Empire Company Limited (OTCPK:EMLAF) Q4 2022 Earnings Conference Call June 22, 2022 11:30 AM ET
Company Participants
Katie Brine – Director of IR
Michael Medline – President & CEO
Matt Reindel – CFO
Michael Vels – CDO
Pierre St-Laurent – COO
Conference Call Participants
Vishal Shreedhar – National Bank
Patricia Baker – Scotiabank
Mark Petrie – CIBC
Irene Nattel – Capital Markets
Michael Van Aelst – TD Securities
Peter Sklar – BMO Capital Markets
Chris Li – Desjardins Capital Markets
Operator
Good morning, ladies and gentlemen, and welcome to the Empire Fourth Quarter 2022 Conference Call. [Operator Instructions] Also note that the call is being recorded on Wednesday June 22, 2022.
And I would like to turn the conference over to Katie Brine, Vice President, Treasury, Investor Relations, ESG Finance. Please go ahead.
Katie Brine
Thank you, Sylvie. Good afternoon and thank you all for joining us for our fourth quarter and fiscal year-end 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 afternoon are Michael Medline, President and Chief Executive Officer; Matt Reindel, Chief Financial Officer; Michael Vels, Chief Development Officer; and Pierre St-Laurent, Chief Operating Officer.
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 News Release and MD&A for more information on these assumptions and factors.
I will now turn the call over to Michael Medline.
Michael Medline
Thanks, Katie, and good afternoon, everyone. A lot has happened since we last spoke in March, and I’m really proud of our ability to consistently perform despite another volatile quarter including a multitude of external pressures, including inflation and supply chain challenges. Our teams have been busy executing with excellence to ensure we posted another quarter of strong results.
At the same time, we’ve been busy preparing for fiscal ’23 and beyond, including unveiling our exciting new loyalty strategy. With that in mind today, we will focus on three topics. One, our Q4 results and key market trends. Two, progress on project horizon, including our recently unveiled loyalty strategy; and three, commentary on capital allocation.
First, our results in market trends we’re watching. This quarter has many unusual events with both puts and takes on our results. These included global supply chain disruptions, labor shortages, early redemption of outstanding notes, a 13-week strike in our Quebec distribution center, and as you know, extremely elevated inflation. Despite these trends and the multitude of other challenges faced, the quarter was well executed by our team delivering EPS of $0.68.
Sales grew 5.2% this quarter, excluding the 53rd week that falls in Q4. Now 2 years into the pandemic, 2 years tax are no longer meaningful, so we will focus on comparisons to the prior year. While same-store sales were down 2.5%, it’s important to remember that we’re comparing to a period of significant COVID lockdowns, which we especially benefited from last year.
Inflation, along with the resulting customer impacts is something that we are watching extremely closely. We neither like nor profit from when inflation is at these high levels. There was sentiment in the market that it may be moderating and it’s at its peak, that is difficult to predict, but we certainly hope so. We’ve gone through another intense period with copious cost increases being brought forward in the short time and have managed through it well with our supplier partners.
But with [indiscernible] food CPI at 9.7%, it’s natural and logical that customers are very focused on what they are buying. We are seeing double-digit rates of inflation on basic commodities like eggs, flour and meat. We’re cognizant that customers simply won’t and often cannot accept cost increases at some of the extreme levels we’re seeing, while also paying more at the pump and for other essentials.
With these dynamics in play, we’re seeing customers shopping more stores, increased transaction counts with fewer impulse purchases. We’re seeing product trade down such as from beef to pork, trading down on size [ph], and stocking up more on major promotions. And we’re seeing our own brands growth outpacing the rest of our store and the market in general, both for the quarter and the fiscal year.
Now these changes in customer behavior appear now to be stabilizing. As a grocer, there are levers we can pull to keep delivering great value to our customers and maintaining high foot traffic in our stores, including leveraging our own brand portfolio and promotional strategy. And we’re doing that in both our full service and discount stores.
While the inflationary environment requires a careful balancing act across pricing, promotions and product mix, our team has done an excellent job managing through this period. However, the reality is that a lot of Canadians are struggling under the weight of inflation and we hope this period of high inflation is short lived.
We are proud of how we manage through these ongoing headwinds to deliver the bottom line. [Indiscernible] from time. Our quarter ended better than it started and our teams quickly pivoted to respond to the rapidly changing market conditions. Our margins were solid, and they are a direct result of good execution of the right strategy, not because of inflation.
We are very pleased with our investment in FreshCo, which has expanded our discount presence. The improved products and strong focus on value in our own brand portfolio are meeting the needs of customers, and we’re finding ways to continue to offer value to customers across our entire network. Our consistently solid results through these challenging times demonstrate the positive impact of the improvements we’ve made, the consistent execution from our team and the strengthening earnings power of our business.
Project Horizon has been critical in driving these improvements, which I would like to turn to next. Year two of Horizon is in the books and we are laser-focused on execution going into our third year. We are now 5 years into our transformation strategy at Empire. When we started this journey, we had four priorities, addressing our [indiscernible] team organizational structure, taking significant content of the business, strengthening our brands, and fixing the West.
To accomplish these goals required more than doing things differently, it required infrastructure investments that we were frankly behind on. The five major infrastructure investments we focused in on were: one, expand this camp to the West; two, develop a scalable and profitable e-commerce solution; three, enhance our own brands offering; four, winning key urban markets like the GTA where our market share was too low; and five, evolve our loyalty program.
