Q1 2025 Empire Co Ltd Earnings Call
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Operator: Good afternoon, ladies and gentlemen, and welcome to the Empire First Quarter 2025 conference call.
Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the Empire first quarter 'twenty 'twenty five conference call.
Operator: At this time, all lines in the lesson on the mode. Following the presentation, we'll conduct a question-and-answer session.
Speaker Change: All lines in the listen only mode.
Speaker Change: Following the presentation, we will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press star zero for operator. This call is being recorded on Thursday September 12, 'twenty 'twenty four although not like Kinder conference over to Katie. Please go ahead.
Operator: If at any time in this call, you require immediate assistance, please test our zero for the operator.
Operator: This call is being recorded on Thursday, September 12, 2024.
Katie Brine: I will now like to turn the conference over to Katie. Please go ahead. Thank you, Julie. Good afternoon, and thank you all for joining us for our first quarter conference call. Today, we will provide summary comments on our results and then open the call for questions. This call is being recorded, and the audio recording will be available on the company's website at empireco.ca. 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.
Katie: Thank you Julie good afternoon, and thank you all for joining us for our first quarter conference call. Today, We will provide summary comments on our results and then open the call for questions.
Katie: This call is being recorded and the audio recording will be available on the company's website at Empire kosher dossier.
Katie: The short summary document outlining the points of our quarter available on our website.
Speaker Change: Joining me on the call. This afternoon are Michael Medline, President and Chief Executive Officer, Matt Ryan Chief Financial Officer, Pierre Sandra Chief Operating Officer, and Doug Nathan Chief Development Officer, and General Counsel.
Katie Brine: 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.
Speaker Change: 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.
Katie Brine: I refer you to our news release and MDNA for more information on these assumptions and factors.
Speaker Change: For you to refer to our news release and MD&A for more information on these assumptions and factors I will now turn the call over to Michael Medline.
Michael Medline: I will now turn the call over to Michael Medline. Thanks, Katie. Good afternoon, everyone. Fiscal 25 has started with good momentum. As I said last quarter, we have become a disciplined, efficient grocer that is focused on delivering consistent earnings growth. This was reflected in our Q1 results with strengthening seems to our sales growth and strong control over our margins and costs. Our team remains focused on strong execution and operational discipline. And we continue to see incremental benefits as our strategic initiatives pick up traction and deliver results. Although this is not yet a strong economy nor a strong consumer environment, we are beginning to see market conditions gradually improving, supporting a return to more predictable and favorable customer shopping behaviors.
Katie: Katie good afternoon, everyone.
Michael Medline: Fiscal 'twenty five has started with good momentum.
Speaker Change: As I said last quarter.
Michael Medline: Become a disciplined efficient grocer that is focused on delivering consistent earnings growth.
Michael Medline: This was reflected in our Q1 results with strengthening same store sales growth and strong control over our margins and costs.
Michael Medline: Our team remains focused on strong execution and operational discipline, and we continue to see incremental benefits as our strategic initiatives pick up traction and deliver results.
Michael Medline: Although this is not yet a strong economy, nor a strong consumer environment. We are beginning to see market conditions gradually improving supporting a return to more predictable and favorable customer shopping behaviors.
Michael Medline: We said previously that as inflation moderated and interest rates began to decline, it would be a positive inflection point for full service. And we've been seeing that over the last six months. I'm going to keep my comments short and to the point, as I believe our first quarter results speak for themselves. I'll focus on two topics today. Our Q1 results and market trends and an update on our strategic priorities. First, our results and market trends, sales excluding fuel grew 1.3% this quarter, with same store sales of 1% showing improving top line growth, particularly when stacked against our same store sales of 4.1% from the prior year.
Speaker Change: You said previously that as inflation moderated and interest rates began to decline it would be a positive inflection point for full service and we've been seeing that over the last six months.
Speaker Change: To keep my comments short and to the point as I believe our first quarter results speak for themselves I'll focus on two topics today, our Q1 results and market trends and an update on our strategic priorities.
Speaker Change: First our results and market trends sales, excluding fuel grew one 3% this quarter with same store sales of 1% showing improving topline growth, particularly when stacked against our same store sales of four 1% from the prior year.
Michael Medline: We are pleased that CPI's food inflation has remained stable at around 2% per several consecutive months, contributing to a more predictable operating environment. Both our full service and discount channels are growing faster than their respective markets, and we are optimistic that our positive top line trends will accelerate in the year ahead as the Bank of Canada continues to decrease interest rates. We also believe that the gap between full service and discount same store sales will continue to close as the economy improves, which will be advantageous to us as we can continue to lean into our strengths as a full service grocer.
Speaker Change: We are pleased that CPI is food inflation has remained stable at around 2% for several consecutive months contributing to a more predictable operating environment.
Speaker Change: Both our full service and discount channels are growing faster than their respective markets and we are optimistic that our positive topline trends will accelerate in the year ahead as the bank of Canada continues to decrease interest rates.
Speaker Change: We also believe that the gap between full service and discount same store sales will continue to close as the economy improves which will be advantageous to us as we continue to lean into our strengths as a full service grocer.
Michael Medline: Last quarter, on our investor conference call, we asked a very good question as to what we were seeing from the customer that gave us confidence that consumer health was gradually improving in our business. When we look at consumer trends over the last quarter, we're seeing several early indications that customers are returning to a more favorable and predictable shop and behavior. Customer traffic continues to grow in our stores, and we're seeing smaller declines in the average basket size. We're also seeing a decrease in the average number of stores shopped by Canadians. And for the first time in many quarters, promotional penetration is flattening.
Speaker Change: Last quarter on our Investor Conference call. We were asked a very good question as to what we were seeing from the customer that gave us confidence that consumer health was gradually improving and our business.
Speaker Change: When we look at consumer trends over the last quarter, where you're seeing several early indications there.
Speaker Change: Customers are returning to a more favorable and predictable shopping behavior.
Speaker Change: Customer traffic continues to grow in our stores and we're seeing smaller declines in the average basket size.
Speaker Change: We're also seeing a decrease in the average number of stores shop by Canadians.
Speaker Change: And for the first time in many quarters promotional penetration is flattening after several consecutive quarters of increasing promotional customer base here.
Michael Medline: After several consecutive quarters of increasing promotional customer behavior, these are all early indicators; the consumer sentiment is improving. And while it will still take time for stretched customers to fully return to the more typical purchasing behaviors, these factors are translating into the very early innings of positive sales momentum for Empire. Gross margins continue to improve this quarter, supported by an unrelenting focus on stores, supply chain, and purchasing more effectively. Margin improvement of 46 spaces points outperformed our stated goal of 10 to 20 basis points over the medium term. While this improvement was driven by many small but meaningful actions, a few initiatives that continue to enable our growth include the ongoing deployment of space productivity and are committed focus on improving non-fect shrink.
Speaker Change: These are all early indicators the consumer sentiment is improving and while it will still take time for stretched customers to fully returned to their more typical purchasing behaviors. These factors are translating into the very early innings of positive sales momentum for Empire.
Speaker Change: Gross margins continued to improve this quarter supported by an unrelenting focus on stores supply chain and purchasing more effectively.
Speaker Change: Margin improvement of 46 basis points outperformed our stated goal of 10 to 20 basis points over the medium term.
Speaker Change: While this improvement was driven by many small but meaningful actions.
Speaker Change: New initiatives continue to enable our growth include the ongoing deployment of space productivity.
Speaker Change: And our committed focus on improving non effect shrink.
Michael Medline: One example includes enhancing our store distribution and replenishment processes to ensure our shelves are stocked with the optimal assortment and quantity. For several quarters, we've been increasing our focus on being a customer destination for fresh products. These efforts are paying off as we're seeing solid growth in this segment of our business, which also contributed to our margin performance this quarter. We also benefited from a more predictable promotional environment in Q1, as I mentioned, which made promotional tonnage more stable and therefore easier for our merchandising team to manage. Overall, we delivered adjusted EPS of 90 cents as quarter, our highest ever.
Speaker Change: One example includes enhancing our store distribution and replenishment processes to ensure our shelves are stocked with the optimal assortment in quantity for several quarters, we've been increasing our focus on being a customer destiny destination for fresh products. These efforts are paying off as we're seeing solid growth in this segment of our business.
Speaker Change: Which also contributed to our margin performance this quarter.
We also benefited from a more predictable promotional environment in Q1, as I mentioned, which made promotional tonnage more stable and therefore easier for our merchandising team to manage.
Speaker Change: Overall, we delivered adjusted EPS of 90 cents this quarter our highest ever.
