Third Quarter Summary:
- Earnings per share of $0.77, an
increase of 16.7% compared to $0.66
last year
- Same-store sales excluding fuel decreased by 1.7% compared to
elevated sales last year
- Same-store sales grew 8.3% over fiscal 2020
- Gross margin, excluding fuel, increased by 41 basis points
- EBITDA margin increased by 50 basis points
- Project Horizon strategy on track
- Free cash flow of $551 million,
an increase of 75% compared to last year
STELLARTON, NS, March 10, 2022 /CNW/ - Empire Company Limited
("Empire" or the "Company") (TSX: EMP.A) today announced its
financial results for the third quarter ended January 29, 2022. For the quarter, the Company
recorded net earnings of $203.4
million ($0.77 per share)
compared to $176.3 million
($0.66 per share) last year.
"Our team delivered another outstanding quarter, including the
highest EPS in memory, with strong increases in sales, EBITDA
margin and free cash flow," said Michael Medline, President &
CEO, Empire. "When you look at these results against the backdrop
of the extremely volatile economic and retail environment, the
strength of our team shines through. We are on track to deliver our
Project Horizon targets next year, but the benefits don't stop
there. Material Project Horizon value will continue to be earned in
fiscal 2024 and beyond."
PROJECT HORIZON
In the first quarter of fiscal 2021, the Company launched
Project Horizon, a three-year strategy focused on core business
expansion and the acceleration of e-commerce. The Company remains
on track to achieve an incremental $500
million in annualized EBITDA and an improvement in EBITDA
margin of 100 basis points by fiscal 2023 by growing market share
and building on cost and margin discipline. The Company is on
track to generate a compound average growth rate in earnings per
share of 15% over Project Horizon's three-year timeframe.
In the third quarter of fiscal 2022, earnings continued to be
positively impacted by strategic initiatives, including the
continued expansion and renovation of the store network, strategic
sourcing efficiencies, promotional optimization and data analytics.
Management expects these initiatives will continue to drive the
majority of the benefits through the remainder of fiscal 2022.
While Project Horizon is on track to achieve its targets by the
end of fiscal 2023, the benefits will not stop then. Certain
initiatives launching in fiscal 2023 that are largely focused on
store optimization and customer experience will primarily benefit
fiscal 2024 and beyond. These benefits will be incremental to those
realized from the ongoing program of store renovations, conversions
and new builds.
CONSOLIDATED OPERATING RESULTS
|
|
|
|
|
|
|
|
|
($ in millions,
except per
|
|
13 Weeks
Ended
|
|
$
|
|
39 Weeks
Ended
|
|
$
|
share
amounts)
|
|
Jan. 29,
2022
|
|
Jan. 30,
2021
|
|
Change
|
|
Jan. 29,
2022
|
|
Jan. 30,
2021
|
|
Change
|
Sales
|
$
|
7,377.3
|
$
|
7,018.7
|
$
|
358.6
|
$
|
22,321.6
|
$
|
21,348.3
|
$
|
973.3
|
Gross
profit(1)
|
|
1,892.7
|
|
1,803.9
|
|
88.8
|
|
5,655.7
|
|
5,403.6
|
|
252.1
|
Operating
income
|
|
354.8
|
|
320.4
|
|
34.4
|
|
1,030.1
|
|
1,004.5
|
|
25.6
|
EBITDA(1)
|
|
597.5
|
|
533.5
|
|
64.0
|
|
1,744.6
|
|
1,629.4
|
|
115.2
|
Net
earnings(2)
|
|
203.4
|
|
176.3
|
|
27.1
|
|
567.3
|
|
529.6
|
|
37.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS(2)(3)
|
$
|
0.77
|
$
|
0.66
|
$
|
0.11
|
$
|
2.13
|
$
|
1.96
|
$
|
0.17
|
Diluted weighted
average number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of shares outstanding
(in millions)
|
|
264.9
|
|
269.1
|
|
|
|
266.6
|
|
269.7
|
|
|
Dividend per
share
|
$
|
0.15
|
$
|
0.13
|
|
|
$
|
0.45
|
$
|
0.39
|
|
|
|
|
|
|
13 Weeks
Ended
|
39 Weeks
Ended
|
|
Jan. 29,
2022
|
Jan. 30,
2021
|
Jan. 29,
2022
|
Jan. 30,
2021
|
Gross
margin(1)
|
25.7%
|
25.7%
|
25.3%
|
25.3%
|
EBITDA
margin(1)
|
8.1%
|
7.6%
|
7.8%
|
7.6%
|
Same-store
sales(1) growth
|
0.2%
|
8.9%
|
0.0%
|
8.2%
|
Same-store sales
(decline) growth, excluding fuel
|
(1.7)%
|
10.7%
|
(1.8)%
|
10.1%
|
Effective income tax
rate
|
26.0%
|
26.4%
|
25.6%
|
27.6%
|
|
|
(1)
|
See "Non-GAAP
Financial Measures & Financial Metrics" section of this News
Release.
