Michael Good afternoon, everyone I'll provide some additional details on our Q3 results before moving on to your questions.

Matt Reindel: I'll provide some additional details on our Q3 results before moving on to your questions. We delivered adjusted EPS of 62 cents in Q3 compared to 64 cents last year. Our results this year were adversely impacted by the strike at our distribution center in Vaughan, Ontario, which ended on January 13th, and also by the sale of our Western Fuel business back in Q1. These two issues combine for a negative impact of approximately two cents. Our performance was slightly better than Q2. While our earnings per share of $0.62 was lower than the $0.71 we delivered in Q2, this is mainly due to the timing of real estate earnings in other income and share of equity earnings.

We delivered adjusted EPS of <unk> 62, SaaS in Q3 compared to 64 last year.

Our results this year were adversely impacted by the strike at our distribution center in Vaughan, Ontario, which ended on January 17, and also about the sale of our western fuel business back in Q1.

These two issues combined for a negative impact of approximately <unk>.

Our performance was slightly better than Q2.

While our earnings per share of <unk> was lower than the 71.

We delivered in Q2. This is mainly due to the timing of real estate earnings and other income and chef accuracy earnings.

Matt Reindel: As I've explained before, this complementary income stream is a sustainable and an ongoing piece of our business. Now, while our annual real estate earnings are stable on a year-to-year basis, the nature of this income is bumpy, which causes some volatility in our quarterly results. If you exclude our real estate earnings, which were significantly higher in Q2 than Q3, our adjusted earnings per share was approximately $0.02 higher than Q2.

As I've explained before this complementary income stream as a sustainable on an ongoing piece of our business.

Now while our annual real estate earnings is stable on a <unk> basis. The nature of this income as Buffy which causes some volatility in our quarterly results.

If you exclude our real estate earnings, which was significantly higher in Q2 than Q3.

Our adjusted earnings per share was approximately <unk> <unk> higher than Q2.

Matt Reindel: We delivered same-store sales, excluding fuel, of 1.9%. Our sales performance was largely in line with Q2, as we continue to see tight consumer spending given the uncertain macroeconomic backdrop, namely elevated interest rates and rising household expenses.

We delivered same store sales excluding fuel of one 9%.

Sales performance was largely in line with <unk> as we continue to see tight consumer spending given the uncertain macroeconomic backdrop.

Namely elevated interest rates and rising household expenses.

Matt Reindel: Even as food inflation continues to stabilize, it will take some time for consumer preferences to normalize. During these tough times, our key focus has been to protect the fundamentals of the business, to proactive take costs out, and to continue to develop value for shareholders, all while continuing to invest in the long-term future of the company. As I'll now explain.

Even as food inflation continues to stabilize it will take some time for consumer preferences to normalize.

During these tough times, our key focus has been to protect the fundamentals of the business to proactively take cost out and to continue to deliver value to shareholders all while continuing to invest in the long term future of the company.

You can see that in each line of the P&L.

I'll now explain.

Matt Reindel: Our gross margin rate, excluding fuel, grew by 90 basis points versus last year. While approximately one-third of the expansion is due to comping the cyber security event last year, the remainder of the improvement was largely due to lower distribution costs driven mostly by efficiencies in the supply chain, amongst other smaller initiatives. When we look at SG&A, while our dollar spend was $66 million higher than last year, we are on track with our plans for the year. This increase was mostly related to planned investments in business expansion and our growth initiatives, but it was also impacted by inflationary cost increases, such as higher retail labor costs, and was partially offset by a decrease in compensation accruals. As in prior quarters, our SG&A rate increased versus last year due to our SG&A spend outpacing sales growth as we continue to invest in the future. Our SG&A rate was 23.5% in Q3, which was about 90 basis points higher than last year, but excluding one-time restructuring costs and the cybersecurity adjustment, our SG&A rate was 23.2.

Our gross margin rate, excluding fuel grew by 90 basis points versus last year.

While approximately one third of this expansion is due to comping. The cyber security event last year. The remainder of the improvement was largely due to lower distribution costs, driven mostly by efficiencies in supply chain amongst other smaller initiatives.

When we look at SG&A, while our dollar spend was $66 million higher than last year. We are on track with our plans for the year.

This increase was mostly related to planned investments in business expansion and our growth initiatives.

Also impacted by inflationary cost increases such as higher retail labor costs and was partially offset by a decrease in compensation accruals.

As in prior quarters SG&A rate increased versus last year.

Our SG&A spend outpacing sales growth as we continue to invest in the future.

Our SG&A rate was 23, 5% in Q3, which is about 90 basis points higher than last year.

But excluding onetime restructuring costs on the cybersecurity adjustment.

SG&A rate was $23 two.

Matt Reindel: But we are not simply waiting for a more favourable economic environment to improve our sales and, therefore, provide better leverage against our SG&A. We have to proactively take costs out, and we're making good progress. After excluding restructuring costs and other one-time items, our SG&A dollars were slightly lower than Q2 as we began to see some of the benefits from our restructuring initiatives and our work on non-merch procurement.

But we are not simply waiting for a more favorable economic environment to improve our sales and that will provide a better leverage against our SG&A, we have to proactively take costs out and we're making good progress.

After excluding restructuring costs and other onetime items, our SG&A dollars were slightly lower in Q2.

As we began to see some of the benefits from our restructuring initiatives and our work on non merch procurement.

Matt Reindel: Now, one quarter doesn't make a trend, and the pace of benefits may not be in a straight line, but we will continue to work at mitigating inflationary cost pressures by driving efficiency and cost effectiveness throughout our business, mainly through our initiatives in non-merch procurement, supply chain, and our organizational restructuring. Looking forward to Q4, we anticipate a very similar quarter to Q3. While it's good to see inflation continuing to come down, we need to see interest rates start to come down as well.

Now one quarter doesn't make a trend and the pace of benefits may not be a straight line, but we will continue to work on mitigating inflationary cost pressures through driving efficiency and cost effectiveness throughout our business, mainly through our initiatives and non merch procurement supply chain and our organizational restructuring.

Looking forward to Q4, we anticipate a very similar quarter to Q3.

While it's good to see inflation continuing to come down we need to see interest rates start to come down as well. This will help improve consumer sentiment and eventually drive a more normalized consumer behavior.

Matt Reindel: This will help improve consumer sentiment and eventually drive more normalized consumer behavior. In the meantime, we will continue to invest in our future, protect the fundamentals, and proactively reduce costs. Now let me turn to the balance sheet, which remains very solid. In fact, our funded debt to adjusted EBITDA ratio improved from 3.1 times last year to 3.0 times this year. We delivered free cash flow of $349 million in Q3, which is our strongest free cash flow performance since Q3 of Fiscal 22. This strong cash flow generation enables the continued but controlled investment in CapEx, as well as our shared buyback program. In Q3, our CapEx totaled $156 million, mainly from store renovations, construction of new stores, investments in advanced analytics and technology streams, and up while our CFC.

In the meantime, we will continue to invest in our future protect the fundamentals are proactively reduce cost.

Now, let me turn to the balance sheet, which remains very solid in fact, our funded debt to adjusted EBITDA ratio improved from three one times last year to 3.0 times, Michigan.

We delivered free cash flow of $349 million in Q3, which is our strongest free cash flow performance since Q3 of fiscal 'twenty two.

This strong cash flow generation enables the continued but controlled.

<unk> and Capex as well as our share buyback program.

