Q2 2025 Empire Co Ltd Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Empire second quarter 2025 conference call at this time, online to an Ellison, 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. December 12th 2024. I would now like to turn the conference over to Katie brine, investor relations Treasury and pension. Please go ahead.
Thank you Joanna. Good afternoon and thank you all for joining us for our second quarter conference call. Today we will provide a 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 Empire code 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, Rangell Chief Financial Officer PR St. Laura 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 mdna. For more information on these assumptions and factors, I will now turn the call over to Michael Medline.
Thanks Katie. Good afternoon everyone. Uh, in Q2 the story at Empire continues to be an improving consumer environment with solid execution.
We saw momentum in green shoots in both the economy and our business, our same store sales have gradually but meaningfully increased over the last 2 quarters and we continue to make improvements to our margins and to our costs.
as you know,
Through the period of rising interest rates and inflationary pressures, we focused on protecting the fundamentals of our business. While also working on initiatives, that was would set us up for Success. Once the economy started to recover
Inflation has now, moderated and interest rates have begun to decline, representing a positive inflection point for full service, which we've clearly seen over the last 3 quarters.
We?
Played the groundwork on our major initiatives and now the strength we've been building in our business is beginning to come to life in our results.
Today, I'm going to focus on 2 topics our Q2 results and market trends and then a quick update on our e-commerce business.
First, our results and market trends, same store, sales grew by 1.8%.
We're pleased with the progression of our same store sales, which is in part, due to many of the early market, indicators that we highlight in q1 and the continued to gradually build in Q2.
Food, inflation has been stabilizing for the last 3 quarters contributing to a more predictable operating environment and interest rates fell by 75 basis points. During the quarter, improving consumer confidence,
Both our full service and discount channels continue to grow faster than their respective markets. And for the fourth quarter in a row, we continue to see the gap between full service and discount same store sales closing.
We said this last quarter and I'll say it again, we believe this will be advantageous to us as we continue to lean into our strengths, as a full service foremost grosser.
Over the last few years we've made Investments to highlight and deliver value to our customers across all of our banners. For example, we know that our own Brands products remain top of mind for our customers and we have launched a significant number of large format Multicultural and value-oriented products in response.
The early indications, we saw last quarter of customers, returning to more favorable and predictable shopping behaviors, continued to present themselves in Q2.
We see customer numbers growing in our stores and smaller declines in the average basket size.
That's positive, but it will take time for stretch con customers to fully return to their more typical purchasing behaviors.
Gross margins. Continue to improve this quarter supported by a focus on stores supply chain and purchasing more efficiently.
Margin Improvement of 48 basis points was driven by many small but meaningful actions.
A few initiatives that continue to enable our growth include our ongoing deployment of space. Productivity significant improvement in our non theft, shrink. And our supply chain with regards to shrink, we have continued to leverage best practices and expertise across our banners to implement new ways of working our stores which are focused on optimizing forecasting ordering and delivery schedules.
And within our supply chain, there are 2 key areas. We can highlight first, we're executing with a higher degree of precision and discipline in practice. That means we're getting better at utilizing our Advanced transportation management systems strengthening Partnerships with our carriers and streamlining, deliveries to reduce costs and mileage. This is enabled us to get better in areas such as outbound delivery to stores where we have optimized, delivery frequency and Order Windows. Secondly, we've been focused on consolidation and expansion across our supply chain Network. As an example, in Q2, we completed the expansion of 1 of our distribution centers in Ontario and expect to realize savings by converting high volume direct store, delivery vendors to our distribution center.
Not only have these initiatives, enhanced our margin but they've also enabled us to achieve significant improvements in freshness.
Waste reduction and product availability.
While we've been protecting the fundamentals, we've also put much effort.
Improving our cost base, which is starting to show in our results.
Our sgna rate, grew 46 basis points. This quarter compared to 69 basis points in q1. And it's the lowest rate of growth over the last 6 quarters over the last year. Our strategic sourcing team has worked extensively with suppliers to enhance value on the products and services that support our operations. This in combination with the impact of the restructuring. And the many supply chain initiatives have collectively enabled us to improve our cost base.
