Q2 2020 Earnings Call

Good morning, ladies and gentlemen, thank you for standing by and we'll come to that makes you think 2022nd quarter results Conference call. At this time of participants are Nevertheless says only mode. After just speakers presentation that will be a question and I'm So section.

That's the question during this session you ever meet depressed solve on on your telephone please be advised that to this consensus easily carded.

If you require any further assistance. Please specify zero I will not like you turn the conference Overture Speaker today <unk> senior adviser and best are really should address you may be getting your conference.

Good morning, everyone and thank you for doing you know city comments will focus on the financial results that were second quarter, which ended March 14th 2020.

Mr. Everything the flesh, President and Chief Executive Officer, uncomfortable Executive U.P.N., Chief Financial Officer during the call.

Or a second quarter results and comments on entirely.

That'd be happy to take the question before we begin I would like to remind you that people use in today's discussion you print statements that could be construed as what we're looking information.

General any statement, which it does not constitute historical fact, maybe <unk>. The forward looking statements, especially in such as expect intent I confident that well and other stimulate expressions are generally indicated a forward looking statements.

What we're looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industry.

Annual economy, and our annual budget as well as that we 20 1920 action plan.

Forward looking statements not provide any guarantees ask for the future performance of the company and our subjects the potential risk known and unknown as well <unk> that could <unk>.

Description of <unk>, which could have an impact on these statements could be found under the risk management section of that we 2019 annual report.

But the brits getting rid the cool with 19 pandemic constitute the risk that could have an impact on the business.

<unk> project synergies and performance of the company. We believe these statements to be reasonable and putting it at this time and represent our expectations.

The company does not even 10th that'd be any forward looking information, except as required like a little though I will now <unk>.

Thank you in good morning, everyone Hope you and your families are all as well.

Today I will be speaking first if they want to address the corporate 19 pandemic and how it is affecting everything we do.

Well then gives you the highlights of our second quarters and console, we'll discuss the results in more detail.

We'll come back at the end with more comments on our outlook.

The corporate 19 pandemic was officially declared during the last week of our second quarter, which ended on March 14th.

Starting on February 28, we start customers beginning to stockpile in the province of Ontario, followed by Quebec about a week later.

Significant surges sales, especially in the last week of the corridor, which unprecedented and record the mobilization of all our resources to ensure the safety of our employees and customers. So resiliency of our supply chain and the operations of our food stores pharmacies.

The sales of since leveled off but we are still experiencing significant increases in revenues due to the pandemic and I will give you more details in my closing remarks.

Our teams on the front line of this crisis are working very hard to to provide the essential services of food and pharmacy to our customers.

The company quickly implemented several initiatives to ensure the health and safety of our employees and customers as well as recognize a significant contribution and dedication of our employees.

We increased the I really rage for front line food store and warehouse employees by $2.

Retroactive to March eight and ending on May 2nd no extended to may 30th.

We reduced store hours to allow teams more resting time into helping replenishing the show.

Our teams did a great job of rolling out the installation of plexiglass shields to all of our food stores and pharmacies in a matter of only one week.

We are limiting the number of customers in our stores as well as imposing limits on certain items.

Apply social distancing measures in all stores in warehouses, and lastly, hygiene measures were reinforced and cleaning frequency increased.

We also increased our community investments to support our fellow citizens to work more we're most at risk through the food banks and sunk had United way.

Arching set responded above and beyond the call of duty under difficult circumstances.

They are mobilized more than ever and focused on carrying out our mission of providing a sexual services in food in pharmacy across our retail network as well as online I.

I want to take this opportunity to recognize them and thank them for their exceptional engagement.

I also want to think are affiliated metro retailers destruct with student pharmacist owners as well as our suppliers for their outstanding support since this since the beginning of the crisis and of course, our customers for their loyalty and understanding.

Turned out to the second quarter, let me start by saying that we were experiencing a strong sales momentum right up to the pandemic.

We were definitely on track to deliver a very seldom expenditures for performance.

Our food same store sales for the second quarter, we're up 9.7% and excluding the impact of dependent Nick we estimate that they would've been up by 5.2%.

That's on top of the strong performances choose to last year at plus 4.3%.

The shift of Christmas sales accounted for 0.6 per cent of our second quarter comp sales.

Or internal food basket inflation was two per cent the same as in the first quarter.

Bridge basket traffic and tonnage were all up and we were able to grow our market share.

