Michael Medline on Empire's third-quarter rebound
Though Empire Companies Limited got off to a slow start in the third quarter, it rebounded in the back half of the 13-week period ended Feb. 1.
"This is a relatively complex quarter. We had a lot of moving pieces, and it really was a very different tale between the first 45 days of the quarter and the final 45 days of the quarter," said Empire CEO Michael Medline during a recent call with analysts. The Stellarton, N.S.-based grocery retailer includes leading banners Sobeys, Farm Boy, FreshCo and IGA.
Medline pointed to multiple reasons for this happening: heightened competition, particularly in discount, a deceleration in the economy in Western Canada and a slow response to a more promotional environment.
The second half of the quarter saw stronger sales and much stronger growth in the company's bottom line, he said. "We feel more optimistic about the sales trend since we saw sales improved just prior to Christmas and right into this quarter."
Medline praised "the team" for pivoting when sales started to soften at the start of the second quarter, and said he was pleased with the results. "We remained disciplined, didn't chase empty-calorie sales, and we're very firm on cost control to deliver a strong bottom line."
Empire reported third-quarter sales totalled nearly $6.4 billion, up from $6.2 billion in the same quarter a year ago. Same-store sales increased 1%, while same-store sales growth, excluding fuel, rose 0.8%.
FreshCo
Empire opened 11 FreshCo stores in Q3. The company's discount banner, which is replacing underperforming Safeway stores in Western Canada, gained market share in the quarter, which Medline said created a more competitive and promotional environment in the region. The investment Empire has made to build the FreshCo brand has put pressure on margin in the short term, but is setting up the banner for long-term success, he said.
"As we increasingly add FreshCo stores to the West, converting our underperforming Safeway stores, you will continue to see an impact on our results in the short term," said Michael Vels, Empire's chief financial officer. "Safeway stores that are closing, experienced lower sales and margins as they get closer to their temporary close date as shelves are less full and customers start shopping at different locations."
Project Sunrise
Empire is nearing the end of Project Sunrise, its multi-year, $500-million cost-cutting and restructuring plan it launched in 2017. Medline said the company has hit all of its targets on time and is $50 million ahead of where he thought it would be when the company began the initiative. Medline said he would outline the next three-year plan when Empire announces its fourth-quarter results.
"When I look at what's going on in our full-service business, what we've done with FreshCo in the West and Ontario, the acquisition of the great Farm Boy and our pending opening of Voilà, I think that is much more ahead of where I would have ever expected to be, so we're pleased with that," said Medline.
Coronavirus
Medline addressed coronavirus at the top of the call, saying Empire was doing everything to keep its customers and staff safe. He said Empire was taking "all prudent precautions" and would continue to monitor the situation.
From a sales perspective, Medline said many regions of the country saw increased purchases staring Feb. 28 and accelerating on March 8 in certain nonperishable categories such as household cleaning supplies, paper products, canned and packaged foods and health and hygiene products.
"We're doing everything we can to serve our customers and communities and our team across country doing a great job, and I'm especially proud right now of our supply chain," said Medline. "They're doing a phenomenal job filling the shelves."