Q3 2020 Metro Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Metro and Twentytwenty third quarter results Conference call. At this time all participants are in listen only mode. After the speakers presentation. Debbie a question answer session asked a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.
If you're acquiring any further assistance. Please press star zero I would like to now hand, the conference over to your speaker today, Sharon can Josh manager of Investor Relations and Treasury. Please go ahead.
Good morning, everyone and thanks for joining a thing or comments will focus on the financial results of our third quarter, which ended July 4th 20 Twond.
With me today, Mr., Eric Lafleche, President and Chief Executive Officer.
But you know executive VP and Chief Financial Officer.
During the call Libre that our third quarter results and comment on the pilot will then be happy to take a question.
Before we begin I would like to remind you that we would use in today's discussion different statement.
Could be construed as forward looking information and general statement, which does not constitute historical fact, maybe you'd have the forward looking statement expressions such as expects intend plan are confident that will and other similar expressions are generally indicated a forward looking statement.
Before we looking statements are based upon certain assumptions regarding the can you didnt <unk> and pharmaceutical industries, the general economy, and our annual budget as well as over 2000 1920 action plan.
These forward looking statement not permit and guarantees after the future performance of the company and I subject to potential risk no one of the known as well as uncertainties that could cause the outcome to differ materially.
A description of these rigs, which could have an impact on these these miss but its own under the risk management section of every 2019 annual reports.
As with the pretty de risk the Golden 19 pandemic constitutes a risk that could have an impact on the business operation project synergies performance of the company and they're really these and other forward looking statements use in todays discussion.
We believe these seems to be reasonable and Britain and at this time and represent our expectation the company does not intend to that a deep any forward looking information, except as required by applicable law.
Well now turn to call the bird English.
Thank you and good morning, everyone I Hope you and your family are in good health.
I will start my opening remarks by addressing a pandemic followed by our third quarter highlights console will then provide comments on the financial results.
So when we last spoke in April we were a few weeks into the pandemic. It seems like ages ago and while the peak of the crisis is behind US we are still operating and what can only be described as challenging and unusual times.
Our teams continue to do another excellent job to ensure that store operations and the supply chain run efficiently well never compromising on the safety of our employees and customers.
As we disclosed this morning, we incurred 107 million of covert 19 related expenses.
Third quarter.
About half of these expenses represents a temporary wage increase and special bonus for frontline employees with the remainder related to cleaning and disinfecting store grieder signage personal protection equipment et cetera.
Our food business experienced high levels of sales as a large portion of restaurant and food service sales transfer to the grocery channel.
We disclosed last April that our same store sales for the first four week period of our third quarter were up 25% and we realized same store sales a 15.6% for the entire 16 week third quarter.
We continue to see fewer visits more than compensated by a larger basket size.
Sales of our conventional banner and both provinces continued to perform very well as many customers often to shop more locally.
And are still growing faster than our discount store sales, which are doing quite well also.
Gross gap between conventional and discount has narrowed and we expect it to it will continue to do so.
This strong performance is reflected in our growing market share and both Qubec and Ontario.
Our our pharmacy business delivered a balanced performance of plus 1% total same store sales growth in the third quarter.
We are pleased with this result, given the very challenging operating conditions of our pharmacies in the first half a quarter.
Our pharmacists ability to maintain the quality of service through this period, notably through expanding home delivery services and leveraging our expanded online pharmacy capabilities.
Key and delivering prescription seems same store sales growth of 2.7%.
We indicated in April that front end sales were down 9% for the first a four weeks of the third quarter.
Because of the initial pantry loading of its central items that happened in late in the second quarter.
Restricted physical access as well as <unk> reduction in promotional activity safety measures were initially rolled out.
While we're still seeing lower in store traffic larger baskets, driven by key categories, including LTC and beauty have helped offset some of this impact in the latter part of the quarter.
Overall, we ended the quarter with a 2.5% decline in front and same store sales.
I would now like to turn to our online food business.
Because of co bid online food sales were up 280% in the third quarter, albeit from a very small base last year.
Today the size of that business is at a level, we had forecasted to reach in two or three years.
