Empire Company Ltd
TSX:EMP.A
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Empire Company Ltd
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Good afternoon, ladies and gentlemen, and welcome to the Empire Second Quarter 2022 Conference Call. [Operator Instructions] Also note that the call is being recorded on Thursday, December 9th, 2021.And I would like to turn the conference over to Katie Brine, Director, Investor Relations. Please go ahead.
Thank you, Sylvie. Good afternoon, and thank you for joining us for our second 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 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, 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 news release and MD&A for more information on these assumptions and factors.I will now turn the call over to Michael Medline.
Thanks, Katie, and good afternoon, everyone. Before I jump into the quarter, our thoughts continue to be with all those affected by the ongoing disaster in British Columbia. We will continue to work with our local supplier partners as they navigate the impact of the food supply chain and infrastructure. We are extremely proud of our teammates who have navigated the crises in British Columbia and Newfoundland and Labrador over the last several weeks.I also want to take a moment to welcome Matt Reindel, our new CFO, to this call. Matt has been with Empire for the past 2 years. He has been absolutely critical in setting up Project Horizon for success and has led our Longo's partnerships. Matt joined Empire with extensive experience from Nestle. I also want to thank Mike Vels for his great run as CFO. As you know, Mike is an exceptional leader, and we are thrilled he has stepped into the Chief Development Officer role. Mike will now focus his many talents on continuous improvement in our execution, delivering our Project Horizon targets and our growing ambitions beyond Horizon.Now let's talk about the business. It was a straight up, good quarter, well-executed by our teams across the country. We are consistently putting numbers on the board. We have strong underlying momentum and in only 4.5 months, we will be entering our crucial final year of Project Horizon, which we're feeling very good about.Today, I want to cover 4 topics: our continued strong performance, how we're managing inflation, how we're seeing the Full Service versus discount split and e-commerce. First, our results. This was another strong quarter for Empire. Our sales grew 4.9% this quarter, while same-store sales grew 90 basis points from Q1 to negative 1.3%. As we and many others have said, year-over-year comparables do not tell the entire story as we lap strong COVID sales. Our same-store sales have grown 6.8% over the last 2 years. Our e-commerce sales, excluding Grocery Gateway, were up 1.8%, but this number disguises the fact that Voila has continued to grow, while being partly offset by our IGA.net and Thrifty through its businesses, comping strong COVID-driven sales. If we included Grocery Gateway, our total e-commerce sales are up 33%.Sales are up as we continue to execute on key occasions. Our merchants and operators did an exceptional job, delivering great value to our customers for Thanksgiving and Halloween. We did this with a great customer experience, thanks to an online exceptional assortment and great promotions. I'll speak more to inflation in a moment, but continuing to offer our customers meaningful value through promotions is more important than ever right now. We have enjoyed significant momentum with these big seasonal events.On top of that, our investments in our renovations and own brands are paying off especially in our Full Service stores. Our renovated stores look and perform in an excellent fashion, and you'll see this continue to accelerate our performance. This successful and significant investment in the interior and exterior of our stores, sometimes slides under the radar. But I'm convinced this improvement in store experience will be a game changer for Empire and continuing to improve on our own brands offering is giving our customers increasing opportunities to save money without compromising on quality. We are very pleased with the progress we made and expect this will pay off in the current inflationary environment.Empire's gross margin is strong and improving. Excluding the impact of fuel, we improved our gross margin rate by 72 basis points. This is on top of last year's strong margin and is largely due to our continued progress against Project Horizon, the addition of Longo's, and our business mix returning a little bit more to normal. Linked to our robust gross margin results, our SG&A rate went up 27 basis points. This is because our higher-margin businesses, Full Service, Farm Boy, and Longo's are becoming more and more successful. These businesses have higher gross margins but also higher SG&A, which is why it is critical to look at our bottom line, which is showing solid improvements. Overall, our SG&A expenses were very well managed.Our EBITDA margin grew year-over-year by an impressive 36 basis points to 7.7%. Our EPS performance was similarly strong at CAD 0.66, up CAD 0.06 from last year. Even more dramatic is our 2-year EPS growth, which is up 29% when we remove the impact of Crombie's unusually large properties disposal of $0.06 in fiscal '20. I'm also very pleased to report that our free cash flow grew 