In only 5 years we’ve made major strides against all of these priorities, and the recent announcement of our co-ownership with Cineplex, and plan to transition to the Cineplex program, marked a final infrastructure step we need to make to transform our company and to continue to drive results.
We’ve been eager to talk about our loyalty strategy for quite some time. But when we started our transformation, there were so many foundational investments we needed to make and personalization, data, technology and marketing to even consider an evolution and loyalty. We’ve been steadily making these investments, and today we are well-positioned to introduce such an exciting and meaningful new program to our customers.
In partnership with our fellow co-owners, Scotiabank and Cineplex, we are transforming Cineplex to become a preeminent loyalty program in Canada. Cineplex is already one of Canada’s leading loyalty programs with more than 10 million members, touching approximately 50% of Canadian households. As the CEO of Cineplex said recently, Cineplex members and extensive customer research told us that grocery is a very important piece of any loyalty offer.
Cineplex offers customers a superb assortment of opportunities to earn and redeem points across a broad spectrum of partners, like banking with Scotiabank, escaping to Cineplex theaters and entertainment venues, recipe restaurants across [indiscernible] Harvey and Montana’s and travel through Expedia. Redemption partners also include great retail brands like Best Buy, Apple and Sephora. Grocery will be a key pillar of this program. Cineplex members will be able to earn and redeem their points for food and we simply cannot wait for our customers to access these benefits through our stores.
For Empire, Cineplex will allow us to thrill our customers and unlock the true power of personalization that will deepen our relationships with our customers and reward them for their loyalty across many of our businesses. There is a mountain of opportunity here to thrill our customers, build our strength and data and personalization and take our marketing and merchandising to the next level.
We have robust transition plans in place that start with introducing the Cineplex program to customers in Atlantic Canada in August 2022, and then rolling out to the rest of the countries culminating in early 2023. Through these plans, we will mitigate any disruption to our customers throughout this change.
I also want to touch on two of those other major investments we needed to make in our transformation journey, fixing the West and developing the e-commerce solution. An important part of our fix the West strategy was to introduce FreshCo, our discount banner to Western Canadians and we are very pleased that we decided to do this 4 years ago.
Today in partnership with our dedicated franchisee operators, we are running 40 FreshCo stores in Western Canada. In the back half of fiscal ’22, we increased our discount store footprint in the West by 40% and now have presence in all Western provinces. Our discount network is thriving, and soon FreshCo will have a completely new weapon to add to their arsenal, a competitive loyalty program. They previously had no loyalty program.
Turning to e-commerce. As you know, we have been investing in the only profitable and scalable solution for grocery e-commerce in Canada. Voilà now have two CFCs operational in Canada, with two more development and 98 locations with curbside pickup. Grocery e-commerce coupled with a strong bricks and mortar offering and a strong loyalty engine like Cineplex give us a competitive advantage over the other models currently in market.
Our e-commerce business has come a long way since we opened our first CFC in Toronto 2 years ago. With the opening of the Ottawa spoke, we can now reach approximately 90% of online spend in Ontario through Voilà. We completed the launch of Voilà Par IGA in Montreal, which now covers approximately 95% of Quebec’s online spend and the transition has been operationally seamless.
Net promoter scores for Voilà par IGA are higher than the IGA Net and the service is attracting net new customers to Empire. Quebec dealers are happy to have all of their teammates focused on the in-store experience and we are now setting our sights on the West in our future launches in Alberta and BC. We are proud to see these large infrastructure investments that have been key to our transformation journey come together. And while we are still clicking some of the final pieces in place, we’re also delivering strong bottom line quarterly results.
Today Empire is focused on consistent day-to-day operations, also strategically investing in the future. Finally, before I hand this over to Matt, I want to talk about capital allocation. We announced a 10% increase in Empire’s quarterly dividend per share, which brings our 5-year dividend CAGR to 9.5%. As well, we announced that we renewed our NCIB to repurchase up to 10.5 million shares, representing 7% of our public float. In fiscal ’23, we plan to repurchase $350 million of shares.
For fiscal ’23, our capital spend will be approximately $800 million. About 50% will be used to continue renovating and refreshing our store network, expanding our Farm Boy in a lot of those footprints in Ontario, and our discount network in Western Canada. By the end of fiscal ’23, we will have touched almost 50% of our network over the 6-year timeframe. Additionally, we will continue to advance our e-commerce expansion and invest in advanced technology.
Now Matt will walk you through this in more detail. I’ll hand it over to Matt.
Matt Reindel
Thanks, Michael. Good afternoon, everyone. I’ll provide some additional color on our results as well as setting some expectations for Voilà, Cineplex and our capital allocation strategy for fiscal ’23. We’re really pleased with our Q4 results. We’re making sure that we manage the various puts and takes that happen each quarter, while still ensuring that we deliver consistently strong results. And at the same time, be well prepared to take advantage of opportunities as and when they arise. The early redemption of one of our notes in June was a good example of this.
So let me comment on our results. Same-store sales were minus 2.5%, which was in line with our expectations and was driven by two main factors. Firstly, our comparables in Q4 of last year were highly elevated due to COVID lockdowns in Ontario and Quebec, particularly in February and March of 2021. We only started to see the impact of easing restrictions midway through our first quarter.
Secondly, when we look at the current highly inflationary environment, as expected, we’ve seen some change in consumer behavior in our stores with an increased focus on value. As Michael noted, we’re satisfying the needs of these value seeking customers through a combination of promotions, assortment that enables product chain trade downs, value side SKUs and our own brands portfolio.
