Q4 2021 Metro Inc Earnings Call
Okay.
Good morning, ladies and gentlemen, and welcome to Metro Inc, 2021 fourth quarter results Conference call.
At this time all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session and if at any time. During this call you require them you did assistance. Please press star zero.
Oh for the operator also note that the call is being recorded on Wednesday November 17th 2021.
And I would like to turn the conference over to Sharon Kadosh manager Investor Relations and Treasury. Please go ahead.
Thank you Susan good morning, everyone and thank you for joining US today My comments will focus on the financial results.
Other fourth quarter, which ended on September 25th with me today is Mr. Eric that Flash, President and Chief Executive Officer, and Paul <unk>.
<unk> VP and Chief Financial Officer during the call, we will present, our fourth quarter results and comment on its highlights.
Yeah happy to take your questions before we begin I would.
I'd like to remind you that we will use in today's discussion different statements that could be construed as forward looking information in general any statement, which does not constitute a historical fact may be deemed as a forward looking statement expressions, such as expect intend or confident that will and other similar expressions generally indicated.
It is a forward looking statement.
We're looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy, and our annual budget as well as our 'twenty 'twenty 2021 action plan.
We're looking statements do not provide any guarantees as to the future performance of the company and are subject to potential.
Risks known and unknown as well as uncertainties that could cause the outcome to differ materially.
A description of these risks, which could have an impact on these statements could be found under the risk management section of our 'twenty 'twenty annual reports.
They are proceeding with the COVID-19 pandemic constitutes a risk that could have an impact on the business.
Operations project synergies and performance of the company.
We believe these statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward looking information, except as required by applicable law.
I will now turn the call over to Huntsville.
Thank you.
Sure and good morning, everyone.
So for the quarter total sales were up 4.092 billion versus 4.14 for last year.
<unk> of 1.2%, but up 6% when compared to the fourth quarter of 2019.
Food same store sales declined by two 9% for the quarter, but grew by six eight.
But on a two year basis.
Pharmacy same store sales were up four 1% on top of $5 five in the previous year.
Our gross margin stood at 24% of sales versus 22% for the same quarter last year.
Reflecting an overall good merchandising performance in both food and pharma.
Operating expenses were down.
8% a year over year and represented 10, 5% of sales versus 10, 4% last year.
And our COVID-19 related expenses amounted to 92 9 million for the quarter that decrease of $18 million in corporate costs versus the same quarter last year was offset by an increase in other operating expenses, mainly related to activities and services that had been reinstate.
Reinstated after initially being pause at the start of the pandemic such as Hot Foods for example, adverts.
Advertising is also up versus last year.
Going forward, though we will no longer report specific COVID-19 related costs not only because these costs are much lower than before but also to be Frank the line between the COVID-19 experience on a regular expenses.
On slide quite blurred.
EBITDA for the quarter totaled $403 6 million.
Flat versus last year, but at a margin on sales of nine 9% versus nine 7% last year.
Our depreciation expense was down six 5% versus last year, but I remind you that we had $10 $7 million of accelerated amortization.
I'll be cushion last year related to the opening of our new fresh DC at Ontario.
Adjusted net earnings were $200 6 million compared to $193 1 million last year, an increase of three 9% and our adjusted net earnings per share were <unk> 81.
Up five 2% versus last year's adjusted EPS of <unk> 77.
Yeah.
On a two year basis, EPS grew 19, 1%, representing an annual compounded growth rate of nine 1% well in line with our annual growth target of 8% to 10%.
In fiscal 2021 capital expenditures amounted to a little under $601 million up $88 6 million versus last year and.
As a level of Capex as a result of our ongoing investments in the modernization of our supply chain in both provinces and in our retail store network, including in store technology as well as the increase in our online capacity.
At the end of the fourth quarter, we had 340 stores equipped with self checkouts and 170 stores.
Electronic shelf labels and for fiscal 2022, we plan on adding another 80 stores with self checkouts and another 70 stores with electronic shelf labels.
Also during the fiscal year, we opened our online dark store in Montreal, one metal produced in one Adonis in province, Quebec, and one food basics in Ontario.
We also relocated another food basics and carried out major renovations in nine stores, representing a net increase of 200000 square feet or one 3% of our food retail network.
