Q3 2020 Loblaw Companies Ltd Earnings Call
And answer session to ask a question during the session you'll need to press star one on your telephone please.
Please be advised that todays conference is being recorded if you require any further assistance. Please press star zero. Thank you you sound my pleasure to hand, the conference over to your moderator for today, Ryan Macdonald, Vice President Investor Relations.
Actions. Please go ahead.
Good morning, everybody. Thank you Chuck welcome to the level of limited third quarter 2020 results Conference call. This morning, I'm joined by Gatland West in our Executive Chairman said Davis, our President and Darren Myers, Our Chief Financial Officer.
And before we begin the call I'll remind you that today's discussion will include forward looking statements, which may include but are not limited to statements with respect to loblaws anticipated future results and the impact of the COVID-19 pandemic.
These statements are based on assumptions and reflect managements.
Current expectations and are subject to a number of risks and uncertainties that could cause <unk> actual results or events to differ materially from our expectations.
These risks and uncertainties are discussed.
In the company's materials filed with the Canadian Securities regulators and any forward looking statement.
Let me speak only to only adds up the date that they are made the company disclaims any intention or obligation to update or revise any of the forward looking statements whether as a result of new information future events or otherwise other than what is required by law.
Also <unk>.
Certain non-GAAP financial measures may be discussed or referred to today. Please refer to our annual report and other materials filed with the Canadian Securities regulators for a reconciliation that if each of these measures to the most directly comparable GAAP financial measure.
And with that I'll turn the call over to Darren Thank you Roy and.
Good morning, everyone.
Third quarter represented an improvement in our results what continues to be a challenging and dynamic time. The pandemic continues to influence consumer behavior impacting sales mix and elevated associated costs although.
On an adjusted consolidated basis, our reported revenue grew by 6.9%.
Adjusted EBITDA was up 2.1% adjusted net earnings were up 1.3% and adjusted earnings per share increased by 4% our.
Our same store sales and drug retail increased 6.1%.
Right store same store sales grew 2.4% while pharmacy same store sales grew by 10.3.
Percent.
Front store sales mix was driven by strong performance in food habit and household products, while we continue to experience pressure and cosmetics in LTC cosmetic showed an improvement in the rate of decline relative to our second quarter.
In pharmacy, we delivered strong sales in part due to.
The demand for 90 day prescription refills following a lift of government restrictions, we expect some negative impact from the timing of these changes on our Q4 prescription business.
Food retail same store sales grew 6.9% in the quarter food sales growth included changes when the category mix and the benefit from strong demand for central food categories.
Three demand across our formats remains strong with 9.7% growth in our market division and 4.7% in our discount division.
Our average article price was 5.3% for the quarter. The average article price increase reflects a change in our sales mix, including consumers buying larger format items increase is not indicative.
Deflation, which using cpis are referenced would have been closer to the 1.8% for the quarter.
For the quarter, our food retail basket size remained elevated well traffic continued to be negative we did see traffic starting to improve in the basket not quite as high however, we remain well outside pre covert rates.
[music].
Total retail gross margin was 26.7% excluding the consolidation of franchise is a decline of 60 basis points compared to last year, our margins were negatively impacted by declines in food and drug rates.
Food <unk> rate was negatively impacted by sales mix and targeted pricing investment.
In drug we were negatively impacted by mix.
Retail SDMA as a percentage of sales was 17.2% excluding the benefit from franchise consolidation in improvement of 10 basis points improvement reflects the benefit of sales leverage process efficiencies and continuing to delayed discretionary spending.
This was partially offset by higher coated related costs and higher costs associated associated with the growth in ecommerce during the quarter corporate related costs increased our spending by an estimated $85 million.
Retail EBITDA increased $22 million in EBITDA margin came in at 9.5% a decrease.
He said 60 basis points compared to last year.
Moving to PC financial revenue was $278 million down $31 million in the quarter, driven primarily by lower credit card spending partially offset by strength in our mobile sales.
Adjusted EBITDA contributions increased by $10 million year over year.
As a result of timing of investments and adjustments to our NPL provision.
Adjusted consolidated EBITDA margin was 9.7% in the quarter normalized for the consolidation of franchises EBITDA margin declined 40 basis points compared to last year.
In the quarter I have for us net earnings available to common.
Crude shareholders was $345 million, an increase of 3.3% in fully diluted earnings per share or $1.30, an increase of 4%.
Moving to cash flow the company generated $121 million of free cash flow in the quarter, we repurchased 5 million common shares during the quarter and today, we announced.
Just a two cents or 6.3% increase in our quarterly dividend. This marks our ninth consecutive annual increase.
In September we received an upgrade by DBRS to Triple B High this reflects the strength and stability of our business and the ability to continue to generate strong cash flows look.
Looking ahead there continues.
