Earnings Call: Q3 2021

Mar 10, 2021

Good morning, ladies and gentlemen, and welcome to the Empire Third Quarter twenty twenty one Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, 03/10/2021. I would now like to turn the conference over to Katie Brine, Director, Investor Relations. Please go ahead. Thank you, Joanna. Good afternoon, and thank you all for joining us for our third quarter conference call. Today, we will provide summary comments on our results and then open the call for questions. This call is being recorded, and the audio recording will be available on the company's website at empireco.ca. There is a short summary document outlining the points of our quarter available on our website. Joining me on the call this this afternoon are Michael Medline, president and chief executive officer Michael Bell, chief financial officer and Pierre Saint Laurent, chief operating officer, full service. Today's discussion includes forward looking statements. We caution that such statements are based on management's assumptions and beliefs and are subject to uncertainties and other factors that could cause actual results to differ materially. I refer you to our mutualist and MD and A for more information on these assumptions and factors. I will now turn the call over to Michael Medline. Thanks, Katie. Good afternoon, everyone. I'll keep my comments short today. I don't need to say much about our third quarter results. They stand for themselves. However, I do think many people are sorely underestimating how much stronger our business is now regardless of any COVID benefits. Today, I wanna focus on our performance this quarter, including early results from Verizon and an update on ecommerce. Before I get into our results, I would like to cover three very important things. First, I wanna reiterate how proud I am of our frontline and back office teammates. They have continued to serve our customers every day through this pandemic. COVID has unfortunately become our new normal, but we remain more vigilant than ever in keeping our customers and teammates safe. Second, in recognition of Black History Month in February and the recent International Women's Day, I wanna take a moment to reflect on these important annual celebrations. Remembering and celebrating the people and events in black history is important and necessary. We must address and rectify long term institutional bias and racism. We are engaging with marginalized teammates, listening, learning, and taking actions to address anti black racism and advance on a culture of inclusion. Our partnership with the Black North Initiative remains very important to us. It is a guidepost for our actions. While there has been some meaningful progress on advancing women in the workplace, there is still so much to be done. For us, progression and representation of women continues to be a key focus. It is embedded in our leadership selection and development processes, which is making a real difference. For example, store level programs have led to increases in women in historically male dominated roles. At Empire, we don't limit our diversity, equity, and inclusion growth journey to a single month or day. It's ongoing. I'm so proud of our DE and I team and all our teammates who are supporting our DE and I growth journey. Now on to our third quarter results. We are extremely pleased with our performance this quarter. We're delivering on both our top and bottom lines. We have a strong balance sheet and have continued to strengthen it through the last year. And even through the pandemic, with more demands than ever on our team, we are seeing the real start of financial benefits from Project Horizon. Sales were up 12% this quarter with same store sales up 10.7%. We continue to see substantial gains in our national market share and market share growth in every region of the country as our sales growth outpaces competitors. There are a few reasons sales remain elevated and our market share continues to grow. One, the latest COVID lockdown did bring a surge of sales in certain regions when initially announced. Two, the strong improvements in our store operations and merchandising have enhanced our winning customer value proposition. Three, our strategic investments, including Farm Boy, FreshCo, and Voila, as well as our store renovation program are outperforming. We are very proud of these investments. And lastly, this quarter encompasses our busiest time of the year, the holiday season. Our team delivered strong results outperforming the market in this important period. Our gross margin dollars were positively impacted by increased sales. But in addition, gross margin rate was 25.7%, up a truly impressive 134 basis points over last year. The strong improvement in margin is in large part due to early Project Horizon results. This includes tremendous progress we've made with our promotional optimization program. The program is powered by collaboration between our merchants and our advanced analytics team. Together, they have designed new processes and tools to improve promotional planning. And already, this program is embedded in the day to day business of our merchandising organization. However, algorithms alone do not make the best decisions and are no substitute for good judgment. Together, our great merchants equipped with improved data form a powerful combination that is driving our compelling customer value proposition. A smaller portion of the margin improvement comes from continued sales mix shift toward our full service banners. I believe our strong margin performance this quarter shows that you don't need to send unilateral letters to your suppliers to do well in this business. We try to treat our supplier partners with respect and transparency. We believe this values driven approach garners better results for both sides. It doesn't mean we're not tough. We are, but we negotiate the right way. I am extremely proud of our merchants who put these values into practice every day. Now Mike will speak more on SG and A in a moment, but I would like to highlight how we have kept our commitment to offer our frontline and distribution center teammates a lockdown bonus even while much of the industry did not do so. To us, it was certainly the right thing to do. In q three, this investment was $9,000,000. Our initial estimates of up to $5,000,000 only included Manitoba and select regions of Ontario. In q four, based on current estimates, we expect the lockdown bonus to be up to $4,000,000. Next, a few updates on ecommerce. It has been another impressive quarter for our ecommerce business as we continue to hear how much customers love Voila. This quarter, Empire's ecommerce businesses grew 315% over last year. With the continued expansion of Voila, arrival of winter, and further lockdowns, we saw an impressive increase over the second quarter as well. Today, I can share updated projections on the financial impact of As we previously publicly disclosed, our expectation was that Voila would dilute EPS in fiscal twenty twenty one by 20¢. However, we now expect our team will over deliver on this estimate with full year EPS dilution of 18¢ in fiscal twenty twenty one. Our initial 20¢ estimate did not include the full cost for STOREPIC, but the revised estimate of 18¢ actually does, so it's even better than it looks. This reduced dilution is a direct result of the team's outstanding efforts to ramp up the business quickly to meet customer demand while maintaining cost discipline. As we have said in the