EMLAF (EMLAF) Q1 2027 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to The Empire Company First Quarter Fiscal 27 Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session for our analysts only. If at any time during this call, you require immediate assistance, please press 0 for the operator. This call is being recorded on Thursday, September 10, 2026. I would now like to turn the conference over to Katie Brine. Please go ahead.

Thank you, Julia. Good morning, and thank you for joining us today for Empire's first quarter fiscal 27 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, President and Chief Executive Officer; Constantine Pefanis, Chief Financial Officer; and Luc L'Archeveque, Chief Customer Officer. Before we begin, I would remind you that today's discussion includes forward looking statements. We caution that these statements are based on management's assumptions and beliefs and are subject to risks and uncertainties that could cause actual results to differ materially. I refer you to our news release and MD and A for more information on these assumptions and factors. With that, I will turn the call over to Pierre St-Laurent.

Thanks, Katie. Good morning, everyone. We delivered a strong first quarter driven by disciplined execution across the business, and continued progress against our strategic priorities. Despite the market environment that remains challenging, with customers highly focused on overall value and affordability, our banners continue to perform well. We delivered a record high first quarter EPS of $1.04 up 14.3% year over year. This performance reflects improvement in our core business and the benefit from our cost efficiency initiatives. Our Q1 results reflect the strength of our underlying operations, as well as the focus we have placed on productivity, efficiency and disciplined execution across the organization. I will focus on 3 topics today. Our first quarter results and market trends an update on our strategic priorities and growth initiatives and our new leadership appointment. Starting with Q1 results. Food sales grew 1.7% with same store sales up 1.2%. This reflects positive growth in both our full service and discount businesses. Total e commerce sales across our platforms and third party partnerships increased 11.3% year-over-year. Gross margin excluding fuel was essentially flat year over year. That was in line with our expectation given strong prior year comparison higher supply chain costs and elevated fuel related expenses during the quarter. Despite those headwinds, we were pleased with the performance of the core business. We were also pleased with our cost efficiency during the quarter. The improvements we are seeing reflect the benefit of our multiyear focus on productivity and efficiency across the organization. This was our third consecutive quarter with operating leverage, Constantine will provide more details on the drivers. Turning to the current environment, internal inflation remained below STAB canned food CPI during the quarter. Reflecting our continued focus on delivering value for customers while managing supplier cost increases in a disciplined manner. The market environment remained challenging and consumer continued to be focused on value and affordability given fuel price volatility and ongoing trade related uncertainty. Across North America, retailers are reporting a more cautious customer environment as we are seeing many of the same trends here in Canada. Against this backdrop, we are pleased to be gaining share in full service while maintaining our position in discount despite the rapid expansion of discount formats across the market. As we continue to expand discount footprint, we expect that growth to increasingly support market share gains in the channel. The recent escalation in the Canada and U. S. Trade tension has also increased customer interest in supporting Canadian businesses and products. Which is something we are equally passionate about. While purchasing decision will continue to be driven by value, quality and convenience, We believe our deep Canadian roots long standing relationship with Canadian suppliers and portfolio of locally operated banners position us well to serve customers in this environment. As a proud Canadian company, we will continue to invest meaningfully across the country, through new stores, new jobs, local supplier partnership, and the ongoing growth of our business to help our country become stronger. Against this backdrop, our priorities are unchanged. Delivering value for customer, maintaining operational discipline, and executing with focus against our priorities. We continue to increase momentum across our 4 strategic priorities customer, stores, growth and cost efficiency. We have already touched on cost efficiency, so I will spend a few minutes sharing an update on the other 3. Starting with customers. Our investment in customer value are resonating. We are seeing very encouraging improvement in price perception, and growing recognition in the value available across all our banners. In the current environment, we continue to strengthen our value proposition through promotions, loyalty, own brand, personalization, and our value size offers. We are encouraged by the progress we are seeing in our customer data and remain committed to delivering appealing value whether you are shopping at Sobeys, FreshCo, Safeway, IGA, Farm Boy, Longo's, Voila, and any other banners. Turning to stores, we continue to invest in our store network to support long term growth. We opened 4 new stores during Q1, plus the addition of 4 Mērahs stores. We now expect to complete more than 25 new stores this year, up from our prior expectation of more than 20. We are pleased with the performance of recently opened stores. We are meeting or exceeding our expectation and reinforcing our confidence in the strength of our growth pipeline. These investments are now expecting to deliver approximately 2% square footage growth and strengthen our ability to serve customers across the country. We continue to evolve our approach to real estate, balancing new store growth with opportunity to optimize our existing network and improve capital efficiency. While our real estate strategy continued to evolve, our investment discipline remains the same. We pursue attractive white space opportunities and deploy capital where we believe it will generate the highest return for shareholders. And we continue to focus on making our store more efficient. and customer-focused. This includes the continued rollout of electronic shelf labels. Over 400 stores now live across the country. As well as initiative to enhance in store signage, improve store conditions, and evolve our ways of working to spend less time on manual tasks and more time focused on customers. On growth, we have accomplished a lot since we last spoke. And this remains a top priority for us. A key milestone in our discount expansion strategy was the opening of our first FreshCo stores in Atlantic Canada in August and early customer response is very encouraging. We also completed the Mērahs acquisition in June and in August, broke ground for a new Mērahs location in Trois Riviere, Quebec. While we are still in early stage of the integration, we are excited about the opportunity ahead and the potential to expand this business. We continue to grow our store footprint and just in the last month, opened 2 new FreshCo stores in Calgary. A new IGA Extra in Montreal, a new IGA in Edmonton, a new Safeway in Vancouver's Oakridge Park development, and a new FreshCo in Orillia, Ontario. These openings reflect the strength of our growth pipeline our commitment to serving more customers in communities across Canada. We also continue to strengthen our pharmacy business. Which remain an attractive growth platform for Empire. In August, we welcomed Nithu Singh, our new SVP Pharmacy. Nitu, who reports to our Chief Pharmacy and Development Officer, Douglas Nathanson, brings more than 20 years of industry experience and has already hit the ground running. Last month, we announced the acquisition of 9 more leased pharmacies co-located with Longo stores in Ontario. These pharmacies will be integrated into our national pharmacy operations and rebranded as Longo's Pharmacy. While the acquisition is modest in size, strategically it is important. It expands our network in markets where we already have strong customer relationships, and reflect our disciplined approach to growing this business through both organic initiatives and targeted acquisition. Finally, I am pleased to welcome Sandra Sanderson, to Empire's executive leadership team as our new Chief Technology and Transformation Officer. With more than 20 years of experience, most recently having spent 12 years in a leading global consumer brand, Lara brings a proven track record of driving transformation modernizing technology platform, and enhancing the customer experience. Sandra Pasquini will work closely with Sandra to ensure a seamless transition. Overall, this first quarter reinforces our confidence in both our strategy and outlook for the year ahead. Our banners are competing effectively, Our growth initiatives are gaining traction. And our focus on productivity and efficiency is delivering results. As a result, we continue to expect adjusted EPS growth in the high end of our long term financial framework in fiscal 27. Our focus remained very clear. Delivering value for customer, driving sustainable growth, and strengthening our business for the long term. With a strong start to the year, we remain well positioned to deliver attractive returns to our shareholders, Dynamic environments create opportunity for strong operators to differentiate themselves And that is what we will continue to do. With that, I will turn the call over to Constantine.