As to be a high degree of uncertainty about the duration and the impacts of the COVID-19 pandemic on the Canadian economy. We expect continued volatility in our business a shopping behaviors continue to evolve as does the demand for the types of products and services. We provide in the four weeks. Following the end of the third quarter volatility continued food retail.
Sales and covert related costs have continued on a similar trajectory to Q3, while drug retail sales have seen a deceleration of growth primarily due to the impact of the timing of the prescription volumes related to the change in fill rates.
Given the volatility and continued uncertainty it is too early to extrapolate a trend.
In conclusion.
We are focused on delivering value to our customers incremental sales volumes and ongoing benefits from our process and efficiency initiatives allowed us to offset cost inflation and invest in our strategic initiatives, while generating earnings growth I will now turn the call over to Sarah.
Good morning, COVID-19 remains.
Important context for our day to day operations and our performance in the third quarter, you will remember that in the early part of the year. It was the dominant factor and a substantial drag on our profitability. We saw significant channel format and start switching favoring conventional overt discount there were significant fluctuations in buying patterns away.
Away from discretionary items to necessary item and we are investing heavily to keep our colleagues and our customers say today, we continue to maneuver through these challenging times, but with our feet squarely beneath that our Q3 results are sequentially, improving performance, including tonnage market share more.
Jen and profit improvement, while we continue to invest in the safety of our people and our stores. We have also made considerable progress on our strategic pillars.
On a consolidated basis, our revenue grew 6.9% in the quarter at shoppers front store sales grew 2.4, and Rx was up 10.3 per se.
Mark underlying these results there were some extreme and major categories prescription counts were strong up 5% as government restrictions on fill rate unwound. There has been a surge in demand for flu shots and we have administered more today than we did in all of last year on the other hand, our beauty and our cough and cold businesses remains.
Thanks soft these categories improved over Q2, but continued to trend down year over year in summary, shoppers performance remains complex with signs of strength and irregularities that are normalizing.
I want to take a minute to applaud our pharmacists. They have played a huge part and the Canadian health care response for months now.
Rapidly expanding their scope and even ramping up to conduct almost a 155000 asymptomatic cobot tests in recent months I think the response has been exceptional. These are important examples that demonstrate the strength of our pharmacy assets and our ability to leverage those assets to refer to provide Canadians with essential family healthcare.
Care services.
Turning now to grocery in Q3, our market Division continued with its 2020, winning streak with same store sales of 9.7% we posted another quarter share gains, we delivered market, leading value and frac and continue to see customer satisfaction scores that were well ahead of past years.
In discount we are seeing a slow but certain resurgence falling well following well explained relative softness early in the pandemic in the quarter sales grew 4.7% with food sales, even higher we invested in price and maintain strong promotions banner by banner, our food stores are well.
Listen to meet the challenges of the pandemic, while we continue to provide customers with the everyday value that has always been important to them.
During the quarter, we made good progress on our strategy and our new customer behaviors confirmed that we are on the right path.
More specifically as the early pandemic panic settled customers told us what really Matt.
Also brings to them now they care about convenience health and brands. They can trust these customer priorities align beautifully with our strategy.
Our everyday digital retail strategy continues to deliver convenience, we have an unmatched network and a first mover advantage.
In Q3, we expanded our digital offerings.
With shoppers front store offer online, adding to the strong existing beauty offer which was up nearly 200% in the quarter. We also created some great ecommerce excitement our shoppers beauty team held a hash tag challenge on tick Tock that drew over 800 million views and our Joe fresh team had overwhelming success with our EPS.
Matt its agility jacket based on a social media Influencer program, turning to health and wellness 2020 will be remembered as a foundational year for our connected health care network strategy as mentioned earlier patients and governments are turning to pharmacists for a greater range of services and we're finding new ways to serve them during the.
Mr. We opened the first of our medical clinics, we made a strategic investment in Maple, which now supports 160 in store virtual care sites, and our British Columbia pharmacies, and we launched PC health a consumer App that provides everything from help navigating the medical system to live access to care providers to programs and rewards for healthier.
The year behaviors.
Finally, you are aware of our payments and reward strategy based on the growing loyalty loop, we've established with millions of Canadians through PC optimum in September we launched the PC money account, which is a return to banking for us, but its different we have found ways to give customers more rewards for more activities.
As they spend save or transfer their money day today over 50% of our customer to use cash or debit when shopping in our stores. This new product gets them unmatched rewards and that gives them. Another reason to shop with us with all that is going on in retail today. It was a tricky quarter to maneuver we continued to invest heavily.
To keep people safe, but we are rising above the challenges and finding ways to improve day by day as we look forward. Many pieces of our strategy are falling into place and ways that clearly makes sense for our customers I'm very encouraged and I will now turn the call over to Alan Thank you Sarah and good morning Loblaw delivered.
