Q4 2020 George Weston Ltd Earnings Call
So you said David Brown your cut your lines cutting out?
And your company and your company?
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to turn the call over to Tara Speers Senior director of Investor Relations. Thank you. Please go ahead.
Thank you. One moment. I'll turn your line.
Yes, can you talk to her of investor relations? Thank you, please go ahead good morning. Everyone else results conference call. I'm joined this morning by Galen Weston our chairman and CEO Richard Dufresne our president and CFO and Luke Mojo the president of Western to before we begin today's call. I want to remind you that today's discussion will include forward-looking statements which may include but are not limited to statements with respect to George Weston anticipated future results and the impact of the COVID-19 pandemic these statements are based on assumptions and reflect Management's current expectations with such they are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations.
Thank you Denise and good morning, everyone welcome to the George Weston Limited fourth quarter and full year 2020 results conference call.
I'm joined this morning by Galen Weston, our chairman and CEO, Richard you frame, our president and CFO and the commercial the president of Weston Foods.
Before we begin today's call I want to remind you that today's discussion will include forward looking statements, which may include but are not limited to statements with respect to George Weston anticipated future results and the impact of the COVID-19 pandemic.
These statements are based on assumptions and reflect management's current expectation.
As such they are subject to a number of risks and uncertainties that could cause 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.
These risks and uncertainties are discussed in the company's materials filed with the Canadian Securities Regulators. Any forward-looking statements speak only as of the date, they are made the company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information future events, or otherwise other than what is required by law.
Any forward looking statements speak only as of the date. They are made the company disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise other than what is required by law.
Also 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 of each of these measures to the most directly comparable gaap Financial measure since Loblaw companies limited and Choice Properties have both released their fourth-quarter and full-year 2012 results. We will focus today's call on the performance of our Western food segments. I will now turn the call over to Richard.
Also 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 of each of these measures to the most directly comparable GAAP financial measure.
Since Loblaw companies limited and choice properties have both released their fourth quarter and full year 2020 results. We will focus today's call on the performance of our Weston Foods segment I will now turn the call over to Richard.
Thank you Tara and good morning, everyone.
Thank you Deron. Good morning, everyone.
Our businesses delivered solid performance in the final quarter of 2020.
Our business has delivered solid performance in the final quarter of 2024 was characterized by renewed restrictions measures as cases were rapidly increasing as the month progressed.
Q4 was characterized by renewed restrictions measures as cases were rapidly increasing as the quarter progressed.
On a Consolidated basis including the impact of the 53rd week George Weston Limited reported revenues of 13.8 billion dollars an increase of 14% compared to q1 last year. The impact of the 53rd week on Revenue was $897.
On a consolidated basis, including the impact of the 50 <unk> week, George Weston Limited reported revenues of $13 $8 billion, an increase of 14% compared to Q4 of last year.
The impact of the 50 <unk> week on revenue was $897 million.
For the full year revenue was $54 7 billion, an increase of nine 2% compared to 2019.
for the
The full year Revenue was fifty four point seven billion dollars an increase of 9.2% compared to 2019. The unprecedented increase in Revenue was driven a coolant induce sales increases at llama for the fourth quarter including the impact of the 53rd week net earnings were $289 compared to $400,000 last year the decline of $144 million dollars on an adjusted basis net earnings increased by fifty million dollars or 19.1% $212 million dollars primarily due to the Improvement in the underlying operating performance of each of our businesses.
The unprecedented increase in revenue was driven by Covid induced sales increases at loblaw.
For the fourth quarter, including the impact of the 50 <unk> week net earnings were $289 million compared to $443 million last year, a decline of $144 million on.
On an adjusted basis net earnings increased by $50 million or 19, 1% to $312 million, primarily due to the improvement in the underlying operating performance of each of our businesses.
Adjusted earnings per share for the fourth quarter worth $2 or three an increase of $0.34 a share of 21.1% compared to Q4 of last year off the impact of the 53rd week on earnings per common share was fourteen cents and excluding the 53rd week EPS was up 11.8%
Adjusted earnings per share for the fourth quarter were $2 three an increase of 34 cents a share or 21, 21% compared to Q4 of last year.
The impact of the 50 <unk> week on earnings per common share was <unk> 14.
And excluding the 50 <unk> week EPS was up 11, 8%.
For the full-year gwl corporate free cash flow was 811 million dollars an increase of four hundred million dollars over 2019 this allowed our cash balance off to increase approximately 1 billion a year on a table food retail sales were strong in the fourth quarter food retail generated slightly better gas margin and is Jenny and Drug retail blah blah continue to see strength inconvenience categories supporting front store sales, but experienced lower sales of higher-margin beauty and over-the-counter categories.
For the full year Gws corporate free cash flow was $811 million, an increase of $400 million over 2019.
This allowed our cash balance to increase to approximately approximately $1 billion by yearend.
At Loblaw food retail sales were strong in the fourth quarter.
Food retail generated slightly better gross margin and as Ginny.
In drug retail Loblaw continued to see strength in convenience categories supporting front store sales, but experienced lower sales of higher margin beauty and over the counter categories.
Strength in our e-commerce sales continue growing by 160% in the quarter versus the same period last year.
Strength in our e-commerce sales continue growing by 160% in the quarter versus the same period last year.
For the full-year e-commerce sales at blah blah increased by 250% to reach 2.8 billion dollars.
For the full year e-commerce sales at Loblaw increased by 250% to reach $2 8 billion.
Yes.
