CA - Empire Company Limited (EMLAF) Q4 2023 Earnings Call Transcript
2023-06-22 15:06:03 ET
Empire Company Limited (EMLAF)
Q4 2023 Earnings Call Transcript
June 22, 2023 11:30 AM ET
Company Participants
Katie Brine - Vice President of Investor Relations
Michael Medline - President, Chief Executive Officer
Matthew Reindel - Chief Financial Officer
Pierre St-Laurent - Chief Operating Officer
Doug Nathanson - Chief Development Officer and General Counsel
Conference Call Participants
George Doumet - Scotiabank
Tamy Chen - BMO Capital Markets
Chris Li - Desjardins
Mark Petrie - CIBC
Vishal Shreedhar - National Bank
Michael Van Aelst - TD Securities
Irene Nattel - RBC Capital Markets
Presentation
Operator
Good morning, ladies and gentlemen, and welcome to the Empire Fourth Quarter 2023 Conference Call. At this time, note that all participant lines are in listen-only mode. Following the presentation we will conduct a question-and-answer session. [Operator Instructions] Also note that the call is being recorded today, Thursday, June 22, 2023.
And I would like to turn the conference over to Katie Brine, Vice President, Treasury, Investor Relations. Please go ahead.
Katie Brine
Thank you, Sylvie. Good afternoon and thank you all for joining us for our fourth quarter conference call. Today, we will provide summary comments on our results and then open the line for questions. This call is being recorded, and the audio recording will be available on the company's website at empireco.ca. There is a short summary document outlining the points of our quarter available on our website.
Joining me on the call this afternoon are Michael Medline, President and Chief Executive Officer; Matt Reindel, Chief Financial Officer; Pierre St-Laurent, Chief Operating Officer; and Doug Nathanson, Chief Development Officer and General Counsel.
Today's discussion includes forward-looking statements. We caution that such statements are based on management's assumptions and beliefs and are subject to uncertainties and other factors that could cause actual results to differ materially. I refer you to our news release and MD&A for more information on these assumptions and factors.
I will now turn the call over to Michael Medline.
Michael Medline
Thanks, Katie. Good afternoon, everyone. The end of fiscal 2023 marked an important day for Empire Company, the end of our three-year Project Horizon transformation. After 6.5 years we are very pleased to announce that our turnaround is now complete. Through Project Sunrise and Horizon, we have delivered over $1 billion in EBITDA improvement since the end of fiscal 2017. We now have the tools, capabilities, team, and assets needed to compete and win. We will now transition to our next chapter and focus on consistent and sustained execution and results. I'm going to focus on four topics today: the completion of Horizon; our go-forward strategy, our Q4 results; and some key market trends.
First, Horizon. We delivered on Project Horizon, we deepened our analytical capabilities and built a promotional optimization tool, enhanced our Own Brands portfolio, strengthened our stores through renovations and the expansion of FreshCo in the West and Farm Boy and Longo's in Ontario, and launched our new Scene+ loyalty program nationally. On top of that, we launched our Voila e-commerce business, starting with our CFCs in Toronto and Montreal to give customers more choice on where, when, and how they shop and we did this all while facing a global pandemic, strong inflationary headwinds and the most challenging and market environment we've seen in decades. These efforts resulted in $500 million in annualized incremental EBITDA added to the company, translating to an EPS CAGR of approximately 13%, and approximately 60 basis points of EBITDA margin growth.
As you know, this was the second three-year transformation we've completed. Over the last six years, we've shared all of the details of our many strategic initiatives with you and delivered each of them on time and on target or in many cases, better than target. We told you what we are going to do and we've done it. The turnaround is complete and we now have everything in place to succeed win and grow market share. Since the start of Project Sunrise in fiscal 2018, we have improved almost 50% of our network through renovations and new stores and we generated a compound annual growth rate of 26% in adjusted EPS, leading the industry. I said it after sunrise and I'm pleased to say it again today, there are very few Canadian retailers that have executed the transformation of this magnitude, with this level of success. And I want to thank from the bottom of my heart every single Empire teammate, who is part of this journey for their herculean efforts.
As for what's to come, we will not be publishing details of our next three-year strategy going forward, as we are now through the transformation. Going forward, we aim to deliver on a financial framework that grows our adjusted EPS at an average annual rate of 8% to 11% over the long term through operating earnings growth and share repurchases. We may exceed or miss these goals in any given year, but that is our goal. To achieve this growth, we will focus on priorities such as, an even greater emphasis on our store network, including our supply chain and enhanced focus on digital capabilities and data, and a continued drive for efficiency and cost control. We will do this by continuing to advance our key initiatives including Scene+, store renovations, own brands, space productivity, and others, while also beginning new strategic programs that support our stores and enhanced customer experience.
