Empire's Q3 Net Earnings Dip as It Rebounds From Sobeys Cyberattack

Empire Company Ltd. says the recent cybersecurity breach at its grocery banner Sobeys is estimated to cost the business around CAD $32 million.

Months after the incident, president and chief executive Michael Medline says the company is back to “business as usual” and is shoring up its cybersecurity system.

“These cyber attacks are a nasty piece of business – I wouldn't wish them on my worst enemy,” Medline told analysts on the company’s March 16 third-quarter earnings call. “Throughout this event, our priority was to do the right thing for our customers, our employees and our business. However, this event had several one time impacts on our Q3 performance and results. I am pleased to say that we're over it now and have fully returned to business as usual in Q4.” 

Medline was tight-lipped about upgrades made to the company’s cybersecurity measures since the November attack, but said “significant changes” have been made.   

“Everybody out there is at risk and is strengthening everything they're doing,” he said. “We did have a robust cybersecurity system in place that obviously was breached... We have made significant changes to all elements of our cybersecurity… Over the next few years we'll spend a little bit more, which will really improve our cybersecurity in the short- and medium-term.” 

Empire reported CAD $125.7 million in net earnings for the third quarter of fiscal 2023, compared to CAD $203.4 million in the prior year. 

The grocery giant said the cyberattack impacted its third quarter net earnings by at least CAD $15 million.

Adjusted net earnings totaled CAD $164.8 million. 

Sales for the quarter increased by 1.5%, to CAD $7.49 billion, which the company attributed to the expansion of FreshCo in Western Canada, higher food inflation and increased fuel sales. Same-store sales, excluding fuel, increased by 0.1%. 

“Last month, we achieved our Project Horizon goal to open 31 new FreshCo stores by the end of fiscal ‘23. As of today, we have a total of 44 FreshCo stores operating in Western Canada,” Medline said. “We are very pleased with the momentum and growth trajectory of this banner. Taking FreshCo to Western Canada was a key decision we made in 2017 to turn around what was then a struggling region for us. I'm sure glad we made that call.”

Medline said food prices remained "stubbornly high" in the third quarter, but anticipates inflationary pressures will soon peak. 

“We saw customers continue to adapt their shopping behaviors due to this inflationary environment, with many people shopping multiple stores, trading down on products, buying more on promotion and filling smaller baskets,” Medline said. “We received hundreds of new supplier cost increase requests this quarter at a comparable size and volume as we experienced in the fall of 2022. So we expect inflation to remain high for a few months. We don't have a crystal ball, however as we look forward, we believe that supplier-partner requests for cost increases have peaked and we will also soon be cycling high inflation numbers from last year. We are hopeful that food inflation will soon peak, then abate, then end, which will be very good news.”

Still, Pierre St-Laurent, EVP and COO, said the transaction count at its full-service banners remains “extremely healthy.”

“Where they are trading more down is mostly in fresh, and we are highly developed in fresh. So, it's just a matter of time [until] customers increase their basket size, when they have less pressure on their budget,” St-Laurent told analysts. “But we feel very confident that customers [will] continue to come into our store… When we measure our performance versus peers – discount to discount, full service to full service – we're extremely pleased with performance on both sides.”

The company also announced plans to integrate Longo’s e-commerce business, Grocery Gateway, into Voilà. Grocery Gateway customers will transition to Voilà over a six-week period starting this July. 

Finally, during the fourth quarter of fiscal 2023, the company’s loyalty program, Scene+, will roll out in Quebec and in the Thrifty Foods banner in British Columbia.

Stellarton, Nova Scotia-based Empire’s key businesses are food retailing, through wholly owned subsidiary Sobeys Inc., and related real estate. With approximately CAD $30.9 billion in annual sales and CAD $16.4 billion in assets, Empire and its subsidiaries, franchisees and affiliates employ approximately 130,000 people. The company is No. 22 on The PG 100, Progressive Grocer’s 2022 list of the top food and consumables retailers in North America.