Empire Company Limited

Good afternoon, ladies and gentlemen, and welcome to the EMPIRE first quarter 2025 conference call. At this time, all lines are in the lesson-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. This call is being recorded on Thursday, September 12, 2024. I would now like to turn the conference over to Katie. Please go ahead.

Thank you Julie. 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, Matt Reindell, Chief Financial Officer, Pierre Saint 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 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 Metline.

Thanks, Katie. Good afternoon, everyone. Fiscal 25 has started with good momentum. As I said last quarter, we have become a disciplined, efficient grocer that is focused on delivering consistent earnings growth. This was reflected in our Q1 results, with strengthening team store sales growth and strong control over our margins and costs. Our team remains focused on strong execution and operational discipline, and we continue to see incremental benefits as our strategic initiatives pick up traction and deliver results. Although this is not yet a strong economy, nor a strong consumer environment, we are beginning to see market conditions gradually improving, supporting a return to more predictable and favorable customer shopping behaviors. We said previously that as inflation moderated and interest rates began to decline, it would be a positive inflection point for full service, and we've been seeing that over the last six months. 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 two topics today, our Q1 results and market trends, and an update on our strategic priorities. First, our results and market trends. Sales excluding fuel grew 1.3% this quarter, with same store sales of 1%, showing improving top line growth, particularly when stacked against our same store sales of 4.1% from the prior year. We are pleased that CPI's food inflation has remained stable at around 2% for several consecutive months, contributing to a more predictable operating environment. Both our full service and discount channels are growing faster than their respective markets, and we are optimistic that our positive top line trends will accelerate in the year ahead as the Bank of Canada continues to decrease interest rates. We also believe that the gap between full service and discount same store sales will continue to close as the economy improves, which will be advantageous to us as we can continue to lean into our strengths as a full service grocer. Last quarter on our investor conference call, we were asked a very good question as to what we were seeing from the customer that gave us confidence that consumer health was gradually improving in our business. When we look at consumer trends over the last quarter, we're seeing several early indications the customers are returning to a more favorable and predictable shopping behavior. Customer traffic continues to grow in our stores and we're seeing smaller declines in the average basket size. We're also seeing a decrease in the average number of stores shopped by Canadians. And for the first time in many quarters, promotional penetration is flattening after several consecutive quarters of increasing promotional customer behavior. These are all early indicators that consumer sentiment is improving and while it will still take time for stretched customers to fully return to their more typical purchasing behaviors, these factors are translating into the very early innings of positive sales momentum for Empire. Gross margins continue to improve this quarter supported by an unrelenting focus on stores, supply chain and purchasing more effectively. Margin improvement of 46 basis points outperformed our stated goal of 10 to 20 basis points over the medium term. While this improvement was driven by many small but meaningful actions, a few initiatives that continue to enable our growth include the ongoing deployment of space productivity and our committed focus on improving non-theft shrink. One example includes enhancing our store distribution and replenishment processes to ensure our shelves are stocked with the optimal assortment and quantity. For several quarters, we've been increasing our focus on being a customer destination for fresh products. These efforts are paying off as we're seeing solid growth in this segment of our business, which also contributed to our margin performance this quarter. We also benefited from a more predictable promotional environment in Q1, as I mentioned, which made promotional tonnage more stable and therefore easier for our merchandising team to manage. Overall, we delivered adjusted EPS of 90 cents this quarter, our highest ever. Even when excluding other income and share of equity earnings, we delivered earnings improvements in Q1 versus the prior year, which, as a reminder, was our strongest quarter last year. While the operating environment has fluctuated significantly over the last few years with several periods of extreme volatility, we've consistently protected the fundamentals of our business while also implementing new strategic initiatives and establishing the processes and discipline needed for us to consistently deliver these strong results. Now for an update on some of our strategic priorities. First, ScenePlus. ScenePlus and the related strength it gives us will be a key driver of growth for Empire. A year and a half ago, we completed our rollout of ScenePlus across Canada. Today, the impact ScenePlus has on our customers and business is exceeding all of our expectations. We have over 15 million members. Our CN Plus members are now spending on average 55% more than non-members. CN Plus has significantly boosted our incremental sales and margin compared to our prior loyalty program. We are scaling personalized offers and seeing promising results, and our supplier partners are enthusiastically supporting our efforts. As I said before, we are still in the early days of this program, And while we've made significant progress, there remains much opportunity to drive even greater value to our customers. Next, space productivity. You'll recall that the first phase of this program focused on deploying optimized category planograms by banner and region based on our algorithms, which was completed in fiscal 24. Every market is different, and our space productivity program has enabled us to better align our layout and offerings to the unique customer profile of each respective market. As one example of this, based on the algorithm outputs in one of our regions, we changed one of our large frozen categories to offer a greater proportion of premium products. Although this change was not an intuitive merchandising move, the team trusted the data and by making this change achieved double digit sales and margin growth. This is just one example. and we are very pleased with the value being delivered from the first phase of this program. Phase two of space productivity is well underway, and it focuses on optimizing the non-fresh space across categories. This is not a cookie-cutter approach, as the algorithm considers each store's size, customer demographics, and local preferences, and takes this into account as we optimize the store layout. This includes analyzing category and product adjacencies and the flow of aisles to ensure the optimal flow for our customers. Originally, this phase was focused on full-service stores, but with the success we've seen from our initial pilots, we have also begun to rapidly roll it out at our discount stores. And now, for a quick update on Vola, we continue to see strong top-line performance with sales growth of 26% Q1. The operating improvements we are making, such as optimizing routes and enhancing product assortment, are helping to drive volumes and improve profitability. We are also continuing to work closely with our partner, Ocado, to enhance the customer experience. For example, in the last quarter we made a number of website enhancements to reduce areas of friction in the consumer journey. Beyond Voila, we are also activating several other meaningful growth opportunities within e-commerce so that we can serve more types of customer trips and have access to a larger segment of the market in a capital-light, accretive manner. We look forward to sharing an update with you on this next quarter. And with that, over to Matt. Thank you, Michael.

