Despite a fourth-quarter dip, Sobeys Inc. parent Empire Company Ltd. closed out its 2021 fiscal year with elevated retail sales and earnings per share that topped analysts’ estimates.
For the quarter ended May 1, food retail sales declined 1.3% to nearly $6.92 billion (Canadian) from $7.01 billion a year earlier, Empire reported Wednesday. Same-store sales fell 4.5% year over year and were down 6.1% excluding fuel. The results came against pandemic-driven fiscal 2020 gains of 12.7% for fourth-quarter food retail sales and 15% for same-store sales (+18% excluding fuel).
Full-year fiscal 2021 food retail sales totaled $28.27 billion, up 6.3% from $26.59 billion in fiscal 2020, when Empire recorded a 5.8% increase. Same-store sales rose 4.7% and were up 5.6% excluding fuel, about the same as in fiscal 2020, when comparable-store sales grew 4.6% overall and 5.7% excluding fuel.
“We are the first Canadian grocer to publicly anniversary the extreme stockup phase of COVID last year,” Empire President and CEO Michael Medline told analysts in a conference call on Wednesday. “More than two-thirds of our Q4 last year was impacted by the most extreme levels of stockup buying behavior we’ve ever seen. Same-store sales last year were high and volatile, ranging from a week we decline in sales to a week we grow to 52%, resulting in unprecedented 18% year-over-year growth in that quarter.
“With that in mind, we are very pleased with our performance this quarter and throughout fiscal 2021,” he said. “Our two-year sales stack for Q4 same-store sales was 10.4%. Because of the extreme COVID impact on results last year, we believe a comparison to two years ago is a more meaningful indicator of real growth. This quarter, our sales declined 1.3% and our same-store sales with negative 6.1%. While you know I don’t like negative numbers, I don’t think anyone expected to see a repeat of last year.
Besides the impact of COVID-19, fiscal 2021 sales were lifted by market share gains in food retailing and the expansions of the FreshCo discount banner in Western Canada and the Farm Boy fresh-market banner in Ontario, Empire reported. The company said the fourth-quarter sales decrease was partially offset by higher fuel sales, due to higher fuel prices, the FreshCo and Farm Boy expansions and a 15% e-commerce sales gain, primarily driven by the Voilà online grocery delivery service.
“In e-commerce, Q4 last year saw our established IGA.net and Thrifty Foods businesses grow sevenfold. As expected, we saw these e-commerce businesses slow from these highs in Q4 this year, as all established e-commerce players will experience when comparing to the start of the pandemic last year,” Medline explained. “However, even with last year's extreme growth in Q4, we still grew overall e-commerce sales by 15%. This remarkable net-positive increase was driven by the exponential growth of our new Voilà business in the GTA [greater Toronto area].”
Launched in June in the greater Toronto area, Voilà is powered by an Ocado automated customer fulfillment center (CFC) in Vaughan, Ontario. Empire has expedited plans to build 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 early next year. Two more CFCs are slated to be constructed in Western Canada, including in Calgary, Alberta.
“Yesterday marks the one-year anniversary of the first [Voilà] delivery to a customer and that customer was me,” Medline said. “And one year in, our average customer shops twice a month, and their basket size is 3.8 times greater than the average brick-and-mortar basket.”
With the four CFCs, Empire expects to reach about 75% of Canadian households.
Also, in mid-September, Empire launched Voilà Curbside Pickup online grocery service at three stores in Nova Scotia and plans to expand it to hundreds of stores nationwide over the next few years. The micro-fulfillment service uses store-pick technology from Ocado.
“We remain on track to open our second customer fulfillment center in Montreal in early 2022. This is expected to be even smoother than our GTA CFC. We already have customers helping us to scale faster, and we’re very pleased with our store-pick solution. We’ve launched in 30 stores in fiscal 2021,” Medline told analysts. “And then we continue to build our CFC network across Canada. The store-pick solution allows us to quickly offer e-commerce in regions where CFCs do not deliver or are not yet built. We need to be able to serve customers where, when and how they want to shop. And by the end of fiscal 2022, we expect to have up to 120 stores [offering Voilà], which means we’ll have e-commerce options in every province. We are well-positioned to win grocery e-commerce in Canada.”
At the bottom line in the 2021 fourth quarter, Empire posted net income of $171.9 million, or 64 cents per diluted share, compared with $177.8 million, or 66 cents per diluted share, a year ago. Analysts, on average, had projected adjusted earnings per share of 60 cents, with estimates ranging from 57 cents to 64 cents, according to Refinitiv.
Full-year 2021 net earnings were $701.5 million, or $2.60 per diluted share, versus $583.5 million, or $2.15 per diluted share, in 2020. The consensus analysts forecast was for adjusted EPS of $2.57 per diluted share, with projections running from $2.53 to $2.61.
“In Q4, we saw some impact to our market share as some customers returned shopping multiple banners as we began to feel a little safer. But we expect to hold onto substantial market share gains as COVID subsides,” Medline said. “We have also noticeably grown our discount presence adding over 1 million square feet to the [FreshCo] discount network in Western Canada to meet the evolving needs of customers. In Ontario, we now have 95 stores, and in Western Canada we have 40 locations confirmed and are on track to have about 40 stores open by the end of fiscal 2023. As COVID subsides and Canada is able to safely reopen, we believe we are very well-positioned to meet these changing customer needs with our diverse network.”
Medline noted that May 17 marked the halfway point of Empire’s plan to double the Farm Boy store base in Ontario, now at 39 locations, within five years. Seven new stores opened in fiscal 2021, and in fiscal 2022 the company expects to open seven net-new stores. “We continue to be extremely pleased with our acquisition of Farm Boy, which has grown its industry-leading same-store sales growth since we acquired them [in 2018],” Medline said.
He’s also bullish on the recent acquisition of a 51% stake in Longo’s, which operates 36 fresh grocery stores in Ontario plus Grocery Gateway e-commerce service.
“We are thrilled to welcome the Longo’s team to the Empire family,” said Medline. “This acquisition is important to our strategy to grow our presence in the key greater Toronto area, where we have historically been underpenetrated. As well, the addition of Grocery Gateway complements our goal to win grocery e-commerce in Canada.”
Overall, Empire’s food retail network, operated via its Sobeys subsidiary, includes more than 1,900 food and drug stores in all 10 provinces under banners such as Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, Farm Boy and Lawtons Drugs.