On the E. Commerce front demand searched following the outbreak of the pandemic as some customers were confined at home or chose to limit their trips to the store.

We more than doubled or online volume overnight and the current demand is hard to me as time slots are filling up as soon as they become available.

Added a second store in Quebec city as <unk> as already planned.

Added as much capacity as possible to or other stores in Montreal in Toronto.

We just signed a new agreement with corner shop.

A grocery quick delivery service in Toronto in Montreal that will adds to our on line capacity.

Finally, we just recently launched the Metro priority service for seniors and customers in quarantine, which is a simple went form sent to their store for pickup for delivery service is now available in 130 Metro stores in Quebec, and 90 stores material.

On the pharmacy side same store sales grew by 7.9 per cent with a 7.7% increase in prescription drugs and an 8.3% increase in front store sales fueled by strong volume growth in our Rex Ando T.C. categories that drive overall traffic to our stores.

Excluding the impact of <unk>, we estimate that the pharmacy same store sales would've been up 6.4%.

Prescription count grew by 3.9 per cent.

And I would say that the extended cough and cold season also contributed to this strong performance.

The integration of our pharmacy distribution activities was progressing as planned before the pandemic crisis.

The deployment of the P., a west retail and lab management systems to our between that pharmacies was also on track with a quarter of the pharmacies now using the new software.

Obviously in light of the current crisis, you can understand that the deployment of the retail systems.

And that negotiation of our collective bargaining agreement or all on pause.

There will therefore be a delay in securing the remaining so quick to synergies at this point in time it is impossible to provide a precise revised timeline.

Last month, we announced that major investing or a future a five year 420 million investment to modernize were cut back supply chain.

They knew automated distribution center for fresh and frozen products have been just north of Montreal, Andy expansion of our produce and dairy products distribution Center <unk>.

The technology will be provided by V. drawn the same supplier we are working with for the new Toronto automated d. sheets.

This investment added to the ongoing invested in our Ontario supply chain will improve service to our stores with increased accuracy reduced handling time, resulting in more variety and freshness for our customers as well as efficiency gains for the company.

Given a pandemic related travel restrictions, we will experience some delays for the completion of the to Ontario distribution center projects as we require the assistants or foreign nationals working for vitrano.

Again, it is difficult to provide a precise reside revised timeline, but I'm certain that all parties involved will do their best to mitigate the delay.

As for the retail network in the first half of the fiscal year, we opened fire new stores, including two relocation and expanded converted or remodeled 11 stores for a net square footage edition of 115000 square feet or 0.6%.

At the moment all retail Catholics projects are on hold in Quebec, because of government government restrictions, but our Ontario projects for this year will be completed.

I will know turn it over to Francois will cover the quarterly results in more detail and I will come back after to provide color on our current situation and outlook.

Hmm.

Good morning, I also wish to express my best wishes of health to everyone on the line.

I never second quarter I total sales reached 3.99 billion versus 1.7 building last year, that's an increase of 7.8%.

Excluding the impact of Viper Sixteens sells reached 4 billion or an 8.1% increase.

Drive up the strong performance yourselves organic growth, including a small positive impact the Christmas shift.

I was Eric stated earlier, we experience a surgeon sales and last two weeks to the quarter due to the cup in 19 crisis, we estimate the increase in cell due to the pandemic at 125 million.

Excluding the speaker total sales for the second quarter would have increased by 4.4% year over year.

Or gross margin stood at 19.7% of sales or 20 per cent one adjusting for the impact by for 16, and that's compared to 20.1% for the same period last year.

Operating expenses as a percentage ourselves came in at 10.3% versus 13.2% last year or 12.2% when we exclude the retail network restructuring expense and the law somebody <unk> pharmacies.

<unk> second quarter last year.

Testing for the impact by for a 16.

The ratio of operating expenses on shelves of this quarter stands at 11.7 per cent of cells.

Reduction of 50 basis points versus last year as many of the result, the strong operational leverage given a significant increase in itself.

The fact that we have cycle the sharp increase in transportation costs that occurred early in the second quarter of last year.

You adjust it a bit dusted at 374.1 million.

That's up 80.5 million and represented 9.4% of sales versus 7.9%.

Sales for the corresponding quarter last year.

Excluding the R.S. 16 impact adjusted EBITDA was up three 6.1 million or 12.3%.

Represented 8.2% of sales.

During the quarter, we captured 50 million in Costa energies relate to the structure acquisition the same level wasn't the previous quarter.

