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Empire Company Ltd
Symbol C : EMP.A
Shares Issued 173,662,471
Close 2019-06-26 C$ 31.35
Recent Sedar Documents

Empire Co earns $416.4M in fiscal 2019, boosts dividend

2019-06-27 06:13 ET - News Release

Mr. Michael Medline reports

EMPIRE COMPANY FINISHES FISCAL 2019 WITH STRONG SALES AND EARNINGS; EXCEEDS SUNRISE TARGETS; ANNOUNCES 9% DIVIDEND INCREASE AND SHARE BUYBACK

Empire Company Ltd. has released its financial results for the fourth quarter and full year ended May 4, 2019. For the quarter, the company recorded adjusted net earnings, net of non-controlling interest, of $126.5-million (46 cents per diluted share) compared with $93.0-million (35 cents per diluted share) last year.

"The progress being made at Empire Company is clear to see in every financial and customer metric in our fourth quarter and fiscal 2019," said Michael Medline, president and chief executive officer, Empire. "The team is stronger, more customer focused, results oriented and increasingly innovative. We are especially proud of our annual sales improvement of almost $1-billion and productivity gains that are showing up in significantly higher gross margin. Project Sunrise is progressing even better than we had planned and we expect to exceed our $500-million savings target.

"We now believe that, following our three-year transformation effort, we will be in a strong position to put in place a new three-year strategic and financial roadmap to drive even stronger shareholder returns. Our confidence is manifest in our announcement today that we are raising Empire's dividend 9 per cent, and intend to carry out a $100-million share buyback," continued Mr. Medline.

Project Sunrise is progressing well and yielding benefits that are expected to exceed management's initial expectations. The company realized approximately $100-million of these benefits during fiscal 2018 through organizational design, strategic sourcing cost reductions and improvements in store operations. In fiscal 2019, the company realized a further approximate $200-million of benefits.

For fiscal 2020 -- the final year of the transformation -- management expects to achieve at least $250-million of in-year benefits for a cumulative benefit of at least $550-million, putting the company ahead of its original projections for the three-year program. These in-year benefits for fiscal 2020 are expected to result from completion of the rollout of the category reset program in the early fall, and continued cost reductions and operational improvements.

Dividend declaration

The company declared a quarterly dividend of 12 cents per share for both the non-voting Class A shares and the Class B common shares that will be payable on July 31, 2019, to shareholders of record on July 15, 2019. These dividends represent an annualized increase of 9 per cent in Empire's dividend. These dividends are eligible dividends as defined for the purposes of the Income Tax Act (Canada) and applicable provincial legislation.

Normal course issuer bid (NCIB)

The company has filed a notice of intention with the Toronto Stock Exchange to purchase for cancellation up to 3.5 million non-voting Class A shares representing approximately 2.0 per cent of those outstanding, subject to obtaining regulatory approval. The purchases will be made through the facilities of the Toronto Stock Exchange and/or any alternative trading systems to the extent they are eligible. As of June 26, 2019, 173,663,969 non-voting Class A shares are issued and outstanding. The price that Empire will pay for any such shares will be the market price at the time of acquisition. Purchases may commence on July 2, 2019, and shall terminate not later than July 1, 2020.

The company believes that repurchasing shares at the prevailing market prices is a worthwhile use of funds and in the best interests of Empire and its shareholders. Empire did not acquire any of its non-voting Class A shares in the past 12 months under normal course issuer bids.

The average daily trading volume (ADTV) of the non-voting Class A shares was 554,024 on the TSX over the last six completed calendar months. Accordingly, under the policies of the TSX, Empire is entitled to purchase, during any one trading day, up to 138,506 non-voting Class A shares (being 25 per cent of the ADTV of the non-voting Class A shares). Empire is entitled to purchase a larger amount of non-voting Class A shares per calendar week, subject to the maximum number that may be acquired under the normal course issuer bid, if the transaction meets the block purchase exception under the TSX rules.

