Q4 2019 Earnings Call
Limited fourth quarter and full year 2019 conference call.
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I would now like to hand, the conference over to Mr. Roy Mcdonald. Please go ahead.
Thank you Amy and good morning, everybody welcome to Loblaw companies limited fourth quarter full year 2019 results conference call.
I'm joined here this morning by give them less than our executive Chairman, Sarah Davis, our president and their Meyers, our Chief Financial Officer, and before we begin the call I want to remind you that today's discussion will include forward looking statements such as the company's beliefs and expectations regarding certain aspects of this financial performance.
2020, and in future years. These statements are based on assumptions and reflect management's current expectations and are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectation.
These risks and uncertainties are discussed in the Companys financial material filed with the Canadian regulators any forward looking statements speak only as of the days there made the company disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise.
Other than what's required by law.
Also certain non-GAAP financial measures may be discussed a referred to today. So please refer to our annual reports and other materials filed with the Canadian Securities regulators for a reconciliation of each of these measures to the most directly comparable GAAP.
And with that I will turn the call over there. Thank you ROI and good morning, everybody.
We're pleased with our financial performance to end the year with strong results and drug retail and continued improvements in our food retail business in the fourth quarter on an adjusted consolidated basis, a normalized for I first 16, and the spin out of choice properties I reporting <unk> reported revenue grew by 3.3% adjusted EBITDA increased by two.
2.8% and adjusted diluted earnings per share increased by 9.6%.
Adjusted earnings per share grew by 7% in the quarter after taking into account the timing of Thanksgiving.
Our same store sales in drug retail grew 3.9% in the quarter front store same store sales grew 2.2% what pharmacy same store sales grew 6.1% for front store, we delivered positive comp growth in all major categories led by cosmetics, Oh T C and food pharmacy continued its strong trend with.
Description growth of 3.1% and a 2.4% higher average script value.
As we mentioned last quarter, the timing of Thanksgiving had a normal impact on same store sales growth for drug retail.
[noise] food retail same store sales grew by 1.9% in the quarter for 80 basis points. After adjusting for the timing of Thanksgiving. Our average article price was 0.8% for the quarter.
Our same store sales performance in the quarter was negatively impacted by approximately 60 basis points from non foods sales, most notably tobacco normalizing for non food sales are Thanksgiving adjusted same store sales were approximately 1.4% in the quarter.
As I'm sure. You're noted you noted based on Investor feedback I am pleased to let you know that starting this quarter, we reported our average article price, which reflects the average price of the specific mix of goods sold in our stores in the quarter as in the past we will continue to provide incremental inflation color as required to help you better understand the impact of inflation.
On our performance.
In the quarter, we delivered positive momentum in our food business, including positive comps in both traffic and basket, we increased our promotional activity and made deliberate and measured investments to continue to improve our sales performance.
In the quarter retail gross margin was 29.8% excluding the consolidation of franchises retail gross margin declined 10 basis points compared to last year, driven by pricing investments in food and drug mix within our prescription business.
Retail SGN as a percentage of sales of 19.8% included 285 million dollar benefit related to IRS 16, excluding this benefit and the impact of franchise consolidation retail SG name was flat year over year RSU in a performance benefited from continued progress in our process efficiency initiatives.
With productivity improvements offsetting continued investments inflation and timing as mentioned in the third quarter.
Moving to PC financial revenue included a negative impact from a $19 million reclassified between revenue and expenses that had no impact on earnings. Excluding this reclass revenue increased by 6% driven by growth in our credit card portfolio and continued higher year over year sales at the mobile shop.
The adjusted EBITDA contribution from PC financial grew by 75% compared to last year. This represented strong growth for the quarter driven by our revenue growth and a reduction in costs relating to timing of our investments moving into 2020 were focused on continuing to invest in the business as we ramp our new payments platform.
Adjusted consolidated EBITDA margin was 10.4% in the quarter normalized for the impact of fire for 16, and the consolidation of franchises. The EBITDA margin was flat.
In the quarter fully diluted earnings per share were dollar nine on a comparable basis to last year. After excluding three cents per share from the incremental depreciation from a spin out of choice one cent impact on EPS from my oppressed 16 in a three cents per share positive impact from the timing of Thanksgiving fully diluted earnings per share for the quarter words.
