Empire Company Limited

Good afternoon, ladies and gentlemen, and welcome to the Empire third quarter 2022 conference call. At this time, note that all lines are in the listen-only mode. Following the presentation, we will conduct a question-and-answer session. 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 March 10, 2022. And I would like to turn the conference over to Katie Brine, Director, Investor Relations. Please go ahead.

Thank you, Sylvie. Good afternoon, and thank you all for joining us for our third 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 empirecode.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, Matt Reindell, Chief Financial Officer, Michael Vell, Chief Development Officer, and Pierre St. Laurent, Chief Operating Officer. 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 Metzlein.

Thanks, Katie. Good afternoon, everyone. Our thoughts... today are with all those impacted by the awful crisis in the Ukraine. There's obviously a large and proud community of Canadian Ukrainians, many of whom are our teammates and our customers. We stand solidly with them. Now on to our third quarter results. Our team delivered another outstanding quarter. Earnings per share of 77 cents. This is our highest EPS in memory and we achieved it navigating some of the choppiest waters we've seen in a long time. Floods in BC and other global and local events that disrupted the communities and the supply chain. The Omicron surge presented new challenges in labor and the inflationary environment continued to impact our industry. Through it all, our team delivered historic performance. Free cash flow is up 75% this quarter. DBRS upgraded our credit rating trend from stable to positive, and we substantially completed our fiscal 22 share buyback target. Meanwhile, Verizon remains on track, including the $500 million of incremental EBITDA by the end of fiscal 23. Earlier this week, Voila launched its second CFC in Montreal to the public. We have never felt better about our business or our future, and the most encouraging thing is that there is no silver bullet here. Our performance is just based on strong execution across the board. So today I'll focus on just three topics. Our results, how we're successfully managing our business, and what the future holds for Empire. First, results. Sales grew 5.1% this quarter. Same-store sales were negative 1.7% as we caught severe lockdowns across much of the country last year, but we're up a strong 8.3% over the last two years. E-commerce sales increased 17% over last year with the addition of Grocery Gateway and continued growth in Voila, partially offset by declines in our other e-commerce platforms due to the significant stock-ups that happened during last year's lockdown. We continue to improve our gross margin, which was not a foregone conclusion this quarter. We faced a difficult comp as we drove exceptional gross margin improvement last year when we started to capture the benefits of our promotional optimization tool. In addition, this year we faced cost pressures with the timing of inflation pass-throughs, increased fuel prices, and supply chain disruptions that forced us to rely on alternative supply, typically at a lower margin. Not only did we sustain our strong margins, we improved them. Our gross margin rate excluding fuel grew by 41 basis points, and this is exactly the kind of performance that gives us confidence in our future. EBITDA margin also grew 50 basis points this quarter to 8.1%. This reflects the benefits of our Horizon initiatives, the addition of Longos, and an elevated contribution from Crombie. Delivering results like this is possible thanks to the underlying strength we have built in our business. With that in mind, I would like to spend a few minutes speaking to how we're successfully managing our business to deliver current performance and position ourselves for the future. Every day, our team continues to sharpen our execution, find new ways to bring Empire to the next level. Last year, we further evolved our national structure to centralize all sourcing responsibilities, and this team is already producing tremendous results. Without this structure, we would be hard pressed to navigate the inflationary pressure and supply chain disruptions our business is facing. We have received an unprecedented number of supplier cost increases over the last few months. Not only has our team managed to keep prices as low as possible for our customers, but we've also seamlessly executed the required price changes and minimized the impact on our performance. All the while, our merchants are innovating the customer experience and delivering value through more impactful promotions and private label. And our strong supplier partnerships, combined with the prodigious efforts of our teammates to ensure products get on shelves, are helping us mitigate some of the supply chain challenges our industry is facing. We receive an industry report that tracks on-shelf availability, effectively how stocked a retailer's shelves are. We have continued to keep our shell stock better than the market average over the last 13 tumultuous weeks, as we have through most of the pandemic. Customers can find and purchase more products in more instances in our stores, and this provides customers a more effective and just plain better shopping experience. In addition, we recently promoted Pierre Saint Laurent to the role of Chief Operating Officer, now overseeing all our full service, discount, and e-commerce grocery operations. These teams are working more closely together, finding efficiencies and focusing on solid execution day in and day out. They're streamlining all our grocery operations, supply chain and merchandising to win the customer with every tool in our arsenal while driving efficiencies throughout the company. And as we find new ways to simplify and focus our operations, it further improves our execution on horizon by giving our teams even more runway to focus on achieving those goals. Now, shifting to look ahead to our future, I feel like a broken record, but our business has great momentum and we've never felt better about what's ahead of us. As we said, we remain confident that we will deliver our horizon targets next year, but the benefits don't just stop when horizon ends in fiscal 23. Actually, material and additional horizon value will continue to be earned in fiscal 24 and beyond. We're building tools to dramatically improve the store and customer experience. We're renovating, converting, and building the best-looking grocery stores in Canada that continue to drive our best returns, and we're finding more personalized ways to connect with our customers. These initiatives start generating benefits during Horizon, but will really hit their stride in fiscal 24 and beyond. Thanks to these and the other investments we're making today, we will reap incremental rewards from Project Horizon for years to come. As we begin to think beyond horizon, we are no longer a transformation story, and we are proud of that. We are now consistent operators. We now execute with precision, and we have a well-earned reputation as tremendous business partners. We deliver value to our customers. We offer solid returns to our shareholders. After fiscal 23, we will not release another three-year plan. Our focus will be on execution, and we intend to grow our results at a greater rate than our competitors. Now, before I hand it over to Matt, I want to take a moment to congratulate our Canadian Olympians and Paralympians on a fantastic Winter Games and wish the best of luck to the Paralympians competing in the final few days. Sobeys is the official and exclusive grocer of King Canada, and I'm so proud of all that we're doing to support our athletes. Now, over to you, Matt.