Level results in a complex quarter. The company remains steadfast in its commitment to put customers and colleagues first as we sustained investments in safety measures at store level, while resisting pressure to raise prices at a time when canadians need value more than ever.
Colleague engagement and customer satisfaction scores remained at all time highs in the quarter and does performance.
Once in our discount in drug segments began to come back our market Division maintained its positive momentum this.
This is reflective of a great team effort and I want to thank the 200000 colleagues at all levels of our organization, who enabled us to keep Canadians fed and well during the quarter.
Sarah described we did this while.
Advancing our strategic pillars with decisive steps forward in everyday digital retail payments and rewards and connected health care.
In the face of extraordinary circumstances loblaw effectively balanced.
Operating a strong colleague and customer focused core business made forward thinking investments in its digital future and delivered.
ALS earnings growth, we continue to do so with conviction that this will create value over the long term. Thank.
Thank you I'll now turn the call over for questions. Thank you Gail and Jack if you don't mind, introducing the queue in a process. Please.
Certainly at this time, if you would like to ask a question. Please press star one on your telephone keypad.
Karen short with Barclays. Your line is open.
Hi, Thanks very much.
Wanted to ask a couple of questions on discount generally so it seems like you've invested more in discount and that obviously impacted the gross margin side of things, but wondering why you think.
To do that and then whether Canadian.
The Canadian consumer is actually focused on discount right now or.
Maybe if it's not the best timing on something like that because there really isn't such a focus on discount.
And then Ed and follow up.
Okay, Hi, Sarah I'll start I would say.
From a discount perspective, we actually find its actually quite competitive out there in terms of the intensity that we're seeing so we did feel that it was important to make some investments in price through this time a different scenario in our market Division, where we also resisted the urge to raise prices.
That and have as a result seen some share gains.
Okay, and then maybe a little bit more color on the PC health I know we've talked about this in the past offline, but now it seems the right time to do that but wondering if you could just give a little bit more color on how you see that unfolding just broad.
Sadly and it seems like a very strong.
Addition, that you have to actually gain share and leverage that the relationships that you have.
Okay. So I would say on PC held its still very early days, we have that launched yet we only launched it in the Atlantic provinces.
Canada, we plan to launch in onto.
Ontario in the fourth quarter, but the idea is that it's an app that helps Canadians maneuver the health system and as I mentioned in my remarks, it does anything from helping them find.
Points of care as well as rewarding for healthy behavior, So thats sort of the short a place where we are right now in the short term.
Long term, we are looking for ways to expand across the country, we do plan to roll it out across the country and.
In 2021.
And I don't know if Darren if theres anything you want to add on in the health space that no I think Sarah you characterized it well I mean, it's it is still early days, but it's got a lot of exciting potential for us and in particular when you think.
Think of the velocity, we can bring to an app like that and the kind of ecosystem. We can build around it. So we're excited by its potential but it's but it's early days and it will take time before its kind of ramping in probably moving the numbers in in any major way.
Okay, maybe I'll just add.
If I could on that how.
Now in a different part of the country have NBC, where our investment in May fall has allowed us to.
Provide in pharmacy virtual care to customers. So you would go into a pharmacy, you would be able to see a virtual doctor for a minor element that you may have and you would be able to get your peers.
And prescribed at that time, and what we've seen in those pharmacies. It's in a 160 pharmacies right now in British Columbia is that there's a 93% in pharmacy fill rate after the doctor virtual doctor's appointment. So we think thats a nice add on that would be which would contribute to the PC help at some point.
Well.
Okay and sorry, just last question when we I mean, obviously, there's been a lot of volatility on topline growth versus EBIT or EBITDA growth over the last several quarters for obvious reasons, but.
This quarter seems like we may be kind of at a new level of quote unquote normal and there was about a five call. It 500 ish basis point.
GAAP on EBITDA growth versus sales growth deep do you think that's kind of the right way to think about it until.
We get into whatever the new normal maybe is a is that a reasonable kind of gap to think of.
Thats a great question, Karen and one that I'm hesitant to answer just given.
I don't want to I don't want to provide guidance I think that while we're well we have these cobot costs and I don't see a reason that they are going to go away. It's a reasonable assumption that you're just not going to get the flow through so again, yes. The profit rate growth will be less than the revenue growth I think from US, we're looking and expect to continue to see some gross.
Margin improvements over time, having said that on the SGN a side. This was a really good quarter with a lot of good things going away. So we probably see a little bit of pressure on the SGN any relative to this quarter I think you're probably thinking about it right but of course, it's hard for me to give you good guidance on that.
Great. Thanks very much.
It's Mark Petrie, you will see RBC your line is open.
Yes, good morning.
I wanted to ask about the gross margin performance, specifically and looking for some more commentary with regard to the relative materiality of the biggest factors.