|
(2)
|
Attributable to
owners of the Company.
|
(3)
|
Earnings per share
("EPS").
|
Outlook
The Company and the industry continue to be affected by the
novel coronavirus ("COVID-19" or "pandemic"). During the third
quarter, certain COVID-19 restrictions by government agencies were
reinstated due to the highly contagious and vaccine resistant
Omicron variant. Given the unpredictability of COVID-19 and related
variants, the Company does not expect grocery consumer behaviour to
fully return to pre-pandemic levels for the foreseeable future.
During the third quarter, the cost of maintaining safety and
sanitization measures was approximately $5.0
million (2021 – $19 million).
For the remainder of fiscal 2022, it is expected the Company will
continue to incur selling and administrative expenses related to
maintaining safety and sanitization measures, and other COVID-19
related costs, consistent with the third quarter.
The Company continues to monitor the impact of new COVID-19
variants and invest in safety and sanitization procedures to ensure
customers and employees are protected while shopping and working in
stores. The Company expects that same-store sales will continue to
be negative for the remainder of fiscal 2022 as industry volumes
decrease compared to the unusually high COVID-19 driven sales
levels in fiscal 2021. Margins will continue to benefit from
Project Horizon initiatives, other operating improvements and the
addition of Longo's. These benefits could be partially offset by
the effect of sales mix changes between banners and the impact of
increasing fuel sales.
The industry is experiencing supply chain challenges primarily
related to labour shortages caused by COVID-19. Although it is
difficult to estimate the duration of these challenges, management
remains focused on, where necessary, utilizing alternative sourcing
options and does not expect significant adverse impacts to its
supply chain.
The industry is experiencing cost 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 consumers.
The Company expects continued improvements in the results of
Voilà's Toronto based e-commerce
site as volumes increase and efficiencies improve. At the same
time, Voilà will also incur additional costs as the Montreal facility begins operations and the
Calgary and Vancouver facilities are commissioned. The
combination of improving results in Toronto, increasing costs in Montreal, Calgary and Vancouver, and additional store pick
e-commerce locations is expected to reduce Empire's fiscal 2022 net
earnings by approximately $0.25 to
$0.30 per share (fiscal 2021 –
$0.18). Future earnings will be
impacted primarily by the rate of sales growth. The Company expects
that fiscal 2022 will represent the highest net earnings dilution
for the Voilà program as the Toronto site is expected to begin to reflect
positive EBITDA towards the end of its third year of
operations.
Management continues to expect the Company will achieve its
three-year Project Horizon strategy targets. The Company expects
that due to significant positive impacts on sales related to
COVID-19 in fiscal 2021, same-store sales growth rates in fiscal
2022 are expected to be negative. Management believes that net
earnings for fiscal 2022 will be higher than the prior year.