Pandemic induced strength in sales is continuing in early 'twenty 'twenty. One we expect the sales wins to last as long as government mandated closures and lockdown measures remain in effect.
Induced strength in sales is continuing in early 2021. We expect the sales wins to last as long as government-mandated closures in lockdown measures wage. In fact
Choice property delivered another quarter of solid results the business continues to deliver stable income improving their overall quality of its portfolio towards Capital recycling off and beginning to drive value through development activities Choice made further progress on its balance sheet including refinancing 1 billion dollars of unsecured debentures at very attractive or a very attractive rate was 97.1% with a slight decrease in same as net operating income in the quarter of 6% the decline in same asset, and why was primarily primarily the result of an increase in Coventry. Bad debt expense albeit at a lower rate than previous Quarters off rent collection stood at 98% for the quarter.
Choice properties delivered another quarter of solid results.
The business continues to deliver stable income improving the overall quality of its portfolio through its capital recycling program and beginning to drive value through development activities.
<unk> made further progress on its balance sheet, including refinancing $1 billion unsecured debentures at very attractive at a very attractive rate.
Choice properties portfolio as occupancy at year end was 97, 1% with a slight decrease in same asset net operating income in the quarter of one 6%.
The decline in same assets in Hawaii was primarily primarily the result of an increase in COVID-19 related bad debt expense, albeit at a lower rate than previous quarters.
Rent collections stood at 98% for the quarter.
Weston foods performed strongly during the fourth quarter, including the 50 <unk> week sales reached $523 million.
Western food
It's performed strongly during the fourth quarter including the 53rd week sales reached $523 excluding the impact of the 53rd week and the impact of foreign currency translation sales were down 4.6% compared to Q4 last year a sequential Improvement versus the third quarter.
Excluding the impact of the 50, <unk> week and the impact of foreign currency translation sales were down four 6% compared to Q4 last year, a sequential improvement versus the third quarter.
So the full year sales total, 2.0 6093000000 or 4.3% versus last year.
For the full year sales totaled $2.06 billion down $93 million or four 3% versus last year.
For the quarter Weston foods, adjusted EBITDA was $79 million.
For the quarter with some food adjusted ebitda was $79 including the impact of the 53rd week adjusted ebitda was seventy-five million dollars up $19 versus the comparable period in 2019.
Including the impact of the 50 <unk> week, adjusted EBITDA was $75 million up $19 million versus the comparable period in 2019.
Impacted by productivity and cost saving initiatives and benefits realized from within Foods transformation program partially offset by the decline in sales office and some COVID-19 related expenses for the full year, excluding the impact of the 53rd week was in Foods adjusted. Ebitda was $196 down $27 a month is 2019.
Adjusted EBITDA was positively impacted by productivity and cost savings initiatives and benefits realized from Weston foods transformation program, partially offset by the decline in sales and some COVID-19 related expenses.
For the full year, excluding the impact of the 50 <unk> week Weston foods, adjusted EBITDA was $196 million down $27 million versus 2019.
Adjusted ebitda was negatively impacted by the decline in sales COVID-19 related costs and higher input expenses partially offset by productivity benefits realize from that information program and cost-savings initiative. It's useful to note that if you have the if you add the COVID-19 cost incurred in 2022, the $196 a month. For the year even. Was essentially flat to 2019 despite the drop in sales at the beginning of twenty-twenty management was focused on growing sales and delivery improved even. The business got off to a great start in the first quarter of 2020 with the added benefit of elevated rear retail sales in the last few weeks of the quarter, but by the same quarter sales and Retail and Foodservice dropped significantly driven by government-mandated closers stay-at-home orders and social distancing restrictions the business also begun to increase
Adjusted EBITDA was negatively impacted by the decline in sales COVID-19 related costs and higher input expenses, partially offset by productivity benefits realized from the transformation program and cost savings initiatives.
It's useful to note. The day, if you had if you add the COVID-19 costs incurred in 2022 day $196 million of EBITDA for the year EBITDA was essentially flat to 2019, despite the drop in sales.
At the beginning of 'twenty 'twenty management was focused on growing sales and delivering improved EBITDA.
The business got off to a great start in the first quarter of 2020 with the added benefit of elevated retail retail sales in the last few weeks of the quarter, but by the second quarter sales in retail and foodservice dropped significantly driven by government mandated closures stay at home orders and social distancing restrictions.
The business also began to incur significant incremental costs, including health and safety costs for colleagues and customers and pay premiums.
Significant incremental cost including health and safety cost for colleagues and customers and pay premiums.
This resulted in a very challenging second quarter.
This resulted in a very challenging second quarter in the third and especially the fourth quarter with some food delivered sequential Improvement in top and bottom-line performance giving us confidence boost sales and earnings potential of the business as we ended in 2020 that said sales in the latter part of the fourth quarter were increasingly negatively impacted by the reintroduction of government-mandated closures and stay-at-home borders. The attack was most significant in Food Service dining and certain retail categories in both Canada and Thursday.
In the third and especially the fourth quarter Weston foods delivered sequential improvement in top and bottom line performance, giving us confidence in the sales and earnings potential of the business as we ended 2020.
That said sales in the latter part of the fourth quarter were increasingly negatively impacted by the reintroduction of government mandated closures and stay at home orders.
The impact was most significant in foodservice dine in and certain retail categories in both Canada and U S.
Further it's important to know that Western food. In the fourth quarter included the benefit of some one-time actions taken by management to mitigate the negative impacts of COVID-19 off normalized for these actions. The Run rate for the ebitda margin was around 11% higher than in Q4 2019.
