Empire Company Limited

And welcome to the Empire First Quarter 2020. The lines are in a listen-only mode. Following the presentation, we will conduct a comment session. We will give assistance. We will go for the operator. The panel is being recorded on Thursday, September 14, 2023. I would now like to turn the conference over to Ryan, VP Investment.

Thank you, Joanna. 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. The 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, Matt Rangel, Chief Financial Officer, Pierre St. Laurent, Chief Operating Officer, and Doug Nathanson, Chief Development Officer and General Counsel. Today's discussion includes forward-looking statements. We caution that such statements are based on management's assumptions and beliefs and are not subject to uncertainties and other factors that could cause actual results to differ materially. I'll 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 Medline.

Good afternoon, everyone. Fiscal 24 is off to a good start. This quarter, we delivered positive top-line growth while maintaining strong control over margins. We also advanced our key strategic priorities, including making several executive leadership changes to enable our go-forward plans. Despite the market volatility we continue to face, the strong results delivered in Q1 exemplify our team's ability to consistently execute regardless of the macro environment. I'm going to keep my comments short and to the point, as I believe our first quarter results speak for themselves. I'll focus on three topics today. Our Q1 results and key market trends, an update on our strategic priorities, including the recent leadership changes, SIEM Plus and voila, and the release of our sustainable business report. First, our results and market trends. Our sales, excluding fuel, grew 4.8% this quarter, with same-store sales of 4.1%. This was supported by stronger top-line performance in our full-service banners, as well as continued double-digit sales growth of our discount banner. Our internal inflation was well below CPI, reaching the lowest rate we've seen in 17 months. We have positive indications this trend will continue. For example, in non-Fresh categories, we implemented approximately one-third of the value of cost increases in Q1 versus the prior year. Nonetheless, the reality is that we continue operating in uncertain times with high market volatility, rising interest rates, and inflationary pressures. Customers are continuing to adapt their purchasing behaviors in this environment, including trading down to cheaper alternatives and buying on promotion. Not surprisingly, in Q1, we saw greater uptake from customers of our flyer and in-store promotions in both our full service and discount banners. Our team remains focused on providing the best value and offering to customers, including growing our value size offering, increasing the number of products with SIEMplus member pricing, and expanding our own brands assortment this quarter, which continue to outpace the market with double digit growth. This quarter, we improved gross margin by 19 basis points, highlighting the discipline of our team while driving top line growth. With our solid sales performance and margin control, we delivered a 40 basis point increase in adjusted EBITDA margin and an adjusted EPS of 78 cents in Q1. I'll move now to an update on our strategic priorities. With our turnaround era complete, we began fiscal 2024 focused on ensuring we are set up to deliver against our renewed strategic priorities. As part of this effort, we made several executive leadership changes in Q1. We placed a number of talented leaders into key new roles. This team will play a pivotal role in helping drive the next phase of Empire's growth as we enhance our stores-first focus. An update on another key strategic priority, ScenePlus. Just over a year ago, we launched ScenePlus in Atlanta, Canada, and at the time, the program had approximately 10 million members. Today we have successfully completed our national rollout and ScenePlus has grown to over 14 million members. We have seen our active loyalty members increase over 30% this year and program awareness and affinity continue to grow. Through this partnership, ScenePlus has become the second largest loyalty program in Canada and is not done yet. In August, ScenePlus welcomed home hardware to the program. On to Voila! This quarter we successfully launched our CSC3 in Calgary and seamlessly integrated Grocery Gateway into Voila. We are pleased to now be offering Sobeys, Farm Boy, and Longo's products across Ontario. Grocery Gateway customers have quickly embraced Voila with strong repeat order rates and customer conversions exceeding targets. We continue to see strong customer retention rates and order frequency across all of our CSCs which helped contribute to our CFC's gaining national market share this quarter. Moving to my last topic, in July we released our third annual Sustainable Business Report. We are the first grocer in Canada to have our Scope 1 and 2 near-term climate targets validated through the Science-Based Targets Initiative. As part of our commitment to continuous improvement and transparency, we also published our inaugural Task Force on Climate-Related Financial Disclosures Aligned Report. And with that, over to Matt.