past, Voila is a strategic long term investment. Our partnership with Ocado provides us with the best and most customer friendly grocery ecommerce platform on earth. While we are seeing dilution now, this investment will pay off. When we achieve scale, we expect to have the most profitable approach to grocery ecommerce in Canada, and it will be exclusive to us. To wrap up, I would like to highlight how we have continuously demonstrated that when we set targets for ourselves, we meet them. Our results prove this time and time again. Our our team is working hard to drive our core business and to execute our strategic growth agenda. We will review our first full year horizon in June. For now, while we are only nine months into our three year growth strategy, we already have material at exceeding targets. We continue to prove this with our strategic investments like Voila and Farm Boy, both of which are outperforming. There is a reason we are outperforming the competition, and it ain't all COVID. With that, over to Mike. Thanks, Michael. Good afternoon, everyone. I'll provide some additional color on our results, of course, and some comments on our fourth quarter, our cash flows and an update on capital expenditures. Next quarter, as everyone knows, we'll start to comp the elevated sales we saw at the beginning of the pandemic. Last year, we started to see significantly higher sales on starting on February 28. The following weeks saw customers stock up in preparation for possible stay at home requirements. As a result, we saw an unprecedented 18% same store sales in the fourth quarter last year with very volatile weekly sales comps ranging between negative 1% and positive 52%. The last half of Q4 last year drove the lion's share of that comp increase. We've not seen this level of buying as elevated since then as shoppers' buying patterns evolve through COVID. As a result, our sales compared to last year this early in the quarter are in no way an indication of where our total sales comps will end up at the end of next quarter. Because of this volatility, even a negative same store sales number for the fourth quarter will not automatically indicate weaker sales, just an anomalous outcome because of the highly unusual quarter last year. In the first five weeks of the fourth quarter ending last week, our same store sales were 9% compared to last year. As I said, this increase is unlikely to be sustained through the fourth quarter as a result of the significant COVID driven sales last year. As Michael said, we had strong gross margins this quarter with 134 basis point increase from last year. Going into the fourth quarter, we continue to be satisfied with our margin rate discipline and the impact of Horizon benefits that are improving our margin. Of course, it's always our goal to keep pushing on efficient translation of sales to the bottom line as we pursue our EBITDA margin goals. The rate of improvement in the third quarter, however, may not be entirely repeatable in the fourth quarter as we're also lapping an increase in margin rates last year that were caused by inventory shortages that did not allow our suppliers to supply all promotional items. And as a result, we had a higher percentage of sales at regular prices. On the other hand, we do expect to continue to reflect Horizon benefits and positive impacts of our higher margin service counters coming back into service since last year. This quarter, there were some significant items in SG and A that increased our SG and A as a percentage of sales. Some of these impacts will recur into the fourth quarter, but not necessarily into fiscal twenty twenty two. There's a lot going on in our SG and A line, including our new e commerce business, store conversions, higher volumes and COVID impacts on labor wages. First, accounting accruals for our store distribution center and backstage teammate compensation continue to be higher this quarter, and they will be in the fourth quarter as well. We do not expect to see these expenses at the same levels in fiscal twenty twenty two. Second, COVID costs, including the lockdown bonuses, are an increase from last year. These costs for the fourth quarter estimated at between 15,000,000 and $20,000,000 will be less than the COVID costs for the fourth quarter last year of $80,000,000 Third, the new Voila business now has its full back office SG and A and supply chain costs reflected in the company's SG and A compared to last year. Voila launched to customers June 22, a little over halfway through our first quarter last year. Fourth, expenses associated with the closure of stores and conversion to FreshCo stores in Western Canada and Farm Boy stores in Ontario are recorded in the third quarter. And finally, right of use asset depreciation under IFRS 16 is higher than last year, reflecting an increase in occupancy costs. As I said, there are a number of items impacting SG and A with COVID costs and impacts and investments in Horizon initiatives. Another example of these costs that have been elevated and where we will continue to invest invest is in marketing, where we have invested to reposition our full service and discount banners with our customers and, of course, invested in awareness of our new e commerce platform. Another investment that will also begin in the fourth quarter is our extremely exciting investment in sponsorship of our Canadian athletes. In 02/2019, we announced our partnership with the Canadian Olympic Committee as the first ever official grocer of Team Canada. With the delay of the Summer Olympics, we now have both the summer and winter games in the same fiscal year, which we, of course, do not fully expect. This is a once in a generation opportunity to grow our brands with Canadians during two Olympics in one year, and we intend to take full advantage of this exclusive chance. EBITDA margin in the third quarter increased by 90 basis points over last year due to the 134 basis point increase in gross margin, partly offset by the impacts of SG and A, as I've outlined. The effective tax rate for the quarter of 26.4% was in line with the statutory rate. And excluding the effect of any unusual transactions or tax rates on property sales, we estimate that the effective income tax rate for fiscal twenty twenty one will be between 2628%. The earnings per share, as Michael said, includes $04 per share of Waller dilution compared to $01 last year and $04 per share of FreshCo and Farm Boy conversion and store closure costs compared to none last year. We're very pleased with Voila's consistent growth in order volumes week over week. Voila sales have increased by approximately 100% from Q2, and our total e commerce sales are up by 350% compared to last year. This increased pace of sales has reduced our expected EPS dilution estimate from $0.2 to $0.18 for fiscal twenty twenty one, even after accounting for the launch of our StorPix solution, which has an expected dilutive impact of approximately $01 for fiscal twenty twenty one. Equity earnings increased year over year, principally due to higher earnings from Columbia REIT, which continues to perform well in spite of COVID headwinds, primarily due to their high quality portfolio, a significant amount of which is anchored by Empire grocery banners. Their rent collection rates are high at 98% in their fourth quarter and continuing through January. Bromby REIT started their calendar 2021 with record committed occupancy of 96.4% and a strong property development strategy. Cash flow generation