Q1 2021 Loblaw Companies Ltd Earnings Call
Good day, and thank you for standing by welcome to Loblaw Company.
Limited first quarter 2020 earnings call.
This time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
That's a good question. During this session you will need to press star one on your telephone keypad. If you require for any further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker today Ray Mcdonald. Please go ahead Sir.
Great. Thank you very much Jacqueline good morning, and welcome to Loblaw companies Limited first quarter 2021 results call.
Joining in the room. This morning by Galen Weston, our executive Chairman, Sarah Davis, our President and Darren Myers, our Chief Financial Officer.
And as always before we begin the 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 loveless 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 companies 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's required by law.
Also certain non-GAAP financial measures may be discussed over referred to today. So please refer to our annual report and other materials filed with the Canadian Securities regulator.
With our for a reconciliation of each of these measures to the most directly comparable GAAP financial measure and.
And with that I will now call the turn the call over to Darren.
Thank you Roy and good morning, everyone first quarter generated strong financial results that reflected continued improvement in our business.
As we reported on our second year of the pandemic comparable numbers do not tell the entire story as such I will include commentary on two year average growth rate as applicable to provide further context on our operating performance.
On an adjusted consolidated basis, our reported revenue for the first quarter grew <unk>, 6% EBITDA increased four 5% net earnings increased 12, 3% and earnings per share grew by 16, 5% looking at Q1 on a two year basis, we saw average growth in revenue of five 5%.
Adjusted EBITDA up eight 2% and adjusted earnings per share growth of 24%.
Our food and drug businesses continue to perform well in a challenging and dynamic environment. As a reminder, retail revenue in Q1 last year included an estimated $750 million in incremental retail sales related to stockpiling.
Additionally, because of the inclusion of a 50 <unk> week in 2020, our 12 week same store sales period in Q1 lapse, an extra week of elevated sales from last year. This resulted in a negative impact on our reported Q1 2021 same store sales of approximately 100 basis points in food and 170 basis.
<unk> and drug.
Food retail same store sales were relatively flat up <unk>, 1% in the quarter same store sales continued its strong momentum from the fourth quarter before lapping the COVID-19 related pantry stocking from 'twenty, 'twenty, which drove same store sales last year of nine 6%, including 44% in the final two weeks of the quarter.
Our average article price was three 9% for the quarter and unchanged from Q4, the increase in average article price compared to last year was driven by sales mix and we continue to see outsized basket growth in traffic declines in the quarter on a two year rate food same store sales reflected average growth of four 9%.
Same store sales in drug retail declined one 7% from the first quarter front store same store sales were lower by six 4%, while pharmacy same store sales grew three 5%.
Front store same sales continue to be impacted by sales mix front.
Front store sales lapped strong sales of 10, 7% last year, including 42% growth on the final two weeks of the quarter.
Pharmacy performance was strong however against last year's COVID-19 related surge, we recorded a prescription count decline of <unk>, 8% and an average prescription value increase of two 4% on.
On a two year average rate drug sales same store sales sales have grown four 5% with front store plus $2 2.2.
Two 2% and Rx at seven 1%.
Retail gross margin was 33% an improvement of 50 basis points compared to the first quarter of 2020.
Gross margin improved in both food and drug as a result of underlying improvements we have been driving throughout the business compared to Q1 2019 gross margin has improved by 20 basis points.
Retail SG&A as a percentage of sales was 25% with the rate increasing 70 basis points compared to the first quarter of 2020.
The increase was primarily due to lapping costs leverage from stockpiling in 2020 incremental COVID-19 related costs and higher E Commerce labor costs from increased sales penetration, which more than offset peony improvements.
COVID-19 costs came in at $48 million in the quarter in line with our expectations. Our online business continued to generate strong top line growth and we demonstrated progress in driving sequential improvements in our operational metrics and profitability.
Compared to Q1 2019, our retail SG&A rate was flat despite heightened COVID-19 costs and headwinds from our online growth.
Retail adjusted EBITDA declined by $12 million in the quarter. This compares to last year. When we recorded year over year growth of 176 million, which was elevated primarily a result of stockpiling. The final two weeks of the quarter.
At PC financial revenue was down $13 million in the quarter driven by lower interchange income on credit card related fees due to lower customer spending adjusted EBITDA at the bank increased $65 million year over year, primarily driven by changes on the expected credit loss provision in Q1 last year at the beginning of the pandemic, we recorded a 50 million.
ECL provision based on improving economic factors, we released $20 million of the provision in Q1 this year.
On a consolidated basis adjusted EBITDA margin was 10, 3% in the quarter up 40 basis points compared to last year.
In the quarter <unk> net earnings available to common shareholders was $392 million.
12, 3% and fully diluted earnings per share were <unk> 90, an increase of 36, 4% free.
Free cash flow was $288 million on the quarter, and we repurchased $5 4 million common shares at a cost of $350 million.