As a result, we are accelerating our plan to add capacity and we are finalizing work to evolve our current hub store model to better meet the growing demand.
We have learned a lot in the last four years, and we will de leveraging the investments, we made and building teams and expertise and the delivery of full press basket to the homes have cut bankers in Ontario, including robust technologies, and competencies and customer web interface picking and home delivery.
In the short term after adding a second hub store in Quebec City earlier. This year, we have just added a new hub store ensure book it back bringing to nine the total number of stores in Quebec offering our online service in Ontario, we will be adding a third hub store and Scarborough in October to serve the east end of the G.
We will also be expanding our click and collect offer with some 30 additional stores in Quebec, and Ontario, offering this service in fiscal 21.
Stores will not all free delivery service.
Finally, as previously announced we have partnered with corner shop for cutback in Ontario to serve customers wanting same day to our delivery service and we're pleased with the results so far.
Loyalty will remain a cornerstone of our online strategy our best in class loyalty program in partnership with with Dunnhumby is allowing us to engage customers both online and in store and a proven omni channel strategy.
Our disciplined approach allows us to gain share through increased customer loyalty and new customer acquisition.
We are leveraging our expertise and brand strength focused on fresh to deliver good experience in store and online.
Turning now to our third quarter, we delivered strong results with same store sales up 15.6% and adjusted Dps up 20%.
Our internal food basket inflation was 3%.
From 2% in the previous quarter with the meat category continuing to be the main driver.
On the pharmacy side as I mentioned earlier same store sales grew by 1% with the 2.7% increase in prescription drugs and a decrease of 2.5% and front end sales.
We are encouraged by the overall performance of our pharma division through this challenging period and have now resumed the integration activities that were interrupted during the crisis.
Such as the rollout of the shock, what's your lab and Pos retail systems to our between that pharmacies in the coming weeks.
Or Ontario supply chain modernization project is back on track after being delayed for a few weeks both projects are well underway and the Internet interior fit up work is ongoing including installation of automation systems.
Some German nationals responsible for the automation part of the project of obtained clearance from the authorities to come to Canada and are not working on both sides. The startup of our new fresh DC has been postponed from September of this year to January of 2021.
Our retail Capex program remains on track so far this year, we opened six new stores relocated another two and renovated 11 stores for a net square footage addition of 130000 square feet 4.6%.
Investments in technology at the retail level are also ongoing and by the end of this fiscal year. We expect to have about 100 stores equipped with electronic shelf labels plus another 100 stores coming in at 21.
Also 200 stores will have self checkout at the end of the year and another 120 stores are planned for 2021.
Customer use of self checkout is increasing steadily and we are meeting our ROI target.
Looking ahead, while it is impossible to predict how long this pandemic will continue.
And exactly what impact it will have on long term customer shopping patterns. We do expect that in the short term food revenues will continue to grow at a higher than normal rates versus last year.
After four weeks into fourth quarter foods same store sales are up by about 10%.
On the pharmacy side front end sales growth is above 6%.
In closing, let me think all my colleagues for their outstanding work during this challenging period.
I want to say I want to reiterate that the safety of our employees and our customers remains our top priority as we continue to invest in our stores, our supply chain and our merchandising programs to best meet the needs of our customers and ensure our long term growth.
That's it for me I will now turn it over to Francois.
Thank you, Eric and good morning, everyone.
Third quarter sales reached 5.8 billion versus 5.2 last year, an increase of 11.6%.
Excluding the impact of why for a 16 sales increased as a 11.9%.
I mentioned to same store sales grew 15.6% versus last year in pharma grew 1%.
No we will no longer report the variation in script counts with timing as the changes in script delivery frequency, notably around compliance packaging scripts moving to a monthly versus weekly delivery.
We're having a significant impact on screen count variations vives versus the prior year. So will therefore focused on same store dollar sales as a main comparison metrics.
Our gross margin stood at 20% of sales or 20.3%, excluding IRS 16, and I compared to 19.7% for the same period last year.
A bigger basket size and higher sales and our conventional batter contributed to the gross margin improvement.