Michael Medline: Even when excluding other income and share of equity earnings, we delivered earnings improvements in Q1 versus prior year, which, as a reminder, was our strongest quarter last year. While the operating environment has fluctuated significantly over the last few years, with several periods of extreme volatility, we've consistently protected the fundamentals of our business, while also implementing new strategic initiatives and establishing the processes and discipline needed for us to consistently deliver these strong results.
Speaker Change: Even when excluding other income and share of equity earnings we delivered earnings improvements in Q1 versus the prior year, which as a reminder, was our strongest quarter last year, while the operating environment has fluctuated significantly over the last few years with several periods of extreme volatility we have consistently protected the fundamentals of our business.
Speaker Change: While also implementing new strategic initiatives and establishing the processes and discipline needed for us to consistently deliver these strong results.
Michael Medline: Now for an update on some of our strategic priorities. First, Scene Plus. Scene Plus and the related strength that gives us will be a key driver growth rempire. A year and a half ago, we completed our rollout of Scene Plus across Canada. Today, the impact Scene Plus has on our customers and business is exceeding all of our expectations. We have over 15 million members; our CN Plus members are now spending on average 55 percent more than non-members. CN Plus is significantly boosted; our incremental sales and margin, compared to our prior loyalty program. It means much opportunity to drive even greater value to our customers.
Speaker Change: Now for an update on some of our strategic priorities first seen class C plus and the related strength that gives us will be a key driver of growth for Empire, a year and a half ago, we completed our rollout of <unk> plus across Canada today, the impact seen plus has on our customers and business is exceeding all of our expectations.
Speaker Change: We have over 15 million members are seeing plus members are now spending on average 55% more than non members seem classes significantly boosted our incremental sales and margin compared to our prior loyalty program.
Speaker Change: We are scaling personalized offers and seeing promising results and our supplier partners are enthusiastically supporting our efforts.
Speaker Change: As I said before we are still in the early days of this program and while we've made significant progress there remains much opportunity to drive even greater value to our customers.
Michael Medline: Next, space productivity. You'll recall that the first phase of this program focused on deploying optimized category planograms by banner and region based on our algorithms, which was completed in fiscal 24. Every market is different, and our space productivity program has enabled us to better align our layout and offerings to the unique customer profile of each respective market. As one example of this, based on the algorithm outputs in one of our regions, we changed one of our large frozen categories to offer a greater proportion of premium products. Although this change was not an intuitive merchandising move, the team trusted the data, and by making this change achieve double-digit sales and margin growth.
Speaker Change: Next space productivity.
Speaker Change: Recall that the first phase of this program focused on deploying optimize category plan O grams by banner and region based on our algorithms, which was completed in fiscal 'twenty for every market is different in our space productivity program has enabled us to better align our layout and offerings to the unique customer profile of each risk.
Speaker Change: Active market as.
Speaker Change: It wasn't one example of this based on the algorithm outputs in one of our regions. We've changed one of our large frozen categories to offer a greater proportion of premium products. All this although this change was not an intuitive merchandising move the team trusted the data and by making this change achieved double digit sales and margin growth.
Michael Medline: This is just one example, and we are very pleased with the value being delivered from the first phase of this program. Phase two of space productivity is well underway, and it focuses on optimizing the non-fresh space across categories. This is not a cookie cutter approach, as the algorithm considers each store size, customer demographics, and local preferences, and takes this into account as we optimize the store layout. This includes analyzing category and product adjacencies and the flow of aisles to ensure the optimal flow for our customers. Originally, this phase was focused on full service stores, but with the success we've seen from our initial pilots, we've also begun to rapidly roll it out at our discount stores.
Speaker Change: This is just one example, and we are very pleased with the value being delivered from the first phase of this program.
Speaker Change: Phase II space productivity is well underway and it focuses on optimizing the non fresh space across categories. This is not a cookie cutter approach as the algorithm considers each store size customer demographics and local preferences and takes this into account as we optimize the store layout.
Speaker Change: It includes analyzing category and product Adjacencies and the flow of vials to ensure the optimal flow for our customers. Originally this phase was focused on full service stores, but with the success. We've seen from our initial pilots. We have also begun to rapidly roll it out.
Speaker Change: At our discount stores and.
Michael Medline: And now, for a quick update on Voila, we continue to see strong top-line performance with sales growth of 26% Q1. The operating improvements we are making, such as optimizing routes and enhancing product assortment, are helping to drive volumes and improve profitability. We are also continuing to work closely with our partner, Ocado, to enhance the customer experience. For example, in the last quarter we made a number of website enhancements to reduce areas of friction in the consumer journey. Beyond Voila, we are also activating several other meaningful growth opportunities with any commerce so that we can serve more types of customer trips and have access to a larger segment of the market in a capital-like, accretive manner.
Speaker Change: Now for a quick update on velocity, we continue to see strong topline performance with sales growth of 26% in Q1, the operating improvements, we're making such as optimizing routes.
Speaker Change: And enhancing product assortment are helping to drive volumes and improve profitability.
Speaker Change: We are also continuing to work closely with our partner Ocado to enhance the customer experience for example in the last quarter. We made a number of website enhancements to reduce areas of friction in the consumer journey.
Speaker Change: Beyond <unk>. We are also activating several other meaningful growth opportunities within E. Commerce. So that we can serve types of customer trips and have access to a larger segment of the market in a capital light accretive manner.
Michael Medline: We look forward to sharing an update with you on this next quarter.
Speaker Change: We look forward to sharing an update with you on this next quarter.
Operator: And with that, over the map.
Speaker Change: And with that over to Matt.
Matt Reindel: Thank you, Michael. Good afternoon, everyone. I'll talk about our quarterly results, provide some color on our expectations for the rest of the year, and then we'll move on to your questions. Our performance in Q1 was solid, especially as we were lapping a strong quarter last year. In Q1, we delivered a record-adjusted EPS of 90 cents compared to 78 cents last year. While we did benefit from higher adhr income and share of accuracy earnings, even if we exclude these items from both years, we continued to deliver EPS growth versus Lush. last year. Same-store sales was 1%, which is notable given our strong performance of 4.1% last year.
Matt Ryan: Thank you Michael Good afternoon, everyone I'll talk about our quarterly results provide some color on our expectations for the rest of the year and then we will move onto your questions.
Matt Ryan: Our performance in Q1 was solid, especially as we were lapping a strong quarter last year.
Speaker Change: In Q1, we delivered a record adjusted EPS of <unk> 19.
Speaker Change: Compared to <unk> 78 last year.
Speaker Change: While we did benefit from higher other income and share of accuracy earnings. Even if you exclude these items from both years, we continued to deliver EPS growth versus last year.
Speaker Change: Same store sales was 1%, which is notable given our strong performance of four 1% last year.
Matt Reindel: We delivered sequential same-store sales improvement, which, along with low food inflation, declining interest rates, and stable promotional penetration, are good leading indicators for more normalized consumer behaviour in the quarters ahead. At Waller, our sales were 26% higher than last year. While this marks the fourth consecutive quarter of double-digit growth, it will become more challenging to match such a high watermark in future quarters as we start to lap this stronger level of growth. Having said that, we do expect to deliver strong sales growth at Waller, and as Michael mentioned previously, we're also pursuing several opportunities to drive overall e-commerce sales growth.
Speaker Change: We delivered sequential same store sales improvement, which along with low food inflation declining interest rates and stable promotional penetration are good leading indicators for more normalized consumer behavior in the quarters ahead.
At water sales were 26% higher than last year.
Speaker Change: While this marks the fourth consecutive quarter of double digit growth it will become more challenging to match such a high watermark in future quarters as we start to start to lap the stronger level of growth.
Michael Medline: Having said that we do expect to deliver strong sales growth of Orla and as Michael mentioned previously we are also pursuing several opportunities to drive overall E Commerce sales correct.
Matt Reindel: We're also very pleased with Waller's progress on addressing their profitability. Our growth margin rate, excluding fuel, grew by 46 basis points versus last year, reflecting continued progress on this key line of the income statement. While this increased tapered versus key 4, the increase reflected many of the actions we have taken to improve margin, such as 1, improve deficiencies within our stores and processes, including space productivity, and 2, lower sharing due to improved inventory management and more predictable promotional volumes. We continue to target 10 to 20 basis points of margin expansion per year, but we're pleased that over the past few quarters, we've outperformed this medium-term expectation.
Speaker Change: We're also very pleased with <unk> progress on addressing their profitability.
Speaker Change: Our gross margin rates, excluding fuel grew by 46 basis points versus last year, reflecting.
Speaker Change: Continued progress on this key line of the income statement.
