Empire Company Ltd Q2 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Chris Li - Desjardin - Analyst : Hi, good afternoon, everyone. Just maybe I start-up with Michael, I think you mentioned in your opening remarks that you continue to see a smaller decline in average basket size. I was wondering if you can provide a bit more details in terms of what's driving that smaller decline. Is it driven mostly by the higher dollar amounts or are you seeing some pickup in terms of unit volume? Thanks.

Question: Chris Li - Desjardin - Analyst : Okay. So and that's because you're seeing more just people buying more units? Is that one of the reasons?

Question: Chris Li - Desjardin - Analyst : And is that sort of more broad-based across the country or is there certain regional markets where you're seeing that?

Question: Chris Li - Desjardin - Analyst : Okay. Perfect. Thanks for that. And then maybe, Matt, just maybe a question on gross margin. It did increase to 40 basis points excluding the fuel impact. I'm just wondering at a high-level, how much of that improvement was due to mix? Because it does seem like the decline in fuel and wholesale tobacco revenues were a bit larger than previous quarters. So, I'm just wondering if you can maybe break it out for us, what was the mix contribution in the quarter? And then maybe related to that as you look into the second-half of the year, do you expect the declines in wholesale tobacco revenues to continue, so it will still provide a bit of a margin tailwind for the second-half of the year? Thanks.

Question: Chris Li - Desjardin - Analyst : Perfect. And if I may just sneak in just maybe one last question maybe on Voila. I know you don't disclose the earnings dilution impact anymore, but are you able to share just whether on a year over year basis, if that level of dilution has stabilized or perhaps improved as a result of some of the cost-saving initiatives that you have implemented over the last three or four quarters? Thanks.

Question: Chris Li - Desjardin - Analyst : Perfect. Thanks, everyone, and have a safe and happy holiday.

Question: Tamy Chen - BMO Capital Markets - Analyst : Hi, thanks for the questions. On the food side, you mentioned in-store initiatives executing well on them. Can you elaborate on what you're referring to? Is there anything new or distinct that you're doing in terms of how you're managing the stores and stock and your offering? Or is this just the consumer is showing up more to your stores now than recent quarters?

Question: Tamy Chen - BMO Capital Markets - Analyst : Got it. Okay. Thanks for that. And my follow up question is, at a high-level, curious how you're thinking about your different banners and the strategy for them going-forward. So in Ontario, I'm just curious on the Farm Boy and the Longo's banners. Do you feel there's still material runway in that province for these two banners? Could you expand them elsewhere? And also wondering out west for FreshCo, I think your target has been to convert 25% of your footprint there to FreshCo. I think you're getting close to that target. How are you thinking about that mix out there? Could that target change? Would you consider in converting some more after you reached that 25%? Thank you.

Question: Tamy Chen - BMO Capital Markets - Analyst : Thank you.

Question: Vishal Shreedhar - National Bank - Analyst : Hi, thanks for taking my question. I was wondering now that Scene has more than 15 million people, it's quite a large installed-base. How should we think about the evolution of that? Have we hit a steady-state or do you anticipate there's more room to go in terms of installed-base and usage?

Question: Vishal Shreedhar - National Bank - Analyst : Okay. I was intrigued by your comment and you've mentioned this before about consumer normalization and the improvement in your business and that's happening as you called out. Some of your -- there's different perspectives across retailer peers, across Canada and I know you still keep your finger on the pulse of what's happening in retail. And not everyone feels that the consumer is necessarily improving in a meaningful manner. So I'm wondering once you look at your results, do you attribute that to your initiatives or, in fact, it is the consumer or is it easier comps or how should we think about exactly what's driving this improvement?

Question: Vishal Shreedhar - National Bank - Analyst : Thank you.

Question: Michael Van Aelst - TD Cowen - Analyst : Great. Thank you. Good afternoon. Wanted to get back to the store expansion. You haven't had a lot of square footage growth. I think it was pretty flat this quarter. I saw I think 16 net negative stores, but they must been quite small in the last -- from Q1 to Q2. What stores are those that you're closing down and where do you see that square footage growth getting to over the next 12 months to 24 months? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 12, 2024 / 5:00PM, EMPa.TO - Q2 2025 Empire Company Ltd Earnings Call

Question: Michael Van Aelst - TD Cowen - Analyst : Okay. So what would that gets you to in terms of square footage growth?

Question: Michael Van Aelst - TD Cowen - Analyst : Okay. And then I wanted to --

Question: Michael Van Aelst - TD Cowen - Analyst : Okay. And then on the discount side, I think you're still short of your original target. I think 48 discount stores in Western Canada, you were thinking something in the 60s, if I remember correctly. And you've only added two in the last 12 months. And I'm wondering where the challenges in opening up new discount stores in Western Canada? Or is it just that you didn't -- you don't allocate the capital to that?