Thank you, Michael. Good afternoon, everyone. I'm also going to keep my comments short before we open it up to your questions. Frankly, our adjusted results are very straightforward, driven by a quarter of strong, consistent execution. We're happy with our Q1 results, with an adjusted EPS of 77 cents, which is 7 cents higher than last year. But before we talk about our performance, let me walk you through the items we excluded from our adjusted results, as they were significant in Q1 and affected operating income, EBITDA, net income, and earnings per share. Firstly, we excluded the gain from the sale of our Western fuel business, which was completed on July 30th. This transaction resulted in a pre-tax gain of 91 million, which is reported in other income. After taxes, the gain was 71.5 million, or 28 cents of earnings per share. Secondly, we excluded expenses associated with our continuing plans to optimize our organization and improve efficiencies. In Q4 last year, we started with the merger of Grocery Gateway into Voila. In Q1, We began looking at our organization, and throughout fiscal 24, we will be incurring costs associated with these plans. In Q1, we incurred costs of $9.7 million pre-tax. After tax, these costs were $7.1 million, or three cents of earnings per share. Lastly, we excluded a small amount of cyber insurance recoveries that we received this quarter. The vast majority of our claims are now with our insurers for their review. These are complex claims, and we continue to expect additional recoveries throughout fiscal 24. These three adjustments reconcile our reported earnings per share of $1.03 to our adjusted earnings per share of $0.78. Now, let's turn to our financial performance for the quarter. We delivered same-store sales of 4.1%, which reflected stronger performance from our full-service banners and continued momentum in discount. Voila experienced a sales increase of 7.2% compared to the same period last year. Our gross margin rate, excluding fuel, grew by 19 basis points versus last year. Last quarter, I noted that we were starting to benefit from lower supply chain costs, and these trends continued in Q1, which was a contributor to our gross margin expansion in the quarter. Our SG&A rates, was 75 basis points higher than last year, but showing an improving trend from Q4. As I've detailed before on these calls, the higher SG&A dollar spend was mainly due to planned investments in business expansion, such as Farm Boy, Voila, and Fresh Go, but this caused also higher retail labor costs, partially offset by improved leverage from our higher sales. Operating income from the investments in other operations segments was $6 million lower than last year as a result of lower equity earnings from Crombie REIT, partially offset by higher development income. And as Michael mentioned, our adjusted EBITDA margin was 40 basis points higher than last year. Our effective income tax rate was 27.5% in Q1. The Q1 tax rate was higher than the statutory rate, primarily due to some revaluation of tax estimates, not all of which are recurring, partially offset by non-taxable capital items. Excluding any unusual transactions or differential tax rates on property sales, we continue to anticipate the fiscal 24 effective income tax rate will be between 25% and 27%. Our balance sheet remains solid, driven by strong free cash flow generation and strong discipline on capital spend. We continue to strategically allocate our free cash flow to deliver the largest impact to our business. In Q1, our CapEx totaled 124 million, mainly spent on investments in store renovations, construction of new stores, investments in advanced analytics technology, other technology systems, and our Voila! CFCs. As of this week, we have repurchased approximately 3.3 million shares for a total consideration of $115 million. And with that, I'll hand the call back to Casey and we'll open it up for your questions.

Thank you, Matt. Joanna, you may open the line for questions at this time.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you would like to withdraw your question, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. First question comes from George Dumais at Scotiabank. Please go ahead.

Yeah, good afternoon, Michael and Matt. Congrats on a good quarter. I just wanted to help us dissect that strong same-store sales number a little bit. How did conventional perform? How much of that was aided by the SIEM redemption activity? How much of that was aided by a competitor strike? perhaps temporary closure of some of the locations in Quebec. Maybe if you can just help us get a sense of that sustainability of that number on a go-forward basis.