We also saw a slight shift to discount. Our customer numbers are still strong in both full service and discount, but the net impact of the value seeking can customer is a lower basket size. Overall, Canadians food budgets are not increasing at the same pace as inflation. And so customers are logically making value decisions in our stores.
We improved our gross margin rate by 17 basis points excluding the impact of fuel. This growth is largely due to the addition of Longo’s and our continued progress against Project Horizon, partially offset by higher supply chain costs, including the cost from the strike at our distribution center in Quebec.
Our SG&A rate was 21.8%, which was 16 basis points lower than last year. This is largely due to the additional week of operations, the so-called 53rd week, plus lower COVID-19 costs. It’s partially offset by Longo’s higher SG&A rate which will — we will start comping in Q1 and higher depreciation due to right of use depreciation. Other income increased over the prior year primarily from the gain of the surrender of lease in Western Canada. The net Impact of all of these puts and takes was an increase in our EBITDA rate of 10 basis points.
Our effective income tax rate was 23.1% in Q4. The income tax rate for the quarter was lower than the statutory rate, primarily due to benefits related to tax investment credits, and capital items taxed at lower rate. The effective income tax rate for the year was 25.0. For fiscal ’23, excluding the effects of any unusual transactions, or differential tax rates on property sales, we’re estimating that the effective income tax rate will be between 25% and 27%.
Earnings per share was $0.68, which included $0.07 of Voilà dilution for the quarter and $0.28 for the year, which was within our estimated range of 25 to 30. We believe that the fiscal ’23 earnings dilution for Voilà will be marginally lower than fiscal ’22. The dilution will be higher in the first half of next year as we ramp up operations in the Montreal facility and then improve in the second.
Ultimately, future earnings from Voilà will be primarily impacted by the rate of sales growth. But we believe that fiscal ’22 was the peak year of dilution on Empire’s earnings per share. Based on where we finished fiscal ’22 and our plans for fiscal ’23, we expect to deliver at least a 15% earnings per share CAGR versus fiscal ’20 which as a reminder we defined as the Q3 fiscal ’20 trailing 12 months, i.e. the year before COVID.
With strong results and a strong balance sheet, we will maintain a very positive capital allocation strategy in fiscal ’23. We have announced a 10% increase in our quarterly dividend per share. This is the 27th consecutive year of dividend increases. We also renewed our share buyback program and tend to repurchase 350 million of shares in fiscal ’23. We continue to increase our NCIB program aligned with our expectations when we announced to rise.
We anticipate investing approximately $800 million back into the business by CapEx, slightly more than the $767 million we spent in fiscal ’22. About 50% of this investment will be allocated again to improving our store network through renovations and new and converted stores with four FreshCo stores in Western Canada, four Farm Boy stores in Ontario, and two Longo stores in Ontario.
We will continue to invest in our advanced analytics technology and other technology systems, which will be approximately 25% of our total CapEx. We’ve been preparing for the revamping of our loyalty strategy for some time. The investments you’ve seen in advanced analytics and other technology systems in fiscal ’21 and ’22 included work that positioned us for becoming a co-owner of Cineplex. As a result, you will not see a large spike in CapEx in fiscal ’23 related to Cineplex as we are already well prepared.
As Michael noted, we’re excited about the opportunity that the Cineplex program provides. With the addition of Empire, Cineplex will transform from an entertainment loyalty program into a preeminent loyalty program. Since inception, this program has evolved to be much more than just movies. In addition to the various other redemption opportunities provided, Cineplex members will be able to earn and redeem points for groceries.
With a meaningful number of points already in the market, we are expecting to welcome a significant number of new customers to Empire. We simply can’t wait for our customers to begin to use it in Atlantic Canada, in August.
And with that, Katie, I will hand it back to you for questions.
Katie Brine
Great. Thank you, Matt. Sylvie, you may open the line for questions at this time.
Question-and-Answer Session
Operator
[Operator Instructions] And your first question will be from Vishal Shreedhar at National Bank. Please go ahead.
Vishal Shreedhar
Hi, thanks for taking my questions. I just want to get your perspective on what you saw intra quarter as the trends improved and how they improved and for what reasons? I know you mentioned that in your script, so if you can add some additional color.
Michael Medline
Yes, it’s Michael. I will start and I’ll see if anyone wants to add anything on. I mean, I think when we — what we saw throughout the quarter and so different in terms of periods are in rank order, our comparison to last year, right. Whatever was going on last year, and we — were we did pretty well have a big effect on whatever period we were talking about. And then we saw customer behavior change early in the quarter and then middle the quarter, but then start to stabilize. And these are on in rank order. So compared to the last year, customer behavior, and then the third was we saw a slight move to discount. But again, we’ve seen — we saw in the quarter some stabilization throughout that. But I think all of it, if you look at the pandemic, and you look at the inflation, it’s pretty logical and predictable, and not out of the ordinary. So that’s what we saw. Is there anything to add to that?
Vishal Shreedhar
Hello?
Katie Brine
Any further questions?
Vishal Shreedhar
Yes. I just want to follow-up on management’s comments about expectations for positive same-store sales growth in fiscal ’23. And what underpins that assumption, and to what degree will Cineplex play a role in that expectation?
