Empire Company Reports Third Quarter Results

Empire Company Limited

STELLARTON, NS, March 12, 2014 /CNW/ - Empire Company Limited ("Empire" or the "Company") (TSX: EMP.A) today announced financial results for its third quarter ended February 1, 2014.  In the third quarter, the Company recorded adjusted net earnings from continuing operations, net of non-controlling interest, of $77.3 million ($0.84 per diluted share) compared to $75.8 million ($1.11 per diluted share) in the third quarter last year.

Third Quarter Highlights

• Sales of $6.02 billion, up $1.73 billion or 40.4 percent (up 2.7 percent excluding the impact of the Canada Safeway acquisition).
• Sobeys' same-store sales decreased 0.2 percent.
• Adjusted EBITDA ⁽¹⁾ of $277.4 million compared to $201.8 million last year, up 37.5 percent. 
• Adjusted net earnings from continuing operations ⁽¹⁾, net of non-controlling interest, of $77.3 million ($0.84 per diluted share) compared to $75.8 million ($1.11 per diluted share) last year.
• Funded debt to total capital ratio of 40.6 percent compared to 21.6 percent last year.

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

Marc Poulin, President and CEO of Empire Company Limited stated, "Our third quarter results include the first full quarter of operations from the recently acquired Canada Safeway.  We are working diligently to successfully integrate the Canada Safeway business, and are focused on securing operational efficiencies and reducing costs across the network.  We remain confident in our ability to secure $200 million in annual run-rate cost synergies over a three-year period.

"Our growth in consolidated sales of 40.4 percent and adjusted EBITDA of 37.5 percent from the third quarter last year largely reflects the initial impact of this acquisition, and the continued launch of new and innovative commercial programs as part of the Company's strategy to help Canadians Eat Better, Feel Better, Do Better in what remains a highly-competitive marketplace."

Dividend Declaration

The Board of Directors declared a quarterly dividend of 26.0 cents per share on both the Non-Voting Class A shares and the Class B common shares that will be payable on April 30, 2014 to shareholders of record on April 15, 2014.  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.

Discontinued Operations

On November 1, 2013, the Company announced that Empire Theatres completed the sale of 46 theatres with 397 screens in separate transactions with Cineplex Inc. and Landmark Cinemas as previously announced on June 27, 2013.  As a result of the sale, financial results related to Empire Theatres, as previously reported in the investments and other operations segment, have been included in discontinued operations in the condensed consolidated statements of earnings for the 13 and 39 weeks ended February 1, 2014 and February 2, 2013.

CONSOLIDATED FINANCIAL RESULTS

	13 Weeks Ended				($)		39 Weeks Ended										($)
($ in millions, except per share amounts)	Feb. 1, 2014		Feb. 2, 2013 ^(1)		Change		Feb. 1, 2014				Feb. 2, 2013 ^(1)						Change
Sales	$	6,017.6	$	4,285.5	$	1,732.1	$		15,055.5		$		13,143.4		$		1,912.1
Adjusted EBITDA ^(2)(3)		277.4		201.8		75.6			724.6				668.2				56.4
EBITDA ^(2)		188.9		195.6		(6.7)			607.9				679.5				(71.6)
Adjusted operating income ^(2)(3)		153.8		115.9		37.9			422.3				411.6				10.7
Operating income ^(2)		65.3		109.7		(44.4)			305.6				422.9				(117.3)
Adjusted net earnings from continuing operations ^(2)(3)(4)		77.3		75.8		1.5			245.1				261.1				(16.0)
Net earnings from continuing operations ^(4)		6.4		71.4		(65.0)			149.5				269.8				(120.3)
Net (loss) earnings from discontinued operations		(6.0)		2.7		(8.7)			85.1				3.8				81.3
Net earnings ^(4)		0.4		74.1		(73.7)			234.6				273.6				(39.0)
Adjusted EPS from continuing operations (fully diluted) ^(2)(3)(4)	$	0.84	$	1.11	$	(0.27)	$		3.22		$		3.84		$		(0.62)
EPS from continuing operations (fully diluted) ^(4)	$	0.07	$	1.05	$	(0.98)	$		1.96		$		3.96		$		(2.00)

(1)	Amounts have been restated as a result of a change in accounting policy and reclassification of discontinued operations.  See Notes 3 and 11 of the Company's third quarter unaudited condensed consolidated financial statements.
(2)	See "Non-GAAP Financial Measures" section of this news release.
(3)	Excludes items which are considered not indicative of underlying business operating performance.
(4)	Net of non-controlling interest.