Sales
Sales for the quarter ended January 29,
2022 increased by 5.1% primarily as a result of the
acquisition of Longo's, higher fuel sales, increased food inflation
and benefits from Project Horizon initiatives, including the
expansion of FreshCo in Western
Canada and Farm Boy in Ontario. The increase is partially offset by
changes in consumer buying behaviours related to varying COVID-19
measures.
Gross Profit
Gross profit for the quarter ended January 29, 2022 increased by 4.9% primarily as a
result of the inclusion of Longo's and benefits from Project
Horizon initiatives, including the expansion of Farm Boy and Voilà
in Ontario and FreshCo in
Western Canada. The increase is
partially offset by reduced sales volume as a result of changes in
consumer buying behaviour impacted by varying COVID-19 restrictions
year over year.
Gross margin for the quarter of 25.7% remained consistent with
the prior year. Gross margin was positively impacted by the
inclusion of Longo's and benefits from Project Horizon initiatives,
partially offset by the effect of higher fuel sales and sales mix
changes between non-fuel banners. Excluding the effect of fuel mix,
gross margin was 41 basis points higher than prior year.
Operating Income
Operating income from the Investments and other operations
segment for the quarter ended January 29,
2022 increased primarily as a result of improved equity
earnings from Crombie Real Estate Investment Trust ("Crombie
REIT"), as discussed in the "Investments and Other Operations"
section.
For the quarter ended January 29,
2022, operating income from the Food retailing segment
increased mainly due to improved earnings as a result of higher
sales and gross profit, partially offset by higher selling and
administrative expenses. Selling and administrative expenses
increased primarily as a result of the inclusion of Longo's,
investment in Project Horizon initiatives, including the expansion
of Farm Boy in Ontario, FreshCo in
Western Canada and
Voilà nationally, and increased right-of-use asset
depreciation. The increase was partially offset by lower COVID-19
costs.
EBITDA
For the quarter ended January 29,
2022, EBITDA increased to $597.5
million from $533.5 million in
the prior year mainly as a result of the same factors affecting
operating income. EBITDA margin increased versus prior year to 8.1%
from 7.6%.
Income Taxes
The effective income tax rate for the quarter ended
January 29, 2022 was 26.0% compared
to 26.4% in the same quarter last year. The effective tax rate for
the quarter was lower than the statutory rate primarily due to
consolidated structured entities and capital gains, both of which
are taxed at lower rates, partially offset by adjustments for book
and tax differences. The prior year effective tax rate was in
line with the statutory rate.
Net Earnings
|
|
|
|
13 Weeks
Ended
|
39 Weeks
Ended
|
($ in millions,
except per share amounts)
|
|
Jan. 29,
2022
|
|
Jan. 30,
2021
|
|
Jan. 29,
2022
|
|
Jan. 30,
2021
|
Net
earnings(1)
|
$
|
203.4
|
$
|
176.3
|
$
|
567.3
|
$
|
529.6
|
EPS (fully
diluted)
|
$
|
0.77
|
$
|
0.66
|
$
|
2.13
|
$
|
1.96
|
Diluted weighted
average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
shares outstanding
(in millions)
|
|
264.9
|
|
269.1
|
|
266.6
|
|
269.7
|
|
|
(1)
|
Attributable to
owners of the Company.
|
Capital Expenditures
The Company invested $159.5
million in capital expenditures(1) for the
quarter ended January 29, 2022 (2021
– $207.1 million) including
renovations and construction of new stores, investments in
e-commerce fulfilment centres, FreshCo locations in Western Canada, and investments in advanced
analytics technology and other technology systems.