continues to be strong. At the beginning of this quarter, we fully retired two debt facilities. This, combined with continued strong EBITDA, improved our funded debt to EBITDA to 3.3x compared to 4.1x last year. The company's credit metrics and financial profile continue to improve due to stronger operating performance and stable financial leverage. As of this week, we've repurchased approximately 2,800,000.0 shares so far for consideration of $100,000,000 We intend to complete the current NCIB up to 5,000,000 shares. And when that NCIB is completed, we plan to renew it with the TSX at a higher level of share repurchases. Year to date, we've spent approximately $450,000,000 of capital investments and we continue to expect to spend between $650,000,000 and $675,000,000 for fiscal twenty twenty one. About half of this investment is being spent on renovations and new stores, including the expansion of FreshCo in the West and Farm Boy in Ontario. Dollars 65,000,000 of the total will be spent on Voila, including CFC two construction and rollout of the install picking solution. We renovated 19 locations across our network this quarter, and we are on track to renovate 30% of our Empire store network over the course of horizon. This is a significant disciplined program with our strongest returns. Our renovation program is meeting, if not exceeding sales forecasts and business case. If you look at the earnings presentation document on our website, we put some of the before and after pictures of recent renovations, which have improved our customer experience and provided new assortment in many stores, which is garnering significant enthusiasm from our customers. In January, we announced that we have reached the halfway mark of our Western Canada discount expansion plans. We opened our twenty third store last week and have plans to open another three to five stores in the fourth quarter for a target achievement of 10 to 15 stores in fiscal twenty twenty one. Next quarter will be the two year anniversary of our first FreshCo stores opening in the West. Farm Boy opened their thirty sixth store last month. They are on track to open a total of eight stores, including one relocation in fiscal twenty twenty one. Approximately two years since the acquisition, we now have 42 confirmed locations and plans for more. In March, we opened our first Voila Spok in Etobicoke, Ontario. Spokes are crosstalk facilities that allow us to get closer to our customers and improve efficiencies at our CFCs, for example, by improving a key efficiency metric such as drops per van. The spoke reduces the distance to our customers and increases the amount of deliveries our customers can make in a shift. This particular spoke will relieve long term capacity constraints and it had a very smooth startup. In December, through our Crombie development partner, we completed construction, our part of the construction of the CFC building in Montreal on time, and Ocado began their build of the internal grid. We expect to start testing the system and bringing in products in the 2021. Our target launch date remains early calendar twenty twenty two. As you can see, there's lots on the go. We have detailed plans built by our leadership teams, singularly focused on our horizon targets and managed by our disciplined PMO teams. We've managed to restart all of our initiatives that were previously delayed due to COVID and expect to exit fiscal twenty twenty one with momentum on these critical activities. We're really encouraged by our early success on new capabilities and tools such as artificial intelligence and advanced analytics and the new processes in our merchandising and operations groups. Our Horizon progress is on track, and there is so much more to come. And with that, Katie, I'll hand the call back to you and take questions. Thank you, Mike. Joanna, you may open the line for questions at this time. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch tone phone. You will hear a three tone prompt acknowledging your request. If you are using a speakerphone, please lift the handset before pressing any case. First question comes from Patricia Baker at Scotiabank. Please go ahead. Good afternoon. Thank you very much for taking my question. Michael, I'd like to talk a little bit more on the promotional optimization. I mean, certainly provided it was a win in q four, and it sounds like it's going to be a gift that keeps on giving. So the way that, you know, I look at it here, there's there's two elements. There's the data and the analysis of that data. And then, of course, as you referred to in your opening remarks, there's the team, that work with those, tools to deliver the promotional, effectiveness. Now the data's always been there. So as I recall, when you first joined the company, you said you were really impressed by the amount of data. So, obviously, you know, what part of what's happening here is that the mining of the data has improved significantly. But I just wanna get your impression. If you look at the the teams that are managing the promotion and, as you indicated, also using their judgment. So the results that we saw in q three demonstrate that the teams are as agile as you want them to be, or and how would you compare them to where they were a year ago? And then or is there more to come? And and and does success success the successful promotions just build on the next promotion so that you just keep getting better and better? Yeah. Great question. And, and when I think about all the time, especially today, we just had a presentation. We have many presentations, but we had one at a board today on on promotional optimization, and it was it was led by merchants at many levels of the company. I think four different levels were represented. We we swim in that, and we always have. The what we've done is we've cleaned up the data so it's incredibly usable. We've got I I I wanna compliment our technology team. They have they're just they're just killing it, and we're putting tons of pressure on them, and they're responding. We talked about our data analytics team led by Moe Grover. They're they're aces. But this is no we're not hiring hundreds of people here, guys. You don't need to. You just you need a you just need fantastic superstars in data analytics. And but the biggest thing that I've seen, and I don't think they notice it, is that our merchants our merchants have just embraced this, and they're excited about it. And now they're the ones driving driving to have more and more analytics and to make good decisions on behalf of our customers who offers to our customers are sharper and smarter and more appealing. And this is it's not just the margins. This is the sales team. Like, we wanna we are a customer. We wanna win our customers over and take market share. And the merchants, they I don't think they notice how much better than they are than a year ago. It's it's it's incredible. They're speaking a different language. But but we're in early days, so you saw the difference it could make to our company. It was a big portion of the 134 basis points that we saw. And these are just early days. Like, this reminds me I'm aging myself. It reminds me of the early days of sunrise when people didn't didn't see what was coming and but what we saw. And and and this this this the way we do things and our leadership, especially from, you know, Pierre Celeron, Mohit, and Bruce Burrows in technology driving this analytics, this is this is our biggest opportunity. And and now that