From a capital allocation perspective, the business now generates a healthy amount of cash and we will continue to invest your capital wisely. During our transformation period, we needed to increase our capital investments to develop new tools, capabilities, and assets. Now starting in fiscal 2024, capital discipline will be more crucial than ever and we estimate we'll invest $775 million this fiscal year. It's intentionally lower than what we planned to spend last year, but at the right level now, that we're out of the turnaround, and Matt will give you more details on this shortly. We're announcing a 10.6% increase in Empire's quarterly dividend per share, which brings our five-year dividend CAGR to 10% and represents an increase in our dividends for the 28th year in a row. We also announced that we renewed our NCIB to repurchase up to 12.6 million shares, representing 9% of our public float. We plan to repurchase approximately $400 million of shares in fiscal 2024, an increase from the $350 million we bought back last year.
Now, onto our results. We're pleased with our Q4 performance. Overall, we delivered an adjusted EPS of $0.72 this quarter, this translates to 18% EPS growth year-over-year when excluding the extra 53rd week last year. This was supported by solid sales growth with same-store sales of 2.6% and total sales growth of 2.7%, excluding fuel and the extra week in Q4 last year.
Our full-service business in particular showed a noticeable upswing in same-store sales growth versus prior quarters with higher unit counts and increased traffic in stores. FreshCo continued to deliver very healthy sales growth with double-digit same-store sales. Our gross margin excluding fuel grew 60 basis points, this was primarily due to Horizon initiatives that have provided continuous margin, great growth including -- consistent growth of our own brands portfolio. We launched another 100 private label SKUs this quarter for a total of over 1,000 new SKUs introduced since the start of Horizon. We continue to drive product innovation and value-focused offerings through this assortment. We made significant progress against our strategic priorities this quarter. In late March, our banners in Quebec & Thrifty Foods in BC joined Scene+, marking the final phase of our national rollout. We are off to a very strong start with sales penetration above target in both Quebec & Thrifty Foods.
Overall, this program continues to exceed expectations across regions and Scene+ now has over 13 million members, over 3 million new members have joined the program since launching last August. We also continued to prepare for the integration of Grocery Gateway into Voila in Q1, which will go live officially in July. We are looking forward to providing Grocery Gateway and Voila customers access to each other's assortment by offering Longo's as a significant shop-in-shop on the Voila platform. We also had our first customer deliveries from CFC3 in Calgary, earlier this week, and are thrilled to be bringing our world-class e-commerce grocery business to the great Alberta market.
Moving to market trends, while food inflation remains high, we are pleased to see that it is beginning to moderate. Although we continue to navigate through supply cost increases that are higher than pre-pandemic levels, it appears we reached the peak in our Q3 as supplier requests moderated this quarter in both magnitude and volume. We expect supplier cost increase request will continue to moderate over the coming quarters. This is supported by most ingredient commodities coming off their highs, such as wheat, flour, and various cooking oils.
For several quarters, we have said that as inflation abates, Empire will be well positioned, and in Q4 we began to see early indications of this reflected in our sales performance and in our tonnage. We are also continuing to see traffic in our stores improve, with higher transaction counts in Q4, across all regions. Although basket sizes are still lower than last year, we are seeing this trend improve. Our category managers continue to work in collaboration with our supplier partners. And to leverage the promotional optimization tool we built to provide value to customers, and we are seeing higher promotional penetration than last year as customers stretch their dollars.
Our team continues to focus on providing value to customers, including by growing our value size product offering, deploying Scene+ member days across English Canada, and launching our new serving up value program to offer budget-friendly recipes to customers using our compliments products. Although we faced some of our greatest challenges in fiscal 2023, I'm extremely proud of this team for continuing to deliver results and scrupulously execute against our strategy in the face of significant external headwinds. Six years ago I'm not sure our business could have withstood shocks of this magnitude. But our annual results and Q4 in particular highlight the underlying strength of our business today. And I truly believe the best is yet to come.
And with that over to Matt.
Matthew Reindel
Thank you, Michael. Good afternoon, everyone. We are very happy with our Q4 performance, delivering an adjusted EPS of $0.72, which was $0.04 higher than last year's $0.68 or $0.11 higher than last year, if you exclude the impact of the 53rd week last year. Our results are also slightly better than what we communicated at the end of Q3, and very consistent with our expectations with the business beginning to benefit from a gradual improvement in momentum as inflation begins to abate.
Moving to the top line, we delivered solid same-store sales of 2.6%, which is a notable improvement versus our flat performance in Q3. As expected with the Cybersecurity Event behind us and with inflation starting to abate, we started to see same-store sales momentum return. In e-commerce, after excluding the 53rd week of operations last year, total sales from our four platforms were 13.5% lower than last year. This was primarily due to Omicron last year, which had a large effect on our legacy non-Voila businesses.