All are 10, an increase of approximately 7%.
I have for US net earnings available to common shareholders from continuing operation was $254 million.
Free cash flow was $272 million this quarter in the quarter, we repurchased 2.3 million common shares at a total cost of $163 million.
Turning to the full year revenue grew by 2.9%, we delivered same store sales of 1.1% in food and 3.6% than drug our food sales momentum has continued to show improvements over the past two quarters and drug sales performed very well in both front store and pharmacy.
We saw continued cost pressures in 2019, including the significant health care reform from 2018, which we did not lap until the second quarter. Our focus continued on driving process and efficiencies throughout the business, while we invest to position ourselves for the future on an adjusted basis, excluding the impact of fire for 16 and choice spin out.
EBITDA grew 4.1% net earnings grew 3.4% and diluted earnings per share grew by 6.4%.
Free cash flow was $1.2 billion with free cash flow from retail business had approximately 1.5 billion, we repurchased a total of 13.6 million common shares at a total cost of $937 million.
Looking ahead to 2020 on a full year comparative basis, we expect to deliver positive same store sales and stable gross margin in the retail segment deliver positive adjusted net earnings growth invest approximately $1.1 billion and capital expenditures and return capital to shareholders by allocating a significant portion of free cash.
So to share repurchases.
Please note that in 2020, we will have an extra week, we estimate that the resulting incremental impact on our earnings per share in the fourth quarter of 2020 will be approximately eight cents.
In conclusion, we are focused on continuing to improve our sales performance when we make the necessary investments to deliver long term value. We are on a multi year journey to take cost out of our business. These savings offset ongoing cost pressure and are helping to fund our investments in our strategic growth areas 2020, we'll see US continue on this path.
As we invest in our strategic assets to position us for long term success and value creation.
I will now I'll turn the call over to Sarah to provide additional color.
Thank you Darren and good morning, everyone. In Q4, we continued our positive trading momentum shoppers delivered another impressive quarter with continued leadership and beauty strong performance in cold and flu and the best pharmacy comps that we've seen in five year led by strong script count growth and our food business you may remain.
But from our Q3 calls that we reported an improved trajectory for food tonnage and sale that continued in Q4, we invested in sales by promoting items in Q weeks lowering prices and the REIT market and giving more relevant offers to our customer. We're pleased with the result, our tonnage share basket and traffic all increased and the.
Quarter.
Our ability to generate sale and hold market share with stable margins. The key as we expect competitive pressures to continue in 2020, our business, including our brand stores and digital services as well positioned to do so we've continued to refine our food pharmacy beauty and apparel E Commerce business.
Improving customer service by shortening the wait time between clicking in order and receiving.
Our customers rewarded us in 2019 with more than a billion dollars and E commerce sale almost double that of the previous year, while we offer often refer to our online Sid business. The impressive growth and E. Commerce is right across the board, including mass and prestige cosmetics prescription and character of their services.
We are assembling the right pizza to lead and everyday digital retail with increasing stability in our base business and confidence in our strategy, we continue to invest for the future.
We are investing in infrastructure announcing the closure of Q aging DC and migrating to a modern facility for time more productive we are investing in innovation. We have many examples of this across our business, but let me highlight a couple we're testing and expanded centralized automated fulfillment model for some of our highest volume.
Scripts and Matt to free up pharmacists for more personal service to their patients and then another example is the micro fulfillment center that we are installing in a foodstar to test automated picking close to the customer.
We continue to invest and data and analytics scaling up resources and our infrastructure to better support our strategy. Bob on media is a great example of a business that is benefiting from our data asset to drive customer purchases and insight for our vendor.
And we are investing in the next steps of our payment and reward strategy. This includes investing in our PC optimum app, which is being used to market more of our services and to generate leads for our PC Mastercard MPC Express businesses, our investments in our PC finance all digital platform are setting the stage for next gen.
Jason payment product that will launch this fall it will be an everyday spend and save account combined with the nation. Most trusted loyalty program. We're currently in pilot with live accounts and the feedback is positive.
