Q1 2021 Metro Inc Earnings Call
Now I would like to hand, the conference over to your speaker today Sharon Kadosh. Please go ahead.
Good afternoon, everyone and thank you for joining US today My comments will focus on the financial results of our first quarter, which ended December 19 2020.
With me today is Mr. Eric La Fleche, President and Chief Executive Officer, and Paul said people Executive VP and Chief Financial Officer. During the call. We will present, our first quarter results and comment on its highlights. We will then be happy to take your question.
Before we begin I would like to remind you that we will use in today's discussions different statements that could be construed as forward looking information in general any statement, which does not constitute a historical fact may be deemed as a forward looking statement expressions, such as expect intend or confident that will and other similar expressions are.
Generally indicated a forward looking statement.
The forward looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries the general economy.
We will budget as well as our 'twenty 'twenty 'twenty 'twenty one action plan. These forward looking statements do not provide any guarantees as to the future performance of the company and are subject to potential risks known and unknown as well as uncertainties that could cause the outcome to differ materially.
A description of these risks, which could have an impact on these statements could be found under the risk management section on our 20 <unk> annual report.
For the preceding with the COVID-19 pandemic constitutes a risk that could have an impact on the business operations project synergies and performance of the company. We believe these statements to be reasonable and pertinent at this time and represent our expectations.
The company does not intend to update any forward looking information, except as required by applicable law.
I will now turn the call over to pop that you book.
Thank you Michelle on the graphs.
All my best wishes for 2021, and I hope everybody on the line is in good health.
Our first quarter sales totaled $4 3 billion versus for building last year. That's an increase of six 2% food same store sales grew by 10% versus the first quarter of last year and in pharmacy same store sales grew by one three per cent.
As we indicated on our previous call. Our pharmacy results were negatively impacted by the labor conflict or example to distribution center, which ended on November 12th with operations resuming on November 15.
The conflict impacted are resolved through a combination of lower warehouse sales to pharmacies with a related margin impact and higher operating costs, mostly transportation, we have not adjusted earnings for the labor conflicts.
Our gross margin stood at 19, 7% of sales versus 19, 6% for the same quarter last year, our food business continued to post good margin performance, but the total margin was dampened by the impact of labor the labor conflict in our pharma business.
Operating expenses as a percentage of sales came in at 10, 4% versus last year's 10, 6% or 10, 4% when adjusting for the $7 5 million loss incurred from the disposal of our subsidiary Miss fresh.
There was overall good cost containment considering the additional expenses incurred as part of as part of the labor conflict Theres opportunity.
As well as the COVID-19 related expenses.
During the quarter, there were 28 million of pandemic expenses, including about $8 million related to the distribution of thank you gift cards to our store and distribution center employees in December.
Our adjusted EBITDA for the quarter stood at $399 2 million, that's up $28 6 million or seven 7% and you just adjusted EBITDA as a percentage of sales was nine 3% versus nine 2% last year.
Adjusted net earnings were $197 7 million compared to 189 million last year on increase of nine 3%. Our adjusted net earnings per share were 79.
11, 3% versus last year's adjusted EPS of study one cents, we estimate that the labor conflict are examples for distribution center accounted for a negative impact on <unk> per share.
Our capital expenditures for the first quarter total close to $90 million with the bulk of the investments going to our distribution center projects at.
At the retail level for you relocated one store and carried out a major renovation and for stores, representing a net increase of 18000 square feet or <unk>, 1% of our food retail network.
Also following the end of the quarter, we opened a new Adonis store in the city of Quebec and that.
What happened on January 21.
This openings brings a total of a donut stores now to 15 with 11 in Quebec and for at Ontario.
We are also progressing well with our in store technology rollout. We currently have 228 stores with self checkout technology, and 101 stores with electronic shelf tags and.
And we plan to have more than 330 stores with self checkout at more than 200 with electronic shelf assets by the end of this fiscal year.
Under our current normal course issuer bid program, we have repurchased between November 25th and January 15 of this year, one 7 million shares for a total consideration of $102 2 million, representing an average share price of $58 39.