Sequentially, our Q4 e-commerce sales were flat versus Q3. For Voila specifically, again excluding the impact of the 53rd week last year, our sales were 7% lower, mainly due to Omicron last year, but most importantly, Voila continued to grow market share. Our gross margin rate excluding fuel grew by 60 basis points versus last year. This progress is consistent with numerous prior quarters now with benefits being generated from our Project Horizon initiative, such as promotional optimization and sourcing efficiencies. We are also starting to benefit from lower supply chain costs versus last year, mainly in transportation. It's also worth noting that last year's gross margin was adversely affected by the [tab] (ph) on strike, which had a 19 basis points impact last year.
Our SG&A rate was 89 basis points higher than last year when you exclude the impact of the 53rd week last year. Consistent with prior quarters, this was mainly due to planned investments in Horizon initiatives, although partly offset by lower incentive accruals. Other income in Q4 was $14 million higher than last year due to capital gains on a planned sale of a proxy, partly offset by the gain on a lease surrender that we recorded last year. For the year, benefits from other income and real estate income were very much in line with our plans and are consistent source of income for the company.
Our EBITDA margin increased by 60 basis points, which is the net impact of all of these various puts and takes. Our effective income tax rate was 25.3% in Q4. For fiscal 2024, excluding effects of any unusual transactions or differential tax rates on property sales, we're estimating that our effective income tax rate will be between 25% and 27%.
Now let me talk briefly about the end of Horizon and our financial framework moving forward. We are very pleased with our performances in Horizon. It's a testament to all of our teammates across the country, that despite navigating through a pandemic, extremely high inflation, and a Cybersecurity Event that we successfully delivered Horizon. More details can be found in our MD&A, but most importantly, Empire is now in a strong position to deliver consistent sustainable growth for its stakeholders.
With our turnaround now complete, the company will be focused on executional excellence and delivering consistent results. Over the long term, we aim to deliver average annual adjusted EPS growth of 8% to 11% from both net earnings growth and share buybacks. In our core food retailing business, we intend to continue improving our sales, gross margin, excluding fuel, and adjusted EBITDA margin. We expect income from our real estate and other investments to be relatively consistent on an annualized basis.
There are several priorities which will enable us to achieve these expectations. Firstly, a strong focus on our stores, including the continuation of our store renovation program, new stores, and enhancing our Own Brands program. Near-term initiatives for Own Brands include rolling out a set of SKUs under the [indiscernible] brand, enhancing our value size assortment and introducing new SKUs that align with our organic and green initiatives. Secondly, we will enhance our focus on digital and data, including our expansion plans for Voila, our loyalty program through Scene+, improving space productivity, and focusing on personalization. Thirdly, we will focus on driving efficiency and cost-effectiveness through initiatives tied to strategic sourcing and supply chain productivity.
Now on to capital allocation, our capital allocation strategy is supported by a solid balance sheet and the continued momentum in our business. We announced earlier today, a 10.6% increase in our dividend, on share buybacks we completed our 2023 NCIB program last week, repurchasing 10.5 million shares since July of last year. Today, we announced that we have renewed our NCIB program to purchase up to 12.6 million shares. Our NCIB intention of $400 million in fiscal 2024 is higher than last year, reflecting our increased confidence in our underlying business, as well as capitalizing on our low valuation.
This year, we invested $797 million in capital, just shy of our estimate of $800 million. Capital discipline is paramount to Michael and I. We expect to invest approximately $775 million in fiscal 2024. As in prior years, we expect about half of this capital to be allocated to renovations and new stores. Over the next three years, we plan to renovate approximately 20% to 25% of the network and about 50% of the capital will be allocated to sustainability initiatives, such as refrigeration system upgrades, HVAC system upgrades, and other efficiency initiatives.
Before I turn the call back to Katie for your questions, let me update you on our adjusted metrics. So reported earnings per share and adjusted earnings per share were both $0.72, which was due to two adjustment items that offset each other. We had a net recovery from our cyber event, primarily due to insurance recoveries, which was offset by the one-time costs associated with the integration of Grocery Gateway into Voila.
And with that, I'll hand the call back to Katie and open the call for your questions.
Katie Brine
Thank you, Matt. Sylvie, you may open the line for a question-and-answer session.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And your first question will be from George Doumet at Scotiabank. Please go ahead.
George Doumet
Good morning, Michael and Matt, and congrats on the conclusion of Horizon. I just wanted to ask a little bit on the intra-trend, the quarters -- for the quarter on same-store sales, maybe how that looks like? And we're well into Q1, if you could maybe talk to that and how the conventional banners are performing?