(1)
|
Capital
expenditures are calculated on an accrual basis and includes
acquisitions of property, equipment and investment properties, and
additions to intangibles.
|
Free Cash Flow
|
|
|
|
|
|
13 Weeks
Ended
|
39 Weeks
Ended
|
($ in
millions)
|
|
Jan. 29,
2022
|
|
Jan. 30,
2021
|
|
Jan. 29,
2022
|
|
Jan. 30,
2021
|
Cash flows from
operating activities
|
$
|
753.9
|
$
|
579.1
|
$
|
1,637.6
|
$
|
1,297.3
|
Add:
|
proceeds on disposal
of assets(1) and lease
|
|
|
|
|
|
|
|
|
|
|
|
|
terminations
|
|
135.3
|
|
24.0
|
|
150.1
|
|
64.0
|
Less:
|
payments of lease
liabilities, net of payments
|
|
|
|
|
|
|
|
|
|
|
|
|
received for finance
subleases
|
|
(156.9)
|
|
(143.7)
|
|
(416.8)
|
|
(376.8)
|
Less:
|
acquisitions of
property, equipment, investment
|
|
|
|
|
|
|
|
|
|
|
|
|
property and
intangibles
|
|
(180.8)
|
|
(143.7)
|
|
(574.4)
|
|
(448.5)
|
Free cash
flow(2)
|
$
|
551.5
|
$
|
315.7
|
$
|
796.5
|
$
|
536.0
|
|
|
(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 increased versus prior year
primarily as a result of higher operating activities driven by
favourable working capital changes, income tax recoveries, higher
net earnings, and an increase in proceeds on disposal of assets and
lease terminations. The increase is partially offset by higher
capital investments.
FINANCIAL PERFORMANCE BY SEGMENT
Food Retailing
|
|
|
|
|
|
|
|
13 Weeks
Ended
|
|
$
|
39 Weeks
Ended
|
|
$
|
($ in
millions)
|
|
Jan. 29,
2022
|
|
Jan. 30,
2021
|
|
Change
|
|
Jan. 29,
2022
|
|
Jan. 30,
2021
|
|
Change
|
Sales
|
$
|
7,377.3
|
$
|
7,018.7
|
$
|
358.6
|
$
|
22,321.6
|
$
|
21,348.3
|
$
|
973.3
|
Gross
profit
|
|
1,892.7
|
|
1,803.9
|
|
88.8
|
|
5,655.7
|
|
5,403.6
|
|
252.1
|
Operating
income
|
|
313.1
|
|
300.4
|
|
12.7
|
|
955.8
|
|
971.5
|
|
(15.7)
|
EBITDA
|
|
555.7
|
|
512.8
|
|
42.9
|
|
1,669.9
|
|
1,595.6
|
|
74.3
|
Net
earnings(1)
|
|
173.7
|
|
163.5
|
|
10.2
|
|
512.7
|
|
515.6
|
|
(2.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Attributable to
owners of the Company.
|
Investments and Other Operations
|
|
|
|
|
|
|
|
13 Weeks
Ended
|
|
$
|
39 Weeks
Ended
|
|
$
|
($ in
millions)
|
|
Jan. 29,
2022
|
|
Jan. 30,
2021
|
|
Change
|
|
Jan. 29,
2022
|
|
Jan. 30,
2021
|
|
Change
|
Crombie
REIT
|
$
|
32.7
|
$
|
9.1
|
$
|
23.6
|
$
|
50.3
|
$
|
20.9
|
$
|
29.4
|
Genstar
|
|
10.7
|
|
11.7
|
|
(1.0)
|
|
29.1
|
|
16.9
|
|
12.2
|
Other operations, net
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
corporate
expenses
|
|
(1.7)
|
|
(0.8)
|
|
(0.9)
|
|
(5.1)
|
|
(4.8)
|
|
(0.3)
|
|
$
|
41.7
|
$
|
20.0
|
$
|
21.7
|
$
|
74.3
|
$
|
33.0
|
$
|
41.3
|
For the quarter ended January 29,
2022, income from Investments and other operations increased
primarily due to higher equity earnings in the quarter from Crombie
REIT. This includes the Company's portion of Crombie REIT's gain on
the sale of properties of $17.7
million (2021 – $1.7 million)
and gain from investments of $6.4
million (2021 – $ nil).