Speaker Change: While this increased tapered versus Q4, the increase reflected many of the actions we have taken to improve margin such as one improved efficiencies within our stores and processes, including space productivity and to lower shrink due to improved inventory management and more predictable promotional volumes.
Speaker Change: We continue to target 10 to 20 basis points of margin expansion per year, but we're pleased that over the past few quarters. We've outperformed this medium term expectations.
Matt Reindel: Now let me turn to SGNA, which was very consistent with recent quarters. Our dollar spend increased by 4% year over year, mainly due to higher investments in the store network, tools and technology to support our strategic initiatives, higher compensation expense, including retail labour, and higher depreciation. This was partially offset by lower utilities costs and benefits from our cost savings initiatives. As with prior courses, our SGNA rate was about 70 basis points higher than last year when you exclude the adjusting items, which was slightly higher than the increase we saw in Q4. We are pleased with our continued focus on cost control, particularly in this lower sales growth environment.
Speaker Change: Now, let me turn to SG&A, which is very consistent with recent quarters.
Speaker Change: <unk> spend increased by 4% year over year, mainly due to higher investments in our store network tools and technology to support our strategic initiatives higher compensation expense, including retail labor and higher depreciation.
Speaker Change: This was partially offset by lower utilities costs and benefits from our cost savings initiatives.
As with prior quarters, our SG&A SG&A rate was about 70 basis points higher than last year. When you exclude the adjusting items, which was slightly higher than the increase we saw in Q4.
Speaker Change: We are pleased with our continued focus on cost control, particularly in this lower sales growth environment.
Matt Reindel: So, when sales growth ramps up largely due to improvements in consumer sentiment, we expect to generate a better leverage of our fixed costs, and as a result, we anticipate that the pace of SG&A rate expansion will taper through the latter part of the year.
Speaker Change: So when sales growth ramps up largely due to improvements in consumer sentiment, we expect to generate a better leverage of our fixed costs and as a result, we anticipate that the pace of SG&A rates expansion will taper through the latter part of the year.
Matt Reindel: Now let's move to other income. Excluding last year's gain on the Western Canada fuel sale, the contribution from other income and share of accuracy earnings was 26 million higher in Q1 than last year, primarily reflecting the sale and leaseback transaction that we announced during our Q4 earnings release. Recall that in Q4, we started to provide guidance on our expectations for other income and share of accuracy earnings, and we believe that this guidance provides investors added transparency into our quarterly performance. We continue to expect that in fiscal 25, pre-tax aggregate contribution from these two line items will be in the range of 135 to 155 million.
Speaker Change: Now, let's move to other income.
Speaker Change: Excluding last year's gain on the Western Canada fuel sale the contribution from other income and share of accuracy earnings was $26 million higher than Q1 of last year, primarily reflecting the sale and leaseback transaction that we announced during our Q4 earnings release.
Speaker Change: Recall that in Q4, we started to provide guidance on our expectations for other income and share of accuracy earnings and we believe that this guidance provides investors added transparency into our quarterly performance.
We continue to expect that in fiscal 'twenty five pre tax aggregate contribution from these two line items will be in the range of $135 million to $155 million.
Matt Reindel: Given the timing of certain transactions, we now expect the quarterly cadence to be as follows. About 20% in Q2, 50% in Q3, and 25% in Q4. Our effective income tax rate for the quarter was 22.9%, which was lower than the 27.5% we had last year. The lower tax rate is primarily due to the non-taxable portion of capital gains related to the aforementioned sale and lease but transaction, and the re-valuation of tax estimates. If you remove real estate items and re-valuation of tax estimates from both years, the tax rates are very similar. For fiscal 25, excluding the effects of any unusual transactions or differential tax rates on property sales, we continue to estimate that our effective income tax rate will be between 25 and 27%.
Speaker Change: Giving the timing of certain transactions, we now expect the quarterly cadence to be as follows.
Speaker Change: About 20% in Q2, 15% in Q3 and 25% in Q4.
Speaker Change: Our effective income tax rate for the quarter was 22, 9%, which was lower than the 27, 5% we had last year.
Speaker Change: The lower tax rate is primarily due to the non taxable portion of capital gains related to the aforementioned sale and leaseback transaction.
Speaker Change: And the revaluation of tax estimates.
Speaker Change: You remove real estate items and reevaluation of tax estimates from both years the tax rates are very similar.
Speaker Change: For fiscal 'twenty five excluding the effects of any unusual transactions or differential tax rates on proxy sales. We continue to estimate that our effective income tax rate will be between 25 and 27%.
Matt Reindel: Finally, let me provide some details on our adjusting items, but there are no surprises here. Firstly, as we communicated in Q4, we excluded a one-time non-cash charge related to ending e-commerce exclusivity. The after-tax impact was $8.8 million. Secondly, we had an adjustment for restructuring expenses of 2.1 million. These two adjustments reconciled our reported EPS of 86 to our adjusted EPS of 90 cents. Our balance sheet remained solid, driven by good free cash flow generation and strong discipline on capital spend. In Q1, our capex totaled $152 million, mainly on store renovations, construction of new stores, and IT.
Finally, let me provide some details on our adjusting items, but there are no surprises here.
Speaker Change: Firstly as we communicated in Q4, we excluded a one time noncash charge related to ending e-commerce exclusivity.
Speaker Change: The after tax impact was $8 8 million.
Speaker Change: Secondly, we had an adjustment for restructuring expenses of $2 1 million.
Speaker Change: These two adjustments reconcile our reported EPS of <unk> 86 to our adjusted EPS of <unk> 19.
Speaker Change: Our balance sheet remains solid driven by good free cash flow generation of strong discipline on capital spend.
Speaker Change: In Q1, our Capex totaled $152 million, mainly on store renovations construction of new stores and it.
Matt Reindel: Regarding share repurchases, as of this week, we have repurchased approximately 3.9 million shares for a total consideration of $141 million.
Speaker Change: Regarding share repurchases as of this week, we have repurchased approximately three 9 million shares for a total consideration of $141 million.
Matt Reindel: And one more item to highlight. We released our fiscal 24 Sustainable Business Report in August. We're pleased with our progress, and as you'll see within this report, we continue to make progress against many carbon reduction projects with solid plans in place to achieve our targets. So, to wrap up, we are increasingly optimistic for fiscal 25, particularly as interest rates continue to come down and consumer sentiment gradually improves, both of which will gradually enhance our top line growth. Our solid execution demonstrated by solid same-store sales, gross margin expansion, and improving cost control, plus our commitment to our share buy-back program, gives us confidence that we can grow our EPS in line with the long-term average annual target of 8 to 11 percent as set out within our financial framework.
Speaker Change: And one more item to highlight we released our fiscal 'twenty for sustainable business business report in August we're pleased with our progress and as Youll see within this report we continue to make progress against many carbon reduction projects with solid plans in place to achieve our targets.
Speaker Change: So to wrap up we are increasingly optimistic for fiscal 'twenty, five, particularly as interest rates continue to come down and consumer sentiment gradually improves both of which will gradually enhance our top line growth.
Speaker Change: Our solid execution demonstrated by solid same store sales gross margin expansion and improving cost control plus our commitment to our share buyback program.
Speaker Change: This is confidence that we can grow our EPS in line with our long term average annual target of 8% to 11%.
Speaker Change: Set out within our financial framework.
Katie Brine: And with that, I'll hand the call back to Katie for your call. Thank you, Matt.
Speaker Change: And with that I'll hand, the call back to Casey.
Julie: Thank you, Matt Julie you May open the call for questions at this time.
Operator: Julie, you may open the call for questions at this time. Thank you, ladies and gentlemen. If you'd like to ask a question, please press star one. To which right question, press star two. One moment, please, for your first question.
Julie: Thank you, ladies and gentlemen, if you would like to ask a question. Please press star one.
Julie: Withdraw your question, Chris Sorry, Q1 moment. Please for your first question.
Tammy Chan: Your first question comes from Tammy Chan, from BML Capital Markets. Please go ahead.
Yes first question comes from Tony Chan from BMO capital markets. Please go ahead.
Michael Medline: Hi, thanks for the question. So, sticking with the top line here, obviously we also see other macro data points that are still painting the consumers under pressure, no material change. And I'm just wondering, can you talk about, are you finding the customers or shoppers at your banners? Like, are they skewed a bit more to higher income? And so, this cohort starting to feel better and earlier than the average consumer? Were there any differences in the comp in your different regions or certain banners like IGA? Can you talk a bit more in those respects?
Hi, Thanks for the question so sticking with the top line here. Obviously, we also see other macro data points that still painting.
Speaker Change: Consumer is under pressure no material change.
Tony Chan: I'm just wondering can you talk about are.