72% over last year, even after funding a very healthy capital reinvestment program.Our strategy is working, we're growing sales, we're improving margins, we're managing costs, we're generating strong cash flows, we're delivering for our shareholders. We're halfway through Horizon, and we have momentum and still the most upside in the industry. There is so much more to come as we get into fiscal '23.Next, I'd like to dig into inflation and how we're managing it. Inflation is unusually high right now. The rising costs of doing business is a reality that all businesses across the globe are facing, not just in grocery, but we're managing it well. Our merchants and supplier partners are out there every day fighting to keep prices low for our customers. Our merchants are doing a fantastic job working with our data to utilize the effect of inflation on our customers, an example of how we're utilizing more and more data throughout our company. And many of you are familiar with our unique but successful approach to managing our relationships with our supplier partners. With our approach, we have risen to be ranked #2 in the Annual Advantaged Supplier survey of the top 6 grocers in Canada. We were at the bottom of the ranking only a few short years ago.We are working diligently and respectfully, together with our supplier partners to manage the cost increases coming through. It's actually because of these powerful relationships that we have been so successful in managing inflation and navigating any supply chain issues so far. Having relationships based on trust and transparency helps us keep conversations focused only on the real unavoidable cost increases, so we can maintain the best value for our customers. And where inflation does impact us, our Full Service network is in the best position to manage it. First, our higher-margin model is more adept at mitigating cost increases. And second, our broader assortment gives value-conscious customers a myriad of substitutions. Where we've had unavoidable price increases, we see customers sometimes substituting products within their baskets, but not leaving our stores.Now over to the Full Service versus discount split, a topic that has been popular recently. As we've been accurately prognosticating quarter-after-quarter, we expect discount will return almost to the pre-pandemic levels, but slowly. In other words, we are not seeing fast significant changes. And in fact, we continue to see a lot of stickiness in our Full Service banners. As we look ahead, we believe our Full Service stores will keep momentum coming out of COVID. While customer occasions are starting to change, including more business to restaurants, we are seeing a structural change in consumption of food at home. Over the past 22 months, customers have seen and experienced the affordability and convenience in eating at home with their families. We believe there is permanence in this shift. We're seeing this is how customers are shopping. Prior to COVID, customers shopped an average of 8 food stores a month. During COVID, that dropped to one or 2, and today that number is steady at 5 to 6 stores. Despite this, our customers continue to favor larger shops to Full Service stores.While some of this is COVID, we've also made significant improvements in the last 5 years to thrill our customers. We improved our offerings, strengthened our price perception, renovated our stores to deliver an exceptional in-store experience. Our customers are giving us credit for it, and it's why we think Full Service will be sticky. There's an equilibrium in supply and demand between Full Service and discount stores and our Full Service stores have never provided such value and service.Finally, I want to touch briefly on e-commerce. E-commerce is a small fraction of the market today, but it's growing quickly and it's top of mind right now. For our customers, we believe it will be critical to have the best omnichannel experience that includes e-commerce. And for our shareholders, it will be critical that we do this profitably. We've run Click-and-Collect for years in Quebec and British Columbia. At best, it's an okay experience for customers, and we know it's not profitable at scale. Ocado developed best-in-world technology that thrills our customers and is a profitable solution at scale. And reaching scale is not the same as reaching capacity. We'll get the scale much sooner than that. We were confident in our investment in Voila in 2018 and now after running in the GTA for over a year and seeing the results, we are more confident in it than ever, especially after seeing how little progress non-Ocado technology has made across the globe.I'll pass it over to Matt in a moment. But as you can see, there's a lot of momentum at Empire. In a couple of quarters from now, we will be done lapping COVID results as well our peers. We performed extraordinarily well when the chips were down during COVID. Very soon, the playing field will be level again, and that's good for Empire. I've said many times that the second year of a 3-year strategy is the hardest. We're making investments, great investments that are improving our business and not yet seen all of the benefits. Next year, we expect our investors will see those benefits even more clearly.With that, I'll pass the call over to Matt for his inaugural report as CFO of Empire. Over to you, Matt, and congratulations.
