A pedestrian passes a Sobeys store in Toronto in this file photo.Melissa Tait/The Globe and Mail
One of the country’s largest grocers is seeing signs that food inflation has hit its peak in Canada, as requests for cost increases from product suppliers have begun to slow down.
Sobeys parent company Empire Co. Ltd. EMP-A-T says that, while supplier requests are still trending above prepandemic levels, both the number of requests and the magnitude of cost increases being discussed have abated since the beginning of May.
“While food inflation remains high, we are pleased to see that it is beginning to moderate,” said Michael Medline, Empire chief executive officer on a conference call Thursday to discuss the company’s fourth-quarter results.
Mr. Medline predicted the moderation will continue in the coming months – supported by easing of commodity prices for ingredients such as wheat and various cooking oils.
“These are still tough times. It’s not over,” he said. “And hopefully we’ll be through it soon.”
Empire on Thursday boosted its quarterly dividend paid to shareholders by 10.6 per cent to 18.25 cents per share, as the grocer reported increased profits and the completion of a six-year turnaround plan that has reshaped the business and added hundreds of millions of dollars to its bottom line.
The Stellarton, N.S.-based retailer, which also owns grocery banners such as Safeway, FreshCo, Longo’s and Farm Boy, reported net earnings growth that beat analysts’ estimates, amounting to $182.9-million or 72 cents per share in the fourth quarter ended May 6, up from $178.5-million or 68 cents per share in the comparable period the prior year. The company reported the higher profits in a comparatively shorter time frame of this year’s 13-week quarter compared with a 14-week period in 2022.
The second three-year phase of the now completed turnaround plan, called Project Horizon, involved store renovations, expansion of some store banners including the discount FreshCo chain, investments in data analytics and expansion of the company’s private-label products. Empire says it has now reached its goal of adding $500-million in annual earnings before interest, taxes, depreciation and amortization (EBITDA) through these initiatives.
Through the turnaround, the company also expanded its EBITDA margin by 60 basis points. (A basis point is one-hundredth of 1 per cent.) While Empire’s management had originally set a goal of expanding that profit margin by 100 basis points, some projects were delayed by the pandemic, inflation and a cybersecurity breach that hit the company in November.
In the fiscal year ended on May 6, Empire recorded a $34.1-million adjustment to net earnings related to that breach. The company has previously said it expects the cost of the breach to be $32-million after insurance recoveries – some of which will be recorded following the end of this fiscal year. That estimate remains unchanged.
Now that the turnaround is complete, the company plans to continue to invest in updating its stores, with plans to renovate 20 to 25 per cent of its locations over the next three years. The company also plans to continue its focus on e-commerce expansion through the Voilà brand, and to use analytics to better tailor store layouts and improve product promotions. Empire is aiming for further cost-control measures, including by focusing on product sourcing and supply chains.
Empire’s fourth-quarter sales declined by 5.5 per cent to $7.4-billion compared with the longer quarter in the prior year. Same-store sales – an important industry metric that tracks sales growth not tied to new store openings – grew by 1.6 per cent, or 2.6 per cent excluding fuel sales at the company’s gas stations.
E-commerce sales declined by 13.5 per cent in the quarter. In a news release, the company attributed the decline to a period in 2022 when the pandemic was still causing people to buy more groceries online than usual.