Q2 2021 Metro Inc Earnings Call
Good morning, and thank you for standing by welcome to the Metrolink 2021 second-quarter results conference call took time. All participants are in a listen-only mode after the speaker's presentation. There will be a question-and-answer session to ask a question during the session. You will need to press star one on your telephone. If you require any further assistance, please press * 0 hour now like to hand the conference over to Sharon manager investor relations and treasury. Thank you, please go ahead.
Thank you. Good morning, everyone and thank you for joining us today or comments will focus on the financial results of our second quarter which ended March 13th. 2021 with me today is Mister president and chief executive officer, flexible executive VP and Chief Financial Officer during the call. We will present our second-quarter results and comment on its highlights. We will then be happy to take your questions before we begin. I would like to remind you that we will use in today's discussion different different statements that could be construed as forward-looking information in general and Thursday evening, which does not constitute historical facts, maybe deemed as a forward-looking statements Expressions such as expect intent or confident that will and other similar expressions are generally indicated a forward-looking statements.
forward-looking statements
On certain assumptions regarding the Canadian food and pharmaceutical industries that General economy and our annual budget as well as our 20 20 20 21 action plans his phone. No 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 can cause the outcome to differ materially a scription of these risks, which could have an impact on these statements could be found under the risk management section of our 2020 annual report as with the preceding risk, the COVID-19 pandemic wage constitutes a risk that could have an impact on the business operations project synergies and performance of the company. We believe these speeds means to be reasonable and pertinent at this time and represent our expectation. 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 contract
Thank you. Shawn. Good morning, everyone. I hope everyone the line isn't good help. We started cycling the peak sales of the start of the pandemic last year in the latter part of authors and quarter, especially in the last two weeks or second quarter sales total of 4.2 billion vs. 4 billion last year an increase of 5.1% food same-store sales Group by 5.5% on top of 9.7% the same quarter last year Farm Us same-store sales were down .8% gross margin stood at 20.2% of sales versus 93.7% for the same quarter last year. The increase in gross margin was mainly the result of a continued strong performance in our core Food business.
Operating expenses including twenty nine million of COVID-19 expenses represented 10.7% of sales versus 10.3% last year a ratio that was positively impacted by the fact that we experienced a strong surgeon sell the last two weeks of the quarter last year due to the pandemic, but with no incremental COVID-19 related expenses our teams continue to do a great job at finding ways to make a key part of the increase in operating expenses the 29 million in cold expenses include eight million of gift cards that were given to front-line employees.
If it. For the quarter total 396.1 million that's an increase of 5.9% versus last year and represented 9.4% of sales the same margin as last year adjusted net earnings wage seven million compared to a hundred eighty two point eight million last year and increased a 6.5% are adjusted net earnings per share with $0.78 of 8.3% versus last year's adjusted EPS of $0.72. And again, everything's of the second quarter last year were favorably impacted by a surgeon sales due to the pandemic with no incremental COVID-19 related expenses.
Or Capital expenditures for the second quarter total of 119.6 million vs. 95.1 Million last year as expected higher capex is mainly the result of some carry forward projects that got delayed loss due to depend Dynamic namely or interior automated DC at the retail level for the first half of the fiscal year. We opened one store and Adonis in Quebec City relocate another one and carried out page seven stores representing a net increase of fifty six thousand square feet or 3% of our food retail Network following the end of the quarter. We open to new stores one missile producing table thousand and one foot Basics and Curtis Ontario investments in technology at the store level or also ongoing we now have about 250 stores with self-checkouts, and we're planning on adding another nine months school year.
Also, we don't have about.
Equipped with electronic shelf labels, and we're targeting another $90 by year-end.
Under current normal course issuer been programmed we have repurchased between November twenty five last year in April 2nd of this year 4.25 million shares for a total consideration of $238 million representing an average share price of 56.21 dollars. I'd like to close my remarks by reaffirming that our financial position remains solid. That's just for me. I'll now turn over.