they love it, they're going hunting for it. And and so this is this is our biggest opportunity, always was going to be. But we couldn't have done any of this before sunrise. No. Absolutely. You mentioned that the merchants embrace this, and they're speaking a different language. I'm just curious. Are they speaking a more return oriented language than they would have been a year or two ago? Here. Yeah. They have very powerful dashboards in front of them now. They know in a very in a very short time if promotion are the level of effectiveness of the promotion. So we're hearing them talking about red promo, yellow promo, and and and and red promo, but we have less and less red promo now. We have green promo, though. And it's not only good for us, but it's only good for supplier partners. You know, everybody want to have a meaningful and effective promotion, and they want to maximize the impact on customers. And we have very our merchant has very good conversation with supplier now to to increase the effective effectiveness and the and how meaningful our promotion for customers. So that's the different language we're hearing now, and it's very encouraging for the future. Thank you very much, Pierre and Michael. Thank you, Patricia. Thank you. The next question comes from Chris Lee at Desjardins. Please go ahead. Good afternoon. Maybe first one to Michael. Just listening to your opening remarks, it sounds like the benefits from Horizon were a bigger driver of your gross margin improvement this quarter more so than the the sales mix impact. I guess first question, is that correct? And then number two is can you maybe quantify for us a little bit just how much you of the impact was from each factor, please? Mike? Thanks, Chris. I think Michael said it was a significant amount. You know, COVID is still a significant effect on the numbers, and and that mix shift has has been has been significant. So, you know, I think in order, it would be it'd be you know, both both very significant. It would be mix and and Horizon benefits. But, you know, when I add other, call it, strategic decisions in, like Farm Boy, discount, renovations. You know, this is not only about advanced analytics. If I started adding in some of those items and then I think ascribe some of our share gains that we've made to those initiatives, then I would say, yeah. In total, sales and gross margin rates, Horizon was probably a greater driver. So, you know, I guess what I'm saying is very hard to specifically separate out sales impacts. We can separate out gross margin rate impacts a little better, but I I wouldn't get fixated on just the one thing we're doing. We're doing many things. We've been doing them quite well even coming out of Sunrise, and and, you know, we feel good about material amounts of this quarter's result being repeatable in future quarters. Great. That's very helpful. And then and my other question is, you know, just conceptually speaking, as the industry cycles through very strong comps, how do you strike the balance between, you know, not chasing after unprofitable sales versus ensuring that you're not losing the share that you have fought so hard to gain this past year? Peter, do you want sorry. Mike, do you wanna do it? And then if Pierre has anything to add? Yeah. Go ahead, Peter. I was about to say, why why don't you take another question? But how do you I mean, how do we as we we're gonna see maybe some negative well, we'll see some negative comps, especially, like, the last tiny bit because we're comping over some big periods. But how do you make sure you don't chase them but keep your market share? I think that's the main KPI going forward. We need to look at market share more than our usual KPIs, like comp sales versus last year. So as long as we continue to gain market share, the LT way with no empty category sales, we would be satisfied. So I I think the team is is is is behind that new KPIs for the next year because we don't want to change the good behavior we installed recently. So but but we believe that we will continue to we we did really well during COVID, and we believe that customer will continue to shop our store based on their good job we did. So we're confident for the next year for sure. But, yes, we want that the same sale, over the next two, three weeks. We had big panic buying. We won't see the same level of sales, but I think we will continue to see healthy sales and margin by by measuring through good KPIs. Yeah. I mean, I I think, Pierre, that's that's perfect and exactly exactly right. And, you know, a lot of retailers, you know, you hear yeah. And and it's that's always danger of where they chase sales or they then they chase margin. We're we're working and and we're helped in by a fantastic team, but also with way more use of data and smarts and category reset that we we we don't talk like that anymore. We we we believe we can grow our market share and and grow our margins. Perfect. And then maybe just one very last question. How much would the full cost for the store pick that were not initially included in your 20¢ for that dilution estimate? It was about 1¢ per share. Okay. Okay. Thanks very much. Thank you. The next question comes from Irene Nattel at RBC Capital Markets. Please go ahead. Thanks, and and good morning, everyone. I guess, we're now about nine months or almost nine months since you rolled out full on the GTA. And I was just wondering if you could talk about what you're seeing in terms of consumer purchasing the patterns, you know, sort of how often are they ordering, basket sizes, retention rates, you know, anything that you can tell us there. Mike, do you wanna have a swing at that? Sure. First of all, our week over week sales, I think of in virtually every week since we spoke to you last have increased, and that's a combination of our our new customer accounts and and basket size increases as well. Our retention rates are are excellent. And and and our efficiency test statistics, it'd be fair to say, you know, I mentioned on the call drops per van, the number of picks generated inside the facility by our our robots. Our substitution rates, our on time delivery rates, all at or above, our our targets. So so, you know, it it it it's super hard to go through every one of those statistics and and and probably not smart competitively to do it. But I I think the only item that we we are planning to change materially going forward is that we added about a thousand articles to our assortment since the last time we spoke to you. And as we, as we move forward, we still have significantly more room to add, assortments, in that, in that facility. And we intend to do so as soon as the supply chain can make it and and when negotiations that we've we have in place for some more specialty items are completed. We added we added a pretty cool line of Oliver and box Oliver and Boccacini premade meals, and I think they sold out in an afternoon. So, you know, it's that that type of innovation and that type of excitement that that's really gonna generate a lot of long term success and and something that Sarah and her team are working on you know, with with a significant amount of urgency. And and and every week, I I bought the three things I look at most, and I'm happy in the fact we're over performing our retention rate of existing customers, tracking new customers, and basket size. So, it's just really there's not there's no bad news there. It's all good. That's that's great. Thank you. And then also, can we can we