Thanks, Pierre. Good morning, everyone. I will begin with our first quarter results. And then discuss capital allocation. We delivered a solid start to the year with Q1 fiscal 27 EPS of $1.04, up 14.3% from last year. Results reflected sales growth, disciplined cost control, including benefits from our ecommerce changes, and share repurchases. While we benefited from the previously announced pension settlement gain, this was offset by lower year over year contribution from other income and share of earnings from equity investments. We delivered good top line growth this quarter, and we expect the gap between same store and total sales growth to widen in the quarters ahead as contribution from new stores begins to ramp up as they mature. Excluding the mix impact of fuel sales, gross margin was consistent with last year. Strong execution in full service offset higher fuel related supply chain costs. Demonstrating the resilience of our business. While performance can vary from quarter to quarter, our focus remains on driving sustainable improvement over time and we continue to target annual gross margin expansion, excluding fuel, of 10 to 20 basis points. Turning to SG&A. Our focus on cost efficiency continues to deliver stronger results. Excluding depreciation and amortization, our SG&A rate improved by 80 basis points driven by lower year over year incentive program expenses pension settlement gain, and better overall cost efficiency in the business. Including e commerce operational improvements. These benefits more than offset continued business expansion investment in the business, including stores, tools and technology and higher retail salaries. We continue to advance to optimize supplier and procurement spend. Leverage new technology and digital capabilities, and enhance how work gets done across the business. As these initiatives mature, they are helping create capacity to reinvest in growth, while supporting operating leverage. As we look ahead, SG&A performance may not progress in a straight line each quarter. But we are confident in our ability to generate operating leverage on an annual basis. As a result, EBITDA was $712 million, higher by 6.1% year over year and our EBITDA margin was 8.4%, higher by 28 basis points year over year. It was the strongest EBITDA performance that we have delivered since Project Horizon began more than 10 years ago. Our effective tax rate was 26.1% compared to 26% last year. And now I will move on to capital allocation. Our strong balance sheet and cash generation provide the flexibility to invest in the business, pursue strategic opportunities, and return capital to shareholders. We continue to expect fiscal 27 capital expenditures of approximately $850 million with about half allocated to renovation and new store expansion. These new stores are expected to grow our net square footage by about 1.5% year-over-year and that is before taking into account the new Mērahs stores. As of today, we have repurchased approximately 2 million shares for a total consideration of $95 million. Moving on to real estate. In Q1, we disposed of our equity interest in Genstar for proceeds of $71 million and a gain of $4 million. And while this was a great investment, we felt that we felt that it was the right time to liquidate. We will deploy these proceeds to accelerate growth of our business. The sale of Genstar will not impact our guidance on other income and share of earnings from equity investments and we continue to anticipate fiscal 27 contribution to range from $90 million to $110 million. Based on our current visibility, we expect the quarterly cadence for the rest of the year to be approximately 15% in Q2, 20% in Q3, and 15% in Q4. In closing, Q1 demonstrated the earnings potential of our core and the early benefits of the strategic actions we have begun to implement across the business. We delivered EPS growth of 14.3% generated operating leverage, improved EBITDA margin to 8.4%, and continued to invest for the future. Despite a dynamic operating environment, we continue to expect adjusted EPS growth at the high end of our financial framework of 8% to 11% in fiscal 27 supported by gross margin expansion and operating leverage. With that, I will turn it back to Katie to field your questions.

