- Earnings per share ("EPS") and adjusted EPS(1) of
$1.03 and $0.78 respectively
- Prior year EPS and adjusted EPS of $0.71
- Same-store sales, excluding fuel, increased by 4.1%
- Gross margin, excluding fuel, increased by 19 basis points
- Completed sale of retail fuel sites in Western Canada for approximately $100.0 million
- Issued 2023 Sustainability Business Report, including SBTi
validation of near-term targets
STELLARTON, NS, Sept. 14,
2023 /CNW/ - Empire Company Limited ("Empire" or the
"Company") (TSX: EMP.A) today announced its financial results for
the first quarter ended August 5,
2023. For the quarter, the Company recorded net earnings of
$261.0 million ($1.03 per share) compared to $187.5 million ($0.71 per share) last year. For the quarter, the
Company recorded adjusted net earnings of $196.2 million ($0.78 per share) compared to $187.5 million ($0.71 per share) last year. The Company is
excluding from its Adjusted Metrics(1): gains associated
with the Western Canada fuel sale,
costs incurred to plan and implement strategies to optimize the
organization and improve efficiencies, and insurance recoveries
related to the Cybersecurity Event(2).
"Fiscal 2024 is off to a good start, supported by stronger
top-line performance in our Full-Service banners, continued
double-digit sales growth in our Discount banner and solid control
over our retail margins," said Michael Medline, President &
CEO, Empire. "Despite the ongoing volatility that the market
continues to face, the results we delivered in Q1 demonstrate our
team's ability to consistently execute, regardless of the economic
environment."
Completed sale of Western
Canada retail fuel sites
On December 13, 2022, the Company
signed a definitive agreement between a wholly-owned subsidiary of
Sobeys and Canadian Mobility Services Limited, a wholly-owned
subsidiary of Shell Canada, to sell all 56 retail fuel sites in
Western Canada for approximately
$100.0 million. Following regulatory
review and approval, the sale ("Western Canada Fuel Sale") was
completed on July 30, 2023.
(1)
|
Adjusted Metrics
include adjusted operating income, adjusted earnings before
interest, taxes, depreciation and amortization ("EBITDA"), adjusted
net earnings, and adjusted EPS. See "Non-GAAP Financial Measures
& Financial Metrics" section of this News
Release.
|
(2)
|
On November 4, 2022,
Empire experienced IT system issues related to a cybersecurity
event (the "Cybersecurity Event" or
"Event").
|
Sustainable Business Reporting
Environmental, Social and Governance ("ESG") has deep roots in
the Company's history, and the principles of ESG have been a part
of the organization since the Company started 116 years ago.
The Company published its 2023 Sustainable Business Report in
July 2023 which outlines the
Company's steady and tangible progress in achieving its ESG goals.
This year's report presents key results in areas where the Company
has the greatest impact across the three pillars of its ESG
framework: People, Planet, and Products. Highlights of the progress
made this year include: becoming the first grocery retailer in
Canada to have science-based
climate targets validated by the Science Based Targets initiative;
donating more than 23 million pounds of surplus food to local
charities from stores and warehouses through the Company's
partnership with Second Harvest; raising and donating close to
$19.0 million across Canada to support the Healthier Tomorrows
Community Investment strategy; and continued progress on embedding
Diversity, Equity & Inclusion ("DE&I") more broadly across
the organization, with over 90% of Directors and above having set
DE&I performance and accountability goals. In addition, the
Company also recently conducted the first climate scenario risk
assessment on its operational footprint and published its inaugural
Taskforce on Climate-Related Financial Disclosures-aligned
report.
The Company is focused on several initiatives as part of a
continuing ESG journey such as carbon reduction projects to achieve
its Scope 1 and 2 climate targets; reducing or eliminating
avoidable and hard-to-recycle plastics; expanding the Company's
efforts to cultivate a fair, equitable and inclusive environment
for all; and embedding sustainable business mandates within the
Company's performance management goals.
COMPANY PRIORITIES
Over the last six years, the Company has successfully completed
two transformation strategies, Project Sunrise and Project Horizon.
These strategies have comprehensively reset Empire's foundation,
enhanced the Company's data capabilities, deepened the
understanding of customers, and prepared the business to
effectively capture emerging trends. With these transformation
strategies now accomplished and the turnaround complete, the
Company aims to grow total adjusted EPS over the long-term through
net earnings growth and share repurchases. The Company intends to
continue improving sales, gross margin (excluding fuel) and
adjusted EBITDA margin by focusing on priorities such as:
Continued Focus on Stores:
Over recent years, the Company has accelerated investments in
renovations, conversions, and new stores along with store
processes, communications, training, technology and tools.
Investing in the store network will remain a priority, demonstrated
by a sustained emphasis on renovations and continued store
expansion in Discount. The Own Brands program enhancement will
remain a priority through increased distribution, shelf placement
and product innovation.
The Company intends to invest capital in its store network and
is planning to renovate approximately 20% to 25% of the network
over the next three years. This capital investment includes
important sustainability initiatives such as refrigeration system
upgrades, heating, ventilation and air conditioning ("HVAC") system
upgrades and other energy efficiency initiatives.
Enhanced Focus on Digital and Data:
The focus on digital and data will include continued e-commerce
expansion with Voilà, loyalty, through Scene+ (see "Business
Updates – Voilà" and "Business Updates – Scene+" for
more information), personalization, improved space
productivity and the continued improvement of promotional
optimization. Space productivity will further enhance the customer
experience by improving store layouts, optimizing category and
product adjacencies and tailoring product assortment for each
store. The advanced analytics tools built for promotional
optimization will continue to be refined through the partnership
between the advanced analytics team and category merchants.