As we look ahead, there remains a great deal of uncertainty as the course of the pandemic related lockdowns and the resulting impact on consumer behavior remains dynamic we.
We are pleased with the strong financial performance of our first quarter, which exceeded our internal plan. We have seen that momentum continue into the second quarter, putting us in a position to exceed our full year EPS outlook.
Given the ongoing uncertainty and volatility related to pandemic, we are not updating our outlook. This early in the year.
Our COVID-19 related costs remain elevated and we expect costs in the second quarter to be in the $65 million to $75 million range.
This being my last quarter and I'd like to say, thank you to our investment community I have enjoyed working with you and getting to know you over my time at Loblaw and I wish you. All continued success I will now turn the call over to Sarah.
Thank you Darren and good morning, we started the year with strong results extending the steady and sequential improvements that we have delivered for three quarters now our core business is healthy and we continue to actively leverage our assets to deliver value to our customers as the pandemic continues to impact the lives of Canadians.
As mentioned by Darren and extraordinary times, it's helpful to look at a two year average growth rate. Our consolidated Q1 2021 performance exceeded our financial framework on a two year stacked basis with average revenue up five 5% EBITDA up eight 2% and EPS up 24.
4% in Q1, our food businesses held strong with same store sales up 10 basis points lapping growth of nine 6% in Q1 of last year. This was driven in part by lockdown conditions and strong eat at home trends Q1 delivered market share gains with continued strength in market and sequential share on.
Treatment and discount our grocery store has gained tonnage and dollar share while our inflation remained flat to Q4.
As was the case through 2020, we have managed margins carefully to keep prices in check for Canadians and waste that set us apart from the market.
In our drive segment same store sales declined one 7% growing three 5% in Rx and declining six 4% and front store. There are two driving forces here first our John stores are negatively impacted by lockdown specifically in important areas like beauty second we are lapping last year.
Inflated Rx and front store sales ultimately we are pleased with the position and performance of our drug business as I called out in Q4, we're seeing strong results in convenience and food our beauty sales are down, but our share is up and our pharmacy business continues to grow as we play a bigger part in community care.
I want to highlight the great work of our pharmacists, who have been key to the testing and vaccination efforts in most provinces. We have nearly a dozen different program supporting COVID-19 testing for travelers workplaces schools and more and we've already vaccinated over 700000 Canadians to date, reaching people conveniently and <unk>.
Most to home just to give you a data point in most markets our contribution to the vaccination effort is greater than our pharmacy market share.
While the revenue impact of these testing and vaccination program has not been material. Thus far they certainly show the trust consumers have for our pharmacists and our place and community health.
Across our food and drive business as we continue to manage COVID-19 costs operating well under modified conditions and adapting to pandemic related pressures on our mix first of all our customers are adapting with us and our satisfaction scores remain very high.
Let's take a moment on e-commerce as I know people are keen to understand what is happening in digital retail as the pandemic conditions continue.
In Q1, we had three digital priorities first to improve customer service second to margin up through additional offerings and third to lower our cost to serve we improved on all three priorities, while serving more customers than ever revenue increased 133% over last year and.
As the business grew exponentially, we delivered our highest bill rate lowest wait times and the best satisfaction scores of all time.
Across the business, we're appealing more and more to those who transact online for the things that matter in life and food and drug rapidly growing program like the PC money accounts and the PC health App and loyalty where were prime to give Canadians more than $1 billion in PC optimum rewards again this year.
We have all the pieces assembled an unmatched store network unmatched loyalty health care and satisfaction scores that have improved even as we face the challenges of last year and clear line of sight to process and efficiency and data programs that will continue to make our company run better as you know starting may SEC I'll be observing our companies teamwork.
And achievements and retirement as an admirer and a customer of loblaw I'm extremely proud of the progress and accomplishments of the company over the past 14 years and even more proud of my colleagues great people with a strong culture I can't thank them enough I am pleased to be leading the company in a strong strategic position with operational and financial.
Momentum and tremendous opportunity to those of you on the call the investment community I've enjoyed working with you through my years as CFO and then as precedent I wish you all continued success and happiness in your careers and in your lives I will now turn the call over to Galen.
Thank you Sarah and good morning, I'd like to begin by acknowledging Sarah his retirement after a stellar 14 year career with loblaw.
As many of you will know Sarah has been an essential part of the most transformative moments in our company's recent history throughout that time. She has been an exceptional leader on an invaluable strategic partner and a terrific person.
Our unwavering commitment to colleagues and our customers has made loblaw a better company.
I know you join me in wishing her are best.
I'd also like to take a moment to recognize darrin its contribution over the last three years during that time. He has been an excellent financial stewards advancing our capital discipline and process and efficiencies and he's been a lively contributor to our executive management Board I know you've appreciated his style and candor in that you join me in wishing him well.
Sarah on Darren move on Richard to frame and I returned with considerable enthusiasm on our clear focus on the future.
