Western Grocer Serving the industry since 1916
Second Quarter Summary
• Earnings per share of $0.66 compared to $0.60 last year
• Same-store sales excluding fuel decreased by 1.3% compared to elevated sales last year
• Excluding fuel, gross margin increased by 72 basis points
• Project Horizon strategy on track
• Free cash flow of $129.5 million – 72% growth over last year
• $189.6 million of shares repurchased to date
Stellarton, NS – Empire Company Limited (“Empire” or the “Company”) (TSX: EMP.A) today announced its
financial results for the second quarter ended October 30, 2021. For the quarter, the Company recorded net
earnings of $175.4 million ($0.66 per share) compared to $161.4 million ($0.60 per share) last year, an increase
of 8.7%.
“We see strong momentum as we continue to improve our operations and execute on our key Project Horizon
initiatives,” said Michael Medline, President & CEO, Empire. “Sales were strong, up 4.9% over last year and
13.7% over two years ago. We are delivering two-year same-store sales growth of 6.8%, and at the same time
our margins keep improving. I’m very pleased with our team’s consistent and growing ability to deliver results
to our customers and shareholders.”
PROJECT HORIZON
In the first quarter of fiscal 2021, the Company launched Project Horizon, a three-year strategy focused on
core business expansion and the acceleration of e-commerce. The Company remains on track to achieve an
incremental $500 million in annualized EBITDA and an improvement in EBITDA margin of 100 basis points by
fiscal 2023, by growing market share and building on cost and margin discipline.
In the second quarter of fiscal 2022, earnings continued to be positively impacted by strategic initiatives,
including the continued expansion and renovation of the store network, promotional optimization, data analytics
and strategic sourcing efficiencies. Management expects these initiatives will continue to drive the majority of
benefits through the remainder of fiscal 2022.
115 King Street • Stellarton, NS • B0K 1S0 2
CONSOLIDATED OPERATING RESULTS
($ in millions, except per 13 Weeks Ended $ 26 Weeks Ended $
share amounts) Oct. 30, 2021 Oct. 31, 2020 Change Oct. 30, 2021 Oct. 31, 2020 Change
Sales $ 7,318.3 $ 6,975.4 $ 342.9 $ 14,944.3 $ 14,329.6 $ 614.7
Gross profit(1) 1,850.8 1,751.1 99.7 3,763.0 3,599.7 163.3
Operating income 327.9 306.5 21.4 675.3 684.1 (8.8)
EBITDA(1) 565.2 513.4 51.8 1,147.1 1,095.9 51.2
Net earnings(2) 175.4 161.4 14.0 363.9 353.3 10.6
Diluted earnings per share
EPS(2)(3) $ 0.66 $ 0.60 $ 0.06 $ 1.36 $ 1.31 $ 0.05
Diluted weighted average number
of shares outstanding (in millions) 266.3 270.1 267.4 269.9
Dividend per share $ 0.15 $ 0.13 $ 0.30 $ 0.26
13 Weeks Ended 26 Weeks Ended
Oct. 30, 2021 Oct. 31, 2020 Oct. 30, 2021 Oct. 31, 2020
Gross margin(1) 25.3% 25.1% 25.2% 25.1%
EBITDA margin(1) 7.7% 7.4% 7.7% 7.6%
Same-store sales(1) growth 0.4% 7.3% 0.0% 7.9%
Same-store sales (decline) growth, excluding fuel (1.3)% 8.7% (1.8)% 9.8%
Effective income tax rate 26.2% 26.5% 25.3% 28.1%
(1) See “Non-GAAP Financial Measures & Financial Metrics” section of this News Release.
(2) Attributable to owners of the Company.
(3) Earnings per share (“EPS”).
OUTLOOK
The Company and the industry continue to be affected by the novel coronavirus (“COVID-19” or “pandemic”).
Recent relaxation of COVID-19 restrictions by government agencies has increased levels of food consumption
outside of the home and related reductions in grocery industry volumes. Management expects to see these
trends continue as vaccination rates increase and COVID-19 restrictions are relaxed. As restrictions ease,
consumers are expected to shop more frequently and at more grocery stores. However, the Company does
not expect grocery consumer behaviour to return fully to pre-pandemic levels for the foreseeable future. As
economic activity increases and travel restrictions reduce, fuel volumes have increased and will likely continue
to do so during the remainder of fiscal 2022.
The Company’s top priorities remain the health and safety of employees, customers and communities while
maintaining a resilient supply chain to meet the needs of Canadians and supporting charitable organizations.
The Company is monitoring the potential impact of new COVID-19 variants and continues to invest in increased
safety and sanitization procedures to ensure customers and employees are protected while shopping and
working in stores. Management is closely monitoring the impact of the pandemic on food retail around the
world and continues to learn from best practices.
During the second quarter, the cost of maintaining safety and sanitization measures was approximately $8.5
million (second quarter of fiscal 2021 – $14 million). For the third quarter and the remainder of fiscal 2022, it is
expected the Company will continue to incur selling and administrative expenses related to maintaining safety
and sanitization measures, and other COVID-19 related costs consistent with the second quarter.