Thank you and good morning everyone. We had very solid results in the second quarter delivering sales growth of 5.1% ebitda growth of 5.9% and home growth of 8.3% in what can only be described as a challenging operating environment our teams continue to demonstrate great dedication and resilience to serve our communities. I'm grateful for their work for their hard work and following the most recent government measures. We announced last week that all our front-line employees would receive the a third gift card bonus Thursdays to make in recognition of their commitment whether they are in a lockdown region or not. We continue to apply the most rigorous safety protocols for our employees and customers off.
Food same-store sales were up 5.5% in the quarter and 10.1% excluding the last two weeks. When we saw the initial surge in sales last year at the start of endemic we continue to gain market share and the market environment is very competitive as always our internal food basket inflation was 2% down from 2.5% in the first quarter transaction count remains sick in it significantly down versus last year, but it's again more than offset by the larger basket size promotional ratios ended up quarter-over-quarter, but are still below prepend emack levels Joo mostly to the larger basket.
Online grocery Sales Group by 240% for the quarter versus one year ago volumes in our Hub stores remain strong. We are on track to have 170 click collect stores by the end of September our partnership with cornershop continues to grow and we recently added our Adonis Banner to this same day delivery service.
Montreal dark store will open this summer as planned and provide us additional capacity. Finally. We will be expanding our online Hub delivery home delivery service to the Ottawa Market Summer with the opening of one Hub store and several click and collect stores.
Turning to Pharmacy comparable sales were down .8% with prescription drugs up 4.2% and Front End Sales down 10.5% the cost of our ex Department remains very solid. However, as we indicated on our last call in January the restrictions on the sale of non-essential goods and Quebec for about six weeks combined with a much money cold and flu season negatively impacted commercial sales in the second quarter.
at the end of
Our Affiliated Pharmacists and Quebec started to administer COVID-19 vaccines albeit in very small quantities due to limited Supply some 450 of our pharmacies in Quebec but most of our pharmacies in Ontario and New Brunswick will participate in the vaccination efforts and we are working closely with the authorities to accelerate the pace of vaccinations as more Supply becomes available. The coming weeks the transfer of the brunette pharmacies to the DC as well as the metro and Super C stores for health and beauty products has started and will be completed in June. This is the last days of our three-year integration plan and we anticipate Savings of about ten million next year in distribution, and we're housing costs as we will operate in one facility.
As you know, one of our strategic priorities is the modernization of our supply chain in February. We started the operations in phase one of our new semi-automated produce DC in Toronto about two-thirds of our stores are now supplied from this facility and the transfer will be completed in the next few weeks post ramped-up. This new facility will provide increased capacity and Thursday for our stores. It is always challenging to start a new DC even more so during a pandemic, but our team is doing a good job to manage the expected to transition cost.
The new fully automated Frozen DC is in the final stage of construction and systems will be commissioned over the next month in time for a January 20-22 opening.
Looking at the recent lockdown measures in Ontario and parts of Quebec continue to favor food at home consumption in Q3. We expect food sales to stay elevated compared to prepackaged levels. But as we cycle the peak sales of the start of the pandemic we expect for comp sales to be negative for the quarter in our Pharmacy division. We expect continued growth from prescription and subjects at the evolution of the public health measures. We expect Front End Sales in the short-term to compare favorably to last year given the serious restrictions to access to pharmacist that were in place during the first wave of the pandemic.
So our priority Remains the safety of our employees and customers and we believe we are well-positioned to continue to deliver value to our customers and shareholders. You will now take your call to ask a question. You will need to press star one on your telephone. So we draw your question, press the pound or hashtag back on by why we compare the coupon errors. Then your first question comes from current shop of Barclays, please go ahead your line is open Monday. Hi. Thanks very much.
Wondering if you could talk a little bit about how you're thinking about inflation as we go through the rest of the year and then how you're just generally thinking about what the cage traffic versus basket maybe as we get into the third and fourth quarter given that there's so much volatility in both of those numbers for the remainder of the calendar year.