                         CONSOLIDATED OPERATING RESULTS
                     (in millions, except per-share amounts)

                                        13 weeks ended          52 weeks ended          
                                     May 4       May 5       May 4       May 5
                                      2019        2018        2019        2018

Sales                             $6,220.4    $5,886.1  $ 25,142.0  $ 24,214.6
Gross profit                       1,577.5     1,451.3     6,083.6     5,900.5
Operating income                     194.2       110.6       652.3       346.5
Adjusted operating income            200.3       139.7       683.6       601.7
EBITDA                               300.1       217.8     1,069.5       785.7
Adjusted EBITDA                      300.1       240.4     1,076.2     1,014.7
Net earnings                         122.1        71.0       387.3       159.5
Adjusted net earnings                126.5        93.0       410.0       344.3
Diluted earnings per share
EPS                                   0.45        0.26        1.42        0.59
Adjusted EPS                          0.46        0.35        1.50        1.27
Dividend per share                   0.110       0.105       0.440       0.420

Empire's results for the fiscal year ended May 4, 2019, include Farm Boy operations as of Dec. 10, 2018. All metrics, including same-store sales, include the consolidation of Farm Boy operations.

Sales

Sales for the fourth quarter increased by 5.7 per cent driven by stronger performance across the business and the incorporation of Farm Boy results. Internal food inflation was positive and tonnage increased for the fourth consecutive quarter, the highest in almost nine years. These increases were partially offset by store closures in Western Canada, the deflationary impact of health care reform on pharmacy sales and lower fuel prices.

Sales for the fiscal year ended May 4, 2019, increased by 3.8 per cent driven by stronger performance across the business, the incorporation of Farm Boy results and increased fuel prices. These increases were partially offset by the previously mentioned effects of store closures in Western Canada and the deflationary impact of health care reform.

Gross profit

Gross profit increased by 8.7 per cent and 3.1 per cent for the fourth quarter and fiscal year ended May 4, 2019, respectively. These increases are a result of higher sales, the incorporation of Farm Boy results and benefits from the initial rollout of the category reset program. This was partially offset by store closures in Western Canada and lower margins in the company's pharmacy business.

Gross margin for the fourth quarter increased to 25.4 per cent from 24.7 per cent last year as a result of category reset benefits and positive margin rate contributions from the inclusion of Farm Boy results.

Gross margin for the fiscal year ended May 4, 2019, decreased to 24.2 per cent compared with 24.4 per cent in the prior year as a result of lower margin fuel sales increases and the effect of sales mix between banners.

Operating income

Operating income increased by 75.6 per cent for the fourth quarter mainly as a result of improved earnings from the food retailing segment due to higher sales and improved margins, offset by higher selling and administrative expenses. Selling and administrative expenses increased as a result of the inclusion of Farm Boy results, higher store and back office incentive compensation accruals and increased marketing costs. Higher retail labour due to increased sales volume also increased selling and administrative expenses year over year. These increases to selling and administrative expenses were partially offset by savings achieved by Project Sunrise.

Operating income from the food retailing segment increased for the fiscal year ended May 4, 2019, primarily as a result of improvements in sales and margins, and lower selling and administrative expenses. Selling and administrative expenses were lower due to higher costs incurred related to Project Sunrise in the prior year, the positive impact of Project Sunrise benefits achieved in the current year, reversal of previously impaired assets in Western Canada, lower incentive compensation accruals, and a decrease in depreciation expense. These positive impacts were partly offset by increases in minimum wage rates, the inclusion of Farm Boy results and related acquisition costs, costs of voluntary buyouts of eligible British Columbia Safeway employees, and the costs associated with the closure and conversion of stores as part of the continuing expansion of the FreshCo discount format into Western Canada.

Operating income from the investments and other operations segment increased due to the sale of a 26-property portfolio by Crombie Real Estate Investment Trust, the related gain which resulted in an increase of $8.4-million recognized by the company as a share of equity earnings from Crombie REIT and $6.4-million in other operations, reflecting reversal of previously deferred gains on disposal on properties previously sold to Crombie REIT.

EBITDA (earnings before interest, taxes, depreciation and amortization)

EBITDA increased for the fourth quarter substantively due to the same factors affecting operating income.

EBITDA increased for the fiscal year ended May 4, 2019, mainly as a result of the same factors affecting operating income, with the exception of the impact of depreciation expense.

Income taxes

The effective income tax rate for the fourth quarter was 25.5 per cent compared with 13.7 per cent in the same quarter last year. The current quarter effective tax rate was lower than the statutory rate primarily due to capital gains on property dispositions, including the tax impact of the disposition of a 26-property portfolio by Crombie REIT and differing tax rates of various entities. The prior period's effective rate was lower than the statutory rate due to an internal reorganization that the company undertook to simplify its corporate structure.