In each of food and drug.
I mean, I know, you're not going to give specifics and mix is the.
Biggest factor, but some more color just in terms of which mix shifts that are the most material whether it's channel.
Right promo category.
Brand versus own brands that kind of thing.
Yeah, Let me Hey, Mark Let me, let me start and I.
I think it's probably best just to step back again and think about Q.
Q2, which I know you know well, but when we think about Q2, you know we were impacted right right off the bat with Cove. It from a product mix perspective, when we were down 90 basis points. So we're pleased that we saw an improvement in that decline. So we had a 30 basis point improvement in our decline, but we still saw declines in both food.
In drug on the drug side I will say that certainly it's predominantly were all mix. So you think about discretionary as like cosmetics and beauty. Those are the areas that have certainly impacted us and then on the food side, it's a bit of a combination. Sarah said there is increased intensity that we are seeing and discount.
So we have been a bit more intensive on in terms of our relative investments and so it's a mix of both investing and mix of categories. So think about things like HMRC, which is tends to be a high high margin category that is down year over year. So there's lots of.
I want to play within the mix, but it's a combination of the two things.
Okay. Thanks.
Sarah you mentioned that you saw positive signs on customer satisfaction and specifically in the market Division and I think Alan you mentioned that for the business overall I wanted to ask specifically about E commerce and.
As you've seen demand.
And rise to materially can you just talk about.
Customer satisfaction and feedback with that offer specifically and as you understand the pain points, what steps can you take to help address those and I guess two topics I'm interested in specifically would be product substitution and wait times, so customer pickup.
No from Q2 to Q3, we saw a significant improvement in customer satisfaction in our ecommerce business as you can imagine that the height of the pandemic.
Times are longer than customers were X.
Expecting and certainly we had to we have to do a lot of work in order to improve and increase the capacity in order.
Yes ill talk increased demand. So we add during Q2, we I think we mentioned that we saw basically tripled the demand in E commerce and so there was a factor there, but we quickly ramped it up so I would say Q3 significant improvements in our customer satisfaction related to E commerce, but the two areas that continue to be raised.
As areas of focus for US are the two that you mentioned so his product substitution and it would be wait time and.
And we've got a lot of initiatives in place to improve on both of those two areas and making sure that we provide customers with the best service that we have.
And are there is a more.
So I was just going to add I mean in Sarasota or fill rates have improved from Q2 to Q3 and like she said there's a lot of initiatives. One example is now if you go on to the App you can see where there is low stocking and items sort of helps people with things like what you should pick euros substitution and of course, we're going to continue to improve our substitutions as well.
So theres enhancements that are happening that we think will continue to improve the performance here.
Okay, Okay, great Thats helpful color.
And I guess, just one last one I mean, obviously, there's been tremendous amount of shift in consumer behavior and preferences, but I wanted to ask specifically about your prepared foods business and just the category kind of Holistically.
[music].
And at a high level sort of all variations, including in storage Amar delivery meal kits, all that kind of stuff do you I guess big picture do you think this can continue to be a growth area for you.
Over the next few years and I guess, what are you doing differently or do you need to do differently in order to kind of it.
The market opportunity and the shifting consumer needs.
That's a great question I've always believed then that solving meals for Canadian So I think and I think the pandemic has just made it more even more relevant than it ever has been so yes, absolutely. We so we've got a.
A bunch of different tests going on with a few.
Different thing so we've got the meal so its not different for them. So we have meal kits, where it's dry ingredients that you put together that you can purchase in our stores or online we've got ready to cook meals, where it all prepared for you and all you need to do is put it into the oven, which can also be bought in our stores or online or delivered to your.
Your home, we now have meal solutions, there and about 240 stores, where we've got 80 of them in shoppers.
As well so 80 80 of our shopper starts have them as well, where it makes sense there and so.
So we expanded our offer in Q3 to have one hand meals ready meals and.
Okay occur meal kit that you can use with an in the pot. So I would say and the other thing that we are piloting as we started offering tips from meals from 12 GCA restaurants.
In so those so we've got a few different areas.
In order to solve meals for Canadians in a few different ways. So good track.
Slide in there we've seen high growth, but it's still on a relatively small base for us, but yes, we do see a lot of potential in this area.
Okay I appreciate all the comments all the best.
Irene Nattel with RBC capital markets. Your line is open.
Thanks.
Jack and good morning, everyone.
Couple of follow ups, if I may and you mentioned it.
Competitive intensity, particularly in discount is that in western can you talk about where we might be seeing that as in western Canada that is in reaction to some of the fresh co conversions.
Thanks, where are we seeing the greatest intensity.
Yes. Good question I would say, we're seeing it across the country in some of the national players.
And then of course, we are specifically impacted by some of the conversions in Western Canada.
As well, but I would say it is that it's a national is would be a national.
