Q3 2025 Empire Co Ltd Earnings Call
St. Louis, Michael Aelst, Michael Aelst, Michael Aelst, Michael Aelst,
[inaudible]
Speaker Change: Good morning, ladies and gentlemen, and welcome to the Empire Third Quarter 2025 Conference
Speaker Change: At this time, all lines are in open only mode. Following the presentation, we will conduct a question-in-answer session. If at any time during this call you require immediate assistance, this press are zero for the operator. This call is being recorded on Thursday, March 13, 2025, and I would now like to turn the conference over to Katie Brine, thank you, please go ahead.
Speaker Change: Thank you, Ena. Good morning and thank you all for joining us for our third quarter conference call. Today, we will provide summary comments on results and then open the call for questions. This call is being recorded and the audio recording will be available on the company website at www.hierco.ca.
Speaker Change: There is a short summary document outlining the points of our corner available on our website.
Speaker Change: Joining me on the call this morning are Michael Medline, President and Chief Executive Officer, Matt Reindel, Chief Financial Officer, and Pierre St. Laurent, Chief Operating Officer.
Speaker Change: Today's discussion includes four 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: I'm afraid you are unusually in A for more information on these defunctions and factors. I will now turn the call over to Michael Medline. Thank you, Katie. Good morning, everyone. Before I jump into the quarter, I want to take a few moments to talk about the other announcement we made earlier this morning.
Speaker Change: I never like to see a valued colleague leave the fold, but when they have made the decision to retire, I can only feel a sense of happiness for that person. And after six years of the company, the last four is Chief Financial Officer Matt Reindel
Speaker Change: As you all know, Matt has been an incredible partner in helping drive empires turnaround. He played a critical role in helping our business navigate the challenges brought on by the pandemic, while also guiding us through a period of high inflation and interest rates with both rigor and a passion for the business.
Speaker Change: He has been instrumental in building the foundation for our ongoing success. He will be missed by all of us at Empire, but he will fortunately be around for a little while longer.
Speaker Change: We are fortunate to have found a great new CFO . In May, we will welcome Costa Pafana as Executive Vice President and Chief Financial Officer.
Speaker Change: Kosta is an experienced and immensely capable leader who spent 19 years with Leon's furniture limited and was most recently with green infrastructure partners.
Speaker Change: He will play a critical role in helping drive empires results in the years to come. We are grateful that Matt has agreed to stand for a number of months to work closely with Costa and ensure a seamless transition.
Dr. Prima, Dr. Prima, Dr. Prima,
on to the business.
Speaker Change: Q3, with the latest in the string of quarters, where we continue to see improving momentum in our results.
Speaker Change: Saint-Stort Sales has strengthened for the last four quarters and we continue to show increased discipline in managing our margins, but the numbers at face value do not tell the full story.
Speaker Change: Well, SKNA is slightly higher than Q3 last year. A large part of this increase is due to the counting for long-term share-based incentives, which Matt will give you more details on shortly. So what was an even stronger quarter than it looks like at first glance?
Speaker Change: Today, we will focus on three topics, our Q3 results and market trends, a quick update on our e-commerce business, and an update on the current volatile environment.
Speaker Change: First, our results in Q3 market trends. Our food sales grew 3.1% this quarter with same store sales of 2.6%.
Speaker Change: This was supported by stronger top line performance in our full service banners and continue performance in our discount banner.
Speaker Change: Both of these channels continue to grow faster than their respective markets, and in Brits and Mortar. The gap between full service and discount face to ourselves continued to reduce this quarter.
Speaker Change: We're seeing positive same-source sales across all of our regions and all of our business units.
Last quarter, you may recall we saw smaller declines.
Speaker Change: in the average basket size. This quarter, for the first time since Q1 F-24, we see growth in our year-over-year basket size, which is a big step in the right direction.
Speaker Change: And with regards to inflation, adjusting for the temporary tax break and select goods, our internal inflation is below the low CPI food inflation purchase from stores.
Speaker Change: In the previous two quarters, we said that we started to see green shoes and early indicators that customers are returning to more favorable and predictable shopping behaviors.
Speaker Change: We continue to see these trends come to life and improve in Q3, where we saw outsized growth in our fresh department which indicates customers are starting to trade off from non-fresh to fresh products and importantly a decline in promotional penetration.
Speaker Change: Gross Marching continue to improve this quarter, driven by operating efficiencies and a strong focus on executing with excellence in our stores.
Speaker Change: Marching improvement of 43 basis points was consistent with last quarter.
Speaker Change: As I said in the past, this is not due to one silver bullet. It is many small but meaningful actions that continue to benefit us over time.
Speaker Change: We have now made significant advancements in our stores in areas like Shrink and also through the ongoing deployment of space productivity.
and across our supply chain.
Speaker Change: Collectively, these initiatives have enabled us to become more efficient and more nimble, which is of even greater importance in this current environment.
Speaker Change: Overall, we delivered an adjusted EPS of 62 cents, which was consistent with prior years. While this may look like a flat-boarder at first glance, we actually delivered better results in our core operations, which Matt will touch on in greater detail shortly.