Speaker Change: Are you finding that the customers and shoppers at your banners like are they skewed a bit more time, Inc.
Speaker Change: In comments, Joe this cohort starting to feel better and earlier than that.
Speaker Change: Watch consumer were there any differences in the comp.
Speaker Change: Yes.
Speaker Change: There are certain banners like Iga can you talk a bit more in those respects.
Michael Medline: Thanks for the question.
Speaker Change: Thanks for the question, Yes, no no I don't I am not privy to everybody else's detailed results or other industries as well but.
Michael Medline: Yeah, no, no, I'm not privy to everybody else's detailed results, or other industries as well. But we are under no misconception that this is a hardy economy. This was not a good economy for Canadians.
Speaker Change: We are under no misconception that this is a hardie economy. There is not a good economy for Canadians.
Michael Medline: and I was clear on that at the beginning, I think, of my script. At the same time, as I said, we are seeing small, gradual improvements in the consumers that we service across every single one of our businesses. In terms of regionality, interestingly, we were up in same store sales; sorry, we improved our same store sales in every region that we do business in. And, by the way, we're not pop and champagne at 1% cost, but given where we've been the last couple of years in terms of the economy in Canada, given that we're predominantly in full serve.
Speaker Change: And I was clear on that at the beginning I think of my script.
Speaker Change: At the same time.
Speaker Change: As I said, we are seeing small gradual improvements in the consumers that we service across.
Speaker Change: Every single one of our businesses.
Speaker Change: In terms of reach analogy interestingly.
Speaker Change: We were up in.
Speaker Change: Up in same store sale, sorry, we improved our same store sales in every region.
Speaker Change: That we do business in.
Speaker Change: And by the way, we're not popping champagne at 1%.
Speaker Change: Comps.
But given.
Speaker Change: Where we've been the last couple of years in terms of the economy in Canada given that were predominantly.
Speaker Change: Predominantly in full serve and now we're seeing that.
Michael Medline: And now we're seeing that gradually, but as I said last time, inexorably close, we're seeing early returns. And we've been saying that, I think Matt and Pierre and I have been saying this now for 12 or 15 months. That we needed inflation to get down historically normal levels, it has. And we need to continue to see interest rates fall because we need Canadians to feel better about the economy and not be as affected by certain things like shelter costs. So I can't talk about, you know, I'm not back canned and I'm not working at other companies, but I can just say what we're seeing, which is early and gradual improvement, which I hope continues.
Speaker Change: Gradually but as I said last time inexorably close.
Speaker Change: We're seeing early returns and we've been saying that I think <unk> been saying this now for 12 months to 15 months that we needed inflation to get down to historically normal levels. It has and we need to continue to see interest rates fall.
Speaker Change: Because we need Canadians to feel better about the economy and not be as affected by certain things like shelter costs.
Speaker Change: I can't talk about them.
Im not Camden I'm not working on other companies, but I can just say, what we're seeing which is early and gradual improvement, which I hope continues.
Michael Medline: Okay, got it. I mean, on your point, I, you know, I remember a couple of quarters ago, you saw some encouraging behavior, but then it appears to consumer retrench. Like I get the sense what you're seeing now. Yes, it's small, it's gradual, but it sounds like you're quite encouraged that this may be a somewhat, you know, consistent trajectory. Is that fair to say? We hope so. We can only report on what we saw, and we're talking about now. We said what we saw in Q3, Q4, and Q1 now. And we're seeing, and we're seeing a little bit of that, but we need to see interest rates continue to come down, and we need to see the macroeconomic environment continue to improve.
Speaker Change: Okay got it.
I remember a couple of quarters ago, you saw some encouraging behavior, but then it appears the consumer Rick Sanchez I get the sense, what youre seeing now yes, it's small it's gradual but it sounds like youre quite encouraged that this may be somewhat consistent trajectory is that fair to say.
Speaker Change: Yeah, we hope so we can only report on what we saw and we're talking about now we said what we saw in Q3 Q4, and Q1 now and we're seeing and we're seeing a little bit of that but we need to see interest rates continue to come down and we need to see the macro economic environment continue to improve.
Michael Medline: I mean, this is, this was a solid quarter, but if we can see a much better economy, we expect to continue to perform more strongly than this. But this is a, this was a decent quarter and strong quarter, and one which we said, I think that has been very clear when he's talked to you, and I have been the same that we expect, as things improve, that our business, the way it is skewed, and we're happy with that, would be stronger.
Speaker Change: This is this was that.
Speaker Change: Solid quarter, but if we can see a much better economy, we expect to continue to.
Speaker Change: Performed more strongly than this but this is this was a.
Speaker Change: Decent quarter, a strong quarter, and one which we have said.
Speaker Change: I think that it's been very clear when you talk to you and I have been the same that we.
We expected as things improve that our business the way it is skewed and we're happy with that.
Speaker Change: Would be stronger.
Michael Medline: But early days, early days.
Speaker Change: But early days early days.
Operator: Okay, got it.
Speaker Change: Okay got it and.
Michael Medline: And I also wanted to just ask on Scene Plus, so that number you provided, the 55% more. So is that the scene members spend on your banner specifically? And I'm also wondering, I don't know if you can give any update on the penetration of your sales that are on Scene Plus and where you might be at in your journey on more and deeper personalization. Thanks. Thanks, Tommy. I'll take that. So yes, the 55% number is spending in our stores. I was thinking that's the data that we have available to us. So we're very pleased with that number, and we hope and trust that it's going to.
Speaker Change: I also wanted to just ask on <unk>.
Speaker Change: So that number you provided.
Speaker Change: <unk>, 5% more so is that the scene members spend on on your banners specifically.
Speaker Change: Im also wondering I don't know if you can give any update on.
Speaker Change: The penetration of your sales that are on <unk>.
Speaker Change: And where you might be adding your journey.
Lauren: Lauren personal site personalization.
Lauren: Thanks, Tommy I'll take that so yes.
Speaker Change: The 55% number is.
<unk> in our stores obviously during.
Speaker Change: The data that we have available to us.
Speaker Change: So we're very pleased with that that number and where you hope and trust that it's going to increase.
Michael Medline: And then, in terms of penetration, that's not numbers we're going to share to, obviously, for competitive reasons. But the most important thing is that 55% number, and that's trajectory, which is heading in the right direction. So we hope that 55% will increase. And I think you had one other question in terms of personalization and being able to use the data for that. And our early forays have been successful; better than successful. And we just got to ramp that up, and we're still early on that.
Speaker Change: And then in terms of penetrate that now numbers, we're going to share it yourselves for competitive reasons.
Speaker Change: But the most important thing is that 55% number and that trajectory, which is which is heading in the right direction. So we hope that 55% will increase.
Speaker Change: And I think you had one other question in terms of.
Speaker Change: Personalization and being able to use the data for that and.
Our early forays have been successful.
Speaker Change: Better than successful and we just got to ramp that up and we're still early on that.
Operator: There's an upside down. Thank you.
Speaker Change: So there is an upside there.
Speaker Change: Thank you.
Speaker Change: Thank you.
Aaron Nattel: Your next question comes from Aaron Nattel, from RBC Capital Markets. Please go ahead.
Speaker Change: Your next question comes from Ian Natal from RBC capital markets. Please go ahead.
Aaron Nattel: Thanks.
Aaron Nattel: And good afternoon, everyone. Really appreciate all the color that you're sharing in terms of consumer behaviors. Quite helpful.
Ian Natal: Thanks, and good afternoon, everyone really appreciate all the color that youre sharing in terms of consumer behavior is quite helpful actually.
Michael Medline: I actually had a question. You intrigued me with your commentary on Voila around the work that you're doing. Should we be expecting you to announce some kind of partnerships, perhaps in the non-food area on the commerce side. To sort of leverage or trying to understand what you were hinting at.
Speaker Change: You're intrigued me with your commentary on Guadalajara.
Ian Natal: Around the work that you're doing should we be expecting you to announce some kind of partnerships.
Speaker Change: Perhaps in the nonfood area.
Speaker Change: On the E Commerce site.
Speaker Change: So sort of elaborated shirt nature I'm trying to understand what you were hinting at.
Michael Medline: I think a little cryptic as we are just finalizing things right now on something, but it's not new. It would be on different ways to serve our customers in e-commerce with partners. Okay, fair enough. Understood. Thank you. That's that's very helpful. Yeah, no, that's that that's a great clarification.
Speaker Change: A little cryptic.
Speaker Change: We are just finalizing tons of things right now on something but it's not in the new.
Speaker Change: It would be on different ways to serve our customers in E Commerce with partners.
Speaker Change: Okay fair enough understood. Thank you.
