Empire Company Limited (EMP.A:CA) Q2 2026 Earnings Call Transcript
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Overview
The earnings call presents a positive outlook with 12.5% EPS growth and strategic initiatives like technology investments and disciplined cost management. The Q&A highlights a focus on profitability, e-commerce growth, and leveraging partnerships, despite avoiding specifics on e-commerce penetration. The company's commitment to share repurchases and operational improvements further supports a positive sentiment. However, the lack of specific guidance on e-commerce penetration and current performance ratings introduces some uncertainty. Overall, the strategic focus and financial health suggest a positive stock price movement.
Key Financial Performance
Core Business Improvement 12.5% year-over-year growth. Reasons: Strong in-store execution and operational performance.
Food Sales 3.4% growth year-over-year. Reasons: New wholesale contracts and new store expansion program.
Same-Store Sales 2.5% growth year-over-year. Reasons: Stronger results in full-service banners and increased customer traffic.
Gross Margin 14 basis points improvement year-over-year (excluding fuel). Reasons: Operational efficiencies, inventory control initiatives, and better promotional mix.
Adjusted EPS $0.69, $0.04 lower than last year. Reasons: Lower real estate-related earnings ($31 million lower) but core operations showed 12.5% adjusted EPS growth.
SG&A (Selling, General, and Administrative Expenses) 4.6% growth year-over-year. Reasons: Investments in stores, technology, business expansion, higher labor costs, and onetime impacts like lockout and retirement expenses.
Capital Expenditures (CapEx) $205 million in Q2. Reasons: Renovations, new store constructions, and technology investments.
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Operating Highlights
E-commerce strategy: Empire ended its exclusivity with Ocado, partnered with Instacart and Uber Eats, and paused CFC4 to focus on improving volume and performance in its three active CFCs.
Food sales growth: Food sales grew by 3.4% in Q2, with same-store sales growth of 2.5%. Full-service stores and discount businesses performed well, with the latter gaining market share.
New store expansion: New store expansion contributed to additional sales growth beyond same-store sales.
Gross margin improvement: Gross margin improved by 14 basis points (excluding fuel) due to operational efficiencies, inventory control, and better promotional mix.
SG&A management: SG&A grew by 4.6% due to investments in stores, technology, and labor costs, but sequential improvement was noted.
Strategic priorities: Empire is focusing on customers, stores, growth, and cost control as part of its refreshed strategic plan.
Capital allocation: $850 million is allocated for fiscal 2026 CapEx, with 50% for store renovations and new store expansion. $400 million is planned for share buybacks, with $195 million already completed.
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Risk or Challenges
Market Volatility: The company experienced market volatility with both positive signs and ongoing uncertainty, which could impact customer behavior and sales trends.
Inflation and Cost Increases: The company is facing supplier cost increase requests and inflationary pressures, which could affect margins and pricing strategies.
Wholesale Mix Impact: Higher wholesale distribution sales partially offset strong margin improvements in retail operations, potentially impacting overall profitability.
Labor Costs: Higher retail and supply chain labor costs are contributing to increased SG&A expenses, which could pressure operating margins.
E-commerce Profitability: The Canadian grocery e-commerce market is smaller than anticipated, and the company is still working on improving profitability in this segment.
Strategic Execution: The company is in the final year of a 3-year strategic plan and is focused on realizing the full potential of past investments, which presents execution risks.
Distribution Center Lockout: A lockout at the Rocky View distribution center caused operational disruptions and impacted margins and SG&A expenses.
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Guidance & Outlook
Revenue and Sales Growth: The company anticipates continued growth in food sales, with same-store sales growth of 2.5% in Q2 and total food sales growth of 3.4%. This growth is expected to be supported by new wholesale contracts and contributions from the new store expansion program.
Gross Margin Expansion: Empire aims to deliver stable gross margin expansion of 10 to 20 basis points per year, driven by operational efficiencies, inventory control, and better promotional mix. The company achieved a 14 basis point increase in Q2, excluding fuel.
Capital Expenditures: The company plans to spend $850 million on capital expenditures in fiscal 2026, with approximately 50% allocated to store renovations and new store expansion.
E-commerce Strategy: Empire is focusing on improving profitability in its e-commerce business by partnering with Instacart and Uber Eats, pausing the construction of a fourth customer fulfillment center, and driving volume and performance in its three active centers.
Real Estate Income Guidance: The company maintains its guidance for real estate-related income at the lower end of $120 million to $140 million for fiscal 2026, with specific quarterly contributions expected in Q3 (23%) and Q4 (35%).
Tax Rate: The effective income tax rate for fiscal 2026 is estimated to be between 25% and 27%, excluding unusual transactions or differential tax rates on property sales.
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Shareholder Return Plan
Share Buyback Program: Our share buyback program is on track, and we expect to complete our $400 million plan for fiscal 2026. As of this week, we have repurchased 3.7 million shares for a total consideration of about $195 million.
