Empire Company Ltd Q3 2025 Earnings Call Transcript

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

Question: Irene Nattel - RBC Capital Markets - Analyst : Before I ask my question, congratulations, Matt. We will definitely miss you. Happy to hear that you're going to be around for a little while. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 13, 2025 / 12:30PM, EMPa.TO - Q3 2025 Empire Company Ltd Earnings Call As for my question, wondering about the encouraging signs that you're seeing in terms of consumer spending behavior basket up. Can you talk about the composition of the basket, item count, categories, and whether you're seeing anything to -- any offsetting still signs of sort of more caution?

Question: Irene Nattel - RBC Capital Markets - Analyst : That's really interesting. And then just one other question, if I may. On the e-commerce side, great to see the increase in volume coming through the partnerships. What is your loyalty data telling you at this point about any conversion from, let's say, Instacart and Uber Eats into Voila?

Question: Irene Nattel - RBC Capital Markets - Analyst : Understood.

Question: Chris Li - Desjardins Securities - Analyst : Please let me add my congratulations to you, Matt, and all the best as you begin the next new chapter of your life. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 13, 2025 / 12:30PM, EMPa.TO - Q3 2025 Empire Company Ltd Earnings Call Michael, thanks so much for all your comments about sort of the impact on tariffs. And my question -- first question is, if you assume the tariffs go kind of full impact on April 2, how quickly and broadly will we see higher inflation through the grocery store? And what I'm trying to sort of ascertain is like, is it going to be more gradual in a manner where maybe the consumers can manage it? Or do you expect kind of a really a big spike right off the bat from an inflation perspective, assuming if the tariffs have full impact on April 2?

Question: Chris Li - Desjardins Securities - Analyst : Okay. No, that's very helpful. And my other question is just on e-commerce. You just mentioned, Voila is posting -- continue to post very solid double-digit growth. Your competitors are also posting solid growth as well. So my question is, just based on your data, is Voila maintaining or growing market share? And also, secondly, I just want to confirm that the losses in Voila are continuing to improve on a year-over-year basis?

Question: Chris Li - Desjardins Securities - Analyst : Okay, perfect. So just maybe one quick follow-up just because you mentioned the third-party partnerships. I know it's still very early for you guys, but I'm wondering, as the third-party e-com revenues continue to grow, how much of the pressure do you think they would have in terms of fees on your SG&A expenses? Do you expect on the EBITDA basis, you'll more than offset by just a higher basket on the gross profit? So maybe on an EBITDA basis, it's neutral? Yes, just thinking about the pressure on SG&A expenses as the third-party revenues continue to grow.

Question: Tamy Chen - BMO Capital Markets - Analyst : I wanted to go back to your comments on the quarter-to-date, fiscal Q4. So you've had a couple of quarters of sequentially improving comps, which has been great to see. When you talk about this momentum that has continued so far in Q4, I just wanted to clarify, are you continuing to see your comp so far this quarter accelerate sequentially like it has the last couple of quarters? Is that what you mean specifically by the momentum?

Question: Tamy Chen - BMO Capital Markets - Analyst : Okay, got it. Fair enough. And I have another question on e-commerce here. So from what you can see in the industry, would you say the growth in this channel here for the industry is more in that immediacy? And with respect to Voila, like, can you remind us, is there any way for Voila to be able to service itself that immediacy or cannot and your focus is to just try to convert those Uber and Instacart customers to Voila, which is not immediacy?

Question: Vishal Shreedhar - National Bank Financial - Analyst : Just with respect to the volatility that you referenced in your prepared remarks at the beginning of the call, wondering how Empire is thinking about maintaining or creating some sort of flexibility to adjust to whatever the backdrop may present. So I know, it could be pressure on the consumer or pressure on inflation or both. And this is at a time when population growth is slowing, and certainly, industry square footage growth is increasing. So just as you look at this volatile time period and granted you've operated through a few of those different types of volatility time periods, how do you think about this and being able to preserve that financial framework that you've set up?

Question: Vishal Shreedhar - National Bank Financial - Analyst : Thank you for that color. And just shifting to shrink, wondering how that is evolving. And in particular, on the US based products, are you seeing that shrink magnify? Or is that a headwind?