Thanks, Michael. And good afternoon, everyone. So before I jump into our performance, firstly, let me say how pleased I am to have joined Empire's executive team. And I also want to take a moment to express my thanks to Mike Vels who has given me the best possible transition into Empire over the past 2 years. There's no question that I have some very large shoes to fill but the great news for Empire is that Mike is still with us in his new role and together, we will ensure that the CFO transition is extremely smooth.I'm also extremely happy that for my first quarterly earnings release, I get to talk about such strong performance. So let me provide some additional color on our results, and then we can jump right into your questions. Gross margin was 25.3%. And if we exclude fuel, this represents a 72 basis points increase versus last year. Our promotional optimizational tools continue to expand margin, along with the addition of the higher-margin Longo's business. We continue to sustainably improve our gross margin performance, and we are expecting more upside in fiscal '23 from our Horizon initiatives.Our SG&A was 21.2%, which was 27 basis points higher than last year. There's a number of puts and takes, which drove this increase. First, Longo's have higher SG&A than our average, and we'll continue to see this mix impact until we comp their results next year. Second, our depreciation is higher, mainly due to an increase in right-of-use asset depreciation under IFRS 16, reflecting an increase in occupancy costs. These increases were partially offset by lower incentive compensation accruals in the quarter.Our EBITDA increased by 36 basis points to 7.7%, driven by our strong gross margin performance, which was fueled by Project Horizon. We are now halfway through Horizon and on track, and we will continue to see Horizon benefits for the rest of this year and even more so in fiscal '23.The effective income tax rate for the quarter was 26.2%, which is slightly lower than our statutory rate, primarily due to our consolidated structured entities that are taxed at lower rates. We are still expecting that the effective tax rate for fiscal '22 will be between 26% and 28%, excluding the impact of any unusual transactions or differential tax rates on property sales.Earnings per share was CAD 0.66, which included Voila dilution of CAD 0.07 for the quarter. Our e-commerce platforms have combined sales growth of 33% over last year. But excluding the acquired Grocery Gateway business, our e-commerce sales grew 1.8%. This was primarily driven by the continued growth of Voila, partially offset by the COVID-related declines in IGA.net and Thrifty.Equity earnings increased year-over-year, mostly due to a higher level of activity from our Genstar real estate development. Property lot sales in California accounted for the highest contribution this quarter. But as we said in the past, timing plays an important element in these Genstar sales, and this quarter is not necessarily indicative of an increasing trend. Crombie also had higher earnings due to reductions in net back-out levels compared to last year, which was impacted by COVID.Our cash flow generation and balance sheet remains strong. Free cash flow generation increased 72% over last year despite the continued investment in our stores. This also allows for our continued share buyback program. And as of this week, we have repurchased approximately 4.8 million shares in fiscal '22 for a total consideration of approximately CAD 190 million. Also, even with the Longo's acquisition, we have maintained our net funded debt to net total capital ratio at 3.3x.Strong cash flows allow us to continue investing in our store network. During Q2, we improved 45 stores through renovation, redevelopment or conversion. This included one new FreshCo store with 7 more to open over the next few months. We also opened one new Farm Boy in the quarter and 2 more locations subsequent to the quarter, including one new and one converted site.Finally, I'd like to congratulate Farm Boy on their 40th anniversary last week. They've come a long way from a 300 square foot produce store in Cornwall, Ontario to now a network of 42 stores and counting. Tomorrow marks the third anniversary since we welcomed Farm Boy into the Empire family, and we are extremely pleased with the progress we've been able to make together.And with that, I want to wish you all a safe and happy holiday season. Katie, I'll hand the call back to you for questions.
Thank you, Matt. Sylvie, you may open the line for questions at this time.
[Operator Instructions] And your first question will be from Patricia Baker at Scotiabank.
Michael, I have one question and then a follow-up. My first question is direct. I'd like to unpack a little bit your assertion that there's a structural shift to more eating at home. And it's -- interestingly enough, we've heard very similar comments, in fact, that very phrase from Rodney McMullen last week on their earnings call. I'd love to hear if you could share with us your thoughts and what is the thinking, what is it that has led you to that conclusion? And then obviously, if that is the case, it would be a nice tailwind over the next several years for the grocers in general.
Yes. I won't bore you with the -- how many pieces of data we look up, Pat, to make that conclusion in our business and the way we look at it and how we -- our understanding of Canadian customers in the market. And we also looked at our own results, and we're seeing basket sizes remaining at elevated levels to the extent that we believe that all these data points plus what we're seeing in basket size are indicating not only a sticky situation, but in some cases, probably a permanent shift. And so I agree with Rodney that that's happening in Canada as well as the United States.
