Empire Company Reports Second Quarter Results

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Dec 13, 2012, 10:23 ET

STELLARTON, NS, Dec. 13, 2012 /CNW/ - Empire Company Limited (TSX: EMP.A) today announced financial results for its second quarter ended November 3, 2012. For the second quarter, the Company recorded net earnings, net of minority interest, of $93.3 million ($1.37 per share) compared to $78.1 million ($1.15 per share) in the second quarter last year, a $15.2 million or 19.5 percent increase.

Adjusted net earnings, net of minority interest, in the second quarter were $85.7 million ($1.26 per share) compared to $74.9 million ($1.10 per share) in the second quarter last year, a $10.8 million or 14.4 percent increase.

Second Quarter Highlights

Sales of $4.40 billion, up $367.8 million or 9.1 percent (up 2.7 percent excluding the impact of the acquisition of 236 retail gas locations and related convenience store operations).
Sobeys' same-store sales increased 1.3 percent.
Operating income of $140.9 million versus $125.8 million last year.
Adjusted net earnings ⁽¹⁾, net of minority interest, of $85.7 million ($1.26 per share) versus $74.9 million ($1.10 per share) last year.
Net earnings, net of minority interest, of $93.3 million ($1.37 per share) compared to $78.1 million ($1.15 per share) last year.
Funded debt to total capital ratio of 21.5 percent compared to 25.3 percent last year.

__________________
(1)	Excludes items which are considered not indicative of underlying business operating performance.

"We are pleased with Empire's second quarter financial performance and the dedication and hard work of our employees and franchisees," said Paul Sobey, Empire's President and CEO. "During the second quarter we continued to execute on our strategic initiatives which resulted in profitable growth despite a highly competitive marketplace. We remain committed to further enhancing the shopping experience of our customers and improving our cost structure and productivity."

Dividend Declaration

The Board of Directors declared a quarterly dividend of 24.0 cents per share on both the Non-Voting Class A shares and the Class B common shares that will be payable on January 31, 2013 to shareholders of record on January 15, 2013. These dividends are eligible dividends as defined for the purposes of the Income Tax Act (Canada) and applicable provincial legislation and, therefore, qualify for the favourable tax treatment applicable to such dividends.

CONSOLIDATED FINANCIAL RESULTS


	13 Weeks Ended						26 Weeks Ended
($ in millions, except per share amounts)	Nov. 3, 2012		Nov. 5, 2011		($) Change		Nov. 3, 2012		Nov. 5, 2011		($) Change
Sales	$	4,404.1	$	4,036.3	$	367.8	$	8,961.8	$	8,190.5	$	771.3
EBITDA ⁽¹⁾		229.6		210.3		19.3		493.8		444.5		49.3
Operating income ⁽¹⁾		140.9		125.8		15.1		316.0		274.7		41.3
Net earnings, net of minority interest		93.3		78.1		15.2		202.2		167.3		34.9
Adjusted net earnings, net of minority interest ^{(1) (2)}		85.7		74.9		10.8		189.1		160.0		29.1
EPS (fully diluted)	$	1.37	$	1.15	$	0.22	$	2.97	$	2.46	$	0.51
Adjusted EPS (fully diluted) ⁽²⁾	$	1.26	$	1.10	$	0.16	$	2.78	$	2.35	$	0.43

(1)	See Non-GAAP Financial Measures contained in this news release.
(2)	Excludes items which are considered not indicative of underlying business operating performance.

Sales

Consolidated sales for the 13 weeks ended November 3, 2012 were $4.40 billion compared to $4.04 billion in the second quarter last year, an increase of $367.8 million or 9.1 percent. Sobeys contributed sales to Empire of $4.34 billion versus $3.98 billion in the second quarter last year, an increase of $361.3 million or 9.1 percent. Excluding sales of $257.0 million related to the acquisition of 236 retail gas locations and related convenience store operations in the fourth quarter last year, Sobeys' sales contribution to Empire increased by $104.3 million or 2.6 percent.

Investments and other operations' sales in the second quarter were $61.8 million versus $55.3 million in the second quarter last year, an increase of $6.5 million or 11.8 percent.

