A cyber attack tore into third-quarter earnings for Empire Co. Ltd., the parent company of Sobeys.
The company logged adjusted net earnings of just $164.8 million, which is almost $40 million short of third quarter 2021 earnings. Empire believes the cyber attack temporarily reduced sales and operational effectiveness, including impacts such as the temporary loss of advanced planning, promotion and fresh item management tools. Sales for the quarter ending Feb. 4, increased by just 1.5%, primarily driven by benefits from Project Horizon initiatives, including the expansion of FreshCo in Western Canada, higher food inflation and increased fuel sales. Empire is in the process of working with its insurance providers to make claims under its policies. Due to the complexity of the cyber insurance coverage and related claims, there will be a time lag between the initial incurrence of costs and the recognition of insurance proceeds.
"As this stubbornly high inflationary environment persists, and despite the challenges we faced due to the cybersecurity event, we delivered solid results, highlighting how much stronger we have become over the last six years. We look forward to inflation abating, which benefits Empire and all Canadians," said Michael Medline, president and Chief Executive Officer, Empire. "This quarter we continued to advance our strategic initiatives, including efforts to expand the impact of our best-in-class grocery home delivery service Voilà and finalize our Scene+ launch across Canada."
Empire also announced that Longo’s ecommerce business, Grocery Gateway, will be integrated into Voilà. Grocery Gateway customers will transition to Voilà over a six-week period starting in July. The full assortment of Grocery Gateway products will be available on the Voilà platform via a Longo's “shop in shop”. In addition to cost efficiencies, the company expects that both Voilà and former Grocery Gateway customers will benefit from the broader product assortment that will be available on Voilà.
Empire believes same-store sales will grow during FY 2023. Same-store sales growth was 0.4% and 3.1% in the first and second quarter of fiscal 2023, respectively.
The company expects continued improvements in the results of Voilà's Toronto Customer Fulfilment Centre (CFC) as volumes increase and efficiencies improve. At the same time, Voilà will also incur additional costs as the Montreal CFC continues to ramp up and the Calgary and Vancouver CFCs are commissioned. The ramp up of the Montreal CFC resulted in higher costs in the first half of fiscal 2023 with improved results expected in the remainder of the year. Future earnings will be primarily impacted by the rate of sales growth. The company expects Voilà's fiscal 2023 net earnings dilution to be approximately the same as fiscal 2022.
Empire continues to expand its discount business in Western Canada with 44 stores now operating as of March 15. Newer stores are improving efficiency at a faster rate than the early conversion stores as the business gains critical mass across each province.
On Dec. 13, 2022, Empire signed a definitive agreement between a wholly owned subsidiary of Sobeys and Canadian Mobility Services Limited, a wholly owned subsidiary of Shell Canada, to sell all 56 retail fuel sites in Western Canada for approximately $100 million. Closing of the transaction is subject to customary conditions, including regulatory approvals. The company expects the transaction to close in the first quarter of fiscal 2024.