Sales

Consolidated sales for the 13 weeks ended February 1, 2014 were $6.02 billion compared to $4.29 billion in the third quarter last year, an increase of $1.73 billion or 40.4 percent.  During this period, sales from the food retailing segment increased $1.73 billion or 40.4 percent.  Excluding sales of $1.62 billion related to the acquisition of Canada Safeway, sales contribution from the food retailing segment to Empire increased by $115.4 million or 2.7 percent.

The following table reconciles sales reported by Sobeys to Empire's food retailing segmented sales, and food retailing and investments and other operations' segmented sales to Empire's consolidated sales from continuing operations.

		13 Weeks Ended							39 Weeks Ended
($ in millions)		Feb. 1, 2014		Feb. 2, 2013		($) Change		(%) Change	Feb. 1, 2014		Feb. 2, 2013		($) Change		(%) Change
Food retailing segment
Sobeys' reported sales		$	6,004.4	$	4,274.2	$	1,730.2	40.5%	$	15,016.1	$	13,101.3	$	1,914.8	14.6%
	Reclassification of lease revenue from owned property recorded by Sobeys		13.5		13.9					41.8		42.2
			6,017.9		4,288.1		1,729.8	40.3%		15,057.9		13,143.5		1,914.4	14.6%
	Elimination of sales to discontinued operations		(0.8)		(3.3)					(7.1)		(9.3)
Empire's food retailing segmented sales			6,017.1		4,284.8		1,732.3	40.4%		15,050.8		13,134.2		1,916.6	14.6%
Investments and other operations segmented sales ^(1)			0.5		0.7		(0.2)	(28.6)%		4.7		9.2		(4.5)	(48.9)%
Empire consolidated sales		$	6,017.6	$	4,285.5	$	1,732.1	40.4%	$	15,055.5	$	13,143.4	$	1,912.1	14.5%

(1)	Sales generated from Empire Theatres have been recorded in discontinued operations.

During the third quarter, Sobeys reported sales of $6.00 billion, an increase of $1.73 billion or 40.5 percent from the $4.27 billion reported in the third quarter of fiscal 2013.  The growth in Sobeys reported sales is primarily the result of $1.62 billion of sales related to the Canada Safeway acquisition, combined with Sobeys' continued investment in its retail network, coupled with the continuation of sales and merchandising initiatives.  Excluding the impact of the Canada Safeway acquisition, Sobeys reported sales increased $113.3 or 2.7 percent.  Sobeys' same-store sales decreased 0.2 percent from the prior year.  Same-store sales were impacted by low food inflation, increased competitive square footage in the market, ongoing competitive intensity and a severe ice storm in Ontario during the third quarter of fiscal 2014.

Investments and other operations' sales in the third quarter were $0.5 million compared to $0.7 million in the third quarter last year, a decrease of $0.2 million.

EBITDA

Consolidated EBITDA in the third quarter was $188.9 million compared to $195.6 million in the third quarter last year.  This decrease primarily relates to:  (i) increased inventory shrinkage ("shrink") primarily associated with Sobeys' fresh retail inventory turns as well as shrink associated with the new and innovative commercial programs as part of Sobeys' strategy to help Canadians Eat Better, Feel Better, Do Better; (ii) a highly promotional environment; (iii) a weaker Canadian Dollar ("CAD") relative to the U.S. Dollar ("USD") which affected the CAD cost of U.S. purchases; (iv) ongoing drug regulatory reform which impacted generic prescription reimbursement rates; and (v) increased selling and administrative expenses which were primarily due to transaction costs associated with the Canada Safeway acquisition, offset by $83.2 million in EBITDA related to the Canada Safeway acquisition during the quarter.

After adjusting EBITDA for items which are considered not indicative of underlying business operating performance, as presented in the following table, third quarter adjusted EBITDA amounted to $277.4 million compared to $201.8 million in the third quarter last year, a $75.6 million or 37.5 percent increase.      

		13 Weeks Ended				39 Weeks Ended
($ in millions)		Feb. 1, 2014		Feb. 2, 2013 ^(1)		Feb. 1, 2014		Feb. 2, 2013 ^(1)
EBITDA ^(2)(3) (consolidated)		$	188.9	$	195.6	$	607.9	$	679.5
Adjustments:
	Transaction costs associated with the Canada Safeway acquisition		67.7		-		94.6		-
	Inventory adjustment		17.1		-		17.1		-
	Organizational realignment and restructuring costs		3.7		3.3		12.1		7.1
	Non-operating charge from equity accounted investment ^(4)		2.5		6.8		2.5		6.8
	Dilution losses (gains)		0.1		(4.6)		(4.3)		(16.7)
	(Gain) loss on disposal of assets		(2.6)		0.2		(5.3)		(11.6)
	Québec distribution network restructuring		-		0.5		-		3.1
			88.5		6.2		116.7		(11.3)
Adjusted EBITDA ^(2) (consolidated)		$	277.4	$	201.8	$	724.6	$	668.2