Matt Reindel
Sure. So, yes, expectation of positive same-store sales. As Michael said, the biggest driver of that is when we start to lap a lower COVID base in our prior year. Having said that, the work that we’re doing internally on all of our key drivers, we expect to significantly improve our top line. I think [indiscernible] doing will certainly contribute to that. And as we roll out Cineplex, as we said, one of the advantages and one of the benefits of this new program is it’s an existing program. There’s 10 million customers out there, 40% of whom do not currently shop at Empire. There are also a multitude of points out there in the market that existing Cine customers will be able to redeem at Empire stores. So we are expecting that the launch of Cineplex will bring new net customers to Empire. Of course, that will be over time. We have a phased implementation launch as we explained in our press release, but certainly we expect the incremental impact to Cineplex to be positive and accretive in year one. So, yes, that will be one of the drivers in next year.
Vishal Shreedhar
Okay. And lastly, I was hoping to get your perspective on gross margin above 17 basis points excluding fuel. If you remove the strike impact up even more year-over-year, quite solid results given all the inflationary pressure. But top line a little bit lower than at least I had expected on same-store. Wondering if management is satisfied with the balance between gross margin and sales, or if there’s any fine tune adjustment to be made there.
Matt Reindel
Yes. So thanks. It’s a great question. What I would highlight is, first of all, we’re very happy with the balance and the mix. So gross margin, as you said, was 17 basis points higher. If you exclude the impact of the strike probably 35 basis points higher. And that’s really coming from two main sources. One is the inclusion of Longo’s. But more importantly, is our ongoing Horizon initiatives. This is not because of inflation, but ongoing improvement in our operational excellence in our stores, continues to have benefit on gross margin. So the fact that we were able to increase our gross margin in this extremely volatile environment is a great testament to Pierre’s team, in particular, who obviously manages our negotiations and ultimately our pricing. And it demonstrates that we can consistently deliver results through challenging times. The balance of margin and sales is something we are acutely focused on. We could go out and buy market share. But that’s not in the best interest of our company or our shareholders. So the fact that we are gradually increasing our gross margin demonstrates that we’re capturing the right sales in the right banners and at the right time. So yes, we’re very happy with the mix and the blend of sales and margin.
Vishal Shreedhar
Thank you.
Operator
Thank you. Next question will be from Patricia Baker at Scotiabank. Please go ahead.
Patricia Baker
Yes. Good morning. I’d like to resume discussion, Michael, on the Cineplex. You guys certainly negotiated a very good deal to say the least. Can you share with us some of the discussions that you had with the partners and what they were split, other than what you already told us? But is anything else you can share about what [indiscernible] coveted partner? And then also on Cineplex, do you think that it’s a little bit of an advantage right now that you’re going to be rolling that out in August to the Maritimes, which is probably one of the more struggling parts of the country and doing it in the context of inflation. And that would make those Cine points look very value oriented for those customers to really want to redeem the points for food when food prices are so high.
Michael Medline
Yes. I’ll take all those questions in turn. The first is that we were — and I’m not going to go through the details highly targeted by many suitors to be the — to be loyalty partner. Why is that grocery is absolutely key to loyalty. Second is that we’re national, and the one of — the only national players in the country. And the other one already has a loyalty program, I think. And the third reason is because of [indiscernible] with dealers because we’ve been far more successful and our brand is so much better than we were five short years ago.
So we were able to find the best fit for us and have — and take the pic. At the same time, we were able to join same class and have a third ownership for no cost to us. Because that’s how important it wasn’t what a good partnership it is now, in terms of is there a upside there are. I’m well aware as Cineplex cardholder that, being able to there are some — a lot of points that customers, especially those with the credit card will be looking forward to being able to redeem in the grocery stores. And so I think there will go through different stages of this that people are going to want to wear down there are points with us, which we welcome. Plenty opportunity to do that. And then secondly, we’re going to have to go through some change and have all our customers change over to see in class, we have very many plans for that. And we just took the board a couple hours ago through our plans for that. And they’re excellent. And then third will be that we have these millions and millions of Cineplex members who do not currently shop our banners who will be available to us and have a lot of points.
And I think they’re going to love this program. And I think they are going to love this program. And I got to get credit where credit is due to Sandra Sanderson, our Head of Marketing myself who also with standard lead to negotiation and Matt Rendell, and others who put together what is over time, what is a great program. What people don’t see, I guess, if that’s what you’re looking for, is that over the last couple of years, we’ve been investing a lot in our business to get our data monetization and our store processes better. And so that there’s no real expanding here. Now, we just — we will just convert over, it’ll make it as seamless as possible.
So Michael, you’ll be able to personalize message to those 40% of the Cineplex members who don’t own we don’t already shop at that. So these …
Michael Vels
Yes. And then we initial if we — initial upbeat we’ve been — we’ve just started personalization already with the data we currently have before Cineplex, and our team is knocking the cover off the ball, actually. And I whenever agents use a sports analogy, you should know I’m extremely serious. And we’re really happy. And so we’ll build — we’re building that capability alongside of eventually being able to personalize to all these same placeholders. So we’re going to have our own customer, so you should be excited, and we’re going to have raw materials, and we are not going to have some new customers, and we just have to execute.
Patricia Baker
Thank you. And then do you have anything to say about my last comment about well, fortuitous to be doing it at a time when there’s high inflation that even that much more attractive?