On September 30, we announced the amendment to our normal course issuer issuer bid programs are allowing us to repurchase an additional one 5 million shares.
Over and above the initial 7 million shares or otherwise.
We completed our program on November 9th having repurchased a total of $8 5 million shares for consideration of $498 million, representing an average share price of 58 and $58 in future license.
So that's it for me I'll now turn it over to Eric.
Thank you Francois and good morning, everyone.
We ended the fiscal year on a strong note with adjusted earnings per share growth of five 2% in the fourth quarter. Despite lower sales as we cycled exceptional sales last year.
On a two year basis, we delivered sales growth of 6% and adjusted EPS growth.
Keane, 0.1%.
In our fourth quarter food same store sales were down two 9%, but up six 8% when compared to fiscal 2019.
As expected with government restrictions easing over the summer a portion of food consumption transferred back to restaurants.
<unk>.
93 transactions were up in Q4 year over year, but are still below 2019.
Average basket size was down versus last year, but remains significantly higher than two years ago.
Promotional penetration increased and is now back to pre pandemic levels.
For the quarter.
Kunal food basket inflation was 2% up from the 1% in the prior quarter with the main drivers being meat and dairy products.
Turning to pharmacy comparable sales were up four 1% and nine 8% versus 2019 with prescription drugs up a strong.
Six 7% in the quarter as we continued to see an uptick in physician visits.
Front of store sales were down one 1% this quarter and up four 9% versus 2019.
OTC beauty and cosmetics sales were up versus prior quarters. However, we were cycling significant.
Our internet sales of cooling products, such as mass gels incentivize theres less.
Online grocery sales were flat versus last year in the fourth quarter as demand is leveling off from peak COVID-19 levels, but up 160% versus 2019.
The online market is still growing but at a slower.
We are on track to increase our capacity with the ramp up of the Montreal Dark store.
Click and collect now available in 180 Metro stores versus 170, you originally planned and new hub stores in Ottawa and sequencing me this summer and soon Windsor.
Super C is now.
On the corner shop platform for rapid home delivery.
So our strategy is providing operational flexibility and we believe well adapted to our local markets and demand growth.
When fully deployed in 2023, our online service will be available to 85% of the population of Quebec.
<unk> studies.
On the pharmacy side, our e-commerce offering is evolving as well this month actually this week, we will be launching our click and collect service at more than 252 locations across Quebec, Ontario, and New Brunswick.
Customers will now be able to order online more.
1000 products, including over the counter medicine and pick it up the same day at their local junk, which pharmacy.
This new services. In addition to the long standing delivery service for prescriptions and the more recent corner shop platform for quick delivery of habit products.
Our supply chain projects are progressing well.
Operations in the new produce D C and Toronto are not yet at the expected productivity level, but continued to improve every week. We are pleased with the service level to our stores and the quality of our product.
The new automated frozen D. C is in the final commissioning stage and we expect to start shipping to stores.
In January.
The transition from the existing frozen D C will take place over a four months period.
In Quebec construction of the new automated fresh and frozen facility and <unk> is well underway and is scheduled for a 2023 opening.
Looking ahead, while we can't predict exactly how the pandemic.
Evolve, we expect our food sales to decline versus last year until the second anniversary of the pandemic in March.
But they continue to compare favorably on a two year basis.
And our pharmacy Division, we expect strong comparable sales in the first half of the year as we are cycling an eight week labor conflict.
Clicked at that again in Q1 last year and six weeks of government restrictions on the sale of non essential goods in Q2 last year.
Our industry is experiencing cost inflation pressures, mostly cost of goods sold labor transportation.
We're working hard to contain those cost increases and provide the best value possible to our customers.
<unk>.
As always our teams are focused on daily execution, while delivering on our strategic priorities.
So that's it will now take your questions. Thank you.
Thank you, ladies and gentlemen, and gentlemen, if you do have any questions. At this time. Please press star followed by one on you touched.
Such telephone you will then hear a sweet home prompt acknowledging your request and if he would like to withdraw your question simply press Star followed by two and if you are using a speaker phone. We do ask that you. Please lift the handset before pressing any keys. Please go ahead and press Star one now if you have any questions.
And your first question.
Customers will be from Patricia Baker with Scotiabank. Please go ahead.