Efficiency and Cost Control:
The Company has significantly improved its efficiency and cost
effectiveness through sourcing efficiencies, optimizing supply
chain productivity and improving systems and processes. The Company
will continue to focus on driving efficiency and cost effectiveness
through initiatives related to strategic sourcing and supply chain
productivity.
SUMMARY RESULTS – FIRST QUARTER
On July 30, 2023, Empire completed
the sale of its Western Fuel Business to Canadian Mobility Services
Limited, a wholly-owned subsidiary of Shell Canada. The sale of all
56 retail fuel sites in Western
Canada was completed for approximately $100.0 million, which resulted in a pre-tax gain
of $90.8 million. The impact to net
earnings for the quarter ended August 5,
2023 was $71.5 million.
In the first quarter of fiscal 2024, Empire began to pursue
strategies to optimize its organization and improve efficiencies
(the "Restructuring"). Expenses in the quarter relate to costs
incurred to plan and implement these strategies. The impact to net
earnings for the quarter ended August 5,
2023 was ($7.1) million.
On November 4, 2022, Empire
experienced IT system issues related to a Cybersecurity Event. In
the prior year, the Company included in its Adjusted Metrics an
adjustment for direct costs such as inventory shrink, hardware and
software restoration costs, legal and professional fees, and labour
costs, net of insurance recoveries. The impact to net earnings for
the quarter ended August 5, 2023 was
a recovery of $0.4 million. Empire is
in the process of working with its insurance providers to make
claims under its policies. Due to the complexity of the cyber
insurance coverage and related claims, there is a time lag between
the initial incurrence of costs and the recognition of anticipated
insurance proceeds.
|
|
13 Weeks
Ended
|
|
$
|
($ in millions, except
per share amounts)
|
|
August 5,
2023
|
|
August 6,
2022
|
|
Change
|
Sales
|
$
|
8,075.5
|
$
|
7,937.6
|
$
|
137.9
|
Gross
profit(1)
|
|
2,074.5
|
|
1,977.9
|
|
96.6
|
Operating
income
|
|
456.5
|
|
344.1
|
|
112.4
|
Adjusted operating
income(1)
|
|
374.9
|
|
344.1
|
|
30.8
|
EBITDA(1)
|
|
723.0
|
|
594.0
|
|
129.0
|
Adjusted
EBITDA(1)
|
|
641.4
|
|
594.0
|
|
47.4
|
Net
earnings(2)
|
|
261.0
|
|
187.5
|
|
73.5
|
Adjusted net
earnings(1)(2)
|
|
196.2
|
|
187.5
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
|
|
|
|
|
|
|
|
|
EPS(2)
|
$
|
1.03
|
$
|
0.71
|
$
|
0.32
|
Adjusted
EPS(1)(2)
|
$
|
0.78
|
$
|
0.71
|
$
|
0.07
|
Diluted weighted
average number of shares outstanding (in millions)
|
|
252.2
|
|
263.0
|
|
|
Dividend per
share
|
$
|
0.183
|
$
|
0.165
|
|
|
|
13 Weeks
Ended
|
|
August 5,
2023
|
|
August 6,
2022
|
Gross
margin(1)
|
25.7 %
|
|
24.9 %
|
EBITDA
margin(1)
|
9.0 %
|
|
7.5 %
|
Adjusted EBITDA
margin(1)
|
7.9 %
|
|
7.5 %
|
Same-store
sales(1) growth
|
3.0 %
|
|
3.3 %
|
Same-store sales
growth, excluding fuel
|
4.1 %
|
|
0.4 %
|
Effective income tax
rate
|
27.5 %
|
|
25.6 %
|
(1) See
"Non-GAAP Financial Measures & Financial Metrics" section of
this News Release.
|
(2)
Attributable to owners of the Company.
|
Sales
Sales for the quarter ended August 5,
2023 increased by 1.7% primarily driven by strong
performance across the business. This increase is offset by
lower fuel sales due to elevated fuel prices in the prior year and
one less week of fuel sales following the Western Canada Fuel Sale
on July 30, 2023.
Gross Profit
Gross profit for the quarter ended August
5, 2023 increased by 4.9% primarily driven by higher sales
and favourability in our supply chain network.
Gross margin for the quarter increased to 25.7% from 24.9% in
the prior year. Gross margin increased primarily as a result of the
mix impact of lower fuel sales, and lower distribution costs driven
primarily by efficiency initiatives in supply chain. Excluding the
mix impact of fuel sales, gross margin was 19 basis points higher
than the prior year.
Operating Income
|
13 Weeks
Ended
|
|
$
|
($ in
millions)
|
|
August 5,
2023
|
|
August 6,
2022
|
|
Change
|
Food
retailing
|
$
|
449.1
|
$
|
330.9
|
$
|
118.2
|
|
|
|
|
|
|
|
|
|
|
|
Investments and other
operations:
|
|
|
|
|
|
|
|
|
|
|
Crombie REIT
|
|
8.9
|
|
12.7
|
|
(3.8)
|
|
Genstar
|
|
1.1
|
|
1.1
|
|
-
|
|
Other operations, net
of corporate expenses
|
|
(2.6)
|
|
(0.6)
|
|
(2.0)
|
|
|
|
7.4
|
|
13.2
|
|
(5.8)
|
Operating
income
|
$
|
456.5
|
$
|
344.1
|
$
|
112.4
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
Western Canada Fuel
Sale(1)
|
$
|
(90.8)
|
$
|
-
|
$
|
(90.8)
|
|
Cybersecurity
Event(1)
|
|
(0.5)
|
|
-
|
|
(0.5)
|
|
Restructuring(1)
|
|
9.7
|
|
-
|
|
9.7
|
|
|
|
(81.6)
|
|
-
|
|
(81.6)
|
Adjusted operating
income(2)
|
$
|
374.9
|
$
|
344.1
|
$
|
30.8
|
(1) See
"Non-GAAP Financial Measures & Financial Metrics" section of
this News Release for a description of the types of costs
included.