<unk> bases are we realize synergies remain unchanged at 65 million.

Adjusted net earnings were 182.8 million compared to 155.1 last year.

17.9 per cent.

Just a net earnings per share or 72 cents versus 60 cents last year and increase at 20 per cent.

Increasing sales, resulting from the pandemic positively impacted their earnings per share by about three cents.

Our total capital expenditures in the quarter stood at 95.1 million versus 69 million last year.

Indicated that we won't be facing delays and some investment projects and therefore, the indication that we gave up at 550 million of cap extra year, we'll need to be revised downward we will do so at the time already sort the recorder results.

I would like to M.I. dressed by stating that we are fortunate and this time of unprecedented crisis to maintain a strong financial position.

On February Chad effective February 26, we issue 30 your notes for them out of 400 million adults at an all in rate of three point, 41%.

The proceeds we're used to reimburse or floating rate notes, a $400 million that were maturing on February 27th.

We have no debt coming due until December 2021, and we also have an unused 600 million revolving facility.

<unk>.

That's it for me I will now turn it back to average.

[noise] [noise], so as I said earlier, we saw.

Spike in sales during the last week or the second quarter.

Search continued in the first week of the third quarter for both food in pharmacy.

Stockpiling, then started to ease off but we continue to experience significantly higher food revenues due to the covert 19 endemic.

People are eating more at home.

In the first four week period of our third quarter, starting on March 15, ending on April 11th.

Food same store sales were up 25 per cent versus last year.

In all format, we are seeing a significant reduction in customer visits.

Significant increase in baskets eyes that his customers are doing a much bigger and fuller shop.

The largest increases are in the grocery and meets departments.

Larger basket size.

Into a higher average price per item.

And the lower percentage of items sold on promotion.

Situation that is also amplified by the request of certain suppliers to stop or reduce promotional activities to avoid predict putting further restraints on the production line.

However, we are also encouraged higher operating expenses.

Namely in terms of labor safety measures maintenance.

In addition to volume driven increases.

<unk> in labor distribution in other Cox.

On the pharmacy side prescription sales are holding versus last year, but we are experiencing a decline in front store sales.

<unk> emphasis on providing medication first and foremost and the safety measures currently in place that reduced physical access to pharmacies.

Pharmacy front in sales in the first period of our third quarter are down 9% versus last year and that metric has been trending down over the period.

We expect front store sales to improve from current levels as commercial activities will be gradually expanded into coming weeks.

In closing at this time it is impossible to determine how long the situation will persist how gradual to return to normal she will be.

And what this new normalcy will even look like.

Will continue to serve our customers as best we can while providing a safe environment for them and all their employees.

We will run our stores in warehouse operations as efficiently as possible mitigating the increase in expenses without compromising on health and safety measures.

So that precludes my remarks, and we'll be happy to take your question.

Thank you <unk>, if you'd like that's a question. Please pets are one on your telephone keypad to my child question posted on.

<unk> <unk> the question. Thank you.

Yes, it's cross the line that's carrying sorry, sorry, Please go home.

Hi.

I mean, even higher.

Cops were extremely strong and I know you said.

Wondering if you could just get a little color on what what.

And then.

Questions.

<unk> I would say that as I said in our <unk> report in January Q1 was affected negatively and cute to a little favorably because a bit of a Christmas shift so like.

That was about 0.6%.

But I think in a in a starting after Christmas or momentum with strong January February it very effective merchandising across the business.

Really drove our food sales, we so we saw Ah good.

Very happy with that performance. The teams did a great job on the pharmacy side, we felt very positive cops to for for those periods pretend they make driven mostly by or X.O.T.C. categories, very strong cough and cold season. This year extended <unk> <unk> <unk>.

That part of it but it's all part of the effect.

Program.

Good good the Flyers good digital programs good execution of store level. So, it's a bunch of things, but to very happy with that performance.

Okay.

What you're seeing now.

<unk> <unk> <unk> <unk> explained the same pattern that you've just explain with respect to tie.

Basket.

I guess I'm wondering what you think if you had to kind of gas.

Shaft.

<unk>.

Kind of basket Peters down.

Structurally hired a basket situation.

And I guess together.

With respect to the operating expenses.

<unk>.

<unk>.

Actually.

<unk>.

Become a little more normal the question is how much flexibility.

Bringing operating expenses back in line.

Embedded higher structural.