(1)	Amounts have been restated as a result of a change in accounting policy and reclassification of discontinued operations.  See Notes 3 and 11 of the Company's third quarter unaudited condensed consolidated financial statements.
(2)	See "Non-GAAP Financial Measures" section of this news release.
(3)	EBITDA generated from Empire Theatres has been recorded in discontinued operations.
(4)	Equity earnings from Crombie REIT for the 13 and 39 weeks ended February 1, 2014 include a non-recurring cost of $2.5 million related to arranging financing on the 70 properties acquired by Crombie REIT as part of the Canada Safeway acquisition; equity earnings from Crombie REIT for the 13 and 39 weeks ended February 2, 2013 include a non-recurring charge of $6.8 million relating to Crombie REIT's restated earnings.

Operating Income

Consolidated operating income in the third quarter was $65.3 million, a decrease of $44.4 million from the $109.7 million recorded in the third quarter last year. This decrease was primarily related to the factors impacting EBITDA, as mentioned. After adjusting operating income for items which are considered not indicative of underlying business operating performance, as presented in the preceding table for EBITDA, quarterly adjusted consolidated operating income amounted to $153.8 million compared to $115.9 million in the third quarter last year, an increase of $37.9 million or 32.7 percent.

Finance Costs

Finance costs, net of finance income, for the 13 weeks ended February 1, 2014 were $49.7 million, an increase of $37.2 million from the $12.5 million recorded in the same period last year.  The increase is primarily a result of higher interest expense of $33.8 million due to increased debt levels this quarter as a result of financing for the Canada Safeway acquisition, lower total finance income of $1.8 million and higher net pension finance costs of $1.6 million.

Income Taxes

The Company's effective income tax rate on continuing operations for the third quarter of fiscal 2014 was 72.4 percent compared to 27.7 percent in the third quarter last year.  The increase in the effective income tax rate is due to the partial non-deductibility of certain transaction costs associated with the Canada Safeway acquisition, combined with lower earnings before income taxes on which to calculate the effective tax rate.  The effective income tax rate on continuing operations for the 39 weeks ended February 1, 2014 was 28.6 percent versus 27.1 percent last year.

Net Earnings from Continuing Operations

Consolidated net earnings from continuing operations, net of non-controlling interest, in the third quarter equalled $6.4 million ($0.07 per diluted share) compared to $71.4 million ($1.05 per diluted share) in the third quarter last year.  The decline is the result of lower operating income and higher finance costs, net of finance income, partially offset by lower income taxes.

Adjusted Net Earnings from Continuing Operations

The table below adjusts reported net earnings from continuing operations, net of non-controlling 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 from continuing operations, net of non-controlling interest, of $77.3 million ($0.84 per diluted share) for the 13 weeks ended February 1, 2014 compared to $75.8 million ($1.11 per diluted share) recorded in the third quarter last year.

		13 Weeks Ended				39 Weeks Ended
($ in millions, except per share amounts, net of tax)		Feb. 1, 2014		Feb. 2, 2013 ^(1)		Feb. 1, 2014		Feb. 2, 2013 ^(1)
Net earnings from continuing operations by segment ^(2):
	Food retailing	$	3.9	$	67.7	$	139.4	$	246.8
	Investments and other operations		2.5		3.7		10.1		23.0
Net earnings from continuing operations  ^(2)		$	6.4	$	71.4	$	149.5	$	269.8
EPS from continuing operations (fully diluted)		$	0.07	$	1.05	$	1.96	$	3.96
Adjustments ^(3):
	Transaction costs associated with the Canada Safeway acquisition	$	54.4	$	-	$	73.5	$	-
	Inventory adjustment		12.7		-		12.7		-
	Organizational realignment and restructuring costs		3.4		2.4		8.5		5.2
	Non-operating charge from equity accounted investment ^(4)		1.8		4.8		1.8		4.8
	Finance costs associated with the Canada Safeway acquisition		0.7		-		6.6		-
	Dilution losses (gains)		0.1		(3.3)		(3.0)		(11.9)
	(Gain) loss on disposal of assets		(2.2)		0.1		(4.5)		(9.1)
	Québec distribution network restructuring		-		0.4		-		2.3
			70.9		4.4		95.6		(8.7)
Adjusted net earnings from continuing operations ^(2)(5)		$	77.3	$	75.8	$	245.1	$	261.1
Adjusted net earnings from continuing operations by segment ^(2):
	Food retailing	$	71.7	$	70.6	$	230.3	$	244.7
	Investments and other operations		5.6		5.2		14.8		16.4
Adjusted net earnings from continuing operations ^(2)(5)		$	77.3	$	75.8	$	245.1	$	261.1
Adjusted EPS from continuing operations (fully diluted)		$	0.84	$	1.11	$	3.22	$	3.84
Diluted weighted average number of shares outstanding (in millions)			92.1		68.1		76.2		68.1