Loblaw, we have a unique and complementary portfolio of market, leading assets together, they provide us with a powerful value proposition and unrivaled long term potential we look forward to that future and to our ongoing engagement with the investment community. When we are more firmly in our seats.
While we don't know what COVID-19 will hold in the near term we are far enough into 2020 one to know it will be a better year I think that's true for society and for our business here.
Here's what we know today, we're now on our fourth quarter sequential performance improvements our determination to lower prices to serve Canadians on our company well and trust on our brands has never been higher.
As we look to deliver fantastic supermarket choices and industry, leading pharmacy based community care through the nation's best retail and ecommerce networks. Our job is to build on this strong foundation and to seek more ways to make our networks Hum on our assets Shine.
As we enter into what we hope will be the home stretch of the pandemic I want to express my admiration for our people our business and our team of 200000 Canadians have set a high standard hitting challenges head on.
Whatever the consumer demands they kept Canadians fed and well through phases of panic buying fewer of public spaces and efforts to put this pandemic behind us, including through our mental health services and nationwide vaccination effort.
Loblaw is well positioned to create value over the long term.
I'd now like to open the call for questions.
Thank you Dylan Jack.
Jackson could I ask you to remind participants how to ask a question.
Certainly as a reminder.
To ask a question you will need to press star one on your telephone keypad.
Sure on your question press, the pound or hash key.
Your first question comes from Irene <unk> from RBC capital markets. Your line is open.
Thanks, and good morning, everyone before I ask my question just wanted to express our thanks, and congratulations and best of luck debt just that ran Darren.
It's been lovely happen.
Just moving moving on to other store.
Really nice performance in Q1 can you talk a little bit more about the momentum that youre seeing in discounting conventional.
How baskets are evolving whether theres any change and also the competitive intensity that we're seeing because I think.
Metro navigate that that they saw a bit of an uptick in promotional penetration during their quarter.
Okay. So maybe I'll start and Darren can add something if he if he likes.
So certainly what were seeing as well during lockdown periods that we're experiencing in Ontario anyways on the market Division performs better. So we would have seen that.
So any of the lockdown period through Q1.
But what we are seeing is a bigger momentum in.
Discount as it starts to come back.
In terms of share performance, so that performance and share performance for discount with more substantial than it was in market in Q1. So basically we feel good about both sides of the business.
React differently as we go through different parts of the pandemic, but well positioned for the rest of this year.
I would also just add to your other part of your question I mean, I don't I wouldn't say that we're seeing.
On noted promotional intensity from before I think it feels about the same as what it.
It stayed consistently competitive.
Nothing we would call out specifically.
That's great. Thank you and if I might a question around inflation, obviously extremely topical can.
Can you talk about what Youre seeing and.
Hello, it's playing through in both center of store, but also in France.
And whether you have yet seen any reaction consumer behavior.
I mean inflation is going to be of course, a hard one to predict I'd say, so far things have been in check I mean, I think you know.
CPI was <unk>, 9% for the quarter. So so far things have not raised our average article price was three 9%, but thats really based on mix and people buying club pack sizes in it it was unchanged from Q4, so so far.
Not seeing large increases certainly as the year goes on there is more talk everywhere about inflation, but I would not want to try to take a guess on what inflation is going to do.
That's great. Thank you.
Your next question comes from Mark Petrie from CIBC. Your line is open.
Yeah.
Hey, good morning, I wanted to ask about gross margin.
Really nice results nice rebound in Q1 after some pretty notable pressure on them.
Particularly on the food business, but in retail overall Q2 to Q4 of last year could you just talk about the sort of different puts and takes there.
Be it sales mix promo investment leveraging data assets and then how should we think about lapping Q2 to Q4 of last year, where margin was under some pretty significant pressure.
Yes, Hi, Mark.
Can you hear me by the way, we're getting a little comment.
Okay, Yes, sorry.
Alright, alright.
So yes, I mean, we're very pleased with the continued improvement we saw increases in both food and drug I would say, there's not one specific item that that's doing it. It's a series of things a number of initiatives, including the ongoing pricing adjustments, we are making through through last year and continue to fine tune our pricing.
We also have a number of sourcing initiatives and as well our strategic vendor program. This year and the other thing I would also add on the drug side, we did see.
We had front store pressure still on the margin, but we saw a nice lift from all the services and the growth that we've seen in services. So both businesses are doing well and as we look forward I mean, we do think this is these are sustainable improvements of course, it depends what happens on the competitive environment, but we feel good about the fact that we can.
Can sustain these and to your point, we will be lapping in Q2, some pressure that was there last year. So the margin is in in a decent place certainly going into this quarter.
Okay, and then I guess, just specifically with regard to Q2 I think last year part of the issue was around the general merchandise and apparel parts of the business or the right hand side of the store.
Should we expect better sort of stability.
From from that.
In 2021, B on sales or margin.