Overall, we delivered adjusted EPS of 73 cents this quarter, when excluding other income and share of earnings from Equity Investments, we delivered EPS growth of about 8.7% versus the prior year.
And now for a quick update on our e-commerce business, we had total e-commerce sales growth of 12% in Q2 driven largely by strong Topline performance from voila, with voila, we've enhanced our Omni Channel marketing approach. Re-engage lapsed customers, they made a number of operational improvements
You've heard us say this before?
Growing Canadian e-commerce. Penetration is the key Tailwind that we need to accelerate the growth of voila. And we're beginning to see that again, green, shoots of movement in the right direction.
We've also launched Partnerships with instacart and Uber Eats in Ontario at the very end of the second quarter, these platforms launched in western Canada last week and will continue rolling out to the rest of Canada in calendar 2025.
We wish everyone a safe and a happy holiday season. And with that, I'll turn it over to Matt.
Thank you, Michael. Good afternoon everyone. I'll provide some comments on our courtly performance as well as our expectations for the second half of the year, and then we'll open it up for your questions.
in Q2, we delivered another quarter of solid performance generated by improving Topline momentum
as we've been saying, for the past few weeks, we clearly see gradual Improvement in the consumer sentiment thanks to lower inflation and decreasing interest rates
The combination of consumer behaviors beginning to normalize and solid execution on our initiatives is translating to improved sales performance, this combined, with our strong margin and cost control will help generate improved profitability.
Our Q2 adjusted earnings per share was 73 cents and was 2 cents higher than last year.
Further our other income and share of earnings from Equity, investments in, Q2 was 8 million lower than last year. So, excluding this from both years, our adjusted EPS was about 4 4 cents or 8.7% higher than last year.
Uh same store sales is 1.8%. The same store sales gap between discount and full service. Businesses continues to narrow and is a great indicator. The consumer behavior is continuing to gradually normalize.
In e-commerce, across all of our online platforms, sales were 12.2% higher than last year.
For our continued to be the main driver of this solid sales growth.
Our new Partnerships with Uber Eaton. Instacart were active for less than 2 weeks. During the quarter, it's early days, but we, we believe that they will be a very good complement of voila.
Our gross margin rate, excluding fuel increased by 48 basis, points versus last year, which was consistent with the Improvement. We delivered in q1,
we continue to Target 10 to 20 basis points of margin expansion per year as a medium-term expectation. And while we've exceeded this, over the last few quarters, we will begin comping, very strong growth next quarter,
is well, controlled
and Q2 our sgna dollar growth after excluding adjusting items was 2.4% higher than last year, which was lower than the 4% increase. We saw in q1,
As in Prior, quarters growth in sgna, spend reflects our investments, in the store, Network Tools, and Technology to support our strategic initiatives and higher retail labor costs. But partially offset by our cost control initiatives including Goods, not for resale supply chain, and the benefits of our organizational. Restructuring
As Michael noted our sgna rate. When excluding adjusting items was was 46 basis points higher than last year and marked improvement for the increase. We had in q1,
As our Topline sales performance starts to improve, we will see a better absorption of our fixed costs. And so we expect that the pace of our sgna rate, expansion will gradually taper moving forward.
As I mentioned earlier, our other income and share of earnings from Equity, Investments was 8 million lower than last year, but it was higher than we expected in Q2.
Our earnings from Crombie were higher than expected due to their acquisition of the remaining 50% of our residential property.
That reflects the lumpy nature of real estate transactions and why we opted to provide the best possible guidance. We can give you for this extreme of income.
The physical 25 we continue to expect our pre-tax aggregate contribution, from other income and share of earnings from Equity. Investments will be in the range of 135 to 155 million. We expect that 7 to 10% of. This range will be generated in Q3 with the balance in Q4.
For the full year, we are trending to the upper end of the range and we will provide you an update on our full year guidance during our Q3 earnings call.
Our effective tax rate for Q2 was 25.8%, which was higher than the 22.3% we had last year.
While we benefited from non-taxable Capital items in both years, last year's tax rate, had a larger benefit from these Capital items as well as benefiting from some investment tax credits, which led to a lower effective tax rate.