Operating expenses kind of in a new.

You're covering a lot of stuff here, but so.

I don't have lower Ah traffic hire basket, we expect that to stay for a while as long as we're in confinement as long as many sectors of the economy or not a reopened as long as restaurants for for the most park closed we expect that pattern to to be 16.

I don't have a crystal ball, how long how much. It's it's it's really hard to know.

Food at home a share is is a much much bigger than it was two months ago.

How much of that will stick going forward.

You're you're better as as good as mine I would expect that more more people eating at home today some of that little stick exactly how much is is very hard to stay or to say.

So we don't expect the basket Peter off we we we expected it to see a continued a strong basket in this crude environment. Then there will be a transition period as the economy reopened and then I guess, we'll see returned or a bit of a return to the.

I don't have more trips in a smaller basket.

But but I think we have we have some time ahead of us the operating expenses, yes, we <unk>, we extended the $2 an hour or the well deserved $2 an hour to make 30th because we saw the operating conditions being pretty much the same until then.

We'll have to review that in in the days or weeks prior to the end to me to see exactly where we are.

The time will tell there are additional expenses as I pointed out in my opening remarks.

Just for cleaning and for safety measures and Max and Shields and.

A bunch of items like that that are are here for awhile.

And we we we expect to continue to occur lots of those expenses and the next month.

But my response would be that we are expected to our sales will.

Strong enough to justify supporting those expenses going forward. So we will manage it carefully we will not compromise the safety of employees and customers and we we expected to those expenses will be will be absorbed by the additional volume.

Great.

<unk>.

Yeah next question comes on line, that's all be my fault, but are they see capital markets. Please go ahead.

Good morning, and thank you for the <unk> just picking up on the prior question around you know the entire kept the wage increase I I guess Empire quantify that last week.

Yeah that kind of points to 150 200 basis points would you would you see it being consistent for you guys.

Well, let us watch of that <unk>.

At the beginning of our quarters, so throwing out a an S.G.N. number you know without sales volume is doesn't really tell you much I think the best way to look at it it's what's that.

Contribution we get from the extra sales given the extra expenses.

Gave you a good starting point.

You know three cents per share for only 25 million in revenue. That's roughly you know roughly equates to a pre tax contribution and sales of you know between nine that happened 10.

Let's say 10 for for for for for Art. So that's that's the first point I think it we can look at obviously they were not a lot of a specific cope in 19 related expenses.

We had the wage increase yes, I for one week and I'm sure. There there were a lot of expenses that because a store that you know it was pretty.

Telling us in terms of replenishing the shelves into then the then the customer traffic and so forth with their lot of a higher expenses that we weren't.

Quantify per se related to call it.

That same time, a lot of us a lot of the purchases were done for items. You know there's lock stockpiling items that were lower margin someone promotion. So I think that's the context you have to look at that roughly 10% pretax contribution.

Move forward into three yes, we're going to be incurring a lot more expensive as Eric pointed out you know find edge for the social dispensing labor not just the the labor increase per se, but also there's more people would like to greeters and the people that doesn't affect the the the current handles.

Cleaning maintenance even credit card.

A lot more transactions on credit card, which comes at a higher fees. All this is taken into account.

You know we gave you a point we give you a fact of where we are in our seems to ourselves after p. seven.

How long, though those those that's got remain as as as ever said, you're just as good as mine, but I think.

See what those levels you can expect that we will be that contribution.

You know one two <unk> want to percentage higher than the 10% yeah. That's a realistic assumption, but again. It's these expenses Berry you know we were getting lost directives from the health authorities at the change and we have to adapt so.

Tickled to say, where that's going to end, but I think.

Have a good a a good starting point to estimate.

Central contribution that these cells will do.

Okay.

<unk> apologies for focusing so specifically on on the current situation, but obviously, that's when everyone's trying to understand if we think about the kittens upsales for the past week period that you discussed presumably yeah. For example that first week way split part of the biggest weekend in history in terms of rather needs.

Did you see sort of a normalization or yeah.

20% range.

Where we continue to run on a weekly basis.

So the the record week was the last week of the second quarter. The first week of the third quarter was a strong week. It was the second strongest weeks. So that was above 25, we're not going to give your specific.

It was a very strong number that first week leveled off.

And you end up at 25 per cent for the first four weeks. That's that's the that's the picture so that <unk>. The go forward increasing food sales it.