In Q3, our Capex totaled $156 million, mainly from store renovations constructions in the stores investments in advanced analytics and technology streams and that velocity ESC.

Matt Reindel: We also entered into an agreement to purchase a parcel of land in Montreal. This is a one-off strategic purchase which, if successful, would occur in Q4 and increase our expected fiscal 24 capex from approximately $775 million to $885 million. With regard to our share buybacks, we are well on track with our fiscal 24 goal of 400 million. As of this week, we've repurchased approximately nine and a half million shares for a total consideration of 340 million.

We also entered into an agreement to purchase a parcel of land in Montreal.

This is a one off strategic purchase which if successful would occur in Q4 and increased our expected fiscal 2000 volt capex from approximately 775 million.

895 million.

With regard to share buybacks, we are well on track with our physical tactical goal of $400 million as of this week.

We purchased approximately nine 5 million shares for total consideration of $340 million.

Matt Reindel: Finally, let me take you through the items we excluded from our adjusted results in Q3. There's nothing new versus prior courses. Firstly, we excluded restructuring expenses of $18.8 million after tax, or $0.08 of earnings per share.

Finally.

Let me take you through the items excluded from our adjusted results in Q3.

There's nothing new S Prime forces finish.

Firstly, we excluded restructuring expenses of $18 8 million after tax or <unk> of earnings per share.

Matt Reindel: Year to date, we've incurred $38.3 million after tax, and we do anticipate incurring some additional costs in Q4. We also excluded a very small amount related to the cyber security event. As a reminder, our insurance claims are quite complex, but we do continue to expect further recoveries in Q4. These two adjusted reconcile our reported earnings per share of $0.54 to our adjusted earnings per share of $0.62.

Year to date, we have incurred $38 $3 million after tax.

We do anticipate incurring some additional costs in Q4.

We also excluded a very small amount related to the cybersecurity event.

As a reminder, our insurance claims are quite complex, but we do continue to expect further recoveries in Q4.

These two adjusted reconcile our reported earnings per share of <unk> 54 to.

Our adjusted earnings per share of <unk> 62.

Katie Brine: And with that, I'll hand the call back to Katie for your questions. Great. Thank you, Matt.

And with that I'll hand, the call back to Casey for your questions.

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

Operator: Joanna, you may open the line for questions at this time. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press the star followed by the one on your top right. You will hear a three-tone prompt acknowledging your request. If you are using a speakerphone, please lift the handset before pressing the call button.

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 hear today, Tom pump technology in your request. If you are using a speaker phone. Please lift the handset before pressing any key.

George Doumet: This question comes from George Doumet at Scotia. Yeah, good afternoon, guys. Matt, you mentioned Q4 is looking a lot like this quarter. Was that comment directed maybe at the same sort of sales as well? And I think Michael, you mentioned that you were surprised by the magnitude of the narrowing gap between full serve and discount. Can you maybe, has that held up?

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

Yeah. Good afternoon, guys. Matt you mentioned Q4 is looking a lot like this.

This quarter was that comment directly maybe on the same store sales as well.

Michael You mentioned that you were surprised by the magnitude of the narrowing gap.

Gap between full service discount can you maybe has that held up and can you maybe talk a little bit about that as well. Thanks.

Michael Bennett Medline: And can you maybe talk a little bit about that as well? I mean, I obviously loathe to talk about the quarter we're currently in because that would not be right, and Matt will say what he can say, so I'm not going to comment any more other than... I think people did not expect, and I think Pierre expected, he was pretty optimistic that the Gap would close between discount and full service more than anybody else was and probably in the industry or among even at our table. We'll see, you know, it's going to fluctuate a little bit as we see it over the next quarters, but I think The Days of Discount are greatly outperforming folks. At some point, you'll see a flip.

I mean, obviously loath to talk about the quarter. We're currently in because that would not be right metal say, what he can say, so I'm not going to comment anymore other than.

I think people did not expect.

I think Pierre expected. He was he was pretty optimistic that that.

GAAP with club between discount full service more than anybody else was probably in the industry are among even at our table you will see it off but it's going to fluctuate a little bit as we see it over the next quarters, but I think.

The days of discount greatly outperforming full service or coming turnaround.

And I think.

And at some point Youll see a flip.

Matt Reindel: That's our belief, and we'll see if that happens. Yeah, I'll just talk about the Q4. So yeah, when we say we're looking at consistency, we're talking about the full net result of the P&L. So there will be some movement in sales and in gross margin. There always is. But when we say consistency, we're really looking at adjusted earnings per share. And yeah, our performance has really been quite consistent between Q3, Q2, and Q4. Okay, thanks. And excluding the impact of the comping the fiber event and mix, it looks like gross margins are still kind of tracking ahead of our 10 to 20 basis points that you've previously talked about. Just wondering, maybe what drove that?

That's our belief and we will see if that happens.

I think you were talking about just talking about there.

In Q4, so yes, when we say we're looking at consistency was talking about.

Full net result of the P&L.

There will be some movement in sales and in gross margin and there always is.

But let me say consistency, we're looking really into adjusted earnings per share.

Yeah, well performance has really been quite consistent between Q3 Q2 and Q4.

Okay. Thanks, and then excluding the impact of the Comping the cyber event.

It looks like gross margin still kind of tracking ahead of our 10 to 20 basis points.

You've previously talked about I'm, just wondering maybe.

What drove that and is there a line of sight for how long we should expect that that expansion to go on for.

George Doumet: And is there a line of sight for how long we should expect that expansion to go on for? Yeah, thanks for that question. Yeah, as we've said before, my expectation and what we strive for is that ongoing 10 to 20 basis points of margin expansion. So our view hasn't changed on that. Q3, frankly, exceeded our expectations a little bit. But I don't think we should assume that that increase will be sustainable long term. For the quarter itself, we had an 87 basis points improvement in margin.

Yeah. Thanks for that question, Yeah, as we've said before my expectation and what we strive for is that ongoing 10 to 20 basis points of margin expansion.

Our view Hasnt changed on that Q3, frankly exceeded our expectations a little bit.

We should assume that that.

The increase will be sustainable long term for the quarter itself.

We had 87 basis points improvement in margin.

Matt Reindel: And we know that about a third of that came from cybersecurity. For the rest, the biggest component was in efficiencies in the supply chain. But then there was a whole series of other smaller benefits to gross margin in the quarter, like space productivity, for example, which really drove that. But, like I said, going forward, we strive for that 10 to 20 basis points. Yeah, it's Michael here. I'll just emphasize one point that that improvement in gross margin did not, is not, in any way, a result of raising prices. It was all our product. Okay, thanks for that.

We know that about a third of that came from the cyber security though.

For the rest.

The biggest component was efficiencies in supply chain.

But then there was a whole series of other smaller benefits to gross margin in the quarter.

<unk> productivity for example.

What's really driving that improvement, but like I said going forward we.

We strive for that 10 to 20 basis points. It's Michael here I'll, just emphasize one point that that improvement in gross margin did not.

Our result in any way of raising prices it was all our productivity.

Yeah.

Okay. Thanks for that just one last one if I may and I know you guys have this minus 11% target I know it's longer term.

George Doumet: Just one last one, if I may, I know you guys have this nine to 11% target, but I know it's longer term. But as we think about fiscal 25, is it fair to assume that the current macro conditions are likely to get in the way of us kind of delivering that level of growth? I've given up trying to predict macroeconomic trends a long time ago and probably everyone should, but no, we're not stepping away from that long-term ambition, and we are, you know, cautiously optimistic in terms of where we're headed.