Speaker Change: Very helpful.
Speaker Change: Yes.
Speaker Change: That's great clarification.
Pierre St: Just sort of one last question on consumer behavior. You noted that penetration of promotion is stabilizing; maybe there's a little bit less on cross shop. What are you seeing sort of on a category basis and with respect to trade down, you know, to private label or in the protein categories, that kind of thing. Are you are you also seeing early green shoots there?
Speaker Change: Just sorry, one last question on consumer behavior as you noted that.
Penetration of promotion is in stabilizing that maybe there is a little bit less on cross shop.
Speaker Change: What are you seeing on a category basis with respect to it.
Trade down.
Speaker Change: Shifting to private label or in the protein categories that kind of thing or are you also seeing early green shoots there.
Pierre St: Let's take this one. So on private label, we continue to see continuous improvement, continuous increase in penetration. And as I said many times before, every time we are shifting sales from national band to private label, we are contributing from proven on marginary.
I'll take this one.
Speaker Change: Oh.
Speaker Change: Private label will continue to see continuous improvement continuous increase in penetration.
Speaker Change: As I said many times before.
Speaker Change: Everything we are shifting sales from national brand to private label, we are <unk>.
Speaker Change: Contributing for improvement on margin rate.
Pierre St: And any profit. Oh, this is good. Our customer is a good for us. So this is a trend that we just seeing continuous improvement. And, and also we are seeing in very 30 days again, but we're seeing more applied for customer to come back in the fresh categories. So we are seeing that in our number. Fresh is trending up right now. So it's where people made choices or talk choices. I think in the past and now we're seeing more traction in those categories, but nothing specific into the fresh category, but the fresh category is doing well.
Speaker Change: And Penny profit or this is good for customers and good for us.
Speaker Change: This is a trend that we've seen continuous improvement.
Speaker Change: And.
Speaker Change: And also we are seeing in.
Speaker Change: Great 30 days again.
Speaker Change: But we're seeing more appetite for customer to come back in the fresh categories.
Speaker Change: We are seeing that in our number of fresh is trending up right now so it's where people make choices are tough choices I think in the past and now.
Speaker Change: We're seeing more traction in those categories, but nothing specific into the fresh category, but Chris category is doing well right now.
Pierre St: Right now.
Operator: That's great news. Yeah.
Speaker Change: Great News, which is good for us.
Pierre St: Sortman Impression is our strength. Yeah. Absolutely.
Speaker Change: Assortment and freshness.
Speaker Change: Strength.
Speaker Change: Yes, absolutely. Thank you.
Operator: Thank you.
Speaker Change: Okay.
Chris Lee: Your next question comes from Chris Lee from Digital Bank. Please go ahead.
Speaker Change: Your next question comes from Chris Li from Deutsche Bank. Please go ahead.
Michael Medline: Oh, I could happen everyone. Michael, I remember last, where you mentioned that, you know, all it takes is for you guys to have your customers at one or two items more to your basket to kind of make the math work. Are you starting to see that in the quarter? We think trend improving in a basket size in all regions.
Chris Li: Alright, good afternoon, Glenn Michael I remember last quarter, you mentioned that.
Speaker Change: All it takes is for you guys to have you.
Speaker Change: <unk> at one or two items more to your basket to kind of make the math work.
Speaker Change: Are you starting to see that.
Speaker Change: Got it.
Speaker Change: We are seeing.
Trend improving in our basket size in all regions.
Michael Medline: Good question. If it's in unit, if it's in dollar, but with 30 days again, but immediately after the scholar would begin to understand if it's unit or dollars. My feeling is it's a mix of both, but it's again, it's early days. It's a small improvement. And because the customer sentiment is improving, I suspect that it's coming from both more span and more unit in the basket. Okay. That's helpful.
Speaker Change: Good question, if it's in units and dollar so it's early days again, but.
Speaker Change: Immediately after this call I will dig into it to understand if it's units or dollars.
Speaker Change: <unk>, it's a mix of both but it's again, it's early days, it's a small improvement.
Speaker Change: And because the customer sentiment is improving I suspect that it's coming from both though more spend and more units in the basket.
Speaker Change: Okay. That's helpful. Thanks.
Michael Medline: Thanks. And then the question I have is, you know, your two-year stacked food center cells for the quarter was quite strong, around 5%. I'm not sure if this is the right way to look at it, but I'm curious: is the two year stack level? Are you still seeing that 5% continuing for quarter to today? Is that a fair statement?
Speaker Change: Then.
Speaker Change: Question I have is.
Your two year stack.
Speaker Change: So it seems ourselves, but for the quarter was quite strong around 5% mushy. If this is the right way to look at it but im curious is the two year stack level.
Speaker Change: Are you still seeing that 5% continuing for quarter two.
Speaker Change: Today is that is that a fair statement.
Matt Reindel: No, I wouldn't; I wouldn't look at it that way, Chris. I mean, then again, we don't, honestly, we don't really follow two-year stacks. What I would say when you look at Q2 versus Q1 is, I mean, I would follow the general counsel we've given, which is we expect ourselves to be pretty much the same in Q2 and Q1, but we expect the consumer sentiment to gradually improve. And if that consumer sentiment gradually improves, you would expect our comps to gradually improve. So, you know, we'll 1% in Q1 or to see gradual increase versus that. That's what we hope for.
Speaker Change: No I wouldn't I wouldn't look at it that way Chris again.
Speaker Change: Honestly, we don't really followed two year stacks, what I would say.
Speaker Change: When you look at Q2 versus Q1.
Speaker Change: Is.
Speaker Change: I would follow the general kind of accounts that we've given which is.
Speaker Change: We expect sales to be pretty much the same in Q2 and Q1, but we expect.
Speaker Change: The consumer sentiment to gradually improve and if that consumer sentiment gradually improves then you would expect our comps to gradually improve so and we have 1% in Q1.
Speaker Change: Jim.
Speaker Change: Gradual.
Jim: Increased versus that that's what we hope for.
Matt Reindel: Okay, that's that's helpful, Matt. Thanks for that. And my last question is, as the consumer sentiment continues to improve, I've seen a corresponding increase in e-commerce penetration. Just for the industry, as people have more money, they buy more online. Is the pie getting a little bit better for e-commerce? I think, well, yeah, it's going to continue to get better as the demographics improve and e-commerce catches on more. And as we also increase the market, it's hard to comment on e-commerce.
Jim: Got it okay.
Jim: Helpful. Matt Thanks for that and my last question is as the consumer sentiment continues to improve like <unk> seen a corresponding.
Jim: Increasing e-commerce penetration just for the industry is.
Speaker Change: We will have more money.
Speaker Change: Buying more online.
Speaker Change: As the pie getting little bit better.
Speaker Change: What <unk> accomplished.
Speaker Change: I think we will.
Yes, it's going to continue to get better as the demographics improve in e-commerce catches or more and as we also increase the market it's hard to comment on E Commerce.
Matt Reindel: Yeah, I want, I'd like another quarter to be able to give you really good answer in terms of penetration because I don't want to give one on one quarter. We had; it was a good quarter, but it's in the summer months, which is our smallest e-commerce quarter. So yeah, we're optimistic about that, but I try to base all our comments on some facts here, and I just don't think I have enough yet to say there's a trend. But yeah, we believe this is going to grow. How quickly? I should be able to; we should bet a better idea over the next quarter, too.
Speaker Change: I'd like another quarter or two to be able to give you a really good answer in terms of penetration because I don't want to give you one on one quarter. We had it was a good quarter, but it is in the summer months, which is our smallest ecommerce.
Speaker Change: Quarter.
Speaker Change: So yes, we're optimistic about that but I try to try to base. We tried to base all our comments on some facts here and I just don't think I have enough yet to say theres a trend, but yes.
Speaker Change: We believe this is going to grow how quickly.
Speaker Change: I should be able to we should get a better idea over the next quarter or two we will give you a better sense of that we'll write this down right now in and tried to talk to it if we see in the next quarter.
Matt Reindel: We'll give you a better sense of that. We'll write this down right now, and try to talk to it if we see anything next.
Matt Reindel: Okay, that's how, because I asked, because you guys are posting a double-digit sales growth, it so it seems like it's more market share gains. That's helping drive that growth and not so much the market growing, per se. Yeah, I think we've seen the market grow a little bit over the last while, and most of its market share gains, and as Matt said, some of it in the last four quarters that we're going to, that we're now completing, was integrating some grocery gateway customers in as well. So it's combination.
Speaker Change: Okay. That's all because I had to ask because you guys are posting double digit sales growth. So it seems like it's more market share gains that is helping drive that growth and not so much.
