Q4 2020 Metro Inc Earnings Call
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I'd like to now hand, the conference over to your speaker today.
Okay, Josh manager of Investor and Investor Relations of Treasury. Please go ahead Sir.
Thank you Ryan good morning, everyone and thank you for joining us today.
I'm in for focus on the financials of.
The other fourth quarter, which ended September 26 2020.
With me today is Mr., Eric Lafleche, President and Chief Executive Officer, and publishing the executive VP and Chief Financial Officer.
During the call we'll present, our fourth quarter results and called me. The one it's highly will then be the bigger question.
Before we begin I would like to remind you that the people using today's discussion the been statement the couldn't be construed as forward looking information and general statement, which does not constitute the historical fact, maybe deemed of the forward looking statements expressed.
Expression, the does expect intend or confident that will and other similar expressions are generally indicative of forward looking statements.
The forward looking statements are based upon certain assumptions regarding the the Canadian food and pharmaceutical industries, the general economy, and our annual budget as well as every 20 1920 action plan is for.
We're looking for the not the right and guarantees of to the beauty. The performance of the company and are subject to potential risk known and unknown as well as uncertainties the could cause the outcome to differ materially.
A description of these risks, which could have an impact on these deposits can be found under the risk of might even section of our 2019 annual report.
As with the president of risk the current linking pandemic constitutes the risks that could have an impact on the business operations project synergies and performance of the company.
These statements to be reasonable for doing it at this time and represent our expectation for the company does not intend to of the and.
Forward looking information, except as required by applicable law.
I'll now turn the call the words [laughter].
[noise] like your show on the and good morning, I Hope every one of the line isn't the good health.
Our fourth quarter sales totaled 4.1 billion [noise] versus 3.9 billion last year, an increase of 7.4%.
Excluding the impact of AI for a 16 increase to the 7.7%.
The same store sales grew 10% versus the fourth quarter last year.
From a same store sales grew by 5.5 per se.
Our gross margin sort of 20.2% of sales or 20.4% excluding upper of 16.
Running a 20 basis point improvement in the margin versus the same quarter last year.
Operating expenses as a percent of sales came in at 10.4% for 11.8% without the impact of bar for 16.
This compares to operating expenses of 11.9% of sales for the same for last year there.
There were 27 million of coal the 19 related expenses in the quarter.
Or numbers include cost synergies from relate to the top what's your acquisition of 16 million in this quarter and 69 million for fiscal year 2020.
I am pleased to report the we have now secured and the annual run rate of 75 million of cost synergies.
And now the Weve achieve our target of same 5 million in cost synergies within three years of the acquisitions.
We will no longer disclose the level of the synergies going forward.
Our EBITDA for the quarter stood at 403.5 million, representing a margin of the 9.7 per cent of sales.
Excluding the first 16 EBITDA was up 37.9 million, an increase of 11.8% versus last year.
The presented the margin of 8.6% of sales versus 8.3% of sales in the same quarter last year.
Total depreciation and amortization expense for the fourth quarter.
The 118.5 million of.
The 50 million increase versus last year the.
The 5.1 million results from the adoption of the eye for a 16.
10.7 million or three cents per share represents an accelerated depreciation charge related to our new fresh products distribution center in Ontario.
Making the way for the opening of our phase two fresh DC.
Some existing assets will no longer be use and discharge of brings down the value of these assets in line with the remaining shorter useful life, we did not address the earnings for the soft.
Adjusted net earnings were 193.1 million compared to $174 million last year, an increase of 11%.
And our adjusted net earnings per share were 77 cents of.
13.2% versus last year, adjusted EPS of 68 cents.
Our capital expenditures for the fourth quarter totaled 203 million.
Bringing total capex for the year to 511 million.
At the beginning of the year, we had planned a higher level of capex for some projects, namely or new on the Ontario automated DC got delayed due to the pandemic we.
We will carry forward some investments going into the new fiscal year, and we expect capex for fiscal 2021 to stand at about 600 million.
On the retail side, we opened seven stores this fiscal year, including two conversions.
Located on other too and carried out of major renovations in 17 stores for a net increase of 168800 square feet, 4.8% of our food retail network.
Under the normal course issuer bid program, we have repurchase between November 25, 2019 of the November 10, 2024 point 26 million shares for a total consideration of 240.8 million, representing an average share price of $56.52.
We remain committed to returning excess cash flows to our shareholders and as such we have renewed or normal course issuer bid season, where the programs or giving us authority to repurchase up to 7 million shares between November 25, 2020 in November 20 for 2021.
That's it for me I will now turn it over to Eric.
Thank you kind of slow and good morning, everyone.