(1)	Amounts have been restated as a result of a change in accounting policy.  See Note 3 of the Company's third quarter unaudited condensed consolidated financial statements.
(2)	Net of non-controlling interest.
(3)	All adjustments are net of income taxes.
(4)	Equity earnings from Crombie REIT for the 13 and 39 weeks ended February 1, 2014 include a non-recurring cost, net of tax, of $1.8 million related to arranging financing on the 70 properties acquired by Crombie REIT as part of the Canada Safeway acquisition; equity earnings from Crombie REIT for the 13 and 39 weeks ended February 2, 2013 include a non-recurring charge, net of tax, of $4.8 million relating to Crombie REIT's restated earnings.
(5)	See "Non-GAAP Financial Measures" section of this news release.

Net Earnings from Discontinued Operations

Net (loss) earnings from discontinued operations in the third quarter of fiscal 2014 equalled $(6.0) million ($(0.07) per diluted share) compared to $2.7 million ($0.04 per diluted share) in the prior year, a decrease of $8.7 million, primarily as a result of a net loss from the re-measurement and disposal of assets, and from restructuring costs.

Net Earnings

Empire's consolidated net earnings, net of non-controlling interest, in the third quarter of fiscal 2014 equalled $0.4 million ($nil per diluted share) compared to $74.1 million ($1.09 per diluted share) in the third quarter last year.  The decrease of $73.7 million is due to the $65.0 million decline in net earnings from continuing operations, net of non-controlling interest, accompanied by the $8.7 million decline in net earnings from discontinued operations.

The following table reconciles Empire's segmented net earnings from continuing operations, net of non-controlling interest, to net earnings, net of non-controlling interest, for the 13 and 39 weeks ended February 1, 2014 compared to the 13 and 39 weeks ended February 2, 2013.

		13 Weeks Ended				($)		39 Weeks Ended					($)
($ in millions, except per share amounts, net of tax)		Feb. 1, 2014		Feb. 2, 2013 ^(1)		Change		Feb. 1, 2014		Feb. 2, 2013 ^(1)			Change
Net earnings from continuing operations by segment  ^(2):
	Food retailing	$	3.9	$	67.7	$	(63.8)	$	139.4	$	246.8	$	(107.4)
	Investments and other operations		2.5		3.7		(1.2)		10.1		23.0		(12.9)
Net earnings from continuing operations  ^(2)		$	6.4	$	71.4	$	(65.0)	$	149.5	$	269.8	$	(120.3)
EPS from continuing operations (fully diluted)		$	0.07	$	1.05	$	(0.98)	$	1.96	$	3.96	$	(2.00)
Net (loss) earnings from discontinued operations			(6.0)		2.7		(8.7)		85.1		3.8		81.3
Net earnings (loss) by segment ^(2):
	Food retailing	$	3.9	$	67.7	$	(63.8)	$	139.4	$	246.8	$	(107.4)
	Investments and other operations		(3.5)		6.4		(9.9)		95.2		26.8		68.4
Net earnings ^(2)		$	0.4	$	74.1	$	73.7	$	234.6	$	273.6	$	(39.0)
EPS (fully diluted)		$	-	$	1.09	$	(1.09)	$	3.08	$	4.02	$	(0.94)

(1)	Amounts have been restated as a result of a change in accounting policy.  See Note 3 of the Company's third quarter unaudited condensed consolidated financial statements.
(2)	Net of non-controlling interest.

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, which as of February 1, 2014 included investments in Crombie REIT (41.6 percent equity accounted interest; 39.3 percent fully diluted) and interests in Genstar.

FOOD RETAILING

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

	13 Weeks Ended ^(1)						39 Weeks Ended ^(1)
($ in millions)	Feb. 1, 2014		Feb. 2, 2013 ^(2)		($) Change		Feb. 1, 2014		Feb. 2, 2013 ^(2)		($) Change
Sales	$	6,017.1	$	4,284.8	$	1,732.3	$	15,050.8	$	13,134.2	$	1,916.6
Adjusted EBITDA ^(3)(4)		267.6		192.4		75.2		697.6		639.0		58.6
EBITDA ^(3)		182.3		188.4		(6.1)		587.6		641.1		(53.5)
Adjusted operating income ^(3)(4)		144.1		106.1		38.0		395.6		383.5		12.1
Operating income ^(3)		58.8		102.1		(43.3)		285.6		385.6		(100.0)
Adjusted net earnings ^(3)(4)(5)		71.7		70.6		1.1		230.3		244.7		(14.4)
Net earnings ^(5)		3.9		67.7		(63.8)		139.4		246.8		(107.4)

(1)	Net of consolidation adjustments which includes a purchase price allocation from the privatization of Sobeys.
(2)	Amounts have been restated as a result of a change in accounting policy.  See Note 3 of the Company's third quarter unaudited condensed consolidated financial statements.
(3)	See "Non-GAAP Financial Measures" section of this news release.
(4)	Excludes items which are considered not indicative of underlying business operating performance.
(5)	Net of non-controlling interest.

