Key Takeaways:
Empire Company Ltd. posted record first-quarter diluted earnings of C$1.04 a share, 14.3% above the year-earlier C$0.91, as the Sobeys parent leaned on cost discipline and a smaller share count to outrun flat grocery margins.
"Our banners are competing effectively, our growth initiatives are gaining traction, and our focus on productivity and efficiency is delivering results," Chief Executive Officer Pierre St-Laurent said on the Sept. 10 call.
Net earnings rose 9.9% to C$233 million from C$212 million, while sales for the 13 weeks ended Aug. 1, 2026, advanced 2.6% to C$8,475 million. The gap between the two growth rates is the story: diluted weighted average shares fell to 224.9 million from 233.4 million, so roughly a third of the per-share gain came from the denominator rather than the numerator.
Empire's food same-store sales growth of 1.2% landed below the 1.9% it recorded a year earlier, and gross margin slipped 30 basis points to 26.8% on the mix effect of higher fuel sales and elevated fuel-related supply-chain costs. Excluding fuel, gross margin was unchanged, and management reiterated its target of 10 to 20 basis points of annual expansion on that basis.
The margin offset came from selling and administrative expenses. Excluding depreciation and amortization, the SG&A rate improved 80 basis points, which Chief Financial Officer Constantine Pefanis attributed to lower incentive-program accruals, a C$22 million pre-tax pension settlement gain, and reduced e-commerce costs following the closure of the Calgary customer fulfillment center. Pefanis said the underlying SG&A run rate is "stable, and declining when you take into consideration the cost of the inflationary pressures on the business."
Empire's e-commerce platforms — Voilà, IGA.net, ThriftyFoods.com and third-party tie-ups with Instacart, Uber Eats and DoorDash — grew combined sales 11.3% year over year. The company said its e-commerce review will lift annualized operating income by roughly C$95 million, a benefit that began in the fourth quarter of fiscal 2026 and continues through fiscal 2027. Management plans to reinvest about one-third of that into growth.
On capital return, Empire repurchased 1,560,466 Non-Voting Class A shares in the quarter at a weighted average price of C$48.07 for C$75 million in cash. Fiscal year to date through Sept. 8, the company had bought back 1,964,590 shares for C$95 million at an average of C$48.37. A renewed normal course issuer bid, filed June 19, 2026, permits repurchases of up to 10,750,000 Class A shares, about 9.6% of the public float, through July 1, 2027.
Empire also sold its equity interest in the Genstar partnership for C$71 million in proceeds and a C$4 million gain, and maintained fiscal 2027 guidance for other income plus share of earnings from equity investments at C$90 million to C$110 million, down from C$129 million in fiscal 2026. Capital spending is pegged at about C$850 million, with roughly half for renovations and new stores and about 25% for IT and business development.
Store expansion is running ahead of plan. Empire now expects more than 25 openings in fiscal 2027, up from a prior forecast of more than 20, including four Mayrand locations acquired in June and 13 additional FreshCo stores across Western Canada, Ontario and Atlantic Canada. New stores are expected to add about 1.5% to net square footage before Mayrand.
The durability question is whether the 80 basis points of SG&A relief repeats. Two of its three drivers — the pension settlement gain and the year-over-year swing in incentive accruals — do not recur, and Pefanis told analysts quarterly SG&A "may not progress in a straight line." That leaves e-commerce savings and procurement discipline to carry the operating-leverage story, against food same-store sales that decelerated to 1.2%.
Empire maintained its outlook for adjusted EPS growth at the high end of its 8% to 11% long-term framework for fiscal 2027, supported by gross-margin expansion and annual operating leverage. The company also guided to a back-loaded cadence for other income and equity earnings: approximately 15% in the second quarter, 20% in the third and 50% in the fourth.
For holders, the read is that Empire is buying its own earnings growth at roughly 10 times the C$48.37 average repurchase price while the core grocery top line grows below 2%. Peers Loblaw and Metro will report their own quarters into the same value-seeking consumer backdrop, making Empire's 1.2% food same-store sales the number to benchmark against. Empire's second-quarter fiscal 2027 conference call is scheduled for Dec. 10.
This article is for informational purposes only and does not constitute investment advice.