You know it can be you could be anywhere from from 10 to 20 <unk>, we don't don't.

Two weeks so.

<unk>.

For for for the first four weeks and we expect a strong sales.

As long as.

Economy or the confinement.

And.

Food at home is where it it.

Yeah, that's really helpful. Thank you, yeah, and you know.

Kind of luck Bosqi composition and <unk> unconventional.

Oh sure been anything other than just the sheer volume hasn't been anything surprising to you.

<unk> or trends or any behavioral aspects that you didn't anticipate.

Not not.

Great.

I would just say that the big basket.

I've had more of an effect on the conventional stores, which have a lower average basket discount store.

Reference points.

So the the the percentage boosted basket.

Even higher than a discount.

From a lower the people are limiting their trips and.

Fuller chop and so so we we saw an even larger basket increasing.

Is it proximity I think that's.

Huh.

But other than that the buying behaviour private label is up a everywhere.

I think people.

We're buying anything they could get their hands on several categories.

Private label profited from that.

Because there's no.

Shift or.

To discount because of.

Recession, we might see that down the road as we all expect a a recession.

Country, I will that <unk> customer base.

It could very well it'd be more more of a shift you and that will be will be well positioned for that but that's not what we've seen so far.

That's great. Thank you.

Yeah next question.

That's part to shut Baker was Scotiabank. Please go ahead.

Oh good good morning.

Two two questions Eric in your discussion on the front end.

But.

The fact that there should be return.

Activity will come back well gradually return or you referencing anything that you'll be doing to you know.

Get that commercial activity return or you're referencing as you expect them to.

Two.

Lighten up on some of the restrictions.

Well.

No we will follow directives or the government, obviously, but public health, obviously the college, a pharmacist, which is the governing body of the pharmacist has an influence.

And issuing directives on how to operate labs in this current environment.

So it's a it's a different world pharmacies than food right now so there there are restrictions to access the source.

<unk>.

Very few people at the same time it in the stores most all its most if not all that focuses on the lab and our accident in providing medication pick up to the patient first and foremost.

That's what they're what they're focused on.

Flyers in the.

Pharmacy and kept back over the last few weeks have been.

Offended very very little commercial program activity.

Just to alleviate pressure on the stores.

And limit the draw to the stores. So that was that was an industry.

Or a professional or.

Directive from the from the colors are pharmacists. So we we divided by that.

We are returning to a limited commercial programs starting.

Tomorrow.

Printed flyer.

Tomorrow again, so again, some some sense of return a gradual return to front front end activities.

Without putting undue pressure on the pharmacies.

Main responsibility is.

So we're looking for medication.

Prescriptions.

So.

That's what I would say on on the front end. Okay. Thank you can you talk about the.

Commercial programs that you're going to launch tomorrow.

On any particular category.

I can't answer.

I don't know what's on.

That's okay I'll just look from the fire wire I don't worry about it.

I look at them, but I don't know.

[laughter].

Listen, it's really hard for us to determine what the new normal it's going to look like but I'm wondering probably getting some kind of thought he went to the tape at any of the safety and cleaning protocols in place currently might become permanent part of the operating structure.

Yeah.

Could happen.

To what degree exactly remains to be seen.

For sure customers are going to be a expecting more from us.

Great customer reviews, sometimes not so great we're not perfect, but overall I think people live and appreciative of what we've done in our stores for them and for our employees.

And I think that's that's part of the new normal is what customers are going to expect in terms of cleanliness and sanitation and white.

Different.

Some of that I think is going to be with us for awhile.

I'd say some of those expensive, we'll we'll stay and down down the road, so it'll be our job to.

Ways to to offset them.

Maybe not to these same extent as we have.

Yes.

We expect that some of that.

Okay. Thank you very much huh.

[noise] Yeah next question constant a lot of Mark the tree habits.

Please go ahead.

Yeah. Good morning. Thanks.

Eric I guess I just want to follow up in terms of in terms of the promotional programs and you sort of you've <unk>, you've talked about it a little bit but just in terms of specifically the food business.

Obviously, there's no reason to try and drive traffic you commented.

Or perhaps it was francois.

The suppliers sort of pulling back on some of their programs in order to better managed demand and service levels.

So just in terms of your promotional strategies, how do you sort of balance all that puts and takes and and what is that end up meaning in terms of parallel mix and then gross margin.

Oh good question, so I I say, our guiding principle has been to to act as <unk> as a responsible the corporate citizen and to provide food as much as possible to to our customers. So we did reduce the page count.

