Empire Company Limited

Good morning, ladies and gentlemen, and welcome to the Empire Fourth Quarter 2022 conference call. At this time, all phone 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 Wednesday, June 22, 2022. And I would like to turn the conference over to Katie Brine, Vice President, Treasury, Investor Relations, ESG Finance. Please go ahead.

Thank you, Sylvie. Good afternoon, and thank you all for joining us for our fourth quarter and fiscal year-end 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 Rangdell, 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, and good afternoon, everyone. A lot has happened since we last spoke in March, and I'm really proud of our ability to consistently perform. Despite another volatile quarter, including a multitude of external pressures, including inflation and supply chain challenges, our teams have been busy executing with excellence to ensure we posted another quarter of strong results. At the same time, we've been busy preparing for fiscal 23 and beyond, including unveiling our exciting new loyalty strategy. With that in mind, today we'll focus on three topics. One, our Q4 results and key market trends. Two, progress on Project Horizon, including our recently unveiled loyalty strategy. And three, commentary on capital allocation. First, our results and market trends we're watching. This quarter had many unusual events with both puts and takes on our results. These included global supply chain disruptions, labor shortages, early redemption of outstanding notes, a 13-week strike in our Quebec distribution center, and as you know, extremely elevated inflation. Despite these trends and the multitude of other challenges faced, the quarter was well executed by our team, delivering EPS of 68 cents. Sales grew 5.2% this quarter, excluding the 53rd week that falls in Q4. Now, two years into the pandemic, two-year stacks are no longer meaningful, so we will focus on comparisons to the prior year. While same-store sales were down 2.5%, it's important to remember that we are comparing to a period of significant COVID lockdowns, which we especially benefited from last year. Inflation, along with the resulting customer impact, is something that we are watching extremely closely. We neither like nor profit from when inflation is at these high levels. There is sentiment in the market that it may be moderating and it's at its peak. That is difficult to predict, but we certainly hope so. We've gone through another intense period with copious cost increases being brought forward in a short time and have managed through it well with our supplier partners. But with May's food CPI at 9.7%, it's natural and logical that customers are very focused on what they are buying. We are seeing double digit rates of inflation on basic commodities like eggs, flour and meat. We're cognizant that customers simply won't and often cannot accept cost increases at some of the extreme levels we're seeing while also paying more at the pump and for other essentials. With these dynamics at play, we are seeing customers shopping more stores, increased transaction counts with fewer impulse purchases. We're seeing product trade down, such as from beef to pork, trading down on size and stocking up more on major promotions. And we're seeing our own brand's growth outpacing the rest of our store and the market in general, both for the quarter and the fiscal year. Now these changes in customer behavior appear now to be stabilizing. As a grocer, there are levers we can pull to keep delivering great value to our customers and maintaining high foot traffic in our stores, including leveraging our own brand portfolio and promotional strategy. And we're doing that in both our full service and discount stores. While the inflationary environment requires a careful balancing act across pricing, promotions, and product mix, our team has done an excellent job managing through this period. However, the reality is that a lot of Canadians are struggling under the weight of inflation, and we hope this period of high inflation is short-lived. We are proud of how we managed through these ongoing headwinds to deliver the bottom line. This took some time. Our quarter ended better than it started, and our teams quickly pivoted to respond to the rapidly changing market conditions. Our margins were solid, and they are a direct result of good execution of the right strategy. not because of inflation. We are very pleased with our investment in Freshco, which has expanded our discount presence. The improved products and strong focus on value in our own branch portfolio are meeting the needs of customers, and we are finding ways to continue to offer value to customers across our entire network. Our consistently solid results through these challenging times demonstrate the positive impact of the improvements we've made. the consistent execution from our team, and the strengthening earnings power of our business. Project Horizon has been critical in driving these improvements, which I would like to turn to next. Year two of Horizon is in the books, and we are laser focused on execution going into our third year. We are now five years into our transformation strategy at Empire. When we started this journey, we had four priorities. addressing our then Byzantine organizational structure, taking significant costs out of the business, strengthening our brands, and fixing the West. To accomplish these goals required more than doing things differently. It required infrastructure investments that we were frankly behind on. The five major infrastructure investments we focused in on were, one, expand discount to the West, two, develop a scalable, profitable e-commerce solution, Three, enhance our own brand's offering. Four, winning