Craig: Market growth per se Craig of the market I think we've seen the market grow a little bit over the last while and most of its market share gains and is as Matt said some of it in the last four quarters that we're going to that we're now completing was integrating some grocery gateway customers in as well so it's a combination there.
Operator: Okay, thanks. Another best. Thanks, Chris.
Speaker Change: Okay, great Thanks, and all the best.
Chris Li: Thanks, Chris.
Michael Shon Hills: Your next question comes from Michael's on Hills from TD Cohen. Please go ahead.
Speaker Change: Your next question comes from Michael Van <unk> from TD Cowen. Please go ahead.
Michael Shon Hills: Thank you. So I wanted to go back to the gross margin comments that you made. You know, you, for a few quarters, I think you've said 10 to 20 basis points is the long term kind of target expansion on an annual basis. But, you know, you had some bigger improvements that started in the second half of last year in Q3, Q4. And then we saw it again this quarter.
Speaker Change: Thank you.
Speaker Change: So I wanted to go back to the gross margin comments that you made.
Speaker Change: Yes.
Speaker Change: Matt for a few quarters I think you said 10 to 20 basis points as the long term kind of target expansion on an annual basis, but you had some bigger improvements that started in the second half of last year in Q3 Q4.
Speaker Change: Then we saw it again this quarter.
Matt Reindel: You know, should we just assume that you've got another quarter of lapping these higher level of gross margin contributions before we start seeing that 10 to 20 basis point? And you know, more normal run rate kicking in.
Speaker Change: Should we just.
Speaker Change: I'm, assuming that you've got another quarter of lapping these higher level of gross margin contributions before we start seeing that 10 to 20 basis point.
Speaker Change: More normal run rate kicking in.
Matt Reindel: Yeah, it's a great question. Thanks, Michael. So, a couple of things to know. So again, when we look at our gross margin expansion, as we said in previous quarters, now there's not any one major item that's driving the improvement. It's really a series of smaller initiatives that are all positively contributing to that, which is good because it's all sustainable evolution with regard to the year-over-year increase. What's interesting is if you look at the sequential improvement on a quarter-to-quarter basis. So in Q3, we increased by 87 basis points, and Q4 by 68 basis points, and Q1 by 46 basis points.
Speaker Change: Yes, great question, Thanks, Michael So.
Speaker Change: Well a couple of things to note.
Again, when you look at our gross margin expansion as we've said in.
Speaker Change: Previous quarters now theres not any one major item that's driving the improvement is really a series of smaller initiatives that role positively.
Speaker Change: Contributing to that which is good because it's all.
Speaker Change: Sustainable.
Speaker Change: Evolution.
Speaker Change: With regard to the <unk>.
Speaker Change: Year over year increase what's what's interesting is if you look at the sequential improvements on a quarter to quarter basis Q3, we increased by 87 basis points in Q4 by 68 basis points in Q1 by 46 basis points. So you can see sequentially those increases are guessing allow.
Speaker Change: Sure.
Speaker Change: And you might expect that for Q2, so we do expect to still grow margin, but.
Speaker Change: Now in the 46 basis points range.
Matt Reindel: And then, to your point, you're absolutely right. When we start to lap Q3 and Q4, you know, those were the quarters that we really increased margin a lot last year. So, you know, we'll see what our performance's like when we get to that point, but 10 to 20 basis points is more of our expectation. And again, just to remind everyone that 10 to 20 basis points is our annual expectation on a medium-term basis. So that guides all of our short and long term planning as we generate the plans for the business. Some of that growth comes from mix.
Speaker Change: And then to your point, you're absolutely right. When we start to lap Q3 and Q4 those are the quarters that we really increased margin of last year.
Speaker Change: So we will see what our performance is like when we get to that point.
Speaker Change: But 10 to 20 basis points as more of our expectation and again just to remind everyone that 10 to 20 basis points as our annual expectations on a medium term basis. So that guides all of our short and long term planning as we as we generate the plans for the business some of that growth come.
Speaker Change: From mix some of it comes from the core business, but that's a medium term expectation.
Matt Reindel: Some of it comes from the core business, but that's on medium-term expectation. Okay, so that's helpful. Yeah, that's definitely helpful.
Speaker Change: Okay. So thats helpful.
Speaker Change: That's definitely helpful.
Matt Reindel: So if we were to take a look at just the big building blocks to get to your 8 to 11 percent, you know, the operating income growth seems to be at a level that you're comfortable with right now. The gross margin expansion is still solid next quarter, but then let's call it. Let's assume that it falls into that 10 to 20 percent. And beyond that, I guess you need, it's a top line that we really need to see to, you know, to drive the earnings growth if we kind of normalize or, you know, spread. that flatten out the quarterly differences in the other inequity income, right?
Speaker Change: So if we were to.
Speaker Change: Take a look at just the big building blocks to get to your 8% to 11%.
Speaker Change: The operating income growth seems to be at a level that youre comfortable with right now the gross margin expansion.
Speaker Change: Still solid next quarter, but then let's call it let's assume that it falls into that 10% to 20%.
Speaker Change: Beyond that I guess, you need it's a top line that we really need to see to hit.
Speaker Change: To drive the earnings growth, if we kind of normalize or art.
Speaker Change: Right.
Speaker Change: Flattened out.
Speaker Change: The quarterly differences and the other in equity income right.
Matt Reindel: I think your summary is spot on. You know, when we look at our financial framework, almost half of our expectation comes from share buybacks, so let's start with that. We, as you know, Mark and Michael and I, big fans of share buybacks, and we will continue to execute that at that $400 million range. And then the other piece of it is in that earnings. And you're absolutely right. We continue to improve our growth margin, which helps, but we continue to invest in SG&A. And we're not shying away from that. We have our strategic initiatives which require funding, and they need investment, so that's not something we're shying away from.
Speaker Change: I think your summary is spot on when we look at.
Speaker Change: Our financial framework.
Speaker Change: Most almost half of our expectation comes from share buybacks. So let's start with that we as you know market, Michael and I are big fans of share buybacks and we will continue to execute that about $400 million.
Range.
Speaker Change #100: And then the other piece of it isn't that earnings.
Speaker Change #101: And you're absolutely right. We continue to improve our gross margin was helps but we continue to invest in SG&A and we're not shying away from that we have.
Speaker Change #101: Strategic initiatives, which require funding and they needed investments. So that's not something we're shying away from.
Matt Reindel: The consequence of that is absolutely, as you said, is we need sales to increase. So what we're pleased about, and Michael, I will use this word frequently over the next few weeks, but it's gradual. So this gradual improvement of consumer sentiment, which has translate to a gradual improvement in our top line, which will lead to a gradual improvement of leverage of fixed cost, is what we need in order to generate that last piece of the financial framework. So, sorry, that's a long-winded way of saying I agree with you, but I'd like to add a little bit more color.
Speaker Change #101: The consequence of that is absolutely as you said is we need sales to increase so we're pleased about.
Speaker Change #102: Like how he used this word frequently over the next few weeks, but it's gradual so this gradual improvement of consumer sentiment.
Which is translate to a gradual improvement in our top line, which will lead to a gradual improvement.
Speaker Change #102: Leverage of fixed cost.
Speaker Change #102: Is what we need in order to generate that last piece of the financial framework.
Speaker Change #103: Sorry, that's a long winded way of saying I agree with your <unk>, a little bit more color.
Operator: That's great. That's very helpful. Thanks very much. Thanks.
Speaker Change #104: No that's great. That's very helpful. Thanks very much.
Speaker Change #104: Thanks.
Vishal Shridhar: Hey, your next question comes from Vishal Shridhar from National Bank. Please go ahead.
Vishal <unk>: Your next question comes from Vishal <unk> from National Bank. Please go ahead.
Vishal Shridhar: Hi, I was, I was interested in your comments where you mentioned that your conventional banners are outperforming their peer set, and the discount banners are outperforming the peer set. And that is coupled with square footage growth, which is relatively modest.
Vishal <unk>: Hi, I was.
I was interested in your comments, where you mentioned that your conventional banners are outperforming their peer set and the discount banners are outperforming the peer set and that is coupled with square footage growth, which is relatively modest so is.
Michael Medline: So, is it fair to say that this is happening for organic same-source sales growth versus the industry? I would say mostly, but we expanded square footage and for service with Famboy, and we expanded square footage in Presco also with new sites. So it's coming from both, but yes, most of it is seeing these kinds of prime same-source sales. Okay.
Speaker Change #106: Is it is it fair to say that the this.
Speaker Change #107: This is happening from organic same store sales growth versus versus the industry.
Speaker Change #108: I would say, mostly but we expanded square footage in for service with Boyd and we expanded square footage in critical also with new sites. So.