Reduce the number of items on that every week, because we're not in a normal period, especially at the start of the crisis. There were supply issues shortage was you all the saw the pictures you all visited stores you. So we were going through so we have to address that flight ticking some items off sometimes at the request of our vendors and suppliers, sometimes at the request of our.

Doors, just to be able to.

Operate so I would take from mid March to mid April that's that's been the situation.

We're back to more normal levels are still some shortages and enjoy grocery and some frozen categories that are supply related not because of our logistical issues, which was sometimes the case versus during the crisis.

But my comment on the general promotional program is that fewer items on our fliers just to be able to provide as much as possible to our to our customer base. So.

Combine that to the fullest shop, the big basket, which is.

All else equal always.

Better mix in terms of between regular and special I said, the the penetration of of a specials is is lower with the big basket. So that's what we're seeing so I think it's a it's largely based on the size of the basket and the full shop behavior of the customer than than what's in the actual flier I think people are looking.

Less at the Flyer these days.

But but I can say that we have not taken prices up with our front page lead items are just as aggressive as a a aggressive as they have ever been.

And the page count as we've we've come back to more normal levels of supply I expect the page comes to get back to normal in the next in the next weeks.

<unk> okay. Thanks.

Thank you know that's helpful in and I guess, just sort of related to that last point, just sort of thinking about you know how this whole dynamic made a ball given you know changes Empire distribution and you know altered dynamics around marketing and advertising you know have you sort of adopted your tactics for communicating with customer.

There's separate from the Flyer and some of your advertising and I mean, obviously very difficult to talk about the new normal, but you know any any initial comments you might have on that would be helpful as well.

Well, we have been active on our digital digital platforms to contact our customers directly.

Erin Air miles a week.

General emails to all of our customers in all of our banners to informed them of what we were doing in terms of measures for their safety and the safety of improve over employees. So we did that at the outset.

Of the crisis as as did most companies.

The responsible to to do.

In terms of marketing and media advertising, we've not been that active to be honest up to this point or focus as you said customers are are in the store, we want to make sure we sort of them as best as best a weekend.

But you know we've been relying on the fly or basically for the for for the.

<unk>.

<unk>.

<unk>.

Are marketing plans going forward for it for all just competitive raises I'm not going to disclose on this call but.

It's it's an important part of our mix.

Marketing.

Traditional and digital.

ER merchandising effective merchandising.

<unk>.

She a successful success factor in her business. So we're going to be we're going to be doing that we could we go like we always do.

Yeah understood and just last one friend swap I might could you just give us a bit more color in terms of Oh you calculated.

The impact of the sort of Kobe 19 pandemic related spending like was the 5.2% food same sort of sales growth like was that the runrate before you started to see altered behavior at the end of February or or how did you actually go about going to find that and then also that reset U.P.S. impact.

Exactly that market. So we look at the trend up to that endemic and that's where we were tracking.

So as we were you know at the end of the quarter was relatively straightforward to to to quantify the impact given wherever you know we had only two weeks left.

We did it and we just pet obviously the.

From from a margin and from there.

And that's how we came that'd be a we estimated that profit.

Okay excellent. Thanks for all the comments desperate good luck.

Yeah.

Yeah makes cross who comes on line as Michael Van Gogh.

Security. Please go ahead.

Thank you good morning, just to follow up on that last point I quickly though.

Did you see any increase in in your Saint ourselves activity in February relative to January.

[noise].

Well, we don't care about a week by week month by month.

But as I said, when we said.

We had strong momentum in January and February I think I'll I'll leave it at that.

It was there was a strong strong stretch for for the business for the food business and the form of business across the board.

Was just trying to figure out whether maybe people started to shop, a little bit more in February but it was less noticeable.

No it wasn't noticeable for us it until February 28th in Ontario, <unk> something happened on that day.

There was an announcement of some sort and we saw the the rush for mostly cleaning supplies hand sanitizers the total.

Getting of the crisis is all about.

You know tell you what started that week that date that effectively.

Okay.

And so I think.

Thank you earlier comments implied that.

The sales benefit you expect from call that over the remainder of the year shit more than offset.

Yeah.

The increased cost that you expect to linger is is that that inaccurate summer yes.

Alright, great and now on the Commerce site, you said your volume was up.

Doubled over night and I, just two minutes at least stated that at that level and you talked about adding one more store.

