Empire Company: A Strategic Bet on Grocery Resilience in a Volatile Market

Empire Company Limited (TSX: EMP.A) has positioned itself as a standout player in Canada's grocery sector, leveraging strategic investments and operational discipline to navigate inflationary pressures and shifting consumer behaviors. With same-store sales growth rebounding to 1.8% in Q2 2025 and a valuation multiple that remains balanced against its earnings trajectory, the company presents a compelling opportunity for investors seeking stability in an uncertain economic environment.

The Growth Engine: Same-Store Sales and Strategic Leverage

Empire's Q2 2025 same-store sales growth of 1.8% (excluding fuel) marks a notable improvement from the 1.0% growth in the prior quarter. This acceleration is driven by three key pillars:
1. Fresh Food Dominance: Strong performance in fresh produce and deli sections, where basket size and unit sales per transaction increased.
2. E-Commerce Momentum: Voilà's 12% sales growth highlights the success of digital grocery solutions, now integrated with Instacart and Uber Eats.
3. Store Renovations: A 20–25% store network renovation plan through 2026 is enhancing customer experience, with a focus on energy-efficient systems that reduce long-term operational costs.

This data underscores Empire's ability to capture market share through a hybrid physical-digital strategy, even as competitors grapple with e-commerce saturation and margin compression.

Valuation: A Multiple That Rewards Disciplined Growth

Empire's valuation multiples paint a picture of a company balancing growth with financial prudence. As of Q2 2025:
- EV/EBITDA Ratio: At 10.34x, this is slightly elevated but aligns with its peer group, reflecting confidence in long-term cash flow.
- Debt-to-Adjusted EBITDA: Steady at 3.2x, signaling manageable leverage. Interest coverage (8.2x) remains robust, supporting its BBB credit ratings.
- Adjusted EBITDA Margin Expansion: Up to 7.7% (from 7.4% in 2024), driven by cost controls in e-commerce and supply chain efficiency.

While the multiple is not undervalued, it reflects Empire's proven ability to generate free cash flow ($75.9M in Q2 2025 vs. -$61.9M in 2024) and execute capital-light initiatives like store renovations.

Inflation and Consumer Behavior: Navigating Challenges with Precision

Inflation remains a headwind, but Empire's strategies are mitigating risks:
1. Price Sensitivity Management: Discount banners like FreshCo and Farm Boy cater to budget-conscious shoppers, while full-service stores (e.g., Sobeys) focus on premium, high-margin items.
2. Loyalty Programs: Scene+ membership has hit 15 million, driving repeat purchases and data-driven marketing.
3. Cost Discipline: Halting a $25M Voilà fulfillment center (pending market penetration) shows restraint in capital allocation, prioritizing returns over scale for scale's sake.

The company's focus on “unit growth” over “basket size” also reflects a shift in consumer behavior toward value shopping, which aligns with its multi-tier store model.

Risks and Mitigants

• Economic Uncertainty: A recession could slow sales growth, but Empire's defensive grocery business and discount segment exposure provide resilience.
• E-Commerce Dilution: Canadian online grocery growth is slower than expected, but Voilà's 12% growth and partnerships mitigate this risk.
• Tax Headwinds: The 2% equity repurchase tax reduced free cash flow flexibility, but the $400M NCIB remains intact, signaling management's confidence.

Conclusion: A Buy for the Long-Term

Empire Company is not a high-risk, high-reward bet—it's a strategic play for investors seeking stability in a volatile market. With a 1.8% same-store sales rebound, disciplined capital allocation, and a valuation multiple that rewards operational execution, Empire offers a rare blend of growth and defensive qualities.

As inflation subsides and consumer habits stabilize, Empire's investments in digital infrastructure, store modernization, and ESG initiatives (e.g., 27% emissions reduction) will further solidify its leadership. For investors with a 3–5 year horizon, this is a stock to accumulate now—before the market fully recognizes its resilience.

Action Item: Consider initiating a position in Empire Company, with a focus on its balance between growth and financial discipline. Monitor Q3 results for further margin expansion and same-store sales trends.