The Company expects that same-store sales will continue to reduce in the remainder of fiscal 2022 as industry
volumes decrease compared to the unusually high COVID-19 driven sales impacts in fiscal 2021. Margins will
continue to benefit from Project Horizon initiatives, other operating improvements and the addition of Longo’s.
These benefits could be partially offset by effects of sales mix changes between banners and the impact of
increasing fuel sales.
115 King Street • Stellarton, NS • B0K 1S0 3
The Company expects improvements in the results of its Toronto based e-commerce site as volumes continue
to increase and efficiencies improve. At the same time, Voilà will also incur additional costs as the Montreal
facility begins operations and the Calgary facility is commissioned. The combination of improving results in
Toronto, increasing costs in Montreal and Calgary, and additional store pick e-commerce locations is expected
to reduce Empire’s fiscal 2022 net earnings by approximately $0.25 to $0.30 per share (fiscal 2021 – $0.18).
Future earnings will be impacted primarily by the rate of sales growth. The Company expects that fiscal 2022
will reflect the highest net earnings dilution for the Voilà program as the Toronto site is expected to begin to
reflect positive EBITDA results towards the end of its third year of operations.
When announcing the Project Horizon strategy, management estimated an increase of $500 million in EBITDA
over the three-year period, excluding COVID-19 impacts. At that time, based on the 12-months ended February
1, 2020, management further indicated that they expected earnings per share to generate a compound average
growth rate of at least 15% over the Project Horizon timeframe. Due to significant positive impacts on sales
and earnings related to COVID-19 in fiscal 2021, growth rates in fiscal 2022 for same-store sales and net
earnings are expected to be lower. However, management continues to expect the Company will achieve its
three-year Project Horizon strategy targets, and growth of same-store sales and net earnings in fiscal 2023.
Sales
Sales for the quarter ended October 30, 2021 increased by 4.9% primarily driven by the acquisition of Longo’s,
higher fuel sales and benefits from Project Horizon initiatives, including the expansion of Farm Boy and Voilà
in Ontario and FreshCo in Western Canada. The increase is partially offset by the stabilization of consumer
buying behaviour as COVID-19 restrictions are eased across the country.
Gross Profit
Gross profit for the quarter ended October 30, 2021 increased by 5.7% primarily as a result of the inclusion of
Longo’s in the Company’s results and benefits from Project Horizon initiatives, including the use of advanced
analytical promotional optimization tools and the expansion of Farm Boy and Voilà in Ontario and FreshCo in
Western Canada. The increase is partially offset by reduced sales volume as a result of changes in consumer
buying behaviour as COVID-19 restrictions are eased across the country.
Gross margin for the quarter increased to 25.3% from 25.1% compared to the prior year. Excluding the effect
of fuel mix, gross margin would have been 72 basis points higher compared to the prior year. Gross margin
was positively impacted by benefits from Project Horizon initiatives and the inclusion of Longo’s, partially offset
by the mix effect of higher fuel sales.
Operating Income
For the quarter ended October 30, 2021, operating income in the Food retailing segment increased mainly due
to improved earnings as a result of higher sales and higher gross profit, partially offset by higher selling and
administrative expenses. Selling and administrative expenses increased primarily as a result of the inclusion
of Longo’s, investment in Project Horizon initiatives, including the expansion of Farm Boy and Voilà in Ontario
and FreshCo in Western Canada, and increased right-of-use asset depreciation. The increase was partially
offset by lower incentive compensation accruals.
Operating income from the Investments and other operations segment for the quarter increased primarily as a
result of improved equity earnings from Genstar, as discussed in the “Investments and Other Operations”
section.
EBITDA
For the quarter ended October 30, 2021, EBITDA increased to $565.2 million from $513.4 million in the prior
year mainly as a result of the same factors affecting operating income. EBITDA margin increased to 7.7% from
7.4%.
115 King Street • Stellarton, NS • B0K 1S0 4
Income Taxes
The effective income tax rate for the quarter ended October 30, 2021 was 26.2% compared to 26.5% in the
same quarter last year. The effective tax rate for the current quarter was slightly lower than the statutory rate
primarily due to consolidated structured entities that are taxed at lower rates. For the prior year, the effective
tax rate was in line with the statutory rate.
Net Earnings
13 Weeks Ended 26 Weeks Ended
($ in millions, except per share amounts) Oct. 30, 2021 Oct. 31, 2020 Oct. 30, 2021 Oct. 31, 2020
Net earnings(1) $ 175.4 $ 161.4 $ 363.9 $ 353.3
EPS (fully diluted) $ 0.66 $ 0.60 $ 1.36 $ 1.31
Diluted weighted average number of
shares outstanding (in millions) 266.3 270.1 267.4 269.9
(1) Attributable to owners of the Company.
