Empire Company reports that profit and same-store sales fell slightly in the fourth quarter of 2021 and expects business will contract in fiscal 2022 as shoppers adjust purchasing habits amidst looser pandemic restrictions. Despite this, the company remains financially strong with the quarterly dividend increasing 15 per cent.
Earnings in the 13-week period were $171.9 million compared to $177.8 million last year and same-store sales declined 4.5 per cent (6.1 per cent excluding fuel) compared to a 15 per cent (18 per cent increase excluding fuel) surge last year.
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.
In fiscal 2021, Project Horizon benefits were achieved from the expansion and renovation of the Company's store network, improvement in store operations and merchandising from data analytics along with continued efficiencies gained through strategic sourcing initiatives. Benefits were partially offset by the investment in the Company's e-commerce network.
For fiscal 2022, management expects the majority of benefits to be driven through the annualization of fiscal 2021 initiatives along with the continued expansion and renovation of the store network, promotional optimization, data analytics and strategic sourcing efficiencies. Benefits will be partially offset by the investment in the Company's e-commerce network.
During the fourth quarter, the cost of the company’s lockdown bonus and maintaining sanitization and safety measures was approximately $24 million, including $9 million for the bonus. The company's original estimate of up to $4 million for the bonus was based on the information available at the time; however, during the quarter a higher volume of government-mandated lockdowns occurred across the country resulting in actual costs exceeding the estimate. In the first quarter of fiscal 2022 Empire expects to incur approximately $15 million to $20 million (first quarter of fiscal 2021 – $67 million) in selling and administrative expenses related to the increased cost of maintaining sanitization and safety measures, the lockdown bonus and other COVID-19 related costs.
Empire says it expects fiscal 2022 will continue to be affected by the pandemic in the early part of the year.
“Although difficult to predict given the uniqueness of the situation, this is expected to result in increased levels of food consumption outside of the home and related reductions in grocery industry volumes. In addition, consumers are likely to begin shopping more frequently and from a greater number of grocery stores than they have over the past 19 months. Grocery formats that experienced lower relative growth during the pandemic lockdowns, such as discount, should experience higher relative sales. Management does not expect grocery customer behavior to return fully to pre-pandemic levels for the foreseeable future. Fuel volumes are expected to increase as economic activity increases and travel restrictions reduce.”
It also says it expect that during fiscal 2022, same-store sales will decline “as industry volumes decrease, compared to the unusually high industry sales in fiscal 2022.”
The company also expects to see continued benefits from Project Horizon, including private label and promotions optimization, the addition of Longo's, “which has a higher margin rate than Empire as whole, partically offset by effects of sales mix changes between banners, due to the expected easing of COVID-19 restrictions."
Empire says it expects improvements in the profitability of its Toronto based e-commerce site as volumes continue to increase and costs reduce due to improved operational efficiencies. However, it says that at the same time, Voilà total costs will increase as the Montreal facility begins operations and store pick e-commerce is implemented in up to 90 additional stores. In total, the combination of improving results in Toronto, increasing costs in Montreal and additional store pick e-commerce locations is expected to reduce Empire's fiscal 2022 net earnings. “Future earnings will be impacted by the rate of sales growth that is difficult to predict, but management 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 the third year of operations, partially offsetting the impacts of opening new CFCs.”
Western Canada FreshCo expansion
Empire announced plans to expand the FreshCo banner in Western Canada in 2018. There are now 28 discount stores operating in Western Canada. Empire expects to have 40 locations open in the region by the end of fiscal 2022. It reports that the stores are performing well.
“All stores opened in the first year have improved their results since opening and in aggregate are performing better than the full-service store that they replaced. FreshCo stores opened in the second year are performing better than those opened in the first year. Newer stores are improving efficiencies at a faster rate than the early conversion stores as the business gains critical mass.”