Further it's important to note that Weston foods EBITDA in the fourth quarter included the benefit of some one time actions taken by management to mitigate the negative impacts of COVID-19.
Normalized for these actions the run rate for the EBITDA margin was around 11% higher than in Q4 of 2019.
into
In this context, we expect that Q1 will be more difficult for Weston foods as lockdowns continued to negatively affect sales.
Context we expect that you one will be more difficult for Western Foods as lockdowns continue to negatively affect sales. I know that particular that q1 is Girl Scout cookie season in the US with an important part of our business for obvious reasons Girl Scouts and us are not actively selling cookies and person at cookie kiosk or door-to-door despite adding pivoted the mortgage to online. We expect sales to suffer this year.
Note in particular that Q1 is girl Scouts cookies season in the U S. An important part of our business for obvious reasons girl Scouts in the U S are not actively selling cookies in person at cookie kiosk or door to door.
Despite adding pivoted the model to online we expect sales to suffer this year.
In the previous quarter's we have noted our new one-touch donut initiatives that we think has great potential. I'm pleased to report that starting in February of 2021 Western food launched one touchdown up approximately a hundred stores of a key customers initial feedback from that customers and and customers has been positive this test. Is now complete Choice food is now working on scaling up production, which will take a few months.
In the previous quarters, we have noted on new one touch doughnut the initiatives that we think has great potential.
I'm pleased to report that starting in February of 'twenty 'twenty, one Weston food launch one touched on when that's in approximately 100 stores on the key customers.
Initial feedback from that customer and end customers has been positive.
This test period is now complete.
Within food is now working on scaling up production, which will take a few months.
Yes.
Weston Foods remains committed to it strategy winning new business and key categories and markets and strengthening its operational processes.
Weston foods remains committed to its strategy, winning new business in key categories and markets and strengthening its operational processes.
Assuming a returned to less severe logged on measures and government mandated closures and key markets by the end of q1 and excluding the impact of foreign currency translation with and food expect sales in 2021 to be modestly higher compared to twenty twenty and I just didn't even. To be higher compared to twenty $20 Capital expenditures for the year will decrease to approximately $100,000 as a matter of housekeeping starting in the first quarter of 2021. We have made changes. We have made changes to our non-gaap financial measures policy to simplify life and improve adjusting entries refer to the financials for details and restatement of our twenty-twenty adjusting entries, which aligned with the new policy looking back twenty twenty-five a year that presented many challenges across the group of companies, but it also revealed many strengths including the remarkable people work to serve customers and tenants every day.
Assuming a return to less severe lockdown measures and government mandates mandated closures in key markets by the end of Q1 and excluding the impact of foreign currency translation Weston foods expects sales in 'twenty 'twenty, one to be modestly higher compared to 2020, and adjusted EBITDA to be higher compared to 2020.
Capital expenditures for the year will decrease to approximately $145 million.
As a matter of housekeeping starting in the first quarter of 'twenty 'twenty. One we have made changes we have made changes to our non-GAAP financial measures policy to simplify and improve or adjusting entries referred to the financials for details and a restatement of our 2020, adjusting entries, which aligned with the new policy looking.
Back 'twenty 'twenty was a year debt presented many challenges across the group of companies, but it also revealed many strength, including the remarkable people work to serve customers and tenants every day.
And we remain committed to providing support to each of our businesses assisting them and making steady progress against their strategic plans. We believe each of Loblaw Choice Properties and Western Foods is positioned to deliver significant value in the future.
And George Weston, we remain committed to providing support to each of our businesses assisting them in making steady progress against their strategic plans.
We believe each of Loblaw and choice properties on Weston foods is positioned to deliver significant value in the future.
With that backdrop, we are disappointed with gws share price performance, which in part is a consequence of a widening of the holding company discount give.
With that backdrop, we are disappointed with gwl share price performance, which in part is a consequence of a widening of the holding company discount given our confidence in the underlying business and the free cash flow generated by each of them to George Weston. We will become more active on share BuyBacks and George Weston.
Given our confidence in the underlying businesses and the free cash flow generated by each of them to George Weston, we will become more active on share buybacks at George Weston.
I would like to conclude by thanking all of our colleagues across our businesses for their dedication and support throughout the year. I will now turn over to call together. Thank you Richard and good morning everyone this time last year. We were only just beginning to hear about COVID-19 at that point. It was hard to imagine we would continue to deal with the uncertainty associated with this pandemic well into 2021, I'd like to take a moment to express my deepest appreciation to all our teams across gwl for their extraordinary effort this year as Richard mentioned while it was challenging in many regards twenty-twenty also had the strength that underpin each of our businesses Across the Western Group at Loblaw our commitment to helping Canadians live life. Well has never been more relevant on the pandemic hit our teams across Network responded to keep customers fed and well
I would like to conclude by thanking all of our colleagues across our businesses for their dedication and support throughout the year I will now turn it over to call to Galen.
Thank you Richard and good morning, everyone. This time last year, we were only just beginning to hear about COVID-19 at that point. It was hard to imagine we would continue to deal with the uncertainty associated with this pandemic well into 'twenty and 'twenty one.
I'd like to take a moment to express my deepest appreciation to all our teams across GW well for their extraordinary effort this year.
As Richard mentioned, while it was challenging in many regards 'twenty 'twenty also highlighted the strength that underpin each of our businesses across the Western group at Loblaw, our commitment to helping Canadians live life, well has never been more relevant when the pandemic hit our teams across the network responded to keep customers fed and well.