get an update if possible on just, how the compliments relaunch is doing and and also, you know, sir, whether you're continuing to see rising penetration and how that's playing into, ecommerce as well? On on private label, we continue to outperform our our total growth, which is a good sign. Once again, like I already said before, penetration rate is a KPI, but not my favorite. My favorite is make sure that private label will play a meaningful role in every single category. So in some category, there's a lot of opportunity for us and some other less. So it's why we so now and and the good news is now the team has rebuilt category for private label. Like, if you remember, we did category reset in the past. Now we're doing exactly same thing with private label. So we'll have a a more relevant play for private label item, and we'll have better cost of goods. And then private label will play the main roles they have to play. I mean, doing generating more penny profit in a meaningful pricing for customers. That is great. Thank you. Thank you. The next question comes from Mark Petrie at CIBC. Please go ahead. Hey. Good afternoon. Actually, just a couple of follow ups, and appreciate all the comments. With regards to the dilution on Voila, obviously, you're moving in the right direction there. I mean, just sort of you know, if I heard right, it sort of sounds like 3¢ likely for q four. Can we sort of extrapolate that kinda penny a quarter pace of improvement as to when you might reach breakeven, or what are the other variables there? Yeah. I don't think I'd do that, Mark. We the the most significant element of of moving to accretion for for that CFC is gonna be sales increases for sure. We're and as I mentioned, you know, things like assortment size, basket size, customer retention, all that sort of thing is gonna go into that. We are going to also start incurring costs for CFC two, next year. And our intention, once we've solidified our plans is to is to provide a a more granular estimate of what we anticipate our total ecommerce, impact will be for next year. But I think it's fair to say that as Voila continues to bed down, their efficiency ratios now become, you know, either better than target and and are repeatable week to week. We're we're driving you know, we're converting the we're converting the sales to earnings. And and, really, what we need to do over the next year is just keep doing what we've been doing and and cover the fixed costs. So you're right that it's that it's gonna consistently improve, in our opinion. But but just taking a linear earnings per share number, I I don't think it's gonna get it done. So we're gonna provide a little more information on that probably in the next quarter. Okay. Thanks. Yeah. I was I was just referring to CFC one and and sort of putting CFC two aside. And just to you know, on that topic, I think you've said in the past, but just to confirm, you expect CFC two to be less dilutive than CFC one, at least incrementally, simply because you're now leveraging some of the infrastructure that's in place? Well, to the extent that we we don't have to repeat the infrastructure, you're a 100% right. Yeah. Okay. And then, actually, I just wanted to ask specifically just, again, follow-up on the on the private label side. Pierre, how how far are you through that sort of category management exercise specifically as it relates to private label? And then I don't know, Mike, if you can help us just in you know, was that also a factor in terms of gross margin in q three? Obviously, it's embedded in the horizon number, but just curious, any comments. Good question. We have I think it's a plan for this year. I think most of the benefits will be in f twenty two and f twenty three. So we have the early stage of capturing benefit, but there's a lot of job done so far. We're going by ways like we did with reset. It's a very good method, and we're leveraging from our past experience with capture reset. So we continue to follow the same type of process. So now we're in wave one, and then we do wave two and wave three like we did for reset. So but most of the benefits will come in f twenty two and f twenty three, and they're significant. But in in this quarter, it's not material. Okay. Thanks. And, actually, sorry, just to come back to to Voila, I had one other question, which was, you know, with regards to adding more SKUs, like, I think that is something that that customers are definitely looking for. So what is the impediment to doing that? I mean, you mentioned negotiations with suppliers, but is it is it strictly sort of ramp up on customers and then also the supplier constraints? Or what what is the impediment to doing that today? Well, there's no there's no impediment to stopping us from doing it for sure. We we're very picky about making sure that that if we introduce an assortment into our an item into our assortment that that that our suppliers are gonna be able to deliver consistently on time. And so our our our efficiency rates stay up in terms of no substitutions and on time and full. And just with, you know, with COVID, not all of the suppliers have been, quite as flexible, and and that's improving day by day. And and, and and we're encouraged by the progress. That's that's real that's really it, Mark. There's no there's no other reason, over and above that. Okay. Appreciate the comments. All the best. Thanks, Mark. The next question comes from Karen Short at Barclays. Please go ahead. Hi. Thanks very much. I was wondering just a couple questions. In terms of the comp in the quarter to date, was wondering if you could give a little color on basket and traffic in terms of the comp, but then also talk a little bit about variation by province. And then, you know, I know some parts of GTA have started to reopen. So is there any color you could give on how that's trended since a little bit more of a reopening in some of the certain regions that you operate in? And then I add one other. So it it's it's increased across the board, across the entire country. Their rates of improvement would be different depending on which province you're in. So in Atlantic, which has had less COVID cases, and and in many cases have been in a in in quite the Atlantic bubble from, you know, for most of the time, not all of it, those those rates of improvement haven't been quite as high. In Quebec and Ontario, depending on timing of lockdowns, they they would probably, on average, have had the highest rates through the period and then varying rates, in the Western provinces depending on, again, the timing of their lockdowns and and and and and their the impact on result and behavior. So, you know, that's that's generally speaking, I I think as far as we're prepared to go, we're not gonna quantify the the the numbers in these problems. They're they're actually also highly volatile. They they go up and down depending on on on lockdowns and in in what areas. In terms of the 9% year to date, yeah, there's, there's obviously changes, in in Ontario, and, and other places where lockdowns are being eased. We, we have no comment at this point as to what those trends will be and and and where they're gonna go over this over the short term. We just you know, we're I I think it'd just be wrong for us to try and estimate that. We've given you at at least the actual facts, you know, from just the the early weeks of the quarter, but but really can't provide any further, at least numerical guidance on that at this point. I think the only