Thank you very much and good morning, everyone.
Eric and Francois just like to talk about the current backdrop and you talked about.
Labor labor cost inflation cost of goods.
What are you seeing from the CPG.
Yes.
Companies what are they looking for because they're sort of incurring higher costs and then somewhat related to that are you seeing any disruption to availability of any product.
In the context of the current backdrop.
Okay. So yes for sure some are.
All of our vendors are experiencing inflationary pressures.
Their own clearly and we have received some cost increases.
Late summer and through these last few weeks there are cost increases coming.
The commodity issues weather issues or labor.
Labor and whatnot.
And so yes, there are cost increases and that's what's causing inflation.
We're confident in our ability to pass on costs and overtime, but we are working hard to contain those costs and make sure that we are market competitive and that we can provide.
Provide great prices.
To our customers. So that's a reality right now those inflationary pressures. So we're managing as best we can.
Availability, yes, there are there are.
Excuse that continue to be a hard to get supply and to get the quantities that we would like there are some there.
They are not that many but there are some key items.
Where we are on allocation the whole industry is so that continues to be an issue.
Better than it was but it continues to be a factor.
Thank you very much for that color.
Just follow up with one follow up question that is did you see any.
He's got a difference in the pace of growth at.
Conventional.
Rice's to discount.
This quarter relative to what you have.
First three quarters.
Yes.
I wouldn't say I would say that in Q4 versus prior quarters. It was not that different.
Is it inflation.
As inflation accelerated late in Q4 in September mostly.
No.
And into this quarter right now clearly there is there's an inflationary pressure and that's a constant customers too.
To look for value so when I said that.
Restaurants are opening up the summary, we certainly felt that.
But our sense is that.
All of those tumors or are consuming more at homes.
They were two years ago, that's for sure, but they are consuming more at home right now than they were over the summer. So we're.
We're confident that we're well positioned in both our discount stores are our conventional fresh stores.
Serve customers well.
We're facing out of these.
Inflationary pressures so managing as best as we can like I said to provide great value great prices. So that we can meet the customer and consumer demand for food at home.
Okay. Thank you very much Eric.
Thank you and your next question will be from Mark Petrie at CIBC. Please go ahead.
Yes, good morning, I, just I just wanted to follow up specifically on the on the inflation topic and so could you just discuss sort of.
Youre seeing with regards to consumer behavior to the acceleration and inflation sort of at the end of.
End of Q4, and then into into Q1 and also have you observed any any changes in.
Additive.
Landscape.
So.
Pretty much the same answer to the previous question inflationary pressures are making consumers look for value and eat at home a little more so.
Search for value. So that you would think would favor disk.
And that can build we're confident that we have a great discount offer we also provide great prices and our in our French stores, but we have a.
Great great businesses with a superseding food basics in Ontario, and Quebec, we're really well positioned to meet.
Consumer demand for those customers, who are looking for value.
Counts in both of our formats.
Not much more I can say.
And are you observing any adjustments in the competitive landscape I know that you said promotional activity has returned to pre pandemic levels, but any further comment.
It's very competitive.
It's very competitive everybody's looking for their piece of the pie. So its very aggressive promotions are aggressive.
It's hard to promote certain items with with some of these inflationary cost pressures, we see especially in meat.
And it makes it more difficult, but I think our merchandisers or experience.
<unk> that can stick handle through this we've done it before.
And I think we're well positioned to face the basically competitive, but it's a very competitive and.
That remains.
And actually sorry, just one more on that topic any difference in behavior promotional Lee.
The discount versus convince.
Conventional or relatively balanced.
Oh Wow.
Both formats have their own merchandising strategies and.
Same for our competitors. So I don't think there's a huge change in that I'm, just saying it's.
It's very competitive.
Yeah understood, Okay, and then just with.
Its ecommerce and I understand growth has flattened out as you're lapping the significant surge last year, but what are you observing now in terms of basket size and sort of composition is the slowdown just a matter of people mixing online and in store a bit more or are you seeing something different in the consumer behavior.
With regard to <unk> as I said in my opening remarks demand has leveled off and it's still growing but at a much slower pace.
E Comm sales are clearly above two years ago, but they're not where they were during the peak pandemic when all the windows amid weak earlier in the day whatever everything was full this is not the case now.