For fiscal 25, excluding the effects of any unusual transactions or differential tax rate on property sales. We can continue to estimate that. There are effective income tax rate will be between 25 and 27%. Okay, let me move on to Capital, allocation
Our balance sheet remains strong driven by solid cash flow generation and disciplined Capital spend.
in Q2, our capex was 149 million mainly on store, Renovations construction of new stores, and it
We remain on Pace to spend 700 million on capex, and fiscal 25 with approximately approximately. 50% of this investment being allocated to store Renovations and new stores.
Our share buyback program is on track and we fully expect to complete our 400 million plan for fiscal 25. As of this week, we have repurchased 5.7 million shares for a total consideration of 213 million.
So let me wrap things up.
As we enter the back half of fiscal 25. We're very pleased with the Topline momentum. We are seeing in our business especially in full service.
With many of our key initiatives, starting to add incremental sales, such as space productivity, loyalty personalization, and our expanded e-commerce strategy. We're starting to deliver better Topline growth while continuing to expand gross margins and effectively managing our cost base. So we are well, set up for the future particularly as consumer sentiment continues to gradually normalize.
And with that, I'll hand the call back to Katie.
Thank you. Matt Joanna, you may open the line for questions at this time. Thank you.
Ladies and gentlemen, we will now begin the question and answer session. Should you have a question please? Press the star followed by the 1 on your touchtone phone. You will hear a prompt to get. Your hand has been raced.
If you are using a speaker-phone, please lift the handset, before pressing any keys.
On the first question comes from, Chris Lee at Deja Den. Please go ahead.
Hi. Hi, good afternoon everyone. Um, just um, maybe I start off with Michael, I think you mentioned um in your opening remarks that you continue to see a smaller decline in average basket size. I was wondering if you can provide a bit more details of in terms of what's driving that um, smaller decline. Is it driven mostly from by the higher dollar amounts, or are you seeing some pickup in terms of unit volume?
Thanks.
If you don't mind, I'll pass it over to Pierre. Yeah. So basket size compared to last year and 2 years ago is improving right now. So, the decline is smaller, and in some region, we're seeing basket size increase right now. So indicator on basket size is improving.
The gaps, you know, because we we we know over the last 2 years, we had more transaction.
With smaller basket sites. It was a general Trend in the market including in a discount business.
And uh recently we saw an improvement in the basket size Trend and in some region we're seeing basket size increase right now.
okay, so and that's because you seeing more just people buying more units, is that 1 of the reason exactly unit, also unit,
In the indicator showing Improvement. There's many, many components that we're looking at.
So basket size is improving, unit is improving unit per transaction is improving.
Gradually. But uh, we're seeing positive trend in those indicators.
And is that sort of more broad-based across the the the country or is there a certain Regional markets, where you're seeing that?
And both for service and discounts cross the country. Okay, perfect, thank thanks for that. And then maybe Matt, I just thought maybe a question on gross margin. Um, you know, you know, it did increase, 40 basis points and you excluding the, the fuel impact. I'm just wondering, you know, at a high level how much of that Improvement was due to mix, because it does seem like the decline in fuel and wholesale tobacco. Revenues, were a bit larger than previous quarters. So I'm just wondering, you know, if you can maybe break it out for us, um, what was the mix contribution in the quarter. And then maybe a relate to that. As you look into the second half of the year to expect that the clients in wholesale tobacco revenues to continue.
Um so it will still provide a bit of a margin Tailwind um for for the in the second half of the year. Thanks.
Sure. Uh
Basis point to gross margin, um, Improvement during the quarter. I mean, it's, it's, as we said before there's multiple initiatives that are all adding a small amount, uh, to that Improvement, but mix is about 15 basis points of that. Um, so that gives you the indication of, uh, of that. And then like we also said, supply chain contributed, uh, in Q2, which it did not in q1. Uh, and then the rest is core. So mix is about a third of the, um, of the increase and then in the second half of the year for gross margin. Uh, first of all, let me set expectations on total. So, as we've said, I will not move away from that 10 to 20 basis points. That's what we expect on an ongoing basis. Um, but for Wholesale in particular, uh, yeah, I mean, it's a continuing Trend that tobacco sales would decrease. So we'll see what happens on wholesale that may give us uh, uh, a small mix.
Impact uh benefit in the second half of the year uh we'll see how that? How that progresses.