Operating expenses as a percentage of sales came in at 10.7% or 12% without the impact of wafers for 16.
This comparison operating expenses of 11.6% of sales for the same period last year.
The increase in operating expenses is primarily the result of coping 19 related expenses.
Totaling 107 million.
It's about half represents a temporary already wage increase and bonus paid to our front line employees.
The increase was partially mitigated by a reduction in other operating expenses.
Cost synergies related to the talks acquisition amounted to 23 million this quarter and we have now secured an annual run rate of 70 million of cost synergies.
Our EBITDA for the quarter stood at 542.9 million, representing a margin of 9.2% of cells versus 8.1% of sales for the same quarter last year.
Again, excluding the IRS 16 impact EBITDA was up 60.4 million or 14.3% and represented 8.3% of cells.
Adjusted net earnings were 272.3 million compared to 230.3 million last year, that's an increase of 18.2% and our adjusted net earnings per share were a dollar ate up 20% versus last year.
Our cash flow from operating activities stood at 512 million, that's a solid increase of 100 million versus the level generated last year.
Total capital expenditures in the quarter totaled about 136 million.
I mentioned during our last call some projects have been delayed due to depend dynamic and we now expect our total capex for the fiscal year to total north of 475 million.
Under a normal course issuer bid, we repurchased three point 60 million shares between November 25, 2019 on July 31st this year.
Average share price of $54, a 96 cents for total consideration of 174 million.
Our financial position remains very strong.
That's it for me, we will now take your questions.
[noise] and as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound cash Keith Please standby, we compile the culinary Rusty.
Your first question comes on line as Karen short from Barclays. Your line is now open.
Hi, Thanks, very much in I wanted to just get a little color on Catholic versus basket wondering if you could give us a little more granularity and my traffic versus basket was kind of as we go from that 25% complicated to 15.6 for the quarter and then into the 10% for the quarter today.
And wondering also within that if you could talk a little bit about the gap and how that's narrowed.
<unk> granularly on discount versus conventional.
Okay, well like I said in a in my opening statement, we continue to see declines in traffic more than compensated by a large basket.
Say that over the quarter the traffic declines have improved and all of our vendors.
Theres still down but are they they have improved both the in in food and pharmacy and within food conventional and discount.
The big differences or is the basket growth has been higher in conventional than it has been in discount it's high in both and we have we're very pleased with our comp sales in both format.
We're not going to disclose by format, but I can tell you that that the gap is is not that big.
There, but it's not that big we have healthy sales is both conventional and discount we're growing share in both of our markets.
And a you know very happy with that performance.
Okay.
And then okay and then in terms if they called it costs 107 million I'm. Obviously, you gave us that split this quarter can you just give us a little more color and how we should think about that into Fourq you and then beyond that in terms of lingering costs should we assume kind of 50% lingers, but you know Ana.
You know on a 12 week basis.
Electrons went to them so.
So.
We assume about half is the the temporary wage increase.
You know you can assume that half.
Remaining but some of these are some of the corporate expenses are behind us.
Like.
The the plexiglas yields and the and the donations that we made so listen if you just take the half of the 170 it would be about 13 million a period, where a four we feared.
If you adjust for these some of these expenses are behind us it will be lower I think $10 million to $12 million up period, a four week or is probably a as good a guess a as you can have obviously, we will spend but we need to spend to make sure that said, we react to a two any a measures that we have to take but that's that's about a good run rate I would say going forward.
Yes.
Okay and then just last question could you would you be willing to give us an E com.
As a percent of sales, including a pick up.
No we chose not to disclose that in our and DNA in for competitive reasons, we prefer not to disclose that that number.
I just want to add a little more color to the traffic a basket questions that you just ask so conventional is growing faster than discount, but I can tell you. The traffic declines are smaller in discount that the they were they are in conventional although the traffic declines are improving we've seen.
The transaction count decline.
Smaller in discount than conventional so conventional is benefiting from a huge lift in the basket higher higher traffic declines huge basket lift.
Perfect declines in discount, although albeit smaller than discount compensated by also a higher basket, which was already to hire to start with so that's that's the picture.