Choice Properties took out
Choice properties took actions to ensure the safety and security of colleagues and tenants, while assisting those impacted by the pandemic.
To ensure the safety and security of colleagues and tenants while assisting those impacted by the pandemic and in the early days Western Foods responded quickly by shifting production to prioritize essential packaged bread and roll SK use in order to meet surging demand.
And in the early days Weston Foods responded quickly by shifting production to prioritize essential packaged bread and roll Skus in order to meet surging demand.
And each of these instances the pandemic required us to take thoughtful and deliberate action across our businesses and throughout the year, we made steady improvements while remaining committed to our strategy.
In each of these instances the pandemic required us to take thoughtful and deliberate action across our businesses and throughout the year. We made steady improvements while remaining committed to our strategy.
Fatima blah blah accelerated their progress against strategic growth initiatives in everyday digital retail payments and rewards and connected Healthcare while investments in the core business position them. Well as we enter about 20 21 Choice Properties Diversified portfolio of retail industrial and office continues to be supported by a stable tenant base and it's disciplined approach to financial management page and over the long-term choice is set to unlock further value through its development activities.
The team at Loblaw accelerated their progress against strategic growth initiatives and everyday digital retail payments on rewards and connected health care, while investments in the core business position them well as we enter 2021.
Choice properties diversified portfolio of retail industrial and office continues to be supported by a stable tenant base and its disciplined approach to financial management and over the long term choices set to unlock further value through its development activities.
Weston Foods remains committed to its ambition of being a premier North American Bakery in 2020, despite the business experience significant experiencing significant volatility off due to Covent the team demonstrated its commitment to supporting their Workforce executing with excellence and delivering operational improvements today as we face into twenty Twenty-One wage, many of us will continue to work under the unusual circumstances in stores in bakeries and at home. I am confident about the opportunities across our group George Weston is committed to its strategy off our ability to grow value over the long term by investing in market-leading businesses that are essential to the communities they serve
Weston foods remains committed to its ambition of being a premier North American bakery in 2020, despite the business experienced significant experiencing significant volatility.
Due to Covid.
The team demonstrated its commitment to supporting their workforce executing with excellence and delivering operational improvements.
Today, as we face into 'twenty 'twenty, one or many of US will continue to work under the unusual circumstances in stores in bakeries and at home I am confident about the opportunities across our group George Weston is committed to its strategy our ability to grow value over the long term by investing in market, leading businesses that are essential to the <unk>.
These day Sir.
I'll now ask the operator to open the line for questions.
I'll now ask the operator to open the line for questions.
Ladies and gentlemen to ask a question, please. Press star the number one on your telephone keypad for just a moment for life remaining open the morning and thanks everyone for sure. Just the first question on the if the if I apply your normalized ebitda margin of 11% in the quarter wage in place to keep it roughly about fifty eight $59 million or up to two three million a year. If that does that imply the rest of your nineteen million voting it but God what related to the one-time non-recurring items that you mentioned. Is that sort of the right way to think about that. Yeah. It's sort of the right way to think about it. But there's it's a few buckets. Like I'm like there was a one-time Savings in his journey. We have lower volume in to 4, so we have less distribution costs, but there's a few buckets that we think one covet is behind us is going to be more normalized. Yep.
Ladies and gentlemen to ask a question. Please press Star then the number one on your telephone keypad, well pause for just a moment to compile the Q&A roster.
Your first question comes from Chris Li with does guidance. Your line is open.
Good morning, and thanks, everyone Vishal.
First question on the on the EBITDA, if I apply your normalized EBITDA margin of 11% in the quarter.
It implies EBITDA of roughly about 50, 59 million or up $2 million to $3 million per year.
Is that is there.
Is that inside the recipe and $19 million in growth in EBITDA is more related to the onetime non recurring items that you mentioned is that sort of on the right way to think about that yeah, it's sort of the right way to think about it but there's a few buckets.
Like there was one time savings and as Jenny we have lower volume in Q4. So we have less distribution costs. So theres a few buckets that we think when COVID-19 is behind us is going to be more normalized and we wanted to give you.
Wanted to give you a good perspective of what the margin should be when you look at the number that we posted 44. Okay, let's have you made an interesting comment the beginning that you get that your call to cost to if it's in 2020 if that would be essentially flat despite. The drop in sales is that really mainly due to the benefits from the transformation program and all the cost reductions like that. You guys have been doing yes. I think I think if you look especially at our gross margin and we're starting to see like nice improvements that are essentially coming from the benefit of the transformation programme. And so we expect those benefits will then do are going forward.
A good perspective on what the margin should be.
When you look at the number that we posted for Q4.
Okay. That's helpful. On that you made of interest income in the beginning saying that you'd add back you'll COVID-19 costs to EBITDA in 2020, EBITDA would be essentially flat.
Despite the drop in sales.
That.
Really mainly.
Mainly due to the benefits from the transformation program on all the cost reductions that you guys have been doing yes.
Yes, I think I think if you look at especially.
At our gross margin in Q4, we're starting to see.
Nice improvements that are essentially coming from the benefit of the transformation program and so we expect those benefits will endure going forward.
Okay, last question just made on Capital deployment.
Okay. That's a last question just maybe on capital deployment.
I need the last year you guys had applied to accumulate enough cash at the GW corporate level for potential Acquisitions. But now that it seems that you guys are more open to buying back shares. So I guess the question is you know, how much Capital do you plan to deploy for a share buyback this year?