|
(2) See
"Non-GAAP Financial Measures & Financial Metrics" section of
this News Release.
|
For the quarter ended August 5, 2023,
operating income from the Food retailing segment increased mainly
due to higher sales and gross profit in the current year, as well
as the gain on the Western Canada Fuel Sale, partially offset by
higher selling and administrative expenses in the current year.
Selling and administrative expenses increased mainly due to
continued investment in business expansion (Farm Boy, Voilà and
FreshCo), higher retail labour costs, and higher depreciation and
amortization, partially offset by a decrease in project consultancy
costs compared to the prior year.
For the quarter ended August 5,
2023, operating income from the Investments and other
operations segment decreased primarily as a result of lower equity
earnings from Crombie Real Estate Investment Trust ("Crombie REIT")
due to higher general and administrative expenses, partially offset
by higher development income.
EBITDA
|
|
13 Weeks
Ended
|
|
$
|
($ in
millions)
|
|
August 5,
2023
|
|
August 6,
2022
|
|
Change
|
EBITDA(1)
|
$
|
723.0
|
$
|
594.0
|
$
|
129.0
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Western
Canada Fuel Sale(2)
|
|
(90.8)
|
|
-
|
|
(90.8)
|
Cybersecurity Event(2)
|
|
(0.5)
|
|
-
|
|
(0.5)
|
Restructuring(2)
|
|
9.7
|
|
-
|
|
9.7
|
|
|
(81.6)
|
|
-
|
|
(81.6)
|
Adjusted
EBITDA(1)(2)
|
$
|
641.4
|
$
|
594.0
|
$
|
47.4
|
(1) See
"Non-GAAP Financial Measures & Financial Metrics" section of
this News Release.
|
(2) See
"Non-GAAP Financial Measures & Financial Metrics" section of
this News Release for a description of the types of costs
included.
|
For the quarter ended August 5, 2023,
EBITDA increased to $723.0 million
from $594.0 million in the prior year
mainly as a result of the same factors affecting operating income
(which excludes the increase in depreciation and amortization).
Adjusted EBITDA margin increased to 7.9% from 7.5% in the prior
year.
Income Taxes
The effective income tax rate for the quarter ended August 5, 2023 was 27.5% compared to 25.6% in the
same quarter in the prior year. The effective tax rate was higher
than the statutory rate primarily due to the revaluation of tax
estimates, not all of which are recurring, partially offset by
non-taxable capital items. The effective tax rate in the same
quarter last year was lower than the statutory rate primarily due
to the differing tax rates of various entities.
Net Earnings
|
|
13 Weeks
Ended
|
|
$
|
($ in millions, except
per share amounts)
|
|
August 5,
2023
|
|
August 6,
2022
|
|
Change
|
Net
earnings(1)
|
$
|
261.0
|
$
|
187.5
|
$
|
73.5
|
EPS (fully
diluted)
|
$
|
1.03
|
$
|
0.71
|
$
|
0.32
|
Adjustments (net of
income taxes of $16.8):
|
|
|
|
|
|
|
|
Western
Canada Fuel Sale(2)
|
|
(71.5)
|
|
-
|
|
(71.5)
|
Cybersecurity Event(2)
|
|
(0.4)
|
|
-
|
|
(0.4)
|
Restructuring(2)
|
|
7.1
|
|
-
|
|
7.1
|
|
|
(64.8)
|
|
-
|
|
(64.8)
|
Adjusted net
earnings(1)(2)(3)
|
$
|
196.2
|
$
|
187.5
|
$
|
8.7
|
Adjusted EPS (fully
diluted)(3)
|
$
|
0.78
|
$
|
0.71
|
$
|
0.07
|
Diluted weighted
average number of shares outstanding (in millions)
|
|
252.2
|
|
263.0
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Attributable to owners of the Company.
|
(2) See
"Non-GAAP Financial Measures & Financial Metrics" section of
this News Release for a description of the types of costs
included.
|
(3) See
"Non-GAAP Financial Measures & Financial Metrics" section of
this News Release.
|
Capital Expenditures
The Company invested $123.6
million in capital expenditures(1) for the
quarter ended August 5, 2023 (2023 –
$155.5 million), including store
renovations, construction of new stores, investments in advanced
analytics technology and other technology systems, and investments
in Voilà Customer Fulfilment Centres ("CFC").
In fiscal 2024, capital expenditures are expected to be
approximately $775 million, with
approximately half of this investment allocated to store
renovations and new store expansion, and approximately $50 million allocated toward sustainability
initiatives such as refrigeration system upgrades, HVAC system
upgrades and other energy efficiency initiatives. The Company is
planning to renovate approximately 20% to 25% of the network over
the next three years.