First of all, thanks for saying that about our quarter, but the person who deserves most of the thanks, he's going to answer it, which is here.

All right, thank you for your question. Most of the progress we saw in our same-store sales are coming from... continuous strong transaction count in our full service business. So even in Q4 last, and Q4 was good, Q1 continued to be strong, but the biggest improvement is in the basket size. In our full service business, our basket size is back to where it was last year at the same time. So major, major improvement in our full service business. So we continue, I would like to repeat that, we continue to have higher transaction counts. and now we are seeing improvement in our basket size. That's the main reason why same-store sales have improved during the quarter. Concerning the strike, it did not touch the quarter at all, so it's in the next quarter.

In the next quarter, it's de minimis. We have 1,500 grocery stores.

It did not affect our Q1 same-store sales at all.

Okay, and I guess on scene plus redemption and maybe some close locations from another competitor in Quebec.

We continue to do a very strong progress on penetration and on scene. Better than expected. We have both planned. The conversion has been very smooth, honestly, for a change that size. Very minimal disruption. We added new promotional tools with ScenePlus. Member pricing is resonating a lot with customer right now, and we're pleased with that because it gives benefit to our best customer. So we really, really like the response of our customer with the new ScenePlus program so far. Everywhere in the country, it's consistent across provinces and regions, and banner, including discount, which is new for them.

Okay, and on Scene, specifically, just following up on that. On the press release, you mentioned next generation recommendation engine. Can you maybe talk a little bit about what that means, what that can do, and I guess ultimately that can translate to higher top line and margins?

Oh, yeah.

That's the – I mean, we're only in – you guys used to ask me sports stuff. You don't ask me that anymore, but if there's a baseball game – although my J's are struggling, this would be the first inning. So this is an unbelievably powerful engine we now have in loyalty, which is making a difference, like Pierre said. But what we're referring to, and we shouldn't use so much jargon, I think, in our press releases, is personalization. And we are early in the first inning of a baseball game there in terms of being able to use that. Although it's starting and we're making some progress, it is such an upside for us as we go forward to be able to use the data and be able to serve our customers better. But I apologize for kind of a – if that's what we wrote. I had to actually think about it for a second what that meant. But thanks for asking about it.

Okay, this is the last one for me. I know this is maybe a left-deal question, but on the unlikely event that we maybe see deflation next year, just wondering how our strategy would change. Is that all?

Please, for Canadians' sake, let's see inflation stop and a little deflation happen. We're so busy combating inflation every day. I'm not sure we have a whole plan on how to deal with deflation, but I think, Pierre, you've thought about it a little bit. We talked.

We expect the inflation rate to continue to go down, especially when we will cross peaks of last year in inflation. But we continue to see... Cost increases, not at the same magnitude than last year. Like Michael said in his opening remarks, something around a third of what we had last year at the same time, but less in number and less in magnitude. And we will cross very high inflation rate last year, so I expect to see a lower inflation rate in the next coming months. So that's what we expect, and But business in the market is so volatile, every time there's an announcement, we are seeing customer behavior changing. So we need to stay eyes on the ball and monitor that. We're trying to predict, but it's very tough to predict. But the trend is in the right direction for us, and we are seeing positive results in our same stores as in transaction accounts.

Okay, great. Thanks for your answers.

Thank you. The next question comes from Irene Nattel at RBC Cap Markets. Please go ahead.

Thanks, and good afternoon, everyone. Just following up on George's questions, with respect to ScenePlus, can you explain to us the types of personalized promotions you're offering now and where you want this to go, where you want to take this? And then also, what is the current attachment rate or the percentage of your transactions that now have loyalty attached to them?

Yep, I'm gonna ask Pierre to answer the first one, but he's gonna be very cautious in terms of, first of all, we don't wanna tell our competitors what we're doing. But the second one is we're basically already at the same level we were prior to Seeing Plus, already in terms of penetration, what we call penetration. That's what you're referring to.

