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Industry NewsEasing COVID restrictions, “normalization” impact Empire Company fiscal 2022 Q1 results

Easing COVID restrictions, “normalization” impact Empire Company fiscal 2022 Q1 results


For fiscal 2022 first quarter, Empire Company saw a slight decline in same-store sales when compared to last year’s extraordinary pandemic-induced results as COVID-19 restrictions continue to ease and people begin to consume more food outside of the home.

Same-store sales excluding fuel decreased by 2.2 per cent when compared to elevated sales of last year. Net earnings were $188.5 million compared to $191.9 million last year.

“We continue to perform strongly and consistently, especially considering we are comparing our results to extraordinary COVID-driven results from last year,” said Michael Medline, president and CEO, Empire. “Sales, market share and margins are robust. I have great confidence in the underlying strength of our business and our team. We are in an enviable position with our execution and Horizon initiatives.” 

In the first quarter of fiscal 2021, Empire launched Project Horizon, a three-year growth plan focused on core business expansion and the acceleration of e-commerce. Medline says Empire is on track to achieve a targeted 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.

In the first quarter of fiscal 2022, earnings continued to be positively impacted by strategic initiatives, including the continued expansion and renovation of the store network, promotional optimization, data analytics and strategic sourcing efficiencies. Benefits were partially offset by the continued investment in the company’s e-commerce network. Management expects these factors will continue to drive the majority of benefits through the remainder of fiscal 2022.

Recently Empire announced the next two locations for the expansion of its FreshCo discount banner in Western Canada. There will be a new site in Cornerstone, Calgary, and the second location is Medicine Hat Mall in Calgary which will be converting from a Safeway store. The Safeway store will close for renovation in the third quarter of fiscal 2022. Both stores are expected to open in the first half of fiscal 2023.

With this announcement, Empire has now confirmed 42 FreshCo locations in Western Canada with 29 open and operating.

Empire also recently announced the next location for its expanding Farm Boy banner in Toronto, Ontario. Empire now operates 45 Farm Boy locations in Ontario. The new Farm Boy store is converting from a Sobeys Urban Fresh location at Yonge and St. Clair and will open in fiscal 2023.

E-commerce investments

Empire says it’s expecting improvements in results from its Toronto based e-commerce site “as volumes continue to increase and costs reduce to improved operational efficiencies.” However, Empire says the company will see increased costs from Voilà as its Montreal and Calgary facilities begin operations and store pick e-commerce gets implemented in up to 85 additional stores throughout fiscal 2022.

“In total, the combination of improving results in Toronto, increasing costs in Montreal and Calgary 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 by the rate of sales growth and is difficult to predict.”


Fiscal 2022 will continue to be affected by the pandemic, with some normalization of business throughout the year as vaccination rates increase and COVID-19 restrictions are relaxed. Management has observed increased levels of food consumption outside of the home and related reductions in grocery industry volumes and expects to see these trends to continue. As restrictions ease, consumers are expected to shop more frequently and at more grocery stores. Grocery formats that experienced lower relative growth during the pandemic lockdowns, such as discount, should experience higher relative sales.

Empire says it doesn’t expect grocery consumer behaviour to return fully to pre-pandemic levels for the foreseeable future. As economic activity increases and travel restrictions reduce, fuel volumes have increased and will likely continue to do so during the remainder of fiscal 2022.

Empire says its priorities remain the health and safety of employees, customers and communities while maintaining a resilient supply chain to meet the needs of Canadians and supporting charitable organizations. It continues to invest in increased safety and sanitization products and procedures to ensure customers and employees are protected while shopping and working in stores.

During the first quarter, the cost of maintaining safety and sanitization measures was approximately $18 million (first quarter of fiscal 2021 – $67 million). In the second quarter of fiscal 2022, Empire estimates it will incur approximately $10 million (second quarter of fiscal 2021 – $14 million) in selling and administrative expenses related to the increased cost of maintaining safety and sanitization measures, and other COVID-19 related costs.

Same-store sales will continue to reduce in the remainder of fiscal 2022 as industry volumes decrease compared to the unusually high COVID-19 driven sales impacts in fiscal 2021. Margins will continue to benefit from Project Horizon initiatives, other operating improvements, and the addition of Longo’s. These benefits will be partially offset by effects of sales mix changes between banners and the impact on sales mix of increasing fuel sales.

When announcing the Project Horizon strategy, management estimated an increase of $500 million in EBITDA over the three-year period, excluding COVID-19 impacts. At that time, based on the last 12 months ended, February 1, 2020, management further indicated that they expected earnings per share to generate a compound average growth rate of at least 15% over the Project Horizon timeframe. Management continues to expect the company will achieve its three-year Project Horizon strategy targets. However, due to significant positive impacts on sales and earnings related to COVID-19 in fiscal 2021, growth rates in fiscal 2022 for same-store sales and net earnings are expected to be lower.


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