Well, it's like inflation expectations are and again uncertain but we we had pretty muted inflation in the second quarter down a bit from the first quarter. Like I said, we saw we saw some inflation in in prodos. What what's ahead of us will depend on a bunch of factors on the grocery side. We understand that there are some cost increases being asked or coming due to production cost increases from our from our vendors. So there could be a bit of inflation on the grocery stores in the first Department again, there are many factors that play effects million dollars stronger this year versus last year that should help us a bit to offset some of the inflationary pressures off but net-net we don't expect to the equation picture overall to change that much, you know, the the the the 1 and 1/2 to 2 to 2 and 1/2 bath.
Is something that we think is is realistic but again, no crystal ball and and it is volatile and it is uncertain as far as traffic is concerned in our stores traffic twins. I said are are down year-over-year as we cycle the pandemic we're going to be improving traffic Trends. We're going to see the basket would be more normal versus last year because it's cold weather against COVID-19. So I think we we need to look at it going forward on a two-year basis and and see what our gross is is confident that our sales will will remain very strong versus 2019 on the food side.
And then just to follow up on that on the promotional environment. I guess what's your perspective in terms of how that environment will look, you know, it's we're looking several. I guess quarters down the road in terms of the competitive landscape broadly. I mean obviously all retailers know that the negative comments are a function of I mean obviously very very unusual comparisons that how do you frame that respect to how the competitive environment me look in the next several quarters?
Well again, I can't speak for others. I just said we we are looking at are week-to-week sales or market share every every week and home versus two years ago. That's really the bottom line for us the promotional environment. I said increased quarter-over-quarter, we expect that to to continue and normalize. I think it's a it's a very competitive market out there always has been and and we expect that will continue and if the if the basket stays larger wage has versus two years ago, I think that's helpful for for the promo Ratio or the sense that a fuller basket will have a perhaps a smaller share of promotional items in it. So, you know, we're confident that we we in a very competitive market with promotional promotions increasing we're confident that we can we can manage through that and off.
Okay. Thank you.
Your next question comes from kenric pagi of Capital Market, please go ahead your line.
Thank you and good morning. Erica want if you could provide any insight on the makeup of your basket understand. It's a larger basket. If you could write any insight install services to change how consumers a shopping and you know, perhaps the way they selling their baskets by buying up or where there's any material change in the basket composition and and second to that. Have you seen any differences emerging between you know that the basket in full service versus Quebec and Ontario versus Quebec as the as we sort of rolled through the pandemic.
Well the makeup of the basket again. It's it's the larger basket and there's a higher food at home consumption. So clearly protein meat fish off remain up pretty substantially versus free pandemic levels. So that that continues in in both of our conventional and discounts banners, perhaps more. So on the conventional in terms of promotional mix I've spoken about that already. It's it's below pre pandemic but in setting up a recorder, you know, it's a full people are shopping around less and concentrating their purchases and fewer stores one store a couple of stores. So that makes up for a fuller basket that's representative of all the down payment, you know with with with the protein.
Sector benefiting a little more. Thank you. And then just quickly switching to Pharmacy, you know, obviously lots of beauty and cosmetics sales are lost for the market but yet again, look forward. What labels do you believe you're able to pull in the Quebec Market to either try and drive increased share or otherwise in that beauty and cosmetics space on any sort of normalization of behavior through the summer here. You know, how do we think about the evolution of beauty and cosmetics? It's certainly a a business that has been under, you know marked pressure of the last year and tried to tease out, you know, how that could evolve and what levers you could pull to try and drive any sort of Real Recovery or acceleration off the back hall.