Speaker Change #109: It's coming from both but yes, most of it as saying he is coming from same store sales.
Speaker Change #110: Okay, and with respect to square footage growth looking forward, how should I think about it.
Michael Medline: And with respect to square footage growth looking forward, how should I think about it? We, yeah, I mean, we, as we noted in our capital plans, when you look at the split of how we allocate capital, half of it will always go to growing up, to focus on our stores, and the combination of new stores and renovating our stores. I think new stores have not been a major pillar for us in the past, but they will start to be more of one moving forward. But again, I would say that's a gradual shift in that direction.
Speaker Change #110: Yes, I mean, we.
Speaker Change #110: As we noted in our capital plans.
Speaker Change #110: When you look at the split of how we allocate capital half of it will always go to.
Speaker Change #110: To growing up.
Speaker Change #110: Sure.
Speaker Change #110: To focus on our stores and the combination of new stores and renovating our stores.
I think new stores has not been a major pillar for us in the past that they will start to be more of one <unk>.
Speaker Change #110: Moving forward.
Speaker Change #110: But again I would say that's a gradual shift in that direction. So you're right new square footage hasn't been huge for us we have grown.
Michael Medline: So, you're right; new square footage hasn't been huge for us. We have grown new stores, as GSA, with Famboy, with Lungos, with Discount, and that will probably become a little bit more in the years ahead.
Speaker Change #110: <unk> long does with discount.
Speaker Change #110: And that will probably become a little bit more in the years ahead.
Michael Medline: Okay. So for this fiscal year, maybe around the status quo, and then expect that to gradually build. That's fair. Yeah, I mean, we are gradually, we are adding new stores this year. So, but it's mostly renovation. So, yeah, just not, I wouldn't say flat; I would just say marginally ahead.
Speaker Change #111: Okay. So for this fiscal year, maybe maybe around the status quo with and expect that to gradually built that's fair.
Speaker Change #111: Yes, I mean, we are gradually we are adding new stores this year.
Speaker Change #112: So, but it's mostly renovation so yes, just not I Wouldnt say flat I would just say marginally ahead.
Michael Medline: Got it, okay. Appreciate that. And with respect to the type of stores being added or the, is there, you know, Empire has engaged in the past in a discount conversion and notwithstanding management comments, feeling more confident about the outlook in, in conventional, at least with the data that it's seeing now, can we think about the mix and is, are you, is management content with where the mix is at now, recognizing that you made some acquisitions which shifted the mix back more towards conventional.
Speaker Change #113: Got it okay, I appreciate that and with respect to the type of stores being added over time.
Is there you know Empire has engaged in in the past.
Speaker Change #114: A discount conversion and notwithstanding managements comments feeling more confident about the outlook.
Speaker Change #115: Conventional at least with the data that <unk> seen now can we think about the mix and is is management content with where the mix is that now recognizing that you've made some acquisitions, which shifted the mix back more towards conventional.
Michael Medline: Yeah, it's Michael, I think. I mean, the mix is so large, it's hard to move it in any given year. We like our discount banner, we're very, very pleased with the results. We're having an Ontario and the growth we see in the western Can, it's been a home run for us. And so I think you're going to see more confidence in our discount banner, and maybe, maybe a little bit of innovation there as well in terms of fitting into different markets. But having said that, we are increasingly confident that that full service is about to come into it day again, and we want to be there for our customers.
Speaker Change #115: Yes, it's Michael I think I mean, the mix is so large it's hard to move it in any given year.
Speaker Change #116: We like our discount better we're very very pleased where the results, we're having in Ontario, and the growth we've seen in Western Canada has been a homerun for us and.
Speaker Change #116: So I think youre going to see more confidence in our discount banner and maybe maybe a little bit of innovation, there as well in terms of fitting into different markets.
Speaker Change #116: But having said that we are increasingly confident that that full service is about to come into its day again, and we want to be there for our customers and so we're looking at ensuring that we're going to be taking market share in the next.
Michael Medline: And so we're looking at ensuring that we're going to be taking market share in the next, and the next few years as the economy hopefully improves a little bit and that we are getting stronger at our game. We put in an incredible infrastructure across our company over the last number of years. We got a, we got a cash in on that. And I like where we're heading, especially in our stores. So I think we like both; I wouldn't go one way or the other.
Speaker Change #116: And the next few years.
Speaker Change #116: The economy, hopefully improve a little bit and that we are getting stronger our game, we put in an incredible infrastructure across our company over the last number of years, we got we got our cash in on that.
Speaker Change #116: And I like where we are heading especially in our stores. So I think we like both I wouldn't go one way or the other but.
Michael Medline: But unlike a lot of companies out there, we don't share everything we got up our sleeve, and, and, and, and Doug and Mark in real estate are working away in terms of what are the next steps in order to make sure that we're growing faster than competitors and we get our market share while being disciplined in capital and in SGNA. So, you know, it's not, it's not all easy, and that's the task in front of us. But more and more, I think, as we improve, we've got, we've got more options ahead of us to compete.
Unlike a lot of companies out there we don't share everything we got up our sleeve and then.
Speaker Change #117: Pier and.
Speaker Change #118: Doug and Mark in real estate or are working away at in terms of what are the next steps in order to make sure that we're growing faster than our competitors and we get our market share while.
Speaker Change #118: Being disciplined in capital and SG&A so.
Speaker Change #118: It's not it's not all easy and that's the task in front of us.
Speaker Change #118: More and more I think as we improve.
We've got we've got more options ahead of us to compete.
Pierre St: Okay, and I'm risking bumping up here. Yeah, a nice time, which Pierre talks about, is that for a number of quarters now, he's been saying we're winning in full serve and we're winning in discount. And we're winning an e-con. And, and so that's a nice place to be as a consumer, even has to normalize a little bit to where they were before high interest rates. We'll be in a pretty good spot there if we can continue that. And I guess that's Pierre's and I, and the whole team's job is to make sure we continue on that.
Speaker Change #118: Okay.
Speaker Change #118: Bumping up against.
Speaker Change #118: <unk> got a nice sign which peer talks about is that for a number of quarters now he has been saying.
Speaker Change #119: We're winning and full serve and we're winning in discount.
Speaker Change #118: And we're winning in E com.
Speaker Change #118: And and so that's a nice place to be as.
Speaker Change #120: As the consumer has to normalize a little bit to where they were before high interest rates will be in a pretty good spot. There. If we can continue that and I guess thats peers of mine.
Speaker Change #118: Whole team's job is to make sure we continue on that.
Operator: Thank you for that.
Speaker Change #121: Thank you for that and the innovation that you were referring to.
Operator: And the innovation that you're referring to, is that relating to smaller format discount stores or to be, to be seen? It's to be seen. Okay, thank you. You know, we're going to, our competitors that follow certain strategy, we're going to follow our own strategy, where we think we're the strongest. But it will involve, but it'll involve discount as well. We think that Fresco is very strong. And we think we have a lot of different options we can use there. We're not going to stay here and lose any market share. We're going to get market share.
Speaker Change #122: Is that relating to smaller format discount stores.
Speaker Change #123: <unk> to be seen.
Speaker Change #123: <unk> seen.
Okay. Thank you.
Speaker Change #123: Okay.
But.
Speaker Change #125: We're going to our competitors follow a certain strategy, we're going to follow our own strategy.
Speaker Change #125: Where we think we are the strongest and.
Speaker Change #125: But it will involve full serve involve discount as well we think that <unk> is very strong.
Speaker Change #125: And we think we have a lot of different options, we can use there.
Speaker Change #125: Alright.
Speaker Change #125: We're not just going to fit here.
Speaker Change #125: And lose any market share, we're going to get market share.
Operator: Ladies and gentlemen, as a reminder, if you liked us a question, please press star one.
Speaker Change #126: Ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press star one.
Mark Petrie: Your next question comes from Mark Petrie from CIBC. Please go ahead.
Speaker Change #126: Question comes from Mark Petrie from CIBC. Please go ahead.
Mark Petrie: Yeah, thanks.
Yes. Thanks, good afternoon, I just had a few follow ups.
Mark Petrie: Good afternoon. I just have a few follow-ups.
Michael Medline: First, maybe unseen plus, is personalization sort of the next leg of opportunity, or are there other notable ways you can sort of expand the scope and impact of the program? I think there are two things. I think certainly personalization is the biggest opportunity that we have coming down. But also, you know, we've only had this program in really for the past year in any sort of mature way. And so that Pierre and Luke and Sarah and Mike and everybody are offering continue to be more pinpoint, more we're evolving them to be more consequential to the consumer.