key urban markets like the GTA, where our market share was too low. And five, evolve our loyalty program. In only five years, we've made major strides against all of these priorities, and the recent announcement of our co-ownership of ScenePlus and plans to transition to the ScenePlus program marked the final infrastructure step we need to make to transform our company and to continue to drive results. We've been eager to talk about our loyalty strategy for quite some time, but when we started our transformation, there were so many foundational investments we needed to make in personalization, data, technology, and marketing to even consider an evolution in loyalty. We have been steadily making these investments, and today we are well positioned to introduce such an exciting and meaningful new program to our customers. In partnership with our fellow co-owners, Scotiabank and Cineplex, we are transforming ScenePlus to become a preeminent loyalty program in Canada. ScenePlus is already one of Canada's leading loyalty programs with more than 10 million members, touching approximately 50% of Canadian households. As the CEO of ScenePlus said recently, ScenePlus members and extensive customer research told us that grocery is a very important piece of any loyalty offer. TeamPlus offers customers a superb assortment of opportunities to earn and redeem points across a broad spectrum of partners, like banking with Scotiabank, escaping to Cineplex theaters and entertainment venues, recipe restaurants across Canada like Swiss Chalet, Harvey's, and Montana's, and travel through Expedia. Redemption partners also include great retail brands like Best Buy, Apple, and Sephora. Grocery will be a key pillar of this program. ScenePlus members will be able to earn and redeem their points for food, and we simply cannot wait for our customers to access these benefits through our stores. For Empire, ScenePlus will allow us to thrill our customers and unlock the true power of personalization. It will deepen our relationships with our customers and reward them for their loyalty across many of our businesses. There is a mountain of opportunity here to thrill our customers, build our strength in data and personalization, and take our marketing and merchandising to the next level. We have robust transition plans in place that start with introducing the Theme Plus program to customers in Atlantic Canada in August 2022, and then rolling out to the rest of the country, culminating in early 2023. Through these plans, we will mitigate any disruption to our customers throughout this change. I also want to touch on two of those other major investments we needed to make in our transformation journey, fixing the West and developing the e-commerce solution. An important part of our Fix the West strategy was to introduce Fresco, our discount banner to Western Canadians, and we are very pleased that we decided to do this four years ago. Today, in partnership with our dedicated franchisee operators, we are running 40 Fresco stores in Western Canada. In the back half of fiscal 22, we increased our discount store footprint in the west by 40% and now have a presence in all western provinces. Our discount network is thriving and soon Freshco will have a completely new weapon to add to their arsenal, a competitive loyalty program. They previously had no loyalty programs. Turning to e-commerce, as you know, we have been investing in the only profitable and scalable solution for grocery e-commerce in Canada. Voila now has two CFCs operational in Canada with two more in development and 98 locations with curbside pickup. Grocery e-commerce, coupled with a strong bricks and mortar offering and a strong loyalty engine like ScenePlus, give us a competitive advantage over the other models currently in market. Our e-commerce business has come a long way since we opened our first CFC in Toronto two years ago. With the opening of the Ottawa Spoke, we can now reach approximately 90% of online spend in Ontario through Voila. We completed the launch of Voila par EJR in Montreal, which now covers approximately 95% of Quebec's online spend, and the transition has been operationally seamless. Net promoter scores for Voila! Par EGIA are higher than the EGIA net, and the service is attracting net new customers to Empire. Quebec dealers are happy to have all of their teammates focused on the in-store experience, and we are now setting our sights on the West at our future launches in Alberta and BC. We are proud to see these large infrastructure investments that have been key to our transformation journey come together. And while we are still clicking some of the final pieces in place, we're also delivering strong bottom line quarterly results. Today, Empire is focused on consistent day-to-day operations, while also strategically investing in the future. Finally, before I hand this over to Matt, I want to talk about capital allocation. We announced a 10% increase in Empire's quarterly dividend per share, which brings our five-year dividend tenure to 9.5%. As well, we announced that we renewed our NCIB to repurchase up to 10.5 million shares, representing 7% of our public flow. In fiscal 23, we plan to repurchase $350 million of shares. For fiscal 23, our capital spend will be approximately $800 million. About 50% will be used to continue renovating and refreshing our store network, expanding our Farm Boy and Longo's footprints in Ontario, and our discount network in Western Canada. By the end of fiscal 23, we will have touched almost 50% of our network over the six-year timeframe. Additionally, we will continue to advance our e-commerce expansion and invest in advanced technology. Now, Matt will walk you through this in more detail. I'll hand it over to Matt.