Now so demand has leveled off people, if they're going to restaurants or going back to old habits, and visiting more stores shopping around so.
Income E. Comm is has leveled off of it so.
That said, we are we like our model, we like our flexibility.
We have different.
Models to serve the customer for sure.
For delivery or click and collect we have partners for instant delivery.
Dark stores for high density markets hub stores for mid density markets. So I think we're investing we're investing at a measured pace and we're meeting consumer demand.
Not easy it comes a tough business, but we're getting better and I'm confident that we can perform well.
Understood and sorry, Francois I think I'm not sure if I missed it in your comments, but can you provide any commentary with regards to capex or for next year or this year.
Yeah, So as I said.
Six.
And this year was a record level, but it's going to be higher next year.
Sure.
In light of the dose.
Knowing my investment in supply chain, mostly so you can expect something north of 700 for next year.
Okay. Thank you very much all the best.
Excellent.
Thank you next quest.
Question will be from Vishal Shah at Nash.
<unk> Bank. Please go ahead.
Yeah.
Hi, Thanks for taking my questions.
I was hoping maybe you could update us on the Ontario, DC, that's still on track for January 2022.
Are there any learnings from your prior Tc.
600 implementations that you can apply to that.
Quicker ramp up time on one system.
So yes, we're on track for January to start shipping to our stores as I mentioned earlier. So the building is up the temperature is being brought down inventory is going to start to come in there soon so yes, we.
We're very much on track for a January start.
For sure there are lots of lessons learned with the fresh phase one that we did this year.
So the new DC for frozen foods is fully automated.
You would think that that.
Is it more complicated and perhaps riskier, we think it.
Probably it's going to be a little easier because the produce we were mixing.
Emmanuel pick with a with a portion of automation and other and easier not an easy task.
So we expect that we're going to be ready and that.
We're gonna be able to ramp it up.
<unk>.
Has it started so.
I can't.
Tells you exactly and make a move.
It make promises that we can't keep it we're doing everything we can to have a smooth transition that we that we are that we can have.
<unk>.
We want to Derisk the business, we want to make sure our stores are serviced serviced well.
So we're gonna planning the transition not we're going to find is planned over four months hopefully it could take a little less and go a little faster, but we're going to do things right.
And that's the way the team has planned it and.
I think it should be simpler.
But you know what changes a change and there's always there's always risk with that but I think we're managing that risk well and it will be ready.
Okay.
And.
Time to time Metro has been active in M&A I know you had a larger capex investments coming up but over the.
The next few years wondering how <unk> thinks about.
The M&A backdrop, currently and with natural entertain buying assets outside of extracts to circle up operations of promising Christian.
No not for now.
This is on food and pharmacy in Canada.
So yes, there are fewer targets and there were.
But you know we take a long term view and you know that's that's that's our business that's our core business and.
And that's what we're focused on are there adjacent to adjacencies that could strengthen our food or pharma platform.
We could look at never.
Ever say never but.
We like our we like food and pharmacy and that's what we're focused on.
And as you all just like to add.
On your comment about how your capex it still leaves us with a very strong financial position strong balance sheet that could take that could be we would seize any opportunity in M&A that makes sense.
So the higher Capex doesn't change or our our financial position doesn't change. The fact that we still being positive free cash flow territory. So we still are we still be able to to act pretty quickly should there be an opportunity to that comes up.
Yeah, absolutely. Thanks Ronny.
Just a quick one here.
I was wondering about.
Pharmacy, and a beauty and pharmacy, how far is that business away from pre pandemic levels and do you do make more margin selling beauty products into pharma P. J C from your D C as well.
How far.
Uh huh.
Don't have an exact number versus a pre pandemic.
I think we're a bit shy of it.
We're certainly getting more traction like I said in beauty and cosmetics as the economy opens up and people are returning to the office, but.
It's not quite at the level of two years ago.
On the margin side.
Beauty and cosmetics.
It's a higher margin category, both at retail and wholesale so for both our franchisees and for us as distributor.
It is yes for sure are a higher margin category.
Thank you.
Thanks, Joe.
Thank you next question will.
Will be from Peter Sklar BMO capital markets. Please go ahead.