Good afternoon, everyone. I'll talk about our quarterly results, provide some color on our expectations for the rest of the year, And then we'll move on to your questions. Our performance in Q1 was solid, especially as we were lapping a strong quarter last year. In Q1, we delivered a record adjusted EPS of $0.90 compared to $0.78 last year. While we did benefit from higher other income and share of equity earnings, even if you exclude these items from both years, we continued to deliver EPS growth versus last year. Same-store sales was 1%. which is notable, giving our strong performance of 4.1% last year. We delivered sequential same-store sales improvement, which along with low food inflation, declining interest rates, and stable promotional penetration, are good leading indicators for more normalized consumer behavior in the quarters ahead. At Voila!, our sales were 26% higher than last year. While this marks the fourth consecutive quarter of double-digit growth, it will become more challenging to match such a high watermark in future courses as we start to lap this stronger level of growth. Having said that, we do expect to deliver strong sales growth at Voila, and as Michael mentioned previously, we are also pursuing several opportunities to drive overall e-commerce sales growth. We're also very pleased with Voila's progress on addressing their profitability. Our gross margin rates, excluding fuel, grew by 46 basis points versus last year, reflecting continued progress on this key line of the income statement. While this increase tapered versus Key 4, the increase reflected many of the actions we have taken to improve margin, such as, one, improved efficiencies within our stores and processes, including space productivity, and two, lower shrink due to improved inventory management and more predictable promotional volumes. We continue to target 10 to 20 basis points of margin expansion per year, but we're pleased that over the past few quarters, we've outperformed this medium-term expectation. Now let me turn to SG&A, which was very consistent with recent quarters. Our dollar spend increased by 4% year over year, mainly due to higher investments in the store network, tools and technology to support our strategic initiatives, higher compensation expense, including retail labor, and higher depreciation. This was partially offset by lower utilities costs and benefits from our cost savings initiatives. As with prior courses, our SG&A rate was about 70 basis points higher than last year when you exclude the adjusting items, which was slightly higher than the increase we saw in Q4. We are pleased with our continued focus on cost control particularly in this lower sales growth environment. So, when sales growth ramps up, largely due to improvements in consumer sentiment, we expect to generate a better leverage of our fixed costs, and as a result, we anticipate that the pace of SG&A rate expansion will taper through the latter part of the year. Now let's move to other income. Excluding last year's gain on the Western Canada fuel sale, The contribution from other income and share of equity earnings was $26 million higher in Q1 than last year, primarily reflecting the sale and leaseback transaction that we announced during our Q4 earnings release. Recall that in Q4, we started to provide guidance on our expectations for other income and share of equity earnings, and we believe that this guidance provides investors added transparency into our quarterly performance. We continue to expect that in fiscal 25, pre-tax aggregate contribution from these two line items will be in the range of 135 to 155 million. Given the timing of certain transactions, we now expect the quarterly cadence to be as follows, about 20% in Q2, 15% in Q3, and 25% in Q4. Our effective income tax rate for the quarter was 22.9%. which was lower than the 27.5% we had last year. The lower tax rate is primarily due to the non-taxable portion of capital gains related to the aforementioned sale and leaseback transactions, and the revaluation of tax estimates. If you remove real estate items and revaluation of tax estimates from both years, the tax rates are very similar. For fiscal 25, excluding the effects of any unusual transactions or differential tax rates on property sales, we continue to estimate that our effective income tax rate will be between 25% and 27%. Finally, let me provide some details on our adjusting items, but there are no surprises here. Firstly, as we communicated in Q4, we excluded a one-time non-cash charge related to ending e-commerce exclusivity. The after-tax impact was $8.8 million. Secondly, we had an adjustment for restructuring expenses of 2.1 million. These two adjustments reconcile our reported EPS of 86 to our adjusted EPS of 90 cents. Our balance sheet remains solid, driven by good free cash flow generation and strong discipline on capital spend. Q1, our capex totaled 152 million, mainly on store renovations, construction of new stores, and IT. Regarding share repurchases, As of this week, we have repurchased approximately 3.9 million shares for a total consideration of 141 million. And one more item to highlight, we released our fiscal 24 sustainable business report in August. We're pleased with our progress. And as you'll see within this report, we continue to make progress against many carbon reduction projects with solid plans in place to achieve our targets. So to wrap up, We are increasingly optimistic for fiscal 25, particularly as interest rates continue to come down and consumer sentiment gradually improves, both of which will gradually enhance our top-line growth. Our solid execution, demonstrated by solid same-store sales, gross margin expansion, and improving cost control, plus our commitment to our share-buy-abide program, gives us confidence that we can grow our EPS in line with the long-term average annual target of 8% to 11%. as set out within our financial framework. And with that, I'll hand the call back to Katie for your question.