(1)
Capital expenditures are calculated on an accrual basis and
includes acquisitions of property, equipment and investment
properties, and additions to intangibles.
|
Free Cash Flow
|
|
|
13 Weeks
Ended
|
|
$
|
($ in
millions)
|
|
August 5,
2023
|
|
August 6,
2022
|
|
Change
|
Cash flows from
operating activities
|
$
|
588.2
|
$
|
386.7
|
$
|
201.5
|
Add:
|
proceeds on disposal of
assets(1)
|
|
105.6
|
|
2.7
|
|
102.9
|
Less:
|
interest
paid
|
|
(11.0)
|
|
(24.6)
|
|
13.6
|
|
payments of lease
liabilities, net of payments received for
|
|
|
|
|
|
|
|
|
|
|
finance
subleases
|
|
(168.3)
|
|
(163.9)
|
|
(4.4)
|
|
acquisitions of
property, equipment, investment property
|
|
|
|
|
|
|
|
|
|
|
and
intangibles
|
|
(174.7)
|
|
(169.6)
|
|
(5.1)
|
Free cash
flow(2)
|
$
|
339.8
|
$
|
31.3
|
$
|
308.5
|
(1)
Proceeds on disposal of assets include property, equipment and
investment property.
|
(2) See
"Non-GAAP Financial Measures & Financial Metrics" section of
this News Release.
|
Free cash flow for the quarter ended August
5, 2023 increased versus prior year primarily as a result of
an increase in cash flows from operating activities, the receipt of
proceeds from the Western Canada Fuel Sale of approximately
$100.0 million in the current year as
well as lower interest paid in the current year due to the
repayment of the $500.0 million
Series 2013-2 Notes in the prior year.
FINANCIAL PERFORMANCE BY SEGMENT
Food Retailing
|
|
13 Weeks
Ended
|
|
$
|
($ in
millions)
|
|
August 5,
2023
|
|
August 6,
2022
|
|
Change
|
Sales
|
$
|
8,075.5
|
$
|
7,937.6
|
$
|
137.9
|
Gross profit
|
|
2,074.5
|
|
1,977.9
|
|
96.6
|
Operating
income
|
|
449.1
|
|
330.9
|
|
118.2
|
Adjusted operating
income (1)(2)
|
|
367.5
|
|
330.9
|
|
36.6
|
EBITDA(2)
|
|
715.4
|
|
580.7
|
|
134.7
|
Adjusted
EBITDA(1)(2)
|
|
633.8
|
|
580.7
|
|
53.1
|
Net
earnings(3)
|
|
271.1
|
|
178.3
|
|
92.8
|
Adjusted net
earnings(1)(2)(3)
|
|
206.3
|
|
178.3
|
|
28.0
|
(1) See
"Non-GAAP Financial Measures & Financial Metrics" section of
the MD&A for a reconciliation of the adjusted metrics presented
in this table.
|
(2) See
"Non-GAAP Financial Measures & Financial Metrics" section of
the MD&A.
|
(3)
Attributable to owners of the Company.
|
Investments and Other Operations
|
|
13 Weeks
Ended
|
|
$
|
($ in
millions)
|
|
August 5,
2023
|
|
August 6,
2022
|
|
Change
|
Crombie REIT
|
$
|
8.9
|
$
|
12.7
|
$
|
(3.8)
|
Genstar
|
|
1.1
|
|
1.1
|
|
-
|
Other operations, net
of corporate expenses
|
|
(2.6)
|
|
(0.6)
|
|
(2.0)
|
|
$
|
7.4
|
$
|
13.2
|
$
|
(5.8)
|
For the quarter ended August 5, 2023,
income from Investments and other operations decreased primarily as
a result of lower equity earnings from Crombie REIT due to higher
general and administrative expenses, partially offset by higher
development income.
CONSOLIDATED FINANCIAL CONDITION
|
|
|
|
|
|
|
|
($ in millions, except
per share and ratio calculations)
|
August 5,
2023
|
May 6, 2023
|
August 6,
2022
|
Shareholders' equity,
net of non-controlling interest
|
$
|
5,306.4
|
$
|
5,200.4
|
$
|
5,049.0
|
Book value per common
share(1)
|
$
|
21.08
|
$
|
20.09
|
$
|
19.26
|
Long-term debt,
including current portion
|
$
|
958.0
|
$
|
1,012.3
|
$
|
866.5
|
Long-term lease
liabilities, including current portion
|
$
|
6,100.4
|
$
|
6,184.6
|
$
|
6,286.9
|
Funded debt to total
capital(1)
|
|
57.1 %
|
|
|
58.1 %
|
|
58.6 %
|
Funded debt to adjusted
EBITDA(1)(2)
|
|
3.0x
|
|
|
3.1x
|
|
3.1x
|
Adjusted EBITDA to
interest expense(1)(3)
|
|
8.8x
|
|
|
8.8x
|
|
8.5x
|
Trailing four-quarter
adjusted EBITDA
|
$
|
2,369.5
|
$
|
2,263.0
|
$
|
2,342.9
|
Trailing four-quarter
interest expense
|
$
|
268.0
|
|
$
|
263.1
|
$
|
276.9
|
Current assets to
current liabilities
|
|
0.8x
|
|
|
0.8x
|
|
0.7x
|
Total assets
|
$
|
16,511.9
|
|
$
|
16,483.7
|
$
|
16,302.0
|
Total non-current
financial liabilities
|
$
|
7,169.9
|
|
$
|
7,289.5
|
$
|
7,223.3
|
(1) See
"Non-GAAP Financial Measures & Financial Metrics" section of
this MD&A.
|
(2)
Calculation uses trailing four-quarter adjusted
EBITDA.
|
(3)
Calculation uses trailing four-quarter adjusted EBITDA and
interest expense.
|
Sobeys' credit rating remained unchanged from the prior quarter.