EBITDA

Consolidated EBITDA in the second quarter was $229.6 million compared to $210.3 million in the second quarter last year, an increase of $19.3 million or 9.2 percent. Adjusting EBITDA for items which are considered not indicative of underlying business operating performance, as presented in the following table, resulted in second quarter adjusted EBITDA of $219.6 million compared to $206.1 million in the second quarter last year, an increase of $13.5 million or 6.6 percent.


		13 Weeks Ended				26 Weeks Ended
($ in millions)		Nov. 3, 2012		Nov. 5, 2011		Nov. 3, 2012		Nov. 5, 2011
EBITDA (consolidated)		$	229.6	$	210.3	$	493.8	$	444.5
Adjustments:
	Sobeys' organizational realignment costs		0.9		4.1		3.8		4.1
	Sobeys Québec distribution network restructuring		(0.5)		0.7		2.6		1.1
	Gain on disposal of assets		(10.4)		(1.7)		(11.8)		(5.1)
	Dilution gains		-		(7.3)		(12.1)		(10.0)
			(10.0)		(4.2)		(17.5)		(9.9)
Adjusted EBITDA		$	219.6	$	206.1	$	476.3	$	434.6

Operating Income

Consolidated operating income in the second quarter was $140.9 million, an increase of $15.1 million or 12.0 percent from the $125.8 million recorded in the second quarter last year. Adjusting operating income for items which are considered not indicative of underlying business operating performance, as presented in the previous table for EBITDA, resulted in quarterly adjusted consolidated operating income of $130.9 million compared to $121.6 million in the second quarter last year, a $9.3 million or 7.6 percent increase.

Adjusted Net Earnings

The table below adjusts reported net earnings, net of minority interest, for items which are considered not indicative of underlying business operating performance. After factoring in the impact of the adjustments noted in the table, Empire recorded adjusted net earnings, net of minority interest, of $85.7 million ($1.26 per share) for the 13 weeks ended November 3, 2012 compared to $74.9 million ($1.10 per share) recorded in the second quarter last year, an increase of $10.8 million or 14.4 percent.


		13 Weeks Ended				26 Weeks Ended
($ in millions, except per share amounts, net of tax)		Nov. 3, 2012		Nov. 5, 2011		Nov. 3, 2012		Nov. 5, 2011
Net earnings, net of minority interest		$	93.3	$	78.1	$	202.2	$	167.3
Adjustments:
	Sobeys' organizational realignment costs		0.7		2.9		2.8		2.9
	Sobeys Québec distribution network restructuring		(0.4)		0.5		1.9		0.8
	Gain on disposal of assets		(7.9)		(1.5)		(9.2)		(4.0)
	Dilution gains		-		(5.1)		(8.6)		(7.0)
			(7.6)		(3.2)		(13.1)		(7.3)
Adjusted net earnings, net of minority interest		$	85.7	$	74.9	$	189.1	$	160.0

Adjusted net earnings, net of minority interest, by segment:
	Food retailing	$	77.4	$	70.1	$	177.0	$	149.0
	Investments and other operations		8.3		4.8		12.1		11.0
Adjusted net earnings, net of minority interest		$	85.7	$	74.9	$	189.1	$	160.0
Adjusted EPS (fully diluted)		$	1.26	$	1.10	$	2.78	$	2.35

Net Earnings

Consolidated net earnings, net of minority interest, in the second quarter equalled $93.3 million ($1.37 per share) compared to $78.1 million ($1.15 per share) in the second quarter last year, a $15.2 million or 19.5 percent increase.

The following table presents Empire's segmented net earnings, net of minority interest, for the 13 and 26 weeks ended November 3, 2012 compared to the 13 and 26 weeks ended November 5, 2011.


	13 Weeks Ended						26 Weeks Ended
($ in millions, net of tax)	Nov. 3, 2012		Nov. 5, 2011		($) Change		Nov. 3, 2012		Nov. 5, 2011		($) Change
Food retailing	$	85.0	$	68.4	$	16.6	$	182.0	$	150.0	$	32.0
Investments and other operations		8.3		9.7		(1.4)		20.2		17.3		2.9
Consolidated	$	93.3	$	78.1	$	15.2	$	202.2	$	167.3	$	34.9

SEGMENTED FINANCIAL RESULTS

The Company operates and reports on two business segments:

	1)	Food Retailing, which consists of wholly-owned Sobeys Inc. ("Sobeys"), and

	2)	Investments and Other Operations, the principal components of which include investments in Crombie REIT (43.0 percent ownership interest; 40.8 percent fully diluted), an approximate 40.0 percent ownership interest in Genstar, as well as wholly-owned ETL Canada Holdings Limited ("Empire Theatres").