Michael Medline
Yes, I mean, absolutely. I think that, that having this loyalty program was going to, we want to bring value to our customers, and this is going to bring value to our customers, and that they’re going to be able to use points at a time when it’s difficult out there. And so, yes, it is fortuitous. Hopefully, by the time we get to some of the other regions, it won’t be so fortuitous and [indiscernible] cylinders. So but yes, for sure, in August that when we unveil it in Atlanta candidates can be a great help to us. Thank you. Thanks for your questions.
Operator
Thank you very much. And your next question will be from Mark Petrie at CIBC. Please go ahead.
Mark Petrie
Yes, hi there. I know there’s a lot of moving parts in the top line and even in the same store sales figure. And I know you’re not going to quantify an inflation number, but I’m hoping you can just give some context around the actual impact of trade down on the top line. And then I guess related to that comments about how you think you performed in terms of market share, both by channel but also overall.
Okay, it’s coming from obviously, customer review their changes. The biggest one is people are coming back to pre-pandemic behavior by shopping more stores, they buying more own brands, private label product at a lower retail, but a good value for them and good value for us. So, because we did an amazing job in, rebuild and rebuild our own brand. So we’re pleased with the result we having, especially right now, we’re trending up, like I said in Q3, very pleased with the performance and own brand, but it’s at lower retail, but that’s really good margin. So it’s explained the top line and the bottom line, the penetration and own brand. Obviously, customer are trading down some category. And in protein, it’s obvious, these two chicken, it’s an easy one, the buying less impulse product, they’re buying less on impulsive. They sticking on their shopping list more. So they’re just more disciplined and they’re looking more for deals, obviously. So those things are impacting the top line, for sure. But we have everything in our portfolio to manage that demand. We are seeing, we’re measuring a lot of things. In terms of promotion, we — our promotional penetration is trended in line with the industry. We are measuring everything, and we make sure that we remain relevant and competitive. And that’s exactly what we’re doing. And we are there to meet customer expectation and demand. So that’s the main changes we’re seeing in back in coupling.
Mark Petrie
Okay. Thanks for that, Petrie. And then I guess just following up on the private label comments specifically, are you able to quantify any piece of that either in terms of penetration, or the relative growth of your private label business versus the last versus the rest of your business over the last year or even the last several years. We just sort of help us get a sense of the relative opportunity from here that you still have on private label.
We are seeing much higher sales in private label than in national brands. Which is good? And our overall margin rate is higher with own brand than it is with our average margin rate. So stop here. But we benefiting right now of the good work we did over the last two years to rebuild on brand category by category, like I said in the past, with the progress that he made. In every category, we have a relevant play for own brand in some category less in other category it’s much bigger. So frozen foods is a great example. Most of the protocol are own brands. In other category, it’s just eliminating old range products. So — but overall, Conrad sales are higher than national brand sales by a lot, because that good job done and I imagine like that’s okay.
[Indiscernible] has to and obviously, we got to make sure we don’t get on publicly disclosing information. But I know that you asked so nicely that I’m going to at least guys, but we I mean, the work we’ve done was at the right time to really improve what we’re doing on brands. And then obviously consumer behavior is changing. And so if everything we’re seeing is we’re growing faster than the market, but this is by far the fastest. I remember since I’ve joined the company that we’ve our penetration as often as you know, penetration isn’t the [indiscernible] for everything we do and on our own brands, but we haven’t seen penetration like this before. So it’s really great timing for us on that, on that stand, by that standpoint, It’s not great for the sales, as Pierre pointed out, but that’s really good for the right now and for the long-term.
Mark Petrie
Yes, understood. And if I could just one more SG&A was well controlled, adjusting out the COVID cost. Can you just help us understand the impact of the extra week on SG&A? Was it just a straight line impact or how did that play out? And then also, how should we think about SG&A for next year, just given all the inflationary effects on your business? Thank you.
Michael Medline
I can set a mark. So yes, I mean, there’s nothing highlighted usual in SG&A for the quarter. Your eyes, if you had the 53rd week, which you can basically straight line and me and that’s the absorption benefit we get from an extra week of sales. Having said that, of course, it’s not a complete fixed cost, because there’s a big piece of SG&A. That’s variable with the stores. So it’s hard to specifically call out what the impact is. But of course, we got a case in Q4, from that, as we look forward to F ’23, I think I said on a call, maybe two calls ago that we’re beginning to reach a kind of a stable run rate of SG&A. So what you saw in Q4 is, it’s not going to be materially different from what we expect for F ’23. No, we’re not going to give a specific number, but it’ll be in that ballpark.
Matt Reindel
Appreciate that. All the best. Thank you.
Operator
And your next question will be from Irene Nattel at Capital Markets. Please go ahead.
Irene Nattel
Thanks. And good morning, everyone. I just want to clarify one thing that when you say the run rates similar to F ’23, are you talking about dollars or percentages? Done recently with F22.
I’m talking right. Okay, perfect. Thank you. Yes, thank you. So just continuing on the whole discussion around consumer spending behavior. What are you seeing now in terms of penetration rates on promotions within the basket?
Michael Medline
So as I said, our promotional penetration trended in line with the external reports. So maybe few things to highlight, though, we’re still facing inventory availability challenges in some category. And therefore we cannot promote, like we would like to do. Cereal is a great example. And it was during the quarter. And we are seeing less impulse buy, which are typically done on promotion in store as customer now more selective in their promotion. But overall, when we look at our promo penetration versus the industry, we continue to trend in line with the industry. So there’s a lot of volatility, because supply chain, and customer behavior, but we continue to stay relevant and competitive based on those metrics from the industry.