Remember last year, you guys had a plan to accumulate 2 billion of cash at the GW corporate level four potential acquisitions, but now that it seems like you guys are more open to buying back shares. So I guess the question is you know how.
How much capital do you plan to deploy for share buybacks this year.
Yes, we don't know, Chris well, how much capital, we'll deploy to it the only thing. We know is we are we've looked at our holding company discount to be very volatile in 2020, and expanding to levels, which we we find really high and we believe and we believe in the strategy of our each of our business.
Yeah, we don't know Chris how much Capital was deployed to it. The only thing we know is we we've looked at our holding company discount be very volatile and twenty and expanding two levels, which we we find really high and we believe in the we believe in the strategy of our each of our businesses. So for us we feel compelled to reinvest some of that capital in our Enron stock.
So for us so we feel compelled to.
We reinvest some of that capital in our in our own stock.
And I used to working towards that true billion of cash targets that you've guided for Villaggio, or is that not the case going forward? Not not the case going off. We're going to start using some of the cash we have. Okay, that's helpful. Thanks very much.
And I used to working towards that 2 billion of cash target that you've guided for philosophy or as debt.
Not the case going forward.
Not.
Not the case going forward, we're going to start using some of the cash we have.
Okay. That's helpful. Thanks very much.
Okay.
Your next question comes from Patricia Baker. Thank you very much for taking my questions and really nice to see the performance package in the quarter. I just want to know Richard if you can break that breakdown for us that incremental nineteen million how much of that was transformation and how much was the vehicle or is it difficult to break out the bucket?
Your next question comes from Patricia Baker with Scotiabank. Your line is open.
Thank you very much for taking my questions and really nice to see the performance at Weston foods in the quarter I just want to know Richard if you can.
Breakdown break downpours that incremental 19 million how much of that was a transformation on how much what's the the accrual or is it difficult to break out the buckets.
I'd say I'd say, Patricia if you look at the improvements flow.
I'd say I'd say Patricia if you look at the improvements it came roughly the same amount from each from about four buckets wage compensation approval sg&a, and I'm forgetting what so so so they also it was it was broad-based. So that's why that's why I feel good about the performance that you for. Okay, and then just looking at the Westin Food business. Are you able to provide some of the data that you provided with Q3 which is the sales the sales work in retail versus the sales which include search service Channel or the sales Trend rather.
It came rusty the same amounts from each from about four buckets.
Provision costs compensation accruals.
SG&A and then forgetting one so.
So so no. So it was it was broad based so that's why that's why we feel good about the performance in Q4.
Okay, and then just looking at the Weston food.
Business are you able to provide some of the day to day you provided with Q3, which is the the sales the sales lifts in retail versus the sales, let's boot search.
Service channel or the sales trend rather.
Absolutely, we we can so imagine we we still continued a recovery into into four-wheel detail business and Q4 was performing about - -6 vs last year. We're food service business is about 5 - 2 vs. There's a slice here. Okay. Thank you very much. We can just one last question for you Richard mentioned gross margin in his answer to one of Chris's questions and also offer it's nice to see that the one touch is now at a test and just correct me if I'm wrong, but I think I'm right that one touch product will actually be a higher-margin product than than normal. It will be higher than our regular donut business.
Yeah.
Absolutely. We are we can so as Richard mentioned, we are we saw continued recovery in Q.
Q4.
Our retail business in Q4 was performing at about minus minus six versus last year.
Our food service business was about minus two versus <unk> versus last year.
Great. Thank you very much you can just one last question for you Richard mentioned.
Gross margin in his answer to one of Chris's question from also it's nice to see that the one touch is now out of test and just correct me if I'm wrong, but I think I might be that one touch our product will actually be a higher margin product than the normal.
Yes, it will be a higher margin than our on a regular donut business. Okay.
Okay. Thank you very much.
Okay. Thank you very much.
Inter next question comes to the line of Mark Petrie. What's your line is open.
And your next question comes from the line of Mark Petrie with CIBC. Your line is open.
Hey, good morning. I just wondering if you could clarify the, in the the release with regards to the negative impact of pricing and mix and Q4. Could you just sort of give a give us a sense of Life impact of each of those that sort of puts in place.
Hey, good morning.
Just wondering if you could clarify.
On the comment on the net release with regards to the negative impact of pricing and mix in Q4 could you just sort of give a give us a sense of the relative impact of each of those that sort of puts and takes.
Yeah, so I mean it all depends from what business went up and went went down. So I was Richard mentioned. We saw a Slowdown in the whole lot of parts of of two for our businesses that are negatively impacted or our wholesaler or distributor food service business dining restaurant venues institutions from a retail standpoint. It's a business that are more celebratory in nature cakes Donuts.
Yeah. So I mean, it all depends from a wide business went up and went went down so as Richard mentioned, we saw a <unk>.
Slowdown in the latter part of all of Q4, our businesses that are negatively impacted or our wholesaler.
Wholesaler distributor foodservice business dine in restaurant venues institutions.
From a retail standpoint, its a business that are more celebratory in nature cakes donuts.
Okay, so maybe just out of high level. Can you give us a sense of the impact of pricing in Q4? And then I guess also it's related to that. You know, what's your outlook on pricing given birth and all the moves and inflict actually true far without some deflation terms of Commodities and materials there is inflation going into June twenty Twenty-One as we are always do we focus on productivity and efficiency initiatives to mitigate that inflation as well. We've got edging and coverage but I'll post mitigate this inflation.