Okay. And then my follow-up just is -- I'm not sure if it's for Matt, Mike or yourself, but just in the press release this morning, you reiterated the fact that in fiscal 2022, you anticipate that dilution from Voila will be in that range of CAD 0.25 to CAD 0.30 per share, which is a number that you've given us several quarters ago. And secondly, also confirm that you believe that this will be the peak year for -- of Voila dilution. So just looking at the fact that you didn't change anything there, am I right in assuming that, that is indicating that you're seeing exactly what you want to see with respect to Voila and the first facility and the progress that you're making cost-wise, et cetera, in Montreal, that things are going as you had anticipated and there's no serious change there that would cause you to have any different viewpoint or outlook for how you think that's going to perform over the longer term?
Yes. So, Patricia, I'll take that. It's Matt. The very simple answer to your question is yes. So our dilution for the year is expected to be 25% to 30% within that range. And '22 will be the peak of the dilution. So nothing's changed on that from our expectations.
And I'll just add on it, it's Michael here. I don't -- now that we have Grocery Gateway over a year under our belt with Voila, probably in the GTA, no one has a better view of what actually goes on in e-commerce across the landscape than we do. And I think people don't quite understand e-commerce sometimes in these seasonal shifts you see in e-commerce. And so we have a very good understanding of what's going on in the business and our confidence level remains very high.
Next question will be from Karen Short at Barclays.
A couple of questions. First of all, wondering if you could provide what the actual inflation number was in the quarter, and what your thoughts are as these go into calendar '22. And then within that, you talked about customer behavior and improve -- or strength in private label. So maybe triangulate that with behavior from the customer perspective?
Well, I'll kick that off and then hand you over to Pierre for the own brands piece. We -- so consistent with what we've said in the past, Karen, we're not going to give our internal inflation number. That's not something that we normally provide. Pierre, go on.
I think it's obvious that our own brands, it's a very strong option for customers to mitigate inflation. And our relaunch of this brand could have come at a better time for us. And as you -- we did the rebranding more than a year ago, we did the rebuild in many categories already. So really pleased with the progress we've made there. We are seeing -- even it's not the main metrics we're looking at, because we need to make sure that, as I said in the past, own brand opening a key role and a meaningful role in every single category. We're seeing our penetration growing period after period, which is a good sign for how it's accepted by our customer, how relevant is our offer, and it's really good for our financials because we are strongly believe that it's a good margin generator for us.
Are you seeing trading down as a function -- as a result of inflation and/or are you passing on all cost inflation? Could you provide any color on that?
There is a cost increase pressure on both own brands and national brands. However, we have more leverage to mitigate those costs on own brand than on than on [ own brand ]. So we facing the same issue. We don't -- the costs on ingredient don't change, the costs of packaging don't change, the pressure or the inflation -- inflationary pressure doesn't -- don't change. But because it's our own brand, we have more lever to mitigate those increases. So that is why it would be a more and more popular option for customers, and it's good for our bottom line as well. So it's a win-win situation for both customers and us.
Okay. And then it's been over a year in terms of the GTA with Voila. I'm just wondering if you could give a little color on what that -- and specifically in GTA, what e-commerce is as a percent of sales, and then how you see that trending over time, generally speaking, and I'm only specifically asking for GTA, obviously.
Sure, It's Mike Vels. The market has grown clearly through COVID. As we come off COVID, there's been some return to stores, but the Canadians and particularly our Voila customers are much more comfortable about ordering online, and we continue to see -- be bullish about the penetration of online grocery, particularly in the urban centers. While we're not currently providing a breakdown on our sales, but I will tell you that for us, it's obviously growing and has been growing since we opened the facility. We've been growing our assortment consecutively every month, and that business has good momentum.
Next question will be from Kenric Tyghe at ATB Capital Markets.
Michael, I wonder if you could speak -- 2-part question on promotional intensity. So the first one would be, can you speak to the increase in promotional intensity in [ core brands ] perhaps where in stores it's most pronounced? And the second piece of that question would be, how much smarter across the market has this promotional activity become, and how much smarter do you think you are or how much room is there on that journey?