Hi, good morning.
These are you know kind of declining baskets and negative tonnage trends that the industry is experiencing is.
No restrictions ease and people go back to normal activity at the restaurants.
Hi, how are you seeing that like is it across all categories and.
How is it trending and is it.
I'm just wondering what your outlook is residual restrictions R.
Are you do you expect the basket of tonnage trends to get worse, and maybe you have some insights because youre seeing how it's trending as as you get into the.
The first fiscal quarter here.
The overall number of the top line is down so Sylvia.
It's a mix of a higher traffic but.
Lower basket versus last year as the composition of that.
The basket is it's across it's across the basket, there's no <unk>.
<unk> mint or there's no category in the basket that is more down than others. I think it's just a general general declined versus very very high levels.
I think the key point for me is that on a two year stack basis, we are up.
Uh huh.
Our sales in our tonnage and our market share I'm pleased with that.
I said I think there was a rush to restaurants. This summer in people you know north.
And you can't blame them after a loan COVID-19.
Period wanting to get out.
So what we.
We felt that in the grocery channel over the summer but.
As the summer ended and inflation picked up I think a combination of both people are reverting back to a more food at home consumption, So and I think that bodes well for us. So we're seeing our two year stack so far in the quarter improve.
And so so we think that's positive and we think that our food sales will remain more elevated.
Post COVID-19 than pre Covid.
Okay. Thank you Hey look I look at my favorite.
Okay.
On a different topic.
Can you talk a little bit about how the.
Montreal Dark stores performing.
Any trends or learnings from that and is your expectation that you also do eventually do a dark store in Toronto.
Okay. So the Montreal Dark store opened this summer.
We closed the delivery operations and three Montreal.
Beyond island stores and concentrated them in a new dark store.
So we're using that pretty much the same technology that we have in stores. So with some adjustments. So it's it's a learning curve. There are some changes it's not exactly the same as in the store.
It's more efficient, but we oh.
Honestly I've had.
Staffing labor in Quebec as an issue.
This summer it was it was.
It was hard to get labor everywhere in our stores and our Dcs and in the dark stores. So the ramping up is.
<unk> is working with that so we're pleased we're pleased with our progress and at the same time demand leveled.
Dos.
Like we said so I think it was.
It was good timing to start the new the new D C. The new dark store in Montreal.
Toronto is.
The largest market in Canada. So our plan is eventually to have a dark store in Toronto for for sure and.
We'll keep you posted.
Okay. That's all I have thank you.
Thank you. Your next question will be from Michael Van <unk> at TD Securities. Please go ahead.
Alright, thank you.
To start on gross margin because it was it was up quite nice up 20 basis points, but considering the now the inefficient.
One sees that usually come with a drop in tonnage and and the initial cost of goods sold inflation ramping up.
I was surprised that it was up.
By 20 basis points, so can you.
Walk us through I guess, what allowed you to to see that margin in plate upside in and whether.
A portion of that.
I know you don't like to give guidance on margins, but.
I'd comment about it.
Cost of goods sold being pass through over time, rather than maybe immediately so I'm not sure if that implies some pressure coming.
Well I think.
I think it's a combination of factors.
Our teams essentially I think our merchandising programs.
Well done and effective in providing the margin.
I think our tools to manage shrink in our stores keep.
Keep getting better and that's always.
Uh huh.
A factor.
Inflation.
Weather.
And certain categories can help too.
One other factor I would say its pharmacy is the mix of our sales are pharmacy.
Changed a bit.
Over the quarter, we we had after we switched our operations of the Metro pharmacy.
Combined with the <unk>. If you remember early last summer there was a portion of the Mcmahon business, which was a.
Wholesaling to hospitals, which we let go so that was a that was a low margin business. So that's a contributing factor not the main factor was that gets you.
So it's a bunch of things.
Private label sales continue to do better HR sales in our stores are up so there's there's ups and downs and Theres inflation, then theres tonnage of I get all that but we're pleased with our results.
The 20 basis points.
Michael.
Please on mute Michael.
Oh, I'm, sorry, I missed that.
Two other quick questions one.
What should we expect per transistor cost per day.
For the D C. In 'twenty two and then what is the normal Capex look like once you're beyond all of these.
Is that right.
These are new D CS.