Okay. So maybe just at a high level can you give us a sense of the impact of pricing in Q4, and then I guess also just related to that.
What's your outlook on pricing.
Given given all the moves in interest.
I think Q4, we saw some deflation terms of commodities and materials, there is inflation going into 'twenty and 'twenty one as we always do we focus on productivity and efficiency initiatives to mitigate.
On that inflation as well, we've got edging in coverage that help us mitigate disinflation.
Okay, and and I just wanted to clarify Richard your comment in regards to the 11% ebitda. Margin. That's what you're saying is kind of a more accurate representation of the problems in Q4 or that's what you're saying is kind of a reasonable expectation for the profitability of the business as business normalizes. It's a more it's a representation of the profitability into for cuz what we didn't want the street to see is they okay. Now you're at 15% and that's that's the new number. So so when we bought the affect our performance we note that there are some benefits that we have that are not going to be there once we are back to normal.
Okay and I just wanted to clarify Richard your comment with regards to the 11% EBITDA margin. That's what you're saying is kind of a more accurate representation of the profitability in Q4, or that's what you're saying is cash.
And have a reasonable expectation for the profitability of the business.
As business normalizes.
It's a more it's a better representation of net profitability in Q4, because what we didn't want the street to see his day, Okay and now you're at 15% and that's that's the new number. So so when we dissect our performance. We note that there are some benefits net we have that are not going to be there once.
We are back to normal.
Okay understood and and just last just another point of clarification. I think you said about 300,000 cost per week is the run-rate right now, but I think it had been substantially lower like around $100,000 per week. So is it fair to say that, you know three hundred thousand is kind of the run-rate during tighter restrictions and then $100,000 a month, maybe a more permanent number, you know that is accurate.
Okay understood and just last just another point of clarification I think you said.
About 300000 of Covid costs per week is the run rate right now.
Yes.
But I think it had been substantially lower like around 100000 per week. So is it fair to say that 300000 is kind of the run rate hearing tighter restrictions and then a 100000 and maybe a more permanent number yes.
Yes that is accurate.
Okay, and actually just last one kind of related to that you guys see much impact in terms of labor labor availability. I guess particularly in New York, you know with with with Kobe cases. And and where are you out with that? Yeah, we've done since we're definitely seeing a tightening of Labor availability in the US. So for us we we focus on you know, good hiring practices and as well evening out our production throughout the year.
Okay, and actually sorry, just last one kind of related to that.
Seen much impact in terms of.
Labor labor availability, I guess, particularly in the U S.
You know what.
With Covid cases, and where are you out with that.
Yeah, we've done we're definitely seeing a tightening of the labor availability in the U S. So for US we we focus on.
Good Irene practices, and as well evening out our production throughout the year.
Okay, I appreciate the comments myself. My next question comes with capital markets alarm is open. I'm just thinking about your commentary with respect to the girl the Girl Scout cookies. If we look at the normal sign of seasonal trajectory of earnings is most of the differential between q1 and Q2 the magnitude of the Girl Scout cookies. Not not exactly Irene. Okay. Like I said what what I said in my remarks is we we clearly saw a change in sales trajectory as December hit if you look at our sales performance from the quarter bag, you saw that we we had a sequential Improvement versus Q3. It would have been much better if it weren't for p thirteen. So we saw a quick turnaround to the negative dead.
Okay. Appreciate the comments thanks, Bob.
And our next question comes from Irene Oh, My time with RBC capital markets. Your line is open.
Thanks, Anne and good morning, just thinking about.
But your commentary with respect to the girl the girl Scout cookies.
If we look at the normal sales seasonal trajectory of earnings is most of the differential between Q1 and Q2 are the non.
Two of the girls Scout cookies.
Not not exactly Irene okay like.
Think of what our what I said in my remarks is we clearly saw a.
Change in sales trajectory as December hit if you look at our sales performance from the quarter you saw that we were.
We had a sequential improvement versus Q3.
It would have been much better if it weren't for Peter team. So we saw a quick turnaround to the negative of our sales performance and Peter team and that performance is continuing throughout North America. So this factor along with girl Scouts is going to be what's going to affect our performance in the <unk>.
Of our sales performance and P thirteen and that performance is continuing throughout North America. So this Factor along with Girl Scouts is going to be what's going to affect your performance in the in the first quarter of the Year. Okay. Thank you. That's that's very helpful and just thinking about the one touch. So you're you're out of the test now assuming how can you scale this or how should we think about the scalability of that as we move through the year kind of does it go from a hundred distribution points to a thousand from a hundred to two hundred like with the magnitude of that?
First quarter of the year.
Okay. Thank you that's that's very helpful and just thinking about the one touch so you're out of the cash now.
Assuming like how can you scale this or how should we think about the scalability of that as we move through the year kind of difficult from 100 distribution points to a thousand from 100 to 200 like what's the magnitude of that.
Yes, it will exponentially increase as we roll out the different phases of this. So as Richard said we completed the first phase of the page was with 114th stores results are very encouraging both from a consumer experience where the transition was seamless and as well from a retailer standpoint where all the operational efficiencies were realized at this point. We put the project on pause to to resolve production issues that wage is in these These are normal with innovation of this magnitude. So we're we're taking the next few months to resolve these and then we will gradually increase a number of stores as we roll out the next phases of the test.
Yes, it will.
Financially increase as we roll out the different phases of tests. So as Richard said, we completed the first.