Labor intensity.
That's great. Thank you and just sticking it sort of mixing kind of theme you said that you are seeing market share gains.
Who do you think or which channel.
Do you think that these gains are.
At the expensive COO.
Or who.
Oh, it's difficult to know I say market share gains in our conventional business in our market and our market Division.
So presumably it would be against.
The conventional players, but it could be again, it could be against others, it's hard to know exactly.
Who are winning again.
Okay. Thank you and then just.
Thinking about kind of the evolution over the next six months.
There's going to be it seems to me there's going to be a lot of puts and takes both from a demand in a margin perspective, I'm thinking about front store it at shoppers and perhaps lower sales of cosmetics.
And also you know certain types of illnesses and the impact that that has thinking about the potential for rising E commerce penetration as we move through the brutally cold winter months when no one wants to stand outside I'm, just wondering how you're thinking about it and how you're planning for some of the.
Sources that we may see more in the next couple of quarters.
That's a great question I would say that what we have been doing is trying to be very agile we've seen a lot of different changes in.
In the way that our business has been operating certainly.
Certainly looking at shoppers as I said in my opening remarks.
Just very very flat.
They've got ups and downs across the business. So I think we'll just expect to see more of the same hopefully I would say in some cases, it's starting to normalize. So I think we understand some of the trends in terms of.
Happening in beauty I think we understand the trends in happening of course.
Often called as people have not been as Matt we have seen a decline there and we're looking at ways to offset some of that.
And we've seen great demand in flu vaccinations in KOVA testing.
And if there's other potential areas that the pharmacists can take a bigger.
Role, we would be happy to do that too.
So I think we are maneuvering that I think in the grocery business, we've got a pretty good understanding of what happened.
When communities are put into lockdown, what happens when it opens up again, we have been holding have some extra inventory.
In case.
Some of these areas where.
There are locked down.
So I think we'll just continuing continue with the agility, we've been doing so far through the pandemic.
Thats great. Thank you.
Michael Van Gogh actually bothered met some actually if I could just stay on that you mentioned on E Commerce.
I think what we've got that we like about the model that we have is that really can scale up and scale back down. So we did scale up.
As we went through the pandemic and we have the capacity to for very high penetration now.
E Commerce and at the same time, it's scaled back a little bit in Q3, we have the ability to go back there too so we.
But the fairly I dial ecommerce model as well.
Michael Van Aelst with TD Securities. Your line is open.
Thank you good morning, I wanted to continue on the ecommerce actually so.
You said it was up about 175%, sorry, I guess, that's somewhere in that 4% to 4.5% penetration.
Gawker food does that seem reasonable.
Rounding out the right area.
So when you look at the delivery versus click and collect do you see any changes in behavior.
Of say the relative growth the past few quarters.
Yeah. So what we saw on Q2 is that the clicking.
Click and collect our picop is a much larger proportion of our E commerce business.
And so what we saw in Q2 was that delivery with increasing at a higher rate than click and collect but of course Uh huh.
We can collect ended up being is still substantial.
Definitely higher in Q3, we actually saw a reversal, where our click and collect business actually rose at a higher rate than delivery.
So interesting trends as the.
That will end up.
We would have seen a change there, but both are growing significantly.
Okay, and then what percentage of the ecommerce.
This business comes from PC insiders.
For me it would be a relatively small percentage of that today.
Sorry to quite nicely.
In the future.
Okay, and so when we look at the gross margin contraction you are talking about some of.
Factors in that but how much is E commerce of that 60 basis points because we saw on your on your ecommerce penetration was higher in Q2.
30 basis points more compression than what we saw in this quarter is that delta.
Mostly due to ecommerce no the nice thing with.
Commerce businesses, it's accretive on the gross margin, we see a nicer basket and that so it's really not driven by the E commerce. Its for the reasons that I already walked through.
Okay for E commerce, it would be on the EPS DNA side to see the labor side, where you'd actually see a dilution on gross profit to their endpoint, it's actually accrete.
Yes.
Okay, Great and then.
I believe at this point are the only grocer charging per click and collect.
For pick fees.
Is there how long can you do you think you can be the outlier here.
Well I think for now we're pleased with our performance.
We are seeing significant growth in it.
So I don't know exactly what our plan for how long exactly but its something that we would monitor and at some point, we know that we will likely not be tardiness, yes, I mean, just add I mean her customers so for telling us they're happy to pay a fee for this service it's a very good service.
They are getting and it's a very nominal fee and so we've we've our customers have been happy but as you point out Mike So we've got to keep watching.
Okay great.
And then on the same store sales side, you did narrow such statements you did talk about.
I guess continued performance and food.
In Q4.
But if you look at.
October compared to September and a more look at zero in a little bit closer have you seen.
Trailing pickup.
As the restaurant started to close down again.
