Empire Reports Fiscal 2024 First Quarter Results

Empire Company Limited (“Empire” or the “Company”) (TSX: EMP.A) has 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.