Mark Petrie: First maybe unseen plus.
Mark Petrie: Is personalization sort of the next leg of opportunity or are there. Other notable ways that you can sort of expand the scope and impact of the program.
So I think there are two things I think certainly personalization is the biggest opportunity that we have coming down.
Mark Petrie: But also we've only had this program and really for the past year and any sort of mature.
Mark Petrie: And so the.
Pier and look in.
Mark Petrie: And Sarah and Mike and everybody or our offerings continue to be.
Mark Petrie: B.
Mark Petrie: More pinpointed more we're evolving them to be more consequential to the consumer.
Michael Medline: And so we're testing different things and going with the things that work the best. So I think it's a combination of being able to optimize the program and the offerings we're giving, combined with that personalization. I think in the end, it'll be personalization that will drive a bigger part, but we still have a ways to go to be as good as we can be in the current offering. Yeah, understood. Okay.
Mark Petrie: And so we're testing different things and going with the things that work. The best So I think it's a combination of being able to optimize the program and the offerings, we're giving combined with that personalization I think in the end it will be personalization will drive a bigger part, but we still have a ways to go to be as good as we can be in the current offering.
Speaker Change #128: Yeah understood. Okay, and then I just wanted to clarify a couple things that you had said and maybe just get a little bit more color.
Michael Medline: And then I just want to clarify a couple of things that you had said and maybe just get a little bit more color. The slowing increase in promo penetration. Is that across banners, like across channels, or is that in sort of concentrated? No, it's a general trend. We're seeing everywhere, including discount and for service and across regions. Okay.
Speaker Change #129: The slowing increase in promo penetration is that across banners.
Speaker Change #130: Banners like across channels or is that in sort of concentrated.
Speaker Change #131: No its a general trend, we're seeing everywhere, including discount in for service and across regions.
Speaker Change #131: Okay, and Michael I think it was your opening comments that sort of imply the gap between full service and discount.
Michael Medline: And Michael, I think it was your opening comment that sort of implied the gap between full service and discount is closing, or the growth, the relative growth rates. I just want to confirm that's what you're seeing. And again, like does that vary across regions at all? Yeah, you know, it's a little bit of variance between regions, and there's bumpiness in one week and another. So, but generally, and since last year, the same store sales gap between full serve and discount is the significantly narrowed significantly. Yeah. Okay. I think I'm in six or nine months ago.
Speaker Change #132: As clothing or the growth relative growth rates I just wanted to confirm that's what you are seeing and again like does that vary across regions at all.
Speaker Change #132: Yes.
Speaker Change #133: Little bit of variance between regions vendors bumping. This in one weekend in others, so, but generally and since last year those same store sales gap between full serve and discounted significantly narrowed.
Speaker Change #132: Difficultly narrowed.
Speaker Change #134: Yeah, Okay. Thank you.
Speaker Change #135: And six or nine months ago, maybe it was I can't remember, which conference or which call it was that.
Michael Medline: Maybe it was I can't remember which conference or which call it was that at some point they can also cross over. Yeah. I think people forget that too. No, we're not quite at that point yet, but I think that could occur. Yeah. Absolutely. Okay. Understood.
Speaker Change #135: At some point they can also crossover.
Speaker Change #136: Yes, I think people forget that too.
Speaker Change #136: We're not quite at that point, yet, but I think that could occur.
Speaker Change #136: Yeah, Yeah, absolutely Okay understood and then just last.
Operator: And then just last.
Michael Medline: I want to have specifically about Quebec. And just because it's obviously been a dynamic market with regards to square footage actions and conversions from some of your competitors. And you know, based on your comments so far, I don't think you're observing any notable changes with regards to the competitive environment, but it would be helpful if you could just confirm that. And then my question is, if you could give us a sense of the nature of your conversations you're having with your franchisees. And what kind of feedback you're getting from them, and maybe how that's evolved over the last, you know, sort of six or 12 months.
Speaker Change #136: I wanted to ask specifically about.
Speaker Change #136: How about Quebec.
Speaker Change #136: And just because it's obviously been a dynamic market with regards to.
Square footage actions and conversions from from some of your competitors.
Speaker Change #137: And based on your comments so far I don't think you are observing any notable changes with regards to the competitive environment, but helpful. If you could just confirm that and then my question is just if you could give us a sense of the nature of your conversations youre, having with your franchisees and what kind of feedback you're getting from them and maybe how.
Speaker Change #137: That's evolved over the last sort of six or 12 months.
Michael Medline: A good question. Thank you. So Quebec remains very, very strong, facing economic challenges. We have family and business since 40 years. It's probably, I don't know how many times they have to go through that. It's not new for them to manage that volatility, and they did really well. The network is very resilient, more than people think. As I, as we said before in previous quarter, we never saw a decrease in transaction count. Never. It never happened. They shot multiple stores. Yes. And our competitors have been more active than us on increasing square footage in the last year.
Speaker Change #138: It's a good question. Thank you.
Speaker Change #139: Quebec remain very very strong.
Speaker Change #139: Facing.
Speaker Change #140: Kind of mimic challenges, we have allianz business since four years probably.
Speaker Change #139: <unk>.
Speaker Change #141: I don't know how many times the add to go through that but it's not new for them to manage that volatility and it did really well.
Speaker Change #139: The.
Speaker Change #139: Network is very resilient.
Speaker Change #139: More than people think.
Speaker Change #142: As we said before in previous quarter, we never saw a decrease in transaction count never it's never added multiple stores yes.
Speaker Change #143: And our competitor had been more active than us on increasing square footage in the last year.
Michael Medline: But before that, we were the most active in this market in real estate for many years in a row. So it's timing, and I think we'll continue to go after market share. There's a fortune thing, Quebec, and we go after that. But the general sentiment with dealers, and we're having conversation with them almost on a weekly basis. They have confidence in the future. We believe in their brand. We have a strong brand there. And they face some challenges. But again, they are seeing progress on all the metrics we've mentioned earlier. So, asceticized transaction count, inflation, all of those metrics, they are seeing the exact same thing.
But before that we were the most active in this market in real estate for many years in a row.
Speaker Change #145: So it's timing and I think what we continue to go after market share there is opportunities in Quebec, and we go after that but the general sentiment with dealers and we are in conversation with them on <unk>.
Speaker Change #144: On the <unk>.
Speaker Change #144: Okay basis.
Speaker Change #144: We have confidence in the future we believe in their brand we have a strong brand there and.
Speaker Change #146: They face some challenges, but again they are seeing progress on all the metrics. We've mentioned earlier, so basket size transaction count inflation all of those metrics. They are seeing the exact same thing. So they feel very positive right. Now we are with them again next week.
Michael Medline: So they feel very positive right now. We're all with them again next week. And we have a strong plan for the next six months, and we will engage them with us. And as we did in the past, so yes, we had a challenge. But again, the trend is in the right direction, and the market and the network are way stronger than people think. And it's a very profitable business for us and for them.
Speaker Change #146: And we have a strong plan for the next six months and we will engage.
Speaker Change #146: With us.
Speaker Change #146: We did in the past.
Speaker Change #146: Yes, we are challenged but again.
Speaker Change #146: The trend is in the right direction in the market and the network is stronger than people think and it's a very profitable business for us and for them.
Operator: Okay. I really appreciate all the color of your thanks a lot to all the best. Thanks for the next one.
Speaker Change #147: Okay I really appreciate all that color. Thanks, a lot all the best.
Mark Petrie: Thanks, Mark Thanks, Mark.
Operator: And there are no further questions at this time.
Mark Petrie: And there are no further questions at this time I will turn the call back over to Katie for closing remarks.
Katie Brine: I will turn the call back over to Katie for closing remarks. Great. Thank you, Julie. We appreciate your continued interest and empire.
Katie: Great. Thank you Julie we appreciate your continued interest in Empire is there any other unanswered questions. Please contact me personally by phone or E. Mail, we look forward to having you join us for our second quarter of fiscal 2025 conference call on December 12th Taxane.
Katie Brine: If there are any other unanswered questions, please contact me personally by phone or email.
Katie Brine: We look forward to having you join us for a second quarter of fiscal 2025 conference call on December 12th. Talk soon.
Operator: Ladies and gentlemen, this concludes today's conference call. Jim and I'll disconnect. Thank you.
Speaker Change #148: Ladies and gentlemen. This concludes today's conference call you may now disconnect. Thank you.
Speaker Change #148: [music].
Speaker Change #148: Okay.
Speaker Change #148: Okay.
Speaker Change #148: Okay.
Speaker Change #148: Okay.
Speaker Change #148: Okay.
Speaker Change #148: Okay.
Speaker Change #148: Okay.