We are very pleased with our performance in fiscal 2020, and what a year it has been.
We delivered a strong performance across the board as we grew our sales of 7.7%, our adjusted EBITDA by 11% and our adjusted EPS by 14.4% for the year.
All of this excluding the impact of idea for 60.
After a strong first half of the year our performance in the second half of the year was fueled in part by the sales growth caused by the pandemic. This.
This performance was also of the result of sustained investments in our store network, our supply chain, our merchandising programs E Commerce and of course, the dedication of our employees.
Want to again, thank our teams for all of their hard work to ensure that retail and distribution center operations continued to run the inefficient matter all the while providing a safe and secure environment to our employees and customers.
Let me now turn to the fourth quarter.
We delivered solid solid results driven by strong comparable sales and good operating leverage.
Food same store sales were up 10%, our internal food basket of inflation was 2.8% slightly lower than the 3% recorded in the previous quarter.
We saw traffic trends, improving compared to our third quarter, but still significantly down year over year.
The larger basket the continued to more than offset the decrease in traffic.
We are pleased with the performance of both Metro and our discount stores supersede and food basics for Metro stores continued to grow more than our discount stores again this quarter, although the gap between them has narrowed significantly.
The strong performance resulted in resulted in market share gains in both of our markets.
On the pharmacy side same store sales grew by 5.5%.
Prescription drug sales grew by 5.3% and front end sales increased by 6% led again by Kuvin related items, such as masks and hence sanitizers supported by strong merchandising and marketing plans.
These gains were partly offset by the softer performance in our cosmetics and beauty categories, which remain under pressure during the of had lemon.
We are pleased that the labor conflict at there's not good to warehouse in the and was that started on September 23 was resolved last week.
Employees return to work on Sunday, and we expect the gradual return to normal operations over the next few weeks.
So that's why I mentioned, we achieved our target of 75 million and cost synergies related to the acquisition.
There is still room for additional synergies with the transfer of operations from Mark Mcmahon distribution center to the Bakken Center.
These activities can resume now that the labor conflict is behind us and we expect them to be completed at the end of fiscal 2001.
During the fourth quarter online grocery sales grew by 160% of.
As mentioned on our last call. We are now accelerating our investments in the E commerce to add capacity as demand grows.
First we just opened the third hub store in the GT in Scarborough and it's off to a good start.
Second we will be opening a dedicated store for online grocery next summer to serve the island of Montreal the.
This that the dedicated store will leverage our key learnings and technology investments made over the last four years. This.
The store will offer the same variety and freshness found in our regular metro stores for the next day home delivery with the option of the same day delivery.
[music].
Third we will be deploying click and collect the most metro stores, increasing the number of stores offering click and collect from the 40 planned to more than 100 100 by the end of fiscal 2001.
Finally, we will continue to work with the corner shop, its third party delivery partner offering to our delivery.
Which adds flexibility to our on line capacity.
These investments will be part of our regular capex and will enable the company to increase its online grocery capacity gain efficiencies and better meet our customers evolving needs.
Our Ontario supply chain modernization project is coming to fruition.
The startup of the first facility is planned for next January in.
In Quebec, the automated distribution Center project was submitted to the city officials and it was well received key contractors have been selected and the preparation of the main construction activities is underway.
Looking ahead, while we can't predict how long the pandemic will last for exactly how it will evolve we expect that in the short term food revenues will continue to grow at higher than normal rates versus last year as a portion of restaurant and food service sales continue to transfer to the grocery channel.
In the first for four weeks of fiscal 21 food same store sales increased by about 11% versus the same period last year.
On the pharmacy side, we are pleased that our contingency plan secured the supply of prescriptions, the new Tc products to our pharmacy network, although commercial sales were negatively impact the.
In the first for weeks of fiscal 21 comparable prescription sales were up 3.6% versus the same period last year, while the front end same store sales were down 3.4%.
We expect the front end sales will remain under pressure during the first quarter as we gradually ramp up inventories and promotional activity and this will negatively impact our pharmacy division results in the first quarter of fiscal 21.
In closing, we're pleased with our performance and our teams stepped up to the challenge our priority remains the safety of our employees and our customers as we continue to run our operations as efficiently as possible and invest in our long term growth.
Thats It will now take your questions.
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Your first question comes from the line of Karen short from Barclays. Your line is now open.
Hi, Good morning. This is actually we're now did the song from the one for Karen Thanks for taking my question.
So so so sort of for this one of your competitors called out a pretty intense competitive environment on the discount sagging.
Actually some sort of price investments.
So wondering if you're sort of seeing all of the same thing and how you'd characterize the level of competitive intensity out there on the discount side and if you feel the need to respond.