Speaker Change: and now for a quick update on our e-commerce business. We had total e-commerce sales growth of 72 percent, generated by strong double digit growth in Bola and a strong start to our partnerships with Instacart New Breeds, which, as of two days ago, are now across the country.
Well, I have seen this result to improve every quarter of this year.
Speaker Change: Shifting the team's attention to focus on our operational CSCs and improving profitability with the right move.
Speaker Change: Our new customer acquisition strategies intended with the cost reduction initiatives across our delivery and CFC operations are beginning to deliver real results on both our growth profile and on the bottom line.
Speaker Change: First on U S sourcing in a normal environment average across the year of approximately 12% of our products in dollars coming from the U S and retaliatory tariffs would in theory lead to higher import costs on these items.
Speaker Change: However.
Speaker Change: This 12% number has been decreasing over the last year and we'll continue to as we shift our supply to meet our customers' growing demand for Canadian and non American products.
Speaker Change: American products, we are selling are presented as a percentage of our total sales are rapidly dropping.
Speaker Change: We have heard loud and clear from our customers that they want Canadian products, Fortunately for us supporting and promoting traded products as part of our DNA. We've moved quickly to further elevate our local strategy, making it easier for customers to make informed choices about Canadian products.
Speaker Change: As well over the years, we have the company has developed a much larger and diversified source of supply to proactively manage threats, such as natural disasters or product shortages and geographic regions.
Speaker Change: Now we have developed good alternatives in nearly every category.
Speaker Change: Our most challenging category to mitigate the threat of retaliatory tariffs as protests were in Canada in the winter, we do not always have viable alternatives.
Speaker Change: We could see an impact here EBIT III increased cost or reduced assortment. If the product is no longer competitive on ourselves over time.
Speaker Change: However, however, our suppliers have been good partners in helping us to mitigate the potential impact so far.
Speaker Change: Our supplier partners with U S based production are directly impacted by retaliatory tariffs.
Speaker Change: Puts pressure on them and as a result, they may be looking to pass these increased costs on.
Speaker Change: Some have begun to test our position on this.
Speaker Change: Now the gating a period of uncertainty and we are focused on ensuring that reactionary or unnecessary costs are not passed on to customers.
Speaker Change: We're managing the short to midterm through fair, but often tough discussions with our suppliers and we've been pleased to see many of our suppliers are proactively coming to the table with solutions.
Speaker Change: A great example is the limit.
Speaker Change: Last week, they announced publicly that while historically, 50% of their chocolate in Canadian stores come from their U S factories and the rest from Europe.
By the summer of 2025 or 100% of candidate supply will come from Europe.
Speaker Change: As well in speaking to some of our other suppliers. Many do not see the benefit of trying to pass on tariff costs right now for two reasons first they do not want their products have become less competitive on ourselves as a result of higher prices and second the backdrop is too volatile right now with the on again off again approach.
Speaker Change: The tariffs.
Speaker Change: They are focused on thoughtful solutions like looking at alternative sources of supply for input materials are alternate locations for manufacturing.
Speaker Change: Like us.
Speaker Change: Our suppliers are working hard to minimize the impact to customers or national sourcing team is working closely with our suppliers. While we are also continuing to further diversify our supply.
Speaker Change: At the end of the day, we all want to remain competitive and are working towards the same goal protecting the value we deliver to customers.
Speaker Change: Another factor, we're keeping close eye on is the U S. Dollar. This is an inherent risk we face doing business with companies outside of Canada since.
Speaker Change: Since many of our suppliers both in the U S and internationally transact in U S dollars shifts and exchange rates and a weakening Canadian dollar do have some impact. However, this isn't just an overly material risk for us at this point in time, and we have a hedging program in place to help mitigate any short term fluctuations.
Ultimately as the biggest risk for us.
Speaker Change: Not actually in our own business, but the impact on the Canadian economy as a whole I do not want to downplay that but we can consumer environment will hurt the retail sector as a whole we do not know what will happen yet, but we feel as prepared as possible with the right team to manage through this current environment.
Speaker Change: Now looking ahead, while we don't make it a habit to talk about the quarter. We're currently in we feel we owe it to you to give some insight in these especially volatile times as I mentioned earlier, we have been well positioned in supporting Canadian products for some time.
Speaker Change: Even before tariff tensions began escalating we have seen sales of Canadian products outpace our overall sales growth and while it is still early days. We are now seeing this pick up further, especially since implementing new store signage and shelf labels to help customers find Canadian products.
Speaker Change: As well when we look at Q4 quarter end right now today, we're about halfway through our quarter and from an overall top line perspective, we see similar momentum into Q3 quarter to date sales are off to a solid start.
Speaker Change: Now before I hand, it over to Matt I want to close by saying that while we are operating in the strange and unpleasant times.
Speaker Change: And you would think it would be easy to have a doom and gloom mentality. It has been truly incredible to see Canadians come together.
Speaker Change: This is up strong and proud country, there's always pulling together, we can weather any storm.
Mac: Over to Mac.
Okay.
Mac: Thank you Michael Good morning, everyone I will provide some details on our Q4 performance and then our expectations for the remainder of the year and then we'll open it up for your questions as normal.
Mac: Let's focus on Q3 consumer behavior continues to gradually improve and combined with strong execution on our initiatives, we delivered another quarter of solid financial performance.