Looking back at 2019, we did what we said we would do it wasn't necessarily a straight line, but following some midyear adjustments. We showed that we have the assets to attract customers and defend and grow our market share with solid sales and customer satisfaction and check we have an exciting strategy to take us forward to help Canadians live.
Well I'll now turn the call over to gallon. Thank you Sarah at the close of 29 team I'm satisfied with our progress our results reflect the challenges of competitive marketplace met with a strong strategic plan sales have been hard one as we made meaningful adjustments to our merchandising and promotional programs throughout the year at the same.
Time, our industry is in a transitional phase with new cost pressures potential competitive disruption and exciting new opportunities. We will continue investing in those opportunities with conviction as we see a number of them beginning to bear fruit.
In 2019, we delivered EPS growth of over 6%, while ramping our investments we continue on this path and Twentytwenty endeavoring to strike the balance between our passion for customers unlocking productivity through processing efficiency savings investing and lost future and delivering appropriate returns to shareholders. Thank you.
Thank you galan.
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Your first question today comes from the line of Karen short of Barclays. Your line is open.
Hi.
[music].
Next question.
So.
Reported.
Eight.
Can you give a little color.
Masking the context.
3.7, because that's obviously.
That's a wider gap than we previously seen.
Sure, Yes, good morning, Karen's Darren So as mentioned when you exclude the right hand side, our food comp would have been around the 1.4 range and where we look at average article pricing, we exclude the right hand side. It would be just slightly under that more about 1.3%. So it just gives you a better.
For the indication relative to where we are now recognize that.
That represents the average article price Thats not the same as CPI, which is the same hundred items in the price of those under 100 items. This represents the actual mix that we saw in the in the stores.
Right so that 0.8.
Versus.
Again 3.7.
Yes.
I would tell you on the surface that you're getting more.
So again can you frame that in the context.
Because obviously your gross margin.
Yes, I mean, we definitely have improved increased the promotional intensity as we've talked about on prior quarters and and again on the food side average article price would be more in the one three range and when we think of CP VI, we I would say our basket on the on a like apples to apples basis, we'd be moderately lower.
Other than CPR.
Okay.
And then within Capex.
Okay.
As it relates intangibles.
And then I'm asking in the context of how we should think about depreciation in 2020 versus 19 capex needs.
Depreciation.
Yes, there is no when you think about the overall capex I Wouldnt say, we're changing the composition we have been over the last couple of years, but niche 2020 will look more like 2019, and so it's investing in foundation productivity and innovation most of that foundation has kind of the brick and mortar. It's still the largest unknowns spend then productivity and on the small.
Other amount would be in innovation on depreciation as a result for the last few years and just the cycle as you spend more in IP and things like that I.
I would expect it to be a little bit higher next year in terms of depreciation.
Okay, and then any thoughts.
The CP.
I guess.
Look like.
I don't think we can provide color on that care.
It's so hard to predict where inflation is going to go and cpis.
Thanks.
Your next question today comes from the line of Mark Peachtree Sci BC. Your line is open.
Hey, good morning had a couple of questions.
So you guys are a leader in private brands.
Competitors are putting significant emphasis on closing that gap do you expect private labels to be an incremental benefit in 2020 and from here. How do you innovate in order to drive sort of incremental penetration.
Hi market, Sarah So I'll take that so yes, we expect that our control brand will have an impact in 2020. So we do have large penetration of control brand, but we expect to increase the penetration.
In 2020, we do have some targets to do that and watch with control brand. It does result in higher margin as well. So it should have an impact and in terms of what areas. We while we follow the food trends.
So we have a team that does that go around the world looking at where the trends are going so certainly a big focus area for us will be and non meat protein looking at plant proteins that will be an area of focus and different areas to always trying to come up with new innovative brands for our control brands.
And if there's still opportunity for sort of harmonization between the food in pharmacy business or is that pretty much set.
Well, we have an initiative that's ongoing now with the life brand transition. So life brand is moving into the food business. So we will have.
All of the brand so PC no name and life in both of the food and the shoppers business.
And the life brand with its new packaging.
And it going into the bids Darth is something that you should expect to see throughout 2020, the transitions already started.
And it will continue throughout the year.
Okay. Thanks.
Just on this but I just wanted to ask about the level of media business.
