Empire Company (A) (EMP.A.TO)

(Top Pick Dec 2/15, Down 2.43%) He has been selling it the last few days and will finish today. The Safeway acquisition is the problem.

Target left Canada so we don’t have to worry about grocery competition. He thinks the stock has been marked down too much. The balance sheet is repaired and he hopes they take a look at Rexall.

The integration with Safeway was not going so hot. It was a short term issue according to management. Their SAP program was put into Safeway so they could procure for both chains with the same system. You need to buy companies with a temporary issue that they can overcome. It is pretty attractive to him but you might want to give it another quarter.

Came out with disappointing earnings and same-store sales growth at 1.2% versus Metro at 4.2% and Loblaw’s at 4.3%. They fell down mainly because of trying to work with Sobeys (SBY-T) and the whole office integration. If you look back Metro (MRU-T) had done exactly the same thing in 2007-2008, which really hurt their bottom line. After that their margins got better. Loblaw’s (L-T) went through the same thing. Technically, this has broken down below its recent low earlier in the year. It is consolidating back and forth. Over the long-term it is just a matter of how much longer this is going to have an impact. He would wait for it to go above its low of earlier this year.

This has been inordinately beaten up. It had a miss in the quarter by less than 1%. The Sobey’s integration is taking longer than expected, but they will still get it done. It is now in the penalty box, so you need the next quarter, and probably the quarter after, and if they are back to where they should be, this is a good entry level.

He thinks highly of the grocery chains in Canada. This is one of his largest holdings and has been very pleased with its performance and its management. There is still lots more opportunity for them. They are almost finished the Safeway acquisition and there is still excess capital for them to continue to grow the business.

The square footage growth that had been overhanging the grocery industry has passed now, especially with the exit of Target (TGT-N). She still prefers Loblaws (L-T). Really likes their Shoppers acquisition. The drug retail space melds well with the aging demographic. We are seeing synergies coming through now, but there are still a lot of cross-selling opportunities to come.

George Weston (WN-T), Loblaw’s (L-T) or Empire (EMP.A-T)? Of these 3 Loblaw’s would be her preferred vehicle.

Stock vs. Stock. EMP-T vs. L-T. L-T finally turned the ship around according to the AGM today. EMP-T still has some levers to pull to unlock shareholder value. It has been lagging L-T. He likes the sector. You get a dividend increase every year.

Good entry point. They own Crombie Real Estate Investment (CRR.UN-T) and a massive amount of real estate, which gives them some potential to drop-down some assets into Crombie. Thinks the NAV is somewhere in the area of $100 a share.

Empire Company (EMP.A-T) or Loblaw’s (L-T)? The grocery space is a fairly consolidated market with 3 or 4 major players and relatively defensive. With the exit of Target, the square footage is really moderated, this is a plus. If she had to choose among all the players out there, it would be Loblaw’s, because of the drug retail side.

(A Top Pick Oct 20/14. Up 20.87%.) Have done a great job of leveraging the balance sheet, making strategic acquisitions, doing strategic spinouts, buying back stock and increasing the dividend. Since he picked this, same store sales are accelerating. They have a full integration of Safeway, so there are a lot of cost synergies. At these levels, he doesn’t see as much upside as before, but wait for the right entry point.

If you take the money that you don’t spend on gas, you go right to a grocery store. This also has a lot of real estate underneath it, including Crombie (CRR.UN-T) and a bunch of direct real estate. If you take out the real estate, you get only 5.5X price to EBITDA. He bought it at just under $78 and it has moved nicely so far. He thinks it can move again and come to the high $80’s to $90’s. Try to get it on a $2 dip. Nice and safe. Extra growth comes from the Canada Safeway, which they acquired. A lot of the stores need fixing up, and the ones they have started on are seeing really nice bumps. Dividend yield of 1.28%.

(Is there a good seasonal exit point for food retailers such as Empire (EMP.A-T) and Loblaws (L-T)?) Both have been good stocks for people and both are well-managed companies. Loblaws is more expensive, but he prefers it because of the Shoppers acquisition. This gives it a lot of room to drive synergies, both in revenue and costs.

Empire (EMP.A-T) or High Liner (HLF-T)? He would choose this company. It is defensive in this environment of volatility. The last quarter they reported was quite strong and they beat expectations. Margins had grown. Saw some of the synergies from the Safeway acquisition start to come through, and he thinks this is going to just accelerate. Food inflation has actually been okay.