Perfect, and if I may just speaking, just maybe 1 last question. Maybe on on voila. Um, I know, you know, you don't disclose the earnings dilution impact anymore, but are you able to share just whether on a year-over-year basis, if that level of dilution has stabilized, or perhaps improved as a result of some of the cost saving initiatives, that you have implemented over the last, um, 3 or 4 quarters. Thanks. Yeah, so I'll add to that 1. The the, the good news Chris is, is, is that for each CFC, uh, the losses. They are, making are getting less. Um, so it's a creative. Now, to, to our business, as, as you said, we're not going to quote the actual figures, but the good news is, it's gradually getting better.
Perfect. Thanks, everyone. And have a safe and happy holiday. Yeah, I see. Thank you.
Thank you. The next question comes from Tammy.
To be more Capital markets.
Go ahead.
Hi, thanks for the questions. Um, on the food side, um, you mentioned, uh, in store initiatives, executing. Well, on them. Can you elaborate on what, uh, you're referring to? Is there anything new or distinct that you're doing in terms of how you're managing the stores and the in stock and you're offering? Or is this just the consumer is is showing up more to your stores now than recent quarters
I think it's both, um,
So there's multiple initiatives that are lending in store. It's a, it's a teamwork effort between merchandising Corporation marketing and supply chain.
So uh, fresh is an area of focus for us and our business is improving faster in the fresh business.
it's improving everywhere but we're seeing better Improvement on Fresh which is our strength and we're pleased to see that
Uh so everybody else focus on on on Fresh is great. Um,
The turns are improving, the freshness is improving. Uh, there's a lot of small initiatives, well, owned by operators, which is, uh, very nice to see right now, all the strategy and initiatives are lending in stores, and then strong ownership by operators and, and dealers and franchises. So, we're pleased with that connection between different functions and they're working really, really well together.
Got it. Okay, thanks for that. And my follow-up question is, uh, at a high level curious. How you're thinking about your different banners and strategies for them going forward. So, uh, in Ontario, I was just curious, uh, on the farm boy and the longo banners, you feel they're still material runway in that Province for these 2 banners. Could you expand them elsewhere and also wondering out west, for FreshCo, I think your Target's been to convert 25% of your footprint. There to FreshCo, I, I think you're getting close to that Target. Uh, how are you thinking about that mix out there? Could that Target change? Would you consider in converting some more after you reach that 25%? Thank you.
Yeah. Hi, it's Michael. Uh, thanks for the good question. Um,
And you hit you hit. Um, I don't think you could hit a banner. I'm not happy about right? The second but we are seeing, um,
Uh, you're going to see, um, many new Farm Boy and Longo stores going up over the next year and 2 years and probably after that. But we're, um, we've already approved, um, many that you'll see, we're incredibly pleased with the progress of both those banners in Ontario. Um, could they go to other provinces? I think Farm Boy, could go to other provinces, but they're not going to go to other promises because we think that the, um, the, the brand resonates so well and Inn in Ontario. And we have so many opportunities to um,
Put up.
And even convert some of our stores to farm boys. Um and in terms of um um in terms of uh fresh go out west. Yeah we always are looking for opportunities to put stores up where we can um make a lot of money and um and serve our customers and take market share from our competitors and so you'll see more stories going up in western Canada and
And Ontario in FreshCo. Um, so yeah, we have, um, I think what we're we're seeing right now is that we can rent renovate stores at a lower cost and get a really good return right now and we'll take the capital that we were spending on Renovations and put up new stores in geographies where we don't have coverage where we can take market share, and where we can thrill the customer and you're going to see that across
Pretty well, all of our banners um across Canada in a measured smart way. That's good for our shareholders.
Thank you.
Thank you. The next question.
Sweetheart at National Bank, please go ahead.
Hi. Uh, thanks for taking my question. I was wondering now that a scene has more than 15 million. Uh, people it's quite a large installed base. How should we think about the evolution of that? Have we hit a steady state or do you anticipate? There's there's more room to go in terms of head stall base and and usage.