Well, I think we're very well positioned was not good and Brunet we cover all of the Quebec Market extremely. Well our market share of prescription drugs as strong and as well as in half a as a strong promotional strategy, I think as more and more people get vaccinated I think traffic to our pharmacies will will improve and I think with the strong merchandising and promotional program, we will be able to engage more sales than we have over the past twelve months where it's been a it's been challenging for pharmacy for sure. So as I said in my opening remarks depending on how the sanitary measures and restrictions involved you expect that over time, they will they they will gradually be eased and and removed eventually that will benefit our Pharmacy Network on the beauty and cosmetics. I'm so dead.
another reliever is
Growing the e-com business on on on the pharmacy side that gradually we expect that to continue to grow but the biggest strengths the competitive Advantage is our own network and are reached and and are strong merchandising promotional program at Junction. Thank you and congrats on the results. I'll leave it there.
Your next question comes from Michael Burnell of TV security, please go ahead your line is open Monday with understanding the compensation that pharmacists are getting for the vaccine Administration.
I don't have the specific dollar amount by heart we could get back to you. But there is a negotiated fee that the association of Pharmacists negotiated with the government. I think it's $17,000 or $20 in that range that the pharmacists will earn for for vaccine Administration on the distribution side because we are supplying the vaccines from our dog house in back end. So you will also make a a small distribution fee that was negotiated with the government demanded Ministry of Health. So this is not a huge Money Maker. It's it's a community drive to accelerate vaccinations, but there is some compensation.
Okay, and that's $17 kind of negotiated fee. Is that over and above the costs or is that the cover some of the costs as well?
The cost of the vaccine there's no cost for their vaccine.
No, I'm sorry your p p p p e and things like that and materials it is to cover that, you know their time and their expenses related to the vaccination em out the cost of X, but not the cost of the back.
Okay, great. And then as you see we've been laughing for like a several weeks or a month or so off from a year ago. And I know that traffic is still below that make levels but are you seeing consumers getting more comfortable with coming back into the storm versus where they were three or four days ago and started the pandemic and and they are they does that mean if that's the case does that mean that they would be you know during a little bit more the cherry picking and willing to go to more than one store similar to what they were prepend emocore. We not there yet.
I don't think we're there yet people, you know, I think we saw over the the first part of the the second quarter traffic traffic Trends, you know pursues the previous years somewhat somewhat better than the than in the first quarter and then more restrictions came down lockdown measures. So, you know, it's it's very volatile and uncertain so I would say that the the level of comfort has not really changed uh, and and certainly in the last couple of weeks. It's it's level of comfort is more challenging as money for adopted and and and kind of cases climb and so it's I I wouldn't call it more comfortable and then the shopping around so I think we're still in a world of their purchases with their with their main store. I think the key is establishing trust. I think we have done a great job over the last fourteen months to secure the trust of our customer.
with rigorous control
Those protocols greeters in every store extra sanitation. So I think that's served us. Well, we're getting good customer feedback from that in our surveys. So I think we're in a good position to continue to serve our communities and the keep them comfortable in our stores as much as we can.
Okay, thank you. And then finally just a question on your operating expenses for the first three quarters or so of depend that make it seem like you were off-loading coded cost. You're you're kind of flat to down a little bit you over here. And then now we we've seen her return to growth and operating expenses in this quarter. Are there certain main categories of spending that is coming back at a quicker Pace now?
Oh my God, I think it's I think it's we're back in, you know, excluding the coding expenses your back to a more normal ratio, you know, you know, we're at 10.7 this quarter off of 10.3 last year, but last year as we said there's a lot of extra sales do the beginning of pandemic with no related COVID-19 expenses. So that 10.3, you know, Elvis was affected favorably month or so, if you if you remove those COVID-19 expenses, you know, the the increase year-over-year is under 2% So so I think that's a normal that's a normal a normal Trend not giving the the apartment went.