But as we think about fiscal 'twenty five is it fair to assume that the current macro conditions are likely to get in the way of us kind of delivering that level of growth.

Okay.

I've given up trying to predict the macroeconomic trends long term are going to probably everyone chip but.

No we're not stepping away from.

That long term ambition.

And we are.

You don't mind.

Cautiously optimistic in terms of where we're headed I think there's two things that are going to be catalysts for us.

Michael Bennett Medline: I think there are two things that are going to be catalysts for us. One is, and you know, we're not exceedingly optimistic here all the time, but we do think that at some point... Interest rates are going to start to fall. We don't think the first Wall of Interest Rates is going to be great for us. Okay, that's just obvious.

One is.

We're not we're not.

Seemingly optimistic here all the time, but we do think that at some point.

Interest rates are going to start to fall, we don't think the first one.

All of interest rates is going to spur everyone on but as consumers see interest rates started to fall and they get some sort of confidence.

George Doumet: The second is that we're not waiting for that. We're not standing still. We got a lot of improvement coming in our business, and we're getting. I think tough times are an opportunity to make yourself a lot tougher. We've gotten tougher.

That's going to be great for us okay.

Obviously, the second is that we're not waiting for that we're not standing still we got a lot of improvement coming in our business and we're getting tough.

Tough times or an opportunity to make yourself a lot tougher.

And we've gotten tougher tougher on the business for more demanding more accountable greater velocity and we're taking costs out where they need to be taken out for the Canadian consumer and for our company.

Michael Bennett Medline: We're tougher on business. We're more demanding, more accountable, have greater velocity, and we're taking costs out where they need to be taken out for the Canadian consumer and for our company. Okay, thanks for your comments. Good luck.

Okay. Thanks for your comments good luck.

Irene Ora Nattel: Thank you. Thanks for the question, sir. The next question comes from Irene Nattel at RBC. Thanks and good morning, everyone.

Back to you thanks for the question.

Thank you next question comes from Irene <unk> at.

RBC capital markets. Please go ahead.

Thanks, and good morning, everyone really appreciate all the comments so far can you talk about what youre seeing around promotional intensity in the basket and also private label and just other types of consumer trade down behavior within channels.

Pierre St: I really appreciate all the comments so far. Can you talk about what you're seeing around promotional intensity in the basket and also private label and just, you know, other types of consumer trade down behavior within channels? pretty consistent with the previous quarter. So for more intensity, remain the same. Promo penetration is always something we are looking for. People are looking for deals.

Pretty consistent with previous quarter.

So from one density remain the same.

Penetration is always something we're looking for.

People are looking for deals, but I don't see more intensity I think people are looking for deals from open nutrition is still high but we are managing our promo mix really well.

Irene Ora Nattel: I don't see more intensity. I think people are looking for deals, but promotion penetration is still high, but we are managing our promo mix really well. Yes, we continue to see higher penetration in private label because it's great value for the customer. They discovered that more and more, and they are using it more and more too, to manage their budget. So no big change compared to the previous quarter from open attrition, as I, Association of Own Brands and Private Label is still good and growing, which is good news for us because it's really well managed by a merchandising team. So, but no big change compared to previous. That's helpful. Thank you.

Yes, we continue to see I.

<unk> penetration in private label, it's a great value for customer.

Discovered that more and more and they're using it more and more too.

To manage their budgets, so no big change compared to previous quarter.

For more penetration as I.

Relation of owned brands and private label is still good and growing which is good news for us because its really well managed by merchandising team.

So, but no big change compared to previous quarter.

Yeah. That's helpful. Thank you and then I was really interested in the comments about the commissary opening in Calgary can you give us a little bit more more detail around that.

Pierre St: And then I was really interested in the comments about the commissary opening in Calgary. Can you give us a little bit more detail around, you know, the kinds of products that we should suggest, or that we should expect rather how we should think about the rollout and when we might see it in other regions? We keep the surprise for our customers. It's a nice surprise.

Kinds of products, we should suggest we.

We should expect rather how we should think about the rollout and when we might see it in other regions.

We achieved a surprise for a customer it's a nice surprise, but basically.

Pierre St: But basically, we learned from our past experience with our friends at Farm Boy and Thrifty Foods having Central Kitchen for many, many years. We're having great results with those products. So I think the goal is to bring new products for customers that the customer cannot find somewhere else, and they will manufacture them in a safe environment. The frequency of the Amazing for store would simplify their life, and that will help them to manage retail labor at store level as well.

We learn from our best experience with our friends at farm Boy and Thrifty foods, having central Gibson since many many years, we are in great results with those products.

I think the goal is to bring new product for customers.

Customer cannot find somewhere else.

Well manufacturer and the safety run in.

The frequency of delivery would be amazing for store would simplify their life.

That would help them to manage retail labor at store level as well so great consistency great assortment.

Pierre St: So great consistency, great assortment in a very efficient manner in a safe environment. Basically, that's what we're trying to achieve with Saint-Germain. That's right. And any idea when we might expect it in the other regions?

Every efficient manner. Initially then run and then basically is what we're trying to achieve with central kitchen.

Okay, and any idea when we might expect it in the other regions.

Pierre St: Absolutely, it's a national strategy. More to come, but the first Central Kitchen is already at Found Boy in both Ottawa and Toronto. We're having a Central Kitchen on Vancouver Island for our Thrifty Banner.

Absolutely.

<unk> strategy.

More to come but differs central <unk> central kitchen, a phone buoyed, both Ottawa and Toronto.

Central kitchen in Vancouver Island for our <unk> banner.

Mark Robert Petrie: That will be another one, but it's our plan to continue to expand. That's great. Thank you. Thank you. The next question comes from Mark Petrie at CIBC. Yeah, good afternoon.

That would be another one but.

It's our plan to continue to expand.

That strategy over time.

That's great. Thank you.

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

Yeah. Good afternoon, I first just wanted to follow up on the comments.

Matt Reindel: I first just wanted to follow up on the comments with regard to the supply chain and the benefits that you saw in Q3. Could you just expand a little bit on what was driving that exactly? And if that's something I know you expect, sort of more normal 10 to 20 basis point type margin leverage over time, but does that supply chain work stuff that has sort of run its course? Or does that still have legs in your business?

Regard to the supply chain and the benefits that you saw in Q3 could you just expand a little bit on what was driving that exactly if that's something I know you expect sort of more normal 10 to 20 basis point type margin leverage over time, but is that supply chain work stuff that has sort of run its course or does that still hold.

And your business.

Mark Robert Petrie: No, it still has a ways to go. I would say we're in the early innings of that. As we said before, during our sunrise and horizon periods, we really didn't touch the supply chain. So that was one area of the business that we wanted to make absolutely sure we serviced our stores during that turnaround period. So now we get to look at the supply chain in more detail. So the type of things we look at, you know, you're looking at optimizing your routes, your network, freight as a service, how we generate revenue. So it's a combination of all of those things.

No its still its still has.

Size wise to go I would say we're in the early innings of that as we set the full of drilling.

Sunrise on horizon periods, we really didn't touch supply chain.

So that was one area of the business that we wanted to make absolutely sure. We serviced hostels joined that turnaround periods and now we get to look at supply chain in more detail.

So the types of things we look at you look at optimizing your route network.

As a service how we generate revenues so it's all of those things I.