Yeah, it's a it's it's been incredible growth. I think we started below 10 million and now we're over 16 million and it continues to grow. Obviously, we'll, we'll see it's smaller growth than we did in the early days when people were running to sign up and but the big prizes haven't even come come home yet to, uh, for us, which is, um, we're seeing incredible work by our merchants and, and marketers and our operators, to be honest, in terms of using this platform the data it produces, and the 1-on-1 interactions, we can have, uh, on the data gives us is a phenomenal. So, we're glad in terms of the, um, the number of customers that makes this 1 of the most, um, popular, um, and, and well-used, um, loyalty programs in the country. And we are we're well ahead of any sort of plans that we had, uh, in in terms of the results so far. But the big prizes are happening now and will continue to happen as we use it. So, um, you're right.
I mean if if you can't get to 100 million um but I think we still have growth in terms of the numbers as well. And I think our partners believe the same
Okay. Um, I I was I was intrigued by your comment and you've mentioned this before about consumer normalization and the, and the Improvement in your business and that's happening as as people called out,
Some of your, you know, there's different perspectives, across retailers.
You know, across Canada and and I know you still keep your your finger on the pulse of what's happening in retail and not everyone feels that the consumer's necessarily improving any meaningful manner. So I'm wondering once you look at your results do do you attribute that to your initiatives or or in fact it is the consumer or is it easier comps? Or how should we think about exactly what's driving? Uh, this Improvement?
Yeah.
Force myself to stay in touch with everything and read, everyone's transcripts and all that stuff. Um,
And I honestly um I'm having trouble reconciling some of the statements being made out there with our what we're seeing. But you'll have to ask other people what they're seeing, but what we're seeing, and by the way, this is still a tough economy for Canadians, don't get me wrong, like we got this country, deserves a stronger economy, and and and and I'm sure we'll get there, but
It's improving gradually. And if you're getting sick of the word gradually, you're going to keep hearing it because the the the only ones I can think of to the other synonyms are moderately cautiously and progressively and none of those are as good.
But it is improving gradually. We said, we said it early. We said it first. And we were right.
And uh, and that's good for Canada.
Um, now you're always going to have blips here and there and over a period of time. But uh we're we're seeing green shoots, as I think you called them, and a lot of the investors, call them and we're seeing progress, but it's it's small. It's, it's gradual, but that's all we need with the, um, with the strength we've built in our business and the execution improving, um, across our whole business. But vary a lot of it attributable to peers leadership and his team.
Uh, so yeah, that's what I'm seeing. But I, I know I read different things and I just can't reconcile some of them from the either, the economics, or the reports.
Um, that we get from uh, from people or from what we're seeing on the ground.
So there is a bit of confusion but you know, whenever there's an inflection point things change, some people are behind the curve.
Thank you.
Thank you. The next question comes from Michael Van Ice at TD Cowen. Please go ahead.
Thank, thank you. Uh, good afternoon. Um, I wanted to get back to the store expansion. Uh, you haven't had a lot of square footage growth. Uh, I think it was pretty flat this quarter.
Um, I saw, I think 16 net negative stores but they must have been quite small in the last. Um, from q1 to Q2, what stores are those that you're closing down and and um, where do you see that square footage growth getting to over the next 12 to 24 months. Yeah. Matt will talk about the closures and you were right in terms of your summary there but he'll get more detail then I'll talk about the growth. Yeah just cover the the 16. Um so as we continue to kind of strengthen our overall Network, so the the 16 schools we looked into it this morning. There's some liquor stores in there that's convenience and fuel some fuel stations, so it's mostly those things, as opposed to, you know, our biggest tools. Uh, and we will continue to do that, uh, to optimize
On that work and then I'll pass it back to mine.
Yeah, thanks. Um, great question Michael. Um, what? So um as I said, we're we allocating capital, and as you know, we're, we're rather stingy with capital because we like to get returns. And what we've been seeing lately is that we can, um, move money from, uh, our Renovations and get a really good job, done cheaper, and that we're very keen. As we see Returns on an opportunities on new stores, um, we see a lot of opportunity. Uh, and, and so we're confident in that. And I believe by by Capital, allocation moving money around, uh, that you'll see. Um, double the number of new stores next year. Um, and we're particularly bullish, um, on province of Quebec.
We're.