So what was the second -- I'm probably going to answer, we're smarter somehow, but what was the question?
How much smarter has the market become in terms of its promotional activity, promotional program? And in that context, do you think you're tracking ahead or behind in terms of that increase in how much smarter the market has become?
Look, I'll just answer the first part, and then I'll ask Pierre to add. But in terms of competitive intensity, promotional intensity, we're seeing no difference from pre-pandemic times. Pierre, did you have anything to add?
No, unless that, because we are dealing with a lot of volatility right now for various reasons that we know on supply chain, on inflation. But now we're using more and more data and tools. So that's really helpful to manage the situation. So we're using data that a human cannot use. So we have a good outcome from the tools that we implemented over the last year. So that's why we have been able to quickly adjust our mix, our promotion and our promotions remain extremely relevant for customers, and it's why our margin continues to grow in that very volatile environment.
And then if I could, just on supply chain and supply chain-related sort of pressures. Can you just speak to with respect to your build-out with, any potential risk? Or do you see that as being fairly well contained from a timing perspective?
You're talking about store builds?
Yes.
Okay. Mike, you go, real estate.
The program is really moving ahead according to our expectations. Having said that, the most significant challenge that we're facing, and I'm sure anybody who's tried to build anything or do anything that involves logistics and materials these days, we'll agree that it's becoming more complex and harder to stay on time. So we're mostly making sure that on our store innovation program, we order well in advance. And that program is still managing very, very well. On CFC 3, we finished our part of that build some time ago and handed it over to Ocado, and they are well on track to be finished on time.
And your next question will be from Irene Nattel at RBC Capital Markets.
Just wondering what you're seeing in the marketplace around competitive intensity, certainly, as consumers become a little bit more aware and sensitive to the rising inflation.
We're not seeing more intensity from our competitors. The thing we are seeing, everybody try to -- playing around high volatility. So it's why it could be different year-over-year. But I think we're all facing the same issue. And -- but we're not facing more competitive intensity right now. So -- and it's varied by category, depend on inflation. In some period of time, it's one category, in another period of time, it's another category. It's what we're seeing in term of change when we look at the competitors. But overall, I think we're not -- we remain extremely competitive like we have been over the last many, many years. So we're competing all the time.
That's great. And then just on a slightly different topic. I wanted to come back to the whole gross margin and SG&A. So if we were to kind of put aside the mix changes resulting from Longo's and the like, and sort of also the impact of e-commerce, what would be the cadence on the underlying business with respect to both gross margin and SG&A?
Well, let's take gross margin first. So the biggest driver of gross margin -- our gross margin enhancement is promotional optimization through our Horizon tools. So that's something that improved our margin last year, improved our margin this year, and we will continue to expect that, that will enhance our margin next year, particularly as our teams get more and more comfortable with using that tool. And then on SG&A, as we said in the script, there's quite a few moving pieces within SG&A. So it's hard to predict that. I think the -- those higher SG&A businesses, which are also our higher-margin businesses, like Full Service and Farm Boy will continue to grow. So that will increase that rate. But then our ongoing cost control, which is very strong in the company, will -- should mitigate that. So we may have reached a point of run rate of SG&A for the foreseeable future.
Next question will be from Mark Petrie at CIBC.
I just had a few follow-ups, actually, with regards to e-commerce. Just regarding the Voila dilution, it was a step-up from what we saw in Q1. Is that a reflection of the preparation in Montreal? Or was there any change in the dilution of the Toronto CFC as growth rates have evolved?
Mark, that's primarily as we add costs into our system to prepare for Montreal. So as I just mentioned to Kenric, we've pretty well completed our construction. Ocado is pretty well done with the inside of the facility. We'll be starting to inbound products fairly soon. And as you can imagine, there's some -- there's costs to come with that, both Ocado fees and also we're hiring to ensure that we're ready for our go-live. So that would be the primary reason for the increases in dilution this quarter and going forward.
Yes. Okay. And then just related to that, obviously, the ramp-up in Montreal is going to look a lot different than it was in Ontario, simply because of -- you're bringing customers over from IGA. So how should we think about the dilution progressing in sort of Q3 and Q4? Could -- or should Q3 be higher than Q4?