Mac: Highlights were improving top line momentum and continued gross margin expansion.
Mac: Q3, adjusted EPS was <unk> 62.
Mac: Which was flat year over year. However, the income and share of earnings from equity investments was $11 million lower than last year. When you exclude these items from both years, our adjusted EPS was <unk> <unk> higher than last year.
Mac: Our food same store sales was two 6% in Q3, which was 70 basis points higher than last year, and 80 basis points higher than Q2.
Speaker Change: We continue to see sequential same store sales improvement in both foodservice and discount and across all regions and as Michael mentioned earlier, we also see continued momentum halfway through Q4.
Michael Medline: Gross margin rate, excluding fuel increased by 43 basis points versus last year, which is stronger than expected given the tough year over year comparisons.
Michael Medline: Similar to recent quarters gross margin expansion stemming from disciplined management and in store efficiencies such as improved shrink.
Michael Medline: While we are trending higher than this in fiscal 'twenty five a medium term expectation continues to be delivering 10% to 20 basis points of gross margin expansion per year.
Michael Medline: Now, let me turn it to SG&A in Q3 after excluding adjusting items in both years SG&A dollars grew by four 2% year over year.
Michael Medline: This growth was mainly due to the accounting for our share based long term incentive programs, which was impacted by our share price appreciation and best thing level.
Michael Medline: SG&A rates when excluding adjusting items was 26 basis points higher than last year.
Michael Medline: The benefits from our cost reduction initiatives may not manifest themselves in a straight line quarter to quarter, we may be impacted by factors that are beyond our control.
Michael Medline: Such as the impact of the channel incentive program I just mentioned.
Michael Medline: So while the increase in SG&A of 42% was a little higher than we would have liked in Q3, we remain confident in the cost control measures that we've put in place.
Michael Medline: Other income and share of earnings from accuracy investments came in as expected being $11 million lower than last year, reflecting lower gains on disposals, and our investment in <unk>, plus which was impacted by increased member participation and higher redemption of its loyalty program points.
For fiscal 2005, while we continue to expect our pretax aggregate contribution from other income and share of earnings from equity investments to be in the range of $135 million to $165 million, we do expect to be at the high end of that range.
Michael Medline: Our effective tax rate in Q3 was 27%, which is higher than the 24% we had last year.
Michael Medline: The revaluation of tax estimates pushed our tax rate higher this year, but have the opposite impact last year.
For fiscal 'twenty, five and excluding the effects of any unusual transactions or differential tax write some property sales. We continue to estimate that our effective income tax rate will be between 25% and 27%.
Michael Medline: Our balance sheet remains strong driven by solid cash generation and disciplined capital spend.
Michael Medline: In Q3, our Capex was 188 million, mainly on store renovations construction of new stores and it investments.
Michael Medline: We remain on pace to spend $700 million in Capex in fiscal quantified with approximately 50% of this investment being spent on store renovations and new stores.
Michael Medline: Our share buyback program is on track towards the $400 million intention for fiscal 'twenty five and as of this week.
Michael Medline: Just $8 6 million shares for a total consideration of $340 million.
Michael Medline: So it's a cap it off we're very pleased with our Q3 performance, while we delivered improvements across many key financial metrics.
Michael Medline: Now before I hand, the call back to Casey, Let me say a few words about my retirement.
Speaker Change: Firstly I very much appreciate those kind words from Michael Elliot. Thank you for that.
Speaker Change: I must say that leaving Empire will be bittersweet I've thoroughly enjoyed my time I'm very proud of what we've been able to accomplish that over the past six years, particularly the sustainable platform, we built for the future.
Speaker Change: But as we come to the end of our current three year strategic plan and begin planning for the next cycle. This is the right time for me to step aside and allow cost to come in and partner with Michael So I'm really looking forward to seeing what the company will deliver us moving forward.
Casey: And with that I'll hand, the call back to Casey for your questions great. Thank you Matt.
Casey: You May open the line for questions at this time.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by Don on your telephone keypad.
Casey: You wish to cancel your request. Please press star followed by the two if.
Casey: If you're using a speaker phone please lift the handset before pressing any keys one moment. Please for your first question.
Speaker Change: Your first question comes from the line of <unk> <unk> from RBC. Please go ahead.
Speaker Change: Thanks, and good morning, everyone before I ask my question Congratulations Matt We will definitely Miss you are happy to hear that youre going to be around a little while.
Speaker Change: As for my question.
Speaker Change: King.
Speaker Change: The encouraging signs that youre seeing in terms of consumer spending behavior basket.
Speaker Change: Can you talk about the composition of the basket.
Speaker Change: Item <unk> to add categories, and whether youre seeing anything.
Speaker Change: Any offsetting still cycles of certain more caution.
Speaker Change: Okay.
Speaker Change: There is many indicators trending in the right direction year over year, So, yes same store sales but.
Speaker Change: We're particularly pleased with the growth we have in the fresh.
Which is our one of our strength.
Speaker Change: So fresh is growing faster, but it's growing in every category right now basket sizes growing people are shopping less stores. They are back to a more natural behaviors.
Speaker Change: <unk> to shop for new stores.
Speaker Change: When you have good offer and good value in the store you're shopping.