Thank you, Constantine.

Julia, you may open the line for questions at this time. Thank you. Ladies and gentlemen, we will now conduct the question and answer session for our analysts. Your first question comes from Christopher Li from Desjardins. Please go ahead.

My first question is Pierre, as you mentioned, as the consumer remains challenged, industry tonnage is a little bit softer, just curious to see, are you seeing any notable changes in the competitive environment? Is intensity remaining stable, or has you seen sort of an uptick during the quarter?

I will ask Luc, Chief Customer Officer, to answer this question. And I will complete if I need to. Yeah.

Yeah. Good morning. So, no, we have not seen anything in the market. That indicates promotional activities being different than the previous quarters. it is very stable. This is based obviously on third party data. Okay.

Perfect. And then my follow-up is, I know you do not provide any quarterly guidance, but I just wanted to ask what are you seeing in terms of Q2 to date in terms of same store sales? Are you seeing a bit of a stabilization versus what you reported in Q1? Just any directional comments will be will be helpful. Thank you.

it is a bit early to answer this question, Q2. And particularly because there is some timing effect for the long weekend for Labor Day. So last year, was earlier than this year, so it is it is a bit early to look at it. But in terms of customer behavior, it is remained unchanged so far. Where we are going to land f the Q2 results, it is too early to take a position on that. We need to wait another full 2-3 weeks to see the full impact of that timing. on a year-to-year basis. But too early But do not see any major changes. So the market tonnage is something we will measure at the end of quarter. And but again, sentiments remain the same. The promo intensity remained the same. Customer behavior, that is nothing new. I think customers are looking for value They are making different choices considering the fuel prices, volatility, but it is all that stuff. it is not something new for us. it is manageable, and our team is doing an amazing job to navigate with. Okay. Thank you, and all the best.

