Empire (TSE:EMP.A) executives said the grocer delivered “solid” third-quarter fiscal 2026 results, supported by performance across formats and tighter cost control, while also taking several strategic actions that management said will reset its e-commerce cost structure and support profitable growth.
Third-quarter performance and consumer trends
President and CEO Pierre St-Laurent said food sales increased 3% in the quarter, with food same-store sales growth of 2%. He attributed the same-store performance to strength in full-service banners, while noting that the company also saw positive performance in discount “both financially and versus the market.”
On inflation, St-Laurent said the reported CPI for food purchased from stores was 4.8% in the quarter, while Empire’s internal food inflation remained below CPI. He added that CPI readings in December and January were “artificially higher” due to the prior year tax break, and said the CPI rate is approximately 150 basis points lower when adjusted for that one-time impact. Management said it continues to manage supplier cost increases to protect customer value.
Margins and cost control
Total company gross margin was flat year over year. Excluding fuel, management said gross margin declined 25 basis points, which executives attributed largely to non-recurring minor items and business mix impacts, including higher wholesale sales. CFO Constantine Pefanis said that if the non-recurring impacts and higher wholesale sales were excluded, gross margin excluding fuel would have increased marginally versus last year. He said the company expects a “more normalized” rate in subsequent quarters.
Management reiterated its expectation for annual gross margin expansion of 10 to 20 basis points, supported by initiatives including inventory control, shrink improvement, space productivity, private label penetration, and promotional optimization. St-Laurent said Empire is “trending well” on the metric in fiscal 2026, with 18 basis points of gross margin improvement year to date.
On expenses, Pefanis said adjusted SG&A dollars (excluding depreciation and amortization) increased 1.6% year over year, reflecting business expansion and continued investments in stores, technology, and key projects, but declined sequentially. SG&A as a percentage of sales decreased versus last year, which he said reflected sales growth outpacing expense growth and “better cost optimization,” particularly in technology, real estate, and marketing. Pefanis reiterated his earlier view that the first quarter represented the “high-water mark” for SG&A dollars in fiscal 2026, while cautioning that improvement may not be linear.
In the question-and-answer session, executives discussed efforts aimed at simplifying store operations and extracting returns from prior investments. Pefanis and St-Laurent pointed to examples such as electronic shelf labels, and supply chain visibility tools that improve accuracy and help stores plan labor by tracking deliveries.
E-commerce changes, impairment charge, and expected savings
A key focus of the call was Empire’s updated approach to e-commerce. St-Laurent said the company reassessed expected performance across its Voilà network and announced actions intended to improve near-term earnings and increase customer choice. Those actions include the closure of the Calgary customer fulfillment center (CFC) and an expansion of third-party partnerships via a national agreement with DoorDash, which management said is now live across all banners.
As a result of these moves, Empire recorded a CAD 746 million impairment in restructuring charges during the quarter. Pefanis said the impairment charge, which is excluded from adjusted results, included impairments of right-of-use assets and property and equipment, as well as direct closure-related costs such as severance, one-time contract termination payments, and decommissioning.
Management said the actions are expected to deliver approximately CAD 95 million in annualized operating income beginning in the fourth quarter. St-Laurent said about two-thirds of the benefit is expected to reach the bottom line, with the remainder reinvested in strategic growth initiatives. Pefanis added that the two-thirds portion is expected to show up mostly in SG&A and said the savings are “largely cash.” He also said about one-third of the CAD 95 million will be reinvested, and clarified in Q&A that reinvestment will be allocated to different parts of the business, not solely e-commerce.
Operationally, management said e-commerce sales increased 10.3% year over year, driven by continued Voilà growth and third-party partnerships. Executives said they expect sustained improvement in e-commerce financial performance beginning in the fourth quarter and accelerating into the next fiscal year. On the Vancouver CFC, Pefanis said the company has “put a pause on that,” with more detail to come as the strategy is refreshed.
Growth initiatives: loyalty, retail media, and store openings
St-Laurent highlighted loyalty, retail media, and store expansion as current initiatives tied to the company’s strategic priorities. He said Empire added Shell Canada as a partner to the Scene+ loyalty program, calling fuel the most requested category. Management said the rollout began in Alberta during the month of the call and will extend to the rest of Canada on May 26.
On Empire’s retail media platform, Empire Media+, St-Laurent said revenue has grown approximately 50% since launching in November 2024. Executives said they are seeing momentum with suppliers, including repeat spend and larger campaigns, and view retail media as a potential growth engine. Management did not disclose the size of the business.
In stores, St-Laurent said Empire has opened nine new stores and completed two conversions year to date. The company expects to open seven stores in the fourth quarter, with four in discount, and said it plans to open more than 20 new stores in fiscal 2027, mostly through new stores tied to its broader real estate strategy.
Leadership changes and capital allocation
Empire also outlined a new executive leadership structure aligned with what St-Laurent described as four “obsessions”: customers, stores, growth, and cost control. The company said Chief Marketing Officer Sandra Sanderson will retire in July, with marketing and merchandising moving under Luc L’Archevêque as Chief Customer Officer. Julia Knox was appointed Chief Retail Officer with end-to-end accountability across stores and supply chain, and will continue to lead technology and transformation during a 12-month transition while the company hires a new Chief Technology and Transformation leader. Jean-Louis Bellemare, founder of Farm Boy, will serve as executive advisor on retail and store operations. Doug Nathanson’s responsibilities expanded to include Chief Pharmacy and Development Officer, reflecting what management called the increasing strategic importance of pharmacy.
Pefanis said third-quarter capital expenditures totaled CAD 239 million, and the company remains on track for approximately CAD 850 million of capex in fiscal 2026. He said Empire repurchased about 6.6 million shares year to date for CAD 330 million and expects to complete CAD 400 million of share repurchases this fiscal year.
Other income and equity earnings totaled CAD 29 million in the quarter, which management said was in line with guidance provided in the second quarter. Pefanis said Empire expects real estate earnings to come in at the lower end of its fiscal 2026 guidance range of CAD 120 million to CAD 140 million, with the fourth quarter representing about one-third of the annual amount. He also noted that the company announced a sale-leaseback transaction with Crombie REIT after the quarter, which he said was already included in the fourth-quarter expectations.
Management said it plans to provide additional details on its strategy and outlook on the fourth-quarter call scheduled for June.
About Empire (TSE:EMP.A)
Empire Co Ltd key businesses are food retailing, investments, and other operations. The food retailing division operates through Empire’s subsidiary Sobeys and represents nearly all of the company’s income. This segment owns, affiliates, or franchises more than 1,500 stores in 10 provinces, under retail banners including Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, Lawton’s Drug Stores, and multiple retail fuel locations. The company’s investment and other operations segment include the investment in Crombie REIT, which is an open-ended Canadian real estate investment trust, as well as the Genstar Development Partnership.
