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Revenue grew over year as grocer expanded FreshCo to Western Canada
Sobeys parent company Empire Co. Ltd. hiked its quarterly dividend on June 22 after it reported that its full-year revenue grew one per cent while expanding its FreshCo brand to Western Canada and dealing with a cybersecurity attack that cost the company millions in profits.
Sales for the fourth quarter ended May 6 decreased 5.5 per cent to $7.4 billion mainly due to lower fuel sales and an additional week included in the same quarter last year, the company said.
For the full fiscal year, revenue rose to $30.4 billion, which Stellarton, N.S.-based Empire attributed to its three-year growth strategy called Project Horizon, including the expansion of its e-commerce platform Voilà and strength in its discount chains.
On a per-share basis, earnings for the fourth quarter increased four cents to 72 cents from 68 cents last year, beating analyst expectations of 67 cents. Full-year earnings per share fell 16 cents, which the company partly attributed to a cyberattack that brought down its systems in November. Adjusted for those impacts, there was no change in full-year EPS.
“There are very few Canadian retailers that have executed a transformation of this magnitude with this level of success,” chief executive Michael Medline told analysts on the earnings call. “Going forward, we aim to deliver on a financial framework that grows our adjusted EPS at an average annual rate of eight to 11 per cent over the long-term … (through) operating earnings growth and share repurchases.”
Empire upped its quarterly dividend by 10.6 per cent to 18.25 cents per share and plans to renew its buyback program on June 21 in order to repurchase up to 12.6 million class A shares, representing nine per cent of the public float, at a cost of approximately $400 million. It repurchased 9.4 million shares at a cost of $350 million in 2023, which was an increase of 48 per cent over 2022.
“The highlight of Q4, though, was that SG&A dollars were well controlled and only up 4.1 per cent on a per-week basis vs. high single digits in prior quarters,” CIBC Capital Markets analyst Mark Petrie said in a note to clients that maintained an outperform rating on Empire shares.
Gross profit decreased in the quarter by 2.2 per cent to $1.9 billion, while gross margin increased to 26.4 per cent from 25.6 per cent. For the full year, gross profit increased by 1.7 per cent to more than $7.7 billion while gross margin increased slightly to 25.6 per cent from 25.4 per cent.
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Empire operates more than 1,600 stores across Canada under the Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, Farm Boy, Longo’s and Lawtons Drugs brands. It also owns grocery delivery services Voilà and Grocery Gateway.
Same-store sales grew 1.6 per cent for the last 13 weeks of the fiscal year and increased 2.3 per cent for the full year. The company’s gross margin increased as it launched 100 private-label goods in the quarter to add to its total of 1,000 new products since it started Project Horizon, Medline said.
He added that the company is beginning to see food inflation moderate from a peak in the third quarter and that suppliers’ cost-increase requests will continue to moderate over the coming quarter.
“This is supported by most ingredient commodities coming off their highs, such as wheat flour and various cooking oils,” he said.
After the cybersecurity attack in November, Empire said it recovered $5 million in insurance for the third quarter and it is in the process of working with its insurance providers to make claims under its policies.
Earnings before interest, tax, debt and amortization (EBITDA) increased in the quarter to $592.3 million from $586.2 million, while full-year EBITDA decreased to $2.2 billion from $2.3 billion.
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