Your next question comes from Tamy Chen from BMO Capital Markets. Please go ahead.

Hi, good morning. Thanks for the question. I am just trying to reconcile your comments about, you know, you sound happy with the, the performance of your newer slash recently opened stores. But your food same store sales, and I think it is softer than, some of us expected. And, especially given that a competitor has been having, you know, strike issues. So, are you able to help me reconcile that? Like, is it like, are we starting to see all this square footage growth, you know, so the new stores for everybody are, you know, hitting the ground well, but everybody's existing stores tonnage is, you know, giving up some of that to the new stores.

Okay. So on new stores, I mentioned the recent opening. Which was in Q2. Was not in Q1. To answer your question, I know you are trying to reconcile number and understand that. So my message was more on the most recent store opening-- the recent store opening. We are pleased with that, especially in Atlantic Canada. What else? What was the other question? Sorry about that. Just that. Okay. Yes. On the strike, okay. I do not have my competitor's numbers, but 1 thing I can say is at the beginning of the strike, we saw a slight positive impact in produce in Quebec but it took, as usual, 2, 3 weeks to put in place strong contingency plans like we did in the past. We know that type of thing. And Metro did the same thing. And I think since then, no significant impact. And it was in Q4. It was not in Q1. I guess what I am getting at is even bigger picture, is the square footage growth continues in the industry, not just by you. And so how do you think about that over the next 1 to 2 years just in terms of same store tonnage for you, how to maintain, you know, your fair share versus your competitors because everyone seems to be, you know, adding or possibly even just accelerating the pace of, new store openings. Thank you. So it is a good question. So, right now, when we are investing in real estate, we are investing for the long term. Right now, we are facing unique conditions. it is a cycle. My first degree at university was in economics, so it is clearly a cycle. When we look at different indicators and when you are listening to economists, it is obvious that conditions are not at their best. I think over time this will improve So if you think about the fuel price, if you think about market customer confidence, and you look at uncertainties, it is a current situation, In the future, in my opinion, they are just upside. And we are investing capital for the long term, not for next week. So our approach in investing capital is not on average. We are not looking at total number across the country. We are looking at opportunities market by market. And we had a strong portfolio of brands and we are using it as a leverage to be relevant for customers. that is our approach. So over time, what will be the result of that? So right now, it is tough to I would say, make an association with current numbers, with a long term investment plan. Right? So we are facing unique conditions right now that could be just better in the future. Remain confident that in the future things are going to improve. We are doing the right thing. We are very disciplined in our approach and everything we do at Empire. And it is going to benefit us over time. We are very confident about that. So everybody's having different strategy. We believe in our strategy, obviously. And the early results, our new store openings, are very encouraging. We did select location which was very white space for us. And this is the approach we will continue to have. Thank you.

Your next question comes from John Zamparo from Scotiabank. Please go ahead.

Thanks very much. Good morning. Pierre, it sounds like you are you are fairly constructive on the ability to operate in a tougher consumer environment. I wonder I wonder if you could talk about how your business performed through the quarter. Was there any meaningful change month to month?

Not really. We are improving focused on disciplined execution and focusing where we have control. And there is many areas in our business where we have control. And I am very pleased with the performance of the team If you look at SG and A, gross margin, the focus on cost, people are looking for the future. We are a company that deliver you know, we had a long term view long term focus. And it will not change. I think tough condition are creating opportunities. And right now, we are trying to leverage every single opportunity that tougher condition are bringing to the business. So we have reason to improve things right now because we have to. And we will benefit from all the action we are taking right now control we have on the business right now, when condition will improve, I am very confident that our results will be great. Okay. Understood. And then I wanted to ask about SG&A. A lot of moving parts to that this quarter. I wonder if you can share what core SG&A growth was this quarter absent those items. And I know you do not look quarter-to-quarter, but is it fair to say for this year, you are targeting an SG&A growth rate excluding those items that is below the pace of sales growth? I will ask Constantine to answer this question. No 1 is better positioned to answer this question than Constantine.

