Empire Company Limited

Good morning and afternoon, ladies and gentlemen, and welcome to the EMPIRE first quarter 2022 conference call. At this time, note that all participant lines are in a listen-only mode. But following the presentation, we will conduct a question and answer session. And if at any time during this call you require immediate assistance, please press star zero for the operator. Also note that the call is being recorded on Thursday, September 9th, 2021. And I would like to turn the conference over to Katie Brine, Director of Finance, Investor Relations. Please go ahead.

Great. Thank you, Sylvie. Good afternoon, and thank you all for joining us for our first quarter conference call. Today, we will provide summary comments on our results and then open the call for questions. This call is being recorded, and the audio recording will be available on the company's website at empireco.ca. There is a short summary document outlining the points of our quarter available on our website. Joining me on the call this afternoon are Michael Medline, President and Chief Executive Officer, Michael Bell, Chief Financial Officer, and Pierre St. Laurent, Chief Operating Officer, Full Service. Today's discussion includes forward-looking statements. We caution that such statements are based on management's assumptions and beliefs and are subject to uncertainties and other factors that could cause actual results to differ materially. I refer you to our news release and MD&A for more information on these assumptions and factors. I will now turn the call over to Michael McGowan.

Thanks, Katie. Good afternoon, everyone. We are pleased with our first quarter results, especially as we cycled extraordinarily strong COVID-heated sales and earnings last year. We continue to perform strongly and consistently. Our sales and market share was solid. Our margins matched last year's outstanding performance, which had limited promotional activity last year, and are actually up strongly when you exclude fuel. Our SG&A is solid, even as we invest in Horizon, and our bottom line is strong, especially when you back out last year's real estate gains. These are good results driven by great work from our team, and we expect more of this as we progress through Horizon. I don't have much to say, actually. We're happy with our results and focused on delivering Horizon. We continue to laugh last year's COVID-driven sales bump and are seeing the behaviour changes we expected as vaccine rates increase. With that in mind, I'll cover two topics today, our performance this quarter and the trends we're seeing in the market. First, our results. As I said last quarter, two-year sales stacks are the more meaningful indicator of sales as we lap COVID. With that in mind, our two-year sales stack for Q1 same-store sales was 8.1%. Our same-store sales versus last year were negative 2.2%. Total sales increased 3.7% as we added Longos and fuel pricing and consumption rebounded. E-commerce sales this quarter erupted substantially. We continue to believe that winning the e-commerce channel with the right business model combined with strong bricks and mortar offerings is critical. It's critical to success in grocery here and as you can see around the world. We are particularly pleased with our progress in Ontario. Canada's largest grocery market where we have gone from zero to hero in a very short time as we saw a significant increase in Voila sales as it grew rapidly in its first year and added grocery gateway through our Longo's acquisition. We continue to deliver the best e-commerce experience in Canada to our customers and believe we have the winning formula. In Ontario, we are now closing in on achieving a leading market share in a remarkably short period of time. We continue to be extremely pleased with our gross margin performance delivering a gross margin rate of 25.1%. Just like last quarter, we continue to match last year's outstanding margin performance even as promotional activity has picked up again. Our food margins are strong. This is a direct result of the progress we are making on Horizon as well as the addition of Longos and recovery of our service departments. Our sales mix, especially increased fuel sales, created some noise in our margins, even as our horizon benefits provided strong margin support. And Mike will speak about that more in a moment. With our strong sales and margin performance, we delivered EPS of $0.70 this quarter. Last year, our EPS had a $0.04 net benefit from unusual impacts, including a gain in real estate and payment tied to collective bargaining. Removing these, EPS actually increased a noteworthy 4.5% over the prior year, even without last year's large COVID bump. As I've said before, returning capital to our shareholders is an important part of our strategy. Results like these allow us to deliver on that. Over the last three years, we have grown our dividend per share at a compound annual growth rate of 10.9%. We increased our NCIB in April after we announced the Longos acquisition and renewed it in July. After only one quarter with Longos, we have already repurchased all the shares we issued as part of that transaction. Next, trends we are seeing in the market. Last quarter, we spoke about our future expectations as vaccinations accelerated. We are seeing those expectations play out in the market through the quarter. First, as others in the industry are experiencing, Customers are shopping a bit more as restrictions ease and vaccinations increase. We're seeing traffic up and basket sizes down, but these have not returned to the same levels as before COVID. Second, Canadians are starting to shift some spend back to the restaurant and hospitality industries. As we expected, this means customers are spending slightly less on groceries than at the peak of the pandemic. Third, as others have mentioned, promotional activity is pretty well back to the same it was pre-pandemic. And fourth, we continue to believe customers are seeing the value in our full service offering more than ever. We are seeing more pre-pandemic customer behaviors returning, such as customers returning to our higher margin prepared foods and service counter offerings. While we are seeing the split between full service and discount banners slightly stabilized, it's certainly not to the degree of pre-pandemic norms. Altogether, we expect same-store sales will continue to be elevated when compared to pre-pandemic levels, but obviously a bit lower than the unusually high industry sales of fiscal 2021. As we expected, the grocery industry is in a period of transition. While the industry undergoes these changes, we remain focused on delivering against our strategic objectives, as this team has done for the last four plus years. By keeping this focus, our team has achieved an impressive amount in that short period of time. A few examples. At the start of Sunrise, we were honest about two important issues that we needed to resolve. One, we needed to fix our big Western Canadian businesses after the Safeway integration and two, we needed to grow our share in Ontario, Canada's largest and fastest growing market and the region in which we had the lowest share. Today, I can say to you that we have fixed our Western business, turned it around. Operational performance, sales and profitability have significantly, significantly improved and we have more upside to go. And in Ontario, we have materially grown our market share by improving execution in our existing stores, expanding Farm Boy's presence, launching Voila and partnering with Longos. Our market share in Ontario has grown roughly 30% since fiscal 2017. Finally, two accomplishments our team is very proud of over the last month. First, if you live or work in Quebec especially, I'm sure you're aware of the newest member of the IGA family, Ricardo Media. After working together for many years, I'm pleased to officially welcome Ricardo Larive and Brigitte Coutu to the family. We're excited to see the innovation and growth fueled by this continued partnership in Quebec and throughout Canada. Second, we released our fiscal 21 Sustainable Business Report. Our Sustainable Business Report outlines our journey and shares much of our progress. It also, for the first time, includes disclosure against SASB, a world-leading disclosure framework to improve visibility and comparability of our performance. At Empire, sustainability and diversity, equity, and inclusion have been on our agenda for many years. And while there is more to be done, I'm very proud of the progress we've made and where we're going. And with that, I'll hand it over to Mike.