Empire Company Ltd Q4 2024 Earnings Call Transcript

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

Question: Chris Li - Desjardins - Analyst : Well, good afternoon, everyone. Michael, I know I asked you this last time as well, but in light of today's announcement, and just wondering if you have any updated views on two things. Number one is, you know, what do you think are the key factors that are limiting e-commerce adoption in Canada? And number two is how long do you think it will take before penetration reaches a level that will allow it to be profitable. And so I know this is a big crystal ball question.

Question: Chris Li - Desjardins - Analyst : Well, it's fair. Thanks for that. And maybe a follow-up on that is I appreciate the color so far. And when you mentioned that you expect a significant improvement in profitability as a result of some of these actions you announced today. Can you help us understand or size that up for us, what -- how much of the sale was the size of this improvement that we can expect over the next year or two?

Question: Chris Li - Desjardins - Analyst : Thank you. I'll get back into the queue and all the best.

Question: Tamy Chen - BMO Capital Markets - Analyst : Hi, thanks for the question, speaking with full of here here for a second. Can you talk just directionally a bit about it's different -- three different CFCs, like is the first CFC, the one in the GTA, the profitability utilization there is relatively the best and the third is the lowest or among these three. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 20, 2024 / 3:00PM, EMPa.TO - Q4 2024 Empire Company Ltd Earnings Call It's a bit of a tighter band in terms of the utilization and profitability of our all three at this point, I'm not profitable or maybe one is getting close to that or if you can give a bit more color about that. And Michael, did I hear you say that is if overall grocery penetration was more than 4% closer to that 67%, the entire Voila would be breakeven?

Question: Tamy Chen - BMO Capital Markets - Analyst : Okay. Understood. And the potential partnerships. So as I understand, as you ended the exclusivity here, you're able to now look more into your financials, is there any more you can say about that, how you're thinking of it? So should we interpret that as potentially other various retailers that do or offer e-commerce would be to lean on the infrastructure of a roll on the three CFCs that essentially what you're getting at. Thank you.

Question: Tamy Chen - BMO Capital Markets - Analyst : Okay. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 20, 2024 / 3:00PM, EMPa.TO - Q4 2024 Empire Company Ltd Earnings Call

Question: Mark Petrie - CIBC - Analyst : Yeah, thanks. I think the comments on Voila have been very clear and helpful. One just broader question with regards to sort of your e-commerce offering and I guess specific to Western Canada, given that the Vancouver CFC will be postpone. What's the offering to the Western Canada customer today with regards to click and collect? And is that something you expect to ramp in the coming months?

Question: Mark Petrie - CIBC - Analyst : Okay, understood. Thanks a lot.

Question: Mark Petrie - CIBC - Analyst : Yeah. And then, I guess to just sort of together on the margin lines, the gross margin improvement, as you said, was a little bit better than you kind of signaled last quarter where you talked about sort of a normalization in the improvements that you've been seeing. Could you just talk about sort of the outlook there for fiscal '25? And then similarly on SG&A a pretty modest increase all things considered. And do you think that's a reasonable run rate that 2.5% and that you delivered in Q4 normalized, is that a reasonable run rate barring any material change in sales trends?

Question: Mark Petrie - CIBC - Analyst : Okay. Appreciate all the comments and all that.

Question: Michael Van Aelst - TD Securities - Analyst : Good morning. So I wanted to circle back on Michael's earlier comment about consumer optimism and I understand how with rates coming down that should be some help and inflation coming down, that should help, but how do you balance that out versus the significant pressures from a large component of mortgage holders that are going to see their rate, their mortgage rates go up substantially over the next two years. How do you I guess what else you're seeing from the consumer that makes you confident that you're going to see some improvement in the Consumer Health over the next three or four quarters.

Question: Michael Van Aelst - TD Securities - Analyst : Okay. That's helpful. And, you reiterated your 8% to 11% long term EPS CAGR. It's a forecast or guidance that you put in place last year and you've seen your earnings down a couple of percent in a tough environment, obviously. So that would mean that you need to get above 8% to 10% at some point over the next few years to get back into that (inaudible)? And do you feel like you feel you can actually get into that range this year?

Question: Michael Van Aelst - TD Securities - Analyst : And I would have to be if you would have to come, I would assume from some top line growth, some more meaningful top line growth in the back half of the year.