The following table shows Sobeys' credit ratings as at September 13, 2023:
Rating
Agency
|
Credit Rating
(Issuer rating)
|
Trend/Outlook
|
|
DBRS
Morningstar
|
BBB
|
Stable
|
|
S&P
Global
|
BBB-
|
Stable
|
|
Through the acquisition of Longo's on May
10, 2021, Sobeys' acquired their existing $75.0 million demand operating line of credit. On
July 20, 2023, Longo's amended this
line of credit agreement from $75.0
million to $100.0 million. As
of August 5, 2023, the outstanding
amount of the facility was $44.2
million (2023 – $19.7
million). Interest payable on this facility fluctuates with
changes in the Canadian prime rate.
Normal Course Issuer Bid ("NCIB")
On June 21, 2022, the Company
renewed its NCIB by filing a notice of intention with the Toronto
Stock Exchange ("TSX") to purchase for cancellation up to
10,500,000 Non-Voting Class A shares ("Class A shares")
representing 7.0% of the 150,258,764 Class A shares outstanding. As
at July 1, 2023, under this filing,
the Company purchased 10,500,000 (July 1,
2022 – 5,659,764) Class A shares at a weighted average price
of $36.18 (July 1, 2022 – $39.11) for a total consideration of $379.9 million (July 1,
2022 - $221.3 million).
On June 21, 2023, the Company
renewed its NCIB by filing a notice of intention with the TSX to
purchase for cancellation up to 12,600,000 Class A shares
representing approximately 9.0% of the public float of 139,497,542
Class A shares outstanding as of June 19,
2023. The Company intends to repurchase approximately
$400.0 million of Class A shares in
fiscal 2024. The purchases will be made through the facilities of
the TSX and/or any alternative Canadian trading systems to the
extent they are eligible. The price that the Company will pay for
any such shares will be the market price at the time of
acquisition. The Company believes that repurchasing shares at the
prevailing market prices from time to time is a worthwhile use of
funds and in the best interest of the Company and its shareholders.
The NCIB expires on July 1, 2024.
Shares purchased during the quarter ended August 5, 2023 compared to the same periods of
the previous fiscal year are shown in the table below:
|
|
13 Weeks
Ended
|
($ in millions, except
per share amounts)
|
|
Aug. 5,
2023
|
|
Aug. 6,
2022
|
Number of
shares
|
|
2,838,828
|
|
1,803,247
|
Weighted average price
per share
|
$
|
35.23
|
$
|
40.26
|
Cash consideration
paid
|
$
|
100.0
|
$
|
72.6
|
The Company engages in an automatic share purchase plan with its
designated broker allowing the purchases of Class A shares for
cancellation under its NCIB program during trading black-out
periods.
Including purchases made subsequent to the end of the quarter,
as at September 12, 2023 the Company
has purchased 3,263,092 Class A shares in fiscal 2024 (September 13, 2022 – 3,143,281) at a weighted
average price of $35.24 (September 13, 2022 – $39.42) for a total consideration of $115.0 million (September
13, 2022 – $123.9
million).
BUSINESS UPDATES
Scene+
In June 2022, the Company launched
a new loyalty strategy through Scene+, one of Canada's leading loyalty programs. Along with
Scotiabank and Cineplex, the Company is now a co-owner of
Scene+. With its final launch in Quebec and Thrifty Foods in March 2023, the new loyalty program was
successfully launched nationally.
As part of the Scene+ rollout, the Company launched its
next generation recommendation engine for one-to-one, machine
learning powered personalization at scale. The recommendation
engine is focused on improving customer engagement and offer
relevancy. The target algorithms will continue to improve over
time, driving progressively better performance and results.
FreshCo
In fiscal 2018, the Company announced plans to expand its
FreshCo discount format to Western
Canada with expectations of converting up to 25% of the 255
Safeway and Sobeys full-service format stores in Western Canada to the FreshCo banner.
Through the FreshCo expansion program, the discount business in
Western Canada has been on a sharp
growth trajectory, driven by store conversions and regional
expansion. The value proposition, strong multicultural assortment
along with the addition of the Scene+ loyalty program has
supported the growth and expansion of the discount
format.
As at September 13, 2023, FreshCo
has 45 stores operating in Western
Canada. In fiscal 2024, the Company expects to open two
additional FreshCo stores in Western
Canada.
Voilà
In fiscal 2021, the Company introduced its new e-commerce
platform, Voilà, which is the future of online grocery home
delivery in Canada. Voilà is
powered by industry-leading technology provided by Ocado Group plc
("Ocado") through its automated CFCs. The Company will operate four
CFCs across Canada with supporting
spokes and curbside pickup. The Company will be able to serve
approximately 75% of Canadian households representing approximately
90% of Canadians' projected e-commerce spend.
The Company has three active CFCs located in Toronto, Montreal and Calgary. The fourth CFC in Vancouver will service customers in
British Columbia ("B.C.") starting
in calendar year 2025. In fiscal 2021, the Company launched Voilà
curbside pickup, which currently services 98 stores in locations
across Canada and is also powered
by Ocado technology.
In the quarter ended August 5,
2023, the Company completed its merger of Longo's e-commerce
business, Grocery Gateway, into Voilà, thereby capturing logistics
and delivery synergies. Operating as a 'shop in shop' will increase
the reach of Longo's within Ontario and increase Voilà's product count by
approximately 2,000 Longo's products.
Voilà's future earnings will primarily be impacted by the rate
of sales growth, with operational efficiencies, margins, and cost
discipline serving as important drivers to manage financial
performance.