I mean, certainly we're lapping a lot of challenges last year. So even in Q1, we didn't really see an impact on the from the right hand side.
Which is good given that we weren't.
We're really seeing the impacts in Q1 last year to the same extent, so it's still going to be volatile with lockdowns in different things happening in businesses like Joe.
Right now, but all in all to your point, we will be lapping some poor performance of last year, a challenging performance last year, and so that should get better as we keep going through the year and maybe I'll just add a little color. If you remember in Q2, we did have a negative impact on apparel and G. M D.
<unk> actually picked up in Q3 with a positive as we sort of sorted through that and we're able to sell some more general merchandize margins in both.
Apparel and GM have improved as well so to Darrin point on Q1, there it's across the board that we have seen some improvement the tricky thing is to predict whether we'll be able to sell it so right now in Ontario were on.
We're not allowed to sell any apparel and our sales in our stores.
So that for sure is going to have a negative impact on the sales there in Q2.
And some general merchandise that we're not allowed to sell either sell it it's tricky to predict the rest of the country. We can and then of course, we have a pretty dominant business in western Canada. When it comes to GM and apparel. So that's still.
We're still able to sell there.
But overall, you'll see some improvement in Q2.
Okay, Great. That's helpful commentary and then just second on on the on the SG&A side again in Q2, you are lapping some pretty big COVID-19 costs.
Q1, it looks like if you normalize that.
It would cost you had some pretty good cost control and had relatively normal level of inflation I'm. Just wondering if that's the right way to think about it for Q2 is the basically normalize the COVID-19 costs are in line with what you've guided to and then and then kind of run that more typical level of cost inflation through or if there are some other.
Puts and takes we should be considering.
I think the Mark that's the right way. So so Q1 pressure, obviously with the COVID-19 costs and digital and what have you.
That I described and then in Q2, there is a significant lower milk COVID-19 costs. So the SG&A will get better as a result of that and the other thing we obviously won't have as.
Which we had last year is the same SG&A pressure from digital we won't we won't have that same year over year impact that we would have had last year.
Okay very helpful and I wish you both on all the best Thanks Mark.
Your next question comes from Karen short from Barclays. Your line is open.
Hi, Thanks, very much actually just on that last comment on E com.
You know you obviously gave us the dilution last year.
At 27.
Wondering if you could maybe give a little color in terms of how you're trending this year thoughts into how that will look for the remainder of this year.
Yes, so we're not giving the number this quarter relative to the $100 million, we said last quarter, but what I will say in both of my remarks on Sarah's remarks is that the profitability rate improved from Q4 to Q1.
So.
That's from a lot of the initiatives we have in place and then if you think about Q2 digital with all the growth we had last year, it's going to be tougher to grow on top of that growth. So we won't have that same year over year pressure. So you know a little bit of improvement on digital profitability is probably the way to think about it.
And if you think of one R. R.
Digital business was up 133% to Karen's point youre not going to see that in Q2.
So we would've had the incremental costs associated with that incremental.
Digital penetration and when you think about penetration, we actually increased penetration in digital from Q4 of 2020 to Q1 as well so it's still we're still seeing.
Increases in our digital business.
Okay. That's helpful. And then actually just on on the COVID-19 costs guidance of $65 million to $75 million can you just.
Parse out the different components of that and then on the SG&A, if we look at that.
Slightly differently.
Yesterday was up about 2% on the quarter, excluding COVID-19. So it sounds like that 2% is not it wont be growing that much when we get into Q2 and beyond but any directional comments there would be helpful. Yes, I think on your second question again, some of that would be because of that digital growth.
A fair amount of costs on that year over year growth that we will not have the same year over year impact in Q2 that we just had in Q1.
And then on your on your question, it's really not change I mean, it's really we're spending the money on safety security Janitorial Theres also some amounts being spent further on it for colleagues. So it's the same kind of buckets that we've been talking about through last year.
Okay. Thank you.
Thanks Kara.
Your next question comes from Vishal <unk> from National Bank. Your line is open.
Hi, Thanks for taking my questions.
Okay.
Step back and.
That did better understand where we are with respect to loblaw as health care initiatives.
The initiatives.
On the aggregate are they benefiting the company yet on it or we still on an investment phase and maybe the same question for Loblaw media and advertising.
Okay. So I'll start with health I would say that our focus on health has very much been on.
We're working through the pandemic, serving Canadians on either through testing or through providing vaccinations and at the same time, we did launch our PC health App in.
The back half of 2020, and it's starting to get some good traction in.
In 2021, as well and so in terms of our focus on having additional services pharmacy services I think we talked about it on the call last time that we are seeing tremendous growth in pharmacy services. They come with a higher margin. They would also be part of the gross margin mix and that is mixing up in in the pharmacy business.
And so we are seeing it's positive in terms of what we're seeing on day.
On the health side of our business when we talk about Loblaw media.
We I think I mentioned on the last call as well that what we should expect is some.