Speaker Change: This is this is a good transaction continues to be up but the biggest thing is basket size and units per basket is going up and the biggest growth that's coming from fresh.
Speaker Change: Yes.
Good answer, but I just want to add that to your last.
Speaker Change: Part of your question, we're not seeing any warning signs at this point in fact, if we didn't know about treating read the newspapers.
Speaker Change: And watch TV, we Wouldnt know anything was going on when we look at our numbers continue we continue to see the momentum we saw in Q3 and the green shoots that we've been talking about for.
Speaker Change: But really what we've been predicting for 18 months now we're seeing the four quarters in a row.
Speaker Change: And so for the quarter things are are normal.
Speaker Change: And we're not seeing anything.
Any cautious behavior, rather than as I said.
Speaker Change: Customers are checking.
Speaker Change: The label to see where things are.
That's really interesting. Thank you and then just one other question if I may on ecommerce side, great to see the increase in volume coming through the partnership.
Speaker Change: What are you what is your loyalty data telling you at this point.
Speaker Change: Any conversion from let's say <unk> or <unk> into fallout.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: That's a great question.
Speaker Change: Now at the key piece of our strategy moving forward is to take.
Speaker Change: Many of those immediacy based customers and convert them onto.
The months of law.
Speaker Change: I would say, it's probably a little early Irene.
Speaker Change: Yes.
Speaker Change: As we are about the opportunity and the increased sales of this immediacy type business, giving us we've really just started.
So we do need some time to get under the table and begin to mine the data and start to convert those customers over to <unk>.
Speaker Change: So I would say, it's really too early yet.
Speaker Change: Okay.
Speaker Change: And just to thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Chris Lee: And your next question comes from the line of Chris Lee from <unk>. Please go ahead.
Chris Lee: Hi, good morning, everyone.
Speaker Change: Please let me add my congratulations to you mats and all the best as you begin the next new chapter of your life.
Speaker Change: Michael Thanks, so much for all your comments about sort of the impact on tariffs and my question. First question is if you assume that tariffs go kind of full impact on April 2nd.
How quickly and broadly.
Speaker Change: We see high inflation through the grocery store and a bunch on it sort of ascertain is.
Speaker Change: Like is it going to be more gradual in a manner, where maybe the consumers can manage it or do you expect kind of a really a big spike right off the bat from a inflation perspective assume terrorists a full.
Speaker Change: Impact on April 2nd Thank you.
Speaker Change: Barrier very close just wondering.
Michael: So as Michael said in his.
Speaker Change: Production.
Speaker Change: It's.
Speaker Change: Remember our remaining debt.
Speaker Change: Yeah.
Speaker Change: Our exposure to U S product is around 12%. So this is not the biggest portion of our <unk>.
Speaker Change: And it's declining.
Speaker Change: Every week, we are seeing a decline a rapid decline of U S product sales.
Speaker Change: So our exposure will continue to reduce overtime and we are in the winter.
Speaker Change: I guess summer is coming.
Speaker Change: So our exposure will continue to decline over the next quarters.
Speaker Change: As you know so right now <unk> and decline and without tariffs on it. So imagine that we will increase if we have to increase this is not our intention so far.
Speaker Change: But that will be 25% more expensive to use.
Speaker Change: I don't think people are interested to play more or to pay 25% for U S product right now so we feel pretty good.
Michael said also in most categories we have.
Speaker Change: Turning to data from.
Speaker Change: Canadian on a non U S products and every single categories offer an alternative at a reasonable cost or lower cost than U S product for our customers.
Speaker Change: We feel pretty good.
Speaker Change: Over the last year.
Speaker Change: Years, including in credit.
Speaker Change: We developed a very diversified source of supply or produced around the world for obvious reasons.
Speaker Change: And the team feels really really good to find alternative and work with suppliers too.
Speaker Change: Avoid potential inflation and again.
Speaker Change: Two 8% on annual basis. It was for the last 52 weeks and it's declining right now very quickly in summary is coming and people are not interested to pay 25% more of our U S products.
Speaker Change: Okay. That's very helpful. Thank you.
And.
Speaker Change: And my other question is just on e-commerce.
Speaker Change: As mentioned, while I is posting continued to post very solid double digit growth.
Speaker Change: Your competitors also posting solid growth as well. So my question is just based on your data is smaller maintaining or growing market share and also secondly, I just wanted to confirm that the losses and whatnot are continuing to improve slab on a year over year basis.
Speaker Change: Okay.
Speaker Change: E Commerce penetration is growing.
Speaker Change: Like Pat said.
Speaker Change: The same store sales from boiler is growing we are focusing on the existing CFC and we're seeing benefits of focusing on the existing one I think it was the right decision to focus on that we have right now and we're very pleased with the same store sales for all of our Cfcs are very pleased also with the improvement we are doing on the bottom.
Speaker Change: <unk>.
Speaker Change: On the efficiency of the team is doing an amazing job too.
Optimize everything what else compromising sales growth and we're very very pleased with the progress. We've made so far this year and with the partnership so far in <unk>.
Speaker Change: That said early days, we just launched Quebec, and the Atlantic two days ago.
Speaker Change: But so far we're not seeing cannibalization and we're seeing.