FOOD RETAILING

The following table presents the food retailing segment's contribution to Empire's consolidated sales, EBITDA, adjusted EBITDA, operating income, adjusted operating income, net earnings, net of minority interest, and adjusted net earnings, net of minority interest.


	13 Weeks Ended ⁽¹⁾				($)		(%)	26 Weeks Ended ⁽¹⁾				($)		(%)
($ in millions)	Nov. 3, 2012		Nov. 5, 2011		Change		Change	Nov. 3, 2012		Nov. 5, 2011		Change		Change
Sales	$	4,342.3	$	3,981.0	$	361.3	9.1%	$	8,849.4	$	8,084.2	$	765.2	9.5%
EBITDA		212.0		190.4		21.6	11.3%		453.2		407.1		46.1	11.3%
Adjusted EBITDA ⁽²⁾		202.0		193.2		8.8	4.6%		447.1		406.2		40.9	10.1%
Operating income		127.7		109.8		17.9	16.3%		284.0		245.2		38.8	15.8%
Adjusted operating income⁽²⁾		117.7		112.6		5.1	4.5%		277.9		244.3		33.6	13.8%
Net earnings, net of minority interest		85.0		68.4		16.6	24.3%		182.0		150.0		32.0	21.3%
Adjusted net earnings, net of minority interest ⁽²⁾		77.4		70.1		7.3	10.4%		177.0		149.0		28.0	18.8%

(1)	Net of consolidation adjustments which includes a purchase price allocation from the privatization of Sobeys.
(2)	Excludes items which are considered not indicative of underlying business operating performance.

Sales

Empire's food retailing segment contributed sales of $4.34 billion in the second quarter of fiscal 2013 compared to $3.98 billion in the same period last year, an increase of $361.3 million or 9.1 percent. Excluding sales of $257.0 million related to the acquisition of 236 retail gas locations and related convenience store operations in the fourth quarter last year, the food retailing segment realized a sales increase of $104.3 million or 2.6 percent.

During the second quarter, same-store sales increased 1.3 percent.

Gross Profit

Sobeys recorded gross profit of $996.2 million in the second quarter, an increase of $45.7 million over the second quarter last year. Gross margin decreased 91 basis points, from 23.91 percent in the second quarter last year to 23.00 percent in the current quarter, due to lower margins on the fuel business. Excluding the impact of lower margin fuel sales, gross margin was 24.26 percent in the second quarter of fiscal 2013 compared to 24.11 percent in the same quarter last year.

EBITDA

Sobeys contributed EBITDA to Empire in the second quarter of $212.0 million compared to $190.4 million last year, a $21.6 million or 11.3 percent increase. Adjusting for items which are considered not indicative of underlying business operating performance, as presented in the following table, resulted in an adjusted EBITDA contribution from Sobeys to Empire of $202.0 million in the second quarter compared to a $193.2 million contribution in the second quarter last year.


		13 Weeks Ended				26 Weeks Ended
($ in millions)		Nov. 3, 2012		Nov. 5, 2011		Nov. 3, 2012		Nov. 5, 2011
EBITDA (contributed by Sobeys)		$	212.0	$	190.4	$	453.2	$	407.1
Adjustments:
	Sobeys' organizational realignment costs		0.9		4.1		3.8		4.1
	Sobeys Québec distribution network restructuring		(0.5)		0.7		2.6		1.1
	Gain on disposal of assets		(10.4)		(1.7)		(11.8)		(5.7)
	Dilution gains		-		(0.3)		(0.7)		(0.4)
			(10.0)		2.8		(6.1)		(0.9)
Adjusted EBITDA		$	202.0	$	193.2	$	447.1	$	406.2

Operating Income

Sobeys' operating income contribution to Empire in the second quarter was $127.7 million compared to $109.8 million in the same quarter last year, an increase of $17.9 million or 16.3 percent.

