Empire's Paradox: Sales Grow as Profits Dip Amid Major Tech Overhaul

STELLARTON, NS – December 11, 2025 – Empire Company Limited today presented a complex but strategic financial picture in its fiscal 2026 second-quarter results, revealing a company in the midst of a significant transformation. While top-line sales grew a healthy 2.8% to $7.99 billion, net earnings saw a slight decline, with earnings per share (EPS) settling at $0.69 compared to $0.73 in the prior year. This divergence between sales momentum and short-term profitability highlights a deliberate strategy: funding a foundational overhaul of its physical and digital infrastructure to secure long-term competitive advantage.

For institutional investors and market analysts, Empire's quarter is a case study in balancing present performance with future-proofing. The solid 2.5% growth in same-store food sales, driven by strong performance in both its full-service and discount banners, indicates the core retail operation remains robust. However, the dip in net earnings to $159 million from $173 million a year ago points directly to the costs associated with this ambitious transition.

The Price of Modernization

A closer look at the financials reveals the drivers behind the compressed profits. Operating income was impacted by increased selling and administrative expenses, which the company attributes to higher labour costs and continued investments in store modernization, technology, and the expansion of its Farm Boy and FreshCo banners. Furthermore, a decrease in equity earnings from its investment in Crombie REIT contributed to the decline. These are not signs of operational weakness, but rather the tangible costs of a multi-pronged investment strategy.

The company is executing a massive capital plan, with a projected spend of approximately $850 million for fiscal 2026. A significant portion of this is dedicated to enhancing its physical footprint. Empire is on track with its ambitious plan to renovate 20% to 25% of its entire store network by the end of the fiscal year. This initiative goes beyond cosmetic upgrades, incorporating sustainability measures like refrigeration system overhauls and other energy-efficiency projects. Simultaneously, the strategic expansion of its FreshCo discount banner in Western Canada continues, with two new stores opened in the quarter and 51 now operating in the region. This move is designed to capture a larger share of the value-conscious consumer segment, a critical battleground in the current economic climate.

Recalibrating the Digital Frontier

Perhaps the most telling metric of Empire's strategic direction is the staggering 81.2% year-over-year increase in its combined e-commerce sales. This growth is the fruit of a major recalibration of its online strategy. After initially building its digital presence around a capital-intensive, exclusive partnership with UK-based Ocado for its Voilà delivery service, Empire has pivoted to a more flexible, multi-channel approach.

While Voilà remains a core component with three active Customer Fulfilment Centers (CFCs), the company has strategically paused the opening of its fourth CFC in Vancouver. Instead, it has forged new partnerships with marketplace platforms Instacart and Uber Eats, rapidly expanding its online reach across all its major banners, including Sobeys, Safeway, and FreshCo. This move not only broadens customer access but also shifts to a less capital-intensive model for growth, leveraging the existing infrastructure of third-party delivery networks.

The decision to end its mutual exclusivity with Ocado, which resulted in a non-cash charge in a prior quarter, has provided the flexibility to pursue this hybrid strategy. The company is now focused on driving volume and profitability across its entire e-commerce ecosystem, balancing the high-tech precision of its Voilà CFCs with the broad market access of its new partners.

The Foundational Tech Stack for Future Retailing

Beneath the surface of store renovations and e-commerce partnerships lies a deeper, more fundamental transformation with significant fintech implications. Empire is in the process of migrating its entire business from a legacy Enterprise Resource Planning (ERP) system to a national SAP S/4HANA platform. This is not merely a software upgrade; it is a complete re-architecting of the company's operational backbone.

The new ERP system is designed to centralize and streamline core functions like financial reporting, procurement, and supply chain management. For an organization of Empire's scale, the benefits are profound: enhanced real-time data visibility, improved automation, and sophisticated analytics capabilities. This will empower more agile decision-making, from category management and promotional optimization to inventory control. The project, which will be phased in over the next two fiscal years, is a critical enabler for all other strategic priorities.

This data-centric approach is also at the heart of its customer loyalty strategy. Empire, a co-owner of the Scene+ program, has grown the platform to over 15 million members. The company's key priority is now to accelerate engagement through deep personalization. By leveraging machine learning and artificial intelligence, Empire aims to move beyond generic promotions to deliver highly targeted, individual offers. This focus on using advanced analytics to drive customer behavior is a hallmark of modern digital retail and represents a significant area of competitive differentiation.

While navigating these large-scale investments, Empire remains focused on shareholder returns. The board declared a quarterly dividend of $0.22 per share and reaffirmed its intention to repurchase up to $400 million in shares during fiscal 2026 under its Normal Course Issuer Bid. This signals management's confidence that its current strategic spending will ultimately drive long-term earnings growth and shareholder value, even as it navigates the short-term pressures on the bottom line.