Sales

Empire's food retailing segment achieved sales of $6.02 billion for the 13 weeks ended February 1, 2014, an increase of $1.73 billion or 40.4 percent over the same quarter last year.  The growth in sales is primarily the result of $1.62 billion of sales related to the Canada Safeway acquisition, combined with Sobeys' continued investment in its retail network, coupled with the continuation of sales and merchandising initiatives.  Excluding the impact of the Canada Safeway acquisition, sales contribution from the food retailing segment to Empire increased by $115.4 million or 2.7 percent.  Sobeys' same-store sales decreased 0.2 percent from the prior year.  Same-store sales were impacted by low food inflation, increased competitive square footage in the market, ongoing competitive intensity and a severe ice storm in Ontario during the third quarter of fiscal 2014.

Gross Profit

Sobeys recorded gross profit for the 13 weeks ended February 1, 2014 of $1,471.8 million, an increase of $491.6 million or 50.2 percent compared to $980.2 million in the same quarter last year.  For the third quarter, gross margin increased 158 basis points to 24.51 percent compared to 22.93 percent for the quarter ended February 2, 2013.  The increase in gross profit and gross margin is largely a result of a $483.3 million gross profit contribution related to the Canada Safeway acquisition, which is net of a one-time inventory adjustment of $17.1 million, and $6.3 million of cost reductions as a result of synergies realized during the quarter related to the acquisition.  The one-time inventory adjustment is a result of Sobeys' estimated preliminary fair value using historical financial information from Canada Safeway, after considering a reduction for selling costs and profit margins on selling efforts.  The amount was expensed in the current quarter as a result of the sale of the applicable inventory.

Excluding the impact related to Canada Safeway, gross margin would have been 22.53 percent, a decrease of 40 basis points compared to the prior year.  Overall gross profit and gross margin were impacted in the quarter by the following factors: (i) increased shrink primarily associated with Sobeys' fresh retail inventory turns as well as shrink associated with the new and innovative commercial programs as part of Sobeys' strategy to help Canadians Eat Better, Feel Better, Do Better; (ii) a highly promotional environment; (iii) a weaker CAD relative to the USD which affected the CAD cost of U.S. purchases; and (iv) ongoing drug regulatory reform which impacted generic prescription reimbursement rates.

EBITDA

Sobeys contributed EBITDA to Empire in the third quarter of $182.3 million compared to $188.4 million last year, a decrease of $6.1 million. EBITDA was impacted by the factors affecting gross margin, as mentioned, and by increased selling and administrative expenses which were primarily due to the transaction costs associated with the Canada Safeway acquisition, offset by $83.2 million in EBITDA related to the Canada Safeway acquisition during the quarter.

After 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 $267.6 million (4.45 percent of sales) in the third quarter compared to a $192.4 million (4.49 percent of sales) contribution in the same quarter last year, an increase of $75.2 million or 39.1 percent.    

		13 Weeks Ended				39 Weeks Ended
($ in millions)		Feb. 1, 2014		Feb. 2, 2013 ^(1)		Feb. 1, 2014		Feb. 2, 2013 ^(1)
EBITDA ^(2)(contributed by Sobeys)		$	182.3	$	188.4	$	587.6	$	641.1
Adjustments:
	Transaction costs associated with the Canada Safeway acquisition		67.7		-		94.6		-
	Inventory adjustment		17.1		-		17.1		-
	Organizational realignment costs		3.0		3.3		3.0		7.1
	Dilution gains		(0.3)		-		(0.6)		(0.7)
	(Gain) loss on disposal of assets		(2.2)		0.2		(4.1)		(11.6)
	Québec distribution network restructuring		-		0.5		-		3.1
			85.3		4.0		110.0		(2.1)
Adjusted EBITDA ^(2)		$	267.6	$	192.4	$	697.6	$	639.0

(1)	Amounts have been restated as a result of a change in accounting policy.  See Note 3 of the Company's third quarter unaudited condensed consolidated financial statements.
(2)	See "Non-GAAP Financial Measures" section of this news release.