Adjusting Sobeys' operating income for items which are considered not indicative of underlying business operating performance, as presented in the previous table for EBITDA, resulted in adjusted operating income contribution of $117.7 million in the second quarter compared to $112.6 million in the second quarter last year.

Net Earnings

During the second quarter of fiscal 2013, Sobeys contributed net earnings, net of minority interest, to Empire of $85.0 million versus $68.4 million in the second quarter last year, an increase of $16.6 million or 24.3 percent. Sobeys contributed adjusted net earnings, net of minority interest, to Empire of $77.4 million versus $70.1 million in the second quarter last year, an increase of $7.3 million or 10.4 percent.

INVESTMENTS AND OTHER OPERATIONS

The table below presents the investments and other operations segment's contribution to Empire's consolidated sales, EBITDA, adjusted EBITDA, operating income, net earnings and adjusted net earnings.


		13 Weeks Ended				($)		26 Weeks Ended				($)
($ in millions)		Nov. 3, 2012		Nov. 5, 2011		Change		Nov. 3, 2012		Nov. 5, 2011		Change
Sales		$	61.8	$	55.3	$	6.5	$	112.4	$	106.3	$	6.1
EBITDA			17.6		19.9		(2.3)		40.6		37.4		3.2
Adjusted EBITDA ⁽¹⁾			17.6		12.9		4.7		29.2		28.4		0.8
Operating income
	Crombie REIT ⁽²⁾		4.2		4.8		(0.6)		9.7		9.6		0.1
	Real estate partnerships ⁽³⁾		4.6		2.9		1.7		9.2		10.4		(1.2)
	Other operations, net of corporate expenses ⁽⁴⁾		4.4		8.3		(3.9)		13.1		9.5		3.6
			13.2		16.0		(2.8)		32.0		29.5		2.5
Net earnings			8.3		9.7		(1.4)		20.2		17.3		2.9
Adjusted net earnings ⁽¹⁾			8.3		4.8		3.5		12.1		11.0		1.1

(1)	Excludes items which are considered not indicative of underlying business operating performance.
(2)	43.0 percent equity accounted interest in Crombie REIT (November 5, 2011 - 44.6 percent interest).
(3)	40.7 percent equity accounted interest in Genstar Development Partnership, 45.9 percent equity accounted interest in Genstar Development Partnership II, 42.1 percent equity accounted interests in each of GDC Investments 4, L.P., GDC Investments 5, L.P. and GDC Investments 6, L.P., and a 45.8 percent equity accounted interest in GDC Investments 7, L.P. (collectively referred to as "Genstar").
(4)	Other operations' (net of corporate expenses) operating income for the 13 weeks ended November 3, 2012 includes a pre-tax gain of $3.8 million associated with the conversion of Crombie REIT Series B convertible unsecured subordinated debentures. Other operations' (net of corporate expenses) operating income for the 13 weeks ended November 5, 2011 includes dilution gains of $7.0 million.

Sales

Investments and other operations' sales were $61.8 million in the second quarter ended November 3, 2012 versus $55.3 million in the second quarter last year, a $6.5 million or 11.8 percent increase. The increase was primarily driven by higher sales at wholly-owned Empire Theatres.

EBITDA

Investments and other operations contributed EBITDA to Empire in the second quarter of $17.6 million compared to $19.9 million last year. Adjusting for items which are considered not indicative of underlying business operating performance, as presented in the following table, resulted in adjusted EBITDA from investments and other operations of $17.6 million compared to $12.9 million last year.


		13 Weeks Ended				26 Weeks Ended
($ in millions)		Nov. 3, 2012		Nov. 5, 2011		Nov. 3, 2012		Nov. 5, 2011
EBITDA (investments and other operations)		$	17.6	$	19.9	$	40.6	$	37.4
Adjustments:
	Dilution gains		-		(7.0)		(11.4)		(9.6)
	Loss on disposal of assets		-		-		-		0.6
			-		(7.0)		(11.4)		(9.0)
Adjusted EBITDA		$	17.6	$	12.9	$	29.2	$	28.4

Operating Income

Investments and other operations contributed operating income of $13.2 million in the second quarter ended November 3, 2012 compared to $16.0 million in the second quarter last year.

