The grocer operates banners such as Sobeys, Safeway, IGA, Farm Boy and discounter FreshCo.Andrew Vaughan/The Canadian Press
A continuing trend away from discount-hunting at grocery stores contributed to an improvement in first-quarter profits for Sobeys parent Empire Co. Ltd. EMP-A-T.
On Thursday, Empire chief executive officer Michael Medline said the gap between the performance of its discount and full-service stores was the narrowest the company had seen “in years.”
“We’re not seeing anything in a negative direction in terms of the consumer, for our business,” Mr. Medline told analysts during a conference call.
The surge in food prices in recent years drove many Canadians to shop at discount grocery stores more frequently — a disadvantage for Empire, which has fewer discount locations than its largest competitors.
While the rate of food inflation has slowed, prices remain elevated: Canadians paid 27.1 per cent more for food purchased from stores as of July, than they did in July 2020, according to Statistics Canada.
Despite this, Mr. Medline has previously said customers are becoming less cautious in their purchasing behaviour, a trend that continued in the quarter ended Aug. 2.
Empire’s house-brand products continue to outperform in sales compared to other items, a sign that customers have not stopped looking for ways to save money.
But the number of shoppers taking advantage of product promotions hit a peak last year, and is now within a more normal range, executives said. That also contributed to margin improvements, along with cost-cutting initiatives that have continued at Empire.
Gross profit was 27.1 per cent of sales, compared to 26.1 per cent in the same quarter last year.
Empire beat analyst estimates for profit growth in its first quarter, even as sales at its grocery stores were slightly lower than expected.
The Stellarton, N.S.-based grocer, which operates banners such as Sobeys, Safeway, IGA, Farm Boy and discounter FreshCo, on Thursday reported net earnings of $212-million or 91 cents per share in the quarter. That exceeded analysts’ expectations of $201-million or 88 cents per share, according to the consensus estimate from S&P Capital IQ.
Profits were up compared to the prior year, when Empire reported net earnings of $208-million or 86 cents per share. Those results were impacted by a one-time charge related to Empire’s decision to end its exclusive partnership with e-commerce technology provider Ocado Group PLC, as it seeks to improve profitability at its Voilà online grocery service. Excluding that charge and other factors, adjusted net earnings in the prior year were $219-million or 90 cents per share.
An unseasonably cold May, which delayed the start of barbecue season, put a damper on first-quarter sales growth. This quarter also faced a tough comparison with a period last year when Empire benefited from a grassroots campaign calling for a boycott of stores owned by competitor Loblaw Cos. Ltd., and when a strike at LCBO stores in Ontario pushed more shoppers to buy beer and wine at grocery locations.
Food same-store sales – an important metric that tracks sales growth not tied to new store openings – grew by 1.9 per cent year-over-year, “a little softer than we have gotten used to,” Mr. Medline said.
Total sales grew by roughly 1.5 per cent compared to the prior year, to nearly $8.3-billion in the quarter. Grocery sales were up, while sales of fuel at the company’s gas stations fell, largely because of the cancellation of the federal carbon tax in April, which pushed prices down.
The federal government’s recent decision to lift most of its retaliatory tariffs on imports of American products have also been pushing prices down for some items at grocery stores. Empire took a “hard stance on not accepting the vast majority of tariff-related cost increases,” Mr. Medline said, but added that affected items will no longer bear the additional cost.
Empire’s e-commerce sales – which include both home delivery and store pickup of online orders, the Voilà, IGA and ThriftyFoods online businesses, and newer partnerships with third-party delivery services Instacart and Uber Eats – grew by 80.9 per cent combined, compared to the prior year.