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Grocer Empire Co. reports Q4 profit and sales up, raises dividend


Customers seeking one-stop-shop options helped push Empire Co.'s fourth-quarter profits beyond analysts' expectations as the COVID-19 pandemic continued to unfold in Canada.

"Canadians are also shopping less frequently by consolidating their trips to reduce exposure to COVID," said chief executive Michael Medline in a conference call with analysts after the company released its fourth-quarter results while discussing how the pandemic has impacted consumer shopping behaviour.

That has resulted in fewer transactions, but bigger basket sizes, he said, noting the number of customers with baskets totalling more than $100 has tripled since the pandemic started.

The company, which owns the Sobeys and Safeway grocery stores, expects the days of consumers visiting multiple grocery stores in a single week are over for the foreseeable future as they are instead gravitating to a single shop at a store that can meet all their household needs, he said.

Empire "is extremely well-positioned" for this type of consumer that has become the norm since early March, wrote Irene Nattel, an analyst with RBC Dominion Securities Inc., in a note.

The industry has also seen a shift to online grocery shopping during the coronavirus outbreak, said Medline, adding online grocery penetration has seen an increase over the past three months to levels the company didn't expect for three years.

However, Empire still expects overall online shopping penetration over the next few years to remain below those seen in the United Kingdom and United States. Medline estimates it could comprise about five per cent of the market as Canada catches up to other parts of the world.

"Online, executed well, will also put a halo over the bricks-and-mortar brand," he said.

The company already offers e-commerce options in Quebec and British Columbia, but has accelerated the launch of its new delivery service dubbed Voila to later this month in parts of the Greater Toronto Area, he said, in an effort to meet the increasing demand for delivery.

In early 2018, Empire announced a partnership with British firm Ocado to build an automated warehouse in the GTA to fulfil online grocery orders.

The commentary came as Empire reported its fourth-quarter profit rose to $177.8 million or 66 cents per diluted share for the quarter ended May 2, up from $122.1 million or 45 cents per diluted share in the same quarter last year.

Sales totalled $7.01 billion, up from $6.22 billion, while same-store sales rose 15 per cent. Same-store sales excluding fuel grew 18 per cent.

On an adjusted basis, Empire said it earned $181.2 million or 67 cents per diluted share for the quarter, up from an adjusted profit of $126.5 million or 46 cents per diluted share a year ago.

Analysts on average had expected an adjusted profit of 62 cents per share, according to financial markets data firm Refinitiv.

Empire believes it gained the most market share over the past three months in both full-service and discount store models, said Medline.

"We saw market share gains over the back half of the quarter that we would have been happy to achieve over the next five years," he said, declining to provide a figure.

He attributed the gains to the company's full-service model stores attracting customers looking for a one-stop shop, a resilient supply chain, in-store execution and significant gains in the discount banner.

"We plan to protect a good portion of these share gains as we move forward," he said.

The company also announced it completed its three-year transformation plan and would raise its dividend. It will now pay a quarterly dividend of 13 cents per share, up from 12 cents.

Despite the positive performance, Empire joined its competitors Loblaw Companies Ltd. and Metro Inc. in ending extra pay for its store workers during the pandemic on June 13.

This report by The Canadian Press was first published June 18, 2020.

Companies in this story: (TSX:EMP.A)

Aleksandra Sagan, The Canadian Press

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