It's launched but could you just give some additional commentary on sort of the scale today and then some sense of how material you think the contribution.
From that segment over the next year too.
Yes, I would say the loblaw media businesses that is an interesting one for us because it does take advantage of the data that we do have and we see it as a win win win win for customers because they get more relevant offers a win for the CPG companies because they can direct their advertising at a more precise.
A way and win for us because it is the revenue and new revenue stream for us. So in terms of how big do we think it will get I'm not prepared to tell you yet, but I would say in 2020, we're pretty pleased that it's going to be EBITDA neutral. So there's not too many new businesses that are basically EBITDA neutral in their first year and we've.
And working with quite a few different CPG companies.
Some of them are very excited about what they're seeing in terms of the opportunity to really target directly to customers. So I think lots of interesting work to be done there. When you think about the addressable market are the CPG companies in Canada spend about $2.4 billion on.
Digital advertising so it's that market that we would be looking to address.
Okay. Thanks, a lot.
Your next question comes from the line of Irene Nattel of RBC capital markets. Your line is open.
Good morning.
Questions, if I might just around the issue of drivers of same store sales balance the same store sales and margin and the competitive intensity. So clearly there was a trajectory into mid course correction in 29 team where are you satisfied with your same store sales performance in Q4.
Sure and or should we expect more tweaking in 2020.
Irene et cetera, So I think when we think about Q3 in Q4, where we would have made back corrections in order to improve our trajectory we're starting to see some traction. So we're pleased with what we thought in Q4, when we think of that investment that we made a we did use our data driven insight.
We feel like they are working while we are pleased with.
Developments there, but in Q4, we also looked at some traditional pack decks, we were promotional in the quarter, which did resonate with customers and did have a.
And impact on net sales and margin in the quarter. So in terms of how satisfied are we were satisfied with where we ended the year and we hope to hold share. So when you look forward to 2020 were hoping to hold our increased market share in any quarter.
Okay, that's great and and I guess, when we had the Q3 calls you were talking about what you size of heightened competitive intensity can you comment on how that evolved in Q4 in I guess 2020 to date.
Yeah, I would say in Q4, we did we continued with a heightened competitiveness. We are I think both and both my comments and Darren comment.
It is the balance that we're trying to look for in 2020 to have some market share make sure that we keep our kind of share make sure. We have some sales, but also how stable margin. So that ultimately the goal, but I would say right based on where with the competitive position is right now we feel confident that we have the right plan in place.
That's great and and one more question, if I might and I guess this is survive a more of a 35000 feet want so EPS grew 6.4% and 2019.
Which is below I guess your targeted growth algorithm and you noted that you invest at the word investing.
What is one that was used an awful lot in the scrap so how would you describe 2020 is it another investment year is it as much of an investment years 2019, and how should we be thinking about the growth algorithm at this point.
[laughter].
Okay, we're going to start I'm, just thinking that I've never used growth algorithm with with our financial framework, but.
As we thing I mean, as you know we have a financial framework, which is in the long term the way I would describe things today is we continue to be in a cycle, where the industry is quickly changing we're driving RP any as aggressively as we can to offset our cost and help enable or investments, but you heard the theme we continue to invest because we think.
With all the changes in the industry and where we're at its the right thing to do and those investments were not in a position where those are a tailwind yet they continue to be a headwind.
That take the increasing cost pressures in the business I would say 2020 best way to think about is really a continuation of where we are in 2019.
That's very helpful. Thank you.
Your next question comes from the line of Michael Van <unk> of TD Securities. Your line is open.
Thanks.
Just want to start off by continuing to line.
Tonnage commentary and question. So you did make good progress stabilizing and after that big fall in Q2.
But now that you've kind of got back to normal or stabilized same started tonnage do you see a way to go back.
And revisit your promo efficiency efforts and maybe do it in a more and a different way that's less.
Let's have a negative impact on tonnage and can continue to help drive margins.
Yes, so I think that would be what our intention would be that we are using.
Data and insights we are building a skill set that is increasing over time and our idea would be to maintain our market share and and increase our sale and have stable margin. So that is absolutely what we're trying to do.
So what would you do differently or are you able to actually kind of pinpoint anything that you're do differently that.