Okay, so none of the like the advertising expenses or other other like a or I guess travels not back yet. And it's not done in the other expenses are coming back yet. And any particular segment, there's nothing unusual. It's pretty when you remove the specific, you know, I mean, obviously the bulk of the increases in wages and then you have some in maintenance supplies for the mask or gloves and Cetera you remove that the the lines of operating expenses are pretty pretty much in line, except of course travel is not as high as it was but it was never a big expense to begin with in our company. All right. Thank you very much. Your next question comes from Irene. Nattel of God, please go ahead. Your mind is opened and good morning. Gentlemen, just want to continue the discussion a little bit about e-commerce. We saw a not surprising.
I'm checking e-commerce sequentially in Q2. Wondering what you were seeing just in terms of timing and how it might have related to lock downs and service what types of behavior you song Quebec during during the early lockdowns that you know may or may not be that you may or may not be seeing now in Ontario. Sorry.
There's no there's no change in Behavior.
Of customers in the quarter reverses previous quarters. I think the big difference in the uptick in our in our e-com volume is is are added capacity. So there's there's actively to HUB stores extra this quarter versus the same quarter last year. We we added one in Toronto and we had just started one in Quebec City a year ago. So effectively there were two two more money selling and two two versus last year the COVID-19 not covet but the cornershop partnership continues to grow nicely. So we're getting good growth in their birth of our markets. So those are the large contributors to the increase in our econ volume click and collect stores are being deployed. We're about we have about 45 done with today. We we we are on track. We hope to get to one-seventy by the end of our fiscal year so that again we'll we'll add more capacity. So it's it's more question of capacity Thursday.
Terms of bookings and you know trying to get a get your order delivered in the next day or so. I think it's a lot better than it was a year ago our systems or or or capacity to service is a lot better. So you don't we're not at full full capacity. There are some windows delivery windows that are open midweek at the peak of the pandemic was it was completely full as you remember, so we're not there but we're seeing very strong or good solid sales from our Hub stores that that remains but the growth is just what I just explained.
That's great. Thanks here. And what is the nearly consumer response to the click and collect?
It's it's you know, it's not overwhelming. It's ramping up.
I think there is a demand for that. It's certainly in in some more. I should say lesser density smaller markets when we expect that there will be some bulbs some demand for for that service. So we're managing through that store by store some of our Affiliates in Quebec are participating the volume is is not high off. But again, it's it's it's working progress and and ramping up nice contributing to the overall online sales number that we report but the you know, the majority of our sales rep in our Hudson delivery service and cornershop. That's great. Thanks Eric. And I know you don't give Channel performance, but from your overall commentary, you know with a customer still consolidating their shopping. Is it fair to say that conventional remains robust as a channel?
For sure. Yeah conventional is strong in both of them markets were pleased with our discount performance also, but yes conventional is is still growing ahead of discount off. That's great and one final question. If I may I just want to come back to the promotional intensity. You noticed that there was an uptick sequentially I guess the penetration of promotional items at a basket. But what about sort of I guess how hot like the the promotions are or are you seeing other players in the market? Step it up a little bit off or consistent.
it's
I said in my opening remarks. It's very competitive always has been there are weeks where we see some some aggressive promotional items, you know, it's it's happened before we saw some of that into to you know, we we are we are competitive ourselves. So yeah, some weeks are hot, but overall I would think that's pretty consistent.
That's great. Thank you.
Your next question comes from Mark Petrie of cidc, please go ahead your line is open.
Yeah, good morning, just to follow up on a couple of the topics. I've already discussed. I wanted to ask about sales mix versus the pandemic impacted. Last year. Obviously you adjusted your stores and the offering given the changes in restrictions and and and customer preferences. But I'm wondering what you're seeing, you know in categories like prepared food versus last year as well as something like private label penetration.