Well, I think if you do the math, our range is 25% to 30%. So far, we've got 12% year-to-date. And so I think, depending on how the volumes and the winter period goes with the GTA facility, I think the math would tell you that we'd be at or slightly higher than the Q2 dilution rate.
Yes. Sorry. I was just trying to gauge Q3 versus Q4, that's all.
Oh, I see, thank you, sorry. Again, to some extent, very responsive to volumes in the first CFC, but costs would be ramping up in Montreal. So you'd expect, all things being equal, there'd be a higher number in Q4 and Q3.
Okay. And then you highlighted the importance of sort of seasonal in the in-store business. And I'm just wondering how Voila performs around those types of occasions. Do you see a shift in sort of the relative popularity of e-commerce versus store shopping? And is there a shift in basket composition online? Is it different from what you would see in store?
Yes. I'm just trying to think and Voila has only gone through one season, so I'm trying to think about it through. But I'd say that it's -- yes, you see seasonal shifts, obviously, in basket and baskets get larger. But I'd have to check, Mark, in terms of whether it's all the way up to what you see in stores, maybe a tiny bit less amplitude, up and down seasonality from occasions. But there's quite a bit of seasonality in terms of volume to times of the year in terms of the basket sizes.
Okay. And then one more, if I just could, just with regards to Farm Boy. I just want to sort of -- are you seeing the same trends in that banner in terms of elevated demand for Full Service store? I mean, I know it's not quite Full Service the same way as a Sobeys, but in that direction. And also, have the different formats that you guys have kind of tested performed? And I think these are the first conversions from Sobeys stores that are happening now. But if that's not the case, how have those performed? And how are you feeling about the opportunities for that going forward?
First question, absolutely, we feel the same way about Farm Boy in terms of Full Service, as you mentioned. The second is we've -- we -- [ it's got a while ] with our first -- I can't remember when I opened it, I went and visited it. So it was a little while ago. And I'd say the biggest surprise to us is we knew we could convert Sobeys, especially Urban Fresh, but others as Sobeys to Farm boy. But I think that our -- we found more locations, which have been more successful than we imagined, is the way I would put it. So when we did the model, we bought it, we knew there would be some, but we wanted to test it before we got too excited. And the ones that we have converted, very, very pleased with the results and what we're seeing from the Farm Boy.
Next question will be from Michael Van Aelst at TD Securities.
I want to just finish up on the e-commerce. Just in response to Mark's question, you -- it was implied that the dilution would increase in kind of Q3, Q4. So let's just say that you're running closer to CAD 0.09 by Q4. On an annualized basis, that's like CAD 0.36, but you're saying peak dilution will be in fiscal '22. So as we go through fiscal '23, what causes that to come down -- that dilution? Is it because Montreal ramps up much quicker because of the existing business, and therefore, only stays more dilutive initially because of the ramp-up? Or is it a combination of that and, of course, Toronto coming to breakeven?
The primary driver of that is absolutely CFC 1. That CFC continues to grow volumes and get more efficient, dilution decreases for CFC 1. That's the main driver.
Okay. And should Montreal's dilution follow a similar pattern as what we've seen in Toronto?
It will be less on an absolute basis for 2 reasons. First of all, as you correctly pointed out, we have an existing base of customers. And we're also starting with an exceptional assortment, which is different from how we started in Toronto. And we also have many of our back office and infrastructure costs in Toronto, which we don't have to replicate in Montreal. So it's a lighter absolute number than the CFC 1 experience.
Okay. Great. And then on the inflation, a lot of indications are pointing to a spike starting in January. I don't know if you could comment on that based on what you're seeing, but is there a level of inflation that you believe it becomes problematic for margins and that once you get beyond that level, it starts to put pressure on margins because you can't pass it all through?
Yes. There's a -- at some point, as we said, if inflation is too high, customers can leave the product or the category for substitution. And it's why we believe in our Full Service business with our large assumption, there is many, many options for customers to mitigate that. When we get passed from supplier, we're working with them. We're working in collaboration. Even we teach them or coach them to look at the potential impact of rising cost of prices too fast, because if you lose a customer in a category, it could take a lot of time to recover that. So yes, everybody is concerned about it, supplier and us. And -- but I think we'll find always -- it's an industry issue, it's a worldwide issue. We're working really well, in fact, in the food industry to mitigate cost increase. If we compare how we manage inflation right now compared to other industry, I think we're doing a pretty good job. And that's because of the relationship we have, the strong relationships we have with supplier, and we look in our business for long term. But at this point of time, there's no sign, that will have an impact on our margins.