And traffic continues to get better at both banners into this fourth quarter.
Yes, okay.
Okay.
Thanks, very much of the color.
Your next question comes from line of Peter Sklar from BMO capital markets. Your line is now open.
Okay. Good morning.
Like in terms of the cobot related costs, you also mentioned in the right up that.
You did have a reduction in up operating cost as you know we're able to successfully mitigate some of the cobot costs. So these costs that you've taken a are they like our they permanent have you permanently taken cost out or are these things that will creep back in as you get back to the new normal life.
Let's say they were taken out to permanently there there were changes in operating conditions I'll give you an example.
In Metro stores Hot food cases cut fruit or some of these departments were negatively impacted and we reduced hours in those departments. The hours were allocated elsewhere in the store us from coated the situation, but that's what we mean by mitigation of extra expenses generated by cobot were mitigated bye bye.
As best we could.
Reductions in costs elsewhere in the business close on diesel stores were closed on in Qubec as well, so so that that reduce costs for a while when when stores were closed and get back on Sundays that that's ended and.
Fully opened as you know so but also there was as we do always as always cost containment measures on on other areas like.
We're tightening supplies that we always look a.
Costco contain these expenses and that's a combination of both.
Right, Okay, I get that Eric in your commentary you talk though you know up you touched on the technologies that you're introducing into the store you know things like electronic shelf labels I'm just wondering how does that work in Quebec, where I believe you have.
I don't know if you called them franchise stores in associates doors and stores, where metro may have a minority part of the equity and the owner has a larger portion of equities. So how do how do you implement those technologies, where they're not corporate stores and come back.
So.
In the non corporate stores E affiliate.
Hello.
Hello.
Pardon the interruption.
I will just be a moment.
[noise].
Penny injection should the operator, I'll just comedic back on pricing.
Hello, operator, I'm not in the call.
Hello.
Yes, Hi, it's Peter Sklar.
Okay, sorry about that I don't know went out and I don't know line cut off.
So I don't know if everyone cut out or just me.
But we're talking about how you handle technology with the affiliates and then so the answer is the affiliates or independently owned stores and they decide to their level of investment and they tend to follow a our programs that we do on a corporate and franchise I.
We're working with them some of them have already started to implement self checkout and electronic shelf labels.
And we expect them to to invest a along the same way that we do so.
We're starting with our corporate and franchise stores in affiliates, we'll tag along alone and do you subsidize the affiliates at all or they pay the cost.
They pay those costs, Yeah, and then lastly, if I could just ask Francois.
Given co that has there been any change in your attitude towards the normal course issuer bid or is it business as usual on that front.
No a we we resumed.
We've been active in the buyback this quarter.
At the beginning doesn't have that make up year, we we didn't take a bit of apostrophe was it was very unclear as to where existing was heading and I think we wanted to be prudent, but I think we feel comfortable about the house or operationally stabilize if we have you been active on the buyback and Oh change in our capital allocation policy.
Okay. Thanks very much.
The third goal.
Okay.
Uh huh.
Operator.
Your next question comes the line as Mark Petri. Your line is now open.
Do you see market.
Yes. Good morning, so when it comes to E commerce, and the incredible acceleration in adoption. There I'm just interested to hear how you would rate your execution in meeting that demand.
And also what impact it had on your results in Q3, and then Eric you mentioned some of the steps you're taking to broaden the offering but could you just expand on your comment as it relates to.
How you are investing in technology in order to scale that.
So how would I read the execution clearly it's been a challenge with the surge.
Surge in demand earlier during the quarter and.
It has leveled off since but it's still much higher than it used to be so that has put a lot of stress on our teams where we took in a in a few stores and deliver I think they did a fantastic job.
Managing that surge to deliver a decent experience it's been a challenge is far from perfect.
And we need we need to improve and we will improve its not going to give you a.
A rating other than to say that under the circumstances I think we did well, but clearly it's something that will need to be refined and improved.
So the evolution that I talked about Oh, we have invested in technologies and training for our people we will be leveraging that we will continue to leverage that as we evolve the hub store model to serve the growing demand for competitive reasons I am not going to say more and when we're ready to announce anything more we will.