Speaker Change: Our growth in same store sales at boiler yesterday so.
Mike Matthew: This is Mike Matthew.
Speaker Change: Something else right.
Speaker Change: The second point, yes, all cfcs are improving.
Speaker Change: Performance, so that losses are decreasing.
Speaker Change: As we've said on.
Speaker Change: Many IR meetings now is accretive to our business starting in 'twenty five.
Speaker Change: Okay perfect.
Speaker Change: Maybe one quick follow up just because you mentioned the third party partnerships I know, it's still very early for you guys, but I'm wondering you know as the third party E. Com revenues continued to grow how much of the pressure do you think they would have in terms of fees on your SG&A expenses do you expect on a EBITDA basis yields more than offset by just the higher basket.
Speaker Change: Gross profit so maybe on the EBITDA basis is neutral.
Speaker Change: Just thinking about the pressure on SG&A expenses as the third party revenues continue to grow.
Chris Lee: It's a good question Chris.
Speaker Change: Unlike.
Speaker Change: While we know that we are making losses.
Speaker Change: On the immediacy type business, we make money from day one. So this is immediately accretive to our business.
Speaker Change: Of course, we have to pay some commissions.
Speaker Change: So the profitability is not as high as it is for a regular purchase in a store.
But immediately is accretive to earnings per share.
From Daiwa.
Perfect, Thanks, and all the best.
Speaker Change: Yes.
Speaker Change: Thank you Chris.
Speaker Change: Thank you and your next question comes from the line of Samad Chen from BMO capital markets. Please go ahead.
Hi, good morning, Thanks for the question.
Speaker Change: I wanted to go back to your comments on the quality date pickups before so you had a couple of quarters.
Speaker Change: Sequentially, improving comp, which has been great to see.
Speaker Change: When you talk about this momentum that has continued so far in Q4 I just wanted to clarify are you continuing to comp.
Speaker Change: Comp so far this quarter accelerating sequentially like it has the last couple of quarters is that what you mean.
Speaker Change: By the momentum.
Speaker Change: Yes.
Speaker Change: Good question and a good try I'm just I've got to be careful what I say obviously.
And what I wanted to say because we're getting so many questions about what's going on with current.
Speaker Change: Pleasant.
Is that where we're at.
Speaker Change: The solid and consistent.
Speaker Change: <unk> sorry.
Speaker Change: So I don't want to comment any more than that I.
I just wanted to give our owners our investors a sense that.
Speaker Change: So far they don't have much to worry about.
Speaker Change: Okay got it fair enough.
And I had another question on.
Speaker Change: E Commerce here so.
Speaker Change: What you can see in the industry would you say the growth.
Speaker Change: And the channel here.
Speaker Change: History of more immediate.
Speaker Change: And with respect to what like can you remind us is there any way for a while ought to be able to service itself that immediately or I cannot hear you. Okay to just try to convert those.
Speaker Change: The car customers to Wow, which is not working.
Speaker Change: Great question Sami Amit, let me cover both NPS can chime in if he would like but so visible in terms of the growth.
Speaker Change: We're seeing growth in both parts of the.
Speaker Change: Of the sector. So it's growth in the immediacy segment and there's growth in what I would call the water segment.
Speaker Change: So we're seeing growth in both which is great news.
Speaker Change: And then in terms of could Waller.
Speaker Change: That's the immediacy the ban.
Speaker Change: Answer is yes.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Ill technology, we could.
Speaker Change: Service immediacy through the Ocado delivery platform.
Speaker Change: But it's not really set up to do that so when we set up that business. It's based on a much bigger basket.
Speaker Change: Based on a full shop.
Speaker Change: That's really where the efficiency of that model comes from so.
Speaker Change: What we're in now is a nice sweet spot, whether we're letting boiler.
Speaker Change: The full basket.
With a much bigger basket size and the immediacy covers a smaller basket size and that kind of an immediate need for deliveries.
Yes, right now we are happy with to leave both operating in isolation.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Great. Thank you.
Speaker Change: Thank you and your next question.
Speaker Change: Comes from the line of Michelle's trade higher from National Bank. Please go ahead.
Michelle: Hi, Thanks for taking my question.
Speaker Change: With respect to the volatility that you referenced.
Michelle: In your prepared remarks at the beginning of the call.
Speaker Change: Wondering how empire is thinking about it.
Maintaining or creating some sort of flexibility to adjust to whatever the backdrop may present, so I know you know.
Speaker Change: It could be pressure on the consumer or pressure on inflation or both.
Speaker Change: And this is at a time on population growth is slowing and certainly industry square footage growth is increasing so just as you look at this this volatile time period and granted you've operated too.
Speaker Change: A few of those different types of volatility time periods. How do you think about this in and being able to preserve that financial framework that you've set up.
Speaker Change: It's a great question first of all.
Speaker Change: Yes.
Speaker Change: Predicting the future, especially in these kind of times, but I don't think its going to be at the bar business switches is.
Speaker Change: Highly highly affected by biologics will be affected, but we will be able to roll with the punches and I think the industry well to be honest with you.
Speaker Change: Sure.
Speaker Change: The bigger worry us.
Speaker Change: Therefore, when theres going to be more of an impact on the Canadian economy from this.
All from the uncertainty let alone any.