Okay. And is there like, what, 5%, 6% [indiscernible]? Is there a kind of inflection point?
If I can predict that, I would be more rich for sure. But no, I don't think it's -- I think it's very tough to predict. And once again, it's varied by category. So that's the trigger. Over the last couple of months, inflation was very high indeed. We are seeing going down slightly. Now we're seeing more inflation and prolonged. So it's very volatile by category. So very tough to predict over time. And it depends on weight of the category into the basket and into the format. I personally hate averages for that reason.
Okay. All right. And just finally, on the NCIB, you only bought about 600,000 shares in Q2, about 3.3 million in Q1. So should we look at the -- on average, you're on pace to get pretty close to your full buyback, should we expect you to get close to that and like pick it up in the second half and be something similar to what you had for all of the first half?
So on NCIB, we're always balancing the cash flow needs of the company in terms of how many shares we buy back in a specific quarter. So that's the main reason for the difference in Q1 and Q2. We still see share buybacks as a great use of cash. So we'll continue to do that. But again, we'll balance our cash flows for the balance of the year. But we expect it to be higher, certainly versus what we did in Q2, in Q3 and Q4.
And your next question will be from Peter Sklar at BMO Capital Markets.
On a couple of questions, like you've already touched on this, which is your analytical promotional optimization, which is really facilitating your margin improvement. So can you just elaborate a little bit on what you're doing and what has changed? Is it you have more data, you have more software, more training for your merchants? So when you use that expression, maybe just elaborate a little bit on what you've accomplished there.
We're just leveraging more and more the data we hadn't had in the past. So I think that's the improvement. It's the quantity of data we hadn't had in the past was just amazing. We just -- we are just able to deliver just more now than we did in the past. And the team has better, I would say, recommendation insights than in the past, and better information means better decisions, and we remain -- we continue to rely on people, but with the quality of information, they have to make decision, it's much better than it was in the past.
Sorry, if I may interject, I think Pierre is being a little modest, because I think he and his team and our merchants have completely and utterly embraced the fact that we are -- this is better for customers and better for our business, that we have a data analytics team that works hand in hand with our merchants and others in Pierre's group. And it was really -- Pierre is right. We always had the data. We told you that we're going to have better and better data. It's just a matter of the merchants and others having confidence in our plans, and they do, and they see the ramifications and the results and they're embracing it more and more. So we're not nearly done here. But I think it's putting the data in good order, but it's really having that data analytics team and then merchants embracing it. And we see that and that's why we're getting the results we're getting.
Okay. That makes sense. Can you talk a little bit about the Olympics? Was there any spend in Q2? And will we see accelerated spend in the next few quarters or the next couple of quarters as we go into the Olympics and will it be noticeable in terms of as your results unfold?
We're really excited, we really liked what happened at the Summer Olympics and what we saw in terms of how we performed against competition in terms of perception of our customers. And I think the marketing team did an extraordinary job for their first Olympics. They've even gained some better ideas for the upcoming games. So we're really excited. Oddly, the -- both games fall in the same fiscal quarter, which is odd and probably will never happen again. I think you'll see maybe a little bit of extra SG&A, but we move our -- in terms of marketing, but it would be -- I wouldn't worry too much about it. We move our spend around and concentrate on different things. And so we'll put more emphasis on the Olympics and maybe a little bit less emphasis on a few other things.
Okay. And then just my last question. You've talked -- you've explained how the ramps worked for GTA on the CFCs for GTA and Montreal. What's your sense of timing on Calgary? And like have you broken ground there? And when do we start to see the dilutive impacts of Calgary?
We have started construction in Calgary. We're planning to be open in Calgary F'23, first half, so similar to Montreal, probably a couple of quarters before that open.
And your next question will be from Vishal Shreedhar at National Bank.