Finally, the board of directors yesterday approved a quarterly dividend of <unk> 25 cents, a share representing an increase of 11, 1% versus last year's quarterly dividend.
This represents a payout ratio of 30% in line with our dividend policy of distributing between 30% to 40% of the previous years adjusted net earnings.
That's it for me I will now turn it over to Eric.
Thank you for Australia, and good afternoon, everyone. We are pleased with our first quarter results delivering continued double digit food sales growth with good operating leverage well working through an eight week labor conflict or zone consider distribution center overall.
Overall top line grew by six 2% adjusted EBITDA by seven 7% and adjusted EPS by 11, 3%.
Our teams have worked tirelessly and have shown great resilience since the beginning of the pandemic to serve our communities safely and I want to again recognized for their hard work.
Food same store sales were up 10% in the quarter. Despite some sales shifting to the second quarter given our December 19 quarter end dates this year.
Both conventional and discounts performed well in Quebec, and Ontario, as we continue to gain market share.
Our internal food basket inflation was two 5% slightly below than the previous quarter.
Traffic trends improved but remained significantly below a year ago for larger basket size again more than offset the decrease in transactions.
Strong sales have continued in the second quarter and for the first four weeks our comp sales were up a strong 12%. We were also pleased with our sales during the holiday period.
Pharmacy comparable sales were up one three for the quarter with prescription drugs up 4% in front end sales down three 8% due mainly to lower traffic a much milder cold and flu season, and the reduced promotional activity because of the labor conflict.
Warehouse sales to our franchisees were also down and operating cost increased versus last year because of the labor conflict.
In the middle of the pandemic, our management team did a great job to operate the DC with about one quarter of the normal stuff and.
To implement our contingency plan to secure the supply of drugs to more than 400, pharmacies, which was the priority.
We are now back to normal operating conditions. After a few weeks to gradually ramp up inventories and promotional activity.
However, new government restrictions on the sale of non essential goods that's been in place since December 25, and Quebec and this is having a negative impact on our pharmacy front end sales, which are down 11, 7% for the first four weeks of the second quarter, while our prescription sales.
We're up five 7% for the same period.
On the E Commerce front online grocery sales grew by 170% in the in the first quarter, our hub stores continued to perform well and have adapted to the increased volume.
The accelerated deployment of our click and collect service has begun with 19 additional metro stores now offering the service.
Our plan now calls for more than 170 metro stores to offer Clinton click and collect by the end of the fiscal year, serving about 75% of the Quebec population and half of the population of Ontario.
Construction of the Montreal dedicated E Comm store is underway and we expect it to begin operations early next summer.
Phase one of our new automated Toronto fresh DC is completed and operations are set to start next month.
Construction of the new automated frozen DC is progressing well and should open in one year.
In Quebec construction of our new automated fresh and frozen DC in <unk> has started and we expect to open in 2023.
Looking ahead, we will be cycling a very high comp sales in the last couple of weeks of our second quarter. When the pandemic was declared last year. We are focused on maintaining our strong momentum in food with continued investments in our network and innovative merchandising.
For example, we recently launched a new program called my Health My choices to help consumers shop and find products based on customers' lifestyles values and health needs.
Nearly 9000 Skus found in store will display up to three program attributes at shelf and more than 50 different attributes can be found online or via the metro app.
Yeah.
With the new Labor agreement in place the integration of our pharmacy distribution operations has resumed and the transfer of the brunet pharmacies to the junk with U D. C will take place over the spring and summer generating synergies of about $10 million next year.
The rollout of Theres, not quick to lab and POF systems to the building that network is also back on track and will be completed this year.
Finally in December we distributed over $8 million in Metro gift cards to our frontline store and warehouse employees as recognition for their hard work and dedication.
Two weeks ago, following the new Lockdown restrictions announced in Quebec, and Ontario, We decided to offer a second similar recognition program to our frontline workers, which will be paid in February.
So our priority remains the safety of our employees and our customers as we continue to serve our communities. During this challenging confinement period. Thank.