This is it.
Okay. Okay. Thanks, and then I'm wondering if you could just also give a bit more color with regards to the higher gross margin I know you mentioned basket size and channel mix. This key factors and I know you don't give a commentary specific to the food and pharmacy segment, but just wondering if you could give us any sense of the of the red.
Relative performance for each of those.
In terms of in terms of materiality to the consolidated results and then specific to the food business, obviously lots of other moving parts beyond the basket size and channel mix you touched on the shutting down of prepared foods or at least the lower demand there, but also you know there presumably there's low.
Our promotional penetration. So just wondering if you could talk through some of those dynamics and how you've seen that I'm sort of the evolves through the course of the quarter.
Well there is not the essential take away is basket size and channel mix a that.
Fevers or that increased our gross margin a bit.
The environment remains a very promotional it's very competitive out there a promotional ratios or were down quite a bit earlier in the quarter of I've resumed to more normal levels.
So you know, it's it's it's a not quite as promotional as a year ago because of the larger basket size the bigger the basket proportionately theres a bit less items on promotion in there as people do the full full shop.
But but that's that's the main story a basket size channel mix, yeah. Those departments. The high margin departments that you described like cut fruit and hot foods did affect a gross margin.
But is that that was that we were able to compensate that.
I wouldn't be a appropriate to this to discuss more between food and pharmacy margin mix.
That's my answer.
Okay. Appreciate the comments I'll pass the line. Thanks.
Your next question comes from line, it's Chris Lee from Deutsche Bank. Your line is now open.
Oh, good morning, everyone up spacers questioned and thanks for the colors on the the coal that impacts on on cost and so based on that and what you're seeing so far it in the first four weeks of the quarter is it fair to assume that you still expect coal but to have a positive impact on earnings for full fiscal Q4.
Well.
We disclosed or same store sales for the first a period of the fourth quarter goes or Hilti a numbers, we have a lower covert cost because of the premium so that public fact, so we'll see where we end up we don't give guidance, but oh lets you do a your forecast okay.
That's great and second question, just the 6% from store seem so sales will again for the first of all weeks the quarter. I mean, that's very strong mentioned LTC and beauty is this sort of driving that I'm. Just wondering how much of that growth is sort of catch up sales versus a structural change as the demand for convenience channel remains elevated.
Because of the virus just trying to get a sense of how sustainable that 6% is because as you know historically so to speak percentage has been the long dramatically just wondering if there's going to via a step up longer term because of the delta virus.
Some of those sales are helped by coated related products like masks and send it ties are is clearly that's giving a lift.
At this time, how long that will last again, we don't know how long this pandemic will last and what exactly the patterns will be.
But that has given that a bit of a lift a it's offset by declines and cosmetics and some other categories that are not doing as well because of course it. So it's a mix at the front in there.
How much this catch up how much is covered as much as regular all I can say that we're back to our normal promotional activities in the pharmacy segment. We issue of Flyer every week, we ever seasonal programs, we have a or merchandising programs, which are good and effective.
So I think it's a it's a good merchandising good execution overall.
Bind with the cobot environment, that's what I would describe.
Okay. That's helpful and are you able to provide the same number for prescription I know you will talk about script count, but what double on a same store dollar basis. The first four weeks, how how is that for submission business performing so far.
Well, our prescription drug sales are holding steady and ER, we didn't feel is required and the more disclosure because there was no real the difference.
A material difference, whereas on the front end there was a bit of a rule of course are that's why we decided to give the number for the first four week, but.
We're not going to give you.
The number at this time, so when we issue Q4 in November.
Okay and then my last question, then maybe just a bit of a sensitive lung just you know it's been reported by the media that the that United Grocers have informed their suppliers that you expect a similar cost reductions at Walmart Canada.
Presumably to receiving at some point just wondering if there's anything you can say on that what's been your negotiation with suppliers so far.
Well the you Jay letter is a standard a standard fare I would say when we hear about our competitors are asking are getting.