Particularly bullish on Farm boys and long ago as we said. And in fact, most of the banners, but I think you're going to see and this is a multi-year project, you don't just but next year, you'll see a doubling in terms of new stores.
Okay. So what would that get you to in terms of square footage growth? Um, we'll get back to you on that. I don't have a the tip of my fingers, okay? And then I I wanted to these are you know these are these are not a lot of them are big stores and then there's, you know, it's a good mix but it's not. This will be this will be some square footage.
and then, on the discount side,
I think you're still short of your original Target. I think 48 discount stores in western Canada. You were thinking something in the 6 is if I remember correctly and you've only added 2 in the last 12 months, and I'm wondering where the challenges in opening up, new discount stores in western Canada, or is it?
You know, just that you didn't want, you don't want to allocate the capital to that. Yeah, just a second. You hit it right on. Which is so our plan, you know, we're pretty transparent today. So I'm going to we're going to buy the end of f 27. Our current plan is to have 65 or more practical stores in western Canada. Um and it's just Capital allocation, they're doing. I mean as you I think you can probably see through some of the reports or some of your information. They're not going to cover off the ball in the west. And you know, uh and uh and we're getting stronger and stronger, in terms of uh fresh goes in western Canada, as we build the brand.
Okay, thank you. And then, uh, last question for Matt, um, the Opex growth in
Q2 was like 1.9% in q1, it was 3.9%. So I know you like to look at it as a rate, um but when I look at it, sometimes as a growth rate year-over-year it gives me an indication too. Since you don't have that much um you know a big difference in your Revenue growth. So um it seems a little low at 1.9 obviously. It's it's it's it's a good accomplishment, but it seems a little low in in this cost environment and I'm wondering.
Was there some kind of timing in there or like a bigger number last year that we should. So, and so that we shouldn't expect that kind of pace.
Like a 2% growth rate going forward.
Yeah, so that's a great question.
As we looked at our quarterly numbers, we
A.
if you remember, last quarter, I said,
That the I I look at slightly differently, because I look at sgna excluding, uh, adjusted items.
Last quarter, we were 4% higher than last year, which I was not happy with this year with 2.4% higher, uh, which I am happy with. Um, there's nothing particularly unusual, um, in our Q2 results. There's No 1 time credits or anything along those lines. So we can think that it's a normal quarter. Um, but as we go forward into Q3 and Q4 um, you know, will we
We achieve a 2.4% increase. I will be very happy with that.
Will it be somewhere between, you know, the 4% and the 2.4, probably, but we'll have to see how Q3 and Q4 uh evolve.
Great, great. Thank you.
Thank you. The next question comes from Irene nattel at RBC Capital markets. Please go ahead.
Thanks and good afternoon. Everyone just I was really intrigued by your commentary around some of the work you've done on supply chain um and how that sort of helping not only in the cost side but also just better in stock. And and wondering if you could talk about where you are on that journey and and similarly where you are on the shrink journey and how much more you think there might be, that could help on the gross margin side going forward.
Yeah, supply chain is uh,
playing a very
Key role in our Improvement. So they contributed to gross margin Improvement. As we said the the beginning by optimizing.
Our outbound. So the team did a really good job optimizing routes and maximum magazine loads.
And but they also contributed to improving freshness and delivery frequency. Uh it's very helpful right now. Our turns and stores is very good. Shrink is going down in both stores and rsc's um
Also, with the situation is more normalized in term of forecasting, because, you know, we're seeing a more normal environment to work with. So, all those components contributed to have a better efficiency in supply chain, a better efficiency and replenishment and uh, an optimization. Uh, and and as I said, supply chain is not necessarily just cutting routes and maximizing loads, but they are close to the the store needs.
In some cases, we improved the frequency of delivery with way bigger results in the store results than this money we could save in cutting deliveries. So the supply chain is working very very closely with store operation and they are contributing to this uh Improvement that we're seeing in margin and in their outbound costs.
That that's really helpful. Thank you. So, where was on this journey? Are you where you want to be? Or do you think that there's still, there's still more that you can get out of the supply chain piece event. I've never heard say he's happy, so let's see here. There's a there's a fun. The fun thing in our business is there's always always room for improvement and the team are seeing the exact same thing. Uh, we're working closely also with our inbound portion, and we have stronger partnership.