So thank you. So prepared food has been in Decline ever since the start of the pandemic in our conventional stores. The good news is dead. It's improving. It has improved over the last couple of quarters were not back to pre pandemic levels. A lot of our prepared food is sold through a urban stores and urban stores are are are Undead for the obvious reasons of new office workers and the students University students. So you have several of those stores that are affected in are more Suburban stores birth or are selling pretty well, you know, the chicken pizza programs. Those are those are still always very strong, but the overall prepared food sales are still down versus pre-owned nonpandemic although improving private label continues to penetrate really, well. I think it's been it's been really strong throughout the throughout the pandemic and continues to age
So our our penetration of private level continues to grow in both dry and Grocery and as well as in the in the Harrisburg, so it's it's not that's very good performance. So there's less Pantry loading going on right now versus a year ago. And you all remember the first few weeks of the pandemic last year off of loading stockpiling grocery, especially so we're not seeing that as we cycle the pandemic but
We're pleased with our sales.
Yep. Okay, great. And then on online understand, you know, you have more capacity. So that's the key driver of the growth but maybe versus Q3 of last year when you put up a page or growth rate. I guess is it fair to say that more of the growth right now is sort of in the number of transactions. Whereas last year maybe it was more basket size or transaction size.
someone
Yeah, we're you know, we have more customers because we have we have more of stores more capacity the basket size queens very healthy in online might be down to like down somewhat from from the peak of the pandemic but it's it's still it's still a strong basket a full basket. So it's it's mostly the number of transactions no number of customers.
Okay, and so then in the with the acceleration in the online sales versus versus q1 or or Q4. Do you have a sense of you know, how many of these sales are sort of new to network or if this is more people sort of substituting from the stores.
So consistent to what we've said before we're attracting mostly new incremental business. There is there is for sure some cannibalisation from Metro customers, but what we see from the from the Loyalty data that we have is we're getting a higher share of the wallet of existing customers who are shopping in-store and online. So, I think that's number one. We're attracting some new customers to the Metro band or with our online offer and our service. So that's new business. And yes, there's some some transfer from brick-and-mortar to online, but overall. It's an incremental contribution to sales.
Okay, I appreciate that. And then just last one I guess probably for for Francois, you know, could you just you know with regards to the the investment in the distribution Network, you know, you guys have said that you expect to generate wage rate of return on that investment. Could you just give us a clearer sense of the timing of that and and is that returned generated entirely and labor savings or what else? Are you including in that analysis assumptions? It's a it's a long-term project. Obviously, the return is on us on several years. This is built for capacity for the you know for the foreseeable future. So it's not a you don't achieve a day one month, but you achieve it over a period of time. The bulk of the saving is is as you point out it's it's mostly labor production laborer. I bring expense but there's also some benefits in terms of in-store servicing and and Optimum Transportation costs and so forth, but the bulk is in lower operating expenses labor.
And down the road we expect with those new DCS that are automated semi-automated with that. We will be able to reduce cost at store level receiving it in the stores planned labor around those receptions. I think it's going to be an improvement versus human versus today. So we're not quantifying that but it's part of the picture to get to get the return that we we are hoping to get. Okay. I appreciate the call. Thanks a lot.
Your next question comes from Sri of National Bank, please go ahead your line is open. Hi. Thanks for taking my question. I'm just on on real estate wondering what your perspective is as you chat with landlords. Do you perceive better availability of real estate more favorable terms as you renew and what should we expect for Real Estate grew up going forward. Is that kind of like .5% growth number kind of a good Target Target?
So, you know, we we always looking to develop an open stores where it makes sense for us to to grow our presidents grow our share really market-by-market Vanderburgh on planner with full financial analysis to see to see if it makes sense for us. So no change to our strategy there. There are perhaps same opportunities, but not that many where we we we see a ton of real estate available for our for our Supermarket format in Pharmacy, you know, we come back pretty well. We're mostly focused on relocations expansions on the pharmacy side. So I wouldn't call it a changed market for Real Estate because of the difficulties you read about commercial real estate in general. I think the grocery Pharmacy real estate is healthy and there are not that many new opportunities out there dead.
we are working hard to to find good locations and markets where there's growth so we open Adonis and Quebec City and the quarter it's off to a very good start pleased with that off we just open the Food Basics and Curtis on the outside of Oshawa so and one associate of Mitchell just north of Montreal open the another store for for for their life you know there are a few stores planned every year in terms of square footage expansion you know .5% to 1% is is is our regular number and and that's what you should sign for it
Okay, thank you. And as a result of this pandemic, are you noticing a changed approach from from the various governments with regards to how bout a few Community Pharmacy? I know the past they were reforms implemented without much input from from Pharmacy. Do you perceive government of dead Pharmacy in a different light now or is it too early to say?
