Empire reports $125.7M net earnings as it rebounds from Sobeys cyberattack

A Sobeys grocery store is seen in Halifax on Sept. 11, 2014. THE CANADIAN PRESS/Andrew Vaughan

Empire Company Ltd. said its net earnings hit $125.7 million in its latest quarter as its Sobeys supermarket chain rebounded from a November cyberattack.

The results reported Thursday for the grocery store operator's third quarter compared with $203.4 million in net earnings during the same period the year before.

Its earnings for the period ended Feb. 4 amounted to 49 cents per share, down from 77 cents per share in the third quarter of the prior fiscal year, when Empire said it incurred "unusually large" lease termination income and higher property sales from Crombie Real Estate Investment Trust.

Its adjusted net earnings totalled $164.8 million, down from $203.4 million a year earlier.

Sales, which were driven by the expansion of FreshCo in Western Canada, higher food inflation and increased fuel sales, reached $7.49 billion compared with $7.38 billion in the prior quarter.

Empire's earnings report came as the Stellarton, N.S.-based company recovers from a cyberattack that shut down its pharmacy services and hampered self-checkout machines, gift card use and the redemption of loyalty points resulted.

Empire said Thursday that the attack resulted in a $15 million hit to its net earnings and a six cent reduction to its earnings per share.

The incident that left Sobeys customers unable to fill prescriptions for four days and many of the grocer's systems had to be shut down for several weeks.

Empire said the attack temporarily reduced sales and hindered the effectiveness of its operations, especially when rolling out promotions and using management tools.

It estimates the final effect of the cyberattack on its net earnings over fiscal 2023 and 2024 will be about $32 million net of estimated insurance recoveries.

Last quarter, Empire said the cybersecurity incident was expected to cost $25 million in net earnings after insurance recoveries, but the company declined to share the total cost of the disruption.

The company is still in the process of working with its insurance providers to make claims under its policies.

However, it warned there will be a time lag between the initial incurrence of costs and the recognition of insurance proceeds because of the "complexity" of cyber insurance coverage.

The quarter also saw Empire come under attack for the cost of the groceries it sells, which have been pushed in price as grocery inflation hit 11.4 per cent in January compared with overall inflation of 5.9 per cent.

The chief executives of Empire, Loblaw Companies Ltd. and Metro Inc. were called to appear in March before a parliamentary committee studying inflated grocery prices.

All three major grocers reported higher profits in the first half of 2022 compared to their average performance over the past five years, according to a recent report by the Agri-Food Analytics Lab at Dalhousie University.

At the committee hearing, the grocery executives argued food price inflation is not caused by profit-mongering and that their margins on food-related profits have remained low.

"It doesn't matter how many times you say it, write it or tweet it. It simply is not true," said Michael Medline, Empire's president and chief executive.

"The truth is we are at the end of a very long food supply chain that has economic inputs at every step and stage."

"As this stubbornly high inflationary environment persists, and despite the challenges we faced due to the cybersecurity event, we delivered solid results, highlighting how much stronger we have become over the last six years," said Medline in the earnings news release.

"We look forward to inflation abating, which benefits Empire and all Canadians."

His statement came as the grocer said Longo's e-commerce business, Grocery Gateway, will be integrated into its Voila e-commerce offering. Grocery Gateway customers will transition to Voila over a six-week period, starting in July 2023.

Scene+, its loyalty program run in conjunction with Scotiabank and Cineplex Inc., will be launched in Quebec and Thrifty Foods on March 23.

The company also shared that it expects to open 22 more Farm Boy stores in the next five years with most set to be located in the Greater Toronto Area. Empire already operates 26 Farm Boy supermarkets.

This report by The Canadian Press was first published March 16, 2023.