For different different conditions, we try to make sure were treated the accretively. So that's the only purpose of that letter.
It's no threat Snowden that official demand other than to say, we need to be treated fairly inequitably versus other other retailers.
That's all have to say okay.
Okay. Thanks, we answers and best of luck for the rest of the.
Thanks, Chris.
Your next question comes from the line a Michel Shreedhar from National Bank. Your line is now open.
Hi, Thanks for taking my question on not PGC.
Naturals able to capture synergies in the quarter.
Some.
I'll just relate to co bid and now you're 70 million net annualized given that you're close to the target number there wondering it management fees opportunity for further synergies and if so maybe you can tell us which buckets you may see synergy then and if it's a meat meaningful number.
Oh well be shall.
We said at the last the remain the last remaining bucket.
For us to jump to the two to two to generate the cost synergies was the.
A combination of our warehousing and distribution activities.
Into that and so that has yet to happen. So we still have that are we still have that bucket to diesel fuel. So yes without that we are very close to our target of 75. So.
Listen I.
I think I think it means that we're in.
In very good shape to meet that 75 million target.
And can we do little more we always we always try to do but.
Obviously, we're very confident we will at least meet that 75 million targeted once we've combined the warehousing and distribution activities into the new facility that it.
Okay.
And do you have a timeline for that.
Leasing done.
So the timeline is we'd like to do it as soon as possible or the a roadblock is the collective bargaining agreement at that end.
Sure needs to be re negotiated we are in negotiation as we speak.
And hopefully we will.
Find a common ground and the signed a long term deal with a with the union.
The next few weeks I don't have exact timing there were there were negotiations in July Theres, a hiatus right now we will resume sometime in August and hopefully we'll get to a two.
Good outcome and then we can move on and integrate or combine the Mcmahon operations into the vegan centers over the plan is ready.
We look forward to doing it but we need that we need that condition to be units before we start there.
Thanks.
Okay, Thanks for that and.
Have you noted since you've acquired TGC any meaningful revenue synergies dropping down and if so can you just given some bucket where they actually saw them.
It really talked about revenue synergies. So we talked earlier about private label being sold a definite being sold in a food stores. That's a that's been doing well for US I think it's not Terry you, especially.
Who is doing quite well for us citic, showing the irresistible is available that's not could shoot a I wouldn't say, it's been a dramatic increase in revenue so.
We decided not to talk about revenue synergies there there are some programs and synergies, but it's not that material and especially now with the covert the situation. That's it's even less material. So.
Short answer is not material.
Changing topics here Metro uses that air miles for a portion of its loyalty program, but airline demand and travel isn't what it used to be at least for the near to medium term. So wondering if.
Hi, Matt how committed nationally to air miles and.
If you are subject to long term agreements for that loyalty program.
Well, we have air miles for Metro, Ontario, intrusion looks to get back. So I won't give you. The exact terms of those contracts, but we have normal duration contracts with both clearly with the traveling situation. Those rewards made me may not have as much appeal, but I.
Take care miles is evolving in their rewards programs and or offering different.
Different programs are they offered cash back for awhile and we are a a channel that a accepts redeemed.
Quite a bit of the cashback <unk> points. So you know watching closely working with them, but nothing nothing really more specific.
Okay, and just maybe one last one here in terms of your thoughts for E commerce to capture that market, which is going quicker than you would have anticipated at call. It that several months ago or your new thoughts on the technology that you wish to implements or do you intend to Matt will they improve the profitability of E Commerce and can you see.
Backdrop business, becoming profitable call it and the next couple of years.
Well.
We'll see.
We were looking at all those numbers.
With with the huge surge in demand with our current model I can tell you that it has turned the corner and as a profitable business. So that's good news for US right now as we evolve that model. They may require some investment and we'll see how that.
Most of the bottom line, but we approach a this this E com.
Growth prudently and we want a mandatory investments.
With disciplined as part of our regular Capex and we hope to catcher our share of ourselves a that want to migrate to a two online. So I think we're in a good position to do that so and so far we have and we will continue along that strategy.
Thank you.
Again, if you would like to ask a question press star one on your telephony.