CONSOLIDATED FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
($ in millions,
except per share and ratio calculations)
|
|
Jan. 29,
2022
|
|
|
May 1,
2021
|
|
|
Jan. 30,
2021
|
Shareholders' equity,
net of non-controlling interest
|
$
|
4,789.9
|
|
$
|
4,372.7
|
|
$
|
4,280.7
|
Book value per common
share(1)
|
$
|
18.14
|
|
$
|
16.30
|
|
$
|
15.97
|
Long-term debt,
including current portion
|
$
|
1,144.1
|
|
$
|
1,225.3
|
|
$
|
1,171.3
|
Long-term lease
liabilities, including current portion
|
$
|
6,349.5
|
|
$
|
5,908.1
|
|
$
|
5,889.0
|
Net funded debt to
net total capital(1)
|
|
58.0%
|
|
|
58.8%
|
|
|
59.5%
|
Funded debt to
EBITDA(1)(2)
|
|
3.3x
|
|
|
3.3x
|
|
|
3.3x
|
EBITDA to interest
expense(1)(3)
|
|
8.6x
|
|
|
8.0x
|
|
|
7.9x
|
Trailing four-quarter
EBITDA
|
$
|
2,259.0
|
|
$
|
2,143.8
|
|
$
|
2,157.2
|
Trailing four-quarter
interest expense
|
$
|
263.3
|
|
$
|
268.8
|
|
$
|
273.2
|
Current assets to
current liabilities
|
|
0.9x
|
|
|
0.9x
|
|
|
0.9x
|
Total
assets
|
$
|
16,433.8
|
|
$
|
15,173.9
|
|
$
|
14,962.4
|
Total non-current
financial liabilities
|
$
|
7,831.1
|
|
$
|
7,187.7
|
|
$
|
7,169.9
|
|
|
(1)
|
See "Non-GAAP
Financial Measures & Financial Metrics" section of this News
Release.
|
(2)
|
Calculation uses
trailing four-quarter EBITDA.
|
(3)
|
Calculation uses
trailing four-quarter EBITDA and interest expense.
|
Subsequent to the quarter ended January
29, 2022, on February 10,
2022, Dominion Bond Rating Service ("DBRS") confirmed Sobeys
Inc's ("Sobeys") credit rating at BBB (low) and changed the trend
from stable to positive. Standard & Poor's ("S&P") remained
unchanged from the prior quarter. The following table shows Sobeys'
credit ratings as at March 9,
2022:
|
|
|
|
Rating
Agency
|
Credit Rating
(Issuer rating)
|
Trend/Outlook
|
|
DBRS
|
BBB (low)
|
Positive
|
|
S&P
|
BBB-
|
Stable
|
|
Dividend Declaration
The Board of Directors declared a quarterly dividend of
$0.15 per share on both the
Non-Voting Class A shares ("Class A Shares") and the Class B common
shares that will be payable on April 29,
2022 to shareholders of record on April 14, 2022. These dividends are eligible
dividends as defined for the purposes of the Income Tax Act
(Canada) and applicable provincial
legislation.
NORMAL COURSE ISSUER BID ("NCIB")
On June 18, 2020, the Company
filed a notice of intent with the Toronto Stock Exchange ("TSX") to
purchase for cancellation up to 5,000,000 Class A shares
representing approximately 3.0% of Class A shares outstanding. The
NCIB was amended on April 19, 2021 to
purchase up to 8,548,551 Class A shares representing
approximately 5.0% of the Class A shares outstanding and expired on
July 1, 2021. As of July 1, 2021, under this filing, the Company
purchased 6,063,806 Class A shares at a weighted average price of
$38.00 for a total consideration of
$230.4 million.