Matt Reindel: I would say we're at the early stages of that, so we'll continue to get some benefits moving forward. That's really the key thing in the supply chain. Okay, and I just wanted to clarify the second question: are you talking about like the relative performance year over year, kind of being consistent, you know, quarter to quarter or the absolute sort of dollar amount or penny amount? Or exactly what do you mean?

I would say we're at the early stages of that so we'll continue to get some benefits moving forward.

That's the key thing is on the supply chain.

Okay.

And just I just wanted to clarify that and the second question was just to clarify with regards to what you mean, when youre talking about consistency on the bottom line.

Are you talking about like the relative performance year over year kind of being consistent.

Quarter to quarter or the absolute sort of.

The dollar amount or a penny amount or what do you mean exactly.

Mark Robert Petrie: Yeah, we were mainly talking about the sequential performance of the business. So we took a really hard look at Q2 versus Q3 this year because last year was so distorted by the cyber security events. So we're very focused on what the current economic trend is with our consumers, so really looking at Q1 versus Q2 versus Q3 versus Q4 and onwards. So that's where we're seeing that consistency, Q2, Q3, Q4. I think that will manifest itself really in terms of adjusted EPS. Like I said earlier, there will be changes in each of the various lines, but that's really where we see that. Okay, thanks for all the comments. All the best. Thanks a lot.

Yeah, we were mainly talking about the sequential performance of the business. So we took a really hard look at Q2 Q3. This year because last year was distorted by the cybersecurity event. So we're very focused on what the current economic trend is without consumers are really looking at Q1.

This is Q2 Q3 and this is key for an onward.

That's why we're seeing that consistency.

Q3 Q4.

That will manifest itself really in terms of adjusted EPS.

Like I said, there will be changes in each of the various lines.

But that's really why we see that consistency.

Okay. Thanks for all the comments all of us.

Thanks, a lot.

Michael Van Aelst: The next question comes from Michael Van Eyst from TD... Good afternoon and thank you. I wanted to ask you about some of the OPEC savings that you're expecting from the transformation and the run rate you're talking about getting into fiscal 25. I don't know if you've quantified that. I don't seem to remember a number being provided, but first of all, can you quantify it?

Thank you next question comes from Michael Van <unk> from TD Cowen. Please go ahead.

Hi, good afternoon, and thank you.

To ask you about some of the.

The opex savings that you're expecting.

The transformation in the run rate Youre talking about getting into fiscal 2005, I don't know if you quantified that it would seem to remember a number being provided but.

Yes first of all can you quantify that and then.

Matt Reindel: And then have we seen any of those benefits in Q3 and will we see any of them in Q4? Yes, we can quantify it, but we won't do that publicly. So that's, we're not going to provide the numbers initiative by initiative. Did we see any of the benefits in Q3? Yes. So we're starting, and again, early innings is probably the best way to explain this.

Have we seen any of those in Q3 and what we see in Q4.

Yes, we can quantify it but we won't do that public place us we're not going to provide.

The numbers initiative by initiative.

Did we see any of the benefits in Q3, yes. So we're starting again early innings, it's probably the best way to explain this.

Michael Van Aelst: So in our efforts to reduce goods not for resale, in the early innings, we started to see some benefits. And then with the organizational restructuring, same thing. So we executed those changes in the November, December, January timeframe. And we began to see some of those benefits hit the piano. Okay, thank you.

So.

Efforts to reduce goods not for resale at earnings we started to see some benefits and then with the organizational restructuring same thing. So we are we execute to those changes in the November December January timeframe, and we begin to see some of those benefits hit the P&L.

Okay. Thank you and then.

Michael Bennett Medline: And then on farm boy with the managers, the key managers selling their minority stake, what's the plan for those managers to stick around? Are they committed to staying in the organization for any period of time? Yeah, Michael. How are you doing? Yeah, I mean, it's been such a good relationship. So that wasn't very difficult to make work out.

On farm boy with.

The managers.

The key managers selling their minority stake whats.

Whats the plan for those managers to stick around or they have they committed to staying in the organization for any period of time.

Yeah, Hi, it's Michael how are you doing.

Yeah.

It's been such a good relationship so that wasn't very difficult to do to work out.

Michael Bennett Medline: Obviously, we really wanted, we have a great person running over there. Sean Linton is one of our best leaders, a strong leader on his own and a protege of JL. So those two get along really well.

Obviously.

We really wanted we are a great.

Person running it over there Sean Lincoln is one of our best leaders.

Strongly Arizona.

Prototype jail, so those two get along really well in a trial with each other in the business and it's a wonderful combination.

Michael Bennett Medline: And they challenge each other in the business. And it's a wonderful combination. We're really kind. So Sean was one of the four senior leaders. He's sticking around as the president of Farm Boy.

We're really cut so Sean was one of the.

Four.

Senior leaders see sticking around.

And.

As the President of our Board and then he reports to John <unk>.

Michael Bennett Medline: And then he reports to Jean-Louis, who's going to stay around for, I hope, a very long time. And we have an agreement for him to stay around. And so Sean will report to him, and then Vishal will report to me, and we have a great relationship. Same time as well. Jeff York is going to be... We spent a lot of time doing work for us, consulting work for us, because he's very strong in all sorts of areas, and the fourth person who had chairs. Donnie Melito, he retired. I've got to also say that Jean-Louis has been instrumental, as has Jeff, in working across Empire on FRESH, on Commissary, on all sorts of things with us, and also working with Longo, and Longo's working with Farm Boy, and Longo's working with us.

Who's going to stay around for I hope for a very long time.

We have a we have an agreement for them to stay around.

So Sean will report to him and then Joe will report to me and we have a great relationship same time as well, Jeff York, it's going to be.

We're doing work for us <unk>.

Consulting work for us because these various very strong on all sorts of areas. So basically we've kept.

And <unk> shares.

Dani in Toledo he retired.

He retired recently.

Like a year ago and so.

That age and he'd been great too, but we've retained III before and far boy is.

Still kicking it and they're doing fantastic. So we just don't want any interruption over there and I've got to also say.

<unk> has been instrumental.

I hope Jeff.

And working across Empire on fresh.

Commentary on all sorts of things with us.

And also working with Longboard Lager is working with <unk> working with US those divisions just worked perfectly in empire, they're bringing a lot of value that is beyond even the.

Michael Bennett Medline: Those divisions just work perfectly in Empire, and they're bringing a lot of value that is beyond even the sales and profitability of their divisions, so I'm really happy that it worked out. One of them is the best partnership I've ever seen; it's the Farm Boy-Empire Partnership, and Lagos is heading in the same direction. Thank you, continue the question around the gross margin because it was such a strong number. And typically, we don't see Q3 standing out so much from the rest of the year the way we just did. And so I'm trying to understand the fact that it was such a strong number, yet you had a price freeze, and it didn't seem to have much of an impact. And then on top of that, you're talking about not all of it being sustainable or not necessarily building that in going forward. You know, how are the supply chain benefits that you're getting, are you planning on reinvesting some of them into price? Or how do I, you know, square this all out?

Sales and profitability of their of their divisions. So.

I'm really happy that worked out.

Yes.

One of if not the best partnership either I've ever seen in this department.

Empire partnership in Lagos is heading in the same direction just two years later than the <unk> boiler.

Okay, Alright, thank you very much.

Good morning.

Kelvin you want it but I get pretty excited what I've talked about.

Okay.

And then just finally I wanted to.

Continue the questioning around the gross margin because it was such a strong number and.

And typically we don't see Q3 standing out so much from the rest of the year. The way we just did so.