Thank you and we'll now be happy to take your questions.
At this time as a reminder, if you want to ask a question simply press star one on your telephone keypad.
If you wish to withdraw your question press the pound key.
First question will come from the line of Karen short from Barclays. Please go ahead.
Hi, Good afternoon. This is actually Renato <unk> for carrying on.
Thanks for taking the questions.
So my first question is on the E commerce growth rate.
It looks like it's remained somewhat steady yet.
<unk> hundred 70% versus that 160, <unk>, but just wondering if you can speak to the exit growth rate on what that was it as you ended the quarter and then also inc.
Commerce sales accelerated further from there given some of the additional restrictions we've seen so far in the future.
I would say the E comm the pace was pretty steady throughout the fall we saw.
On a bit of a surgery.
It's not a peak, but it surged up again, when the curfew was announced.
Announced in Quebec, and when we further restrictions were announced in January in Ontario.
Saw a bit of.
A step up in E com again, but throughout the Q1 I would say volume was pretty steady.
And growth.
Okay. That's helpful.
And then just on the 12%.
Total comps in the first smell for weeks or <unk> can you actually tell us what the comps were in the first four weeks from up to Q 'twenty.
I know you talked about comps ex COVID-19.
Close to 5% into Q last year.
But just trying to get a better sense on the most recent two year trends as you start approaching those harder comparisons at the end of goodwill on the corner.
So I won't give you the exact for weeks last year I can tell you Q2 last year, we had good strong comp sales for sure.
And the 12% as I said in my opening remarks, there was a bit of a shift here between Q1 and Q2 because of the December 19 quarter end date, so a 12% for strong number.
I'm happy with that happy with the holiday sales, we continue to gain share.
Both markets in Quebec, and Ontario.
Okay.
Okay, and then just one more just on SG&A.
If you adjust for Colgate all costs in the quarter and then and then also the fresh charge last year SG&A was actually down about 1% in the quarter.
So can you just speak to what's driving the decline.
And then how we should expect SG&A to trend going forward. When you when you sort of normalize out.
Change in Covid related expenses year over year. Thank you.
Yeah, no you're right when you take out the loss on MS Fresher, Youre, comparing about 444 million to for 'twenty.
So the Covid expenses that we are.
The indicated 28 million that's the total specific expenses related to COVID-19, but it doesn't mean that we just absorbed those cost and we don't want just elsewhere. So we do we do make sure that we we applied good cost containment across all divisions all departments.
Whether it's a publicity marketing.
Labor in different Department and if you look at the split on no. Two we're actually helped that a little bit on the on the rent and occupancy charge in terms of mostly.
Most of the utilities and energy. So these are all things that we are these all costs that we are that we contain in the overall you're right we were pretty much flattish year over year, when you take out the COVID-19 expenses.
By the way similar to what we had last quarter exactly the same situation, we were in last quarter, plus or minus a few million dollars.
Okay and going forward should we expect similar rates I think so.
There'll be I expect you will see a similar a similar COVID-19 expenses that we next quarter versus this quarter it shouldn't be.
Pretty much along the same ballpark there will be another gift card that we balance that we will that we will book and so and then the rest will be similar to what you see today and it's a as I said, it's our job.
Obviously, we have high sales.
On the food side, and we are able to absorb these costs more than absorb these costs.
Giving the cell environment.
Okay, great. Thanks for the color.
Thank you.
Our next question will come from the line of Irene <unk> of RBC capital markets. Please go ahead.
Sorry, [laughter], thanks, and good afternoon guys.
Would you be able to spend a couple of minutes talking about what we're seeing in terms of consumer behavior. As you went through Q1 and into early Q2 in terms of <unk>.
Dan shelf price discount, but also just in terms of the composition of basket.
Did you see any pickup because people weren't able to eat out kind of what you saw and what you are continuing to see.
Yes.
Thanks, Irene So we saw continued a similar behavior.
The last few months clearly with the food out of home opportunities very restricted its benefit benefiting our channel has been since the beginning of the pandemic. It was strong throughout the fall we experienced a.