Matthew Reindel
Hi, George. Yes, thanks for the message on the quarter. Yes, I mean, we don't give information about the forward-looking quarters. But what I would say is, the momentum that we've built in Q4 has continued into Q1. Now, I kind of need to describe that a little bit, because as we've been saying for quite some time now, our expectation is that, once inflation starts to abate that this will gradually move the tied in our favor. But the keyword there is, gradually, this won't happen overnight. So what we're expecting over fiscal 2024 is a gradual and consistent movement of the tide in our favor, and that will give us that momentum throughout the year. So I realize it doesn't specifically answer your question because I'm sure you after a number, but suffice it to say, that our momentum is gradually improving.
George Doumet
That's really helpful. Thanks. And Michael, can you talk about which areas of the business are seeing the highest engagement? I guess, redemption activity from Scene+ or just generally highest engagement and is it more discount, is it more conventional? And once we get the personalization where you'd like it to be? Can you maybe share what you expect to ultimately contribute may be the same-store sales or margins, I guess, longer term?
Michael Medline
We're seeing Scene+ plus positively impact every banner, every region where it’s at. I'd say that, because FreshCo did not have a loyalty program prior to Scene+ that obviously it has even bigger impact for FreshCo and it may even have on full serve. But we're seeing very good results across full serve community, Quebec, everywhere. Quebec is more -- Quebec is, obviously, most recent addition. And I think that the customers there have embraced it and we even got better at implementing it, because we had already gone through three other regions.
We haven't disclosed publicly, what we think -- what it will result in, but I can tell you, that we expect it to drive sales. And deliver value to customers and make it a much more sticky relationship and fruitful relationship between us and our customers. And what's great is -- our all these new customers that are being exposed to us through the Scene+ program, already in these less than 10 months. And remember that was all staged. We've grown over 3 million new Scene+ members, mostly because of the new grocery addition. And now with Home Hardware joining, and they started, but they're going to be in full force in the next month or two. That is going to be very exciting from a customer point of view, some great Canadian brands put together. So I got to tell you there's nothing but good coming out of this right now.
George Doumet
I appreciate that. Thanks. Just one last one if I may for Matt. On that 8% to 11% EPS longer term, there is a line of sight there three years. And maybe I guess more near-term, how should we think about EPS growth for fiscal 2024? Maybe put in another way, is there anything getting in the way of us maybe not being able to do 8% to 11% this year, assuming obviously that inflation continues to moderate?
Matthew Reindel
So the reason that we say long-term is because that's exactly what it is. This is our long-term ambition and goal. And frankly, I think, after the six-year turnaround where we gave, very, very specific metrics for a long period of time. And with the success of that turnaround, I think we've earned that privilege. So I think, we're now at a point where we can give this long-term guidance. So, no, we're not saying it's three to five and we're not talking anything specifically about F24. I'm sure you can draw your own conclusions with our momentum as we go into next year, but we're not going to give a specific number for 2024.
George Doumet
All right. Appreciate all the color. Thank you.
Operator
Thank you. And your next question will be from Tamy Chen at BMO Capital Markets. Please go ahead.
Tamy Chen
Hi. Good morning. Thanks for the question. First is, I wanted to start-off a bit higher level. So I think we all appreciate the -- you have that as inflation, gradually decelerates your mix of banners, should disproportionately benefit. I wanted to hear how you think about the gross margin or even just gross profit dollars in a decelerating inflation environment, because so far with this elevated inflationary environment your Own Brands have grown over national brands. And so, I'm just wondering as we come out of that, what are you expecting on gross margins?
And the other question I have is, how should we think about wage inflation going forward? Because I do think unlike some of the other retailers, this has been more of a lagging impact for you guys given much of your workforces unionized.
Matthew Reindel
Okay. So maybe I'll start. Tamy, it's a great question, and then I'll pass you on to Pierre to give a little bit more detail. Just in terms of how we look at gross margin going forward, as we've kind of said, the -- our Horizon initiatives have improved gross margins. So anything promotional optimization, own brands our renovation programs, they will continue moving forward. So, we're expecting to get incremental benefits from that moving forward.
And then in addition, we're also expecting a mix benefit. As you think about, as we exit this inflationary period our full-service banners will be stronger, our full-service banners are margin accretive. So we should get a mix benefit too. So yes, we are expecting gross margins to continue to improve. But to answer your specific question on Own Brands and others, I'll pass it to Pierre.
Pierre St-Laurent
So [indiscernible] the impact on our gross margin will be positive. We're having a better margin rate on Own Brand and national brand on average. And we delivering more also [indiscernible] profit in Own Brand -- with Own Brands and national brands. So, and the growth in Own Brand right now is higher than national brand growth, by significantly. So it's accretive to our gross margin rate and gross margin dollars right now. So that's for gross margin and Own Brand.
On labor side, as you all know, we saw minimum wages increase, almost in every province over the last year. But again we're working on different initiative to generate efficiencies as soluble, without compromising the service to our customers. So we have roadmap in place to mitigate those increase the best we can. And we're not seeing a major impact on our results, based on those increases on wages.