Is that it was flat basically in 2020. So it didn't have whatever we invested we were able to get in revenue as well on what we should expect in 2021 is for it to be marginally profitable, but not Monaco material at this point in time and Michelle just a.
Just to remind you I think I said at the last call that we were looking to spend.
Spent about $20 million more on kind of that whole connected health area. So we tried to bauxite and for people so that they understood. The magnitude of number we're talking about.
Okay, I appreciate that and with respect to connected health care when youre seeing that.
Is that are you, including HR and the variety of systems that that loblaw has it in that comment as well or is that viewed separately internally.
No it would all be included.
Okay.
And with.
With respect to pharmacy market share and management's initiatives to grow that with E prescribing and the variety of adherence initiatives.
There is loblaw have you increased market share in pharmacy on the Rx admin Rx delivery is that has that increased over the last few years and maybe you can help us understand where pharmacy market share is.
Yes, we've seen an increase in our pharmacy market share over the last year.
We've also seen as I mentioned in my script that an increase in G D market share as well so despite that the.
The industry being down we're actually seeing increases in share and both of those.
Okay, and the increase in pharmacy market share is that due to an improved adherence initiatives or is it a variety of initiatives.
A variety, but I would say definitely adherence would be part of that offering different services would be part of it as well.
As people come in for COVID-19 testing or for COVID-19 vaccines.
There's always something else that comes with that when you consider in Q1, we had 700000 700000 COVID-19 vaccines, but we also did $2 1 million flu vaccines. So on.
All of that would be part of.
Increasing our share.
Okay.
Okay, and then how about with respect to project Delta or.
Are the are the benefits from that initiative are they fully captured yet or are we still should we still expect more.
I would say that.
On the systems pieces.
It's pretty much behind us we will continue to see some savings from that.
As we go forward, but it's not a it's not a thing that we're calling out in terms of a big number in terms of the statements we'll see.
Okay. Thanks, a lot appreciate it and best of luck to you Darren and Sarah.
Moving on to an extent thanks, thanks Vishal.
Your next question comes from Patricia Baker from Scotiabank. Your line is open.
Thank you very much on good morning, everyone have a few questions.
Just going back to the gross margin trend, which I have to say it was a very welcome highlight of.
Q1, So you noted that you're continuing to see pressure in the front store on the gross margin and presumably a large part of that reflects the shift in mix associated with.
Not being able to sell as much.
I'm, just curious whether or not if we walk away from the beauty impact on the gross margin are you seeing relatively stable gross margin trends sequentially.
Uh huh.
We looked at the rest of the business.
I understand that overall gross margin would be down but is there anything else impacting the gross margin or is it primarily that mix shift.
Other it would be mostly that mix shift also cold and flu would be an area that has been down so that's another area.
Higher margin that would have hurt us, but again the services the growth in services and pharmacy, certainly helped that and then the other initiatives that I kind of walk through and in Q1. The overall margin for the drug business was actually up.
Okay. Thank you that's very helpful and then just.
Sticking with that in your outlook you gave us the first four weeks, what's happening with food and also what's happening with our with the pharmacy and indicated that that consolidated pharmacy margins actually turned positive in Q1 I'm. Just curious can we interpret that to mean that the front end trend.
Has improved from that minus six four that we saw on two one.
The.
I mean, yeah, we're seeing.
We're lapping a little bit of decline last year, so that definitely changes things versus the lapping of the stockpiling from last year. So we're just in a different phase I would say if the pandemic and its thing.
Things are.
Things open up whereas some of these lockdown conditions change and we should see some more improvements in front store.
Okay. Thank you and forgive me for this question because I was.
With speaking too fast for me to get it but sorry, you gave some really good improved metrics for digital.
I think you gave three of them can you repeat that.
Okay, I will think about what I gave I gave that sales were up 133%.
Q1, 2021 over Q1 2020.
I think I said penetration was up from Q4 of 2020 to Q1 of 2021 and I'm trying to think of another one I might have given.
No Sir.
What's the metrics around you had improved IC IC on what we're working on three priorities.
So our first one was on customer improvements so definitely improving the customer.
So that would be and fulfill weight fulfill.
Net rate as well as wait times the <unk>.
Second would be in margining up either through having a larger basket, which we have a substantially larger basket on our digital business than we do in store so continuing to see that adding general merchandise items, we've been quite successful in that way as well as well as incremental margin from having incremental customers. So.
Would all be in the margining up of that business and then the third was in reducing the cost to serve so the actual cost of picking in the stores. We had targets that were set to.
To improve the actual cost of therapy. So we were pleased to see improvements in all three of those areas at the same time, having the highest customer satisfaction, we've had on our digital business in the quarter.
Okay perfect that's exactly what I was getting at and then just a broader question. So.
So great to see that finally, the pharmacies in.
In Canada are able to help with the big issue and challenge around delivering the vaccine. You said you did I think 700000 vaccines on the quarter can you just review for us across the country, where are you where are you are able to give the vaccines and then.
