Sobeys finishes fiscal 2023 on high note with completion of Project Horizon

Empire Company Ltd., parent of Canadian food and drug retailer Sobeys Inc., tallied fourth-quarter and full-year comparable sales gains for fiscal 2023, with adjusted net earnings per share topping analysts’ consensus forecast for both periods.

Stellarton, Nova Scotia-based Empire also said Thursday that the close of fiscal 2023 marked a successful end to Project Horizon, a three-year strategic plan to boost market share and the company’s omnichannel presence.

For the 13-week fourth quarter ended May 6, food retail sales totaled $7.41 billion (Canadian), down 5.5% from $7.84 billion in the 14-week fiscal 2022 quarter. Empire attributed the 2023 Q4 sales decline mainly to the additional week of operations in fiscal 2022 and lower fuel sales, offset by benefits from Project Horizon and strength in discount grocery banners.

Same-store sales in the fourth quarter rose 1.6% year over year and were up 2.6% excluding fuel, compared with decreases of 0.1% overall and 2.5% excluding gasoline in the 2022 quarter.

Full-year fiscal 2023 food retail sales, covering 52 weeks, came in at $30.48 billion, up 1% from $30.16 billion in fiscal 2022, which had 53 weeks. Empire said 2023 sales results reflect higher fuel sales and benefits from Project Horizon initiatives, including the expansion of the FreshCo banner in Western Canada. That was partially offset by the extra week and the impact of the pandemic restrictions in fiscal 2022, changing consumer behaviors amid high food inflation, and a cybersecurity incident last November.

Comp-store sales grew 2.3% but just 1.5% excluding fuel for 2023, versus flat results overall and 2.1% decrease excluding gas in 2022.

Fiscal 2024 expansion plans include two new Farm Boy fresh market stores and three new FreshCo discount grocery locations. / Photo: Shutterstock

Pluses from Project Horizon

Empire cited “significant benefits” from Project Horizon, launched in mid-2020 to spur sales and earnings growth as well as “win Canadian grocery e-commerce.” The company hit its target of an incremental $500 million in annualized EBITDA and said it reaped benefits from store renovations, new stores (including conversions to the FreshCo banner and Farm Boy expansion), promotional optimization and data analytics, the rollout of the new Scene  loyalty program, customer offer personalization, an expanded and enhanced own-brand portfolio and sourcing cost-efficiencies.

Project Horizon initiatives “will continue to provide benefits in fiscal 2024 and beyond,” Empire adding, pointing to Scene , personalization efforts and store network remodels and new locations. The Horizon plan built on Project Sunrise, a three-year strategy launched in late fiscal 2017 to simplify Empire’s organizational structure and rein in costs.

“With our six-year turnaround now complete, we have the tools, team, assets and capabilities needed to thrill our customers, compete and win,” Empire President and CEO Michael Medline said in a statement. “Our focus going forward will be on turbo-charging our business, with an even greater emphasis on our stores and supply chain, enhancing our digital capabilities and driving efficiency.”

More store network & e-commerce growth

On the brick-and-mortar front, Empire aims to open two more Farm Boy fresh market stores in Ontario during fiscal 2024, adding to the banner’s 47 stores now in the province. Also in fiscal 2024, the company expects to open three FreshCo discount grocery stores in Western Canada. The chain now has 44 stores in the region, including four opened in fiscal 2023.

Empire’s four online grocery platforms—Voilà, Grocery Gateway, IGA.net and ThriftyFoods.com—experienced a 13.5% combined sales decrease year over year in the 2023 fourth quarter (excluding the extra week), mainly due to comparisons to high pandemic-driven sales in the 2022 quarter.

Based on third-party market data, Voilà continues to outperform the market over the last fiscal year, according to Empire.

Voilà delivery service launched this month in Alberta and is powered by a recently launched Ocado-automated fulfillment center. / Photo: Shutterstock

The company has continued to build out its network of four Ocado-powered customer fulfillment centers (CFCs) across Canada to support the growth of Voilà. The first CFC in Toronto started deliveries in June 2020, and the second CFC in Montreal launched deliveries in March 2022 under a phased transition of customers to Voilà par IGA from IGA.net. The third CFC in Calgary begin deliveries in early fiscal 2024, with Voilà service in Alberta getting under way this month. The fourth CFC, in Vancouver, British Columbia, is expected to initiate deliveries in calendar 2025. Also, as part of integration of Longo’s, acquired in May 2021, Empire plans to begin incorporating the Ontario grocer’s Grocery Gateway e-commerce service into Voilà in July.

Earnings up in Q4, down for full year

At the bottom line in the 2023 fourth quarter, Empire recorded net income of $182.9 million, or 72 cents per diluted share, compared with $178.5 million, or 68 cents per diluted share, a year ago. On an adjusted basis, net earnings were $184.9 million, or 72 cents per diluted share, versus $178.5 million, or 68 cents per diluted share, in the 2022 quarter. Analysts, on average, had projected adjusted EPS of 68 cents, with estimates ranging from 66 cents to 69 cents, according to Refinitiv.

Full-year 2023 net income was $686 million, or $2.64 per diluted share, compared with $745.8 million, or $2.80 per diluted share, in 2022. Adjusted net earnings came in at $727.1 million, or $2.80 per diluted share, versus $745.8 million, or $2.80 per diluted share, for 2022. The consensus analyst forecast was for 2023 adjusted EPS of $2.76 per diluted share, with estimates running from $2.74 to $2.77.

Empire’s food retail network, operated via its Sobeys subsidiary, includes over 1,900 food, drug and convenience stores in all 10 provinces under banners such banners as Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, Farm Boy and Lawtons Drugs. The retailer also operates more than 350 retail fuel stations.