I would say I mean.
Well the careful how much we get we're seeing you know still volatility even week to week. Some weeks, there's there's a bit of a pickup some their art, so I want to be careful not to.
To give you a false trend I think overall through the come what we said we were on the similar trajectory from what we see at this point to the quarter.
And just keep in mind that our business.
Well the national one so it's not as Wade as heavily just to one.
Jurisdiction, where the markets might be close.
As well.
Okay and can you just comment on the impact of apparel and general merchandise on same store sales trends in the quarter.
Yes, the right hand side overall.
All would still a headwind certainly less to a lesser extent than Q1 and Q2 of this year. We saw growth in HST, we've seen a nice pickup in that business, which is great and then we continue to see some declines in apparel cosmetics and stove tobacco.
Great. Thank you very much.
Thanks, Mike.
Patricia Baker with Scotiabank Your line is open.
Thank you good morning, everyone. Thanks for taking my questions I have quite a few here.
First of all in your response to Karen George a question about PC health and Sarah you referenced the 93.
3%, Oh still rate from the virtual Doctor visits I'm, just curious what that number would compare to in the past to what the fill rate would have been four fills in pharmacies, where you have a medical clinic or kind of on the premises sort of in the same building do you have that you have a rough.
Idea, whether that would be the equivalent number or whether these virtual visits or or higher silver.
The virtual business would be much higher than what we would get from a medical clinic in the thing that really I mean, they would vary by Connecticut Coke when it but in general that 93% is a very high rate.
Okay. Thank you heard that's very helpful. Then secondly.
You announced.
Announce that you're now doing shoppers drug Mart front store you know online can you just talk about what the model is there are you picking from store are you shipping from store what exactly are you doing.
If the worst it basically were picking in stores.
Okay.
You. The you just made a comment about the fact that in Q3, you saw a reversal in terms of the relative rate of growth between click and collect and delivery and with delivery, which was higher in Q2, but it's actually a click and collect as higher in Q3, I'm just curious whether that trend.
With.
With the delivery growth being lower than clear.
Click and collect is consistent across all geographies Orbitz you know if there's some geographical differences in those relative right.
We've seen a pretty consistent right across the board. So certainly GCA saw the same trend.
That's what we would have seen in western Canada.
Okay, and then with respect to the price investments you indicated you know from a channel perspective, where are you, making those investments can you talk about where you've seen where you've seen the need from a category perspective to make price investments in Q3.
That's a great question I prefer not to build that competitive.
I'm not sure how making our category investments.
Okay Fair enough then another trend in Q3 was and it was explained very well in the in the introduction, but you had that average unit price plus 5.3%, but you notice if that doesn't really bear.
Direct relationship to inflation, plus it's really both people buying bigger packs and so I'm just curious when you curious when you think about that trend, what it's telling you or what you're anticipating from the perspective of household kind of replenishment and coming back that you probably have delay of replacement of some of those purchases.
Well.
Yeah, I think it's just it's a function of kind of a bigger basket going to the store or less often so you buy a little larger size or something versus secondary go two or three times a week. So it's just a function of that so expect like major normalizations out of that.
Okay. So would would that trend has.
Different in Q3 versus what we saw in Q2 or Q1.
Just the way that you called it out it sounded like a different trends.
In Q3, we saw the average order price lift as well.
I think it was just 50, maybe 50 basis points less than the high fours. So this trend was starting at that time certainly in Q.
Okay. So I think we have differences and certainly at the beginning like that our last week as you know the height of the pandemic. There would have been the you know the pack buying and there would have been a let off certainly on the pharmacy, we saw the replenishment where they didn't have to do the replenishment through Q2, but I would say now that you know.
Through Q2 and Q3, it's it's stabilized people just buying bigger sized boxes, there I mentioned.
Okay Super and this is my last question I promise. So you you went through the holiday season, and the Thanksgiving season can you just talk about what you might have learned from that and how it is is there any thinking to.
Let's see.
Setting you up for the coming Christmas holiday season.
No that was it was very interesting I would say that we were we were pretty pleased with how Thanksgiving as well as Halloween.
Worked out for US I think we didn't see a significant change in the way in our performance in terms of it I would say it was spread.
Get out a little bit more and I would say that people are still getting together and celebrating just in smaller groups, but our sell through for both Thanksgiving and Halloween was that was strong.
So we expect something similar thing when you look forward to you know the holidays and what are we expecting always hard to predict exactly.
How you know during these volatile times, but we are similar things that there will still be gathering people will still be eating a meal in smaller groups there.
Likely won't be going out to you know as many restaurants and parties and so we'll be eating at home and small group and that we are anticipating.
For the holiday season.
Okay. Thank you very much.
Okay.
Michelle Schroeder with National Bank. Your line is open.
Hi, Thanks for taking my questions.
