Sobeys parent Empire sticks with bet on full-service stores despite discount trend
Empire’s chief executive believes the grocery retailer has a leg up on the competition as consumer sentiment improves amid lower inflation and interest rates, and the gap between its discount and full-service stores shrinks.
“We believe this will be advantageous to us as we continue to lean into our strengths as a full-service foremost grocer,” said Michael Medline, president and CEO of the company that owns Sobeys, Safeway, FreshCo, Farm Boy, Longo’s and other grocery banners across the country.
“We saw momentum and green shoots in both the economy and our business,” he said on a conference call with analysts discussing the company’s second-quarter financial results.
“Inflation has now moderated, and interest rates have begun to decline, representing a positive inflection point for full service.”
Like its competitors, Empire has been increasing its discount store footprint through new stores and conversions. But it’s also got big plans for its higher-end stores in Ontario.
“You’re going to see many new Farm Boy and Longo’s stores going up over the next year and two years,” said Medline.
The company said it earned a second-quarter profit of $173.4 million, compared with $181.1 million a year earlier.
Sales for the quarter totalled $7.78 billion, up from $7.75 billion a year earlier.
The increase came as same-store sales rose 1.1 per cent. Same-store sales growth, excluding fuel sales, were up 1.8 per cent.
The company’s e-commerce sales grew 12.2 per cent during the quarter, driven primarily by Voilà, said Medline.
“Growing Canadian e-commerce penetration is the key tailwind that we need to accelerate the growth of Voilà,” he said.
Near the end of the quarter, the company also launched new partnerships with Instacart and Uber Eats to complement its Voilà service.
Empire said in a press release that it intends to continue investing in its store network, including renovating approximately 20 to 25 per cent of stores between fiscal 2024 and 2026.
During the quarter, Empire said it invested $149.2 million in capital expenditures, including renovations, construction of new stores, and other technological investments.
Medline said during the quarter the company completed the expansion of one of its distribution centres in Ontario.
This has helped margins by redirecting some deliveries to the distribution centre instead of individual stores, he said, boosting freshness, waste reduction and product availability.
The company provided an update on its expansion of discount banner FreshCo in Western Canada, with 48 stores now operating in the region. Empire said it expects to achieve its original target of converting up to a quarter of its Safeway and Sobeys stores to FreshCo over the next several years.
Empire’s stock closed more than five per cent higher to $45.28 on the Toronto Stock Exchange on Thursday.
The company said its profit amounted to 73 cents per diluted share for the 13-week period ended Nov. 2 compared with a profit of 72 cents per diluted share a year ago when it had more shares outstanding.
On an adjusted basis, it earned 73 cents per diluted share in its latest quarter, up from an adjusted profit of 71 cents per diluted share in the same quarter last year.
The average analyst estimate had been for an adjusted profit of 66 cents per share, according to data provided by LSEG Data & Analytics.
This report by The Canadian Press was first published Dec. 12, 2024.
Companies in this story: (TSX:EMP.A)
Rosa Saba, The Canadian Press