In the quarter ended August 5,
2023, Voilà experienced a sales increase of 7.2% compared to
the same quarter in the prior year. According to third-party market
data, Voilà continued to increase its national market share within
the e-commerce channel.
Cybersecurity Event
On November 4, 2022, Empire
experienced IT system issues related to a cybersecurity event (the
"Cybersecurity Event" or "Event"). Upon discovery, the Company
immediately activated its incident response and business continuity
plans, including the engagement of world-class experts, isolated
the source and implemented measures to prevent further spread.
The Company maintains a variety of insurance coverages,
including cyber insurance. Empire is in the process of working with
its insurance providers to make claims under its policies. Due to
the complexity of the cyber insurance coverage and related claims,
there is a time lag between the initial incurrence of costs and the
recognition of anticipated insurance proceeds. While the
operational impact of the Cybersecurity Event is behind the
Company, management expects that there will be additional insurance
recoveries throughout fiscal 2024.
The financial impact of insurance recoveries on net earnings in
the quarter ended August 5, 2023 was
$0.4 million. Impacts of the
Cybersecurity Event, including the related insurance proceeds, are
excluded from Adjusted Metrics. The Company expects to recognize
additional insurance recoveries throughout fiscal 2024, which will
continue to be excluded from the Adjusted Metrics. Please refer to
the "Summary Results – First Quarter" section of this document for
a more detailed discussion, including a reconciliation of these
non-generally accepted accounting principles ("GAAP") financial
measures.
Empire estimates, based on available information, that the final
impact of the Cybersecurity Event on net earnings over fiscal 2023
and fiscal 2024 remains unchanged at approximately ($32.0) million, net of estimated insurance
recoveries.
OUTLOOK
Management aims to grow total adjusted EPS over the long-term
through net earnings growth and share repurchases. The Company
intends to continue improving sales, gross margin (excluding fuel)
and adjusted EBITDA margin by focusing on priorities such as: a
continued focus on stores (investing in renovations, Discount
expansion, and Own Brands program enhancement), an expanded focus
on digital and data (through key strategic initiatives including
Voilà, Scene+, personalization, space productivity and
promotional optimization), and driving efficiency and cost
effectiveness through initiatives related to strategic sourcing and
supply chain.
For fiscal 2024, capital spend is expected to be approximately
$775 million, with approximately half
of this investment allocated to renovations and new store
expansion, and approximately $50
million allocated toward sustainability initiatives such as
refrigeration system upgrades, HVAC system upgrades and other
energy efficiency initiatives. The Company is planning to renovate
approximately 20% to 25% of the network over the next three
years.
During fiscal 2024, the Company intends to purchase
approximately $400 million in Class A
shares under an NCIB. The Company has declared a quarterly dividend
which reflects an increase in the annualized dividend rate of
10.6%, marking the 28th consecutive year of dividend
increases.
The Company continues to be well positioned to pursue growth
despite the impacts of global economic uncertainties. The industry
continues to experience heightened levels of inflationary
pressures, particularly related to cost of goods sold. Although it
is difficult to estimate how long these pressures will last, the
Company is focused on supplier relationships and negotiations to
ensure competitive pricing for customers whose shopping behaviours
become more price sensitive in a heightened inflationary
environment.
DIVIDEND DECLARATION
The Board of Directors declared a quarterly dividend of
$0.1825 per share on both the
Non-Voting Class A shares and the Class B common shares that will
be payable on October 31, 2023 to
shareholders of record on October 13,
2023. These dividends are eligible dividends as defined for
the purposes of the Income Tax Act (Canada) and applicable provincial
legislation.
FORWARD-LOOKING INFORMATION
This document contains forward-looking statements which are
presented for the purpose of assisting the reader to contextualize
the Company's financial position and understand management's
expectations regarding the Company's strategic priorities,
objectives and plans. These forward-looking statements may not be
appropriate for other purposes. Forward-looking statements are
identified by words or phrases such as "anticipates", "expects",
"believes", "estimates", "intends", "could", "may", "plans",
"predicts", "projects", "will", "would", "foresees" and other
similar expressions or the negative of these terms.
These forward-looking statements include, but are not limited
to, the following items:
- The Company's aim to increase total adjusted EPS through net
earnings, growth, and share repurchases, as well as its intention
to continue improving sales, gross margin (excluding fuel) and
adjusted EBITDA margin, all of which could be impacted by several
factors including a prolonged unfavourable macro-economic
environment and unforeseen business challenges, as well as the
factors identified in the "Risk Management" section of the fiscal
2023 MD&A;
- The Company's plan to invest capital in its store network
including store expansions and renovations and renovate
approximately 20% to 25% of the network over the next three years
which could be impacted by cost of materials, availability of
contractors, operating results, and other macro-economic
impacts;
- The Company's plans to further grow and enhance the Own Brands
portfolio, which may be impacted by future operating costs and
customer response;
- The Company's expectation that it will continue to focus on
driving efficiency and cost effectiveness initiatives which could
be impacted by supplier relationships, labour relations, and other
macro-economic impacts;
- The Company's plans to purchase for cancellation Class A shares
under the normal course issuer bid, which may be impacted by market
and macro-economic conditions, availability of sellers, changes in
laws and regulations, and the results of operations;
- Management's expectations regarding the impact of the
Cybersecurity Event, and the estimate of the impact on its
financial results in fiscal 2024. These statements and expectations
may be impacted by several factors including the nature, amount and
timing of the insurance outcome;
- The Company's expectation that it will continue its e-commerce
expansion with Voilà, which may be impacted by future operating and
capital costs, customer response and the performance of its
technology provider, Ocado;
- The Company's expectations regarding the amount and timing of
expenses relating to the completion of any future CFCs, which may
be impacted by supply of materials and equipment, construction
schedules and capacity of construction contractors; and
- The Company's expectation of the impacts of cost inflationary
pressures, which may be impacted by supplier relationships and
negotiations and the macro-economic environment.