Operating Income

Sobeys' operating income contribution to Empire in the third quarter was $58.8 million compared to $102.1 million in the same quarter last year, a decrease of $43.3 million.  This decrease is primarily related to the factors impacting gross margin, and the $67.7 million in transaction costs related to the Canada Safeway acquisition, as mentioned.  These negative factors were partially offset by $48.8 million of operating income directly attributable to the inclusion of Canada Safeway.

After adjusting Sobeys' operating income for items which are considered not indicative of underlying business operating performance, as presented in the previous table for EBITDA, adjusted operating income contribution amounted to $144.1 million (2.39 percent of sales) in the third quarter compared to $106.1 million (2.48 percent of sales) in the third quarter last year, an increase of $38.0 million or 35.8 percent.

Net Earnings

During the third quarter of fiscal 2014, Sobeys contributed net earnings, net of non-controlling interest, to Empire of $3.9 million compared to $67.7 million in the third quarter last year.  This decrease is primarily the result of previously mentioned sales and gross margin impacts, combined with transaction and finance costs related to the Canada Safeway acquisition. Net earnings before a one-time inventory adjustment of $12.7 million related to Canada Safeway operations for the 13 weeks ended February 1, 2014 were $36.5 million.

Sobeys contributed adjusted net earnings, net of non-controlling interest, to Empire of $71.7 million compared to $70.6 million in the third quarter last year, an increase of $1.1 million.

INVESTMENTS AND OTHER OPERATIONS

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

		13 Weeks Ended						39 Weeks Ended
($ in millions)		Feb. 1, 2014		Feb. 2, 2013		($) Change		Feb. 1, 2014		Feb. 2, 2013		($) Change
Sales ^(1)		$	0.5	$	0.7	$	(0.2)	$	4.7	$	9.2	$	(4.5)
Adjusted EBITDA ^(2)(3)			9.8		9.4		0.4		27.0		29.2		(2.2)
EBITDA ^(1)(2)			6.6		7.2		(0.6)		20.3		38.4		(18.1)
Operating income (loss) ^(2)
	Crombie REIT ^(4)(5)		0.2		(0.9)		1.1		12.3		8.8		3.5
	Real estate partnerships ^(6)		8.4		6.7		1.7		19.5		15.9		3.6
	Other operations, net of corporate expenses ^(1)(7)		(2.1)		1.8		(3.9)		(11.8)		12.6		(24.4)
			6.5		7.6		(1.1)		20.0		37.3		(17.3)
Adjusted net earnings from continuing operations ^(2)(3)			5.6		5.2		0.4		14.8		16.4		(1.6)
Net earnings from continuing operations			2.5		3.7		(1.2)		10.1		23.0		(12.9)
Net (loss) earnings from discontinued operations			(6.0)		2.7		(8.7)		85.1		3.8		81.3
Net (loss) earnings			(3.5)		6.4		(9.9)		95.2		26.8		68.4

(1)	Results generated from Empire Theatres have been recorded in discontinued operations.
(2)	See "Non-GAAP Financial Measures" section of this news release.
(3)	Excludes items which are considered not indicative of underlying business operating performance.
(4)	41.6 percent equity accounted interest in Crombie REIT (as at February 2, 2013 - 42.9 percent interest).
(5)	Equity earnings from Crombie REIT for the 13 and 39 weeks ended February 1, 2014 include a non-recurring cost of $2.5 million related to arranging financing on the 70 properties acquired by Crombie REIT as part of the Canada Safeway acquisition; equity earnings from Crombie REIT for the 13 and 39 weeks ended February 2, 2013 include a non-recurring charge of $6.8 million relating to Crombie REIT's restated earnings.
(6)	Interests in Genstar.
(7)	13 and 39 weeks ended February 1, 2014 included: organizational realignment and restructuring costs of $0.7 million and $9.1 million, respectively; dilution (losses) gains of $(0.4) million and $3.7 million, respectively; and a gain on the disposal of assets of $0.4 million and $1.2 million, respectively (13 and 39 weeks ended February 2, 2013 - organizational realignment and restructuring costs of $nil and $nil; dilution gains of $4.6 and $16.0 million; and a gain on the disposal of assets of $nil and $nil).

Sales

Investments and other operations' sales equalled $0.5 million in the third quarter ended February 1, 2014 versus $0.7 million in the third quarter last year, a $0.2 million decrease.  Sales generated from Empire Theatres have been recorded in discontinued operations.

EBITDA

Investments and other operations contributed EBITDA to Empire in the third quarter of $6.6 million compared to $7.2 million last year. After 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 $9.8 million compared to $9.4 million last year.      