Irene Nattel
That’s really helpful. Thank you. So, presumably, a lot of the work you’ve done on data and analytics, and on your gross margin is really helping with your ability to just sort of deliver the gross margin, even with rising promotional rates?
Michael Medline
It’s a combination of many things. But if you refer to the promote innovation tool, so the user of the tool is obviously well embedded in our merchandising practices, regardless of the environment, which is good. And that said, when the elven on the environment experiences, rapid changes, like we’re seeing right now. We make sure that the tool is refresh more frequently. And we need to engage more professional judgment thing that we do well, when we make decision. And we continue to leverage insights from the tool and with our partnership with supplier to leverage those insights. So honestly, the thing that is really good job, working with the tool, working with insight and adding good professional judgment, and managing really well the promo mix right now. So and the decision was made, as I said earlier, in recent quarters, by having a sourcing team negotiating price increases with supplier, keeping our merchandising team focused on merchandising and business plan with supplier is very, very awful right now. So we’ve been benefiting of it. Or it’s a combination of many things that could explain our good performance on margin right now.
Irene Nattel
That’s really helpful. And actually, it leads into my next question, which is, what we’re hearing from the supplier side is that they need to keep coming back for more price increases, because of course, they’re facing the same magnitude of inflation. So can you talk about the types of discussions you’re having now and how you think of that place into the outlook for food pricing as we go through the back half of calendar ’23. $22 rather.
Michael Medline
We’re talking — we’re taking those asked one by one and we’re measuring those as well versus peers versus and what could influence higher. With a higher cost of transportation, is it commodity? Is it raw material? Is it packaging, that we have really good insight to manage? every single ask individually. So, I would say, so far, so good. It’s really well managed by the sourcing team. But yes, we continue to face cost increase right now. It’s not slowing down, maybe the level of increases slightly lower. We heard, again, an increase from dairy farmer in September, which is your data when we’ve got the four in February. But this once again, it scattered by category, when asked by at the time, and it’s very volatile right now, and it’s going to be volatile for it will be, it will continue to volatile going forward, based on what we’re seeing right now. But really well management, with discussion with supplier we have been able to manage it well with them. No major disruption, obviously tough conversation, because we’re sensitive to their situation. But at the same time, our job is to keep really good value for our customers. And it’s exactly what we do.
Irene Nattel
That’s great. Thank you very much.
Operator
Next question will be from Michael Van Aelst at TD Securities. Please go ahead.
Michael Van Aelst
Hi, thank you. You’ve covered a lot, but I have a few leftover, so part of the project horizon target and getting their involved market share gains from whatever call and you did get some from Longo’s. Acquisitions in the new store openings. But I’m wondering if you need some same sort of tonnage market to also hit this, these goals over the over the period?
Michael Medline
So, yes, interesting question. Well, I would say is, when we look at our final year Horizon, and now plans that we have in place for the year. We have enough growth that’s coming from store renovations, space productivity, all of the operational excellence that we’re delivering in stores to be able to capture enough growth to deliver Horizon. So, I think those the work that Gary’s doing is going to capture turn into growth, that’s what our expectation is for our ’23 that will have positive same-store sales. So is there anything else specific out there that we need to do in order to capture that I don’t believe that we are, we’ve got confidence in our plans that will deliver 23 with positive same-store sales, to deliver those Verizon numbers.
Michael Van Aelst
All right, thank you. And then on, on the discount, as you’re, what two thirds of the way through almost your expansion in Western Canada. I’m wondering if the success that you’re having, as well as the market conditions that we’re seeing with all this inflation is, is leading you to consider going beyond the 65 or so that you have planned for Western Canada? And also, if you have any plans to launch any discount in Quebec?
Michael Medline
So I’ll take both those. No, we don’t have plans to go beyond what we said we’re going to do and because when we looked at the market around 65 stores was perfect. And it also helped us fix the West. I think we’ve seen really good performance, even before inflation, which was a bit muted during the pandemic, because discount suffered a bit during the pandemic. And there’s no way I want to overreact to inflationary period that will, and hopefully soon, but maybe within our however many months or whatever it is, and make mistakes strategically and get off of where we want to be. So when we looked at the markets, and we looked at what it could hold and where the right places where we came up with those 65 stores are in the meantime, our Safeway and Southeast stores and our community banners are doing much better in Western Canada as well. And so, if there’s always attention to that, we believe there’s room for great growth in our established banners. too. And so both financially and strategically, at this point, we’re not going to get off of that. In Quebec, there are no plans to put this character banner to Quebec.
Michael Van Aelst
All right, thanks. And then just final question is just to clarify on the e-commerce. You said that there was growth in Ebola. But I’m wondering if there was growth in Ebola if you excluded Montreal, the Montreal conversion or so. So like, in other words, was our growth invalid in ONTARIO?
Michael Medline
Yes, so we we’re not going to provide the split of all of the individual businesses that we have under e-commerce, and particularly in our period where we’re transitioning the ij.net business over to Voila, so that’s obviously a moving picture. But what we can say, as we’ve stated previously, the — we are continuing to experience growth in our Voilà platforms. And we can expect to continue to do that as we move forward. And in the older platforms, against a very high COVID baseline, they are lower than the previous year. So the overall net increases of 12% obviously has some positives and negatives in that, but that’s the key takeaway. Voilà is growing, and the older businesses are not comparing to a COVID elevated baseline.