Good morning, John. Yeah. So to answer the question, excluding the puts and takes, that we talked about in the prepared remarks, we continue to see that our SG&A run rate is stable. And declining when you take into consideration the cost of the inflationary pressures on the business. So we are very happy to say that our operating leverage continues to be a big piece of the strategy. Especially in the conditions that we are facing right now. So the answer is we continue to optimize around our spend. So that we can get better value out of what we are doing. Okay.

I will pass it on. Thank you.

Good job.

Your next question comes from Vishal Shreedhar from National Bank. Please go ahead.

Hi, thanks for taking my questions. I know it is a bit early, but the escalating trade circumstances with the U.S. It seems to have caused a customer reaction and I was wondering if you are seeing any early signs of Buy Canada, and do you expect that movement to benefit your stores? And similarly, should the pressure related to these trade circumstances exacerbate or last longer than we hope. How do conventional banners react in periods of consumer malaise do we see more promotional intensity build in these conventional banners? Maybe you can help me understand what we know from history.

I will ask Luc to start, and then I will complete.

Yes. So thanks for that question. So I would say, like you said, it is very early days. In the tariff situation, the counter tariffs, I should say. What we know so far is minimal impact on our business this time around, very many less categories. That are impacted. We know there is a sentiment out there from the customer to buy Canadian products. But it is too early to see any signs of that in our POS data. But if things continue that way, we do believe there could be an upswing on Canadian products for sure. The way that we also handle this internally as repeating myself early days, but we have less than a handful of suppliers that reached out with cost increase submissions. So, very minimal with the picture that it is today. Things might change, but what we see so far, it is minimum. And our position will remain the same as the first time around is that it is too early, so we will not accept any cost increases related to tariffs. And we will work very closely with our supplier partners to find solutions so that we do not impact our customers. And we defend the value that we provide to our customers. I will finish by saying, though, that we have some experience now and better tools, so we are going to react faster than the first time around.

Thank you. And with respect to how and I appreciate this is a question looking forward, and the situation may or may not evolve. But how do conventional banners respond during periods of heightened stress? Is that hotter front page flyers? Is that better messaging? I know it is a little bit of both, but I am trying to understand the playbook and the tolerance within your plan to accommodate this tariff situation should it exacerbate more than we would hope.

Okay. So first of all, in our full service banner, we have the largest assortment. We have the largest assortment by definition. For customers, this is very convenient when they are looking for alternative US products. So we are extremely well positioned. And based on our past experience, our full service did perform really well in that type of context. So we are not concerned about it at all. Plus everything we have done over the last 2-3 years in providing value to customer, like I said in my script, we are seeing very positive sign in price perception, our strategies are resonating more and more to customers, so we feel good We feel even better now than 18 months ago when we had the first counter tariff situation. So and we had a large assortment, so customers can make many different choices to avoid US products. So we are well positioned for that. What else? And we are not expecting that will create inflation. Because like we have done last time, we did not accept cost increases related to tariff because we have a lot of alternative already in our assortment. So this is not an inflationary pressure for our full service and discount stores because our diversity in source of supply especially in the non US product. So we feel very confident that based on our past experience, by the way, we did benefit from that in our past experience and our results, Right now, there is more there is less category, like Luke said, so it is way more manageable. And we are really well positioned with our banners across the country our franchisees operation well connected to customers and local suppliers. So we have tons of alternatives for customers in Canada. to avoid buying U.S. products at very good prices. Thank you.

Your next question comes from Irene Nattel from RBC Capital Markets. Please go ahead.

Thanks, and good morning, everyone. So Sticking with the topic of the day, which is the consumer, just wondering, you alluded in your opening remarks to maybe some sort of tweaking that you have done in your offering to respond to consumer value seeking behavior. Can you talk about some of the initiatives that you have in place, whether more value packs or sort of different offer of animal proteins, whatever it is, any shifts that you have made? Please. Thank you.