With inbound carriers.
And optimization of bringing product Inn in our RCS. And in our store,
so,
um,
and we are operating really, really well. So we can focus on optimization right now or we are, we had the curve. So we're planning well,
The situation in supply chain is very stable, so we can focus on optimization right now and we're seeing still uh opportunities seem to be better.
That's really helpful. Thank you. And just uh, 1 final question if I might, um, we've seen some really strong results from from uh the sum of the drug store players here in Canada and I know that Pharmacy is a relatively smaller piece of your business, but you do have a lot of pharmacies in western Canada. Just wondering, um, you know how those are doing in particularly. Whether there was any contribution to the comp, as a result of of some of that strength,
Yeah, um, you're right because those, those are your Bas in central. Canada wouldn't know that we, we have a relatively large Pharmacy business, um, which is, uh, which operate is operating well, right now, and is contributing and doing a good job. I think. Um,
as you know, we've been putting a lot of effort into the food business to, and because that's our big business and that's where we can drive a lot of of, um, of results and improvement in our business, for our customers, and our shareholders. And we are, it's a good timely question that we haven't had in a while, because in the last
A couple of months, we're working hard on a on a strategy for pharmacy to even to even improve it more and and, and improve our results in our current pharmacies. And um, and so I think there's although we're pleased with the results. I think there's upside that can be can be had there and, and I know that um, the executives working on that they report to Pierre working hard on that. And we're working on that strategy and tactics.
That's helpful. Thank you. Thank you.
Thank you. The next question comes from, John zaro at Scotia Bank. Please go ahead.
Thank you, good afternoon. Um, I wanted to come back to the topic of square footage growth but from the perspective of the industry and it's accelerating or is relatively at an elevated level from some of the country's larger players. We we've all seen what's happened with population so it looks like that's coming down. I wonder what you think about the industry square footage growth and whether or not you consider it rational. And is there a risk that the industry is adding too much capacity
No, that's a good question. Um,
no, I think I think that, you know, the, you know,
Most of our competitors are pretty rational players and, and, and they're making their own decisions and and they're making what they think are smart decisions. And, and we'll have to see whether
Some of them are too aggressive or not, aggressive enough, I don't, I don't know. The inner workings of other companies, I feel like, talk about ourselves. We, we try to put up stores that make money and have good returns and, and, um, we'll continue to do that. We as you can see from the results right now, we're
not suffering.
Offering from people putting up new stores. Um, as we, we might have been 2 years ago, or even 18 months ago, um, in a different environment. Um, so I, I think as I think the market can handle it, um, but at the same time, where we see opportunities to go into markets, where we're not represented or underrepresented, or we can take market share and make more money and, uh, we're going to do so.
Okay, I appreciate the color. Um and then moving back to gross margins that's been up significantly on an ex fuel basis to start the year. I would like to better understand the puts and takes for the back half especially as you lap an average of I think it's 75 or 80 basis. Point increases from the second half last year. So is is there a chance? This comes in meaningfully above the 10 to 20 basis points? You typically Target on an annual basis and and if not should we expect potentially flat or declining gross margins in the back after year.
Um, is there a chance? Yes, there's always a chance, but I certainly wouldn't expect it. Our expectations are 10 to 20 basis points. As you said, we're going to start to lap, uh, some very significant increases in margin, uh,
Last year. Um, so yeah I wouldn't expect it. We're not
Got it. Okay. And then just 1 more on on e-commerce. I wonder if you can talk about the performance from your your new Partnerships uh subsequent to the quarter. It was only in place for for a couple weeks as you said but I'm wondering how that's going. And are you seeing incrementality from these Partners on top of your existing Walla customers?
Um, yeah, it's it's, um, it's Michael called a talking that I should give the credit here to to Doug and and Pierre and Pierce team for putting this into place. Very, very quickly, 1 of the fastest, implementations we've seen, uh, I, I I, I think we're that. We're very happy with the partnership.
very early days, it allows us to hit a, a, a customer that we were missing out on
Uh, we're seeing very, very small overlap with our current business. Uh, we it's so early though and we want to look at more data if we think it's higher than that small number. I'll tell you next quarter. Uh, but I think it's, it's not cannibalizing our business in, in, in its the minimums.
and we're capturing um, sales that we would not, otherwise have captured
And I think it's good. Now, I think we're, we're, we're nailing it now. We, we're, we're, we're in the business to make our customers happy and our shareholders happy. And I think this is a nice addition.