Thanks perspective.
Well there are markets always the very competitive yes, we did the <unk>.
The little more competitive intensity and promotional activity towards the end of our quarter leading into Thanksgiving. This year as usual. This is not unusual the in our markets. The that heats up from the time of year. So nothing out of the works for extraordinary but yes, it did eat up a little bit.
That said, we are priced well.
We have strong merchandising programs and our discount vendors are well positioned as or metro stores of those bonuses.
The good position to the faces.
Okay. That's that's helpful.
And just just wondering if you could provide some context of that the type of investment all day.
Maybe necessary this year.
Do you sort of example piece of ecommerce capabilities or maybe any color on how your how you're thinking about the relative magnitude of the these investments on this year versus last year and how the.
Since the shop on the piano line, all nurses versus maybe current taxes in the model continues to evolve.
Yes, so as we accelerate the deployment of the E. Com there are some expenses associated with the but like Weve done from the beginning of where we're taking a gradual prudent approach as the as demand grew faster than we expected. This year, we needed to ramp up and that's with the you know the.
The acceleration today.
And I think the level of demand will the.
The lowest the support the expenses that come with it but there will be some extra expenses there will be some investments this year to the study to set up a click and collect the more stores.
Facility clearly that's going to take some transition time in some expenses. So well give you specific guidance there will be EPS for expenses, but we think we can manage for that and that the the volume we expect to get little the.
Will enable us to of.
The delivered he says the turns.
Okay. That's that's very helpful. And then just just last month, it's I mean, you know presumably.
Presumably if you picked up quite a quite a number of new customers during the pandemic, but just wondering what your sort of doing to cultivate the.
The new customer relationships.
Just whether there's anything income.
Particular being done to specifically target those towards the new customers. So that they're you know, they're sticky and the become loyal customers.
As you get through and beyond the pandemic. Thank you.
[music].
Well, we try to operate grid store as held for great value and the execute the every day. That's how you keep the customers happy we measure of customer focus is the.
Every month and have been for many many years so the new Cheeser that's been the continue.
The Big change this year is the big basket as you know so traffic is down basket is way up.
The trends are improving quote unquote, a bit but it's still the the similar.
We're seeing so.
So I think Oh, all sorts of good initiatives the merchandising marketing loyalty.
We communicate with our loyal customers. We personalize offers so the stuff that we've been doing for a while the we are continuing to do and so when we say we try to execute the.
The NVO server customers and exceed the expectations. The that's what we mean so.
Yes, we I'm sure we got new customers over the next less of the while but I think are for execution. The it was it was the behind the ability to generate a large basket.
Decent margin and good returns.
Okay. Thanks, that's great color same some best of luck.
Thank you.
Your next question comes from the line of Peter Sklar from BMO capital markets. Your line is now open.
Hey, good morning of.
First on the dedicated store for online I just had a few questions.
I guess the first one is the conversion of an existing store and there is a period of time.
But looks like infrastructure development of.
Of the store where are you I think you said, you're not opening that up until the next summer and you know is there what is the extent of their automation technology in the store and the can discuss the capex. The I just wonder if you could talk around all of those points.
Okay. So it's not it's not a conversion of in the existing store. This isn't the existing facility in an industrial the location. So it's the building of about 100000 square feet the needs of the existing buildings that need some.
The modifications to adapt to an E commerce of the store operations, so changes to receiving shipping everything inside the needs to be a to be done to to build the food store basically the food.
For the it will be efficient for for NUKEM model. So that's why we need the.
A few months to build it out the.
The start operations net Britain net next spring wrapping up to the to the next summer so.
For the Capex or is the south of 50 million Bucks say around $50 million with the we're talking about.
Onefive.
There is no automation per se to start a that's the plan we have a lot of technology, we are leveraging the technology and the systems and the learnings that weve used in our in our hub stores that we continue to use in our hub stores those will be used in the new facility. So there is a the technology component to it all the.
The but theres no well per of your automation to start we continue to monitor the automation alternatives. It's too early to the days for those the technologies the.
Building, where we will operate from will allow us to incorporate Mike.
Michael fulfillment, if and when the we choose to do so, but that's not the way we're going to start.
I hope that answers the question yes.
And Eric.
I take it that the the store is only for.
Home delivery of will not be building click and collect baskets.
That's correct.
Yeah.
Okay. Just the couple of questions for out of France, while if I may rents, while the the amortization charge that you took on the pre existing distribution assets in Ontario.
I take it that's just the one time, we're not going to see further charges as we go for it.