Thank you, Matt. Julie, you may open the call for questions at this time.

Thank you, ladies and gentlemen. If you'd like to ask a question, please press star 1. To withdraw your question, press star 2. One moment, please, for your first question. Your first question comes from Tammy Chan from BMO Capital Markets. Please go ahead.

Hi, thanks for the question. So sticking with the top line here, obviously we also see other macro data points that's still painting the consumer is under pressure, no material change. And I'm just wondering, can you talk about, are you finding the customers or shoppers at your banners, like are they skewed a bit more to higher income and so this cohort is starting to feel better and earlier than the average consumer. Were there any differences in the comp in your different regions or certain banners like IGA? Can you talk a bit more in those respects?

Thanks for the question. I'm not privy to everybody else's detailed results or other industries as well. But we are under no misconception that this is a hardy economy. This is not a good economy for Canadians. And I was clear on that at the beginning, I think, of my script. At the same time, as I said, we are seeing small, gradual improvements in the consumers that we service across every single one of our businesses. In terms of regionality, interestingly, We were up in same-store sales. Sorry, we improved our same-store sales in every region that we do business in. And by the way, we're not popping champagne at 1% comps. But given where we've been the last couple of years in terms of the economy in Canada, given that we're predominantly in full serve and now we're seeing that but as I said last time, inexorably close, we're seeing early returns. And we've been saying that. I think Matt and Pierre and I have been saying this now for 12 or 15 months, that we needed inflation to get down historically normal levels. It has. And we need to continue to see interest rates fall because we need Canadians to feel better about the economy and not be as affected by certain things like shelter costs. So I can't talk about, you know, I'm not in Bank of Canada and I'm not working at other companies, but I can just say what we're seeing, which is early and gradual improvement, which I hope continues.

