Empire Company Limited reported an 8.7 per cent increase in net earnings, $175.4 million versus $161.4 million last year in its second quarter.
While same-store sales excluding fuel decreased 1.3 per cent compared to elevated sales from last year, due to the pandemic, overall sales for the quarter, which ended October 30, 2021, increased by 4.9 per cent, primarily driven by the acquisition of Longo's, higher fuel sales and benefits from its growth initiative Project Horizon, including the expansion of Farm Boy and Voilà in Ontario, and FreshCo store expansions in Western Canada.
"We see strong momentum as we continue to improve our operations and execute on our key Project Horizon initiatives," said Michael Medline, President & CEO, Empire. "Sales were strong, up 4.9 per cent over last year and 13.7 per cent over two years ago. We are delivering two-year same-store sales growth of 6.8 per cent, and at the same time our margins keep improving. I'm very pleased with our team's consistent and growing ability to deliver results to our customers and shareholders."
Empire says it 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."
In the second 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. Management expects these initiatives will continue to drive the majority of benefits through the remainder of fiscal 2022.
The pandemic continues to impact the company and the industry and recent easing of restriction has increase food consumption levels outside of the home and reduced grocery industry volumes.
Empire says it expects to see these trends continue. "As restrictions ease, consumers are expected to shop more frequently and at more grocery stores. However, the company does not 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 adds that it expects same-store sales will continue to reduce in the remainder of fiscal 2022 as industry volumes decrease compared to the unusually high pandemic-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 could be partially offset by effects of sales mix changes between banners and the impact of increasing fuel sales."
Empire expects to see improvements in its Toronto-based e-commerce site as volumes continue to increase and efficiencies improve. However, it expects to incur additional costs with the Montreal and Calgary facilities.
"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 primarily by the rate of sales growth. The company expects that fiscal 2022 will reflect the highest net earnings dilution for the Voilà program as the Toronto site is expected to begin to reflect positive EBITDA results towards the end of its third year of operations."
Since taking over the helm of Empire Company in 2017, president and CEO Michael Medline has turned an unprofitable company into a profitable one, due in large part to a three-year cost reduction initiative launched in 2017, known as Project Sunrise, followed by a new three-year growth plan, Project Horizon, launched in the first quarter of fiscal 2021, which was focused on core business expansion and the acceleration of e-commerce, including the 2020 launch of its home delivery service Voilà by Sobeys.