By its nature, forward-looking information requires the Company
to make assumptions and is subject to inherent risks, uncertainties
and other factors which may cause actual results to differ
materially from forward-looking statements made. For more
information on risks, uncertainties and assumptions that may impact
the Company's forward-looking statements, please refer to the
Company's materials filed with the Canadian securities regulatory
authorities, including the "Risk Management" section of the
fiscal 2023 annual MD&A.
Although the Company believes the predictions, forecasts,
expectations or conclusions reflected in the forward-looking
information are reasonable, it can provide no assurance that such
matters will prove correct. Readers are urged to consider the
risks, uncertainties and assumptions carefully in evaluating the
forward-looking information and are cautioned not to place undue
reliance on such forward-looking information. The forward-looking
information in this document reflects the Company's current
expectations and is subject to change. The Company does not
undertake to update any forward-looking statements that may be made
by or on behalf of the Company other than as required by applicable
securities laws.
NON-GAAP FINANCIAL MEASURES & FINANCIAL METRICS
There are measures and metrics included in this News Release
that do not have a standardized meaning under generally accepted
accounting principles ("GAAP") and therefore may not be comparable
to similarly titled measures and metrics presented by other
publicly traded companies. Management believes that certain of
these measures and metrics, including gross profit and EBITDA, are
important indicators of the Company's ability to generate liquidity
through operating cash flow to fund future working capital
requirements, service outstanding debt and fund future capital
expenditures and uses these metrics for these purposes.
In addition, management adjusts measures and metrics, including
operating income, EBITDA and net earnings in an effort to provide
investors and analysts with a more comparable year-over-year
performance metric than the basic measure by excluding certain
items. These items may impact the analysis of trends in performance
and affect the comparability of the Company's core financial
results. By excluding these items, management is not implying they
are non-recurring.
The Company includes these measures and metrics because it
believes certain investors use these measures and metrics as a
means of assessing financial performance. Empire's definition of
the non-GAAP terms included in this News Release are as
follows:
- The Western Canada Fuel Sale adjustment includes the impact of
the gain on sale which is comprised of the purchase price less the
write off of tangible assets and goodwill, legal and professional
fees as well as lease termination impacts.
- The Cybersecurity Event adjustment includes the impact of
incremental direct costs such as inventory shrink, hardware and
software restoration costs, legal and professional fees, labour
costs and insurance recoveries. Management believes that the
Cybersecurity Event adjustment results in a useful economic
representation of the underlying business on a comparative basis.
The adjustment does not include management's estimate of the full
financial impact of the Cybersecurity Event, as it excludes the net
earnings impacts related to the estimated decline in sales and
operational effectiveness from impacts such as the temporary loss
of advanced planning, promotion and fresh item management tools,
the temporary closure of pharmacies, and customers' temporary
inability to redeem gift cards and loyalty points.
- The Restructuring adjustment includes costs incurred to plan
and implement strategies to optimize the organization and improve
efficiencies, including professional fees.
- Same-store sales are sales from stores in the same location in
both reporting periods.
- Same-store sales, excluding fuel are sales from stores in the
same location in both reporting periods excluding the fuel sales
from stores in the same location in both reporting periods.
- Gross profit is calculated as sales less cost of sales.
- Gross margin is gross profit divided by sales.
The following table reconciles net earnings to EBITDA on a
consolidated basis and for the Food retailing segment:
|
|
August 5,
2023
|
|
August 6,
2022
|
($ in
millions)
|
|
Food
retailing
|
|
Investment
and other
operations
|
|
Total
|
|
Food
retailing
|
|
Investment
and other
operations
|
|
Total
|
Net earnings
|
$
|
290.9
|
$
|
(10.1)
|
$
|
280.8
|
$
|
199.1
|
$
|
9.2
|
$
|
208.3
|
Income tax
expense
|
|
90.7
|
|
16.0
|
|
106.7
|
|
68.1
|
|
3.7
|
|
71.8
|
Finance costs,
net
|
|
67.5
|
|
1.5
|
|
69.0
|
|
63.7
|
|
0.3
|
|
64.0
|
Operating
income
|
|
449.1
|
|
7.4
|
|
456.5
|
|
330.9
|
|
13.2
|
|
344.1
|
Depreciation
|
|
235.6
|
|
0.2
|
|
235.8
|
|
224.8
|
|
0.1
|
|
224.9
|
Amortization of
intangibles
|
|
30.7
|
|
-
|
|
30.7
|
|
25.0
|
|
-
|
|
25.0
|
EBITDA
|
$
|
715.4
|
$
|
7.6
|
$
|
723.0
|
$
|
580.7
|
$
|
13.3
|
$
|
594.0
|
- Adjusted operating income is operating income excluding certain
items to assist in analyzing trends in performance. These items are
excluded to allow for useful period over period comparison of
ongoing operating results. Adjusted operating income is reconciled
to operating income in its respective subsection of the "Summary
Results – First Quarter" section.
- EBITDA is calculated as net earnings before finance costs (net
of finance income), income tax expense, depreciation and
amortization of intangibles.
- EBITDA margin is EBITDA divided by sales.
- Adjusted EBITDA is EBITDA excluding certain items to assist in
analyzing trends in performance. These items are excluded to allow
for useful period over period comparison of ongoing operating
results. Adjusted EBITDA is reconciled to EBITDA in its
respective subsection of the "Summary Results – First Quarter"
section.