So it's a one time, partly you information probably catch up just there's going to be some remaining as your short of useful life.
We will continue to depreciate faster, but it's nothing like this amount that we just book.
Okay.
And then on the the cobot costs that were a $27 million during the quarter.
Can you talk a little bit about what the run rate looks like for Q1. That's the are we kind of at that level or the costs going down or up or whatever you out on that now we're pretty much on it last quarter. If you remember Peter I said, we were running at about we estimated with the we'd be running about 10 to 12.
This was a little over nine per per month of this quarter. So it's around the ballpark, but its a expect a similar amount of everything else being equal.
Okay, Oh, and Eric sorry, I forgot to ask for one thing on the dedicated store can you talk about the like I would think eventually you're going to bring that to the Toronto as well can you talk about like as you look into the future for how many of the stores do you think you could have the service your customers.
So yes, so the evolution of our omni channel strategy is the is to have a dedicated facility in large dense urban centers. So clearly Toronto would qualify so we will look to build something similar in the Toronto market, so not ready to announce anything.
We will keep you posted as the C., but we will start with this one in Montreal like I said, we now have a third hub store operating in Toronto, our businesses. The we're pleased with our business in Toronto, we will need to add capacity there.
But.
The.
In the year following or so.
Okay. Thanks very much.
In the meantime, you know by adding click and collect stores.
The more quickly we think we can capture our fair share.
And the sort of line.
Okay. Thanks for your comments I appreciate it.
Your next question comes from the line of Irene accounts from RBC capital markets. Your line is now open.
Thanks, and good morning, each other.
Just wanted to talk if we might offend the step up the I guess in the pace of same store sales from the end of Q for through the Q line and anything you can tell us around what you're seeing out of here in Quebec. We went into shut downs is the credit, even Quebec and Ontario.
And also just really how you're thinking about it.
In the store same store sales and the potential lift in E commerce as we move into the brutally cold winter months as it starting to scale today.
Yeah. So some of the lifts the wouldn't cold of the big lift from 10% to 11% it's the.
For weak numbers, so it's not the full quarter. So I think we're in the same ballpark. The first for weeks of of of fiscal 21 the Thanksgiving.
Thanksgiving in there so the Thanksgiving is a big the week or 10 days, especially in Ontario, even more than get back. So I think we had.
Strong a strong week that week, but.
I wouldn't call it a step up in the same store sales between the end of the quarter and a few one.
For that.
Traffic in our stores with the cold weather.
The impact of E com the E comm demand is.
It's still strong let's put it that way.
We're pleased with that will it increase with the cold weather can.
Could make an argument.
I don't have the crystal ball like the like I'd like to see.
So we're preparing our stores for the most of the business as you know is in the stores the.
And we will be so over the course of this winter. So we have to take all the necessary measures.
We have to keep the or store sales and lean and the.
For line ups outside of the we'll have to find ways to put some shelters the world.
And preparing for that.
Perhaps the be challenging, but the we have to do what we have to do for by the sales environment for customers and our employees and we will spare no expense and the new measure.
Okay. That's great. Thank you and on the switching gears for the second to the pharmacy side as the.
Can you walk us true I guess the cadence so for the next 12 of the line as you can do now consolidate the distribution facilities in Japan and other Youre talking about synergies maybe you can give us the idea of the magnitude of let's call. It duplicative costs that you're incurring because.
Got Ya man and that and and the cadence with which we can expect that was to kind of go away over the next 12 to 18 months.
So some of the priority now after the the labor conflict is the really ramp up inventories in or zone grocery stores.
And in order to warehouse.
Like I said we.
The challenging on the front end commercial sales. So we have a use of the work to do there. So that's the first priority and that's going to be over the next couple of months then after the holidays.
Beyond that we will resume all the activities to the schedule the transfer of stores the dizziness stores from the Mcmahon warehouse in the east and the Montreal to vote and so this will be done starting I guess in the spring a number of stores per week or per per month, and then we expect to sort of the full trends for done tours.
At the end of fiscal 21.
Really fall, so and that that time, yes, we expect further synergies for the as Ginny reductions related to distributions.
The something around 10 million is the number that we'll be shooting for but it's going to take a bit of time.
It's going to be growth.
That is great. Thank you I meant just for in late following up on the question I think would be the Cameron shorts associate to ask the question about.
The current for the call.
Certainly around.
I mean, your metro, meaning your air miles data one of the showing you a rail and existing customers versus new customers shifting.
Shifting basket you know Nick the effectiveness of the drought communications that you're doing particularly around metro in me.
Well, there's no big change.
And that like.
