Empire Company Limited

Good morning, ladies and gentlemen, and welcome to the Empire Second Quarter 2026 Conference Call. At this time, all 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 require immediate assistance, please press Store 0 for the operator. This call is being recorded on Thursday, December 11, 2025. I would now like to turn the conference over to Katie Brine, Vice President, Investor Relations. Please go ahead.

Thank you, Ludi. Good morning, and thank you all for joining us for our second 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 as well. Joining me on the call this morning are Pierre St. Laurent, our new President and Chief Executive Officer, and Costa Pafanis, Chief Financial 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 Pierre Saint Laurent.

Thanks, Katie. Good morning, everyone. I'm pleased to be speaking with you today for my first quarterly earnings call as CEO. I've spent my career at Empire in multiple roles, most recently as CEO, working closely with our stores and teammates to serve customers. As a company, we have been on an incredible journey that has included the transformation period of projects on Horizon Horizon, managing through COVID-19 pandemic tariffs, and continuing to grow our business and deliver strong results through ongoing market volatility over the last few years. Over the last month, the executive leadership team and I have had the pleasure to travel the country and visit teammates coast to coast. We are very proud of what we saw. EMPIRE is in excellent shape today and operating very well. Teammates have a strong collaborative dynamic and we have significant opportunities ahead of us to capture. Before I get into the details of the quarter, I'd like to take this opportunity to thank Michael on behalf of the entire EMPIRE team for his energy and leadership over the last nine years. He led us through a significant transformation and helped us navigate the unprecedented headwinds of global pandemics and the worst inflation in four decades. And personally, He continually gave me opportunity to take on more responsibility and see more of the company so that I'm now very well prepared to step into the CEO role. Turning into our Q2 results, this was a solid quarter for Empire. Excluding other income and share of earnings from equity investments, our core business improved by 12.5% over last year. Same-store sales picked up momentum in line with our expectations, and we continue to deliver sustained growth margin growth. Our core operations delivered strong operating income. I'll focus on three topics today, our Q2 results and market trend, the current environment, and our strategic priorities. This update will focus on the core business performance, removing the noise from timing of other income, which costs a to in more detail shortly. First, our results and market trend. Food sales grew 3.4% this quarter, with same-store sales growth of 2.5%. Our full-service stores continue to grow, supported by our commitment to provide value across all of our formats. In fact, our full-service same-store sales grew by more than 2% this quarter. I hesitate to give that level of detail, but for this quarter only, I wanted to set up the record straight when it comes to our full-service performance. It is an healthy business with a lot of room to grow. Our discount business also continued to perform well, gaining market share in its respective channel in Q2, supported by strong top-line growth and a very strong operating income. This quarter, we saw volatility in the market with some positive signs as well as ongoing uncertainty. We are encouraged to see increasing customer traffic and basket size in stores, as well as a relatively typical and manageable promotion penetration trend. Overall, the Canadian customer continued to be very resilient but value-focused. And for us, offering value to customers across all formats has become a normal course of business for our team. Gross margins continue to improve this quarter, driven by operational efficiencies and disciplined execution in our stores, such as enhanced inventory control initiatives. Although strong margin improvements in our retail operations were partially offset by the mixed impact of higher wholesale distribution sales, We are pleased with a combined margin improvement of 14 basis points excluding fuel. Excluding this wholesale mix impact, gross margin improvement would have been more than 20 basis points in Q2. Overall, Empire delivered an EPS of 69 cents during the second quarter. This result is stronger than it appears when we unpack the details. Last year, Crombie had an higher equity earnings driven by a re-measurement gains on property, as well as some noise in our second quarter, results due to the necessary lockout of one of our distribution centers in Alberta, and timing of Genstar's earnings. As you know, Genstar is a residential real estate development company we hold interest in. Costa will speak more to this shortly. When we exclude these items, you see the underlying performance of our core business continue to be very strong. The reported CPI for food purchase from stores was 3.7% this quarter. Internally, we were well below this CPI number. Comparing CPI to our internal inflation is not an apples-to-apples comparison. Our internal inflation is based on all item sales across the entire period, which would be more than 30,000 skews weighted items per quarter, while staff can focus on approximately 200 items checked at point of time only. We also use third-party inflation report to understand the overall trend in the food industry, and this source confirms that our internal inflation is in line with the industry and both measures are below CPI food inflation. We are also seeing more cost increases requests from suppliers, consistent with our peers, but it remains well under control. Lastly, a brief update on our strategic priorities. As you get to know me, you will learn that I'm always looking for where we can improve. In both my personal and professional life, I'm driven by performance. that sense of accomplishment you feel when you achieve an objective that was previously deemed unattainable. While we have good momentum across the business today, there are many areas where we can drive greater results. We have made a number of critical investments over the last several years in stores, technology, and strategic projects, and there is a lot of opportunity ahead of us to realize the full potential of these investments. We are halfway through the last year of our three-year strategic plan, and that means a lot of the effort we've put in are just starting to deliver results. Over the next few quarters and beyond, our focus will be squeezing every drop of juice and realizing the full value of these investments. We are also developing a refreshed strategic plan that will guide our priority longer term. I won't be sharing all of the details today, but I can say that we are obsessed by four key areas. Customers, stores, growth, and cost control. This focus will drive our business forward, supported by great teammates. Wishing everyone a safe and happy holiday season. And with that, I'll turn it over to customers.