Question: Michael Van Aelst - TD Securities - Analyst : Yeah. All right. Great. And then just finally on your capital program, Matt talked about cutting back to the budget to $700 million. I think originally where I think we're thinking more like $800 million so that what projects are generating good returns I'd assume Farm Boy, is one of them. What projects are you most happy with that you're continuing with? And then where are you cutting back? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 20, 2024 / 3:00PM, EMPa.TO - Q4 2024 Empire Company Ltd Earnings Call

Question: Michael Van Aelst - TD Securities - Analyst : Great. Thank you.

Question: Irene Nattel - RBC Capital Markets - Analyst : Thanks and good morning, everyone. A couple of follow-up questions, please. First of all, following on Mike's question and your answer, Matt and you called and should turn current borrowing rates or cost of capital being a factor. If we -- if in fact we do see rates coming down over calendar '24 and early '25, should we be expecting that CapEx number to go up again for F '26, '27?

Question: Irene Nattel - RBC Capital Markets - Analyst : That's really helpful. Thank you. And then going back to the discussion about consumer spending are we to understand that, let's say, on a sequential basis. And I'd also be interested in commentary a Q1 today that sort of private label trade down promotional intensity, trading up trading down in package sizes. Are we seeing that behaviour finally stabilized? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 20, 2024 / 3:00PM, EMPa.TO - Q4 2024 Empire Company Ltd Earnings Call

Question: Irene Nattel - RBC Capital Markets - Analyst : Understood. Thank you and on the private-label penetration. So are we kind of stable in that low 20s, low to mid 20s level?

Question: Irene Nattel - RBC Capital Markets - Analyst : That's great. Thank you. Finally, just I swear this is my last question. You noted that you had just -- just to kind of follow-up. You noted that business was up across all banners. Are you seeing same-store sales was up across all banners in all regions. And that Longo's and Farm Boy were the strongest.

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

Question: Vishal Shreedhar - National Bank Financial - Analyst : Hi. Thanks for taking my questions. Once, several years ago, Empire suggested that the Voila business could generate EBITDA margins comparable to the bricks and mortar business. And since that period of time to bricks and mortar business has improved. And obviously in this call, despite deferring the CFC in Vancouver and management seems to express some enthusiasm Voila. So maybe you can give us some bookends help us understand what the potential of the businesses and some parameters. I know you said 6% to 7% would be very happy. I'd like to know what that means in some numerical terms. So if you can give us some indications of what underpins your confidence in Voila to reorient us, that would be helpful.

Question: Vishal Shreedhar - National Bank Financial - Analyst : Okay. Thank you for that was helpful. And I wanted to get back to that traffic point, which I found to be interesting. So I have two questions, and I think one of them you partially answered. But my first question is I'll ask them both together. My first question is, is the traffic that you're seeing in aggregate across your banners, is that stronger than population growth and related to that you know management said they're prioritizing profitability over empty calorie sales, which makes sense. But at what point does management get worried that some of these traffic patterns that these customers are creating as they entertain other banners stick and they lose those customers more so for a longer period of time.

Question: Vishal Shreedhar - National Bank Financial - Analyst : Thank you very much.

Question: Chris Li - Desjardins - Analyst : Well here, but I had a few follow-ups. I had to pick a good way, I guess. So maybe just to sum it up, like I think, Michael, in answer to Mike's question earlier in, yes, you like you're going to achieve 8% to 11% EPS growth this year. And I think you sounded fairly direct and constant that the answer is yes, just from everything that I heard you say so far is part of your confidence is really predicated on things that are within your control in terms of how we're managing for light in terms of all the other initiatives that you're doing, is that kind of the way we should think about it that it is and that's what you're sort of comping or is it depending on still market factors?

Question: Chris Li - Desjardins - Analyst : Okay, thank you.

Question: Mark Petrie - CIBC - Analyst : Yeah, thanks. Just a quick one, Matt, I think I heard a comment where you said sales trends are improving across the board. Is that -- was that something specific to like private label penetration or something like that? Or was that a broad comment? Just about the business overall.

Question: Mark Petrie - CIBC - Analyst : Yeah. Okay, thanks. And since I was quick, I'll squeeze one more, which is the dividend increase, obviously that outpaced the EPS growth. How do you guys think about that? Should we be thinking about that as sort of a stable payout ratio from here? Or what's the right way to think about it?

Question: Mark Petrie - CIBC - Analyst : Okay. Thanks for that.