And so I'm trying to understand the fact that it was such a strong number yet you had a price reason that didn't seem to have much of an impact.

And then on top of that you're talking about.

Not all of it being sustainable.

Or not necessarily building that in going forward. So.

How the supply chain benefits that you're getting are you planning on reinvesting some of them into price or is it.

Michael Van Aelst: Well, let me just clarify that we're always reinvesting in price, by the way. So what you're saying is a net of reinvesting in price. But go ahead, Matt.

How do I know.

Square this all up.

Well, let me just clarify the we're always reinvesting in price by the way so what youre, saying is net of reinvesting in price, but go ahead, and let me just clarify that comment about not being sustainable. So the changes that we're making a sustainable what I was saying is not sustainable is this 87 basis points improvement in margin. So we should not expect.

Matt Reindel: Let me just clarify that the comment about it not being sustainable. So the changes that we're making are sustainable. What I was saying is not sustainable is this 87 basis points improvement in margin. So we should not expect to get that improvement in margin on a go forward basis. The sustainable piece is the 10 to 20 basis points that we're aspiring to on an ongoing basis. But the changes that we made during the quarter, the benefits that we captured from the supply chain initiatives, from space productivity, from the other initiatives that we have going on there, all of those are sustainable. There's none of those benefits that will disappear.

Yes.

To get that improvement in margin on a go forward basis, the sustainable pieces. The 10 to 20 basis points that we're aspiring to on an ongoing basis, but the changes that we made during the quarter the benefits that we are.

We captured.

On the supply chain initiatives from our space productivity from the other initiatives that we have going on that all of those are sustainable there is none of those benefits that will disappear.

Vishal Shreedhar: So when you look at our gross margin rate again, Q2 to Q3 to Q4, you can expect consistency in that margin, and we aspire to increase that gradually. So that would point to some pretty significant increases in the first half of next year just to keep margins around this level. This is last year. Yeah, I mean, the consistency is off the margin is what we expect. Okay, thank you very much. Thanks a lot. The next question comes from Vishal Shreedhar from National Geographic.

So when you look at our gross margin rates again, Q2, Q3 Q4, you can expect.

Consistency in that margin and we aspire to increase that gradually over time.

Okay. So that would point to some pretty significant increases in the first half of next year just to keep this pace.

Keep margins around this level.

Okay.

Versus last year, Yeah, I mean, the consistency is.

The margin is.

That's what we expect.

Okay. Thank you very much.

Thanks, Bob.

Thank you next question comes from Vishal <unk> from National Bank. Please go ahead.

Michael Bennett Medline: Hi, thanks for taking my questions. I just wanted to get some context on the land purchase. Are you able to provide context on the future intended use of that land? It's unusual, at least in my recollection, for Empire to buy land and hold it.

Hi, Thanks for taking my questions I, just wanted to get some context on the land purchase are you able to provide context on the future intended use of that land.

It's unusual at least in my recollection for Empire to biomass and whole day.

Vishal Shreedhar: And if you're unable to provide context on the specific use, are you able to reveal how long you'll hold it as a, you know, non-producer? Yeah, thanks. Thanks, Vishal.

And if you are unable to provide context on the specific use are you able to a deal how long do you hold it as that.

Non producing asset.

Michael Bennett Medline: It's my call. Yeah, so it's not, yeah, we don't do it every day, but it's not unusual for us to get land for Distribution Centers or especially stores. We try not to do it too much because it takes capital, you know; it leads capital there. Although, you know, buying this kind of real estate doesn't make me too nervous. The idea there was a piece of land that was perfectly situated and the perfect size for our, you know, one of our best banners, the Ijia banner, which we expect to continue to grow and continue to be a key piece of our sales and our profitability. And we could not, it was a once in a lifetime opportunity, but it's, you know, because there's always land, but it was a piece of land we could not let fall out of our hands.

FX back Vishal, it's Mike.

So it's not we.

We don't do it everyday but it's not unusual for us to get land for.

Distribution centers are especially stores, we've tried not to do it too much because it puts capital.

<unk> capital there, although buying this kind of real estate doesn't make me nervous.

The idea there was there was a piece of land that is perfectly situated in perfect size for for our.

One of our best banners, UGI banner, which we expected.

Continue to grow and continue to be key piece of our.

Our sales and our profitability and we could not.

It was a.

Wouldn't say once in a lifetime, but its because theres always land, but it was a piece of land we could not.

Fall out of our hands and now we still have due diligence coming up we got to close this.

Vishal Shreedhar: Now we still have due diligence coming up. We have got to close this. At the same time, we are not putting shovels in the ground right now. At the correct time in the next... We'll be assessing and probably going ahead with a state-of-the-art automated facility to take down costs when we're ready, when we think it's the right time in terms of the growth of BGL, but also in terms of our ability to, you know, I don't like depreciation, I don't like spending capital, I like spending capital in stores, but at the right time Yeah, no, thank you for that.

At the same time, we are not putting shovels in the ground right now.

The correct time in the next few.

A few years.

We will be assessing and probably go ahead with.

State of the art automated facility to take down costs.

When we're ready when we think it's the right time in terms of.

In terms of the growth of <unk>, but also in terms of our ability to.

Like depreciation I don't like spending capital I like to spend a couple of stores, but at the right time. This is going to be a fantastic investment, but I wouldn't start putting it in your model for next year.

That's fair enough.

Thank you for that.

Michael Bennett Medline: And we're commenting on IGA, you know, once upon a time, I suspect there was a perception that Quebec was the main driver of Empire in the business. I'd be curious if you could provide color on all, you know, all the changes that you've implemented over the years, how that, how that proportion of earnings has changed throughout the country, and how IGA is defending itself against this current period of shift toward discount. Well, first of all, thank goodness Sobeys purchased the stores of VCI way back. It's an unbelievable asset.

And your comments on Iga once the once upon a time I suspect there was a perception that Quebec was the main driver of Empire in the business I'm wondering if you could provide color on all the changes that you've implemented over the years how that.

How about the portion of earnings has changed throughout the country and how IGT defending against this current period of shift towards discount.

Yeah.

Well first of all it is.

Thank goodness the Soapies purchased.

The stores are Vijay our way back it's an unbelievable asset.

Vishal Shreedhar: And it's not one of our best assets. We have a great market share in Quebec, and it's a huge driver of our success and will continue to be so. But I'll ask Pierre to talk about sort of what's going on, how he's seeing it in Quebec. The business remains extremely strong.

And it's not one of our best asset.

And we have great market share in Quebec, and it's a huge driver of our success and will continue to be so, but I'll ask Pierre to talk about sort of what's going on how are we seeing in Quebec.

The business remains extremely strong we have strong franchisee network over there.

Michael Bennett Medline: We have a strong franchising network over there. We're in full service in Quebec. So yes, they have some headwinds, but, Julie speaking, profitability remains extremely strong, store level, same thing, there's nothing to be worried about, a very strong engagement from dealers in Europe, performance in Quebec, there's nothing broken, and Okay, and maybe on the back of that, you can just comment on real estate growth and percentage real estate growth and how we should think about it over the next couple of years. What banners are you focused on growing, and at what rate should we expect growth? I think we've said in our capital allocation strategy moving forward that we like that, again, I keep using the word consistent, but a consistent amount of capital investment.

We're in full service in Quebec, So, yes, there are some headwinds but.

Generally speaking the productivity remain extremely strong store level same thing.