		13 Weeks Ended				39 Weeks Ended
($ in millions)		Feb. 1, 2014		Feb. 2, 2013		Feb. 1, 2014		Feb. 2, 2013
EBITDA ^(1)(2) (investments and other operations)		$	6.6	$	7.2	$	20.3	$	38.4
Adjustments:
	Non-operating charge from equity accounted investment ^(3)		2.5		6.8		2.5		6.8
	Organizational realignment and restructuring costs		0.7		-		9.1		-
	Dilution losses (gains)		0.4		(4.6)		(3.7)		(16.0)
	Gain on disposal of assets		(0.4)		-		(1.2)		-
			3.2		2.2		6.7		(9.2)
Adjusted EBITDA ^(1)		$	9.8	$	9.4	$	27.0	$	29.2

(1)	See "Non-GAAP Financial Measures" section of this news release.
(2)	EBITDA generated from Empire Theatres has been recorded in discontinued operations.
(3)	Equity earnings from Crombie REIT for the 13 and 39 weeks ended February 1, 2014 include a non-recurring cost of $2.5 million related to arranging financing on the 70 properties acquired by Crombie REIT as part of the Canada Safeway acquisition; equity earnings from Crombie REIT for the 13 and 39 weeks ended February 2, 2013 include a non-recurring charge of $6.8 million relating to Crombie REIT's restated earnings.

Operating Income

Investments and other operations contributed operating income of $6.5 million in the third quarter ended February 1, 2014 compared to $7.6 million in the third quarter last year, a decrease of $1.1 million.  After 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 third quarter of $9.7 million versus $9.8 million last year.

Net Earnings from Continuing Operations

During the 13 weeks ended February 1, 2014, investments and other operations contributed $2.5 million to Empire's consolidated net earnings from continuing operations compared to a contribution of $3.7 million in the same period last year.  After adjusting for items which are considered not indicative of underlying business operating performance, investments and other operations contributed adjusted net earnings from continuing operations of $5.6 million for the 13 weeks ended February 1, 2014 compared to $5.2 million in the third quarter last year.

Net Earnings

Investments and other operations contributed $(3.5) million to Empire's consolidated net earnings in the third quarter of fiscal 2014 compared to a contribution of $6.4 million in the same period last year.  The decrease of $9.9 million is due primarily to a decrease in net earnings from discontinued operations of $8.7 million, accompanied by a decrease of $1.2 million in net earnings from continuing operations.

CONSOLIDATED FINANCIAL CONDITION

The acquisition of Canada Safeway effective November 3, 2013, resulted in a significant change to the capital structure of the Company as a result of capital stock issuance of $1.84 billion and long-term debt issuance of $3.30 billion.  The financial condition measures are presented in the table below.

($ in millions, except per share and ratio calculations)	Feb. 1, 2014		May 4, 2013 ^(1)		Feb. 2, 2013 ^(1)
Shareholders' equity, net of non-controlling interest	$	5,704.4	$	3,724.8	$	3,633.8
Book value per common share ^(2)	$	61.82	$	54.82	$	53.48
Bank indebtedness	$	-	$	6.0	$	1.1
Long-term debt, including current portion	$	3,891.5	$	963.5	$	997.9
Funded debt to total capital ^(2)		40.6%		20.7%		21.6%
Net funded debt to net total capital ^(2)		38.7%		12.1%		14.7%
Funded debt to EBITDA ^(2)(3)(4)		4.6x		1.1x		1.1x
EBITDA to interest expense ^(2)(3)(5)		8.5x		17.9x		16.8x
Current assets to current liabilities ^(2)		1.1x		1.0x		1.0x
Total assets	$	12,420.7	$	7,140.4	$	6,958.9

(1)	Amounts have been restated as a result of a change in accounting policy.  See Note 3 of the Company's third quarter unaudited condensed consolidated financial statements.
(2)	See "Non-GAAP Financial Measures" section of this news release.
(3)	Ratios for February 1, 2014 and May 4, 2013 exclude EBITDA and interest expense relating to discontinued operations.
(4)	Calculation uses trailing four-quarter EBITDA.
(5)	Calculation uses trailing four-quarter EBITDA and interest expense.

At the end of the third quarter, Empire's consolidated ratio of funded debt to total capital was 40.6 percent (February 2, 2013 - 21.6 percent) with cash and cash equivalents of $284.6 million (February 2, 2013 - $370.5 million).

Shareholders' equity, net of non-controlling interest, increased $2.07 billion or 57.0 percent over the third quarter last year to $5.70 billion.  Book value per common share increased to $61.82 at the end of the third quarter versus $54.82 at the start of the fiscal year.