Like I said earlier, we've been we've been at it for a while the with our loyalty programs and personalization, especially with what we want so we're still using those tools and short for new knows the those insights and influencing or merchandising.
And our promotional activities so between what remains a popular well like program the in the province of diabetic.
We're seeing the same.
The same kind of similar results is that the we've seen before the.
Online customer.
The tends to be of Mutwo in more customers. So we're seeing more loyalty from them.
Which is a good thing.
The us and that's sort of the <unk> that.
That is the omni channel strategy to gain share of wallet of through through the or store and online.
We want the measures that pretty well.
We're happy with that so it's all part of a larger digital plan digital strategy.
The we're pleased with.
We're to do and then.
And yet the.
The we're pleased with that.
I can't give you a specific insights on this company the reason for it.
We're we're doing what we did.
The doing and will continue to do it.
That's great. Thanks, Eric.
Your next question comes from the line of Smart Peachum. She had been showing your line is now open.
Hi, Good morning, I wanted to just follow up on a few of the topics that you guys have already given some great information on the.
With regards to the dedicated online store are you willing to share in EPS.
He made it sort of range.
On the revenue throughput that you would expect from that store once it's the once it is ramped up.
No we're not.
Were I think in place there.
We're adding capacity and we think we will have enough of the capacity for for a few years several years, we'll see of demand evolves.
We'll be in good shape to serve this growing demand more efficiently than we are to the with or hub store model in those in the same demon seals.
We're the theres more demand and the.
Five stores hub stores around materials right now so we will you will now.
Three three of those stores will be the quote unquote relocated into the new one to be more efficient.
Add capacity.
The the surplus.
The the stores, yes for the could click and collect the the delivery the ticking in delivery will be done from the central location.
And as the level of volume that we expect.
The.
To the efficient.
Okay. Thank you.
With regards to the gross margin performance in Q for are you still seeing modestly lower promo penetration.
In in larger baskets and I'm just curious if there are any other impacts to call out for Q4 that where a change from Q3.
The gross margin the performance, we're pleased with the higher volumes higher baskets.
Tend to generate a good.
Good margin the promo rate has steadily increased back to more normal levels. So I can't say that the lake early days independent Mic, where the promo rig was way down. This is not the case for Lumos is is back up to you.
Usual numbers.
That said I think our mix the has been effective higher.
Higher volumes is good for lower shrink the private label penetration is a stronger so it's.
The bunch of factors that contributed to this good performance on the gross margin and we're happy with that.
Okay.
With regards to the synergies I know the distribution of pro doctrine Eric's through the Metro and Bernay network was not part of your original number but could you just update us in terms of what type of progress you've made on that and any comment at all about how much of an increase this is driven for the product business that would be helpful.
Well, so poor duck the generic drugs are available to the you know.
The pharmacist, it's their decision to to order it or not we have seen a a gradual gradual ramp up.
And no sales.
To the to NAV pharmacists there.
There was more potential there there and the you know the those things the takes time and the.
We're monitoring it but again, it's the pharmacist decision on the.
Net.
Okay understood and just the last one I'm just.
Sort of bigger picture I mean, obviously consumer eating habits of been changed dramatically through the pandemic I'm just wondering how all of this has affected how you look at your prepared foods are prepared food offerings.
HM our meal kit.
Or even something like prepared food delivery.
How have how have you adjusted your thinking about what that business could look like over the next couple of years.
Given all of the change that we've seen over the last number of months.
What sort of a good questions the.
The.
Hmm are and the kitchens in our store activity were almost shutdown or the on the independent.
There are gradually coming back to life, and and we're offering more and more prepared foods the from our stores. So we'd have to continue.
Continue to evolve and adapt so.
It's clearly a big focus for the from store in both the Bakken, Ontario to of the write off for the right for us.
Good fresh food and HM are so.
For competitive reasons, what kind of kind of give you all our plans, but clearly.
It's a it's a requirement the customers.
We're looking for.
The the way, it's presented and Merchandised can change for her.
It's more prepack refrigerated versus the heated so you know there are changes to the way we present, but we will we have to present convenient fast good foods to our customers and the for.
We're working hard to do so.
The the two or toward the teams to the come up with the with those answers but the.
That's the direction.
Alright, I appreciate all the comments all the best thanks.
Again, if you would like to ask the question Press Star one on your telephone.
Your next question comes from the line of Chris from Dish or day. Your line is now open.
Hi, good morning.
Unlike online pharmacy has become more topical again, but the Amazon pharmacy announcement in the U.S. yesterday, Eric I know you don't have the crystal ball, but for the split this love to get your thoughts on the you know how do you see on line pharmacies impacting the flow.
