Sobeys Inc. parent Empire Company Ltd. saw mixed sales and earnings results for its fiscal 2022 first quarter as the Canadian grocer cycled strong pandemic-fueled gains from a year ago.
For the quarter ended July 31, food retail sales came in at $7.63 billion (Canadian), up 3.7% from $7.35 billion a year earlier, Empire reported yesterday. The Stellarton, Nova Scotia-based company said the gain reflects added sales from the Longo’s acquisition and higher gasoline sales, partially offset by the stabilization of consumer buying behavior as COVID-19 restrictions eased nationwide. Same-store sales dipped 0.5% year over year and were down 2.2% excluding fuel.
The results came against fiscal 2020 first-quarter gains of 9% in food retail sales and 8.6% in same-store sales (+11% excluding fuel).
“We are pleased with our first-quarter results especially, as we cycled extraordinarily strong COVID-heated sales and earnings last year. We continue to perform strongly and consistently,” Empire President and CEO Michael Medline told analysts in a conference call on Thursday. “Our sales and market share were solid. Our margins matched last year’s outstanding performance, which had limited promotional activity last year and are actually up strongly when you exclude fuel.”
On a two-year basis, Empire’s comparable-store sales were up 8.1% through the first quarter, which Medline called a “more meaningful indicator of sales as we lap COVID.”
“Last quarter, we spoke about our future expectations as vaccinations accelerated. We have seen those expectations play out in the market through the [first] quarter,” he explained. “First, as others in the industry are experiencing, customers are shopping a bit more as restrictions ease and vaccinations increased. We’re seeing traffic up, and basket size is down. But these have not returned to the same levels as before COVID. Second, Canadians are starting to shift some spend back to the restaurant and hospitality industries. As we expected, this means customers are spending slightly less on groceries than at the peak of the pandemic. Third, promotional activity is pretty well back to the same it was pre-pandemic. And fourth, we continue to believe customers are seeing the value in our full-service offering more than ever. We are seeing more pre-pandemic customer behaviors returning, such as customers returning to our higher-margin prepared foods and service counter offerings.”
On the earnings side, Empire posted fiscal 2022 first-quarter net income of $188.5 million, or 70 cents per diluted share, compared with $191.9 million, or 71 cents per diluted share, a year ago. Analysts, on average, had forecast adjusted earnings per share of 73 cents, with estimates ranging from 69 cents to 78 cents, according to Refinitiv.
Empire didn’t report its e-commerce sales growth for the first quarter, saying only that “in Canada, online grocery sales have continued to grow, although at a slower pace than when COVID-19 began” and that sales “remained consistent for the company’s three e-commerce formats, excluding [Longo’s] Grocery Gateway, compared to the prior year.”
The retailer provides online grocery service in Quebec through IGA.net and in British Columbia via Thrifty Foods, as well as in Ontario and soon Quebec via its new Voilà service, which launched in June in the greater Toronto area.
“E-commerce sales this quarter were up substantially,” Medline said in the call. “We continue to believe that winning the e-commerce channel with the right business model combined with strong bricks-and-mortar offerings is critical to success in grocery here, and as you can see around the world. We are particularly pleased with our progress in Ontario, Canada’s largest grocery market, where we have gone from zero to hero in a very short time as we saw significant increase in Voilà sales, as it grew rapidly in its first year, and added Grocery Gateway through our Longo’s acquisition. We continue to deliver the best e-commerce experience in Canada to our customers and believe we have the winning formula.”
Voilà is powered by an Ocado automated customer fulfillment center (CFC) in Vaughan, Ontario. Empire has accelerated plans to construct three more CFCs. They include a second CFC in Montreal to support the Voilà par IGA home delivery service in Ottawa and cities in Quebec, which is expected to go into operation in early 2022. Two more CFCs are slated to be built in Western Canada, including in Calgary, Alberta, which is expected to begin delivering to customers in the first half of calendar 2023.
With the four CFCs, Empire said it expects to serve about 75% of Canadian households, accounting for roughly 90% of the nation’s e-commerce spend. In fiscal 2021,Voilà Curbside Pickup launched at 30 stores across Nova Scotia, New Brunswick, Newfoundland and Labrador, Prince Edward Island and Alberta. Five more pickup sites were added in the fiscal 2022 first quarter and another 85 are expected to go live by the end of the year, serving every province. Powered by Ocado’s store-pick solution, the pickup program will serve customers in areas where CFCs don’t deliver or aren’t yet built, the company said.
Brick-and-mortar expansion has remained a priority as well. Led by the Longo’s purchase, expansion of the Farm Boy banner and conversion of Safeway and Sobeys stores in Western Canada to the FreshCo discount format, Empire opened, relocated or acquired 41 stores in the first quarter. The company also rebannered or remodeled five locations and closed five stores.
Overall, Empire’s food retail network, operated via its Sobeys subsidiary, includes more than 1,900 food, drug and convenience stores in all 10 provinces under banners such as Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, Farm Boy and Lawtons Drugs.