There's nothing to be worried about a very strong engagement from theaters for.

So the business continues to be very strong of course like everybody else, we're growing faster than discount so discounters driving stronger sales, but overall, we're very pleased with that.

Performance in Quebec, Theres, no nothing broken and continued to perform very well.

Okay, and maybe on the back of that you can just comment on real estate growth and percentage will illustrate goes and how we should think about it over the next couple of years.

What banners are you focused on growing.

What rate should we expect those to go out.

I think we said.

Our capital allocation strategy moving forward.

We like that again I keep using the word consistent but consistent amount of capital investment.

Michael Bennett Medline: We will always allocate a big piece of that to the stores, both through renovations and for new stores. So, we have already said that we will continue to grow our Fresh Goat banner in Ontario and in the West where it makes sense. We'll continue to grow Farm Boy, we'll continue to grow Longos, and we'll continue to grow IGA and Toby's where it makes sense.

We will our always allocating a big piece of that to the stores, but through renovations and new stores.

No.

We have already said that we will continue to grow our fresh dough powder.

And Ontario last where it makes sense.

Continuing to grow <unk> volume continues to go long dose and will continue to drive Iga and <unk>, where it makes sense. So we haven't given specific numbers.

Vishal Shreedhar: So we haven't given specific numbers on new stores, but it is definitely our intention to continue to grow that store. Okay, so should we expect net real estate growth for Empire in the years ahead in terms of square footage? Yeah, yeah. Yes, for sure. But I mean, I'll just put a little color on it.

New stores, but it is definitely our intention to continue to grow that store base.

Okay. So should we expect.

Net real estate growth for Empire.

In terms of square footage.

Yes.

Yes for sure, but I mean.

I'll just put a little color on it.

Michael Bennett Medline: It has to be, we are becoming draconian with the projects we are doing. We are not taking lower returns. We are not pleased with the increase in construction costs that all, well, everyone, especially retailers face. I mean, the increases are ridiculous.

It has to be I believe we are becoming draconian with the projects. We're doing we're not taking lower returns.

We are not pleased with the increase in construction costs at all well, everyone, especially retailers face.

The increases are ridiculous.

Michael Bennett Medline: And so we have Doug Nathanson and Mark Eaton over there, and the whole real estate team has got to be even more efficient in terms of putting these stores up because we will not take a lower return. Let me promise you this: we're not going to flush your money down the toilet. Okay, we're going to put up stores where they make economic sense; we get the return. And so that's, I don't, I don't, I want to say for sure that we're going to have more stores, which banners we're not going to let you know exactly what we're doing there, but we have very distinct plans in every jurisdiction, but we're uh, we're going to make sure we' Thank you very much. Class A. Oh, hi, good afternoon, everyone.

And so we are we have.

Doug based center market over there and the whole real estate team is got to be even more efficient.

In terms of putting these stores up because we will not take a lower return we're not going to.

But let me promise you that we're not going to flush their money down the toilet. Okay, we're going to put up stores, where they make economic sense. So we get the returns and so that's our.

I don't I don't I want to say for sure that we're going to have more stores.

Which banners we Rockaway.

Exactly what we're doing there, but we have very distinct plans in every jurisdiction.

Where we're going to make sure we're getting the returns from that and I think that it's a very very difficult time to put up new stores with construction costs. So we've got to be real smart about it.

Thank you very much.

Okay.

Thank you next question comes from Chris Li. Please go ahead.

Hi, Good afternoon, everyone. My first question is I think you guys have been quite clear that the slower than expected e-commerce industry adoption has pushed out.

Unknown Executive: My first question is, I think you guys have been quite clear that the slower than expected adoption of the e-commerce industry has pushed out the timeline for EBITDA breakeven. Voila! I guess my first question is, you know, other than the tough economic conditions, why do you think adoption has been a bit slower than expected? That's a great question in terms of because, for people tuning in who don't follow us all the time, Canadian e-commerce grocery adoption has been slower than most of the markets that we would look at, like the UK or US or some of the other markets. It is more akin to Australia, I think, when you look at it.

Online for EBITDA breakeven for a while now.

I guess my first question is other than the tough economic conditions why do you think the adoption has been a bit slower than expected.

That's a great question in terms of because just for people.

Tuning and who don't follow this all the time.

Canadian E Commerce grocery adoption has been slower than most of the.

The markets that we would look at like the U K or U S or some of the other markets more on more akin to Australia I think when you look at it.

Michael Bennett Medline: And it's a bit bewildering in that it's slower than anyone thought it would be. I think part of it is that we have good grocery stores here and a lot of competition, notwithstanding what some say. And secondly, I do not think we started as early with good e-commerce solutions for our customers. So they didn't get into the game as quickly as the US and the UK, especially.

And it is it's a bit bewildering.

It's slower than anyone thought it would be.

I think part of it is that we have good grocery stores here and a lot of competition notwithstanding what some say.

And secondly, I do not think we have started as early with good E Commerce solutions for our customers. So they didn't get into the game as quickly.

As the U S and UK, especially be true.

Michael Bennett Medline: And then when we, you know, when a lot of companies got into grocery commerce, it was during a pandemic, and it was a bad experience. We are now seeing some increases in terms of the penetration of e-commerce, especially lately. We do believe that it will get to the levels we thought it would be at, although maybe where the UK and US are, and it'll just take a bit longer. So, you know, I'd say it this way: are we going to be happy? A little later on, we will be happy. But are we happy now with the penetration and how it's affecting our e-commerce?

And then when we.

A lot of companies.

Companies got into grocery e-commerce. It was during a pandemic and it was a bad experience.

We are seeing now some increases in terms of penetration of e-commerce, especially lately.

Do believe that it will get to the levels, we thought it would be at although maybe.

We're a U K and U S R and it'll just take a bit longer so.

I'd say it this way are we going to be happy.

A little later on we will be happy or were happy now with the penetration and how it's affecting our ecommerce we're not so we're doing everything we are operating at its got the highest highest net promoter scores scores I've ever seen and I said that before.

Michael Bennett Medline: We are not. So we're doing everything. We're operating it. It's got the highest, highest motor scale scores I've ever seen.

Michael Bennett Medline: I've said that before. It is because the customers love it. The operations are fantastic, and retention of customers is great. We just have to and, by the way, from what I can understand, we're running it fantastic. The cost, our ability to hold the margins, and our ability to attract customers; we just need more customers and to get more throughput through there. And I think you'll see that we're working on all aspects of this to get this going. At the same time, we're happy we have it, but I'd like to be a year or two further along. Great, thanks. Thanks, Michael, for that. And maybe just to follow up on that, are you able to share just roughly what is the gap between your current industry penetration versus where the industry needs to be?

It is the customers love it the operations are fantastic.

Our retention of the customers is great. We just have and by the way from what I can understand we're running it and fantastic the cost.

Our ability to.

To hold the margins and our ability to attract customers, we just need more customers into more throughput through there and I think you'll see that.

And so working on all aspects of this too.

To get this going at the same time, we're happy we have it but I would like to be a year or two further along.

Great. Thanks, Thanks, Michael for that and maybe just to follow up on that is are you able to share.

Roughly what is the gap between your current industry penetration versus where industry needs to be.

Michael Bennett Medline: for the Bollard model to be forgiven. I don't think we've, I don't think we've ever disclosed that, like, you could probably do back envelope and the penetration now, we recorded three and a half for a while there. I think the penetration overall, I can say, look it up somewhere, but it's 3.8%. Now is the number where you were where you were. Okay.