Pharmacies in general over the longer term do you see them as the big threat and the more importantly, how do you see you'll pharmacy network evolving over the longer term to continue to drive growth and take market share.
[music].
So our pharmacies the in Qubec have a or offering a prescription renewals and prescription home delivery of online so.
We have that and the.
Certainly the their day and rolling.
Rolling.
One of the front end sales the.
Not really.
Part of our of or most of it's a small part of our model today.
That is on the.
The M. is on the announced the yesterday in the U.S. I don't think is a big threat.
Threat short term anyway, and this market regulations are very different price of drugs.
Regulated here.
The prescription excuse of regulated here by the government. So we don't see that as the big threat.
Said for convenience and the.
Professional care.
Junket student I mean, the pharmacies through the online platforms of for for a health files, the prescription rules and ordering are delivering that service to their patients.
Great. That's very helpful and maybe just a quick follow up on that we know in Quebec. The pharmacy regulations tend to pay more be more strict than other provinces such as the requirement. The pharmacist also need to be owners of the business do you see that has the potential hurdle for for some of the new on line entrance in in Quebec.
Do we see this is the potential UBS hurdle hurdle hotel.
Oh, the total to make it harder because of the most stringent regulations.
I would think so yes.
Okay. That's helpful. And then just shifting to on line at the grocery business can you share with US what is the mix between your click and collect and home delivery.
Volumes so far.
Well, we don't disclose the those ratios the.
Model that we have worked on for the last four years has been more skewed to home delivery. So a large percentage of our sales or or or the home delivered but click and collect especially in light of the pandemic has picked up in the hub stores that we have today click and collect the has accelerated so.
Yes.
Given where things are in the level of demand and smaller markets for for online shopping through click and collect we think we.
We can we can like I said earlier I keep our fair share of of those sales in or out of our metro of customers in those markets with the click and collect models.
Long answer heavily a home the delivery today, the mix will change as we add click and collect stores over the next year.
Okay. That's helpful. Then appreciating that its expanding the click and collect to more stores need share that will be more expenses, but since the most of them are more variable labor costs is it fair to assume that as you do expand the click and collect presumably you get more sales.
That's so if the most of the cost of more variable labor cost the the impact on your profitability should be manageable with the would that be a fair assumption just on the click and collect business for next year.
Well, yeah like for like I said earlier, the there will be some costs associated with offering the service I think ER and lower density markets stores can manage their hours to with the existing employees with the help of the technology that we will provide that they can feel that a click and collect service.
Within there.
The their hours of that they manage the every week so the reassignment of hours the.
I think the it can be absorbed and it will it will be that much easier. If it's all of the additional sales if that's the transfer of existing on the in store sales to on line click and collect.
Then the it's a little more day season, we have to manage our costs really well, we think that we think we can.
But we hope that it will be a added volume or parts of it that will be new volume, which will make it a little easier.
Okay. That's very helpful and maybe my last one the just on the capital expenditures you guiding 600 million for this year.
Can you share with us so the one of the big buckets that you mentioned that the dock store would be like the one for 50 million investment, but you know in terms of other big buckets like net new Dcs in store renovations can you just give the rough sense of what are the big buckets of spending for next year hopefully this year.
Chris I'll sort of your you can assume that a it's pretty well divided between the.
D.C. and the retail network.
So obviously, we of large side of large investments in our automated the scene, Ontario, we're starting a cutback.
And the about half of what I said will be around the retail net rough order of magnitude.
Perfect. Okay. Thank you for your answers and type of strong and safe holiday season. Thank you Chris your true.
Your next question comes from the line of Vishal Shreedhar from National Bank. Your line is now open.
Hi, Thanks for taking my question I, just another follow up here on the E commerce acceleration initiatives, particularly the Montreal for commodity for home delivery wondering why management decided to at least the main.
Installation of automated technology.
The business case is the technology not reliable what what's the issue with the with would not trialing the.
This point.
I think the guess I guess the short answer is the we have a good model, we're pretty efficient the way we operate today, we think we can be even more efficient with its own line facility.
Ken automation help us maybe a.
Again, the like we are going to monitor that close the and incorporated if and when we think it's it's going to be helpful.
When you change the way of doing things, there's a transition there is cost it's trending need the people these systems.
So we have to be careful how we do it just just the transition to a new building is the challenge we're going to do it with the existing methods and that'll make it a little the easier smoother of to start.
And as we go down the road or we will incorporate automation gradually if we think it will help us. So we will measure we will analyze where we think it can help us we will incorporate it but the priority for US was to open this rapidly.
And to do so we are choosing to go with our current model.
In a much more efficient efficiently.
Built the building.