Well, I think the the Quebec government adopted a law last year to allow more medical procedures to be performed by pharmacists. So I think the government's been on a on a track or a jersey need to to have farming Community pharmacies participate in in the delivery of health services to unload the public system. So I think that's a positive teacher. It's a positive Adventurer for our Pharmacy business and our Pharmacists and that was started before the pandemic. I think, you know, the influenza vaccination was one example now, we're participating a vaccination for COVID-19. So I think it's just reinforcing. I think the government view that the pharmacies can play more of a role in the delivery of Health Services on the front lines off and I think they've proven that and we'll we'll prove it during the vaccination for for for cold. So I I think the you know, it's it's the shift it started and and it should just
a little more with with the pandemic
Okay, and regarding your your digital offer and your loyalty data does metro metro examine the opportunity to sell advertising or on your websites or or or South side your supplier partners with with more Advanced Data data analytics for for a fee. Is that something that's on the radar that you're examining or is uh-uh or your home is with your offer as it stands?
so we've been
Providing data analytics Services through our dunnhumby partnership for over ten years to our suppliers. So we've been at that been doing that for for quite a while. So we do work with our vendors using the services of the data analysis that is provided by dunnhumby. So our merchandisers the vendors, uh, both use this data to wage on our promotional programs and and be more efficient. So that's been that that and we have monetized that data in our relations with our suppliers as far as advertising not there yet. We're we're we're something we're going to be we are looking at and we'll see where we'll see and we'll announce if and when we get there we'll announce it, but it's something we're a very large retailers are doing in the US especially with the opportunity for us to do it. It's something we're looking at.
Thanks for the color.
Your next question comes from Victor sklar of BMO Capital markets, please. Go ahead your line morning. Just a question first on your gross. Margin, which was up fifty basis points year-over-year. Do you think that that Improvement is largely mixed because your kind of comping against the you know, that whole week Pantry loading last year where they would have been a lot of lower-margin things like toilet paper and and other supplies or do you think they're structural improvements on going in the gross? Margin? How would you think about that fifty basis points?
Mix is a part of it conventional is strong fresh Department meat and produce or strong. So that's healthy for the gross margin prepared foods are down which which is which is a negative but overall the large basket size and all of our banners on the food side is contributing to a healthier margin wage discipline in our merchandising is is also a contributing factor hide sales performance producers shrinking stores, which is also a contributing factor. So Thursday, it's a it's a mix a very much related to the mix a mix of contributing factors very much related to our strong sales volume and you know good operation merchandising that's delivering this so-called a structural and think that maybe a little pushing it. I think we're doing what we've always been doing with our higher sales number.
Thank you. My next question is just on the
Hope it costs you had kind of this quarter the 21 million of court cost plus the 8 million of gift cards. So I think you the total code would cost over $29 million in the bank. Is that kind of what it's going to look like in uh is like through Q3, you know, assuming that the gift card cost is about the same and then when we do get back to the The New Normal that twenty 1 million quarter run rate that you have does that how much do you think that comes down by and how may cherries on
So what's your first question Peter, you know, we got we've announced a gift card so you can assume it's going to be a similar similar amount. Although the quarter third quarter is is 4. So, we have to factor that in but the the gift card itself will be the same same amount and then going forward. You're right. It's it's tough to say because it's unclear wage restriction know how that's going to develop restrictions be some easing but there will be there will be some cause that will stick for sure, you know, what readers are going away anytime soon disinfecting and cleaning that's going to remain so it said however hard to say how much of that you know expense will will come down but it off maybe come down a little bit but it's going to be in a short-term. It's going to be similar to what we posted today.