Good tonnage and good sales in the meat and seafood so proteins were up strongly for us.
Contributing a bit to our higher inflation rates in which you saw reported in CPI. So I think the teams are.
Did did a great job on I think our merchandising has been effective.
On both in store and online our protocols are in store conditions are produced for the strong very pleased with the work that's been done in our stores I think consumers are feeling safe in our stores.
So we're seeing a slight improvement in consumer traffic, although it's still as I said down year over year.
Basket more than offsets it conventional and discount we're seeing strong growth in both to be honest, it's still a bit higher than conventional but we're very pleased with our discount performance and both of them market so for competitive.
For the reasons and I'll just leave it at that.
Understood. Thank you.
And just finishing up on that promotional intensity any changes there.
Always are always pretty intensely competitive.
Promotional activity.
Activity is strong promotional penetration in the overall larger basket remains below a little bit last year, but certainly more in line with our usual our usual patterns that we saw before so it's the promote the promo rates increasing.
It's still it's still slightly down versus year ago, but very slightly.
That's very helpful. Thank you and then just one final question if I may switching gears to tell what's going on in store for.
Pharmacy partners.
Thank you.
Providing for a little bit more color in terms of.
What youre seeing out traffic wise, but also what youre seeing in the essential versus non essential.
Categories.
So it's the law right now in Quebec for June and can't sell non essential goods.
It's a government regulation in la we we we buy it and we have to abide and it is what it is and it is enforced until February eight at which time, we hope that it will be.
Listed or partially lifted or whatnot. So we just we just have to live with that it affects the categories are.
General merchandise that we sell and mostly cosmetics, which is which is a significant part of our front end sales in Israel.
As you know so we're not allowed to sell them.
So.
That's an issue.
On the traffic side.
That's also.
Impeded by the very mild cold and flu season versus a year ago.
As you know when you have a cold or flu you tend to go to the drugstore to pick up either a prescription and or some OTC and while you're at it we're not some gum and whatever so clearly when there's less people.
Coming through the door and it has an impact on sales so.
We're mitigating that as much as we can with with good promotional activity in the categories that we can sell.
The categories that we cannot sell in store, we tried to sell online and click and collect as much as we can but that's much smaller than in store as you can imagine being a community proximity convenience type the shopping experience.
We're doing our best in a tough environment and we hope again that on.
In early February.
Restrictions will be lifted, we'll just have to wait and see.
Thanks, Eric I supposed to consumer at analyst day help here.
Right.
Yep.
Our next question will come from the line of Vishal <unk> of National Bank. Please go ahead.
Hi, Thanks for taking my questions.
Just wondering if you're able to provide additional color on the impact associated with the warehouse labor disruption how much of that was due to loss sales and how much were two two other costs.
So this just gives you a range on ballpark here are about two thirds of the Miss was the lost sales and margins on those sales and one third was the extra costs. So.
I think those are.
On the numbers, we're willing to disclose that's worth no. That's good that's about right. That's a ballpark figure is it.
That's about the display total shop.
Okay. Thank you. So just just to be just to be clear on the on the lost sales and margin.
As a.
Part of the condensed should see plan to service, our pharmacies and prioritize our prescriptions in medical products, we had to make some choices.
With limited, it's only management staff.
Locally in back end that could work in the warehouse. So we had very limited staff, we were able to operate and the guys did a fantastic job to service our pharmacies, but we had to outsource some volume to another distributor we had to do more direct to store deliveries. So therefore, the warehouse shipments.
Were lower and therefore, the margins were lower so.
Its rightful it's behind us.
And that's it.
Okay.
I appreciate that color and just staying on the same topic of.
Of making choices and within pharmacy with respect to the COVID-19 vaccine that's rolling out.
Has there been any discussion with the Quebec government on how Metro line P. J C may be able to help deploy that and if so would PGP JC require any Saudi retrofits for investment to facilitate the distribution like free centers or something like that.
Yeah. So yes, there has been some discussions with the ministry of health.
Clearly with the limited supply of vaccines the priority for them is to.
So many people in the health system in the long term long term care homes in the priority list.