On June 22, 2021, the Company
renewed its NCIB by filing a notice of intention with the TSX to
purchase for cancellation up to 8,468,408 Class A shares
representing 5.0% of the 169,368,174 Class A shares outstanding as
of June 18, 2021. The purchases will
be made through the facilities of the TSX and/or any alternative
trading systems to the extent they are eligible. The price that
Empire will pay for any such shares will be the market price at the
time of acquisition. The Company believes that repurchasing shares
at the prevailing market prices from time to time is a worthwhile
use of funds and is in the best interests of Empire and its
shareholders. The NCIB expires on July 1,
2022.
Shares purchased under the Company's NCIB for the quarter and
year-to-date ended January 29, 2022
are shown in the table below:
|
|
|
|
|
|
13 Weeks
Ended
|
39 Weeks
Ended
|
($ in millions,
except per share amounts)
|
Jan. 29,
2022
|
|
Jan. 30,
2021
|
Jan. 29,
2022
|
Jan. 30,
2021
|
Number of
shares
|
|
2,115,534
|
|
1,989,317
|
|
5,965,883
|
|
2,044,817
|
Weighted average
price per share
|
$
|
37.91
|
$
|
35.64
|
$
|
38.98
|
$
|
35.69
|
Cash consideration
paid
|
$
|
80.1
|
$
|
70.9
|
$
|
232.4
|
$
|
73.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including purchases made subsequent to the end of the quarter,
as at March 8, 2022, the Company has
purchased 6,378,983 Class A shares (March 8,
2021 – 2,777,760) at a weighted average price of
$39.00 (March
8, 2021 – $36.00) for a total
consideration of $248.8 million
(March 8, 2021 – $100.0 million).
COMPANY STRATEGY
In the first quarter of fiscal 2021, the Company launched
Project Horizon, a three-year strategy focused on core business
expansion and the acceleration of e-commerce. The Company remains
on track to achieve an incremental $500
million in annualized EBITDA and an improvement in EBITDA
margin of 100 basis points by fiscal 2023 by growing market share
and building on cost and margin discipline. The Company is on
track to generate a compound average growth rate in earnings per
share of 15% over Project Horizon's three-year timeframe.
For additional detail on Project Horizon, please refer to
Empire's Management's Discussion and Analysis ("MD&A") for the
third quarter ended January 29,
2022.
BUSINESS UPDATES
Farm Boy
The acquisition of Farm Boy on December
10, 2018 added 26 locations to the Company's Ontario store network with plans to double the
store count in five years from the acquisition date, mainly in the
Greater Toronto Area ("GTA"). The
Company opened two locations during the third quarter of fiscal
2022 (one new and one converted site) and opened one new location
subsequent to the end of the quarter. Farm Boy is on track to
expand its footprint by seven net new stores in fiscal 2022. As at
March 9, 2022, Farm Boy has 43 stores
open.
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.
The Company opened seven FreshCo locations in Alberta during the third quarter of fiscal
2022 and one location subsequent to the end of the quarter. The
Company expects to open another two locations in the remainder of
fiscal 2022, for a total of 40 locations open in Western Canada by the end of the fiscal year.
This is in line with management's expectations of opening 10 to 15
FreshCo stores in Western Canada
during fiscal 2022.
As at March 9, 2022:
- 38 stores are currently open and operating in the following
provinces:
-
- 16 in British Columbia
("B.C.")
- 10 in Alberta
- 6 in Manitoba
- 5 in Saskatchewan
- 1 in Northern Ontario
- 2 stores are expected to open in Alberta in the remainder of fiscal 2022
- 2 stores have been announced and are expected to open in
Alberta in fiscal 2023
Store Closure and Conversion Costs
During the third quarter ended January
29, 2022, the Company expensed $5.6
million (2021 – $16.4 million)
in store closure and conversion costs related to Farm Boy and
FreshCo conversions.
During the third quarter ended January
29, 2022, the Company engaged in lease termination
transactions which resulted in $11.1
million of other income (2021 – $ nil).
