A Sobeys location is seen in Toronto, on April 15, 2020.Melissa Tait/The Globe and Mail
The parent company of Sobeys, Safeway and other grocery stores reported record sales growth and earnings in its fourth quarter, saw “significant” market-share growth, and hiked its dividend paid to shareholders, as the effects of the COVID-19 pandemic changed food-buying habits across the country.
Empire Co. Ltd. also trumpeted the successful completion of a three-year turnaround plan called “Project Sunrise,” which took $550-million in costs out of the business, exceeding its original target by $50-million. The restructuring also centralized operations across the company’s banners and reassessed its product assortment.
The positive news for shareholders came the week after Canada’s largest grocers, including Empire, came under fire for the decision to end temporary pay bonuses instituted for employees during COVID-19. This week, Liberal MP Nathaniel Erskine-Smith proposed grocery executives should explain the pay cuts before a parliamentary committee. The motion was unanimously approved by the House of Commons Industry Committee in a vote on Thursday.
“It was communicated right from the start that it would be a temporary measure put in while the economy was basically in lockdown, for these heroes who woke up every day and came to work and served Canadians,” Empire chief executive Michael Medline said in an interview on Thursday, adding that he was proud of the decision to institute the bonuses, which will total more than $100-million once completed. “At the same time, as we come out of lockdown, as every other retailer is now open or opening, circumstances have changed.”
The Stellarton, N.S.-based company reported on Thursday that same-store sales – an important retail metric that measures sales growth not accounted for by new store openings – saw unprecedented growth of 18 per cent in its fourth quarter. That did not include sales at its gas stations, which declined by roughly 40 per cent in the 13 weeks ended May 2.
As restaurants and bars closed down in an effort to curb the spread of COVID-19, grocery stores saw demand increase significantly. While sales have levelled off somewhat, Mr. Medline said he expects they will remain elevated.
“People are more cautious; they’re spending more time at home,” he said. “I’m very confident that sales will be higher than they were pre-COVID for a long period of time. Especially in certain regions which are more affected.”
They also invested in safety measures for their staff, including personal protective equipment and plexiglass shields at checkout lanes. Empire reported that its costs increased by $80-million during the fourth quarter owing to pandemic-related expenses, mostly driven by the pay bonuses. Mr. Medline said that the company will not let up on the added safety measures for the foreseeable future.
Empire experienced market-share gains over the past few months that it would have been happy with over a five-year period, Mr. Medline said on a conference call to discuss the results on Thursday.
Like other grocers, Empire saw its biggest spikes in sales volumes in early March as people stocked up in preparation for stay-at-home measures. The peak of its sales growth was in the two weeks beginning March 8, when same-store sales grew by roughly 50 per cent not including fuel sales. The intensity of purchase volumes receded slightly beginning after March 22, but still remained up by approximately 23 per cent compared with the same period last year. For the full fiscal year ended May 2, sales were up 5.8 per cent.
Empire reported total sales of $7-billion in the fourth quarter, up from $6.2-billion in the same period last year. The company’s net earnings for the quarter were $177.8-million or 66 cents a share, a 45.6-per-cent increase compared with the prior year and the highest earnings per share in Empire’s history.
As demand for grocery e-commerce spiked during the pandemic, Empire accelerated testing of its new online grocery-delivery service, Voilà by Sobeys, in the Greater Toronto Area. Empire announced on Thursday that it will launch the service for customers this month.
COVID-19 has “supercharged” the demand for grocery e-commerce, Mr. Medline said on Thursday. In Quebec and British Columbia, where Empire already operates e-commerce services through its IGA and Thrifty Foods banners, online sales have been seven-times higher than usual during the pandemic. While online purchases account for a tiny proportion of overall grocery sales, he said he believes Voilà will help Canada to catch up to other markets.
To facilitate its e-commerce expansion, Empire has partnered with U.K.-based e-commerce company Ocado Group PLC on the construction of two automated distribution centres in Vaughan, Ont., and in Montreal. Construction of the Montreal facility, which was due to open next year, was delayed because of construction shutdowns during the pandemic.
For the full year ended May 2, Empire reported $26.6-billion in sales, compared with $25.1-billion in the prior year. Its full-year net earnings were $583.5-million or $2.15 a share, up from $387.3-million, or $1.42, the year before.
The company raised its quarterly dividend by 1 cent to 13 cents a share.
Empire also announced the extension of a share buyback program. The company bought nearly three million shares in fiscal 2020, and has filed a notice of intention to purchase up to five million shares, or 3 per cent of its class A shares, over a one-year period starting in July.
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