Thanks. I'll approve. Personalization is something that I think everybody can read it in different articles. So we have a better visibility on what our customers are buying or not buying in our network. And we will offer them promotion and product that we believe that will meet their needs. So it could vary a lot depending on is it a family, is it a single person, we have a large range of data that we are using now and we are learning from it and we already started to do personalization at low scale. We are piloting a lot of things and merchandising team and loyalty team are learning every day and we continue to see progress on the results we're having with personalization and it's where we need to go. The market will move from mass promotion to personalization And it's exactly how we should manage it going forward. And we see a lot of potential of switching gradually, consciously, but gradually from mass to person.

That's very helpful. Thank you. And then just on a different topic, in terms of labor, obviously we all see what's going on as Canadians try and cope with very high cost of living. Do you have any significant contracts that are coming for renewal this year?

Hi, it's Michael. Thanks for the question, Irene. Yeah, we have many labor agreements every single year coming due. We just have so many, and this grocery industry is highly unionized. So in any given year, we have a lot. And remember last year, we unfortunately had the first strike we had in a long time at the Terrebonne facility, and we were able to come to a fair agreement with our teammates and get through it without really impacting customers at all. And so there's a bunch coming up. They'll be in the news, I'm sure, and usually we settle them. We are fair, but as you can guess, we don't take an unreasonable deal.

Understood. Thank you.

Thank you. The next question comes from Mark Patri at CIBC. Please go ahead.

Yeah, good afternoon. I wanted to just ask about gross margin and just taking a look at the trends excluding fuel You guys have been delivering gains for quite some time, but Q1 moderated from what we saw last year. I assume it's just, you know, partly a reflection of the gains already being embedded in the business, but can you just discuss any other drivers? I know you called out efficiencies and supply chain, but any elaboration would be great.

Yeah, thanks for the question, Mark. Yeah, so it's a very fair observation. You know, during the past six years, we've been able to expand our gross margins significantly. But that was Verizon. And now we're at the point now where we have a very strong, sustainable, stable business. So it's not as easy to significantly increase the margin. There's a couple of things to call out. Number one is that you'll notice our gross margin is not going down. And what that tells you is that all of those initiatives that we've delivered over the past six years were sustainable and continue to deliver that same level of performance. So that's number one, and that's the most important one. Number two is, yeah, we still continue to expand our gross margin. So 19 basis points for the quarter, some of which was driven by supply chain. And we have other initiatives coming in gross margin. But the days of having those massive increases in gross margin are probably behind us. What we are looking to do now, of course, is to have the right balance between top-line sales and improving the underlying performance of the business, which is reflected in gross margin. So that's kind of what our expectation is moving forward. In addition, what we should see is a mixed benefit as our full-service business continues to get better and get stronger. So we should get a mixed benefit on gross margin, too. I hope that gives you enough color.

Yeah, it does, and maybe just further on the sort of topic of mix and specifically fuel, I don't know if there's anything you can help us with just with regards to the impact of the divestiture in Western Canada in terms of impact on sales, EBITDA, or even just margin rates.

Well, it's not going to have a significant impact. It wasn't a big piece of the business. We can give some details offline, but Particularly with regards to gross margin, let's not forget that fuels are a very low margin business, so it will have a small impact on gross margin, but nothing worth calling out.

Yeah, okay. And then, Pierre, just I guess on a related question just with regards to SKU count, is there anything sort of notable there? Is that relatively stable? Are most of the changes stable? there sort of fully flowed through? And then just from a supplier perspective, any change in terms of product availability or what you're seeing with regards to skew count or innovation from your supplier partners? Thanks.

That's a good question because it's key for us in our full service business, the assortment. And the thing we are seeing over the last couple of months and quarter, it's an improvement from our supplier to bring back the assortment that we're looking for because it's key for our differentiation and we're seeing improvement on service level in both what we call the OTIF in the industry so suppliers are more are filling our orders are more on time we are seeing improvement in service level and the skew count is almost back to where it was pre-pandemic there's some category where we are still working on, but it's a matter of time that we'll be back. The thing I'd like to also mention is we continue to expand our assortment in own brands. And in the next year, we will expect to expand our assortment in own brand because it resonates a lot with customers right now. Own brand continue to overperform the market. We continue to deliver solid margin with our own brand. and it's another element that contributes to our performance overall on both sales and margin. So we're almost back to pre-pandemic, and we will expand our assortment in the on-brand going forward.