A bigger question.
I'm just.
Just looking at it strategically and I guess philosophically do you really think that there is an absolute bigger role.
Pharmacy from this country could be you know playing and are capable of doing much more than you're already doing if you were given the leeway to do that and sort of.
Really help with the bottlenecks that we're seeing and the challenges across the various regions.
Okay. So we have been able to provide vaccine.
And the majority of provinces and then I would say in terms of.
Absolutely we absolutely believe that there is a larger role for pharmacy to play.
In the health industry of Canada, we would love to be able to provide.
Minor ailments.
All provinces.
We already are able to do that in Alberta, we should be able to do that I think coming soon in Ontario, but it is something that we believe is very good.
For our business, but also good for the health care system, because it provides a less expensive way.
To provide some of these services and it's also more convenient for consumers without having to go.
Lineup at an emergency in some cases are calling finding time to go to the doctor's offices. They can just stop by a pharmacy.
So we think theres a bigger role absolutely.
And then just specifically Sara do you think there's an even greater role playing with vaccines. If you get if you did get greater access to the vaccines that you could be you know.
That debt.
Really that the vaccine administration should be narrowing their fleet administration.
Yeah, we have we could play a bigger role we have the capacity to provide 1 million per week.
And just kind of a vaccine.
So we did 700000 in the quarter, but we have the capacity to do a million a week across the country.
Okay. Thank you and I hope you get too close to being able to do that thank you.
<unk>.
Your next question comes from Kendrick target from eight TB capital markets. Your line is open.
Thank you and good morning.
With respect to pandemic costs on a.
First quarter cost of 40.
48 million, you're guiding to roughly 120 on first half pandemic cost yeah that compares to your second half of 2020 of around $127 million could you help us better understand sort of a range of outcomes on pandemic costs, how much of the step up Q1 to Q2 is locked down.
Related and perhaps how we should potentially just be thinking about in.
In the absence of Lockdowns in the in the back half of this year, how we could see that range of outcomes on pandemic related costs.
Hi, Rick.
I was on.
Predicting the future is a little bit tough, it's going to depend on the state of the economy and the Lockdowns. The more things open up the of course, the lower the costs are going to be I think Q1 is it nice.
Indicative of kind of value in terms of ongoing costs Q2 was a little bit higher as we spend in different parts of the business and some further amounts for our colleagues. So it's hard to predict the back half at this point in time.
I'm not sure I can give much more details on that to be honest.
Fair enough I, just wanted to try and handicap a progression through the it on so thank you for that.
Sir just perhaps on on on beauty and specifically on your comments with respect to the share gains could you, perhaps help us understand how much more responsive or have consumers become that much more responsive to your pulling of leave us in beauty when you do all day.
A higher uptake within the beauty business on people starting to look forward and look forward to a normalization with respect to the activities that would support.
Highest spend in those categories.
On any incremental color you could provide there on the stickiness of what youre doing in the levers you're pulling in beauty, but would also be appreciated. Thank you.
Okay. So I think definitely in beauty, we've seen market share increases.
It's a number of things as well part of it is related to some of our competitors, who weren't able to be open during tough times as well that was on advantage for us, but I would also say that we've been doing a lot of work digitally as well.
So trying to appeal to younger consumers.
Consumers in the 18 to 34 range would be a specific target that we're going through and we've been seeing some nice traction in that area in terms of what consumers are spending on we did see an uptick in.
Perfumes and some of some of those types of items that we hadn't seen since the beginning pre pandemic. So we're starting to see that.
Of course, our trends in health and skincare are continuing hair care all of those would would be trending positive as well so it's the debt.
The main cosmetics, which are down prestige cosmetics, which are which are down but seeing some improvements in some of the other areas.
Thank you just on that with respect to the share gains from hearing you correctly or was it more concentrated against your pharmacy competitors, perhaps than your prestige part competitors in department stores.
Your luxury competitor or is that a fair characterization of the market share would be gains across the entire all the beauty categories.
Against all right. Thank you okay.
Thank you and best wishes to you and today I'm sure that's from it. Thank you. Thanks, Kevin.
Your next question comes from Chris Li from day here, Dan Your line is open.
Oh, Hey, good morning.
I know there are lots of moving parts, but just on a on a very high level basis, when we exclude the favorable favorable impact from lower corporate related costs do you expect the underlying profitability of the food and drug business to be higher this year versus last year.
Yes, I mean, the there's been a number of improvements we've been putting in place.
Since second quarter of last year, and they are taking hold and so so yes.
Okay. That's helpful. Thanks for that.
On digital.
You mentioned on <unk> been able to reduce your cost issue I'm just curious to see if you can provide us maybe with a couple of examples on exactly what youre doing to achieve that.
Oh, it's pretty block and tackling things in the store, so making sure that debt.
