Just a few months after revealing a sweeping plan to cut costs and transform the company, Empire Company Limited showed signs of significant progress and improvement in its 2018 Q1 financial results.
Sales rose to $6.27 billion in the quarter, from $6.18 billion a year ago. Profit was down slightly but adjusted earnings significantly beat analyst expectations causing the stock to rise sharply during trading on Thursday.
“I’m obviously pleased with our results,” said president and CEO Michael Medline in a conference call to discuss the results. Empire enjoyed same-stores sales growth for the first time in six quarters, positive transaction count and basket size growth, he said.
“We stopped market share erosion and started to see small market share gains,” said Medline, who was only named CEO in January.
“But having said all of that you won’t hear any champagne corks popping over here. We still have significant work to do in all facets of our business.”
Soon after taking over as CEO, Medline unveiled “Project Sunrise,” a sweeping plan to reorganize the business, reduce costs, improve efficiencies, and move past the struggles it endured following the acquisition and integration of Safeway in 2013.
Part of the reorganization of the company will see it move from a regional operating structure to one that is more centralized and national. It’s not just a cost-cutting exercise, said Medline. It’s about becoming more nimble by having a flatter structure with reduced bureaucracy, while focusing on improving margins and lowering the costs of goods sold.
He cautioned that not every quarter would be as strong as the one just completed as Empire goes through the transformation process, but said things are moving in the right direction.
During his prepared remarks and in a Q&A with financial analysts, Medline addressed a number of other notable topics.
Minimum wage increases
Empire expects the planned minimum wage increases in Ontario and Alberta to cost the company $25 million in fiscal 2018 and approximately $70 million in 2019. Empire will find ways to adjust to the additional costs, he said, though he stressed those adjustments would not mean compromising the in-store consumer experience by reducing frontline staff. "The company can’t build its brand, thrill its customer and beat its competitors without engaged, informed and empowered employees," he said. "I’m not sure anyone believes more than I do than in customer facing and backend technological innovation, but not at the expense of human interaction."
Empire appointed Deirdre Horgan its new marketing vice-president and will focus on improving its branding through a better understanding of its customers, said Medline. “We have completed our brand customer research, analyzed the results and are in the process of putting together a coherent customer strategy that will effect most aspects of our business,” he said. Medline called Horgan, who was most recently partner and practice leader, customer and marketing strategy with Deloitte Consulting, "an exceptional marketing leader who completely gets brand, digital data and e-commerce." Horgan starts with Empire on Sept. 18.
In Western Canada, both promotions and in-store experience for customers have improved significantly in recent months. “It’s night and day from what I saw last year,” he said. “It is a lot easier to turn off customers than to win them back. Many customers lost trust in our brand and now we have to earn it back. We need to work on providing compelling reasons for our western customers to continue to shop our stores and give us a higher share of their wallets.”
It has “become fashionable” for retailers to talk about e-commerce, especially with the sudden interest in Amazon’s impact on the Canadian grocery sector, said Medline. But, it is important to retain some perspective about where e-commerce fits in the current Canadian grocery landscape. “E-commerce will represent a small but growing portion of the Canadian grocery business over the next five years,” he said. E-commerce is important because it lends a halo of progress to bricks-and-mortar operations, he said. “Because customers think you are a dinosaur if you are not capable of e-commerce.”
Though Empire hasn't made any decisions yet, recent analysis of FreshCo’s performance has “moved me a little closer to expanding discount, of being in favour of it,” said Medline. It could be a viable strategy for the business, but one that would build over time. “If we were to expand discount, it would be in a small, organized fashion under the FreshCo banner, and we’d be converting stores rather than a greenfield approach, that’s for sure.”