The effective income tax rate for the fiscal year ended May 4, 2019, increased to 25.7 per cent compared with 23.8 per cent in the prior year. The current year effective rate was lower than the statutory rate primarily due to capital gains on property dispositions noted above, and a decrease in tax liabilities related to unrecognized tax benefits. The prior period's effective rate was lower than the statutory rate due to an internal reorganization that the company undertook to simplify its corporate structure.

Free cash flow

Free cash flow decreased for the fourth quarter and fiscal year ended May 4, 2019, compared with the same periods last year primarily due to an increase in capital spending including renovations, construction of new stores, construction of an e-commerce fulfilment centre, the expansion of FreshCo into Western Canada as well as a decrease in proceeds on the sale of property. This was offset by improved cash flows from operations.

The company invested $434.6-million in capital expenditures in fiscal 2019. Excluding the impact of capital expenditures by companies acquired during the year, predominantly Farm Boy, the company invested $427.3-million which was in line with management's previously disclosed estimate of $425.0-million. The company expects to invest approximately $600.0-million in its operations during fiscal 2020; this estimate includes capital estimates of approximately $70.0-million related to expansion of the Farm Boy store network in Ontario.

Conference call information

The company will hold an analyst call on Thursday, June 27, 2019, beginning at 12 p.m. Eastern Daylight Time during which senior management will discuss the company's financial results for the fourth quarter of fiscal 2019. To join this conference call, dial 888-390-0546 outside the Toronto area or 416-764-8688 from within the Toronto area. To secure a line, please call 10 minutes prior to the conference call; you will be placed on hold until the conference call begins. The media and investing public may access this conference call via a listen mode only. You may also listen to a live audiocast of the conference call by visiting the company's website.

Replay will be available by dialling 888-390-0541 and entering access code 530463 until midnight on July 11, 2019, or on the company's website for 90 days following the conference call.

                                   CONSOLIDATED STATEMENTS OF EARNINGS   
                     (in millions of dollars, except share and per-share amounts) 

                                                            13 weeks ended              52 weeks ended    
                                                       May 4         May 5         May 4         May 5
                                                        2019          2018          2019          2018

Sales                                               $6,220.4      $5,886.1     $25,142.0     $24,214.6
Other income                                            24.2          22.6          68.3          61.2
Share of earnings from investments, at equity           24.4          14.4          87.9          74.3
Operating expenses
Cost of sales                                        4,642.9       4,434.8      19,058.4      18,314.1
Selling and administrative expenses                  1,431.9       1,377.7       5,587.5       5,689.5
Operating income                                       194.2         110.6         652.3         346.5
Finance costs, net                                      21.2          25.4          91.6         110.5
Earnings before income taxes                           173.0          85.2         560.7         236.0
Income tax expense                                      44.1          11.7         144.3          56.2
Net earnings                                           128.9          73.5         416.4         179.8
Earnings for the period attributable to
non-controlling interest                                 6.8           2.5          29.1          20.3
Earnings for the period attributable to
owners of the company                                  122.1          71.0         387.3         159.5
                                                       128.9          73.5         416.4         179.8
Earnings per share
Basic                                                   0.45          0.26          1.42          0.59
Diluted                                                 0.45          0.26          1.42          0.59

2019 annual report

The company's audited consolidated financial statements and the notes thereto for the fiscal year ended May 4, 2019, and MD&A (management's discussion and analysis) for the fiscal year ended May 4, 2019, which includes discussion and analysis of results of operations, financial position and cash flows will be available today, June 27, 2019. These documents can be accessed through the investor centre section of the company's website and also at SEDAR.

The company's 2019 annual report will be available on or about July 26, 2019, and can be accessed through the investor centre section of the company's website and also at SEDAR.

About Empire Company Ltd.

Empire is a Canadian company headquartered in Stellarton, N.S. Empire's key businesses are food retailing, through wholly owned subsidiary Sobeys Inc., and related real estate. With approximately $25.1-billion in annualized sales and $9.6-billion in assets, Empire and its subsidiaries, franchisees and affiliates employ approximately 123,000 people.

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