Okay, got it. I mean, on your last point, you know, I remember a couple of quarters ago you saw some encouraging behavior, but then it appears the consumer retrenched. I get the sense what you're seeing now is Yes, it's small, it's gradual, but it sounds like you're quite encouraged that this may be a somewhat consistent trajectory. Is that fair to say?

We hope so. We can only report on what we saw, and we're talking about it now. We said what we saw in Q3, Q4, and Q1 now, and we're seeing a little bit of that, but we need to see interest rates continue to come down, and we need to see the macroeconomic environment continue to improve. I mean, this was a solid quarter. But if we can see a much better economy, we expect to continue to perform more strongly than this. But this was a decent quarter, a strong quarter, and one which we said, I think Matt has been very clear when he's talked to you and I have been the same, that we expect as things improve that our business, the way it is skewed, and we're happy with that, would be stronger. Early days, early days.

Okay. Got it. And I also wanted to just ask on ScenePlus, so that number you provided, the 55% more, so is that the Scene members spend on your banner specifically? And I'm also wondering, I don't know if you can give any update on the penetration of your sales that are on ScenePlus and where you might be at in your journey on more and deeper personalization. Thanks.

Thanks, Tammy. I'll take that. So yes, the 55% number is spending in our stores. Obviously, that's the data that we have available to us. So we're very pleased with that number and we hope and trust that it's going to increase. And then in terms of Penetrate, that's not numbers we're going to share, just obviously for competitive reasons. But the most important thing is that 55% number and that trajectory, which is heading in the right direction. So we hope that 55% will increase.

And I think you had one other question in terms of personalization and being able to use the data for that. Our early forays have been successful, better than successful, and we just got to ramp that up, and we're still early on that. There's an upside there.

Thank you.

Thank you.

Your next question comes from Aaron Natal from RBC Capital Markets. Please go ahead.

Thanks, and good afternoon, everyone. Really appreciate all the color that you're sharing in terms of consumer behavior. It's quite helpful. I actually had a question. You intrigued me with your commentary on Voila around the work that you're doing. Should we be expecting you to announce some kind of partnerships, perhaps in the non-food area, on the e-commerce side? to sort of leverage or trying to understand what you were hinting at.

It's a little cryptic as we are just finalizing some things right now on something, but it's not in the news. It would be on different ways to serve our customers in e-commerce with partners.

Okay, fair enough. Understood. Thank you. That's very helpful. Thank you. Yeah, no, that's a great clarification. Just sort of one last question on consumer behavior. You noted that penetration of promotion is stabilizing, that maybe there's a little bit less on cross-shop. What are you seeing sort of on a category basis with respect to trade down, you know, to private label or in the protein categories, that kind of thing. Are you also seeing early green shoots there?

I'll take this one. So on private label, we continue to see continuous improvement, continuous increase in penetration. And as I said many times before, Every time we are shifting sales from national brand to private labels, we are contributing for improvement on margin rate and penny profit. So this is good for customers. It's good for us. So this is a trend that we're seeing continuous improvement. And also, we are seeing in 30 days again, but we're seeing more appetite for customers to come back in the fresh categories. So we are seeing that in our number. So fresh is trending up right now. So it's where people made choices or tough choices, I think, in the past. And now we're seeing more traction in those categories, but nothing specific into the fresh category. But fresh category is doing well right now.

That's great news.

Which is good for us because assortment in fresh is our strength.

Absolutely. Thank you.

Your next question comes from Chris Lee from Desjardins. Please go ahead.

Good afternoon, everyone. Michael, I remember last quarter you mentioned that all it takes is for you guys to have your customers add one or two items more to your basket to kind of make the math work. Are you starting to see that in the quarter?

We're seeing... Trend improving in a basket size in all regions. Good question if it's in unit or if it's in dollar. So it's 30 days again. But immediately after this call, I will dig into it to understand if it's unit or dollars. My feeling is it's a mix of both. But again, it's 30 days. It's a small improvement. And because the customer sentiment is improving, I suspect that it's coming from both. So more spend and more units in the basket.