Tamy Chen
Got it. Okay. Thank you. And my second question is -- e-commerce segments. I think last quarter was up 9% and this quarter was down 13%. And there's a lot of noise, of course, because this quarter you were lapping Omicron a year ago. So I wanted to ask for Voila specifically, can you talk a little bit more about how that's been performing versus your expectations right now versus what you need to get closer to profitability in Ontario and Quebec? Thanks.
Matthew Reindel
Yes. Sure. Another good question. So, yes, it's a little bit convoluted. You're absolutely right because we're lapping against Omicron. And we're also sequentially comparing versus Q3, which includes the winter, which is obviously a peak seasonal time. But let me give you specifically the numbers, I'll start with total e-com, so total e-com was minus 19%. If you exclude the 53rd week, we were down 13% and most of that, of course, is due to the comparison versus Omicron. Sequentially, total e-commerce was flat, so again showing a good progression versus the peak winter period. For Voila specifically, total Voila was minus 15.7%, normalized for the 53rd week, we were down 9.3%, again due to Omicron. Sequentially, we were down 1.5% versus Q3. And again, that's really due to Q3 containing the winter period.
So overall, again I repeat my message from previous quarters, we're really happy with Voila. We have said previously, that the total size of the pie, the total market in Canada is a little bit less than what we had expected, that remains to be the case. But overall, very, very happy with this progress.
Tamy Chen
Okay. Thank you.
Matthew Reindel
Thanks, Tamy.
Operator
Thank you. Next question will be from Chris Li at Desjardins. Please go ahead.
Chris Li
Good afternoon. Maybe just following up just a few questions on Voila. First, did the earnings dilution for Voila come in line with your expectation in fiscal 2023? And then can you provide sort of some colors on what do you expect the dilution to be in fiscal 2024? Just maybe even directionally. Thank you.
Matthew Reindel
Well, I'll answer two parts for the question, Chris. So in terms of dilution this year, again, if you go back to our messaging during Sunrise and Horizon, we gave very specific guidance, including the dilution figures on Voila, as we exit Horizon move into F2024, we're not giving that level of transparency anymore. Voila is a long-term investment and we want to keep the focus on its long-term.
Having said that, yes, the Voila, the dilution was broadly consistent with what we expected. Sales were slightly lower than what we had planned, so the dilution was slightly worse as well. But having said that, the most important thing is your second part of the question, which is, what's the progression moving forward? What I can tell you is, what we have seen and what we expect to continue that each CFC, which of course are at different stages of development based on the launch timing are improving their profitability, as expected. So CFC 1's profit got better CFC 2's profit will get better in F 2024. And of course, CFC 3, which has just been launched that will have its peak year of dilution in its first year. So it's a long-winded way of saying that the profitability progression is exactly as we expected it to be, CFC by CFC.
Chris Li
Okay, that's great. And I know this is a very difficult question to answer. But in light of this morning's speculation about Amazon potentially interested in buying Ocado, how does that impact your partnership with Ocado? Are there any sort of provisions that would protect you in the event of a change in control?
Michael Medline
Yeah. Thanks for the question. And that's a good breaking news question. Well, if this deal that's being reported does indeed occur. I think my first take is that, underlines once again that we made the right strategic decision to partner with Ocado, that is the best way to go to market. If that's true, that particular company is interested in acquiring it. And yeah, we have all sorts of legal controls in place and contractual controls in place in terms of our deal with Ocado, that would continue our -- agreement with Ocado contains very strong exclusivity language, regarding retail grocery and the Ocado operating system in Canada and any potential sale will not affect that.
So I think this is not, I don't know whether this deal is going to go forward or not, but if it goes forward, I feel pretty good about it. If it doesn't go forward, I feel pretty good, so it doesn't really change my perspective in terms of -- thanks heavens we made that deal way back.
Chris Li
Great. Thanks. And then maybe my last question, I think it was last quarter, Pierre, you mentioned, most of the trade and that you're seeing is really happening in fresh. It may still bit early, but at least based on the latest CPI data, it seems like Fresh inflation, while still elevated is training gradually back to that mid-single-digit rates and should continue to trend lower if the Canadian dollar continues its upward trend? So I guess, my question is, are you seeing sort of the trade down in Fresh starting to stabilize here?
Pierre St-Laurent
Yes. Good question, Chris. Yes, I think the worst is behind us, we are seeing some positive momentum on Fresh. But yes, customer remain concerned with their budget and their -- they are looking for deals and we are seeing that in our promo penetration week after week. But in Fresh in particular, I think the worst is behind us and we are seeing positive trend right now. So that's -- I think people adjusted their spend and now we are seeing a more stabilized behaviors on Fresh.
Chris Li
Great. Thank you. Have a great summer and all the best.
Pierre St-Laurent
Thank you.
Matthew Reindel
Thanks, Chris.
