Empire Company is a leading Canadian grocery retail and real estate company. The company operates under retail banners such as Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods and Farm Boy. Empire Company has a 41.5% stake in Crombie REIT and in residential real estate through Genstar.
The real estate portfolio consists of high quality grocery and drugstore anchored malls, freestanding stores and mixed use developments, primarily in Canada’s major urban and suburban markets. The company also operates a freestanding pharmacy business through Lawton’s Drug Stores. The Empire Company owns and operates fuel and convenience stores, as well as liquor stores.
Empire’s reportable segments are Grocery Retail (Sobeys Inc.), and Investments and Other Activities. The grocery retail segment is handled through Sobeys, the larger segment that accounts for almost 85% of operating profit. Sobeys is one of the few national grocery retailers in Canada, serving millions of Canadians through more than 1,500 retail stores and 350 gas stations in all ten provinces and in more than 900 parishes across Canada.
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Sales growth and market exposure
With over a century of experience, the Empire Company has built a solid reputation as Canada’s most trusted grocer. Customers prefer the Empire brand for their fresh and high quality products. The company continues to benefit from strategic acquisitions such as FreshCo, Farm Boy and Voila.
In the two years since the acquisition, Empire now has 42 confirmed Farm Boy locations in Ontario and is well on its way to opening eight new Farm Boy stores and 10-15 FreshCo stores in fiscal 2021. The company had partnered with an alliance with Ocado to open a central facility Voila, an online grocery collection and home delivery company, is setting up four customer fulfillment centers across Canada to serve ~ 75% of Canadian households, which is ~ 90% of e-commerce -Expenses equivalent to the Canadians.
Empire improves its private label business by renaming its entire complement portfolio. The company is working on increasing efficiency and intends to simplify the organizational structure and reduce costs. Empire Company also pursues data analytics and artificial intelligence to drive smarter merchandising decisions and more relevant customer communications. Given its strong national reputation and centuries of existence, with the current high demand for online groceries, the Empire Company is in a good position to meet the changing needs of its customers.
The shopping behavior of customers has changed and has shifted more towards online groceries. As a result, Empire Company saw sales growth of 315% in e-commerce in the third quarter of 2021. The company also saw sales grow more than 9%, driven by market share gains in the grocery retail segment and the expansion of FreshCo in Western Canada and Farm Boy in Ontario. However, Empire saw lower fuel sales due to COVID-19 and temporary store closures in western Canada until it switched to FreshCo.
The Empire Company is seeing consistent cash flow generation from a strong return on sales, improvement in margins, and a successful capture of the benefits of Project Sunrise. The Empire Company is a dividend aristocrat and has increased its dividends significantly over the past 25 years.
Most recently, it increased its dividend by 8% and has increased it by 6.5% CAGR over the past decade. It currently has a dividend yield of 1.4% and a very reasonable payout ratio of 20%. To date, Empire has repurchased $ 100 million worth of shares. The company has announced that it will continue to buy back shares in the future.
Empire’s cash flows are very secure. Empire’s grocery retail stores such as Sobeys, FreshCo, Safeway and IGA are well known across Canada. A large part of Sobeys sales is generated with foods that are necessary products and therefore recession-proof. The Lawton Drugs Store is also an important business. Additionally, Empire’s stake in Crombie REIT also diversifies profits.
Empire Company’s strategic acquisitions should prove incremental to the company’s bottom line. In addition, the Sunrise project has contributed to an improvement in efficiency and cost competitiveness over the past three years. The company is also making good progress on its Project Horizon, a new three-year growth strategy program that aims to achieve EPS growth of at least 15% CAGR over the three years and annualized EBITDA of $ 500 million by fiscal 2023.
Empire expects SG&A costs of $ 15 million to $ 20 million for COVID-19 costs will be incurred in the coming quarter. Empire also forecast increased marketing costs. Investments are projected to be between $ 650 million and $ 675 million in FY2021, with ~ 50% for renovations and new business. Empire plans to renovate ~ 30% of its store network. Growing demand for food and medicines should serve as a tailwind for this Canadian dividend aristocrat.
Empire’s grocery retail business, Sobeys, competes with other national and regional food distributors, nontraditional competitors, and online retailers. The company is expanding both online shopping and delivery options as it faces acute pressures from online grocery stores. In the conventional space, Empire competes with Metro Inc, a leading Canadian food and pharmaceutical company, and Loblaw Companies, another leading Canadian grocery chain. Empire’s real estate business competes with numerous other real estate managers and owners.
Empire Company has a strong national presence in the Canadian grocery retail and distribution industries. As one of the largest grocery retailers in Canada, the Empire Company has been a major beneficiary of the COVID-19 pandemic. As consumer buying behavior evolves during COVID-19 and certain provincial governments impose new lockdown restrictions, the company expects the restaurant and hospitality relocation to grocery stores to persist.
Empire is renovating its stores, making strategic acquisitions, working on annual savings, and becoming more customer-centric to adapt to the new normal. Growing dividends, a recession-proof business model, an established market share position, and strong geographic diversification should support future dividend increases for the company.
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