Opted for pure on her personal income.
Okay. Thanks for that kind of with respect to the investments and click and collect the tend to agree and I understand that the future is uncertain and of.
Of course, I understand that in the past to the Pete Wentz <unk>.
The method that metro thought would be more preferred by the customer so given the pandemic given the behaviors that you're observing.
It's fair to say that Metro now, we'll use the click and collect in the Liberty are both going to have the place in the future for the customer.
Well the our.
Our right or for experienced so far.
It's been the the delivery was the chosen the preferred model click and collect is becoming available and.
At the other competitors.
And it's being Trialled. So we think that theres the customer for the vote, yes, what the proportions will be exactly it's hard to tell but.
You come to me is the about convenience the first and foremost.
And the.
The way you deliver it depends on the density and the economics of market by market. So.
In the material market or the G market a dedicated senator makes sense.
The levels that we're at today.
And that's why we're going in that direction and in other markets, where delivery can't be justified or supported the.
Then, we we should offer click and collect efficiently so.
So that the customer that the prefers to shuffle in line and pick up the store can be it can be service. So yes. It's the you need you need both I think two of the sort of the customer as well.
Okay wonderful and I'm, just I'm thinking of topics here again with respect to the had gone the Spanair I know, it's a little bit more labor intensive and has that had the different offer and call. It most stores.
Can you just comment how the pandemic impacted performance.
The on this.
No, it's particularly given its the.
Prepared food offering as well and has that changed your view on the growth expectations for this [laughter].
Well the I don't think it has changed our views on the banner for the potential and the the concept is differentiated the tickets are great concept within like the lot of potential that said the pending Nick has been a little harder on that better than or regular food stores a couple of the reasons.
Yes, large I would call in destination of dawn of stores and those stores.
Early in the pandemic or with the stores.
The stores are with heavy volume and the big crowds clearly they were affected people at the line up and were and wait for a long time. So we lost some sales because of that Sundays were closed early for for a few weeks early on and get back so.
It was tough on the doughnuts, the big stores I would say early on the better.
Better now and we have also downtown urban or the 100 stores that are near the students the universities and heavily focused on for the food. So.
No big secret that those stores, even with our Metro banner in Quebec, and Ontario, those stores are under pressure the downtowns or empty.
The students are not there. So so there has been pressure on the done this for sure in the last year that said, we're very confident about the banner its potential we opened the store of last year in Ottawa. The series fiscal 20 in order words, it's off to a good start a real putting the convexity or early the next winter.
So we see more growth.
But clearly.
Prepared food is the is the big part of the bonus offer and that was affected so I think thats temporary vaccines are coming soon apparently so so we'll see.
Okay and I.
I was hoping to get your perspective on the trend for conventional abreast of discounts.
You know, it's been well loved the Scotts accounts conventional doing better cash.
From restaurants closing, one stop shopping cetera, the given that you've had presumably net new customers trial. Your conventional offers that presumably havent shop, there as much as they usually have do you think that that trial will result from Cynthia.
The conventional banner once the COVID-19.
On the dissipate I know your best of perspective on the.
Well, yes, we think we think we should get a to keep some of those other new customers or get those existing customers to keep spending more with us and they didnt before hopefully they found a good shopping experience and the.
The they save money before versus the previous habits, and we get the we get the keys for more of the share of wallet. So.
To do that and I think we have a shot.
Doing that that said discount the is a significant part of our business, we like our mix of discount the conventional or the search for value is not going away and I think it's important to of both the strong formats in the portfolio and we do so.
I think that's the good thing.
Thank you.
Your next question comes from the line as Michael Van Aelst from TD Securities. Your line is now open.
Thanks. Good morning, just wanted to touch back on the Montreal, a dark store or whatever you want to call. It can.
Can you.
Can you give us an idea of what the geographic area. It can cover and and like how many stores you delivering from and get back now and well. This replace some of those stores or is it just fully additive.
So we have a five stores hub stores and the greater Montreal area three on the island the one in the South shore and one of the live though.
So the plan is to migrate the three island of Montreal stores to the new central location because.
The Threem island, the Montreal stores will remain click and collect.
The other the valve store in the self sourced store will remain as hub stores for for two.
Click and collect and delivery.
And the that's the way we will start this new facility to service the essentially the island of Montreal.
It could service, we'll see we'll see out of all of the could service a greater Montreal. The eventually again, we we learned we adapt we test we learn and things change it goes fast in E com and the.
Just giving you the original plan and the we'll see all the goals.
Okay, which city is the the they actually show a facility located the.
Uh huh.
[laughter].