You don't have a recurrence or what happened in 2019.
Oh, I think our key would be just.
Narrow the framework so not allow us to have any ill.
Waiting period, we weren't we allowed ourselves to you.
As we went through the algorithm we were prepared to leave.
Intentional profitably some of the lose some of the bad share. We now feel that we've done that and we're in a good position and we'll just hold tight to that going forward.
Okay.
In your outlook statement you talk about.
Gaining some operating leverage.
But when you look at Q4, there was no real timing impact.
Backs.
And it was flat year over year say there is no operating leverage in Q4, what is what are you going to do differently in 2020, you Didnt during Q4.
So Mike it's Darren.
SGN a when you do think about the fourth quarter.
There was some timing we mentioned in Q3, so that would have impacted us a little bit.
We're obviously flatten in all in all I think we're pleased with flat because we did drive a lot of productivity that offset some of the investments at the productivity is really in that kind of 20 to 30 basis point range and that gets offset by cost increases and what have you.
We never said when we were delivering 30 basis points in the first half of the year, We said thats not what we would expect our goal really is to maintain our rate, but improve it overtime and I think as you think about next year, that's really going to be the continued theme and then as we get more and more traction with our investments we'd expect to start seeing.
Improvements in the rate as time goes on.
And on that extra week.
Yeah, you pointed to an eight cents benefit.
Last time, you then I think in 2014, there was an 11 cents benefit at lower net earnings and.
And a lot higher EPS. So why is it a smaller impact this year.
Yes, Mike its.
Good point I mean, obviously wasn't here six years ago, but I mean, we've gone through this in lot of detail in very comfortable we probably will find the estimates over time im very comfortable on the on the eight cents.
I think you could just we would calculate it based on the timing of when the holidays fell so it's not going to be exactly the same every every seven years until it's in that mix.
As well.
Okay, and then just slightly on the general merchandise that you're able to add.
Give us a ballpark idea as to what percentage.
Of sales that right hand side of the store accounts for.
Overall, and and what's your strategy to deal with the weak demand on that side.
So we're not going to we're not giving given the.
The size of that we are still seeing some.
Some declines no as I noted in my prepared comments the largest part of the drop this quarter was from tobacco due to a legislative change in the packaging and just some disruption that that happened as a result of that but beyond that we do still could see a softer environment on the apparel and the GM side and we got a.
Number of actions in place to it to try to improve that some of that is happening industry wide, but we feel pretty comfortable on number of steps, we're putting in place to address.
All right and I assume you're not willing to give us any specifics on that front.
Oh I would say it just comes down to a regular category management. So when you think of the G.M. side.
It's just allocation of space and have we allocated to much space to areas that aren't growing or in our in decline.
So we're piloting a few things you would've seen some of them in our starts if in certainly in superstar room, where we're looking at a party as an example, and then we have plans to expand.
In pet, which would be another area, where we see we don't see the declines so it would be regular category management for now and I think from Darren point, what you should expect it don't expect the right hand side to add growth.
The sales, but we don't think it's going to be a big as big a decrease as we've seen.
In the past few quarters.
Alright, thank you.
Your next question comes from the line of Patricia Baker of Scotiabank. Your line is open.
Thank you very much for taking my questions I want to come back on a this discussion on a on GM and in your last comment that you made Sarah would that would I be right in interpreting is as you feel that youve stabilized the gross that your general merchandise side of the business currently.
I think we've stabilized our topic, then understand where we are but I don't think that we necessarily have adult the industry issue of GM declining. So I think thats what were expecting going forward.
So from our own perspective, we've stabilized, but I think that there is a declining trend in the industry and that is something we're going to have to deal with going forward.
Okay. That's very helpful. And then just and Darren when you were discussing a general merchandise side and you noted that the biggest impact was tobacco just just curious as tobacco always been considered part of GM.
It's been right hand side not enough pardon GM, but just when we think a non food sales and right hand side okay.
Okay sure when you think of the non food it would be anything from general merchandise apparel that pharmacy is actually in the non food side of the food business does and then it would be tobacco and all the miscellaneous things. So we don't normally highlight tobacco because it's not a big piece, but it did actually have an impact in the quarter due to the legislative changes.