As far as we know community pharmacies will be asked to get involved and contribute to the vaccination effort for the general population when the quantities.
On the supply is better so I guess sometime this spring the sooner the better we all want to get back weighted and our pharmacies at both.
And we now have good experience. This fall we did the flu vaccine are over 300000 doses it went well.
And the pharmacists will be ready and willing and able when the government gives us the green light. So we'll just have to wait for for their.
For their direction, but there.
There are discussions and as I said, we will be ready when they are.
Okay.
Should we assume at this point the economics would be similar for P. J C itself.
As a flu shot on standard medication or inside of different strength.
No the economics are not confirmed yet.
There should be a fee for the pharmacist.
It becomes a sales for the pharmacy and on which we make a royalty but again those those are not the priority of the financials the financials as to get the vaccine.
As we can.
Have to wait for the Health Department.
Yeah, absolutely Okay makes sense.
And just switching gears here to some other topics on the E commerce offer obviously much demand for it and actually making investments.
Investments.
Comedy the customer can you comment on your <unk>.
Customer satisfaction scores in any way possible and if you're satisfied with what the customers telling you about your off line.
So we track consumer satisfaction customer satisfaction throughout our business, but we certainly do it for E com.
Yes, we're pleased and we're making progress we're not perfect.
It's a challenge.
Delivery availabilities.
Substitution rates. So there are lots of metrics, we're monitoring I can tell you that we're getting better.
Volume is strong.
And our consumer satisfaction metrics are improving.
But we have work to do and the teams are very focused focused on that we expect the dedicated store that we will open in Montreal next summer will help will help us with some of those metrics in addition to adding capacity so.
It's really a part of our omni channel strategy.
You know we have satisfaction in store, we had satisfaction on line, it's the Metro brand and I think overall, we're doing pretty well.
Okay and lastly.
With respect to all the customer changes preference changes youre seeing happening so rapidly and presumably some of them won't be for a short period of time, how does metro management know or is there any tools metro management's using too to figure out what customer behaviors are short term and no need to change your formats to adapt to such transient short term behavior and what it is.
More long term and sticky is there some analytics that you can use from done how many or is it more of a little bit on science.
Well for sure we have a lot of insights and we have.
A lot of analytics in the house and with with our partnered on Humvee.
So the teams you know I think combining data with experience.
And adapting quickly to consumer demand and consumer trends. So for I'll just competitive reasons, we're not going to give you every day every little recipe in secret here, but it's very dynamic.
Pandemic clearly has changed some habits, we all know that we're all working from home, we're all eating at home a lot more.
So we need to be there we need to make it easier we need to have the right variety we need to be on on on trend for health programs and that's why we just launched this might help my choices.
It's what consumers are asking for local products. So it's a lot of moving parts, but our team teams with the net are doing a great job to to respond to that.
Thank you very much.
Hugh.
Our next question will come from the line of Michael Van <unk> of TD Securities. Please go ahead.
Hi, good afternoon.
Wanted to follow up on appears on the things you mentioned firstly, if we if we look at the.
At the impact of the rent strike you told US. It was two thirds from lost sales and margin you're willing to give us a dollar amount that you think you've missed in sales and weather and on top of that.
When you when you look out to the current quarter are these sales that you'll get back on.
As you your franchisees have to restock.
Build up inventories again or were they fully replaced by.
The other distributors for years.
So on this on a sales I'll start I'll start with the sales of them. Obviously are you know we don't break out for non food, but if you just do a little.
We will have three given that food is about 75 per cent of our business and.
And you assume that growth at the same 10% on a same store it implies that pharma was down by a mid single digit.
At year over year, and that's the reality of.
The reality of what happened during the conflict. So these loss warehouse sales to franchisees are the impact on margins as a as we said it's about two thirds of that amount impacted margin. So we would've had a.
Higher margin gross margin percentage of sales than what we posted on the rest of that impact is in opex.
Mostly higher transportation costs, given that we shipped.
From a from a D. C that was a that was farther away. So that's.
That's the impact of that loss sales a higher opex on our on our results.