Capital Expenditures
The Company invested $188.6 million in capital expenditures(1) for the quarter ended October 30, 2021 (2021
– $120.7 million) including renovations and construction of new stores, investments in e-commerce fulfilment
centres, FreshCo locations in Western Canada, and investments in advanced analytics technology and other
technology systems.
(1) Capital expenditures are calculated on an accrual basis and includes acquisitions of property, equipment and investment properties,
and additions to intangibles.
Free Cash Flow
13 Weeks Ended 26 Weeks Ended
($ in millions) Oct. 30, 2021 Oct. 31, 2020 Oct. 30, 2021 Oct. 31, 2020
Cash flows from operating activities $ 459.1 $ 318.8 $ 883.7 $ 718.2
Add: proceeds on disposal of assets(1) and lease
terminations 4.4 16.5 14.8 40.0
Less: payments of lease liabilities, net of payments
received for finance subleases (155.4) (100.7) (259.9) (233.1)
Less: acquisitions of property, equipment, investment
property and intangibles (178.6) (159.4) (393.6) (304.8)
Free cash flow(2) $ 129.5 $ 75.2 $ 245.0 $ 220.3
(1) Proceeds on disposal of assets include property, equipment and investment property.
(2) See “Non-GAAP Financial Measures & Financial Metrics” section of this News Release.
Free cash flow increased for the quarter ended October 30, 2021 primarily as a result of higher operating
activities, driven by lower income taxes paid, favourable working capital changes and higher net earnings. The
increase is partially offset by the timing of lease payments due to the timing of quarter end reporting dates.
115 King Street • Stellarton, NS • B0K 1S0 5
FINANCIAL PERFORMANCE BY SEGMENT
Food Retailing
13 Weeks Ended $ 26 Weeks Ended $
($ in millions) Oct. 30, 2021 Oct. 31, 2020 Change Oct. 30, 2021 Oct. 31, 2020 Change
Sales $ 7,318.3 $ 6,975.4 $ 342.9 $ 14,944.3 $ 14,329.6 $ 614.7
Gross profit 1,850.8 1,751.1 99.7 3,763.0 3,599.7 163.3
Operating income 305.4 299.2 6.2 642.7 671.1 (28.4)
EBITDA 542.7 506.2 36.5 1,114.4 1,082.8 31.6
Net earnings(1) 159.3 162.8 (3.5) 338.8 352.1 (13.3)
(1) Attributable to owners of the Company.
Investments and Other Operations
13 Weeks Ended $ 26 Weeks Ended $
($ in millions) Oct. 30, 2021 Oct. 31, 2020 Change Oct. 30, 2021 Oct. 31, 2020 Change
Crombie REIT $ 10.2 $ 6.9 $ 3.3 $ 17.6 $ 11.8 $ 5.8
Genstar 12.5 2.6 9.9 18.4 5.2 13.2
Other operations, net of
corporate expenses (0.2) (2.2) 2.0 (3.4) (4.0) 0.6
$ 22.5 $ 7.3 $ 15.2 $ 32.6 $ 13.0 $ 19.6
For the quarter ended October 30, 2021, income from Investments and other operations increased primarily
as a result of higher equity earnings from Genstar due to increased residential property sales.
CONSOLIDATED FINANCIAL CONDITION
($ in millions, except per share and ratio calculations) Oct. 30, 2021 May 1, 2021 Oct. 31, 2020
Shareholders’ equity, net of non-controlling interest $ 4,706.0 $ 4,372.7 $ 4,196.5
Book value per common share(1) $ 17.73 $ 16.30 $ 15.60
Long-term debt, including current portion $ 1,160.9 $ 1,225.3 $ 1,341.3
Long-term lease liabilities, including current portion $ 6,139.9 $ 5,908.1 $ 5,431.1
Net funded debt to net total capital(1) 59.3% 58.8% 58.9%
Funded debt to EBITDA(1)(2) 3.3x 3.3x 3.3x
EBITDA to interest expense(1)(3) 8.4x 8.0x 7.4x
Trailing four-quarter EBITDA $ 2,195.0 $ 2,143.8 $ 2,050.6
Trailing four-quarter interest expense $ 262.8 $ 268.8 $ 276.4
Current assets to current liabilities 0.8x 0.9x 0.9x
Total assets $ 15,980.6 $ 15,173.9 $ 14,567.0
Total non-current financial liabilities $ 7,595.4 $ 7,187.7 $ 6,705.4
(1) See “Non-GAAP Financial Measures & Financial Metrics” section of this News Release.
(2) Calculation uses trailing four-quarter EBITDA.
(3) Calculation uses trailing four-quarter EBITDA and interest expense.
Sobeys Inc.’s (“Sobeys”) credit ratings remained unchanged from the prior quarter. The following table shows
Sobeys’ credit ratings as at October 30, 2021:
Rating Agency Credit Rating (Issuer rating) Trend/Outlook
Dominion Bond Rating Service BBB (low) Stable
Standard & Poor’s BBB-