And your.
That ears.
In Q1 or Q2, you'll have that tobacco issue behind you I am I right.
Yes, the supply issues are now behind us I mean, thats still a declining category, but nothing that.
We'd have to call out.
And then in the opening remarks, and giving the guidance for F. 20, you noted that you expect to competitive pressures to continue and am I right in assuming there you just talking about the general competitive nature of the market not anything.
Any greater intensification that you're anticipating or something new impacting the grocery market.
I think we're just expecting it to continue to be competitive and we know that some of our competitors are adding new stores and changing some format. So that's going to continue in 2020.
Just like what we saw in 2019.
Okay fair enough and thank you very much for <unk> for providing us with the update on what your ecommerce businesses now the $1 billion in 2019.
It is a greater proportion of that still click and collect versus delivery to home.
The greater proportion as click and collect and when you consider the billion dollars. It's actually all of the ecommerce businesses. So with all saw.
Hi growth. So it would include food. It would include beauty and it would include pharmacy, so $1 billion represent all of them on the food side, though the it's predominantly still click and collect.
Okay. Thank you very much Sarah.
Your next question comes from the line of Peter Sklar, VM, Oh capital markets.
Line is open.
Thanks.
I'm, just referring to one of the numbers you provided in the supplemental information deck, where you drill down on kind of give this adjusted retail EBITDA number.
Excluding the impact the accounting affected by a for 16 and your EBITDA in a in the retail business was down slightly it was 850 million versus $855 million. That's in a quarter, where you group grew as a top line over 3%.
I'm just wondering if you could explain like where you forecasting.
That your earnings would be flat to slightly down and.
Like what I assume you.
Thought going into the quarter, you would grow the business. So what Didnt go your way during the quarter.
Well I think there's there's there's two things I'd point out one is we call them Q3, there is some timing impacts between certainly between the quarters and just year over year has obviously lots of moving parts on investments in timing so.
That is a big part of it and then as we've mentioned Vocera night, we did increase the promotional intensity that did cost a certain amount of money and so as a result of those two things combined we have more or less flat performance and in retail profit, we do expect that to improve as we as we are incentives.
120, so I would look at it more as a as a Q4 thing at this point, but I wouldn't say anything didn't go the way that we plan, we're managing the business as an enterprise. So we knew the forecast and what we expected the bank to deliver in the quarter as well. So we knew we how much we could invest to come in where we where we're planning for the quarter.
Okay and.
And when you talk about a calendar effect, you're talking about that there was like what really one less week of Christmas shopping.
No I was referring to just timing of investments not everything's a linear straight line and so when you just look year over year. It is obviously lots of detail behind things in quarter to quarter, you do have the impact of timing on certain things.
I would be more just the timing of all them many moving parts.
Okay.
Okay. Thank you.
Your next question comes from the line as Michelle Shreedhar of National Bank.
In line is open.
Hi, Thanks for taking my questions just on the to the rail blockages across Canada wondering if investors should consider any impact to loblaw.
I know some of your suppliers are talking about it.
Yeah, I think from our perspective, our logistics team and supply chain team have actually done a nice job and not dealing with that and having a mitigation plan. So.
It hasn't been a big impact on US we've moved from rail road.
So you Shouldnt expect at this point a big impact on.
On our performance in in Q1, a few delays and deliveries to the Atlantic region, but.
Everything that's manageable.
Okay, Thanks for that and.
The efficiency and productivity initiatives.
I believe as noted above 20 to 30 Bips I think those in Q4, so thanks for that color.
And a few 2020 as those initiatives continue should we think a similar kind of level or would that cadence approve or slightly reduced.
Our ambitions are similar next year, we've got quite.
Please with the multiyear roadmap. So we're we're continuing to find levels of process efficiencies that are equal, though again it just.
Make sure you recognize that number goes off against cost inflation and the investments, we're making but I thought it'd be helpful. Just to frame the size of what we're doing and peony because we're we're quite pleased with what we're doing.
Right right absolutely.
It does get off Thats, you mentioned that so thank you.
On the right hand side I think it was noted earlier that.
Some of the pressures you're experiencing or industry wide.