The forecast is as good as it can be because putting the right number of people in terms of labor into the store to serve the number of orders would be a key point on making sure that their pick routes are the most efficient that they can be any of those types of tactics, making sure that you know the whole store is involved and the efficiency of uptick.
Can collect and it's not just left to the digital team. So I would say that we took we looked at our whole process from end to end and looked at ways that we could improve it and we're pretty pleased with the results we've seen so far.
Okay. That's helpful and any update you can provide us on your partnership with takeoff so far.
When do you expect that decision to be made on whether to expand that deployment.
Oh, that's a good question I would say at that Theres no update on that so basically we're continuing to work with takeoff on the one that we've got.
We don't have any other announcements to make on anything going further yet.
Okay and my last question, just maybe switching on to shoppers.
For the store is worth.
Vaccines are being administered right now are you seeing any notebook notable missed in terms of merchandize sales as a result of the additional traffic.
We have seen some but we've got 1100 stores now participating so it <unk> like it really is right across the base. So it's a it started out as small but quite a lot now.
Perfect and I also want to wish you and Dan all the best in your future endeavors. Thanks for your help extra skill.
Your next question comes from Peter Sklar from BMO capital markets. Your line is open.
Thank you.
Just first I had a.
Question on your discount banners, there have been periods over the.
You know over the last couple of years, where you just didn't have your.
Price volume price promotion balance correct.
I know you've been working on correcting that do you think you are in a good space on that one in terms of.
Your discount format.
I think we're in a good place in terms of our discount format I think part of it is that.
The impact of.
COVID-19 and the Lockdowns on that business what.
What we do see is that when work in lockdown there is a bit more of a an attraction for customers to go to or the market stores and that's an industry thing not just in our business.
But to answer your question, yes, I feel like we're in a good position in terms of where we are with discounts.
Okay.
Just changing topics during the presentation and Sarah I cant remember if each SKU or Dale had said that you anticipate that you'll be paying.
You know a $1 billion of rewards.
PC optimum loyalty program, which is a big number can you talk a little bit about who pays for that.
Like how much does loblaw day.
How much do your CPG and other suppliers pay like I don't believe that's a drag of $1 billion on your earnings and can you also talk about just.
To review the accounting for all of this when when when was the expense accrued relative to these.
Rewards that will be paid.
Okay. So I can start with how I am not going to give you the specifics, but it's basically funded by a few different.
He says some of it is funded by the business some of it funded by the credit card and some of it funded by suppliers.
And in terms of the accounting I'm going to I'm going to leave that to Roy to follow up with you. After the call on how we do the accounting.
Okay, and when you say funded by the credit card.
I'm not too sure what you mean like you on the credit card.
It's the interchange as people spend in the interchange changes that has generated debt funds are a large part of the points and then.
People are spending it in the stores.
Okay.
And then lastly.
But just wanted to ask one quick question on E Commerce.
In terms of very high level strategy.
Can you apprise us of your latest thinking on home delivery.
We all know you have to use the card offering, but obviously a big slice of the Canadian market is ultimately going to be home delivery and what are your latest thoughts there.
Okay, maybe I'll start and Darren can add in so basically we are predominantly it's still click and collect that we see in our business, but we do think that delivery is important.
Some parts of the country and we do have a delivery offering and obviously, we have a partnership with <unk> as well, but we've also started our own delivery option.
So we do believe that both matter about right now.
Collect is the predominant what we're seeing in terms of what.
<unk> customers are choosing Peter I would just add I think it's going to continue to evolve as technology evolves I think the answer is going to be all of the above it's going to be people going to stores is going to be people doing click and collect and it's going to be delivery and in addition to what we've already piloted there will be three other ways I am sure that.
That we will be exploring and seeing what takes off from me at the end of the day. So I think it's going to continue to evolve.
Okay.
Okay. Thanks, very much from your answers on all your help.
Yeah.
If you'd like to ask a question. Please press star one on your telephone Keypad. Your next question comes from Irene <unk> from RBC capital markets. Your line is open.
Thanks, and just a couple of housekeeping type of items.
First of all can you remind us in 2020.
When you were waving the cost per e-commerce, and when you stopped waiting on like how long did that lapsed.
Rory I'd have to get back to you with the details. It was definitely waived in Q2 I just can't remember if it started right back up and which part of Q3, it started back up and but where I can provide debt. We would have to get you. The exact date, but my.
Memory is the same as Darren said, we stopped it through all of Q2, and we start it back up in Q3, just not sure of the exact date.
Yeah. So I mean, presumably that should be quite now that you are charging fees than normal fees again that should be helpful to Q2 SG&A growth rate.
On a year over year, yes, yes, okay SG&A rate, but.
Because it goes into margin it would go into margin.
Okay. So okay perfect. Thank you and just following up on the whole conversation about pharmacy services.
What percentage of your revenues overall would come from pharmacy services at this point.
I don't think we're going to disclose that once a day.