Operator
And next question will be from Mark Petrie at CIBC. Please go ahead.
Mark Petrie
Yes. Good afternoon. I wanted to follow up on the topic of the CFCs and the ramp-up. I'm wondering if you could sort of contrast the expectations for ramp-up across the three Toronto, Montreal, Calgary, and I'm thinking of things like SKU ramp-ups or number of SKUs at introduction, the relative growth in volume expectations, marketing spend, those kind of metrics.
Michael Medline
Yeah. It's Michael. I mean, just -- there is a huge difference. We opened up CFC 1 in Toronto in the midst of the highest -- one of the highest levels of pandemic. And even in June 2020, we only had 10,000 SKUs, but that was to serve customers, so we opened it earlier than when we were completely ready. In contrast, Alberta is getting 20,000 SKUs and growing. And in terms of marketing spend, I wouldn't say the marketing spend is higher. In fact, I think it's probably lower but because we have all the experience of how to open and how to market it, it's more efficient.
Obviously, we are more and more confident in the operating system and the way to go to market. And also we had a bit of a difference from Toronto win that we had, we already had a lot of stores doing e-commerce in Alberta, which we did to set up. So we already have some customer base figured out in Alberta. But I mean, I don't think -- I think we're getting better and better. And I think, but I thought -- when we opened Quebec, we were very strong as well, but this is even stronger I think. And like any opening of anything that's new store or even CFC, take them a while to gear up. And from my experience in retail is that, Alberta market is a good e-commerce market, so I look forward to seeing how we do.
Mark Petrie
Okay, thanks for that. Also hoping you can give a little bit of commentary just with regards to the same-store sales growth cadence. In Q4, as you noted, it was a bit of a noisy period, just in terms of what you're lapping, especially in the early part of the quarter. And so, was it consistent at that type of growth of 2.6% through the quarter or was there a variance kind of month-to-month?
Michael Medline
It was broadly consistent, but again very gradually increasing through the quarter. So, Pierre is smiling to my right here, because this is what we have kind of planned, and what we hope occurs throughout all of F2024, is this gradual improvement and momentum as inflation abate. So we were really, really pleased [indiscernible] that's exactly what we saw, it just gradually improved momentum through the quarter.
Mark Petrie
Okay. Perfect. Thank you. And then my last question is just around SG&A growth. And I guess specifically SG&A dollar growth was pretty well controlled in Q4, especially adjusting for D&A, you called out incentive accruals. Wondering if you could quantify the impact of that? And then I know you're obviously not giving guidance specifically, but wonder if you could talk about the dollar growth you're expecting in fiscal 2024 and is it possible that it's in line with 2023 or above or below or how you might think about them? Thanks.
A - Matthew Reindel
Thanks, Mike. So on SG&A dollar, so, yeah, it's a little bit bumpy because of the comparison year-on-year because of the 53rd week. So the way I look at our SG&A dollars actually went down very slightly, but obviously last year we had the 53rd week. So on a normalized basis, our SG&A dollars went up by about $19 million and most of that is our continued investment in our Horizon initiatives. We will not call them Horizon initiatives anymore but that long-term, medium-term investments. Depreciation was higher year-on-year due to our ramp-up in CapEx, which as you know, we're controlling, moving forward. And then incentives were lower, I'm not going to tell you the number. Mark, I'm sure you understand why, but -- so incentives were a little bit lower year-on-year.
Now the second part of your question as to what we would expect moving forward, we are expecting SG&A dollars to increase. So first of all, we expect to grow next year. So when we think about retail labor and the variable component of SG&A that will continue to grow. And as we've consistently said, that we're not going to take our foot off the gas in terms of our strategic investments. So CFC 3 will come online, which will increase SG&A. So there is those continued investments. And the only other thing just to call out is the west fuel divestiture. So when that deal is confirmed by the competition authorities, that's a high sales low SG&A business that we'll have to adjust for. So those are kind of some of the moving parts. But yes, we do expect SG&A in dollars to increase next year for the reasons I just mentioned.
Mark Petrie
Okay. I appreciate the comments and yeah, all the best.
Michael Medline
Thanks, Mark.
Matthew Reindel
Thanks, Mark.
Operator
Next question will be from Vishal Shreedhar at the National Bank. Please go ahead.
Vishal Shreedhar
Hi. Thanks for taking my questions. I was hoping you could help me better understand in particular what's driving your improvement in comp and even through the quarter, the gradual improvement. And I know we've talked a lot about it already through the call, but you know the consumer situation where the mortgage is renewing is still tough, inflation is still high. So is this a general industry comment with the inflation not getting higher at the same rate or is it an Empire improvement situation? Anything you can help me to understand what in particular is driving that improvement that you are seeing?