Okay, that's helpful. Thanks, Pierre. And then the question I have is, you know, your two-year stack food center sales for the quarter was quite strong, around 5%. I'm not sure if this is the right way to look at it, but I'm curious, is the two-year stack level, are you still seeing that 5% continuing for quarter two? Is that a fair statement?

No, I wouldn't look at it that way, Chris. Again, honestly, we don't really follow two-year stacks. What I would say when you look at Q2 versus Q1 is I would follow the general counsel we've given, which is we expect our sales to be pretty much the same in Q2 and Q1, but we expect the consumer sentiment to gradually improve. And if that consumer sentiment gradually improves, then you would expect our comps to gradually improve. So we are 1% in Q1. I would assume a gradual increase versus that. That's what we hope for.

Okay. That's helpful, Matt. Thanks for that. And my last question is, as the consumer sentiment continues to improve, are you seeing a corresponding increasing e-commerce penetration just for the industry as people have more money, they buy more online? Is the pie getting a little bit better for e-commerce?

I think we'll, yeah, it's going to continue to get better as the demographics improve and e-commerce catches on more and as we also increase the market. It's hard to comment on e-commerce. I'd like another quarter or two to be able to give you a really good answer in terms of penetration because I I don't want to give one-on-one quarter. It was a good quarter, but it's in the summer months, which is our smallest e-commerce quarter. So, yeah, we're optimistic about that, but we try to base all our comments on some facts here, and I just don't think I have enough yet to say there's a trend. But, yeah, we believe this is going to grow. How quickly? We should bet a better idea over the next quarter or two. We'll give you a better... sense of that. We'll write this down right now and try to talk to it if we see anything next quarter.

Okay, that's how. Because I was asked because you guys are posting double-digit sales growth, so it seems like it's more market share gains that's helping driving that growth and not so much the market growing per se.

Yeah, I think we've seen the market grow a little bit over the last while and most of it's market share gains. And as Matt said, some of it in the last four quarters that we're now completing was integrating some grocery gateway customers in as well, so it's a combination there.

Okay, great. Thanks, and all the best.

Thanks, Chris.

Your next question comes from Michael Van Hills from TD Cohen. Please go ahead.

Thank you. So I wanted to go back to the gross margin comments that you made. For a few quarters, I think you've said 10 to 20 basis points is the long-term kind of target expansion on an annual basis. But you had some bigger improvements that started in the second half of last year in Q3, Q4, and then we saw it again this quarter. Should we just assume that you've got another quarter of lapping these higher level of gross margin contributions before we start seeing that 10 to 20 basis point increase? more normal run rate kicking in?

Yeah, that's a great question. Thanks, Michael. So a couple of things to know. So again, when we look at our gross margin expansion, as we've said in previous courses now, there's not any one major item that's driving the improvement. It's really a series of smaller initiatives that are all positively contributing to that, which is good because it's all sustainable evolution. With regard to the year-over-year increase, what's interesting is if you look at the sequential improvements on a quarter-to-quarter basis, so in Q3 we increased by 87 basis points, in Q4 by 68 basis points, in Q1 by 46 basis points. So you can see sequentially those increases are getting lower. And you might expect that for Q2. So we do expect to still grow margin, but probably not in the 46 basis points range. And then to your point, you're absolutely right. When we start to lap Q3 and Q4, those were the quarters that we really increased margin a lot last year. So we'll see what our performance is like when we get to that point. But 10 to 20 basis points is more of our expectation. And again, just to remind everyone that 10 to 20 basis points is our annual expectation on a medium-term basis. So that guides all of our short and long-term planning as we generate the plans for the business. Some of that growth comes from mix, some of it comes from the core business, but that's our medium-term expectation.

Okay, so that's helpful. Yeah, that's definitely helpful. So if we were to take a look at just the big building blocks to get to your 8% to 11%. The operating income growth seems to be at a level that you're comfortable with right now. The gross margin expansion is still solid next quarter, but then let's assume that it falls into that 10% to 20%. Beyond that, I guess, it's the top line that we really need to see to drive the earnings growth if we kind of normalize or flatten out the quarterly differences in the other in equity income, right?