Our next question comes depend on line of Green tell from RBC capital markets. Your line is now open.
Thanks, and good morning, everyone well, Okay I was really intrigued by your commentary Eric around the growth in basket size at conventional and guest count pinch so want to little bit more color. If you can on true.
Sure, which I'm presuming, we assessed fresh categories in conventional but less so in guest count. If you just talk a little bit about what you're seeing there make if theres anything you can do to help address that disparity.
Well I'm going back.
There's a lot of moving parts, but essentially are metro banners or are your local supermarket communities supermarket.
Hi frequency people go for a couple of times three times four times, a week and do a a shop, sometimes a full shop, sometimes not just a convenient top up with the covert people are going to stores less frequently that's obvious you you all know that so the average basket size in a conventional store.
Is lower than than a discount stores in our case.
So so their customer that used to go twice a week or used to go to different stores and now shops in one conventional store is doing a full shop.
And that's what we saw during the Covitz. So in all departments fresh grocery dairy frozen all of them up a grocery is dry grocery, especially had huge surge in sales in our conventional stores because people were shopping less frequently and doing a much bigger Shaw.
That's the explanation for the the significant increase in the basket in our conventional stores.
Maybe these people have more money in their pockets may be the not maybe but they're going less to restaurants to reading at home three times a day, they're working from home. So they are they are spending more money in or in our metro source on the discount side I think we've.
We're seeing some of the same behavior, where traffic is down although less so than other than in the metro stores basket is up although less so than in a than in the metro stores, but we were happy with the growth there too I think we're seeing healthy comp sales growth in our discount stores, we're seeing market share gain.
It's a in in our also in our discount stores. So.
Happy with that and good execution parties I hope that answers the question.
Yes that guys. Thank you Eric and then in terms of these market share gains, presumably they're coming at the expense of some of the independence or other players where that don't quite offer that full basket.
[noise], Oh, we measure market share.
Nielsen provides two numbers all channels, which includes a costco in other channels in grocery vendors.
In both of those.
Market sizes are market. The analysis, we are doing well and we're happy with our performance.
We're a you know with multi format.
Conventional discount done is remember so I think we're well positioned to serve our customers for all their.
Ah food shopping needs and those that we'll be looking for value going forward if.
Recession and economic challenges.
Having a strong discount presences.
The big flux.
And we're well positioned with our metro store so.
I'm pleased with our performance and we're working hard to continue.
Yes, absolutely clearly great performance in the quarter and then just finally, if I might on on the E. Commerce site on the last call. You mean, you mentioned that you were looking at as dark stores first is fulfilling in stores is there anything that you could say how have you has kind of your thoughts evolved on that.
Oh or still one still kind of wait and see based on how everything else evolves.
No we're past the wait and see but we're not ready to close the next.
[noise] said in the opening remarks, we are looking to the store model that we have that works well.
Technology good people.
She's so we learned a lot we're going to leverage what we did and that vulgar to better meet the growing demand so exactly what form that will take stay tuned.
And when we're ready to two of them we will.
That's great. Thank you.
Yes.
Your next question comes from the line of Patricia Baker from Scotiabank. Your line is now open Oh. Thank you very much and good morning, everyone. Most my questions have been asked what I have one I want to talk a little bit more if you don't mind about the online and you know what what you're seeing there in terms of basket and whether youre able to discern.
You are getting customers that were previously not customers have much of metro so getting incrementality. There in terms of shoppers that you can have previously.
Yes, so so the basket just on terms of basket size at convention to E Comm and that's up also during the course of it's similar to what we're seeing in our in our physical stores E com basket as going up.
So not a big surprise.
In terms of customer acquisition and customer loyalty.
We find that the E com customer, especially in covet, we've attracted new customers clearly people are trying it or have tried it for that for the first time hopefully they will stick around so yes, there were a new customers acquired to generate the sales lift that we saw a during this quarter.
And we're getting we think we're loyalty from existing metro customers, who shop, both online and in store.
We track that with with our program between one and we can see that we we got a higher spent so.
And it's a it's it's positive and.
We will continue to maximizing the levers.