Michael Medline
Very good for us. That’s great question, Michael. Even for us, sometimes to get [indiscernible] blurred by this pandemic memory, trying to remember what the heck happened when there were lock downs. And we have to look at that all the time to be able to make sense of our results, but big portions of q3 and, sorry, Q4, and Q1 year ago, there were major lock downs in central Canada, which, which would go through it. And so, obviously, there’s been some small pullback. So the business is growing, but that kind of pandemic fever. May is, is not there. But we’re happy with the underlying growth. But it was really, everything was COVID influence last year pulsar? Well, this was — it was scary. It’s so scary times now for a lot of people. But it was very scary last couple of last year at this time in central Canada. Thank you. I’ll leave it there.
Michael Van Aelst
Thank you.
Katie Brine
Operator
Next question will be from Peter Sklar at the BMO Capital Markets. Please go ahead.
Peter Sklar
Okay, thank you. Michael, a question on the new loyalty program, which I can see management is very excited about. So you’re going to, like you’re going to lose airmiles customers who are not seeing members, and you’re going to pick up seeing customers who are not currently air miles, currently don’t hold air miles. Currently don’t hold the Air Miles. And so, net-net, like, what? Why is your management and you so optimistic that you’re going to be so far ahead at the end of the day? It’s like — it seems to me that you’re substituting one loyalty program for another, but you’re just so optimistic that the net MCAT net impact is going to be so positive.
Michael Medline
I try not to wear rose colored glasses, but I am a bit rosy on this one. But I guess the way to look at it, Peter, thank you for the question and because I’d like to clarify all that. Which is why almost all our customers will convert over to CN plus. They might still have on airmiles account. I hope they do and, and they’ll also be seen plus members. So we’ll bring over almost all our customers, and then we’ll gain new customers. Now, that’s one reason I thought the only reason I’m really excited. And the other reason is that we’re going to be able to use the data and the personalization and be able to communicate with more customers than we ever had before. Remember seeing classes at 10 million members, that’s without a grocer. So this is going to be a really large and powerful program. And also, I have a benefit which you haven’t seen our marketing and the plans for St. Plus. And so it’s an advantage. But yes, we are pumped about this. We’ve worked hard we’ve we follow the customer on this one, we did a lot of research. And we’re pretty darn good at executing now. We make plans and we do everything to make sure that we’re ready and a lot of thought was going into this. I think we’re just glad that we don’t have to keep it secret anymore. And we can talk about it and share it with our stores because they’re going to be the key to us. They’re the frontline of our company. And they’re very excited about the change, because they know what’s going to be positive.
Peter Sklar
But Michael, how do you know that you can convert almost all of your existing air mile customers, to, to take on a scene loyalty program and be active on it, like isn’t, I would think there’d be some meaningful proportion said, I’m loyal. I’m loyal to air miles. So I’m gonna stick with my air miles.
Michael Medline
I’m not going to take you through all the work we did, because we don’t have time, although we could do it a different time. Just I think at the — I think the key to that is that people are very loyal to their grocer. And that they’re going to be very excited about the loyalty program. And so that will increase their loyalty, love, stickiness with us. And it’s the growth, they’re going to go to where the loyalty program is. And because this is such a good one, I’m not worried about it. But there’s, this is not this was not taken, this was not an overnight decision. This is plenty of thought put into it.
Peter Sklar
Okay, and I just have one final question on a different topic. I don’t know if you saw, I’m sure you saw that [indiscernible] in their revised — recent revised guidance, they said that, consumers are putting one or two fewer items in the basket. And so there’s some kind of online phenomena going on in the U.K, I guess it’s the consumers squeezed by high cost of living inflation, or when you look at Voilà, are you seeing anything like that? Or even in your in store, like in even in your in store, are you seeing fewer items in the basket?
Michael Medline
Yes, I think probably most, most every retailer saying that, because of the heavy cost of inflation. I don’t think I can do it online or not. I don’t think it’s huge. But it’s enough to make a small difference. And it’s clear which I’m sure Peter, you’ve filled up the crowd last week or two, people only have so much money, when they fill up the car, or they have extra expenses, or they have to buy hockey skates are more expensive, or they have to go to the grocery store. They have to make harder choices. And so, to me, periods of high unemployment or high inflation are terrible for Canadians and for anyone. And so they have to make tough choices. And I don’t think that’s a surprise. And this is a global phenomenon. So I’m not, I wasn’t surprised at all. This too, shall pass. And our job is to create even more value and get people to come in our stores more and loading up. So I don’t think our job becomes a tiny bit harder. But as Peter said, Well, we have to tackle that. But these are tough times.
Peter Sklar
That’s all I have. Thank you for your comments.
Michael Medline
Thank you for your questions. Appreciate it.
Operator
Next question will be from Chris Li at Desjardins Capital Markets. Please go ahead.
Chris Li
Hi, good afternoon. Maybe just a few follow-up question. Michael, in your opening remarks, you mentioned that the quarter ended better than expected. Dennis started. So wondering if you can elaborate on that we use talking specifically to same-store sales were. Talking about everything, including connectors. And so it’s so hard to see I — I like numbers, so much, I load to see trends that are in too short a period. But I can only tell you what, what I see. And that is and we’ll see how it goes from here. But we saw stabilization. But we also saw that it takes a little while for any retailer, including ourselves, no matter how good we are, no matter how smart Peter and his team are to figure out changes that occur is such with such velocity, and these changes came on us, you know, just getting on a pandemic. And you see inflation, which in a period of quarter took off. And so we had to get off the customer had to get used to it and we have to get used to it. And so I like what we’re doing we got further plans. And you know if I knew the answer to all economic questions, I think a lot smarter than I am. But that’s what just what we saw
Chris Li
Okay, that’s helpful. And you also mentioned that, you see a bit of a soft bit of a ship to discount picking up towards the end of the quarter. It’s wondering, has that sort of accelerated post a quarter in May in June? Or has that also started to stabilize?