I think your summary is spot on. When we look at our financial framework, almost half of our expectation comes from share buybacks. So let's start with that. As you know, Michael and I are big fans of share buybacks, and we will continue to execute that at that $400 million range. And then the other piece of it is net earnings. And you're absolutely right. We continue to improve our gross margin, which helps. But we continue to invest in SG&A, and we're not shying away from that. We have our strategic initiatives, which require funding, and they need investment. So that's not something we're shying away from. The consequence of that is absolutely, as you said, is we need sales to increase. So what we're pleased about, Michael and I will use this word frequently over the next few weeks, but it's gradual. So this gradual improvement of consumer sentiment, which translates to a gradual improvement in our top line, which will lead to a gradual improvement of leverage of fixed costs, is what we need in order to generate that last piece of the financial framework. So, sorry, that's a long-winded way of saying I agree with you, but I just thought I'd add a little bit more color.

Oh, that's great. That's very helpful. Thanks very much.

Thanks. Your next question comes from Vishal Sridhar from National Bank. Please go ahead.

Hi. I was... I was interested in your comments where you mentioned that your conventional banners are outperforming their peer set and the discount banners are outperforming the peer set. That is coupled with square footage growth, which is relatively modest. Is it fair to say that this is happening from organic same-store sales growth versus the industry?

I would say mostly, but we expanded square footage in full service with Farm Boy, and we expanded square footage in Freshco also with Moonsight. So it's coming from both, but yes, most of it is coming from same-store sales.

Okay. And with respect to square footage growth looking forward, how should I think about it?

Yeah, I mean, we... As we noted in our capital plans, when you look at the split of how we allocate capital, half of it will always go to focus on our stores and the combination of new stores and renovating our stores. I think new stores has not been a major pillar for us in the past, but they will start to be more of one moving forward. But again, I would say that's a gradual shift in that direction. So you're right. New square footage hasn't been huge for us. We have grown new stores, as Pierre said, with Farm Boy, with Longos, with Discount. And that will probably become a little bit more in the years ahead.

Okay. So for this fiscal year, maybe around the status quo and then expect that to gradually build. That's fair?

Yeah, I mean, we are gradually – we are adding new stores this year, but it's mostly renovations. So, yeah, just not – I wouldn't say flat. I would just say marginally ahead.

Got it. Okay, I appreciate that. And with respect to the type of stores being added or the – Is there, you know, Empire has engaged in the past in a discount conversion and notwithstanding management's comments, feeling more confident about the outlook in conventional, at least with the data that it's seeing now. Can we think about the mix and is management content with where the mix is at now, recognizing that you made some acquisitions which shifted the mix back more towards conventional?

Yeah, it's Michael. I think, I mean... The mix is so large, it's hard to move it in any given year. We like our discount banner. We're very, very pleased with the results we're having in Ontario and the growth we've seen in Western Canada. It's been a home run for us. And so I think you're going to see more confidence in our discount banner and maybe a little bit of innovation there as well in terms of fitting into different markets. But having said that, we are increasingly confident that full service is about to come into its day again, and we want to be there for our customers. And so we're looking at ensuring that we're going to be taking market share in the next few years as the economy hopefully improves a little bit and that we are getting stronger at our game. We put in an incredible infrastructure across our company over the last number of years. We've got to cash in on that. And I like where we're heading, especially in our stores. I think we like both. I wouldn't go one way or the other. But unlike a lot of companies out there, we don't share everything we got up our sleeve. And Pierre and Doug and Mark in real estate are working away in terms of what are the next steps in order to make sure that we're growing faster than competitors and we get our market share while being disciplined in capital and SG&A. It's not all easy, and that's a task in front of us. But more and more, I think, as we improve, we've got more options ahead of us to compete.

Okay.

A nice sign, which Pierre talks about, is that for a number of quarters now, he's been saying we're winning in full serve and we're winning in discount and we're winning in e-commerce. That's a nice place to be as the consumer even has to normalize a little bit to where they were before high interest rates. We'll be in a pretty good spot there if we can continue that. I guess that's Pierre's and my and the whole team's job is to make sure we continue on that.

Thank you for that. The innovation that you were referring to, is that relating to smaller format discount stores or is it to be seen?