Phase of the test, which was with 114 stores results are very encouraging both from a consumer experience, where the transition was seamless and as well from a retailer standpoint, where all the operational.
Efficiencies were realized at this point, we put the project on pause to want to resolve.
Production issues that we face on these these are normal with innovation of this magnitude so where we're taking the next few months to resolve these and then we will gradually increase on number of stores as we rollout the next phases of the test.
Okay, and as you say gradually increasing number of stores again, like what should we be thinking of what they buy your aunt?
Okay.
And as you say gradually increase the number of stores again like what should we be thinking of let's say by year end.
The it's too early to to tell right now with the uncertainty related to to Cove it. It's I don't want to I don't want to give you a number underneath the goal eventually is to be in multiple thousands of stores across the u.s. And Canada. Okay, that that's helpful and just to clarify one that just want to make sure I mean obviously serves celebratory types of items are you know are an important element of your business when when we see things sort of loosening and and when you know, we're allowed to have let's say, you know small small groups together. Do you then see the sales kind of follow up and then sort of go down again is is that kind of what we need? Is there any reason to suggest that there's been any change whatsoever and underlying demand? No, we appoint back to to the part later made earlier the the earlier part.
The odds too early to tell right now on a Wednesday uncertainty related to to Covid. It's a I don't want to I don't want to give you.
A number under the goal of eventually has to be and multiple thousands of stores across the U S on Canada.
That's helpful and just to clarify Ron Thanks, just wanted to make sure I mean, obviously serve celebratory types of items are on.
An important element of your business.
When we see things sort of loosen up and when we're allowed to have let's say small small groups. Together do you then see the sales kind of follow up and then sort of go down again is that kind of what you've been seeing in other words is there any reason to suggest that there's been any change whatsoever in underlying.
The balance.
No we I point back to to report Richard made earlier the earlier part of Q4, we saw a very strong recovery in our business as a total actually peer Libra and was nearly on par with which last year. So this combined with consumers' attitude toward towards very positive towards.
We saw a very strong recovery an hour.
Business as a total I should be 11:00 was nearly on par with with us here. So this combined with consumers attitude toward toward very positive for baked goods in a higher level of confidence and that this business will continue to recover as knockdowns measures are are eight. That's great. Thank you off. Your next question Comes Peter would be more Capital markets you wanted is open?
Baked goods give us a high level of confidence on that this business will continue to recover.
<unk>.
Lockdowns measures are eased.
That's great. Thank you.
Your next question comes from Peter Sklar with BMO capital markets. Your line is open.
Thank you. Luke. First a couple of questions for you. I'm not that familiar with the the One Touch phone it did you just go through what the attributes of the of the product are dead? Yeah. It's a very Innovative platform that allows retailers to to be in the doorknob business without having finishing facilities or capabilities at store level. So it's a superior try and sell Donuts that provide consumers with a great the same great eating experience as a doughnut that is just finished either in a grocery store or in the kitchen of the Food Service operator.
Thank you Luke first a couple of questions for you.
I'm not that familiar with the the one touched on it could you just go through what the attributes of the product.
Yeah, it's a very innovative.
Platform that.
Allows retailers to want to be on the doughnut business without having finishing facility as our capabilities.
Store.
Levels. So it's a super eager to sell donuts debt provide consumers with a great on the same great ex.
Eating experience as a doughnut that is finished either on a grocery store or in the kitchen of a foodservice operator.
So you delivered the donut?
So you deliberate that don't it.
Like fresh from like it's a it's a frozen. It's a frozen donut only has to be taught and then it's available to be served as okay. I understand so soft. Oh, okay. The the other thing I want to talk about you when we do ultimately, uh, go back to the new normal whatever that is in climate of what is your expectations in terms of you know, any changes in consumer behavior and any permanent shifts in the grocery Channel, you know versus Food Service Chandler like are you thinking about things like that permanent changes just to make sure that your production is aligned with you know, what ultimately demand is going to be I'm just wondering if you're anticipating any permanent changes.
Okay like fresh from.
EBIT.
It's a frozen it's a frozen donut.
All he asked to be Todd and then it's available to be served okay I understand so far only okay.
The other thing I wanted to talk about you when we do ultimately.
Go back to the new normal whatever that is and climb out of Covid.
What is your expectations in terms of.
Any.
Changes in consumer behavior, and any permanent shifts in the grocery channel versus foodservice channel like are you.
And thinking about things like that permanent changes just to make sure that your production is aligned with what ultimately demand is going to be I'm, just wondering if you're anticipating any permanent changes.
We're not seeing any magnitude in terms of of changed from consumer from consumers going going forward. I go back to previous questions. We're seeing very strong recovery. We were seeing very strong recovery at the onset of of two for consumers attitude toward baked goods are still exceptionally extremely positive. We're seeing a bit of shift to to channel and Food Service, which were extremely well positioned to benefit from which they're saying a slight shift wage in retail to to e-commerce part of our transformation three years ago was a creation of e-commerce capabilities what we can work very closely with our Retail Partners to make sure that they could end up in the visual baskets of of consumers. So at look in the in the category in the business is very confidential.
We're not seeing any wholesale magnitude in terms of changed from consume from consumers growing going forward I go back to previous questions.
We're seeing very strong recovery, we were seeing very strong recovery at the onset of <unk>.
Q4, consumers' attitude toward baked goods are still extremely extremely positive.
We're seeing a bit of a shift to a <unk> channel and food service, which we're extremely well positioned to benefit from we're saying a slight shift in retail to e-commerce.