thing I'd add, Mike the only thing Karen I'd add maybe is Mike Mike can to what Mike said, which was completely accurate is it's not the swings are on the margin. Right? They're not on like, they're not they don't swing way up and way down on lockdowns. It's more like a margin. And so I don't want you to go away thinking that, you know, we we go from 20 to zero, and then that that doesn't happen. It's just it's just little things. And and so, you know, we're still seeing elevated elevated full service market share gains and all that. Just little little movements across the country where things change. I wouldn't I don't wanna overstate it. Okay. Thanks. And then I I don't know if that you've given us a fight. You have. I missed this. What is the actual cost of the investment in the Olympics from, I guess, an expense perspective? And then how do you think about the return on that investment? Just curious. So I'll I'll put the, the question to Michael, on the returns. And we're not disclosing the total cost of that. It's there's there's clearly media and and sponsorship costs. But at the same time, we're also not necessarily investing in some of the other media properties we might have otherwise done without the Olympics. So so it's not a it's not a straight ad. We we are becoming more efficient in some of our other marketing expenditures as well, but we're we're not providing the the the estimate for that. And on the return, look. So I've had a lot of experience from previous experiences in in in branding and and the Olympics. And then and that's why Empire has taken such a a big stand in terms of sponsoring, especially sports because I think part of the part of our rejuvenation has been on the brand and and what we've done in terms of sponsorships. Hard to quantify. I can just say that being the exclusive grocery partner in of the Olympics, and the Olympics are the biggest. As as soon as we could grab that, we grabbed it because I I know how powerful that is, and it's an exclusive platform. And and and and for our people, I mean, it's great for customers. It's great business, but it's also from our our people inside the the the company, very exciting to support our our athletes. So it it has a big impact, sometimes hard to quantify because it's it's it's brand, etcetera, but we we'll we'll take full advantage of this exclusive opportunity opportunity. Yeah. No. I I I I agree. It's a great opportunity. I just I was wondering if you had any metrics on top line potential as well, because, obviously, there has been history on that in other categories. But And and in in Canada, no one had ever grabbed the Olympics before. I mean, it wasn't exactly a a it was hot. It's it's a hot property in every other part of retail except no one had ever done it in in groceries, surprisingly, or not none that I've ever remembered. And so I think we have a huge opportunity. And, yeah, of course, we have we have goals, and we have, you know, great marketing team that's all over it, merchandisers who are all over it. And so that's built into our our plans. Great. Thank you. Thanks for a great question. The next question comes from Vishal Shreedhar from National Bank. Please go ahead. Hi. Thanks for taking my questions. Just to to paint the same wall here and going back to gross margins, you know, obviously, we don't see that kind of performance on a regular basis in that sector. So with respect to the initiatives that you've implemented, wondering if you've had any customer feedback on kind of the the movements that you've made on your promotion. Are you seeing any changes on Net Promoter Score one way or the other to to kinda gauge the customer's reception to these initiatives? It's a good question. I think, once again, the best indicator for us is market share. So that means thing we are doing are meaningful for customers. We're monitoring price perception, and we're seeing positive movements. So I think overall, the feedback so it's it's tough to for customer to they don't have the data we have to build a meaningful promotion, but their perception remain strong, and we're seeing slight slight improvement. But the right the the the real KPI, once again, is is is the market share. So and, you know, we've seen good results in q three, but it's not new. In q two, we've got good results also on margin. And so it's just a continuous improvement. We accelerated both margin and market share gain in q three. So it's not something new in q three. It's just a continuous improvement on what we're working on since a year or two, And, we're at early stage of horizon, so we're expecting a continuous improvement again. Oh, okay. Thank you for that color. And, and just a few quicker ones here. With respect to an, a sale, are you, is management indifferent to a sale on Voila or your existing store based platform? And maybe if you can expand upon why, if if you do have a preference. Well, so far, haven't had to make any choice. We'll take we'll take it we'll take we'll take it in both places like we are today. I mean, right now, until we got to scale, it's probably slightly better to sell at the store in terms of the bottom line. But as we got to scale, that it's gonna get closer and closer that we're indifferent. We we want just to thrill our customers. And most customers, like I'm an example. I shop I shop bricks and mortar, I shop voila. And most customers don't think of it. Like, they just think of it as shopping. They think of it as as having opportunities to find different places. They don't usually choose one or the other. Some customers during COVID may have chosen, you know, to go ecommerce more heavily at the at the bleakest times. But I I don't see it like, we don't make choice. Wherever your customer feels most comfortable, we'd love to welcome them. And and and every indication I've ever seen ever seen is that when they become a e an ecommerce customer, the hail effect on your bricks and mortar go way up. And but, you know, it's it's you know, basket sizes are bigger in ecommerce. Margin's slightly better in bricks and mortar right now, but we'll take them any way we get them. Great question, though. We think about that a lot. Yeah. Thanks for that color. And Thanks, Ashok. At as you reflect on that on the pandemic and potential lasting changes to the consumer, I'm wondering if you can talk about your real estate strategy and if you foresee any changes, perhaps more suburban, perhaps lower real estate costs in urban centers that make those regions more appealing. Is there any insights that you can share, or is it business as usual? Alright. Well, that's what we're looking at right now. I mean, we're we believe there will be lasting impacts not only in our sector, which is grocery, but we will do believe we're we're quite happy to be heavily in full service right now while furiously expanding our discount fresh fresh fresh bill banners. But we're gonna we're gonna keep looking at this because, look, there's gonna be lasting impact. It's a question of how big that impact is. You know, we we we're well set up for it, to be honest, for you, and I don't think we have to change our strategy very much at all. But we're going through that right now. Our real estate team working with our our our operators are looking at that right now. And but I don't think it'll make a big difference, but you gotta keep looking at these things. I think you're absolutely right. We have to look at the trends. And so far, the trends are really helping us. I think they'll continue