Michael Medline
Yeah. Great question. And I can't comment on our competitors. I mean, I just know what we're seeing out there and that we're seeing inflation slowing as I mentioned in the script. And I think with that and the fact that we had some weird COVID stuff happening last year plus the fact that we have all sorts of -- we are executing far better way, we have a great loyalty program, we're doing better in our stores. We got better merchandising, our ops are doing well, it's a bunch of different things, it is not one silver bullet out there. But I'd say that the improvement throughout the quarter is a combination of us continuing, I hope to get better, but a lot of it has to do with the fact that we're seeing full serve strengthen as inflation even starts to abate. These are tough times out there for everyone. And you're absolutely right, like when you look at what people are paying in terms of mortgages or rent, anything else, these are still tough times, it's not over and hopefully we'll be through it soon.
Vishal Shreedhar
Okay. So just to follow up on that, so you're seeing more strength in conventional, but at the same time, you're seeing promotional intensity increase. And that -- does that align with the understanding that you had at the time that you indicated to us that when inflation starts, the cadence starts slowing, you would anticipate the conventional business just starting to improve?
Michael Medline
It remains volatile right now. So we're not out of the word, inflation remain high. We are seeing, as I said earlier, some normalization on Fresh, but we need to remain extremely focused to manage those changes. So, the penetration, I think, I don't -- the penetration is the challenge because people are looking for deals. Intensity, I don't think so, I think it remain competitive like it was and like it will be, but the penetration we have to be careful on that. And our team are doing an amazing job to manage it and to provide relevant value to our customers through different programs we've launched over the last years, especially with Scene+ and member pricing and all of that type of thing. It's new tools we have on end to make sure that we are providing value to our customer, without affecting our overall results.
Vishal Shreedhar
Okay, thank you for that color. That's very helpful. And just changing topics here on the capital allocation, a lot of cash commitments this year, you got the dividend going up, you got the buyback, you have the CapEx program. So, how should we think about management's orientation with respect to leverage levels and the cash outlay? Are you satisfied with the level of levers that you have in terms of levels or do you want to bring that down? And if so, what's the right level that Empire should run at?
Matthew Reindel
Yes, it's a great question, Vishal, and something that we've spent a lot of time looking at. Because I think about the -- I mean, our ability to do share buybacks is based on our amount of cash. So it is something that we've looked at in great detail. We do expect our cash flow generation to return to what I would call normal in F 2024, which generates a lot of cash. F 2023 as you correctly stated was a bit of an unusual year. And our expectation is that our credit ratios for example, our leverage ratios will remain approximately the same. We hope that they will improve very, very slightly. And as you know, we would never do anything to threaten our investment grade rating. So, yes, a lot depends on our ability to generate cash next year, but we do expect that that's going to return to -- like I said, what I would refer to as normal.
Michael Medline
Great question.
Vishal Shreedhar
And the buyback, you anticipate to be fully active on that?
Matthew Reindel
Yes. We have to do [Multiple Speakers]
Vishal Shreedhar
[Multiple Speakers]
Matthew Reindel
Thanks, Vishal.
Operator
Thank you. Next question will be from Michael Van Aelst at TD Cowen. Please go ahead.
Michael Van Aelst
Alright. Thank you. Would you mind talking a little bit about the -- some of the differences in the consumer behavior geographically, because we've seen some credit card data that would suggest that the BC customers certainly more pressured than the Quebec customer, for example. I'm wondering if that's something that you're seeing as well.?
Michael Medline
We don't see major differences by regions to be honest. It's really the only difference we're seeing regionally it's on labor. So labor shortages are more pronounced in BC and in Quebec maybe. But in term of customer behavior, we're not seeing major differences on our side.
Michael Van Aelst
Okay, that's interesting. Okay, thank you. And then, when you look at the -- your e-commerce sales trends and I know they improved to low -- some sequentially and they've held up from the winter. But when you look at it relative to your peers, your peers are comping flat to slightly higher on the same, on an apples-to-apples basis and years are declining. What could explain that difference?
Michael Medline
I don't know, because what we're looking at -- Mike, I think we talked about -- Matt can talk more about it, if you want. But in terms of the market and how we're doing, some of it may be different timing, I don't know, we'll have to take a look. But we're pretty confident in terms of our ability to hold and grow market share here.
Matthew Reindel
Yeah. I was just -- I would just add, and it's a very interesting question. The only thing I would also point out is, we have a very different customer. And I think we said before that some of our peers are getting after kind of the [indiscernible] with a very small basket. Whereas for our customer, our average basket sizes, as we said before is 3.5 times the size of somebody in a store. So that's kind of thing -- that's really what the main difference is [indiscernible]. I think it's just a different timeframe and a different customer.
Michael Van Aelst
Okay. And then just finally, should Ocado change ownership? And I know this is highly speculative. But if the new owners -- if there was a new owner, and they had less incentive, let's call it, to focus on the external customers who want to focus on their own, growing their own e-commerce business. What kind of protection does Empire have in terms of like the length of the support agreement within your facilities?