It's a material business, but relative to the total size of our company, it's still not a high percentage.
Okay, and then just finally.
When I calculated your market share. So it looked like you went up from about 24, 5% of Rx.
In 2019 to about 26% in 'twenty 'twenty.
You talked about adherence in a couple of other things, but on my calculations correct on that one.
ROIC in check with that one as well I don't have that in front of me right now so that's one.
Its quota number Irene.
Okay. Thank you.
Your next question comes from Michael <unk> from TD Securities. Your line is open.
Thank you.
On the e-commerce side.
Are you already starting to see the business flow.
April and May and are you actually expecting it to decrease relative to the kind of on <unk>.
Pandemic peaks of last year.
It's an interesting question in peak period for our it actually increased so what we saw was an increase but I think it's a reasonable expectation that it's going to start to flatten out and certainly to barron's earlier point Q2, we're not going to see the high growth that we saw last year or so, but we do we did see an increase from Q4 to Q1.
One and we have seen an increase.
In period for the first period of the second quarter as well.
Okay, Great and then.
You talked about inflation and I know that you don't want to try to forecast it but.
Yes.
Do you believe that the Canadian dollar to what extent does the Canadian the stronger Canadian dollar help.
Fight off that inflation.
And if we do see inflation pick up.
Do you expect to be able to pass it through or the conditions.
Not conducive to that.
I think the Canadian dollar will help and then the second part of your question is hard to predict I think.
I don't want to make a prediction on that.
I mean generally in times of inflation people have done better but.
Time will tell how that is in it.
In this environment.
Okay and then just.
Maybe I'll add that just in general when there is a little bit of inflation.
Positive generally for the retailer if it starts to get higher.
FX what customers buy.
So I think in that dynamic, it's hard to predict to Dan's point.
Great Okay, Great and then on the.
On the financial services side.
There is a meaningful reversal.
In Q1 of $20 million, but how much worthy the PCL.
Reserves and all of 2020 hours, a day increase and how much of that do you think.
Reverse this year.
Don't have the exact number in front of me in terms of how much. It increased we are still.
It was somewhere in the REIT.
Well, we'll get you the right number for sure Mike but.
We are not to where we were pre pandemic in terms of the reserve and so if the economy continues to improve and the shape of the Canadian consumer.
Continues to stay strong you could expect to see some releases on that but of course time will tell on on how that goes.
Yes, I was just wondering how much does that play into your guidance on us.
At least 10% to 15% earnings growth.
Nothing from here.
Would be in to that.
Perfect. Thank you.
Darren and Sarah I do wish him on I wish you best wishes.
Whenever you plan to do next.
Thanks, Mike.
Your next question comes from Mark Petrie from CIBC. Your line is open.
Yes.
Yes, I just wanted to ask about the PC Insider's program I know it's small.
But it does seem to have some strategic value it hasn't been something that you've particularly emphasized are promoted.
But you also do you have more things that you could potentially layer into that and I'm. Just wondering if you could talk about.
Kind of how you view that program and if it is if it is a sort of future lever or or if you've kind of determine that.
Kind of is what it is at this point.
Yeah, I would say that we piloted it one way and then we changed debt to be more a bit more universal on more I would say appealing to more consumers, we're pretty pleased with the.
Performance of it but it hasn't been a major focus over the last debt as we've been dealing with all the other things that have been going on in our business, but I actually agree with you I think there are a lot of things that we could layer on to it I do think that it could have some more strategic merit than what is getting today, but it just hasn't been the thing that we've been focused on.
Over the last I would say six months.
Yeah understood. Okay. Thanks, a lot.
Your next question comes from Vishal <unk> from National Bank. Your line is open.
Hi.
With respect to distribution center capacity, how does loblaw fueled out its capacity at this moment and will there be any future investment required.
I think we feel we're in a pretty good position, we've been doing a bit of automation. So we had a new automated DC that is operating now and Milton for our pharmacy business.
Expanding a DC that we have in Cornwall and that is also it's partially automated today, it's going to have even more automation as we go through this year, which should be operating by the end of this year and I think we announced that that was replacing two.
On older facilities that we have that we're closing down. So we are there is some investment going on in our distribution centers as well.
And those are just two that are the current ones that are happening right now.
Okay and is the technology.
That is being installed will that help facilitate e-commerce.
From the warehouse as well or is that a separate issue.
It is going to help it will help and depending on whether it's pharmacy our food.
Got different types of technology, we have each pics and <unk>.
In the pharmacy, which will help with that and then we've got capex happening in the food DC in Cornwall, but the strategy is an all encompassing strategy.
Thank you.
There are no further questions I'll turn the call back over to the presenters.
Great. Thanks, everybody for your time this morning give me a shout.
On a few of you have some follow up questions and Mark your calendars for July 28, when we'll be discussing our Q2 results. Thanks and have a great day.
This.
Today's conference call. Thank you for participating you may now disconnect.
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