For the fall.

Breakeven.

I don't think I don't.

I think we've ever disclosed that.

You could probably do a back of envelope.

And the penetration now recorded three and a half for a while there I think the penetration overall I can say go look it up somewhere but is three 8% now is the number we are using.

Okay, and I know the consolidation of the grocery gateway.

Unknown Executive: And I know the consolidation of the grocery gateway has resulted in some nice cost synergies for you guys. I'm just wondering, are there other cost efficiencies that you can perhaps accelerate that will get you to EBITDA break even sooner for Koala? That's good. I'll answer in one word: yes. Okay. Are you able to share some of that? Oh, that's another one word. No, I'm sorry

And some nice cost synergies from you guys I'm. Just wondering are there other cost efficiencies that you can perhaps accelerate that will get you to EBITDA breakeven sooner footballer.

I'll answer it in one word yes.

Okay are you able to share.

Sure some of that Oh, another one way or another.

Michael Bennett Medline: I'm sorry. I can't. But you know me; I want to be transparent.

No I'm, sorry, I'm, sorry, I can't.

We want to be transparent, but I got it.

Michael Bennett Medline: But I gotta be. I can't tell you every single thing because it's either competitive or not disclosed. But, and I'm not about to announce something tomorrow. So, we have all sorts of plans. And Pierre and Moet have been working very hard, and the teams are working very, very hard on getting this going. It is a big priority for us. This is a big investment. It's an important part of our business. It's gonna be really important when you look out further. So this takes an inordinate amount of our time, but it's worth it. Okay, that's great. And maybe I just have a question for Matt.

I can tell you every single thing because it's either competitive or were not disclosed, but and I'm not about to announce something tomorrow, but we have all sorts of plans.

And Pierre.

I've been working very and the teams are working very very hard on.

On getting the scoring as a big priority for US. This is a big investment it's an important part of our business, it's going to be really important when you look out further. So this is it takes for the size of it takes an inordinate amount of our time.

But it's worth it.

Okay, that's great and maybe just a quick question for Matt.

Matt Reindel: You know, if Sinclair sales would, let's say, hold at a low single-digit rate for next fiscal year, I guess my question is, is that enough to keep your SG&E expense rate at least stable, given that you do have some nice cost reduction initiatives going through that should help offset some of these incremental growth investments that are still coming? Well, I'm going to go with Michael's single word of being yes, so the simple answer is yes. The Efficiency Initiatives we have, the Cost Control Initiatives we have, that get us to our financial framework. So, I don't want to give guidance in terms of Fiscal 25, we're finishing our plans, but as Michael said earlier, we remain very optimistic about the medium and long-term future of this company.

Same store sales would have let's say hold at a low single digit rate for next fiscal year.

I guess my question is is that enough to keep your SG&A expense rate at least stable.

Given that you do have some nice cost reduction initiatives flowing through that should help offset some of these incremental growth investments that are still coming through.

Well I was going to go with this Michael single Wood.

Being yes, but that's.

So the simple answer is yes.

<unk>.

The efficiency initiatives, we have with our cost control initiatives we have.

That gets us to our financial framework, so I don't want to give.

Guidance in terms of fiscal 'twenty, five now with finishing our plans, but as Michael said earlier, we remain very optimistic for the medium and long term future of this company we have Barry.

Matt Reindel: We have lots of plans, and they're going to deliver significant value. That's a great question because, you know, we've obviously had some board meetings in the last couple of days, and we're, you know, talking about this. We're gonna sell as much as we can sell, right? And but, But when we plan, we've got to plan. We've got a plan that we're not going to have. 10% comps or something like that.

Lots of lines.

To deliver significant value moving forward, that's a great question because.

We've obviously had some board meetings last couple of days when we were talking about this.

Okay, we're going to look.

To sell as much as we can sell right and bust.

But when we plan we got a plan.

You got to plan, but we're not going to have.

10% comps or something that we've got to be incredibly efficient and be able to drive what the.

Michael Bennett Medline: We've got to be incredibly efficient and be able to drive. What can we control the most? SG&A.

What can we control the most SG&A what can we control. The next most margin okay and so even at what the numbers you might've been suggesting we gotta do well on that and then if things get a little better than it's been it's fantastic for us and that's the way you have got a plan and especially in these economic times and Thats what.

Michael Bennett Medline: What can we control the next most? Margin. Okay, and so even at the numbers you might have been suggesting, we've got to do well on that. And then if things get a little better, then it's fantastic for us. And that's the way you've got to plan, especially in these economic times. And that's what we're really drumming into the country.

We're really drumming into the company.

Michael Bennett Medline: Great. Maybe that leads me to my last question, you said earlier that you guys are still cautiously optimistic and 8 to 11% EPS growth is still a good target. I'm just thinking out again for next fiscal year. I'm going to take the other side of that question, which is if economic conditions remain unfavorable, and then trade on, and all that continues to be against you for a bit longer. I guess, you know, from a net earnings perspective, like, what is the downside here? Like, can we actually see negative earnings? Or are there more initiatives, everything you just said, Michael and Matt, that will get you at least sort of stable, you know, slightly better earnings, despite, you know, in the worst case scenario where conditions remain challenging for much of next fiscal year? Well, I would give you a much rosier picture than that, Chris.

That's great and maybe that leads into my last question is you said earlier that you guys are still cautiously optimistic.

11% EPS growth is still a good target I'm just thinking out again for next fiscal year.

I'm going to take the other side of that question, which is yes.

Economic conditions remain unfavorable and then they trade down and all that continues to be against you flip it longer I.

I guess from a net earnings perspective like what is the downside here like can we actually see negative earnings or is there more initiatives like everything you just said, Michael and Matt will get you at least sort of stable if not slightly better earnings despite the worst case.

<unk> remain.

Challenging for much of next fiscal year.

Well I would give you a much rosier picture than that Chris So festival.

Matt Reindel: So, first of all, our financial framework is a long-term financial framework. It's 8% to 11% long-term. That means some years we may be below, some years we may be above. But in terms of as we look forward to Fiscal 25, the..., kind of the worst possible period for us, for Empire as a full service grocer, is this year. So when we look forward to next year, as that gap, the same sort of sales gap between full service and discount continues to narrow, as our consumer confidence begins to gradually increase, that only plays into our favor. So, we're not looking at any, that sounds like quite a doomsday prediction, we're not looking that way at all, and again, we remain cautiously optimistic.

Yeah.

Our financial framework as a long term financial framework, that's 8% to 11% long term that means some years, we may be below some years, we might be above.

But in terms of as we look forward to fiscal 'twenty five.

The.

But has the worst possible period for us for Empire is a full service growth is this year.

So when you look forward into next year as that gap at the same store sales gap between full service and discount continues to narrow as a consumer confidence.

Begins to gradually increase our only plays into our favor so that we're not looking at any.

That sounds like quiet Doomsday predictions.

We're not looking at that landfill, where again, we remain cautiously optimistic as we look into next year, but we hedge against everything that we all got to you our shareholders. So that's why we're going after big prizes and.

Michael Bennett Medline: But we hedge against everything now. We owe that to you, our shareholders. So that's why we're going after big prizes in SG&A, top decisions that don't affect the customer but take costs out of the business, and tightening every single screw we got. And that way, when you know, if it's not as rosy as we would hope, we're good. If it's rosy, we

And SG&A tough decisions, but don't affect the customer, but take costs out of the business.