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Key Q&A
Q:Should we anticipate any changes in the business now that Pierre St-Laurent is taking over?
A:Pierre St-Laurent emphasized focusing on delivering the full value of past investments, being relevant for customers, helping stores serve customers better, and maintaining disciplined cost management. He is passionate about profitable growth and believes the best is yet to come.
Q:What is the perspective on the CFCs and Voilà given industry shifts?
A:Constantine Pefanis stated that partnering with Ocado was a long-term plan and emphasized improving profitability and e-commerce business. They ended Ocado's exclusivity and entered third-party partnerships. Pierre St-Laurent added that Voilà is a strong platform with good KPIs and that e-commerce is now viewed as multichannel, leveraging all channels to improve sales and market share profitably.
Q:Is the profitability or losses of Voilà improving year-over-year?
A:Yes, Constantine Pefanis confirmed that they are making improvements in Voilà's bottom line, becoming more efficient and achieving synergies with the rest of the business. Pierre St-Laurent added that there is progress but still room for improvement.
Q:What is the e-commerce penetration for Empire?
A:Pierre St-Laurent declined to share the e-commerce penetration number for competitive reasons.
Q:What are the expectations regarding competition in the marketplace?
A:Pierre St-Laurent noted no major changes quarter-to-quarter. He highlighted value focus for customers, higher basket size, and stable promotional penetration. He emphasized disciplined growth across all formats and regions, with plans to open more stores where it makes sense.
Q:Where are the biggest opportunities to improve cost run rates?
A:Pierre St-Laurent mentioned focusing on delivering benefits from past investments, questioning every dollar spent, and maintaining discipline. He emphasized being nimble and ensuring spending aligns with customer value, store support, and growth.
Q:What is the capacity for handling incremental wholesale partnerships?
A:Pierre St-Laurent stated that they have significant capacity with three fully automated RFCs and do not foresee major investments needed for growth in the next few years. They are optimizing the supply chain to remain efficient.
Q:How could Empire's footprint change in the future in terms of banners and geography?
A:Pierre St-Laurent plans to grow square footage, particularly in discount formats, while also expanding Farm Boy, Longo's, and Foodland. Growth will be disciplined and market-specific, with opportunities across all regions, including Quebec, Ontario, Atlantic Canada, and Western Canada.
Q:What are the plans for SG&A growth relative to food sales growth?
A:Constantine Pefanis emphasized driving absolute dollar reductions and leveraging fixed costs. He highlighted a renewed focus on accountability and strategic planning to reset SG&A run rates.
Q:What are the incremental initiatives for gross margin improvement?
A:Pierre St-Laurent mentioned multiple small initiatives like promo optimization, shrink management, private label penetration, and inventory control. He emphasized disciplined execution and leveraging past investments in technology and algorithms.
Q:What is the potential for conversions to discount formats in the next strategic plan?
A:Pierre St-Laurent stated that most unprofitable full-service stores have already been converted to discount. Future growth in discount will come from new stores, particularly in Western Canada and Ontario.
Q:Are new wholesale contracts being executed through Voilà CFCs?
A:No, Pierre St-Laurent clarified that Voilà is designed for customer fulfillment, not store orders. Wholesale contracts are served through automated distribution centers.
Q:What are the opportunities to leverage existing assets like retail media and supply chain?
A:Constantine Pefanis and Pierre St-Laurent highlighted growth opportunities in retail media and transport as a service. They emphasized leveraging past investments and focusing on capturing benefits to improve financial performance.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer regarding the e-commerce penetration for Empire, citing competitive reasons. Additionally, Pierre St-Laurent declined to rate the organization's current performance on a scale of 1 to 10, stating he did not want to share a number.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CPI food
Consta
Empire
Genstar
Rocky View
St Laurent
Today
apple
cadence
commerce
contribution store
depreciation amortization
detail
distribution center
distribution sale
efficiency store
equity investment
estate
expansion SGA
food store
format
fuel
inflation
inventory control
investment plan
item
lockout
margin expansion
margin improvement
market trend
mix distribution
priority
result market
service
share equity
store sale
teammate
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Empire Company Limited (EMP.A:CA) Q2 2026 Earnings Call Transcript
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The earnings call presents a positive outlook with 12.5% EPS growth and strategic initiatives like technology investments and disciplined cost management. The Q&A highlights a focus on profitability, e-commerce growth, and leveraging partnerships, despite avoiding specifics on e-commerce penetration. The company's commitment to share repurchases and operational improvements further supports a positive sentiment. However, the lack of specific guidance on e-commerce penetration and current performance ratings introduces some uncertainty. Overall, the strategic focus and financial health suggest a positive stock price movement.
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Frequently Asked Questions
Where does this earnings call transcript come from?
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