And tobacco aside I'm wondering what.
Particular categories are you, noting this industry wide pressures in are you talking to.
Sales pressures or margin pressures are both it can give me some maybe large categories help me understand issue banner.
I would say in terms of general merchandise and apparel it would be a big piece of our business. So certainly apparel has been impacted.
And as an industry trend I would say.
Some of the home item.
Would also have been impacted so those would be the the big areas that we would say from a and impacted by having people moving online for some of those purchases.
So it's a big E com draw when you think of some of the competition that's come in those areas.
We're also focused on our E com penetration in these areas so really.
Putting more online and getting more penetration there. So that's one of the strategy is ramped offset point.
Okay.
It is Joe fresh is that still a strategically important business level.
Yes.
Okay.
Just moving on to.
To another question here I guess.
The old favorite.
Conventional sales growth versus discount is it still fair too.
Assume that discount is outpacing conventional.
In the Q4, we would have had a market share gains in both our discount and our market business.
But it's fair to say that the market. It has gone more to discount there is more space in the industry allocated to discount.
Then there is then there was say five years ago, so that delta the trend is still there but in terms of our business, we saw market share growth in both of our divisions.
Thank you.
Your next question comes from the line of Chris Lee pardon.
Hi, This is open.
Hi, Good morning. My first question is just on on E Commerce.
It sounds to me I mean, one of the positive surprises so far if I look at just the click and collect business in general you listen to what you guys have been saying and listen to the big US retailers. It seems like the click and collect business is doing really well and I guess my question is in Canada in particular.
Do you think it's partly a function. The fact that there was really not a strong home delivery solution, yet or was there something inherent within the click and collect model that you guys are seeing that is really.
Resonating with customers and therefore, even if there is a home delivery solution that there's click and collect is still going to be strong model going forward.
I think we believed that the click and collect model will be a strong one going forward and Canadian have a adopted it readily and in our business, we have a higher growth in the click and collect business than we do and delivery, having said that we believe and giving our customers choice. So we're always going to offer them different.
Alternative.
And that's how we expect to stay competitive going forward.
Okay. That's helpful and May just a follow up on that for for some of your stores that have been often click and collect for the last three or four years can you share with us how how those stores are comping up for the click and collect piece of that business.
Well I'm not going to give you specific comps on those stores, but what I wouldn't say is that we are comping positive. So our growth and 2019 is a combination of comping positive on existing stores, and adding new customers and adding the frequency of customer to do shop with us. So it's all three of those things I would say that we're seeing.
What we are pleased with is the retention rate that we have in the repeat business of customers that we have some customers who continue and we'll do multiple orders in a week.
And keep coming back for it. So clearly are satisfied with the service and continue to you that and Chris we are seeing a number of locations, where we're having to expand the the amount of space. We allocate for PC Express just based on the demand that we're seeing so.
Okay. That's helpful and then.
For your PC insiders program.
So with us what percentage of your click and collect customers are on that.
Insiders program, and therefore get sort of free click and collect.
For the year.
We would have I don't know their percentage and I'm not sure I would be prepared to tell you anyway, but it would be a small percentage and I would say that our click and collect customers would be a much bigger number than RPT insiders customers at this point in time.
I see okay, and my last question as I as much as you guys is every call. It just in terms of the drug reforms anything.
Sort of aldred out of the ordinary that we should be aware off.
2020, that's reflected in your guidance.
Well, if there's anything out of the order and Chris I mean, as we've always said in the past we always expect ongoing drug reform Twentytwenty will be no different we do we will have headwinds from drug reform there won't be the same extent that they were in 2019, but we will see some pressure from from drug before.
Thank you all the best Oh, yes.
Yes, Thanks, Chris.
Your next question today comes from the line of Irene that's half of RBC capital markets. Your line is open.
Thanks, just a follow up question on Charlotte right hand side of the store GM.
It seems as though we mostly talk about it because it's a headwind and it's certainly a much smaller part of the business. So can you walk us through the thinking around that whole right hand side of the store in is it really about needing to surface.
Well the real estate or can you talk about some of the strategic rationale.