<unk> can pick from and get back city, but if we assume that some of this traffic and some of this e. commerce activity stays at elevated levels.

Yeah, because its capacity was higher you'd have to think you're demand it'd be a lot higher too. So what are you doing to try and.

Increase your capacity, so that number three or four or 5%.

So yeah, so e. commerce front, we we or we've been adding capacity as demand justified or demand drove it. So what is going to be the new level up than than we expected it will be higher than it was before there's an acceleration that's a pretty safety.

Celleration that will stay.

We don't expect short term to the.

Become a sales levels to stay where they are but clearly they they have made a step change. So we will need to add some capacity. So we're looking at our different options.

Started to look at that pre pre crisis anyways, the could actually stored with something planned a long time ago. It. It takes a few weeks and months to open a a store with a with our model. So that was in the pipeline.

It opened at the right time for US, we we focused on executing and adding orders.

In Toronto.

<unk> so added staff to pick added trucks added a delivery windows. So we were able to do that.

What's that self hadn't done to grow with more we will have to add add stores or at capacity and some other functions. So the corner shop, a deal that I just announced I think for the quick order. The one to two hour window. Some people are interested in that they can they can shop or stores through corner shop.

And.

The the seniors priority order form on the web it's not a new comment transaction.

Like a modern version of the phone order, but it's it's it's allowing us to do more a web borders and alleviate some pressure on you come on your consciousness. So we're doing what we can to to meet that the madness that's weekend.

And the nine girls, we will do <unk> when do to to augment our capacity and.

<unk> the you can business, though too no no announcements on on the the future plans, but we will be looking at ways to add some some more capacity.

Based on your structure able to give us any kind of insight as to whether it makes more sense for you to add more pick her more stores or whether you're going to dark store or.

Those are all different options that we're looking at will consider carefully and we will keep you informed of our of our plans.

Confer so.

Leave it at that.

Yep.

<unk>.

Yeah. The next question on some amount of the South Street Art. Please go ahead.

Hi, Thanks for taking my question just a quick you follow up here when when you stated that the extra sales will more extra cost I'm looking forward what kind of comment.

Or or or was that entire company comment.

Stuff clearly, we're talking about food most of the <unk>, while they're costing pharmacy for short too, but as we report our numbers. We report general company expenses and contribution and that earning so the answer is for.

The old company, driven by food, where where we were seeing.

Increases.

Sales on the pharmacy site as I described earlier or tougher right now so we expect that.

For the whole company, if the food sales.

Healthy level like that that will be good shaped will soar above those expenses.

Okay, and and given that the farming sales no a little bit tougher on the fuck shop like <unk>.

I've used it again, you assistance from Metro and that's just think about that.

Well, a a tour liters per se, but we got the franchise model and we we we support are fine franchisees when when the need arises and when the circumstances justified case by case. So we'll have to review a with them how how some are affected more than others and.

Support yeah, there there could be some some additional support expenses.

But again.

Give you more color on that when when we report or third quarter.

Okay, so and just to kind of coverage D.B.R.X.

This is fair to say that the actual prescription drug category that that's barely not impacted psychopath 19 is that I mean in terms of the trend is it sounds trends that gentleman businesses.

<unk>.

Oh, we see we've seen a a bit of a softening and prescription can't we got a healthy prescription count lifting too too if you look at our number 3.9% is.

Strong number.

Versus versus Q1, so the prescription count as a as come down a a bit from that so for two or three but we're still seeing a decent R.R.X. sales got to understand there was loading in that last week of the quarter up to two.

Of <unk> and front shop that having an impact so far in the third quarter.

But we expect our ex sales to to maintain.

The delivery a home delivery of our exit significantly higher than it was prior to the depend demick, there's less traffic in the stores, which I've already described a P.R.X. medications are getting to the patients.

[noise] by delivery or pick up and store.

Okay. Okay. So so I guess looking for a reasonable way to think about it is our x. looking forward or X. You know relatively you know relatively stable issue business gunshot impacted by the commercial activities and that will continue although maybe improved from recent levels and then you just really got to figure out where.

Yeah, Okay excellent.

[noise]. Yeah next question comes from a line of Peter's Clara would be an O. capital. Please go ahead.

Morning on like gross margin percentage.

I would've thought.

But given the very high volumes are pushing through the system is you might have.

No improved their gross margin percentage given that there was some fixed costs associated with that but the actual gross margin percentage for the quarter was slightly down. So can you talk about what's in takes that are affecting the gross margin percentage.