Michael Medline
We have a lot in the long, and I got [indiscernible] Chief Development Officer, he is also our General Counsel, and he is nodding away here. So I really don't -- look this is so speculative. It would take -- is there a deal, who is the buyer, would they then cut down, that would be very problematic for that entity if they were to do that. In fact, I would, think that would not be the case.
Matthew Reindel
The international CFCs is a very important piece of that business. Why they would change...
Michael Medline
We were not the only partner.
Matthew Reindel
Yeah.
Michael Medline
So, I'm not going to lose too much sleep and then about first of all, and something that hasn't happened. But secondly, something which if it does happen, I'm sure that we'll keep putting the best offering in the market to our customers.
Michael Van Aelst
All right. Thank you.
Michael Medline
Thanks, Mike.
Operator
Thank you. Next question will be from Irene Nattel at RBC Capital Markets. Please go ahead.
Irene Nattel
Thanks, and good afternoon everyone. Lots of great color, so thank you. Just a couple of points of clarification. So trying to understand the commentary around the cadence of investment or if you had to call dilution. As you open CFC 3 but CFC 1 and CFC 2 gain maturity, but the market is a little bit challenging. So should we be assuming similar overall dilution or maybe a little bit more or maybe a little bit less?
Matthew Reindel
Well, I think I'm going to leave that with you, Irene, to be honest with you. Like I said, when we really trying to move away from giving specific guidance on dilution, your overall trend is right though. So as we said, when we launched CFC, the highest point of the dilution. And as you get volume passing through the CFCs dilution decreases and ultimately you pass to breakeven and then you make money. So CFC 1 is well on its way. CFC 2 is on its way and CFC 3 is just starting.
And the other initiatives we're looking at of course will improve that path to profitability. So the merger of Grocery Gateway into Voila for example in CFC 1, and the other efficiency initiatives we're looking at across all of our portfolios will all help. So, yes, that's about as far as we're going as much guidance as we're going to give at this point.
Irene Nattel
Understood. Thank you. The next question I had, when you've initially announced Scene+, you noted that there were significant if you will, pent-up points value in existing Scene+ customers, in part because they're just, they have limited ways in which to redeem. So as you look at sort of the evolution, are you actually seeing the benefit of -- in your sales from redemption using pent-up points?
Matthew Reindel
It's a great question and I'm going to give you a very early answer, which is a very simple yes. But then, I'm going to give you a little bit more detail. So firstly, that's the two things that really excited us about the transition. One was the fact that there was all this -- all these points in the market. Many, many, many millions of points in the market that could be now use the Empire stores. But there was also a large number of existing Scene customers, who were not shopping at Empire. So a combination of those two, we believe would actually result in us having incremental net new customers to our banners.
So when I said the easy answer is, yes, it's because the data that we see so far is showing that we are taking new customers into our stores and are using those points in our stores. But it's early, as we said a lot with the Scene program, we're not even a year into its journey yet. So, this is something that we with our partnership with the Scene program itself. We're closely monitoring, because we do expect that increase in demand. Early signs, very good, but like I said, it's early. So I don't want to overstate the benefit. Yes.
Irene Nattel
That's really helpful. Thank you. And then just sort of tying the whole issue of promotional intensity to Scene+. I understand, recognize it's relatively early days, but presumably, you're being able to serve if you will, kind of move some of that straight-up dollars and cents promotional activity to points multipliers or personalized. Can you talk about where you are in that journey?
Doug Nathanson
Yes. So it's a new promotional tool. The team is working well to manage the mix of promotion, of course, we are investing meaningfully in Scene+ to give value to our loyal customer, and it's good for both sales and margin. So we are seeing improvement in the transaction count quarter-to-quarter. We are seeing improvement on the basket size quarter-to-quarter. So that means it's not only Scene+ activities, but it's the overall promotional mix management with new tools. So, like we said earlier would promote simulation. So now and the Scene -- the loyalty promotion are into our promotional optimization tool. So we are managing all those promotions through optimization tool and it's why we're able to generate good sales and margin. So it's a combination of multiple factor, that drive that performance. And Scene+ is -- it's a new addition to our tools and we leveraging it right now, and it's well received by customers, ahead of our expectation so far.
Irene Nattel
That's great. Thank you.
Operator
Thank you. At this time, I would like to turn the call back over to Katie Brine. Please go ahead.
Katie Brine
Thank you, Sylvie. We appreciate your continued interest in Empire. If there are any unanswered questions, please contact me by phone or e-mail. We look forward to having you join us for our first quarter of fiscal 2024 Conference Call on September 14th. Talk soon.
Operator
Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
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Empire Company Limited (EMLAF) Q4 2023 Earnings Call Transcript