Yeah. Thanks, Irene. Yeah. This is Luc. Yeah. Well, I will not go too much into the details, but just our private label, like, we revamped a lot of products and packaging Private label is resonating very strongly right now. Our loyalty program, C plus, we share membership growing rapidly, so that program is resonating as well. We use that to do personalized offers. The response is great. We always had very strong promotional offers. weekly and ADLPs. They are still very at par with the market. And we have put more focus on value-size recently across the board, every banners, and the response has been great. So as I said, like, we are really focused on providing value in many ways, shape and form, so that the customers appreciate it. And they see it. Like, they shop our stores, and they appreciate the value We measure, good value scores, and it is improving. So I would say at high level, this is what we are doing.

that is great. Thank you. And then, shifting gears ever so slightly. There was a sequential uptick in the in the pace of ecommerce sales from Q4, you know, from the prior quarter Wondering recognizing that there is some distortion, you know, from Calgary. Kind of wondering what you are seeing with the third party partners and in the core Voila business.

We are encouraged by so we made as you know, we made a difficult decision a few months ago. We remain committed. So we are seeing growth in our Voilà operation as well as in our third-party partnerships. So ecommerce, generally speaking, is growing on all segments. it is a different reason to shop. So it is a planned trip versus immediacy. So we feel really good. We are well diversified to meet different customer needs. By the way, Voila is proposing a great value compared to third party partnership. But again, party partnerships are there to cover an immediacy need for customers. So we feel good about the 2 segments we are working on. The team is also working to continue to leverage all the data we have, all the visits we have on our different platforms, to make more connections with the different digital platform we have. To drive sales on our different platforms. So more to come on that, but e commerce growth is a big focus for us. And now we are with our new Chief Technology Officer This is something we are going to accelerate. But we have a strong plan in place. We feel very confident that the growth you are seeing right now in our e commerce business is going to grow. Faster than in the past. So in our forecast, we are expecting to see faster growth in the future. Than we have right now. But we are well positioned, 11.3%, not that bad. But could be way better. So we will focus on it and it is what we call internally our e-commerce 2.0 strategy, and it is a big, real focus for our team right now. that is great. Thank you very much. Welcome. Thank you for your question.

Your next question comes from Brian Morrison from TD Cowen. Please go ahead.

Yes, thank you. Good morning. Sorry if I missed this, but the 5-store increase to 25 from 20. The 5 new ads, are they conventional or discount? And then can you provide granularity upon the 25 for the full year in terms of full service and discount, please?

it is both. it is a combination of discount and our 4 new Merin stores in Quebec. Which I do not know how you will qualify them. Even ourselves, it is a unique proposition that is resonating with customers a lot right now. But yes. So, basically, it is bit higher than the forecast on our initial real estate plan plus the addition of the 4 Mērahs stores. So we are confident to say that as of today, we will open more than 25 stores. And I hope we will continue to accelerate that growth in the future.

Okay. And then maybe changing gears here. And I think probably best for Constantine. But 1 of your peers recently talked about supply chain as a Service as a real notable opportunity. I am curious how you are looking at this journey Specifically, if you view this as an opportunity for Empire to better utilize your asset base specifically for freight and warehousing?

Brian, I think when we look at what we are doing with managing our costs on supply chain, having the inbound freight to act as a contra to this expense is something that we have always pressed on. We continue to put more focus on that because of all the various costs associated to running our supply chain. So not only do we look at route optimization, you know, we want to lean in with our partners to be able to provide that service. And, you know, we can call it freight as a service, backhauling, inbound freight partnerships, any which way you call it, we are going to continue to position that as a key part of how we manage our costs and ultimately drive third party revenue.

And we are seeing the same opportunity. By the way, we are in the same business. So right now, with the high fuel cost, our proposition with supplier to take charge of the transportation is resonating more. People are trying to avoid cost in their operation. And our proposition of backhauling or whatever the name you are giving to that. it is resonating more. So I think over time, we will continue to generate revenues. Like, strongly believe that retail media will also deliver additional revenue. So because we did invested that 2 years ago, and right now, it is growing very quickly.

Okay. Thank you. Do you plan on providing any sort of parameters or benchmarks for those at some point in time?

Not at this time. Understand the request. We will look at it, we will come back to you.

Thank you very much. Welcome.

And there are no further questions at this time. I will turn the call back over to Katie for closing remarks.

Thank you, Julia. We appreciate your continued interest in Empire. If there are any unanswered questions, please contact me by email. We look forward to having you join us for our second quarter fiscal 2027 conference call on December 10. Talk soon.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.