I would say that where we like being in the GM in apparel business, but when you consider our suite of stores, we have over 2000 stores and we would have GM in apparel in a very small portion of those the most of our stores are actually small when you consider the shopper stores and all of the regional small stores, we would have a coffee.
Entry so it's not it's not a huge base of store in those stores. It is a question of making sure that we have the most efficient turns other products that we sell in those stores and we are looking at a different things to do it. The space. For example, we are building that.
That MFC in one of our stores that will take some space. So I think over time, we will have to decide what it is that we put in the right hand side.
As more of that business goes online.
Okay, that's great, but as you say I think it's a it's a small piece of our business and we generally haven't been talking that's about it and this particular quarter, we're only talking about the tobacco piece.
We don't actually think that the right hand side had a significant at 20 basis points. So it's not a significant impact on our sale.
So we would prefer not to talk about the right hand side, but when it has a big impact, but we will.
Thank you.
Your next question comes from the line of Patricia Baker of Scotiabank.
Our line is open.
Yes, I just wanted to follow up on your earlier discussion, Sarah where you indicated that with respect to what's going on with the rail blockage and whatnot that you switched a you know from rail to <unk> to grow transport.
And.
Is there incremental costs associated with making that shift and then as you look through 2020 and think of rising costs is this is a scenario where do you think we're going to seek certainly cost inflation on the transport.
Sure.
There is the cost to making changes in terms of going rail versus road, but it's not a significant cost that were highlighting as an issue and I guess, depending on how long. This goes on for were not highlighting it as something that we need to worry about for Q1, but I think in terms of the cost per.
Rushers on road and and transport in General They will continue in 2020, and it's our responsibility to make sure that we have a we make our business more efficient and look for ways to offset those costs.
Okay. Thanks.
Your next question comes from the line of Mark featuring the ITC.
In line is open.
Hey, Thanks, I just wanted to ask about sort of the strategy in terms of addressing urban markets and obviously you guys have vast network across formats, but.
But in terms of both the in store experience and capital investment could you just talked about how you are evolving.
Your approach to the your to urban markets and if this is an increasing area of focus or are sort of how how you're looking at it today.
Well definitely the urban market would be a focus area for us that is where the population growth is coming in it would've been the strategy behind the shoppers.
Acquisition, all those years ago.
So I would say, yes, we are focused on urban strategy. We are focused on providing food in the shoppers stores in order to deal with that strategy and we are looking at different opportunities to serve that market. We did open I.
Click and collect.
Offering and in an urban market in a bottom up a condo to in order to serve that so we are looking at different ways to serve the urban customer whether it's through our traditional stores, whether it's through shoppers, a new food offerings or through click and collect or delivery services.
For sure we're focused on the urban area as well.
And I guess the question then as you know is this more sort of I'm sort of marginal tweaks or do you see opportunities to do something sort of more significant to capture a larger percentage of that population growth.
I would say that were from at new real estate perspective, if not we will have a new store in the urban area. This year about in Toronto, but I wouldn't say from a realistic growth perspective, it's not huge but.
But I think what we are doing in terms of changing our offering.
So whether it's an offering through.
Delivery or through click and collect or the actual change at the offering by offering meal cat or meals in a variety of different ways that would also be all aimed at the at the urban consumer.
And when you think of what we're doing bore meals that would be anything from Neil baskets, combining curated grocery items or fresh meal kit or quick meals are ready to eat Neil So we have a whole bunch of different offerings that are being tested in different stores.
In the Toronto market.
Okay. Thanks, and then just to follow up on the E Commerce topic.
I don't think you mentioned it this quarter, but you have in the past are you still seeing increasing growth and are you still increasing your offer in terms of shorter delivery windows for the click and collect for the click and collect channel.
Yes, so I would say that our customers are highlighting that they do like the convenience of a quick turnaround so that would be the one and two hour time slot for pick up would be the most popular and and that we are still seeing that and seeing growth in those areas.
Okay. Thanks.
[noise] then there are no further questions in queue at this time I turn the call back to Mr. Macdonald for any closing remarks.
Great. Thanks, everybody for your time today, Mark your calendars for April 29, one we will be easier to discuss our Q1 20 results.
Good day.
Ladies and gentlemen, this concludes today's conference call.
Thank you for participating.
May now disconnect.
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