Voilà
On June 22, 2020, the Company
introduced the future of online grocery home delivery to GTA
customers through the Company's newest e-commerce platform, Voilà.
Voilà is powered by Ocado Group plc's ("Ocado") industry-leading
technology and fills orders through its automated Customer
Fulfilment Centres ("CFC"). Robots assemble orders efficiently and
safely, resulting in minimal product handling, while Voilà
teammates deliver orders directly to customers' homes. In
February 2022, Ocado announced a
range of innovations, including next generation robots and grids,
which offer efficiencies and a lighter environmental and carbon
footprint. These innovations will be available for the Company to
consider in future CFC automation and efficiency opportunities.
The Company intends to operate four CFCs across Canada. The Vaughan CFC services the GTA,
Barrie, Kitchener, Waterloo, Guelph, Hamilton, Niagara, St. Catharines and Brantford, and will expand to Ottawa in the fourth quarter of fiscal 2022.
The platform is exceeding all internal operational metrics, with
strong on-time delivery, fulfilment, and customer satisfaction and
retention results. On March 7, 2022,
the Company completed its employee testing stage for its second CFC
in Montreal and began a phased
transition of customers starting with smaller communities in
Quebec to Voilà par IGA from
IGA.net. The third CFC will be located in Calgary and will service the majority of
Alberta. It is expected that
deliveries from the CFC will start in the first quarter of fiscal
2024. On February 7, 2022, the
Company announced that the fourth CFC will be located in the
Greater Vancouver Area and will
service customers in B.C. starting in 2025.
In March 2021, the Company opened
its first spoke location in Etobicoke,
Ontario. Spokes are cross dock facilities that improve
efficiencies at CFCs. With four CFCs and their supporting spokes,
the Company will be able to serve approximately 75% of Canadian
households representing approximately 90% of Canadians' projected
e-commerce spend.
In fiscal 2021, the Company launched Voilà Curbside Pickup
service at 30 store locations across Atlantic Canada and Alberta, and the service has since expanded to
B.C., Manitoba, Saskatchewan and Ontario. In the third quarter of fiscal 2022,
the Company added 22 locations and expects to add up to 13 further
locations in the remainder of fiscal 2022. The store pick
solution is powered by Ocado's technology and will serve customers
in areas where future CFCs will not, or are not yet, operating.
Voilà had a $0.07 and $0.20 dilutive impact on Empire's earnings per
share in the third quarter and year-to-date, respectively (2021 –
$0.04 and $0.14).
In Canada, online grocery sales
have continued to grow compared to the prior year, although at a
slower pace than when COVID-19 began. In the third quarter of
fiscal 2022, the Company's four e-commerce platforms experienced
combined sales growth of 17% versus prior year. The increase was
primarily driven by the acquisition of Grocery Gateway and
continued growth of Voilà, partially offset by declines in IGA.net
and Thrifty's due to increased volume levels in the prior year
during COVID-19 related lockdowns.
Other Business Update
Subsequent to the end of the quarter, teammates at a
distribution centre in Quebec went
on strike after negotiations between the union and the Company were
unsuccessful in arriving at a new collective bargaining agreement.
There are strong contingency plans in place to ensure Quebec stores have continuity of supply for
customers. The Company is working towards a solution that is market
competitive.
SUBSEQUENT EVENT
Subsequent to the quarter ended January
29, 2022, on January 31, 2022,
Crombie REIT announced it had closed a bought-deal public offering
of units at a price of $17.45 per
unit for aggregate proceeds of $200.0
million. Concurrent with the public offering, a wholly-owned
subsidiary of the Company purchased, on a private placement basis,
$83.0 million of Class B LP units to
maintain a 41.5% ownership interest in Crombie REIT.