Um, and that's what it is to our to our overall business.
Okay, great. I'll leave it there. Thank you very much. Thank you.
Thank you. The next question comes from Mark Patriot at CIBC please go ahead.
After afternoon um, just a couple of follow-ups, um, specifically on on seamstress sales.
You know.
We heard a lot about shifts in consumer spending patterns uh over the last couple years, you know, specifically a try ascribed to um trade down, you know, like Frozen versus fresh or lower quality Cuts or products. Um would you say those are reversing along with some of the other behaviors that you've already summarized
Bigger increase in growth in fresh product.
So the thing we saw during the decline, we saw the decline in fresh and people's tread trade down to Frozen or can meet and canned fish.
The thing we're seeing right now, it's
The opposite people are coming back shopping, our fresh Department, which is a very, very good news for us and we're seeing higher growth in fresh departments, fresh fresh Department.
So this is uh this is exactly what's happening right now, gradually but it's exactly what we're seeing.
Yeah. Okay. Got it. That's helpful. Thank you. Um, and I'm curious if basket composition then in online has shifted at all. Uh, I know it's a different Baseline. It's also somewhat of a different, uh, customer and occasion, but do the shifts in the, uh, there's a shift that you're seeing in the store are those mirrored in in the online business, as well.
Good online, business remain, pretty stable in term of composition of the basket. The basket is the way I earn e-commerce and what are especially with the assortment we have. Uh, but I didn't see a big change recently, but I didn't see the number in details, but the basket size remain, very high and stable. I have to look at the composition of this basket periodically. We should see it a little bit more increase in fragment and non fresh, you know, it's the same customer. Customer are shopping Omni channel. Uh, so we should see the same thing, but I don't have a number in front of me.
Well uh we'll get back to you if we if we're seeing something different. Uh, we'll get back to you on that. But that, that was my understanding too. But if we see something different, we'll, we'll let you know. Yeah.
Yep. Sounds good. And, and then just the last 1 I wanted to follow up. Uh, I know you touched about on shrink earlier, but I just wanted to make sure. Uh if if you could just go over sort of where you are at um, in the evolution of uh, of shrink levels. And if you expect that to become a bigger Tailwind, or is that a dissipating tailwind? And how should we think about the materiality of that today?
Again, there's always room for improvement but a over here we did a significant Improvement.
For many different reasons as I said, because we are operating in a more normalized environment. Everything is easier to manage more casting replenishment. Uh this is easier. So this is 1 component of the Improvement. The other component of the Improvement is the focus and operation on shrink and we did many small things to improve it. Um,
So I would say we will continue to improve our shrink. We still seeing opportunities
but here we won't deliver the same e over here. Results in Improvement in shrinking and we did last year.
But I think there's still opportunity to capture.
Okay, very helpful. Appreciate all the comments, guys, and happy holidays.
You too Mark? Yes, thank you.
Thank you. The next question. Is a follow-up from Michael Venice at TD Cowen. Please go ahead.
Right. Thank you, just a quick 1. Um Michael, you mentioned that you want to get to that 65 threshold stores in the last, um, by fiscal 27 with those 17 or so in increase. Would that be? Would you expect that to be more conversions or are new to Industry?
The question here is for the FreshCo stores that we're putting up with the western Canada. The additional 17.1%, do you think roughly will be new new, new new to Market rather than conversions? So most of the conversion have been done so we'd be mostly in new stores.
And there might be 2 or 3 conversions as we go forward. But yeah most of the conversion that have been done so the loaning foods have been captured in in conversion to FreshCo and we're very pleased with the same store sales in western Canada right now with FreshCo
Okay, great and happy holidays to everybody as well.
You too, Michael. Same to you Michael.
Thank you, that concludes our Q&A. I will turn the call back over to Katie brine for closing comments.
Great. 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 a third quarter. Fiscal 2025 conference call on March 13th. Talk soon.
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