Question: Michael Van Aelst - TD Cowen - Analyst : Happy retirement, Matt, when that day does come. I wanted to touch on a few of the items that were already brought up but in different -- a little differently though. First of all, very impressive growth on the on the e-commerce. But if we assume your e-commerce penetration is about 4% or so, would this mean that pretty much all your same search sales growth is coming from e-commerce at this point?

Question: Michael Van Aelst - TD Cowen - Analyst : Okay. All right, yes. We can go do that, handle that offline. And then you're seeing plus loyalty costs that are in investment and other. So that increase that we saw, was some of that an accounting adjustment and others' higher redemption rates? Or is that all something that we should expect to continue going forward?

Question: Michael Van Aelst - TD Cowen - Analyst : Okay, perfect. And then last question is on the tariff impact on produce. I know, even product that comes up from Mexico or sometimes in South America, like it's coming up through the US many times. Is that, to your understanding, the tariffs would still be applied to product coming from Mexico, for example, through the US and Canada?

Question: Michael Van Aelst - TD Cowen - Analyst : And just last question, can you just update us on your square footage ambition, growth ambitions for both fiscal '25 and fiscal '26?

Question: Michael Van Aelst - TD Cowen - Analyst : And is that the case in fiscal '25? Or will that kick in in fiscal '26?

Question: Mark Petrie - CIBC Capital Markets - Analyst : I'll echo my congratulations to you, Matt, and I wish you all the best on your next chapter. First, just on gross margin, hoping you could talk a little bit more about the trends that you've seen there and specifically the promotional penetration that you called out now sort of falling year over year. Do you attribute that entirely to sort of the market and the consumer? Or were there some shifts in your tactics or execution that would have contributed to that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 13, 2025 / 12:30PM, EMPa.TO - Q3 2025 Empire Company Ltd Earnings Call

Question: Mark Petrie - CIBC Capital Markets - Analyst : Okay, understood. That's helpful. And I wanted to also ask about sort of price gaps between full-service and discount channels overall. Do you think these have shifted over the last year at all? And I know you don't talk about regions, but I'm interested to hear any sort of specific comments about Quebec market, just given that's not a market where you have a discount presence, and so just wondering if you've seen the market evolve with regards to price gaps.

Question: Mark Petrie - CIBC Capital Markets - Analyst : Maybe just to follow up quickly, does that approach in Quebec affect the promotional penetration at all? Or is that sort of a separate piece of what would be impacting that?

Question: Mark Petrie - CIBC Capital Markets - Analyst : Okay, understood.

Question: John Zamparo - Scotiabank GBM - Analyst : I'll add my congratulations to you, Matt, and all the best in your next chapter. I wanted to come back to the same-store sales performance subsequent to the quarter, and I wonder in the context of whether you think the theme of buying Canadian is positively benefiting Canadian retailers and not just Canadian CPG brands. So in other words, do you believe you've seen an increased market share over the past couple of months? Or is the same-store sales performance more a product of a relatively resilient consumer or the internal efforts you're putting forward?

Question: John Zamparo - Scotiabank GBM - Analyst : Okay, understood. On food inflation, I wonder what kind of increases you're seeing from your largest vendors. And is it fair to expect an uptick in inflation solely from that factor or it's wage contracts that were agreed to in the past couple of years? Is it fair to expect an increase inflation just from those rather than the impact of the US dollar or tariffs?

Question: John Zamparo - Scotiabank GBM - Analyst : Okay, got it. That's helpful. And then lastly from me, othe cost side, can you remind us of the cost initiatives that you have underway and whether they might contribute meaningfully over the next one to two years? In the past, you've referenced a few related to the supply chain or better execution. I wonder if you can add some more color there.

Question: Mark Petrie - CIBC Capital Markets - Analyst : Yes, I just wanted to ask about the e-commerce growth. What's your sense of the overall market growth in online grocery? And do you get the sense that it's accelerating or stable or decelerating?

Question: Mark Petrie - CIBC Capital Markets - Analyst : Yes, understood.