Most of my questions have been answered, but maybe I'll start with some longer-term strategic questions. This management team has been pretty bold and they made some big bets on the future. And so I'm wondering, as you look at your entire business, 2 businesses that I don't hear as much talk about quarter-to-quarter, your C-store business and your Lawton's pharmacy business. Wondering if management's looking at -- if it considers those businesses to be core? Or if you're looking at the attractive multiples in the market and you could take that capital and reallocate elsewhere.
I think I've had the same answer for what is next month, 5 years, which is, we like these businesses. They make us money. We will always assess all of our assets on behalf of our owners, our investors, to ensure that the -- that we're putting our capital in the right way, and that's as long as -- I would say, as long as you're with us and you're part of the family, you're core. But if we -- these assets, there are new members in the family like we brought on or that we can monetize assets going forward and makes sense to us, and it's good for our business and good for our owners, many of them are on the line today, then we'll do it. We'll make all the right decisions. But right now, these are core businesses, and we're happy with their performance.
Okay. And switching gears here. Obviously, quarter-to-quarter, management started showing progress with Project Horizon and you indicated that you're pleased with the progress to date. At the time that Project Horizon was indicated, it was pre-COVID, and it was a CAD 500 million growth of EBITDA by fiscal 2023. But that base doesn't include Longo's, it doesn't include the structural potential benefits that we may see in the market. So as management evaluate that target, and I know last time with Sunrise, you took another look at it and you actually increased that expectation. So what does management need to see to get more confident that perhaps there's upside to that target? Or is it a question of market volatility?
Yes. It's a good question, but I'm going to groundhog that here, which is that -- and answer the same thing I said basically at the same time in the second year of Sunrise, which is, we have a target. We're going to hit that target. And if we can beat that target, we'll beat it. I'm so proud of the team to still be on Horizon, that we're so confident on Horizon at this point, which was pre-COVID, pre this inflation, pre some of the labor or the wages issues and some of the other things that they're facing and to face all that, still be on target for that CAD 500 million. And then we'll see from there. But just like I said during Sunrise, I'm not -- the team knows what its goals are, if they can overachieve, they shall do so.
Next question will be from Chris Li at Desjardins.
I had a question on own brand. Can you remind us, are you pretty much done with the reset?
More than the halfway, I would say. And as you know, developing a new product take more time. To delist a product, it's faster. So some element of the rebuilds are already done. So -- but we are really seeing positive trends on both penetration and rate, which is a good sign, and it's just the beginning because the rebuild has been done -- a part of the category has been done last -- not last year -- last quarter. We are in another group of category. So I think it will just continue to grow. We are just at the beginning. I would say maybe 1/3 of the benefit has been captured on annualized basis and would continue to grow.
Perfect. And maybe just a follow-up on that. Just are you able to provide us with some data on what the penetration is for private label, if not the absolute level, maybe just the growth versus -- now versus, say, 2 years ago before the project started, just to give a sense of just how well the program is doing from a customer perspective?
Once again, I don't like that PPI for obvious reasons. And once again, it depend by category. In some category, the penetration is much higher because I think own brand is meaningful in that category. Another brand, there is no need to add own brand. So once again, because I hate averages, I won't go there. But once again, it depends on category. And it will continue to grow overall compared to where we are. We are using a lot of exclusivity as well. So it depends on the definition of private label. I think having an exclusive brand to us, if it's not complement or panache, could be considered as a own brand. So we have many, many strong partnerships like that with supplier. We're exclusive with many supplier for product that customer really enjoy. So overall, I think we have a good assortment, unique to us to build loyalty with our customers.
Perfect. Okay, great. And then maybe just a question on Ocado. I believe that the U.S. International Trade Commission is in the process of reviewing the patent infringement lawsuit brought on by AutoStore against Ocado. I guess my question is, in the event of an unfavorable ruling against Ocado, would that in any way kind of impact the Sobeys -- sort of the rollout time for Sobeys in Canada?
We won't comment on the first part of the question, but the answer is no, it won't impact it.I think you might be the last question, Chris. So before the operator comes on, I want to thank the investment community, [indiscernible] for everything during the year, and wish you all great holidays and safe holidays and a fun one with your family and friends. Appreciate your keeping track of Empire and your questions keeping us on it. So thanks so much. Appreciate it.
And at this time, I would like to turn the call back over to Katie Brine.
Great. Thank you, Sylvie. We appreciate the 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 third quarter fiscal financial conference call on March 9th. Happy holidays.
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.