I just want to ask a little bit more about E commerce, which is a popular topic over the last several quarters.
Regarding.
And then your Michael fulfillment centers and and the implementation of technology I think typically you can take off technology, hoping you could provide some perspectives I know, it's early days and what you think about that and is that something that you're going to rollout more broadly and.
And if you're always prepared to give us that answered and maybe you could tell us what.
Regarding to be prepared to make that conclusion.
That's a good question. So right now we've got a we've got one automated micro fulfillment center is that yes, you're right. We are working with take off a we're pretty pleased with the performance out of that it's providing us and on the other had we've got for a manual fulfillment centers and.
We're currently just doing the comparison of the performance of the two versus the cost of implementing the two different versions. So we're not prepared to.
And now what it is that we're going to do going forward, but that the test continue and likely in the new year, we'll have a better position on that.
Okay.
And.
With respect to Loblaw media My my perception was in the past that was something that management was was pretty excited about and I know the pandemic kind of slow down the implementation of that wondering if that's a profitable program for lot lot at this point and what your suppliers are thinking about it.
So what I would say, it's early days on media and I would say that the pandemic did dampen that a little bit, but I would say, we feel very off I'm optimistic about it our suppliers that who some of the vendor to up we have worked with on that on some programs are very pleased with the results that they see through it a week right.
Now it's about neutral on an earnings perspective and for 2021 is when we think that we can make some progress and on local media.
Okay, and with respect to the efficiency initiatives.
Just a ton of a ton of things going on at Loblaw, and sometimes the growth initiatives get a little bit.
I'm more color on the calls maybe to the analysts questions, but the efficiency initiatives management commented on that it seemed like they were added in this quarter as they were in prior wondering if you can give us a sense of what particular initiatives with the big drivers of efficiency this quarter and what we can look forward to in the quarters ahead.
You have to show its as we've talked before I mean.
This this program hasn't stopped it it is ingrained in our culture and how we're how we're approaching every day.
We've talked before about it's really in six buckets, there isn't a silver bullet. It's on every aspect of the business whether your in store support whether it's in Jennifer and the store it's things like.
Hello.
Labels, it's things like self checkout, it's just improvements everywhere. So I wouldn't call out one specific item other than just a colo to our major focus continues here and we'll continue in this area.
I think on the software side. If there is an area that was probably had a bigger impact for them it would.
B on the self checkout.
Which is probably been helped a little bit by cobot as well where people are we'd like to preferred not to be as close to people. So they are choosing self checkout. We have a we did do some expansion in that in stores and I would say that the penetration is increasing significantly in shoppers.
Thanks.
Peter Sklar with BMO capital markets. Your line is open.
Okay. Thank you I'm, sorry to belabor the point, but back on to the discount channel and the pressures that you've been having there.
Would you say that.
Like the.
And you're facing those pressures, it's just largely the.
The competitive promotional intensity of your competitors or have there been loblaw any loblaw specific issues you could call out. So for example, missing the price margin balance or merchandising tactics or.
Whatever.
Reason.
That's an interesting question I would say that I think there's a couple of things happening certainly in the early days of the pandemic. We would have said structurally it was ER.
More difficult to satisfy customer needs through certainly some of our hard discount stores where high volume.
Hi, I'm high traffic at the lowest assortment just very high sales penetration in a small store made it more difficult I would say.
Since then we sort of manage that and we've got that we've got for the.
Tumor has that changed that their their buying patterns and so that seems to be stable.
Hi, and it has been more of a pricing investments and promotions going in order to make sure that we're competitive against our competitors, but also to make sure that we're offering great value to our customers when they need it more than ever.
Okay.
[noise].
On the 80.
<unk> million of overhead costs that you disclose you incurred during the quarter.
Is that.
We should assume is that the new quarterly level.
Forward.
All else being equal and you need to keep the same level of.
Sanitation and protections for the customers and employees et cetera.
Is that is that what we should be looking for in a quarterly basis.
Yes, Peter certainly for where we're at today and this pandemic. That's a good run rate to be using just keep in mind that Q3 was a poor period quarter, yeah. It would be lower but the same run rate in Q4 right. Good good point and when the.
You know when we eventually get out of this weather through vaccines or otherwise is.
Is some of that cost is going to stick is that now structurally in your business, but for whatever reason customers demand cleaner stores or whatever or is most of that going to disappear.
That's a good question.
I think I mean, it's challenging to predict I think there will be some elevated costs, but certainly would not be this kind of run rate cost a large a large part of this would fall off but I think there's going to be I think consumers are going to have different expectations for at least for a period of time after.
So I don't think it goes to zero, but it certainly wouldn't stay at this.
This level.
Right. Okay, and then just lastly on the normal course issuer bid during I noticed you bought back some stock during the quarter as this.