Okay, great as far as the synergies are concerned so you're at 16 million in the quarter, which is roughly 70 million at the annualized it and now you're talking about 75 million annualized going forward. So I'm, just wondering where the incremental improvement is coming from going out.
Out of Q4 and into Q1.
Yeah, So Michael from here.
So many other things, but mostly additional procurement synergies of were secured.
But but has not flow into the Q4 results of the you will they will flow through the Q1 results now, but we have secured an additional five.
It just hasn't flown into the of the Pinedale yet.
Okay and did I.
Eric say that the new.
The the converting.
Or getting brand ramped up and taking over Burnett is going to add 10 million more.
Yes, that's the that's the you can assume that the that's the goal the.
The we're already some of their worst some SGN aid that that had been the that have been removed from the of the facility, but the remaining are the main combination you can assume a you know and other the.
Channel of 10 million.
Going forward.
Okay, and the new Labor agreement.
Take away from that at all.
Well again, we're we're pleased with the outcome of the.
Labour negotiation there are some added cost the there are some rate increases.
I will speak for you all the details of the the changes in the in the collective bargaining agreement, but I would say that it's it's it's market and the increases that we will pay or or normal course, that's right Tim.
Moving away from this.
From the combination here.
Okay and can you just explain or are the steps that have to be.
To be done to get your stores your P. J C stores back up to where they were prior like why why does it take a few months.
A few months to get the stores restocked bullion and promotion right back up it's the.
A few weeks leading into Christmas, we think we'll be in good shape around Christmas, but you know.
The contingency plan the.
The reduced assortment, we reduced promotions, we change the supply or mechanisms to third parties to direct delivery.
So again, the systems and order books and size of a million details here, but the to provide a good contingency to service our stores, we had to make some changes now we have to unwind all of those changes go back to normal it takes it takes a bit of time.
So the stores the need to to the field refilled they have inventory, but they need more and so we will gradually fill them up and the reactivate our promotional the.
Activity, which you know since the beginning of the strike has been reduced we skip the week or two of Flyers the.
Conflicts are tough for their tough on the on everyone's employees managers.
Retail.
It was tough so I'm glad its behind US the that's why I say, it's going to take a few weeks to get back to normal.
So we want to get that done and that takes into the next takes us into the holidays and then after that we can restart the of the process too.
To prepare back into receives the Mcmahon to the.
For the test.
There's a bit of work.
All right. Thank you and last question the I figure I'll take a stab at this but are you willing to.
Give us an indication of why your ecommerce penetration isn't food at this point.
No. We we it's still low it's still the low single digits. The it's the Metro banner only it doesn't cover all geographies. So you know we can we we know what our or sales obviously, we know what the for the percentage of all the Metro is we measure it in the markets, where we offer the can collect so or not you can collect the.
You come.
So it's it's go single digits, it's growing from a very small base.
And we'll see we'll see where it ends up but.
It's an.
And the port of more and more important part of the whole business, it's part of the offer.
And we'll see we'll see how the gross.
Yeah, when we have a more I guess it abrupt broader geographic coverage of perhaps.
Perhaps we'll give you more color on the on the penetration.
Okay, great. Thanks markets that we serve like Montreal, a few years.
With the hub store model.
It's it's in the low single digits and growing.
Great. Thank you for.
Your next question comes from the line of Krish reach and <unk> Bank. Your line is now open.
Sorry, I mean, just maybe a follow up to the front end sales. They paid the week of coal coughing still the season is that having a bit of the impact on your resell so for in the current fiscal quarter.
[noise] the answer is yes.
Early in the season, but from what we can tell the early days its a much weaker cold and flu season versus last year last year was the quote unquote exceptionally strong cold and flu season, now with an exceptionally weak one with all of the Senate to cemetery measures everywhere.
So yeah, that's having an impact on our own or the sales are the pharmacy sales the right now.
But theres also impact of because of the like I said the.
Fill rates and the promotional activity.
That was not of the same as last year. So that's why we said.
The outset of the call the pharmacy results there will be an impact the because of this conflict for sure the.
Okay.
Helpful. In the lastly outside of the.
The ones.
Okay Perfect and then just lastly, just with respect to the reduction in branded.
The prices for next year do you expect that you have the material impact on GAAP results for next year.
We're not planning for a material impact on the results next year, we're following that a pilot closely.
Hold the.
The could be some some reductions, but the won't be material in the next year or so I don't have all of those details Chris we could get back to you.
In our plan, we don't have the big impact from that.
Okay. Thanks again.
No further questions at this time I will turn the call back over to the presenters.
Thank you all for your interest in Metro and we'll speak again soon to discuss our first quarter results on January 26. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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