Speaker Change: The real byproducts of this.
Speaker Change: And I think we've shown in the past.
Speaker Change: You said, we're really good at that.
Speaker Change: Even in times of.
Speaker Change: The wins in our sales, which it may not be by the way.
Speaker Change: We can we can navigate.
Speaker Change: I like the strategy, we have right now in terms of.
Speaker Change: In terms of being able to.
Speaker Change: Grow our business and be very safe.
Speaker Change: Going forward.
Speaker Change: We've never seen cash generation.
Speaker Change: History like this because of our because we changed the way we do business. So we're better operators there were better executed.
Speaker Change: I believe that there are advantages to being a.
Our Canadian Phase III, Taylor, which keeps the money in our country.
Speaker Change: Many Canadians will appreciate that so.
Speaker Change: Although.
Speaker Change: No one likes these volatile and uncertain times.
Speaker Change: Yes.
Speaker Change: We'll be we'll be strong like this country's strong again.
Speaker Change: We're not.
Speaker Change: No.
Speaker Change: Every day you pick up.
Speaker Change: You open your phone.
Speaker Change: There's new news if you reacted to every piece of news out there you would be with an alarm you wouldn't even be able to operate a business anymore.
Speaker Change: We don't do that we're going to be calm and strong.
Speaker Change: Like the rest of this country and I think that we're going to do pretty well through that.
Speaker Change: But we just we have to acknowledge these are these are strange times.
Speaker Change: Thank you for that color and just shifting shifting to shrink wondering how that is evolving and in particular on the U S. Based products are you seeing that shrink bag.
Speaker Change: <unk>.
Speaker Change: Is that a is that a headwind.
No it is.
Speaker Change: Very early days, but we're not seeing any swing from U S suppliers right talent.
Speaker Change: And overall in to this quarter.
Speaker Change: We continue to improve shrink which is good for our margin, but it's not only that we said at the beginning so it's one of the elements.
Speaker Change: It's an area of focus to continue to deliver good margin and continue to reinvest.
Speaker Change: And good pricing so.
Speaker Change:
Speaker Change: Shrink continues to improve but we're not seeing any particular change in the U S.
Speaker Change: Products so far.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Thank you and your next question comes from the line of Michael Van <unk> from TD Cowen. Please go ahead.
Speaker Change: Okay.
Speaker Change: Hi, good morning, and thank you.
And happy retirement, Matt when it when that day does come.
Speaker Change: I wanted to touch on a few of the items that were already brought up I didn't different a little differently, though.
First of all a very impressive growth on the on the e-commerce, but.
Speaker Change: But if we assume your ecommerce penetration is about 4%, 4% or so where does this mean that.
Speaker Change: Pretty much all your same store sales growth is coming from e-commerce at this point.
Speaker Change: No.
Speaker Change: Yes.
Speaker Change: No not even it's hard.
It's closer to the same store sales growth is coming from our.
Speaker Change: Good morning.
Speaker Change: By quite a margin.
Speaker Change: Sure.
Speaker Change: Uh huh.
Speaker Change: And offline I think Matt you could talk to my equivalents.
Speaker Change: Just just to that.
Speaker Change: Even if you excluded.
All of the Eva in industry sales.
Speaker Change: The entirety of that same store sales would still be higher than it was in the previous quarter.
It's giving us a bump but it's the core business, that's that's really generating the improved momentum.
Speaker Change: Okay Alright.
Speaker Change: Did that handle that offline. Thank you and then.
Speaker Change: Your.
Speaker Change: Youre seeing.
Speaker Change: Loyalty costs that are an investment in another.
Speaker Change: So that increase that we saw.
Speaker Change: Some of that an accounting adjustment and others higher redemption rates or is or is that all something that we should expect to continue going forward.
Speaker Change: No. It's not something you should expect to see going forward. So basically as one of our peers did.
Speaker Change: With the loyalty program, what we are seeing in these current times is very high member participation.
Speaker Change: Very strong redemption rights.
Speaker Change: By the way that's a really good thing for our loyalty program.
Speaker Change: Actually what we want.
Speaker Change: Member engagement.
Speaker Change: But when you actuarially determined your loyalty liability using assumptions and there's higher redemption rates.
Speaker Change: Means.
Speaker Change: A higher redemption assumption. So that's basically what that was for us because we don't consolidate has seen our investment in <unk> as an equity investment with a 33% ownership in that program. So we take a 33% of the profit and loss of that entity every year and to our P&L.
Speaker Change: Loyalty liability was.
Speaker Change: We value based on our latest assumptions on redemption, and we take our share of that adjustment.
Speaker Change: It's not something that we would expect to see every quarter something that we saw just in Q3.
Speaker Change: Okay.
Speaker Change: Okay, perfect and then.
Speaker Change: Last question is on the tariff impact on prior years I know even product that comes up from Mexico are sometimes in South America like it's come coming up through the you asked many times is that.
To your knowledge do your understanding is that tariffs would still be.
Speaker Change: Applied to product coming from Mexico for example, through the U S into Canada.
Speaker Change: It's complex but.
Speaker Change: And the simple answer it's know when it's coming from a different country than U S. We're not having to carry tariff on it.
Speaker Change: And as you said we have.