Well the the the big lifted sales was own was basically the the last week as a quarter a lot of that was dry grocery we actually had toilet paper on special and butter on special that week. So those are not good <unk> margin items for us.

<unk> that was a bit of a a bit of a factor, but the the gist of the quarter was non coded.

And our margins we thought were were fine we got a good sales and the mix we were happy with our next away.

For me there was no issue with our gross margin in the quarter. We were we were comfortable where the with the levels, we were <unk> and poeschl.

Okay and.

The fact that there is.

Ooh.

No less reduce promotional intensity, how does that impact margin because to some extent the promotions are funded by your C.P.G. supplier. So I'm just wondering if that might have less of an effect on margin then we might initially thing.

[noise] well I think the main driver of of the gross margin on the food side is a is a promotional mix between a regular shelf and.

And.

So.

It's a good driver of Ah that's good for margins, we're not taking places up but if you're selling a percentage proportionately less on pro more your gross margin should be should be in good shape. You have to think that you have to offset that with some some departments that are not doing so well, even the food stores like H.M.R., which is a high gross margin area.

Those sales are pretty quiet. These people are cooking from scratch more and more.

Not not buying the H.M.R. offers so much so that's a negative effect on on gross margin floral department. Some some areas are are not doing so well, but overall the gross margin with the volume we asked the big basket we have.

These days is is in good shape.

Okay, and then just [noise] lastly, when you're disclosure for Q3 [noise].

You talked about a pharmacy commercial same store sales what do you mean by commercial.

Yeah.

Yeah.

Front store, okay, great. Thank you.

Yeah next question comes on line of credit sleep Disarming. Please go home.

Good morning.

We got just maybe if I can ask you to take out your crystal ball for a moment and why don't you get your thoughts on you know you're not post <unk> world. What what is the industry margin look like because I'm thinking aloud office the more people eat at home I'll Cook at home he'll give me a positive <unk> two she'll fresh channels, which is good for margins.

That is that you know there's already a you'll be invested more.

Increasing online capacity and there's probably more structural cost from cleaning wages. So we'll have to get your thoughts on just on the highly <unk>. What do you think markham's will be like in a post corporate world.

I got we don't give guidance or cristobal.

That's that's that's not something be do but you're you're pointing out some of the expenses that are likely to occur.

Either for for the employees and safety and all that stuff and you come which is which is an investment at this point. So yeah. Clearly, we we will need to offset that with some effective merchandising and control of our other investments and you know with a supply chain investments were making we'll we'll provide us with more efficient.

She's on the on on on distribution and supply chain.

So it's it's a moving target, but we are focused on delivering girls to wear shareholders and we will find ways to Gore top line.

Bottom line. So there are a lot of moving parts to the to get there, but I think we have a the program the the formats.

And the team, especially to continue to deliver.

As we've done before so we will start to continue to do that.

Okay. That's helpful and I know a couple of your peers have started to sort of terminate your paper Flyers and going on digital I. It's on the comments just seems to me that the deprived you still have the effect just like you guys.

She sort of what your thoughts on <unk> that's.

<unk>.

Oh, we're watching that closely were.

What our competitors are doing which is pretty normal. So we'll do our own <unk>, we'll do our own strategy and for no.

We're we're staying with.

Yeah.

<unk> allocation page assume you'll buy back we'll continue I I didn't see me press release.

So.

The whole change you know, we've we've kept pace by box, we didn't actually read it d. So I read it we just regular pay so no. There's no reason to change or capital allocation today.

Okay and it lasted just more balling question and Francois just talking to three cents up contribution component Kobe, If I did my math right.

<unk> <unk> 15 on one side <unk> increase the industry and expenses.

Two weeks of March 1st of all is my second outlaw yeah. So I could think about is that at least for the next few weeks <unk> Monday will likely be hired and it just as you mentioned a lot of course, we're not even Chris <unk>.

Lie there are more costs coming but there's also was ever except we we it's a different purchasing different baskets. So that's why we say that giving more sales are you know we will be able to absorb the all the expenses.

Okay, all the best that shouldn't just trying to <unk>.

Yeah.

There enough other question that this spot almost 10, Nicole back Oh, they're presenting.

Yeah.

Thank you all very interested in metro and we'll speak again soon to discuss our third quarter results on August so thank you.

There's also this conference call.

[music].