Question: Michael Van Aelst - TD Cowen - Analyst : Okay, thank you. And then last question for Matt. The OpEx growth in Q2 was like 1.9%. In Q1, it was 3.9%. So I know you like to look at it as a rate. But when I look at it sometimes as a growth rate year-over-year, it gives me an indication too since you don't have that much a big difference in your revenue growth. So it seems a little low at 1.9%. Obviously, it's a good accomplishment, but it seems a little low in this cost environment and I'm wondering was there some kind of timing in there or like a bigger number last year that we should -- so that we shouldn't expect that kind of pace like a 2% growth rate going forward?

Question: Michael Van Aelst - TD Cowen - Analyst : Okay, great. Thank you.

Question: Irene Nattel - RBC Capital Markets - Analyst : Thanks, and good afternoon, everyone. Just I was really intrigued by your commentary around some of the work you've done on supply chain and how that's helping not only on the cost side, but also just better in-stock. And I'm wondering if you could talk about where you are on that journey. And similarly where you are on the shrink journey and how much more you think there might be that could help on the gross margin side going-forward?

Question: Irene Nattel - RBC Capital Markets - Analyst : That's really helpful. Thank you. So where would on this journey, are you where you want to be or do you think that there's still more that you can get out of the supply chain piece of that?

Question: Irene Nattel - RBC Capital Markets - Analyst : That's really helpful. Thank you. And just one final question, if I might. We've seen some really strong results from some of the drugstore players here in Canada. And I know that pharmacy is a relatively smaller piece of your business, but you do have a lot of pharmacies in Western Canada. Just wondering how those are doing in particularly whether there was any contribution to the comp as a result of some of that strength?

Question: Irene Nattel - RBC Capital Markets - Analyst : That's helpful. Thank you.

Question: John Zamparo - Scotiabank - Analyst : Thank you. Good afternoon. I wanted to come back to the topic of square footage growth, but from the perspective of the industry. And it's accelerating or is relatively at an elevated level from some of the country's larger players? We've all seen what's happened with population, so it looks like that's coming down. I wonder what you think about the industry square footage growth and whether or not you consider it rational and is there a risk that the industry is adding too much capacity?

Question: John Zamparo - Scotiabank - Analyst : Okay. I appreciate the color. And then moving back to gross margins, that's been up significantly on an ex-fuel basis to start the year. I would like to better understand the puts and takes for the back-half, especially as you lap an average of, I think it's 75 basis points or 80 basis points increases from the second-half last year. So is there a chance this comes in meaningfully above the 10 basis points to 20 basis points you typically target on an annual basis? And if not, should we expect potentially flat or decline in gross margins in the back-half of the year?

Question: John Zamparo - Scotiabank - Analyst : Got it. Okay. And then just one more on e-commerce. I wonder if you can talk about the performance from your new partnerships subsequent to the quarter. It was only in-place for a couple of weeks, as you said, but I'm wondering how that's going and are you seeing incrementality from these partners on top of your existing Voila customers?

Question: John Zamparo - Scotiabank - Analyst : Okay, great. I'll leave it there. Thank you very much.

Question: Mark Petrie - CIBC - Analyst : Yeah, thanks. Good afternoon. Just a couple of follow ups. Specifically on same-store sales, we heard a lot about shifts in consumer spending patterns over the last couple of years, specifically ascribed to trade-down like frozen versus fresh or lower-quality cuts or products. Would you say those are reversing along with some of the other behaviors that you've already summarized?

Question: Mark Petrie - CIBC - Analyst : Yeah. Okay, got it. That's helpful. Thank you. And I'm curious if basket composition then in online has shifted at all. I know it's a different baseline, it's also somewhat of a different customer and occasion. But do the shifts in the -- there's a shift that you're seeing in the store, are those mirrored in the online business as well?

Question: Mark Petrie - CIBC - Analyst : Yes, sounds good. And then just the last one, I wanted to follow up. I know you touched on shrink earlier, but I just wanted to make sure if you could just go over sort of where you are at in the evolution of shrink levels and if you expect that to become a bigger tailwind or is that a dissipating tailwind and how should we think about the materiality of that today?

Question: Mark Petrie - CIBC - Analyst : Okay. Very helpful. Appreciate all the comments, guys, and happy holidays.

Question: Michael Van Aelst - TD Cowen - Analyst : Thank you. Just a quick one. Michael, you mentioned that you want to get to that 65 fresh store service in the West by fiscal year '27. With those 17 or so increase, would that -- would you expect that to be more conversions or new to industry?

Question: Michael Van Aelst - TD Cowen - Analyst : Okay, great. And happy holidays to everybody as well.