To be seen.

Okay.

Thank you. You know, at the end of the day, our competitors follow a certain strategy. We're going to follow our own strategy where we think we're the strongest. But it will involve full service. It will involve discount as well. We think that Freshco is very strong, and we think we have a lot of different options we can use there. I appreciate the comment. We're not just going to sit here. and lose any market share. We're going to get market share.

Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star 1. Your next question comes from Mark Petrie from CIBC. Please go ahead.

Yeah, thanks. Good afternoon. I just had a few follow-ups. First, maybe on ScenePlus, Is personalization sort of the next leg of opportunity, or are there other notable ways you can sort of expand the scope and impact of the program?

I think there are two things. I think certainly personalization is the biggest opportunity that we have coming down. But also it's, you know, we've only had this program in really for the past year in any sort of mature way, and so that Pierre and Luke and Sarah and Mike and everybody are Our offerings continue to be more pinpointed. We're evolving them to be more consequential to the consumer. And so we're testing different things and going with the things that work the best. So I think it's a combination of being able to optimize the program and the offerings we're giving combined with that personalization. I think in the end, it'll be personalization will drive the bigger part, but we still have a ways to go to be as good as we can be in the current offering.

Yeah, understood. Okay. And then I just wanted to clarify a couple things that you had said and maybe just get a little bit more color. The slowing increase in promo penetration, is that across banners, like across channels, or is that in sort of concentrated?

It's a general trend we're seeing everywhere, including discount and for service and across regions.

Okay. Okay. And Michael, I think it was your opening comment that sort of implied the gap between full service and discount is closing or the relative growth rates. I just want to confirm that's what you're seeing. And again, does that vary across regions at all?

Yeah, it's always a little bit of variance between regions and there's bumpiness in one week and another. But generally, and since last year, the same store sales gap between full serve and discount is significantly narrowed. Significantly narrowed. Yeah, okay. I think six or nine months ago, maybe it was, I can't remember which conference or which call it was, that at some point they can also cross over. I think people forget that too. We're not quite at that point yet, but I think that could occur.

Yeah, yeah, absolutely. Okay, I understood. And then just last, I wanted to ask specifically about Quebec, just because it's obviously been a dynamic market with regards to square footage actions and conversions from some of your competitors. Based on your comments so far, I don't think you're observing any notable changes with regards to the competitive environment, but helpful if you could just confirm that. And then my question is, if you could give us a sense of the nature of your conversations you're having with your franchisees and what kind of feedback you're getting from them and maybe how that's evolved over the last, you know, sort of six or 12 months.

Good question. Thank you. So, Quebec remains very, very strong. Facing economic challenges. We have family and business since 40 years. It's probably... I don't know how many times they had to go through that. It's not new for them to manage that volatility, and they did really well. The network is very resilient, more than people think. As we said before in the previous quarter, we never saw a decrease in transaction count. Never. It never happened. They shut multiple stores, yes. And our competitors have been more active than us on increasing square footage in the last year. But before that, we were the most active in this market in real estate for many years in a row. So it's timing, and I think we will continue to go after market share. There's opportunity in Quebec, and we'll go after that. But the general sentiment with dealers, and we're having conversation with them almost on a weekly basis, They have confidence in the future. They believe in their brand. We have a strong brand there. And they face some challenges. But again, they are seeing progress on all the metrics we've mentioned earlier. So basket size, transaction count, inflation, all of those metrics, they are seeing the exact same thing. So they feel very positive right now. We are with them again next week. And we have a strong plan for the next six months, and we will engage them with us as we did in the past. So, yes, we are challenged. But, again, the trend is in the right direction, and the market and the network is way stronger than people think. And it's a very profitable business for us and for them.

Okay. I really appreciate all that, Kyle. Thanks a lot. All the best. Thanks, Mark. Thanks, Mark.

And there are no further questions at this time. I will turn the call back over to Katie for closing remarks.

Great. Thank you, Julie. We appreciate your continued interest in EMPIRE. If there are any other unanswered questions, please contact me personally by phone or email. We look forward to having you join us for our second quarter of fiscal 2025 conference call on December 12th. Talk soon.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.