A Member of Pat McKeough’s Inner Circle recently asked for his advice on a Canadian conglomerate that’s primarily engaged in food retailing.
Pat likes the steady sales growth and strategic investments in store renovations and digital capabilities. The valuation is also reasonable. However, inflationary pressures on operating costs as well as intense competition are challenges.
Empire Company Ltd. (Symbol EMP.A on Toronto; www.empireco.ca) is primarily a food retailer and also invests in real estate.
Empire operates through two segments: Food retailing, and Investments and other operations.
Empire’s Food retailing segment does business through its wholly owned Sobeys business. Headquartered in Stellarton, Nova Scotia, the segment owns, partners with, and franchises more than 1,600 stores in all 10 provinces. Its retail banners include Sobeys but also Safeway, IGA, Foodland, FreshCo, Thrifty Foods, Farm Boy, Longo’s and Lawton Drugs.
Sobeys also runs e-commerce businesses under the banners Voila, Voila par IGA, and ThrifyFoods.com. The segment first launched its Voila e-commerce platform in 2020, to bring online grocery home delivery to its customers.
Sobeys also runs and/or supplies 350 retail gas stations under the Fast Fuel and Shell brands.
Through its Investments and other operations segment, Empire invests in real estate.
The company has a 41.5% interest in Crombie REIT (symbol CRR.UN on Toronto), a real estate investment trust. Crombie is one of Canada’s leading national retail property landlords. The REIT owns, operates and develops grocery and pharmacy-anchored shopping centres, freestanding stores and mixed-use developments, mostly in Canada’s top urban and suburban markets.
Crombie REIT’s largest tenant is Sobeys, which contributes 58.4% of the REIT’s total annual rents.
The segment also has interests ranging from 31.7% to 49.0% in the Genstar Capital group of companies. Genstar is a residential real estate development company headquartered in San Diego, California.
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In December 2018, Empire completed the acquisition of Farm Boy stores for $800 million. The Ottawa-based chain now has 21 locations in the Greater Toronto Area. The retailer specializes in local fresh produce and meat; it also offers a wide range of ready-to-eat food prepared in-store and a strong group of private-label foods.
In May 2021, Empire completed the acquisition of 51% of Longo’s for $700 million. That firm was a longstanding, family-built network of specialty grocery stores in the Greater Toronto Area of Ontario. Longo’s now has 38 stores.
Empire Company’s Digital transformation initiatives offer long-term e-commerce growth
In the quarter ended February 1, 2025, Empire’s revenue rose 3.1%, to $7.73 billion from $7.49 billion. Same-store food sales grew by 2.6%. Excluding one-time items, earnings fell 4.6%, to $146.1 million from $134.2 million. The decline was mostly due to higher finance and income tax expense. Per-share earnings were unchanged at $0.62 on fewer shares outstanding
Going forward, the company’s outlook is positive, but it does face some challenges in the hyper-competitive Canadian market.
Inflation, and the accompanying high costs of food, energy and housing, have pushed many Canadian consumers to turn to cheaper food options. This puts Sobeys and other Empire banners at a disadvantage compared to most of its rivals. That’s because the company’s grocery stores are mostly full-service, higher-end stores. Empire is moving to expand its discount presence in Western Canada, but this will take time and expense to accomplish.
Nonetheless, cost-cutting actions that Empire has taken over the last few years will keep adding to its profitability. As well, two of the company’s specialty food banners—Farm Boy and Longo’s—offer strong growth prospects.
The company’s digital transformation initiatives represent a significant competitive advantage in the evolving retail environment. Empire’s focus on digital and data capabilities includes continued e-commerce expansion through Voilà, enhanced personalization features, and the successful growth of its Scene+ loyalty program.
Empire’s shares trade at a moderate 18.2 times the $2.97 a share it expects to earn in 2025. The company will raised its quarterly dividend by 10.0% with the July 2025 payment, to $0.22 a share from $0.20. The stock yields 1.5%.
Recommendation in Pat’s Inner Circle: Empire Company Ltd. is okay to hold.