Speaker Change: Good good source of supply in South America.
Speaker Change: And in.
Speaker Change: In Europe and.
Speaker Change: In order for it.
So yes for those is an area, where we have more exposure to but again, it's a small portion of total sales as we said.
Speaker Change: 12%.
Speaker Change: To date.
Speaker Change: U S product, including produce.
Speaker Change: And it is growing down rapidly so.
Speaker Change: I don't have the exact number for produce with produces a portion of it but when you look at total.
Speaker Change: <unk> sales.
Speaker Change: Marginal and yes, but it's not only the situation.
Speaker Change: Switching to the impact of produce inflation, it's the Canadian dollar all the transaction are treated in Canadian dollars, we can and having an equal impact.
Speaker Change: More sometime.
Speaker Change: If I can produce.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Okay. Thank you and just last question.
Can you just update us on your square footage ambition and growth ambitions for both fiscal 'twenty five in fiscal 'twenty six.
Speaker Change: Yeah. So as we've said recently I think when targeting.
Speaker Change: Absolutely, 1.5% square footage growth.
Speaker Change: Again as we are finished.
Speaker Change: Finished kind of the.
Speaker Change: <unk> of our renovation cycle, we can start to allocate a little bit more capital away from renovations towards new stores.
Speaker Change: It's a massive change, but it's a notable change that one 5% and Thats a net number right. So we still have some locations that we might close I inconvenience and lekota. There's some some tangential stores we might close.
Speaker Change: Number.
Speaker Change: One 5% is a good number for a couple of years.
Speaker Change: And is that the case in fiscal 'twenty, five or that alone will not kick in in fiscal 'twenty six.
Speaker Change: It really starts in earnest in fiscal 'twenty six we will have a small increase in 'twenty five, but it's more than 26%.
Speaker Change: Great. Thanks very much.
Speaker Change: Okay.
Speaker Change: Thanks, Mike.
Speaker Change: Thank you.
Speaker Change: And your next question comes from the line of Mark Petrie from CIBC. Please go ahead.
Mark Petrie: Good morning, I'll Echo my congratulations to you, Matt and wish you all the best on your next chapter.
Mark Petrie: First just on gross margin, hoping you could talk a little bit more about the trends that you've seen there and specifically the promotional penetration that you called out now sort of falling year over year.
Speaker Change: Do you attribute that entirely to sort of the market and the consumer or.
Speaker Change: Where there are some shifts in your tactics or execution that would have contributed to that.
Speaker Change: Okay.
Speaker Change: Our execution is very consistent very good discipline over the last quarters, we continue to see that disciplined very good promo mix management.
Speaker Change: Very good usage of promo optimization tools that we implemented a year ago and the team is working really well with it.
Speaker Change: As we said the promo penetration is.
Speaker Change: Going down slightly which is.
Speaker Change: Good for pressure on margin.
Speaker Change: It's one element, but it's not the only element.
Speaker Change: As we said earlier the mix of sales is it is improving because we're selling more fresh product in grocery products, we have in <unk>.
Speaker Change: Less shrink.
Speaker Change: <unk> is lower than it was at the same time last year and there is <unk>.
Speaker Change: Disciplined execution and merchandising and then stores. So it's a lot of thing a little bit on customer behaviors. They are back to a more natural behavior as compared to last year at the same time.
Speaker Change: But it's a combination of many small things.
Speaker Change: Okay understood. That's helpful. Thank you.
Speaker Change: I wanted to also ask about sort of price gap between full service and discount channels overall.
I think these have shifted over the last year at all and I know you don't talk about regions, but I'm interested to hear any sort of specific comments about the Quebec market.
Just given that the auto market, where you have a discount presence in so just wondering if you've seen the market involved with regards to price gaps.
Speaker Change: The gap is declining.
Speaker Change: And that's an area of focus for us there's two of them and we have to consider when we look at it.
Speaker Change: Effective price index and the regular price index, so we're very competitive and effective price index.
Speaker Change: Very pleased with.
Our performance with promotional and <unk>.
Speaker Change: If you look at what we're doing right now in different markets.
Speaker Change: Hi.
Speaker Change: We are providing guarantee of lower prices with a very high price. So this is very good so we're very very competitive.
For service stores versus discount with our verified price problem.
Speaker Change: Two customer so we're looking at particular prices, but also looking at everything together, including tunnel, which skull.
Speaker Change: Price index.
Speaker Change: To date, the gap with discount.
Speaker Change: Declining because we know what that drag was important for customers.
Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Oh, sorry, I was just on mute Sir.
Speaker Change: Thanks for this.
Speaker Change: Comments, maybe just to follow up quickly.
Speaker Change: Does that is that is that approach in Quebec effect, the promotional penetration at all or is that sort of is that sort of a separate piece of.
Speaker Change: What would be impacting that.
Speaker Change: So I think it's a service we have a consistent approach across the country.
Speaker Change: Okay understood. Thanks, very much all the best.
Speaker Change: Thanks, Laura.
Speaker Change: Thank you and your next question comes from the line of Johnson <unk> from Scotiabank. Please go ahead.
Speaker Change: Thank you and good morning, I'll add my congratulations to you on that and all the best in your next chapter.