Adjusting investments and other operations' operating income for items which are considered not indicative of underlying business operating performance, as presented in the previous table for EBITDA, resulted in an adjusted operating income contribution during the second quarter of $13.2 million versus $9.0 million last year.

Net Earnings

Investments and other operations contributed $8.3 million to Empire's consolidated second quarter fiscal 2013 net earnings compared to a $9.7 million contribution in the second quarter last year. Adjusted net earnings contribution from investments and other operations was $8.3 million versus $4.8 million in the second quarter last year.

FORWARD-LOOKING INFORMATION

This news release contains forward-looking information that reflects management's current expectations related to matters such as future financial performance and operating results of the Company. Expressions such as "anticipates", "expects", "believes", "estimates", "could", "intend", "may", "plans", "will", "would" and other similar expressions or the negative of these terms are generally indicative of forward-looking statements. Forward-looking statements contained in this press release include those relating to our expectations that we will improve our cost structure and productivity which may be impacted by economic and competitive conditions.

By its very nature, forward-looking information requires the Company to make assumptions and is subject to inherent risks and uncertainties which give rise to the possibility that the Company's expectations or objectives will not prove to be accurate. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and risks are discussed in the Company's materials filed with the Canadian securities regulatory authorities from time to time, including the Risk Management section of the annual Management's Discussion and Analysis.

Readers are urged to consider these and other risks, uncertainties and assumptions carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such forward-looking information. The forward-looking information in this press release reflects the Company's expectations as at December 13, 2012 and is subject to change after this date. The Company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the Company other than as required by applicable securities laws.

NON-GAAP FINANCIAL MEASURES

There are measures included in this press release that do not have a standardized meaning under GAAP and therefore may not be comparable to similarly titled measures presented by other publicly traded companies. The Company includes these measures because it believes certain investors use these measures as a means of assessing financial performance.

Empire's definition of the non-GAAP terms are as follows:

Same-store sales are sales from stores in the same locations in both reporting periods.
Gross profit is calculated as sales less cost of sales.
Gross margin is gross profit divided by sales.
Operating income, or earnings before interest and taxes ("EBIT"), is calculated as net earnings before minority interest, finance costs (net of finance income) and income taxes.
Adjusted operating income is operating income excluding items which are considered not indicative of underlying business operating performance.
Earnings before interest, taxes, depreciation and amortization ("EBITDA") is calculated as operating income plus depreciation and amortization of intangibles.
Adjusted EBITDA is EBITDA excluding items which are considered not indicative of underlying business operating performance.
Funded debt is all interest bearing debt, which includes bank loans, bankers' acceptances and long-term debt.
Total capital is calculated as funded debt plus shareholders' equity, net of minority interest.
Adjusted net earnings is net earnings excluding items which are considered not indicative of underlying business operating performance.

CONFERENCE CALL INFORMATION

The Company will hold an analyst call on Thursday, December 13, 2012 beginning at 2:30 p.m. (Eastern Standard Time) during which senior management will discuss the Company's financial results for the second quarter ended November 3, 2012. To join this conference call, dial (888) 231-8191 outside the Toronto area or (647) 427-7450 from within the Toronto area. You may also listen to a live audiocast of the conference call by visiting the Company's website located at www.empireco.ca. Replay will be available by dialing (855) 859-2056 and entering passcode 74789066 until midnight December 20, 2012, or on the Company's website for 90 days following the conference call.

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

To view and download the Company's unaudited consolidated financial statements for the second quarter of fiscal 2013 ended November 3, 2012, please access the following link:

Q2 Fiscal 2013 Unaudited Consolidated Financial Statements

This information will be available for download at www.sedar.com or by accessing the Investor Centre of the Company's website at www.empireco.ca.

ABOUT EMPIRE

Empire Company Limited (TSX: EMP.A) is a Canadian company headquartered in Stellarton, Nova Scotia. Empire's core businesses include food retailing and related real estate. With over $16 billion in annual sales and approximately $6.9 billion in assets, Empire and its subsidiaries directly employ approximately 47,000 people.

Additional financial information relating to Empire, including the Company's Annual Information Form, can be found on the Company's website at www.empireco.ca or at www.sedar.com.

PDF available at: http://stream1.newswire.ca/media/2012/12/13/20121213_C7029_DOC_EN_21906.pdf

SOURCE: EMPIRE COMPANY LIMITED