Empire Company Limited's Q4 2025 Results Highlight Strategic Resilience Amid Retail Evolution

Empire Company Limited (TSX: EMP.A) has delivered another quarter of steady financial progress, underscored by its 30th consecutive year of dividend growth and a renewed focus on strategic initiatives aimed at sustaining shareholder value. The Q4 results, announced on June 19, 2025, reveal a company navigating retail sector challenges—such as shifting consumer preferences and cost pressures—by doubling down on store upgrades, digital integration, and disciplined capital allocation.

Financial Momentum and Dividend Discipline

Empire's Q4 EPS rose to $0.74, up 14.8% year-over-year, while full-year adjusted EPS grew 8.8% to $2.98. Total sales hit $7.6 billion in the quarter, a 3% year-over-year increase, with same-store sales excluding fuel up 3.8%. These figures reflect resilience in a competitive landscape, particularly as fuel sales dipped due to lower prices and asset divestitures.

The dividend hike—10% to $0.22 per share—reinforces management's commitment to shareholder returns. With a track record of three decades of uninterrupted dividend growth, Empire's financial discipline stands out in an era of economic uncertainty.

Strategic Leverage: Stores, Digital, and Cost Control

Empire's strategic initiatives are designed to future-proof its business:

1. Store Network Renovations:
   The company is accelerating renovations of 20-25% of its stores through fiscal 2026, prioritizing sustainability and operational efficiency. This includes modernizing layouts, upgrading refrigeration systems, and improving category adjacencies to enhance the in-store experience.
   

The focus here is twofold: attract customers with a refreshed environment and reduce long-term operational costs through energy-efficient infrastructure.

1. Digital Expansion:
   Empire is deepening its e-commerce partnerships. By mid-2025, it expanded Instacart and Uber Eats services to Quebec and Atlantic Canada, broadening its delivery reach. However, the pause on its fourth Customer Fulfilment Centre (CFC) in Vancouver signals a pragmatic approach to scaling—focusing on optimizing existing assets rather than overcommitting to capital projects.

Importantly, ending its exclusivity agreement with Ocado saved costs, despite a one-time $12 million charge. This flexibility could position Empire to pivot more quickly to alternative logistics solutions as demand evolves.

1. Cost Efficiency and Capital Allocation:
   Empire's $850 million capex budget for fiscal 2026 allocates heavily to store upgrades and IT systems, while its renewed $400 million share buyback program underscores confidence in undervalued equity. Free cash flow remained stable at $728 million, despite higher lease payments, suggesting management can balance growth and liquidity.

Risks and Considerations

• Fuel Sales Decline: Lower fuel prices and the sale of Western Canada fuel sites have pressured this segment, contributing to annual fuel sales declines of 6.4%. While this is a known headwind, Empire's focus on core retail and e-commerce should mitigate its impact.
• Debt Levels: Funded debt-to-EBITDA of 3.1x remains within targets, but further capex investments could strain leverage if sales growth slows.
• Regulatory Factors: A 2.0% tax on share repurchases introduced in 2024 added $11 million to retained earnings charges in 2025. Such policy shifts could complicate future capital allocation decisions.

Investment Takeaways

Empire Company Limited's results and strategy present a compelling case for long-term investors:
- Dividend Safety: The 30-year dividend growth streak, supported by stable free cash flow, makes it a reliable income play.
- Structural Reinvestment: Store upgrades and digital partnerships address evolving consumer behavior, positioning Empire to capture market share in both physical and online retail.
- Valuation: At current multiples, Empire's stock appears fairly priced, but execution of its initiatives could drive upside.

The pause on the Vancouver CFC highlights management's caution in capital allocation—a prudent move given macroeconomic uncertainties. However, the flexibility to reignite that project if demand spikes suggests agility.

For now, Empire's blend of defensive income, strategic reinvestment, and manageable risks makes it a solid core holding for investors seeking stability in the retail sector.

In conclusion, Empire's Q4 results affirm its ability to balance growth and profitability. While challenges remain, the company's disciplined execution of its strategic roadmap positions it to sustain value creation for years to come.