Speaker Change: I wanted to come back to the same store sales performance subsequent to the quarter end and I wonder in the context of.
Where do you think the theme of buying Canadian is positively benefiting Canadian retailers and not just Canadian CPG brands. So in other words do you believe you have seen an increase in market share over the past couple of months or is the same store sales performance more a product of a relatively resilient consumer or the internal efforts you're putting forward.
Speaker Change: It's a good question and so early days I don't want to I don't want to say anything is a trend or or or go overboard on anything but I think a lot of it is I don't want to take away from the execution that you're saying you've seen that quarter after quarter now at Empire, So I'm not taking away from that.
Speaker Change: But I do think that there.
Speaker Change: Couldn't be.
Speaker Change: <unk>.
Some tailwind for Canadian retailers.
Speaker Change: As opposed to.
Those are those retailers that are seniors not Canadian.
Speaker Change: But early early days.
Speaker Change: Then we will see and I wouldnt want overstated at this point.
Speaker Change: Okay understood.
Speaker Change: On food inflation question I Wonder what.
Speaker Change: Thank you.
Food inflation I wonder what kind of increases you're seeing from your largest vendors and is it fair to expect an uptick in inflation solely from from that factor or it's wage contracts that were agreed to in the past couple of years is it fair to expect increased inflation just from those rather than the impact of the U S dollar or tariffs.
Speaker Change: It's a bit tough to predict but the thing we have.
Speaker Change: If we remove the.
The volatile situation with tariffs.
Speaker Change: Our estimate is an inflation of around 2% and when we look at.
Speaker Change: This conversation we have with suppliers right now when we avoid the conversation on tariffs and we're looking at.
Speaker Change: Regular cost increases or wherever.
We are in that range right now and the quantity of cost increases are in the more normal again, removing tariff conversation.
Speaker Change: The more normal base right now. So this is why we feel comfortable to say we are in the range of 2% inflation next year without that rich.
Speaker Change: Okay got it that's helpful. And then lastly from me on the cost side.
Speaker Change: Can you remind us of the cost initiatives that you have underway and whether they might contribute meaningfully over the next one to two years.
Speaker Change: In the past you've referenced a few related to the supply chain or better execution I Wonder if you can add some more color there.
Speaker Change: Sure.
Speaker Change: Three big initiatives, we had on the cost reduction initiatives.
Speaker Change: Our supply chain.
Speaker Change: Not for resale on the organizational restructuring.
Speaker Change: We did.
Speaker Change: So there was the restructuring is done.
Speaker Change: The benefits of that.
Speaker Change: <unk> taken in F 'twenty five.
On goods not for resale.
Speaker Change: We have taken some of the benefits and that's 25, but there'll be more to come in F. 'twenty six.
Speaker Change: And I would also say that the fantastic work that's been done by that strategic sourcing team will continue again, it's one of these gifts that keeps on giving we built muscle.
Speaker Change: To make sure that we.
Speaker Change: A challenge all of our costs and negotiate all costs to make sure we're bringing those costs down so that should be something that continues to give benefits.
Speaker Change: Perhaps the biggest one is supply chain. We said this before that this is a mixture of short medium and long term.
Speaker Change: <unk> some of the short term you can do it quickly we renegotiate your you align rates you will cost you take you can negotiate costs out of your existing contracts. So some of that can be short term more medium term when we saw talking about things such as freight and that service or how we can optimize.
Speaker Change: Network is our medium term and then longer term you can really look at that.
Speaker Change: How you will set up across the whole country in terms of logistics and the number of Dcs in the investments in automation and things like that so.
Speaker Change: Supply chain is a big opportunity for us.
Speaker Change: Should continue to talk about that every.
Speaker Change: Every quarter, because there's a whole series of initiatives that will deliver value short medium and long term.
Speaker Change: I'll leave it there thank you very much.
Speaker Change: Thanks, Joe.
Speaker Change: Thank you and we have a follow up question from Michael <unk> from CIBC. Please go ahead.
Speaker Change: Okay.
Speaker Change: Yes, I just wanted to ask about the e-commerce growth, what's your sense of the overall market growth in online grocery and you get the sense that it's accelerating our stable or decelerating.
Speaker Change: Okay.
Speaker Change: It was pretty stable there for a while in the last quarter or two we've seen.
Speaker Change: Acceleration in e-commerce penetration in the market.
Speaker Change: I think it is.
Speaker Change: Good acceleration I wouldn't I'm not.
Speaker Change: Doing a jig yet but.
But it is certainly improving and we expect to continue to improve.
Speaker Change: Obviously.
Speaker Change: Part of the reason, we're seeing better results out of our three cfcs.
Speaker Change: Yeah understood Okay. Thanks for that.
Bob: Great questions today, Thanks, Bob Thanks to everyone today.
Speaker Change: Thank you and there are no further questions at this time I would now hand, the call back to Ms. Kathy Brian for any closing remarks.
Great. Thank you and we appreciate your continued interest in Empire. If there are any other unanswered questions. Please contact me by phone or email, we look forward to having you join us for our fourth quarter fiscal 2025 conference call in June 19.
Tim.
Speaker Change: Thank you and this concludes today's call. Thank you for participating you may all disconnect.
Speaker Change: Yes.