Empire Company Limited

Good afternoon, ladies and gentlemen, and welcome to the Empire's second quarter 2025 conference call. At this time, our lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Thursday, December 12, 2024. I would now like to turn the conference over to Katie Bryan, Investor Relations, Treasury and Pension. Please go ahead.

Thank you, Joanna. Good afternoon and thank you all for joining us for our second quarter conference call. Today we will provide a 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 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 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 Medline.

Thanks, Katie. Good afternoon, everyone. In Q2, the storied empire continues to be an improving consumer environment with solid execution. We saw momentum and green shoots in both the economy and our business. Our same-store sales have gradually but meaningfully increased over the last two quarters, and we continue to make improvements to our margins and to our costs. As you know, through the period of rising interest rates and inflationary pressures, We focused on protecting the fundamentals of our business while also working on initiatives that would set us up for success once the economy started to recover. Inflation has now moderated and interest rates have begun to decline, representing a positive inflection point for full service, which we've clearly seen over the last three quarters. We've laid the groundwork on our major initiatives, and now the strength we've been building in our business is beginning to come to life in our results. Today I'm going to focus on two topics, our Q2 results and market trends, and then a quick update on our e-commerce business. First, our results and market trends. Same-store sales grew by 1.8%. We're pleased with the progression of our same-store sales, which is in part due to many of the early market indicators that we highlighted in Q1 and that continue to gradually build in Q2. Food inflation has been stabilizing for the last three quarters. contributing to a more predictable operating environment, and interest rates fell by 75 basis points during the quarter, improving consumer confidence. Both our full service and discount channels continue to grow faster than their respective markets, and for the fourth quarter in a row, we continue to see the gap between full service and discount same-store sales closing. We said this last quarter, and I'll say it again, we believe this will be advantageous to us as we continue to lean into our strengths as a full service foremost grocer. Over the last few years, we have made investments to highlight and deliver value to our customers across all of our banners. For example, we know that our own brand's products remain top of mind for our customers, and we have launched a significant number of large format, multicultural, and value-oriented products in response. The early indications we saw last quarter of customers returning to more favorable and predictable shopping behaviors continued to present themselves in Q2. We see customer numbers growing in our stores and smaller declines in the average basket size. That's positive, but it will take time for stretched customers to fully return to their more typical purchasing behaviors. Gross margins continue to improve this quarter, supported by a focus on stores, supply chain, and purchasing more efficiently. Margin improvement of 48 basis points was driven by many small but meaningful actions. A few initiatives that continue to enable our growth include our ongoing deployment of space productivity, significant improvement in our non-theft shrink, and our supply chain. With regards to shrink, we have continued to leverage best practices and expertise across our banners to implement new ways of working in our stores, which are focused on optimizing forecasting, ordering, and delivery schedules. And within our supply chain, there are two key areas we can highlight. First, we're executing with a higher degree of precision and discipline. In practice, that means we're getting better at utilizing our advanced transportation management systems, strengthening partnerships with our carriers, and streamlining deliveries to reduce costs and mileage. This has enabled us to get better in areas such as outbound delivery to stores, where we have optimized delivery frequency and order windows. Secondly, we've been focused on consolidation and expansion across our supply chain network. As an example, in Q2, we completed the expansion of one of our distribution centers in Ontario and expect to realize savings by converting high volume direct store delivery vendors to our distribution center. Not only have these initiatives enhanced our margin, but they have also enabled us to achieve significant improvements in freshness, waste reduction, and product availability. While we've been protecting the fundamentals, we've also put much effort into improving our cost base, which is starting to show in our results. Our SG&A rate grew 46 basis points this quarter compared to 69 basis points in Q1, and is the lowest rate of growth over the last six quarters. Over the last year, our strategic sourcing team has worked extensively with suppliers to enhance value on the products and services that support our operations. This, in combination with the impact of the restructuring and the many supply chain initiatives, have collectively enabled us to improve our cost base. Overall, we delivered adjusted EPS of 73 cents this quarter. When excluding other income and share earnings from equity investments, we delivered EPS growth of about 8.7%. versus the prior year. And now for a quick update on our e-commerce business. We had total e-commerce sales growth of 12% in Q2, driven largely by strong top-line performance from Voila. With Voila, we've enhanced our omnichannel marketing approach, re-engaged LAP's customers, they made a number of operational improvements. You've heard us say this before. Growing Canadian e-commerce penetration is the key tailwind that we need to accelerate the growth of Voila, and we're beginning to see that. Again, green shoots, but movement in the right direction. We've also launched partnerships with Instacart and Uber Eats in Ontario at the very end of the second quarter. These platforms launched in Western Canada last week and will continue rolling out to the rest of Canada in calendar 2025. We wish everyone a safe and a happy holiday season. And with that, I'll turn it over to Matt.