Michael Medline
So hard to see, right? Because it’s there’s a lot of moving pieces, but I think it’s our view at this moment would be stabilized pretty much. But you know, it’s all logical, right? I think everything, the customers are incredibly logical in a certain period of time, we all are, and we make different decisions. And so as I said, I ranked the order. The third, same thing that influenced sales was a small movement to discount.
Chris Li
Okay, okay, that’s great. And then comparing to …
Michael Medline
… COVID, he did fail to earlier where full service benefited more than discounts. That’s all. There are moves around that lever as well.
Chris Li
Okay, great. That’s helpful. And then another one I have is just, in order for you to achieve your financial targets for Horizon, do you need market conditions to improve a lot? Or do you have enough levers under your control to really achieve those targets, and essentially, I’m trying to get a sense of how confident you are in achieving the earnings growth target for F ’23.
Michael Medline
We said that we remain on track and confident. We take into account, we basically think that whatever is happening now, we’ll anticipate that and if it gets better good for us. And we’ll make other changes as necessary to be able to hit our targets as we have over the last 5.5 years. But I mean, I’d rather it was smooth sailing, honestly, I’d rather there’s a better market, but our job is to perform on the bottom line in any type of market. And so that’s how we’re feeling.
Michael Medline
Yes, and best of luck.
Matt Reindel
Thanks so much. Thanks for the question.
Operator
Next question will be from Mark Petrie at CIBC. Please go ahead.
Mark Petrie
Yes, I just had a couple follow ups. On seeing does it have any sort of regional strengths? Like is there a region of the country where it’s over or under penetrated versus the national average?
Michael Medline
Mike, you want to take that you’ve been too quiet. I going to hear from myself.
Michael Vels
Sure, thanks. Thanks, Mike. There are variations across the country mark. Strong but less penetrated in Quebec. And [indiscernible] would be the only region that I would call out. Having said that, our dealers and our employees in that region or as we’ve introduced the programs, and we’re just super excited to have it actually and actually can work with them started. So nothing material that causes us significant concern or issue. I think it’s going to be strong, all the way across the country.
Mark Petrie
Okay, thanks. And then also, just following up on Cineplex. Any — is there any change in the cost of offering that program versus air miles? Or is it pretty consistent? Mike.
Michael Vels
We have more flexibility in terms of how we’re going to set our and burn rates, Mark? So I’d say the best answer to it is it’s going to be significantly more effective for us. Because we have more control about how we take it to market.
Mark Petrie
Yes, okay, fair. And then I guess also, just one other follow-up with regards to Voilà, you reiterated the achievement of positive EBITDA for the Vaughn facility, I know this is on track with your original plans. But could you just talk about how the actual P&L there or other operating metrics are coming in relative to the original plans? And then related, what should we expect for time to break even or positive EBITDA for the Montreal facility, just given the different ramp curve?
Michael Medline
Thank you. So the [indiscernible] we’re very happy with the operational metrics. The one thing as we’ve said, and as we’ve called out, the one thing that we can’t control is the speed of the curve, the shape of the curve of e-commerce adoption. So that’s the one risk we’ve pulled out, but we are happy with how that’s tracking versus we have not committed to when we’re going to breakeven for the second month, second, CFC. But again, it’s a very, very different model because we’re actually taking over the IGA dot net business into that facility. So that’s not something that we have, that we’ve given any guidance on.
Mark Petrie
Okay, thanks very much. Appreciate it.
Operator
Thank you. Next question is from Vishal Shreedhar at National Bank. Please go ahead.
Vishal Shreedhar
Hi, thanks for squeezing me in. Just a quick follow-up, CapEx seems to be trending above the 3 years 700 million target indicated, I was hoping you can give us some color on that extra spend, and if your capital investments are generating desired rates of return?
Michael Medline
Yes, they are. Because we wouldn’t be investing more if we were — all right. We are very happy with our, especially our store renovation program. And so yes, and so that helps us spend capital knowing full well that it’s going to get the return. We also have longer numbers in there. In some ways up the number. And so yes, I think that with our store investments with our Voilà investments, and with the everything we’re doing in the technology and data side, which is really helping us and it’s going to help us that this is we’re gonna be higher than 7 million and we’re going to closer this trend that we just talked about.
Vishal Shreedhar
Okay. So past fiscal ’23, is your 800 number or more sticky number I should consider for Empire’s CapEx on an ongoing basis.
Michael Medline
We have an announcement what our [indiscernible] future ones are. But if you want to put that in that’s, that’s a good number to use. Use whatever we just announced in F ’23. And it’ll either be slightly higher or slightly lower than that, but they probably ran that number. Is that okay, man? Yes. Okay, thank you.
Vishal Shreedhar
Okay. Thank you.
Operator
Thank you. And at this time, we have no other questions. Please proceed with closing remarks.
Katie Brine
Great. Thank you, Sylvie. We appreciate your continued interest in Empire. If there are any unanswered questions, please contact me by calling me or by email. Look forward to having you join us for our first quarter 2023 conference call on September 15. Talk soon.
Operator
Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
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