And so the tightening every single screw we've got in that way.

If it is not as rosy as we would hope.

Good.

Rosie were fantastic and Youre, all going to wish you bought today at this low valuation so.

Michael Bennett Medline: And you know, you're all going to wish you bought today at this low valuation. So that's the way we have to manage this company. And that's what you do in tough times. And I think we were, you know, we were doing pretty well, Q1 was a pretty good quarter, and then the consumer hit the brakes a bit, and we became a bit more trepidatious as we approached Labor Day. So full serve can do real well, and as recently as Q1.

That's the way we got to manage this company and that's what you do in tough times and I think.

We were.

We were doing pretty well Q1 was pretty good quarter and then the consumer hit the brakes, a bit became a bit more trepidation as we approached labor.

Labor day, so full serve can do real well.

As recently as Q1, and then after Labor day, and I think if you talk to most retailers are most businesses. They saw the same thing.

Michael Bennett Medline: And then after Labor Day, and I think if you talk to most retailers, or most businesses, they saw the same thing. Now, if we can start to get some more optimism in the consumer, and we can get, you know, people don't want to shop at four or five grocery stores. They don't want a bad shopping experience. They've had to make decisions they don't actually like. And if we could see some better times, and less inflation, and some construction costs settling down, things like that, we'll be in very good shape. But we gotta, you gotta run like it's gonna be tough.

Because I talk to them.

And now if we can start to get some more optimism in the consumer and we can get.

People don't want to shop at four or five grocery stores. They don't want a bad shopping experience.

We've had to make decisions they don't actually like.

And if we could see some some better times.

Less inflation and some construction cost settling down things like that will be in very good shape, but we got to you got to run it like it's going to be tough and then if it's better great we make out like bandits.

Michael Bennett Medline: And then if it's better, great. We make it like that, and so do our consumers. Thanks for the answers and all the best. I think it's a great question.

So to our consumers.

Thanks for answers and all the best.

Great questions.

Thank you next question comes from Tami Chen BMO. Please go ahead.

Hi, Thanks for the question I've, just got two quick ones here first is.

Tamy Chen: Thank you. The next question comes from Tamy Chen at BMO. Hi, thanks for the questions. I've just got two quick ones here.

Sorry, maybe I'm just not understanding this but when you said that this quarter.

Discount and full service now sounds like more than you had expected.

Michael Bennett Medline: The first is, sorry, maybe I'm just not understanding this part. But when you said that this quarter, the gap between discount and full service narrowed, it sounds like more than you had expected. But how come your comp this quarter wasn't better than it wasn't better sequentially; it was similar sequentially. We're comparing it. Good question.

Welcome.

This quarter was the bottom.

It wasn't better sequentially with similar sequentially.

As we're comparing it good question. Thanks for the clarification first of all because we're looking at the gap between us and our.

Mostly our two major competitors.

And when you look at yes, So we went down 10 basis points, which.

Hell of a lot, but it's 10 basis points I guess and if you.

I'm not going to give an AD for the competitors, but if you look at how their comps are performing and where they were at as Youre seeing inflation coming down you are seeing palpable differences in that gap and we're closing the gap so yeah. So.

Tamy Chen: Thanks for the clarification, first of all, because we're looking at the gap between us and our mostly our two major competitors. And when you look at, yeah, we so we went down 10 basis points, which is, This is a production of the U.S. Department of Labor. Oh, I see. Okay, got it. That's so clarifying.

We were down 10 basis points you can go look at the others and what they were down the market.

Do that work, but that gap is shrinking and what I was saying other than peer.

It shrunk more than we expected.

Oh I see okay.

Thanks for clarifying.

Matt Reindel: Thank you. My other question is for your SG&A, and I'm looking at an adjusted number, so I'm stripping out the restriction costs and the little bit of cyber that was in there. So on an adjusted basis, it looks like your SG&A was up about mid-single-digit percentage year-over-year, and I'm wondering if you're able to even qualitatively speak to or rank the buckets. Like, there's the wage inflation, there's the investment in your stores, you've got the new CSB, the third one that's come up. Are you able to speak to one of these...

Right.

Thank you and my other question is.

So your your SG&A and I'm looking at an adjusted number so I'm stripping out the restructuring caution a little bit of cyber that was in there. So on an adjusted basis. It looks like your SG&A was up about mid single digit percentage year over year, and Im wondering if youre able to even qualitative.

As we speak to our ranks in the bucket.

Is the wage inflation is the investment in your stores and you've got it right the new CFC. The third one that's come up.

I will just speak to I guess.

Tamy Chen: Different pieces, like what were the biggest components behind the adjusted SG&A growth year over year? Thank you. Yeah, sure. No, I can certainly walk you through that.

Different pieces like what were the biggest biggest components behind our adjusted SG&A growth year over year. Thank you.

Yes, So let me walk you through that so again adjusted SG&A year over year.

Matt Reindel: So again, adjusted SG&A year over year. I mean, the biggest buckets of cost increases are, first of all, what we call business expansion. So when we have increased the number of stores, when we have a new Fresh Grow store, a new Farm Boys store, a new Sobeys store, business expansion is the first piece of it. Retail labor is the second piece of it, as our cost of staffing in the store through regular pay increases, union negotiations, minimum wages, etc. So those are the two biggest buckets. Our depreciation is a little bit higher as we can continue our stable capex, which is obviously higher than many years ago. So our depreciation is higher.

The biggest buckets of cost.

Cost increased its first of all what we call business expansion.

So when we have increased the number of stores when we have a new fresh guys store or do you farm boy store.

So we still are.

Business expansion as the first piece of it.

<unk> labor.

The second piece of it.

As our cost of.

Staffing in the stores through.

Regular pay increases union negotiations minimum wages et cetera. So those are the two biggest buckets.

Depreciation is little bit higher.

As we can continue.

Stable.

Capex, which is obviously higher than many years ago. So our depreciation is higher.

Tamy Chen: And then probably one thing just to call out: during this quarter of last year, when we had the cyber security event, we pretty much shut down everything else. So we were focused on making sure that we protected ourselves against that event. So our costs, our consulting costs, and our project costs are a little bit higher this year than last year. But those are the main buckets of the cost increase year on year in dollars spent.

Probably one of the things just to call out during this quarter was last year. When we had the cyber security events, we pretty much shut down everything else. So we were focused on making sure that we protected ourselves against that so our costs.

<unk> costs in our project costs are a little bit higher this year than last year, but those are the those are the main buckets.

Cost increased year on year in dollars and dollars spent.

Matt Reindel: Spotted. Thank you. Thank you so much. Thanks, Tom. Thank you. We have no further questions. I will turn the call back over to Katie Brine for closing. Okay. Thank you, Joanna. We appreciate your continued interest in Empire. If there are any unanswered questions, please contact me by phone or email. We look forward to having you join us for our fourth quarter fiscal 2024 conference call on June 20. Talk soon. Ladies and gentlemen, this concludes the conference for today. We thank you for participating, and may I ask that you please...

Okay.

Got it thank you.

Thanks, so much thanks Tom.

Thank you we have no further questions I will turn the call back over to Katie O'brien for closing comments.

Thank you Joanna we appreciate your continued interest in Empire. If there are any unanswered questions. Please contact me by phone.

We look forward to having to join us for our fourth quarter and fiscal 2020 for a conference call a finance question.

Ladies and gentlemen. This concludes your conference for today, we thank you for participating and yes that you. Please disconnect your lines.