- Adjusted EBITDA margin is adjusted EBITDA divided by
sales.
- Adjusted net earnings is net earnings, net of non-controlling
interest, excluding certain items to assist in analyzing trends in
performance. These items are excluded to allow for useful period
over period comparison of ongoing operating results. Adjusted net
earnings is reconciled in its respective subsection of the "Summary
Results – First Quarter" section.
- Adjusted EPS (fully diluted) is calculated as adjusted net
earnings divided by diluted weighted average number of shares
outstanding.
- Free cash flow is calculated as cash flows from operating
activities, plus proceeds on disposal of property, equipment and
investment property and lease terminations, less acquisitions of
property, equipment, investment property and intangibles, interest
paid and payments of lease liabilities, net of payments received
from finance subleases.
- Book value per common share is shareholders' equity, net of
non-controlling interest, divided by total common shares
outstanding.
The following table shows the calculation of Empire's book value
per common share as at August 5,
2023, May 6, 2023 and
August 6, 2022:
($ in millions, except
per share information)
|
August 5,
2023
|
May 6, 2023
|
August 6,
2022
|
Shareholders' equity,
net of non-controlling interest
|
$
|
5,306.4
|
$
|
5,200.4
|
$
|
5,049.0
|
Shares outstanding
(basic)
|
|
251.7
|
|
258.8
|
|
262.2
|
Book value per common
share
|
$
|
21.08
|
$
|
20.09
|
$
|
19.26
|
- Funded debt is all interest-bearing debt, which includes bank
loans, bankers' acceptances, long-term debt and long-term lease
liabilities.
- Total capital is calculated as funded debt plus shareholders'
equity, net of non-controlling interest.
The following table reconciles the Company's funded debt and
total capital to GAAP measures as reported on the balance sheets as
at August 5, 2023, May 6, 2023 and August 6,
2022, respectively:
($ in
millions)
|
|
August 5,
2023
|
|
May 6, 2023
|
|
August 6,
2022
|
Long-term debt due
within one year
|
$
|
76.2
|
$
|
101.0
|
$
|
283.0
|
Long-term
debt
|
|
881.8
|
|
911.3
|
|
583.5
|
Lease liabilities due
within one year
|
|
576.8
|
|
563.7
|
|
519.6
|
Long-term lease
liabilities
|
|
5,523.6
|
|
5,620.9
|
|
5,767.3
|
Funded debt
|
|
7,058.4
|
|
7,196.9
|
|
7,153.4
|
Total shareholders'
equity, net of non-controlling interest
|
|
5,306.4
|
|
5,200.4
|
|
5,049.0
|
Total
capital
|
$
|
12,364.8
|
$
|
12,397.3
|
$
|
12,202.4
|
- Funded debt to total capital ratio is funded debt divided by
total capital.
- Funded debt to adjusted EBITDA ratio is funded debt divided by
trailing four-quarter adjusted EBITDA.
- Adjusted EBITDA to interest expense ratio is trailing
four-quarter adjusted EBITDA divided by trailing four-quarter
interest expense.
- Management calculates interest expense as interest expense on
financial liabilities measured at amortized cost and interest
expense on lease liabilities.
The following table reconciles finance costs, net to interest
expense:
|
|
|
13 Weeks
Ended
|
($ in
millions)
|
|
August 5,
2023
|
|
August 6,
2022
|
Finance costs,
net
|
$
|
69.0
|
$
|
64.0
|
Plus:
|
finance income,
excluding interest income on lease receivables
|
|
1.2
|
|
1.3
|
Less:
|
pension finance costs,
net
|
|
(1.9)
|
|
(1.7)
|
Less:
|
accretion expense on
provisions
|
|
(0.2)
|
|
(0.4)
|
Interest
expense
|
$
|
68.1
|
$
|
63.2
|
CONFERENCE CALL INFORMATION
The Company will hold an analyst call on Thursday, September 14, 2023 beginning at
1:00 p.m. (Eastern Time) during which
senior management will discuss the Company's financial results for
the first quarter of fiscal 2024. To instantly join the conference
call by phone, please use the following URL to easily register
yourself and be connected into the conference call automatically:
https://emportal.ink/3Qtp57v. You can also be entered to the
call by an Operator by dialing (888) 390-0546 outside the
Toronto area or (416) 764-8688
from within the Toronto area.
To secure a line, please call 10 minutes prior to the conference
call; you will be placed on hold until the conference call begins.
The media and investing public may access this conference call via
a listen mode only. You may also listen to a live audiocast of the
conference call by visiting the "Quick Links" section of the
Company's website located at www.empireco.ca, and then navigating
to the "Empire Company Limited Quarterly Results Call" link.
The replay will be available by dialing (888) 390-0541 and
entering access code 717682 until midnight September 28, 2023, or on the Company's website
for 90 days following the conference call.
ABOUT EMPIRE
Empire Company Limited (TSX: EMP.A) is a Canadian company
headquartered in Stellarton, Nova
Scotia. Empire's key businesses are food retailing, through
wholly-owned subsidiary Sobeys Inc., and related real estate. With
approximately $31.5 billion in annual
sales and $16.5 billion in assets,
Empire and its subsidiaries, franchisees and affiliates employ
approximately 131,000 people.
Additional financial information relating to Empire, including
the Company's Annual Information Form, can be found on the
Company's website at www.empireco.ca or on the SEDAR+ website
for Canadian regulatory filings at www.sedarplus.ca.
SOURCE Empire Company Limited