Okay, and then just lastly I just have a question on the the dark store. You're developing on the island is the business case around that for same-day delivery or next day delivery or going to be a combination of both depending on when you receive the order.
It it it's going to be both but I I would say the majority is going to be next day, but there will be some capacity for same thing. So it's built for both and it's built mostly to Palm City and improve efficiencies by by you know, picking in one location and only only for on-line as opposed to have customers pick in the same store for them. So, yeah, it's it's built for both and it's going to be more efficient and add capacity and under the current model where you're fulfilling delivery from from birth are most of those deliveries next day as well or do the stores have more capability to deliver same-day.
We have some capability to do same-day, you know, we're optimizing deliveries and you know fine-tuning our systems and cut off times to be able to to give same thing. But you know, the the majority of I said of the sales are are are for the next day, but there are some capacity to do same day from our stores today.
Hey, thanks very much. Your next question comes from Patricia Baker, please go ahead ma'am. Thank you. Good morning. I just want to return to the topic of the automated and maybe share with us a little bit about the plans that you have for that change over how long you think it will take to fully transition to ramp up the DC. And will you be running the old DC in parallel? And if so for how long?
As I said in my opening statement, which phase one fresh is our facility in in Toronto with it's the first phase of two phases for fresh and it starts with produce. We're transferring stores as we speak from the old the facility which is next literally next door to the new facility and that will be done over the next month or so off. You know, we're we're in the ramp-up change management phase right now not easy but going getting through it as expected. So that's going to take a few more months, you know of we're not going to get productivity off the tomorrow, but we'll we'll get there over the next few months, confident about that. When once we have transferred all the stores from the old facility to the new we will demolish the the the old facility and make room for the phase two of our fresh which will be fully automated and that's when eventually in a couple of years will we will transfer meat and dairy from the facility. That's not too far off.
Away from it at done. But you know, it's it's it's a multi-year plan and we're going to do it gradually and phases and we have the team I think in our logistics and distribution to manage that it's heavy lifting for sure. We're going to get we're going to manage through it and as we always have so it started in produce and then next month January we will do the Frozen facility, which is fully automated that's finished basically constructions finished, but the systems are being commissioned and it takes it takes a while to feature on Thursday and that will be a fully automated. So again, there will be some renting up there. We expect that to be
Manageable and we're going to absorb those costs as part of our part of our results going forward and if there are materials that are tougher wage will tell you but I think we have a good plan to to manage. Okay? Thank you. And then just in your remarks you talked about or I think it was France who I talk to about investment and one area in decimal self-serve checkouts. I think you said you have to $69.95 more to come in the remainder of the year can just share with us sort of the distribution of those of those primarily in the conventional wage banners, or are we also seeing them in the discount?
Well, you know, we're doing it in both. So again, it's a story by storing alysis where we think it pays off and where is accelerated service for customers reduces our thoughts and and you know, get generates a good return with increasing service with the self-checkouts on the electronic Shuffle labels. We have focused a lot on discount to start to to to be more efficient on that side. But we are we are rolling the amount to some conventional stores also, but it's been it's been mostly on the discount side off of labels and goes it's it's on both sides. Okay? Thank you. Then. Just one final question. I'm just curious about the gift card and that for employees and your experience their home in terms of redemption. Is it pretty immediate and uh, you know, almost full Redemption that you're seeing with those cards.
Yes employees. Appreciate the gesture the appreciate the recognition.
And for sure, they are redeemed. It's not a hundred percent is very very close and it doesn't take much time.
Okay, thank you. That's what I expected. Thanks. There are no further questions at this time. I'll turn the call over to mister kadoche for closing remarks. Thank you all for your interest in Metro and we'll speak again soon to discuss that third-quarter results on August eleventh. Thank you. And this concludes today's conference call back for participating you may now disconnect.
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