Is this largely just anti dilutive measures on your part or look like I'm. Just wondering what your philosophy is there or is the company trying to reduce the share count.
At this point.
It's part of our financial framework it hasn't changed it's we see it as a great way with our strong cash flow to give back to shareholders. So it hasn't changed we resumed in the quarter and.
We can plan to continue to do buyback.
Okay. Thank you.
[music].
Hi, Peter Chris Lee with Fisher Dang Your line is open.
Oh, good morning, everyone I'm, Sarah just wondering have you had discussions with the government in terms of what role shoppers may play in the distribution of the coldest vaccine and it seems like it will be a very large undertaking, but we know with potential benefits not only financially, but obviously.
Social good perspective, and just wondering if you do participate what type of investment will shopper speed you make to make sure that they are well prepared.
We always have ongoing conversations with so many different governments across Canada, we would love to be part of the solution.
And for providing a vaccine to Canadian.
So we definitely feel like we would be well suited for Oh, we have all of the protocols in place that we think would be required and will continue to have those conversations.
So I would say in terms of preparing I wouldn't say, we could prepare we are prepared to.
Not to do it through appointment only or three walk in to think we're prepared to be able to do it any way that we can think about that it might be rolled out I think it would just be a question of having the right labor in the right store as the vaccine becomes available and as we understand the rules of who will be getting the vaccine first.
And those types of protocols, but we.
We feel well prepared to be able to do that.
Great. That's very helpful and you mentioned cosmetic sales improved sequentially just wondering how much of the cosmetic sales have recovered.
Versus last year during the quarter can you give us a sense of is it 70%, 80% just some rough idea.
Yes.
So were still down so from keep we were down in Q2 significantly as it really wasn't the focus of customers at the height of the pandemic, we're still down in Q3, but we're starting to see an improvement so not a lot, but it wouldn't be as down as much as we would have more than 70% of last year sales wouldn't be down that much.
Okay. That's helpful. And then just on the discount side, you mentioned that the food sales were higher if we exclude the right hand side and I think it will be helpful. If you can maybe quantify for us what was the drag so we can get a true sense of the underlying strength.
Other food sales to discount.
Chris I don't think were going to give.
Of that number today like I said before the right hand side impact was a little bit less than the second quarter, what was quite a bit less than the second quarter.
But I don't think we're going to get the number by division today.
Sorry, Okay, no problem and then just maybe a quick.
One on gross margin if we assume the market Division has.
Higher gross margin rate than does Kim just wondering did the strength from the market division. So far this year that didnt have a meaningful impact on gross margin on the gross margin rate.
It certainly would have helped the margin rate yes.
Okay.
And my last question.
Hi.
Do you expect the changes in the branded prescription drug prices starting Jan first of next year to have any material impact I know in the past you you'll always see you budget about 70 to 80 million.
Fog struggled forming pack is that sort of within that budget.
Budgeting that you have for next year.
I would say a quarter ago.
Very careful to give color for next year, but I would it would be within the kind of regular reform that we would expect nothing nothing higher at this point in time from what we know.
Perfect. Thank you and hope you have a strong finish to the year.
Thanks, Chris.
Michael Van Aelst with TD Securities.
Your line is open.
It's just a follow up question on financial services actually you might have mentioned it but.
I missed it can you maybe explain.
Explain the big increase in the margin.
Financial service side given that.
Lower revenue code.
Yeah, Mike.
Really a function of two things one is timing of investments and we called them out last year his or her in this quarter. So it's kind of normalizing of that and the second was just adjustments to our east CL provision we are seeing some moderate improvement in the economic outlook at least relative to the second quarter. When we put that in the first quarter when we put the sale price.
Given their such as more of a true up on that.
So 18 is a more normalized level that is what you're suggesting.
Yes.
Okay, and as you look into Q4, usually a big quarter for the.
Seasonally for financial services.
But given the lock.
Sounds and people, probably spending a little bit less and maybe fewer people and store yes.
See any risk to the to the performance of the mobile shop or the credit card in general.
Yes, listen it's difficult to predict how things are going to go depending on on lock.
Locked into what I'd say, the underlying portfolio still doing well people are paying their bills.
The the loss rate year to date relatively in line with last year. So that so the portfolio is quite healthy and people are still spending.
How that if there's further lockdowns how that will play out as it is a question I'd say, we still expect the northeast.
Down we'll pick up until the fourth quarter I, just don't know the degree of the impact of things like locked down at this point too hard to predict.
All right.
Thank you.
There are no further questions at this time I would now like to turn the call back over to the Loblaw team for final remarks.
Thank you and thanks, everybody for your time. This morning, if you have any follow up questions. Please give me a call or dropped me a note and Mark your calendars for February 25th when we'll be discussing the results. Our full year 2020 results have great day.
This concludes today's call we thank you for your participation.
Now disconnect.