to help us, and then we have to we have to look forward and and really optimize. Okay. Thanks a lot, and congrats to the team on the quarter. Thanks, Michelle. Appreciate it. Your next question comes from Peter Sklar at BMO Capital. Please go ahead. So hi. Just a couple of questions left. Michael, first of like, it's no secret that Loblaw was more aggressive on price on on the discount side. So I'm just wondering, you know, from your perspective, like, do you do you feel that pressure, and do you have to adjust your promotional direction, or is it just, you know, the shift is on automatic pilot and you just sailed, you know, through it? It was just kind of noise in the backdrop. That's like that's gotta be one of the best questions I've been asked. Look. If you're never on automatic pilot, we're we we we watch, like, hawks, everything that goes on in this industry. At the same time, play our own game and kind of tuning out some of the noise on the sides has really been serving us well. As you can see in a in a in a quarter where we I've never seen a quarter like this where we boosted our margins like this and and grew market share and and all the other things, and that's that's on on top of COVID benefits. So, you know, we we, you know, we saw, you know, increase you know, when you lose market share, you swing around a little bit. You try to do some things. You know, kudos to that, I guess. But, you know, what what and, you know, we saw some more front page promotional activity in certain areas in discount, which has lost market share. And we saw a real heavy marketing spend from competitors, but I think, you know, maybe we adjusted a tiny bit, but not very much. We think others are gonna have to adjust around us a little bit. So that's the way we look at it. But if if you know, we're not on autopilot. We're always looking, but I think we got the right I think we got the right tactics. And I think Pierre's Pierre and Mike Benton and Discount and and and La la. They they know what they're doing. K. The other thing I wanted to ask you about, if I could just challenge you on one thing, is Sure. Like, you know how some of your competitors, you know, have been, you know, demanding additional price from the from the supply base, and and Empire's not. Like, you're taking a more, I I don't know what call it, responsible or business like business like relationship with your suppliers. But, like, if you look at at at Project Sunrise and, like, the category resets would have incorporated suppliers' ads. So, like, in that context, didn't didn't you go back to suppliers and ask for price? So I'm just wondering how you know, what your thoughts are when I put it to you that way. Can you say it one more time? Well, you're saying that unlike your competitors, that, like, you're not demanding price from your suppliers. Like, you're not demanding a 2% price across the board. You're being much more you're being much more responsible. But what I'm challenging you on is part of Project Sunrise, though. I would have thought you would have gone for some pretty, you know, for some pretty aggressive price from your suppliers. So isn't it true you you really did have a go at your suppliers? And just wondering, like, what your comment is when I put it to you that way. Oh, yeah. I've never I've never hit up. You're you're that's a great question. Never hitting it that we're tough, that we're gonna negotiate. And I don't think we were, you know, a number of years ago. I think we got taken advantage of, and we didn't know our own business well enough. And we didn't we didn't you know, we you've seen you've seen how we've improved the our bottom line, and and some of that is because we we're we're we're fair but tough. But I I think that the way to look at it, Peter, is is there's a in our opinion, and there's other opinions, I suppose, there's a right way to do business, and there's a wrong way to do business. And and we try as much as we can to be transparent, fair, but not everyone's happy. I got a I got a few emails this week from suppliers that that had lost some business because either on either on the well, it's always quality and pricing and all that so we so we can be more competitive. And so not everybody's gonna be happy with us. At the same time, there's there's a way to do it, and I know our supply partners understand that. They are they are into hard negotiation. They're darn good at it. We're good at it now, and that's the way we do it. But we're trying to build the pie up. Right? We're trying to work with them to thrill the customers, have more innovation, and take up some costs and pass it on to the to customers. And our weight is better in our opinion. And, you know, and I think you look over the last four years, you'll see that our weight is probably the better weight if you look at it. We've grown our margins and EBITDA margins while at the same time trying and not, you know, successfully as we can to be fair, transparent, and and be values based. And I I gave a speech. It got a little bit of attention at the Empire Club in October, and I said it, which is that you know, I said it then, which is that that COVID showed us how we can work together better. We think we can grow the pie. So but we're not gonna we're we're not gonna give up being tough and negotiating tough. That and and we've been very clear on that. Well, our our customers and our investors expect us to outperform and beat the competition. We just wanna do it in a different way that we think is more successful. If others wanna do it a different way, that's up to them. Okay. That's that's a good answer. Thank you. Thanks a lot. Boy, we got some good questions today. Thank you. The next question is from Kenric Thai at ATB Capital. Please go ahead. Kenric, your line is open. You may proceed with your question. Thank you, and good afternoon. No pressure, Michael. I guess I better keep the trend going. If I could come at so if I could just come at this a slightly different way to an earlier question. So you called out, you know, share and share gains and the like. Can you even directionally give any insight on just how much of a benefit full service has been sort of through the pandemic with, you know, your one stop type shop focus, but perhaps more importantly, how you see that evolving through 2021 both as your footprint evolves with increased discount, but also as consumer habits start to rebalance, and we find whatever our new normal is. And I don't think the new normal you know, I don't think normal is the the normal of old, but we also know exactly what that's going to look like. Could you provide any any insight directionally otherwise on that? I mean, how sticky is it? How well are you positioned on rebalancing? Well, I mean, there's a mix here that's going on, a lot of mixing going on, which is, you know, COVID things have been helpful to full service. At the same time, we stepped our game up appreciably over the the year last year, we would have done so anyway. You know, we've been you know, if you look back at our investor calls since one year ago to almost a week, we've been pretty darn accurate in our projections of COVID impact generally since the very beginning of the pandemic. And we've said we really like being in full service, and in the new normal, we expect we'll really like being in full service. At the same time, as I said, we're expanding our great discount FreshCo business, which we always wanted to do. My experience as a retailer, and that's been you