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 expectations regarding the financial impact and
benefits of Project Horizon and its underlying initiatives, which
could be impacted by several factors, including the time required
by the Company to complete the initiatives and impacts of COVID-19,
including changes in customer behaviour;
- The Company's expectations of the duration and further impact
of COVID-19 on the business, supply chain, and consumer behaviour,
including that for the remainder of fiscal 2022 it will incur
selling and administrative expenses to respond to COVID-19
consistent with the third quarter, which may be impacted by the
emergence of additional COVID-19 variants, future shutdowns or
eased public health restrictions due to COVID-19 and safety
precautions and transitions required;
- The Company's expectation that labour shortages will not have
further significant impact on supply chain challenges in the fourth
quarter, which may be impacted by the duration of the
circumstances;
- The Company's expectation of the impacts of cost inflationary
pressures, which may be impacted by supplier relationships and
negotiations and the general economic environment;
- The Company's expectations that fiscal 2023 will achieve growth
of same-store sales, which may be impacted by the effects of
COVID-19, including changes in consumer buying behaviour;
- The Company's expectations that fiscal 2022 net earnings will
be higher than prior year, which may be impacted by the effects of
COVID-19, including changes in consumer buying behaviour;
- The Company's expectations regarding the timing and amount 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;
- The Company's expectations regarding the plans to expand its
Voilà Curbside Pickup service, which may be impacted by COVID-19,
future operating and capital costs, customer response to the
service and the performance of its technology provider, Ocado;
- The Company's expectations that fiscal 2022 will reflect the
highest net earnings dilution for the Voilà program, expectations
which may be impacted by COVID-19, future operating and capital
costs, customer response and the performance of its technology
provider, Ocado; and
- The FreshCo expansion in Western
Canada and Farm Boy expansion in Ontario, including the Company's expectations
regarding future operating results and profitability, the amount
and timing of expenses, the projected number of store openings, and
the location, feasibility and timing of construction, all of which
may be impacted by COVID-19, construction schedules and permits,
the economic environment and labour relations.
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
2021 annual MD&A. For additional disclosure on the geopolitical
risk related to the situation in Ukraine, please refer to the "Risk Management"
section of Empire's MD&A for the quarter ended January 29, 2022.
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. 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 are as follows:
- Same-store sales are 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.
- Earnings before interest, taxes, depreciation and amortization
("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.
- Free cash flow is calculated as cash flows from operating
activities, plus proceeds on disposal of property, equipment and
investment property, less acquisitions of property, equipment,
investment property and intangibles.
- Book value per common share is shareholders' equity, net of
non-controlling interest, divided by total common shares
outstanding.
- Funded debt is all interest-bearing debt, which includes bank
loans, bankers' acceptances, long-term debt and long-term lease
liabilities.
- Net funded debt is calculated as funded debt less cash and cash
equivalents.
- Net total capital is calculated as funded debt plus
shareholders' equity, net of non-controlling interest, less cash
and cash equivalents.
- Net funded debt to net total capital ratio is net funded debt
divided by net total capital.
- Funded debt to EBITDA ratio is funded debt divided by trailing
four-quarter EBITDA.
- Interest expense is calculated as interest expense on financial
liabilities measured at amortized cost and interest expense on
lease liabilities.
- EBITDA to interest expense ratio is trailing four-quarter
EBITDA divided by trailing four-quarter interest expense.
For a more complete description of Empire's non-GAAP measures
and metrics, please see Empire's MD&A for the third quarter
ended January 29, 2022.
CONFERENCE CALL INFORMATION
The Company will hold an analyst call on Thursday, March 10, 2022 beginning at
2:00 p.m. (Eastern Standard Time)
during which senior management will discuss the Company's financial
results for the third quarter of fiscal 2022. To join this
conference call, dial (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.
Replay will be available by dialing (888) 390-0541 and entering
access code 407333 until midnight March
24, 2022, 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 $29.2 billion in annual
sales and $16.4 billion in assets,
Empire and its subsidiaries, franchisees and affiliates employ
approximately 134,000 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 SEDAR at
www.sedar.com.
SOURCE Empire Company Limited