Okay, that's excellent. Thanks for all the comments and all the best.

Thank you a lot.

Thank you. The next question comes from Tammy Chan at BMO Capital Markets. Please go ahead.

Thanks. Pierre, I wanted to go back to the same store sales. You said that the biggest driver is the basket coming back to essentially the last year level. And I was wondering if you could maybe opine a bit on what's driving that because your competitors are saying that discount just continues to be strong and the trade down behavior is still very much in play, but clearly what you're seeing is shoppers to your full service. They're bringing some more of the basket back to there. So what do you think might be driving that? What's going on there? Because we seem to be getting a little bit of a mixed messaging on both sides.

Okay, that's a good question. We continue to see a difference between discount and full service, so that's true. However, to explain our performance in our full-service business, I think I'd like to thank our merchandising team and operation team. They have been very good to showcase the value we can offer to customers in a period like we are dealing with right now. So in terms of promotion, we adjust our promotion. The promo mix is well under control. We are very competitive on our promotion. We are able to manage it through different promotion tools. We are promoting big size, own brands, promotion, value proportion. I think that it's a combination of many tactics that drive back the basket. and they do magic. It's a lot of small things that drive this improvement, in my opinion. Plus, I think customers are adjusting their budget, and again, I just want to call out that again, our customers remain in our stores. We continue to have strong transaction counts in our full-service banners across the country. They did trade down for obvious reasons, but we have been able to showcase the value we can offer outside their normal behaviors and normal purchases. So that's where the improvement is coming from.

Okay, interesting. So I know you said earlier that promotional penetration is elevated naturally because the consumer is looking for deals. But how about promotional intensity? How would you characterize that? It sounded like from your answer to my question just now, maybe your intensity has gone up, or are you saying you're not necessarily on an absolute level promotional intensity has gone up, but rather you're being a bit more finesse and strategic about your promotions in the full service channel?

I don't think the intent. Intensity, I don't see major changes. The thing we know and the thing we are seeing in customer behavior is, and it's not a surprise there, but people are looking more for deals. Our job is to offer them good deals. And maybe there are some deals that are less good than others. And I think the team has been able to find the right deal for their needs. And yes, we are seeing more promo penetration, but not more intensity. And the promo penetration is obvious for this reason, as I said. But they have been able to balance all of it and adjust their promotion plan to the customer needs. That's what I can say, but there's pressure on promo for sure, but not on the intensity, if I may.

Okay, got it. That was it for me. Thank you.

Thanks, Tommy.

Thank you. The next question comes from Michael Van Eyst at TD Cowen. Please go ahead.

Hi, good afternoon. I wanted to ask you about ScenePlus as well, since you've covered a lot of things that I was going to ask. But now that you've got Scene in Ontario for about a year now, and you've got it across different formats, can you provide some insight as to how your customers are shopping multiple banners, and then as the customers look to, or can at least consider going more back into those conventional banners, what kind of tools or what kind of strategies you might be using to keep them within your own ecosystem?

So now we have the, so first of all, we introduced ScenePlus and Discount Banner less than a year ago. So it's fairly new. Ontario, it's also new. It's not a year. We launched Ontario in November last year. So it's early days, but we know that people are shopping multiple channels, e-com, full service, discounts, long goes, farm boy. And now we are seeing, because we are offering all those brands in Voila, that's the intent. We want to keep customers in our ecosystems of brands. And now we have the tools with ScenePlus to measure that and to behave accordingly. So it's early, but definitely that's the intention to keep our customers and our ecosystems of brands.