know, we have a lot of studies, and we can look at them. But my experience as a retailer is that once a retailer gets momentum, it's hard to stop them. So customers start coming to your stores. You start winning them over. You get better at things. You get the confidence. And and I I I I I said it twice in my script today, but I wanna say it again. The key to our success will not be COVID. It will be Project Horizon and be and executing. That will be what what drives us. Thank you, Michael. Just one quick follow-up if I could squeeze it in here. One quick additional question rather. The launch of curbside pickup in Alberta last night, just in the context of CSC three, the timing around CSC three being, I think, 2023, could you just help us understand the the thinking there, the the evolution, and and whether or not it's safe to say we won't see curbside pickup necessarily across country, but it's more opportunistic in markets where you've got a lead time a long lead time to your next CFC opening. Just wanna make sure we're correctly thinking about your your curbside launches in a very select number of markets. Mike, good question, by the way, Kendrick. But, Mike, why don't you say it? Oh, you didn't just ask a good question. You also provided a good answer. So so that's right. We, you know, we we were going to and it's really store pick. You know, at at some point in time, it's not just gonna be curbside pickup, you know, which is really more of a COVID term. But store pick ultimately is gonna fit into our ecommerce strategy in places where our CFC will probably never service efficiently. And so, you know, that's why we're seeing Atlantic Canada being a focus for us. In in the West, to your specific question, it's gonna be a while before that CFC is up and running. And so we're gonna provide customers with the Voila experience in advance, and, and they're gonna be just thrilled when they convert, into a CFC that's gonna have a wider assortment and just the same, high quality Voila servers. So so it's a it's a bit of a beachhead for a CFC that will ultimately be there. But even after it's there, we'll likely still use STOREPIC in places where it's too remote or too thinly populated for the CFC to be effective. So it's it's always gonna be one of the arrows in our cover, but it's not gonna be the main one. Thank you. That's color, and congrats on the print. I'll leave it there. Thanks. Thanks so much. Thank you. And the last question comes from Michael Van Aeste from TD. Please go ahead. Thank you. Good afternoon. I wanted to focus first on FreshCo. And if you could give us an update as to how the the conversions are performing on the more recent stores compared to the initial conversions. And are you seeing improvements because of experience and and the learnings, or is that diluted by the by the possibility that you started with the higher return stores? Thanks, Michael. So we didn't actually necessarily start with higher return stores. That's an interesting way of looking at it. We we spent a lot of time figuring out you know, at first, we sorry. This isn't directly the answer to your question, so I apologize. But but, you know, we our initial plan was maybe only focus on BC, and then we decided that it made more sense, you know, to to be present in in in more markets, which is why we ended up in Saskatchewan and and BC, and, of course, now Alberta. So so we haven't actually tiered the rollout according to advantage storage Spanish stores. So that that wasn't really that really wasn't part of the the decision making. It was all about where it made more sense for the business to be given customer demographics and opportunity. I I'd point at at two things in terms of how the recent stores are doing compared to the initial ones. From a just a an efficiency and a and a ramp up and and and a general store conditions, our recent stores have been way better than the first ones. And that makes a lot of sense because if you think about it, we now have an experienced management team and an experienced group of franchise operators in the West who've learned from initial experience, and and they're just getting better and better and better every time they roll store out. So so just because of that, those experiences have been better. Our margins are improved, and and and we're being we're being much more effective in terms of how we promote and and how we price. Offsetting that, you know, is we haven't done the same grand openings that we did in our first stores, we haven't been able to because of COVID. So it's been a quieter launch for many of the stores. Having said that, even with, you know, lack of reduced marketing, because we didn't wanna overcrowd the stores and have lineups like we did with our other grand openings, the results have been really good, and, and we're comfortable with them. They just they're just now a slower ramp up than the than the early stores, which had the the big splashy grand openings. On balance, though, I'd say, from a bottom line perspective, the, the more recent stores are are having more efficient ramp ups than the early ones. Okay. Great. And then on Voila, you you talked earlier about, you know, expectations to have the most profitable ecommerce approach in Canada once you hit scale. Can you give us an idea of the penetration level you you you figure you need to get to that scale? And when you're at that level, would you be expecting to have to cut your bricks and mortar square footage at the same time? So we don't have a real number, Michael, from a penetration perspective. You know, for us, it's it's about winning it's about winning the channel. We we expect an over index in the in the online channel. And, you know, at this stage, we're in the business of tracking a weekly sales increases and just pushing them as hard as we can. The the second question, you know, in Ontario is is do we think that's gonna cannibalize our bricks and mortar, and are we gonna have to change our layouts? We don't think so at this point. I think this is a it's a large enough market, and we're not gonna have at least, you know, next five years. I don't think we'll have the type of market shares or penetration rates that that are gonna require changes in bricks and mortar stores. But having said that, as we're rolling out newer stores like Farm Boy, for example, they're much more online proof than, you know, than a than a larger conventional store because, you know, they they provide an experience and they provide assortment that's not a 100% replicable and and and voila. You know, in Quebec, we think we strongly feel and so do our franchise partners that there's gonna be more of a halo effect. So, you know, so we're gonna be providing existing IGA customers with a a very, very much higher quality option than they're currently getting, online with an improved assortment. And we actually think we're going to grow the total pie there. And the losers are not going to be our stores. They're going to be the competition. Great. Thank you. Thank you. At this time, I will now turn the conference call back over to Katie Brine for closingcom closing comments. Thank you, Joanna. Ladies and gentlemen, we appreciate your continued interest in Empire. If there are any unanswered questions, please contact me by phone or email. We look forward to having you join us for our fourth quarter fiscal twenty twenty one conference call on June 23. Talk soon. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines. Enjoy the rest of your day.