As far as the recoup.
Those lost sales over time gradually I think it'll even out but short term.
Pharmacies have restocked elsewhere for.
Some of these products and there is a lag.
Hmm.
Okay, so, but if they restock from other sources than they don't necessarily have to make up for the lost mid single digit sales that you had on the quarter.
Maybe yes, maybe not all of that right okay.
Okay.
Alright, Thank you and then on the Christmas share for food.
Is 1% a good estimate as to what that might have been.
Yeah, it's hard to put we didn't give you a precise number because of COVID-19.
Covid, there's a it's hard to give you a precise number like we used to do before when the shift was an important part of our story at this time of year. So there was clearly a bit of a shift.
Between <unk>, five and 1% you know in that range.
Okay.
And then inflation really slowed down at least on CPI did in December and that was hardly up year over year, but I think.
Early on.
In January we started to see projects prices going up in poultry prices are going up.
Are you expecting to see a reacceleration of inflation in the first half of calendar 'twenty one.
Hard to say micro hard to say.
Our mix is showing a bit of a higher rate than CPI, mostly driven by protein like I said produce inflation is.
It's hard to predict it can be fickle, it's it's whether its currency its a lot of stuff.
It's.
I would say in our 2% to 2% to 3% inflation number.
That's what we are.
Seeing no crystal ball my favorite favorite expression.
Alright, and then when you look at that drop in the first four weeks of their friend store for Pharmacy channel 11, 7%.
Are you able to quantify.
Or at least kind of give us a rough estimate of how much of that you think is non essentials.
I don't have a breakdown for you clearly there is a.
Actually the non essentials is restricted since December 25, so it's part of that story, the cold and flu as part of that story. So hard to give you a precise number its a it is a substantial part of it the non essentials.
Sorry, I don't I don't have a more for.
This number for Ya Alright, and are you seeing any progress.
And moderating that erosion with your online sales push.
Pretty a pretty modest noise.
You know we're in week six right now.
To give you the first for so it's pretty similar.
And Scott I guess, it seems to be tougher on from store pharmacy to gain traction than it is on grocery.
Is that fair.
Well.
Because of the restrictions you mean or the general.
The sale of non essential goods.
So there's a legal restriction and theres the traffic decline due to the milder cold and flu season, there you know and I guess on the grocery channel, we're getting a bit of those habits sales in our stores as people do on some one stop shop. So.
Several moving parts, but the big the Big reason.
The reason is the legal restriction on known essentials, and the lower traffic because of the of the flu season.
Okay, and then just finally so.
You've talked about really rolling out click and collect throughout this year to allow for more stores.
You've had good cost controls on your SG&A.
This last little bit how do you see that changing now as you start to add labor.
To satisfy the quake in glass demand.
We don't think that the click and collect a demand that will come with it.
B are serviced.
Service out of those click and collect stores will have an impact on that SG&A will be absorbed by those stores with their current labor, we're not talking huge volumes here by store and for services and added service for consumers who want that.
Online experience and clicked.
At the time they want in their local stores. So yeah, there will be demand for that but it shouldnt affect on the labor line.
Okay.
Yes, the depreciation take up the Capex investment is also quite measured for these for these that rollout.
Great. Thank you guys.
Thank you.
Your next question will come from the line of Mark Petrie of CIBC. Please go ahead.
Yeah. Good afternoon, you touched on a lot of things I want basketball, but I guess just the one follow up I'm just curious if you're seeing any changes.
As E commerce kind of steadied out here to some extent if you aren't seeing any changes in terms of consumer behavior with regards to you know basket size or promotional weight within the online basket or product mix.
No I think you answered that previous question we're.
We're not.
Got it.
Pandemic and the online surge or acceleration as the big change in behavior.
The basket of the online customer is pretty similar.
And then it's been since the beginning of the pandemic. So are the promotional rates that I've already answered that so it's it's it's promotional it's intense but because of the large basket. The total puma rates, maybe slightly slightly down versus last year, but nothing material, we're getting really close to normal promo levels.