Michael, do you remember we talked about how when we introduced the umbrella over kind of the omni-channel experience? So what we want is a customer shop in each of those different channels that they're shopping in an empire channel. and the hook that keeps them there is C. So having that loyalty program over all of our banners and channels. So, I mean, it's early days, but that's obviously what the intention is, and we start to make progress in that regard.

Okay. And at this point in time, is it too early to see if the umbrella is keeping them within your ecosystem as they start to change banners or banners? you know, or segments of the market?

Yeah, I don't, I mean, it's so early, I don't want to extrapolate. I said before we're really, really happy with the scene program, but I don't want to extrapolate from as little history and data as we have and then have to come back to you and tell you it was better or worse or whatever. I think that we obviously have a way better view of our customers than we've ever had before, but I'm not going to pretend we know everything they're doing at all times yet.

All right. Sounds good. You sold your, whatever, 15% or so of your gas stations. I'm wondering what the plans are for the rest of those stations, and are there other assets that you might be looking to divest that you might consider non-core?

I think our answer on this is consistent. Our fuel stations in the West were non-strategic in that they didn't have a big convenience store attached to them. They were literally just a fuel site. Our fuel stations in the east have come with a much more refined and substantial convenience store, so it's a much more kind of strategic piece of our business. So right now we have no plans to divest of that piece of the business.

Yeah, that's it. As for other assets, No, I think we're happy at the moment with our mixed assets.

All right. Thank you.

Thanks, Mike.

Thank you. The next question comes from Vishal Sridhar at National Bank. Please go ahead.

Hi. Thanks for taking my question. With respect to the customer changes that you indicated or suggested that would happen several quarters ago that are happening, I think – You suggested that when inflation stabilizes, you anticipate your conventional banners to gain some momentum. We're seeing that in the results. I'm wondering if you're seeing the same thing in your e-com business, and if not, maybe what's causing that difference?

I'll talk just generally, and then Pierre will talk about the Voila report to him now. Yeah, I think we called it pretty well when we came out, what was it, nine months ago? And we talked about that we were seeing was as we had a strong belief as inflation abates, we're going to do much better. I think it was a little tiny bit slower than we would have liked to see for Canadians and for our business. And I'd say that nothing's a straight line, right? It's choppy. The consumers are skittish out there. But the The line, the trend, the momentum is exactly what we called. Just a tiny bit slower, I think, than we would have liked. But I think that Pierre is right to say before, we're not economists, we're not in the government. The government knows everything. We don't know everything. But I think we called it pretty well right, and we are becoming cautiously optimistic that – that the consumer is going back to their previous behaviors and that inflation is going to greatly fall in grocery. I can't call every other industry, but we know grocery okay.

And just on the Vola piece of that.

So Vola itself in the last quarter grew market share. We're pleased with that. Customer metrics continue to be strong. Summer is traditionally soft and we are seeing customer back right now because back to school, fall, etc. And we added SKUs in our CFC1 with Voila. We just launched CFC3 in Calgary. So with fall and cold weather and better assortment and we'll continue on this trend to grow market share with Voila. It's the best infrastructure to go after the e-commerce business, and we continue to believe in it strongly.

Okay, thank you for that. And regarding Voila, after the next CFC launches, is that it for substantial infrastructure investments for Voila? And if so... then what would be the next steps to add Accelerant to that business so that the sales are where you'd want them to be?

That's pretty well the last step at this time. At the same time, I believe at some point, the law is going to be booming and it may justify more investment or we'll fill up CFC1 and we'll need some more. Those are really good problems that occurs. But after... after Vancouver, that's it, and so that the capital's invested, I'd say, 95, 99%. We might do a few spokes here, you know, that's about it. But we'll cover 80, what percent of the population will those four cover now?

90% of the e-commerce.

90%, so, which is pretty good, four shares, 90% of the population, and... And, you know, everything you look at strategically shows that this is going to grow. It's grown slower, perhaps, over the last couple of years than we would expect it, but I think we're in good shape.