Leverage our loyalty program.
Increase a loyalty to increase the spend a with a with our banner.
And Eric just follow on that then your capability in what you're doing on on online. Obviously also contribute to the market share gains as well as unconventional and.
Discounts that fair.
Well it contributed to our gross total growth. So we measure our total gross versus market versus competitors and we are as you're seeing some market share gains. So it has contributed to that.
Just as much as our stores have contributed to that okay. Thank you very much.
Thank you.
Your next question comes from the line as Michael then else from TD Securities. Your line is now open.
Hi, Thank you good morning on a couple of all questions actually to start on the upper end.
Do you see integration.
I saw that the Union has.
As a strike mandate as of June I'm, just wondering if there's any real rest of disruption there and to what level. What your contingency plans allow you to continue to service your stores.
So in any negotiation Michael there is a risk. So we're we're taking the that very seriously. They have a strong a mandate and negotiations are not easy to see the least so we have appropriate and strong contingency planning. That's all I can say that for now for obvious reasons, but we're at the table. We we want to make a deal we want.
To find a solution that they were good employers and we should get there, but there's always a risk.
Okay.
And then from sorry, you mentioned.
Cost of $10 million to $12 million per period.
At this point when you're seeing that these costs are permanent long term given the way the world has changed or do you see any reason why each cost may be able to go away over time.
I think it's very hard to predict a.
How long does pandemic lost is what we're seeing today. So it's every everything else being equal a if things get better or obviously youre. They get worse, we will have to be we'll have to adopt that's what I meant about a you know we will spend what we need to spend to make sure. We don't compromise on the safety of customers and employees.
So for now this is what we're seeing as a run rate, but obviously this is all subject to how this up and then make develops.
Yeah I was just wondering whether you felt that from a company standpoint, it would be prudent to continue the extra sanitization MPP any degree even post pandemic, maybe not also all the pp anybody at least the sanitation.
Well, it's Eric your I think Thats fair to say that standards, a I've gone up.
Customer expansions of going up so I think some of those costs will be part of the permanent picture.
I think we've always had 20 stores, but we will continue to two or two.
To do it at a level at a higher level going forward. So there will be I think some long term cost increases on cleaning.
Exactly to what level is at the current pandemic level or something in between that hard to say right now on this call.
You know greeters at the store I think for now it's the right thing to do people expected or customers appreciate it and we have them in every store.
Will that be permanent maybe not but we're not there yet.
Okay.
Thank you and then.
Excluding co bid and the IRS 16 adjustments. Your your operating expenses were down I think just over 2%.
Can you give us an idea as to how much of this.
Was tied to the lower costs required because of golf and whether its travel our advertising or store closures like you mentioned on Sundays and.
In other words can you give us an idea of what maybe a normal underlying growth rate was because it's been growing at a higher pace than I had a positive pays for sure. The last number quarters I'm wondering if there's anything else. That's changed all that you think you're right to if you look at the delta between the the operating expenses.
This quarter versus last quarter, you looking about a 94 million Delta and we have 170 million of a corporate expenses. So yeah. There is or Theres. A there was a reduction of about a 413 million a good chunk of that reduction is due to as we explained because of a reduced hours elsewhere.
In terms of the departments that were affected by it and then it like a hot foods have cut fruit, a daily Ics and referral.
So some of that obviously, that's a part of the explanation, but this also regular cost containment measures that we always do and we were able to reduce some costs and other area than mimic related so but you're right. The bulk of explanation is is a saw the reduction in expenses due to the pending.
Because well.
Okay and just finally.
Can you provide us with that Capex elements of fiscal 21, as assuming a more normal environment.
Today, but said we will do so most likely only on next call.
Yes, but obviously.
It will be a higher than normal level because of the delays in a in a the capex that we talked about last quarter and today. So we're finalizing that don't have a figure yet to share, but we will do so oh next fall.
All right. Thank you guys.
There are no further questions at this time I will turn the call back over to Sharon catch.
Thank you all for your interest in Metro and we will speak again, it's got the fourth quarter results on November 18. Thank you.
This concludes ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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