SUBSEQUENT EVENT

Subsequent to the close of the third quarter, on February 13, 2014, Sobeys announced that it has entered into binding purchase agreements with Overwaitea Food Group LP and Federated Co-operatives Limited to purchase 22 of the 23 retail stores required to be divested as a result of the Canada Safeway acquisition.  In addition to the required divestitures, Sobeys has agreed to sell an additional seven stores in British Columbia comprised of both Safeway and Sobeys locations.  The agreements with Overwaitea Food Group LP and Federated Co-operatives Limited have received approval from the Competition Bureau.  The sales are expected to occur during the Company's fourth quarter of fiscal 2014 and the first quarter of fiscal 2015.  Sobeys has also signed a binding letter of intent with another retailer for the sale of one retail store which is also required to be divested as part of the Canada Safeway acquisition.  This sale remains subject to the finalization of an asset purchase agreement with the purchaser and approval from the Competition Bureau.

Total proceeds from the transactions with Overwaitea Food Group LP and Federated Co-operatives Limited will be approximately $430.0 million plus the value of inventory on closing dates, subject to customary closing adjustments.  Proceeds will be used to repay bank borrowings.

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", "intends", "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 news release include those relating to our expectations relating to the timing and amount of cost synergies from the Canada Safeway transaction which may be impacted by a number of factors, including the effectiveness of integration efforts; and timing and proceeds from the sale of stores which may be impacted by satisfaction of various closing conditions and closing adjustments.

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 ("MD&A") and the Short Form Prospectus filed July 24, 2013.

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 news release reflects the Company's expectations as at March 12, 2014 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 news 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 location in both reporting periods.
• Gross profit is calculated as sales less cost of sales.
• Gross margin is gross profit divided by sales.
• Earnings before interest, taxes, depreciation and amortization ("EBITDA") is calculated as net earnings from continuing operations before finance costs (net of finance income), income taxes, and depreciation and amortization of intangibles.
• EBITDA margin is EBITDA divided by sales.
• Adjusted EBITDA is EBITDA excluding items which are considered not indicative of underlying business operating performance.
• Operating income, or earnings before interest and taxes ("EBIT"), is calculated as net earnings from continuing operations before finance costs (net of finance income) and income taxes.
• Operating income margin is operating income divided by sales.
• Adjusted operating income is operating income excluding items which are considered not indicative of underlying business operating performance.
• Interest expense is calculated as interest expense on financial liabilities measured at amortized cost plus losses on cash flow hedges reclassified from other comprehensive income.
• Adjusted net earnings from continuing operations is net earnings from continuing operations, net of non-controlling interest, 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.
• Net funded debt is calculated as funded debt less cash and cash equivalents.
• Total capital is calculated as funded debt plus shareholders' equity, net of non-controlling interest.
• Net total capital is total capital less cash and cash equivalents.
• Funded debt to total capital ratio is funded debt divided by total capital.
• Net funded debt to net total capital ratio is net funded debt divided by net total capital.
• Funded debt to EBITDA ratio is funded debt divided by trailing four-quarter EBITDA.
• EBITDA to interest expense ratio is trailing four-quarter EBITDA divided by trailing four-quarter interest expense.
• Book value per common share is shareholders' equity, net of non-controlling interest, divided by total common shares outstanding.
• Current assets to current liabilities ratio is current assets divided by current liabilities.
• Free cash flow is calculated as cash flows from operating activities, plus proceeds on disposal of property, equipment and investment property, less property, equipment and investment property purchases.

For a more complete description of Empire's non-GAAP terms, please see Empire's MD&A for the third quarter ended February, 1, 2014.

CONFERENCE CALL INFORMATION

The Company will hold an analyst call on Thursday, March 13, 2014 beginning at 4:00 p.m. (Eastern Daylight Time) during which senior management will discuss the Company's financial results for the third quarter ended February 1, 2014.  To join this conference call, dial [phone] outside the Toronto area or [phone] from within the Toronto area. To secure a line, please call 10 minutes prior to the conference call; you will be placed on hold until the conference call begins.  The media and investing public may access this conference call via a listen mode only. 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 [phone] and entering passcode 4837555 until midnight March 20, 2014, or on the Company's website for 90 days following the conference call.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

To view and download the Company's unaudited condensed consolidated financial statements for the third quarter of fiscal 2014 ended February 1, 2014, please access the following link:

Q3 Fiscal 2014 Unaudited Condensed Consolidated Financial Statements

This information is also available for download at www.sedar.com or by accessing the Investor Centre section 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 key businesses include food retailing and related real estate.  With over $19 billion in annual sales and approximately $12.4 billion in assets, Empire and its subsidiaries, including franchisees and affiliates, employ more than 124,000 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/2014/03/12/20140312_C9874_DOC_EN_37851.pdf

SOURCE: Empire Company Limited

François Vimard
Chief Financial Officer
[phone]