Okay, and then with regards to the to the cost specific to the pandemic on obviously the sort of gift card incentive if you play it by ear, depending on on the conditions, but that's the balance of that do you think that that sticks with you.
Through basically through the rest of this year or how are you thinking about those costs on your business.
Well, yeah, I think it would be fair to say that we expect most of these costs are for.
For Greeters at the door cleaning extra sanitation and cleaning math, yeah, I think it's fair to say that we should expect those two to be with us for for the rest of this fiscal year.
Wanted to be conservative.
Okay and then just my last question I wanted to ask about the relative price spread between conventional and discount I'm. Just curious how that has evolved as consumer preferences have shifted over the last year and how you think it could evolve as taste potentially you know.
Revert back to.
More historical balance as the vaccine rollout continues pandemic impacts subside and consumer behavior.
It's to some extent.
I don't think there's been any change in the relative price position.
Positions of discount versus conventional.
Pretty consistent there's nothing really to report there.
Okay. Appreciate it thank you.
Thank you.
As a reminder to ask a question. Please press star one on your telephone Keypad. Your next question comes from the line of Peter Sklar of BMO. Please go ahead.
Good afternoon.
Eric you talked a couple of times on the call but.
In terms of you know promotional penetration in promotional intensity.
Pretty high really hasn't eased off at all.
And I just wanted to ask you from a very high level given this huge COVID-19 tailwind that the Canadian grocery industries experience you know strong cash.
Like you've got a 10% comp and everybody's coffee so well.
With the channel shifts for the consumer into grocery are you surprised a little bit that competitive intensity hasn't eased a little bit because everybody is getting their sales. So I'm just wondering how you see that.
Well not surprised we have strong competitors and everybody wants to keep and grow share. So it is competitive out there.
Consumers have a lot of choice. So we're focused on our on our own program on our own banners a safety first for employees and our customers are with their good innovative merchandising and good store conditions.
Draws the customers and keeps the customer we had on our online experience to have more of an omni channel strategy and gain even more loyalty.
It's part and parcel of our strategy, which has served us well so for in this pandemic.
Right to say that everybody sales are up.
No bragging, but on a relative basis are we gained share over.
Over the course of the pandemic in Quebec and Ontario.
Yeah.
Not huge amounts, but we gained share so we're pleased with that.
On the promo intensity.
We are competitive we checked races and in a very diligent on our on on.
On being competitive.
Shelf and end with our pool so.
So so far we're pleased with the with our results.
Okay.
And then just on another topic I believe you said that day.
The Ontario.
New fresh D C. Its opening soon I can't remember, who said next week or next month.
It's very soon.
So operations have begun to receive a bit and are there and they are in the building now the construction is over it will start.
In the next couple of weeks to ship to.
Two our stores gradually so we'll do some waves it's gonna be.
How about a three months rollout here to transfer all of the stores for this new DC, it's partially automated so new waves of change management all of that stuff, but where a lot of good work has been done we're ready and we're looking for for good results from the new fresh phase one.
Box, which is in Toronto on on Dundas.
And for 2007.
Right so.
So I assume that your cost structure will be much better on the D C, but from the perspective of the consumer.
Do you think the consumer will be able to perceive some change in the quality.
Of the produce that theyre seeing in the store.
Like is this a week.
Is this a little on the fresh program.
I think it will help the current produce facility is old and they did.
We have a lot of turnover in there I think our product disruption and it's all good generally but in any new state of the art facility, we will have better conditions better operating conditions and I think protocol, we alone will only improve we saw that in Montreal, when we built the new produce warehouse.
And we had we had better a better execution and better quality, which reflected at store level and it was felt by the customer I think our quality is fine in Ontario, I expect it to be just.
Just a tad better with the new facility.
Okay. Thanks very much.
<unk>.
Our next question will come from the line of Chris Lee of Dish. All day. Please go ahead.
Oh, Hi, good afternoon, Eric you mentioned early on you expanded click and collect to 19 stores during the quarter.
On April to see most of the sales are coming from new customers rather.
Rather than transfer from existing in store sales to online.