Part of our transformation three years ago. It was a creation of e-commerce capabilities, where we can work very closely with our retail partners to make sure that baked goods and.
On the digital baskets of consumers so our outlook in the in the category on the business is very confident.
Okay, and then Richard just lastly one.
Okay.
question for a new more at a strategic level on you know on the read you've talked about in the past that
And then Richard just lastly, one question for you more.
Strategic level on.
On the REIT, you've talked about in the past that.
you kind of see, you know, a multi-decade development potential and that you know, George Weston could play a role in terms of you know, participating in in in the funding of that of the development of the Redevelopment of the properties. Just wondering if you know and the impact on a real estate and consumer Behavior has acted you're you know, kind of a long-term strategic thought that you have had regarding choice not really dead. I think I think development is long-term gain, and and we see still lots of opportunities and as I've discussed with with both of you over last year, like now we're at the phase where we're putting projects on the bookshelf, which essentially means trying to get site Zone and all that stuff and
You kind of see.
You know a multi decade development potential and that you know.
George Weston could play a role in terms of.
You know participating in and the funding of that of the development of the redevelopment of the properties.
Wondering it.
You know COVID-19 and the impact on real estate and consumer behavior is on track.
<unk>, you know kind of that long term strategic thought that you have had regarding choice.
Not really I think I think development is a long term game.
And we see still lots of opportunities and as I've discussed with with many of you over the last year.
Now we're at the phase, where we're putting projects on the bookshelf, which essentially means trying to guess.
But it's it's a long-term project. And then the the decision will be which of these project on the shelf that we want to take out and and get going on construction. But long-term, we don't. We're not we're not seeing any changes in our view of potential for for development.
<unk> zone, and all that stuff in but it's a it's a long term project and then the decision will be which of these project on the shelf that we want to take out in there and get going on construction, but long term. We don't we're not we're not seeing any changes in our view on potential for development.
Okay, that's all I have. Thank you.
Okay. That's all I have thank you.
Your next question was does that engine light is open? Just a couple of quick follow-ups for me. I realize there are lots of moving Parts, but just wondering 11% normalize if you do marketing for a reasonable run rate for for this year, or is there upside from operating leverage if sales hopefully you start to roll again this year.
Yeah.
Your next question comes from Chris Li with it does guidance your line is open.
I just had a couple of quick follow ups from me Richard I realize there are lots of moving parts.
But just wondering is the 11% normalized EBITDA margin in Q4, a reasonable run rate for this year.
Is there upside from operating leverage if sales hopefully start to flow again this year.
I always try to do better.
We always try to do better.
Okay, gotcha and capital capital Target of 145.57% of sales, which is down from eight to ten percent in the last three years is 6% sort of a sustainable level or or User Group to to do a to go lower longer-term. No, it's not sustainable yet. We want to get closer to the industry average is around 5% And as we set to the market we've been going on this slower trajectory to get the damn number and we expect to be there in a few years.
Yes.
Okay, Gotcha, and careful capital target of 145 million implies about 7% of sales, which is down from 8% to 10%.
Last three years is 7% sort of a sustainable level or is there room to do that to go lower longer term.
No its not sustainable yet we want to get.
Closer to the industry average, which is around 5% and as we've said to the market we've been going on this.
Slow.
Trajectory to get the debt number and we expect to be there in a few years.
Okay, and my last question just going back to Camp with appointment. I mean, I understand the desire to do some of the free taxi to buy back shares because you believe the shares are undervalued. Is there also may be acknowledged that perhaps you don't expect any major and many opportunities in the foreseeable future or are they not related? So they're not really related. We always on the lookout for good opportunities, but because of the current market environment is very tough to to to see stuff that's compelling. So right now we see we see the looking at buying our our shares as a very compelling opportunity.
Okay and then.
My last question, just going back to capital deployment, I mean, I understand the desire to use some of the free cash flow to buy back shares because you can lead the shares undervalued is there also maybe.
Acknowledgment that perhaps you don't expect any major M&A opportunities in the foreseeable future or are they not related.
So they're not really related we always on the lookout for good opportunities, but because of the current market environment is very tough too.
Two to see stuff that's compelling so right now we see we see they're looking at buying our shares is a very compelling opportunity.
Okay. Thank you.
Okay. Thank you.
Again, if you have a question, please press star one on your telephone keypad your next question confirm with RBC Capital markets. Your line is open Monday. Just going to ask about the two billion and m&a that you just answered it. Thanks, Richard.
Yes.
Again, if you have a question. Please press star one on your telephone Keypad. Your next question comes from Irene <unk> with RBC capital markets. Your line is open.
Thanks, Sorry, I was just going to ask about the 2 billion and M&A that you just answered it thanks Richard.
Yeah.
Okay, and there are no further questions here, but this time off from the call back over to the presenters for closing remarks. Thank you Denise, and thanks everyone for joining us this morning. If you have any follow-up questions, please don't hesitate to contact a lawyer myself, and you can mark your calendars for May 11th 2021 when we report our 221 results. Thank you.
Okay.
And there are no further questions queued up at this time up from the call back over to the presenters for closing remarks.
Thank you Denise and thanks, everyone for joining us. This morning, if you have any follow up questions. Please don't hesitate to contact Roy or myself and you can mark your calendars from May 11, 2021, when we report our Q1 2021 results. Thank you.
Exclusive conference calling you may now disconnect.
This concludes today's conference call you may now disconnect.
[music].
bath bath, bath bath
Yep.