Okay, and after that fourth CFC is installed, is it a period of time after which the exclusivity fades? And if it is, can you just remind me on how that works?

I have a confidential document I'm not allowed to share, but I think you know us well enough that we like exclusivity for a long, long time. So that's all I'll say.

Thanks. Thanks for your time.

Thanks.

Thanks, Vishal.

Thank you. And the last question comes from Chris Lee at Desjardins. Please go ahead.

Hi. Good afternoon, everyone. I'll just maybe start off with a follow-up question on the the basket size getting stronger. I was wondering if there are certain categories that are helping that growth. And I know in the past we've talked about fresh was one category where you saw more trade-on in the beginning, but there's only so much frozen and canned food that people can eat. So as inflation moderates, is that sort of one category that stands out that you're seeing that basket being stronger?

A good question. I don't have the number in front of me by category, but one thing I can say is where we saw the biggest trade down was in fresh categories. So it's where people may sadly cost a cut in, but now we are seeing adjustment and we are seeing fresh sales going up. Again, I think there's something also related to the efficiency or promotion and the relevancy or promotion that help bring back fresh sales. Yes, I think because fresh has been more impacted with trade downs, it's fair to assume that part of the progress may have been done in fresh because non-fresh has remained consistent even in high peak of inflation. People may trade downs, but overall the non-fresh category remains strong in sales and in tonnage versus non-fresh. I think it's mostly coming from fresh category where we make progress.

Okay, that's helpful. Maybe another question is, I'm not sure, you know, if you look at your own internal data, are you seeing any notable slowdown in restaurant sales these days as consumers looking obviously to save money? And if that is the case, is that benefiting your sales? And do you think that's one of the reasons that you're seeing stronger sensor sales?

I think it's a fair assumption. People will adjust their budget in cutting, probably, restaurants. Not for everybody, again. I like working with averages. Every customer has different priorities, and I respect that. But, yes, we are seeing good momentum in fresh category, like, you know, like Dilly, HMR, people are coming back. In our country, it's a very good option to manage their budget at a low cost when they don't want to do cook at home. And we have an amazing assortment of our store in HMR because of our full-service presence across the country. So I think it's a fair assumption that this fall the restaurant business could have some challenges, but we're there to meet customer demands for sure with our assortment.

Okay, that's great. Maybe I have a follow-up question on food inflation. As you know, last week, Kroger in the U.S. noted that the pace of disinflation is occurring at a faster rate than they originally expected. When we look at Canada, at least the StatCan number, it seems like inflation is slowing, but it's very moderate. Michael, based on your internal data, are you seeing something over the horizon that would suggest that maybe the pace of slowing inflation can accelerate in the coming months? Are you seeing anything of that source in what you're saying?

I'll preface it by saying I'm not an economist, but everything we're seeing is a slowing inflation rate in Canada. We've hit the lowest inflation rate last quarter and in recent periods that we've seen in 17 periods. And we continue to see that trend. I'd say If you look back a year, I would have thought it would be lower than this. I did say in my script that our inflation is quite a bit lower than what's being reported in CPI. I only know us, but that's what we're seeing. I guess we've been bitten so many times lately that we get a little scared of saying anything, but I think we're heading in the right direction.

Gotcha. Okay. And my last question is, I apologize if you've mentioned this already, just wondering if you can comment on, you know, your signature sales, how are they trending sort of fiscal Q2 today? Is it similar to what you achieved in Q1?

No, we don't. I think we're not going to talk about the quarter we're currently in. It's just I don't think it's the right thing to do.

Okay. That's right. At least I tried. Thanks a lot, guys.

All the best. Good try, and the train is coming through Pictou, so you might not even be able to hear it soon.

Thanks.

Thank you. There are no further questions. I will turn the call back over to Katie Bryan for closing comments.

Great. Thank you, Joanna. We appreciate your continued interest in Empire. If there are any other unanswered questions, please contact me by phone or email. We look forward to having you join us for our second quarter fiscal 2024 conference call on December 14th.

Talk soon.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.