So for competitive reasons, we're not going to give you those numbers.
Starting so those 19 stores or our recent volume is ramping up.
Some of it comes from existing customers. Some of it is an extra trip from an existing customer so a new sales and some of it comes from new customers. So we're tracking that carefully.
And monitoring the situation, but for for competitive reasons.
Just leave it at that for now.
Okay, that's fair.
Free inventory will be lapping a fairly weak Canadian dollar in a couple of months.
How do you expect a strong Canadian dollar to impact your business do you expect it to result in more deflationary pressures.
When that happens.
Like I said earlier, there are a lot of factors at play here.
On the determined cost and pricing.
Typically when the Canadian dollar strengthens we.
Two are absorbed.
Absorbed.
Cost increases in it can result in lower prices at retail, but again I want adventure or venture to say make a big prediction here.
And we'll see how the currency behaves over the next several months, it's going to be one factor it could help reduce prices, but there are other factors at play.
Okay. That's helpful and maybe just on on the gross margin I'm wondering if you could maybe review for us what does.
Some of the key gross margin drivers this year I mean on the one hand, obviously the industry will start to lap the benefits of bigger baskets, and maybe less promotional intensity, but on the other hand youll start to get some of the efficiency benefits from the fresh DC and the pharmacy D. C. Consolidation do you expect gross margin this year to be roughly stable or what are the.
Things like looking at this year.
Well if your gross margin I think has been healthy.
Volumes have been good so with high volumes, it's good for gross margins of promo rates.
As the pandemic started and if all were lower so.
As I said is that we've caught up there, but it did have a net.
In fact on gross margins with very high volumes at store level Theres lower shrink.
So that also helps for a convention growth and the conventional to discount mix skewed a bit more to conventional this year, which also helps so theres lots of moving parts on the gross margin.
You know looking looking ahead.
We think we have good programs are our fresh ratios are strong and healthy, which which bodes well for for gross margin.
<unk> is still hurting cut fruit is still hurting and on Protos Department those are higher margin items, but it's offset by volume.
A lot of other factors and we've been able to mix it back and.
We're satisfied with our margin.
It will evolve again I'm not going to give you a guidance on gross margin rate, but we feel we're in a good position.
To keep them healthy.
Okay. That's helpful and maybe just one follow up just on the D. C. Mono line sanctioning on channel I remember one day announcement. It was first made I guess, it's backing for years ago. In 2017, I think the press release referenced at roughly about 180 full time in 100 part time position will be reduced starting in 2021 I'm just wondering if that is still.
That's still the case and how much savings do you expect to achieve for from this didn't even D C.
So I'm not going to get you.
Get back to you with.
Whatever we announced four years ago I don't have it in front of me, yes, there will be from some efficiencies by going partially automated.
There's a ramp up period here, where we're going to be operating basically in two centers. So it's going to take a bit of time.
Let us we'll get back to you Chris on that Okay. Okay. No. That's fine maybe one quick one for Francois Yo Yo leverage is around two five times debt to EBITDA I think that's within your comfort zone do you expect to maintain a similar pace of share buyback.
This year as you have done in the last quarter.
Yes, I think on the leverage on the leverage side, we're still comfortable with that 2.5 adjusted debt to EBITDAR. That's a again credit that's a pre IRS level. So it's about close to three times on a post <unk> just so we're apples to apples because there is more accounting that we have to factor in.
But no change economically no change on our leverage target. So we're still quite comfortable and yes.
Everything else being equal the pace of buybacks that you saw in Q1, that's a that's a that's a good pace.
We have authority.
To do a level similar to last year. So we're going on everything else equal we will continue with that pace.
Uh huh.
With the excess excess free cash that we generate.
Okay. Thanks, very much we anticipate.
Thanks, Chris.
We have no further questions at this time I will now turn the call back over to the presenters for closing remarks.
Thank you all for your interest in Metro and we will look again soon to discuss our second quarter results on April 21st Thank you.
This concludes today's conference call. Thank you for joining you may now disconnect.
[music].
Yeah.
Okay.