Well normal capex will be somewhat similar to what we had before starting the <unk>.
Fresh part, one which will be a sort of a mid 500 million level. You know five 550, that's a that was the normal sort of capex.
Our run rate are as I said earlier.
Next year, you should expect capex to be to be higher right.
I would call it now north of 700 million.
So that's so that's the run rate Capex I think it could be using going forward.
50 550.
We're not going to give a guidance on the transition cost are we have to manage that as best we can there will be some some some.
Some costs. So when you transition and you operate from two D. CS for for three to four months is it if theres going to be some cost.
We can give you a more color.
Well like we did this like we did this year. When we you know we had one quarter, where there was a there was a transition costs with a fresh bar once a week, we highlighted it but you know we in their business plan and in our model, we assume some transition costs, we assume some overhead the deprecation. So hopefully we'll be on track, but if it's.
If it's something that affects a particular quarter will we can give more color as it happens.
Perfect. Thank you.
Any further questions Michael.
No. Thank you.
Thank you next question will be from Irene Mattel RBC capital markets.
Please go ahead.
Thanks, and good morning, everyone I apologize ahead of time for beating the inflation horse.
That it does seem to be sort of the biggest issue of concern.
So you know in the past when.
When we've seen inflation, you've seen some trade down and let's say you know.
That's a neat or fresh roseanne.
In your experience what level of inflation does that occurred that's the first element, but the second is <unk>.
We have seen so much higher inflation in food away from home.
Are.
Connecting and maybe this time, it's a little bit different or do you think that won't make a difference.
Hmm.
Exactly like you said.
People trading down or on cuts of meat that will happen when when they're cut her favorite kind of meat is up.
Are you kind of significantly or is not promoted because the costs are gone too high. So there have been some weeks recently, where we're at.
It's been challenging for people to to advertise some of the cuts we would've liked to advertise because the prices would be too high.
For everyone. So.
It's related to the category.
To the skewer to the cut.
That will prove that will generate that trading down activity.
And then.
After if inflation is the story in the news for for months and weeks and months and we were talking about inflation that creates a mindset for sure and then.
Antero population can can start trading down.
On a more.
Broad level.
Private label fresh the frozen cuts of meat everything you mentioned is behavior that can happen.
Yeah.
Not seeing that much yet.
You know if inflation is the story for for for for a law.
The drip at a time that could happen.
Like you said inflation away from home seems to be even higher.
Again, that's a I think.
Reflected in our in our performance so far in this quarter, where we didn't own.
And as I said, our two year stack is going.
Long purified it so it's.
It's not the it's good for us.
Yes.
For sure for sure. Thank you and then if I just switch gears, a little bit over to P. J C.
At this point in time do you feel as though you've gotten.
Coming back on at.
All of the synergies from the distribution I'm sure the emerging of the distributions from looking at sort of the supply you're just you're from Adas that.
Do you feel like you're now at a steady run rate or we can still expect kind of a step up if you will relative to where.
The one plus one historically.
Well, we guided to a $10 million distribution center G for F. 'twenty two following the combination of the operation and earlier this summer.
Sticking with that over and above the 75 that we had a few realized yet.
Procurement expenses and admin so.
We achieved our $75 million synergy number earlier than planned.
The last portion are related to distribution was delayed because of COVID-19.
And we're now we're now operating out of there are operations are steady.
These states.
And we are confident that we will achieve the 10 million over the course of fiscal 'twenty two.
So.
As I said earlier I'm I'm confident that our exactly sure pharmacy was a tough year F. 'twenty. One we had a labor conflict, we had the COVID-19 and with the restrictions so F.
One was a tough year in pharmacy, where we're looking for F. 'twenty two.
To deliver stronger results.
In addition to those synergies.
That's great. Thank you.
I'm sorry.
Q.
As a reminder, ladies and gentlemen, if you do have any questions. Please press star followed.
By one on you touched on the phone and.
The next question will be from Chris Lee.
Please go ahead.
Hi, Good morning, Hey, Eric I know you don't have a crystal ball, but just wondering if you assume you continue to manage cost inflation. The way you have so far is it reasonable to assume that gross margin rates.
It makes you to remain stable just curious to see what are some of the major puts and takes.
Gross margin for a for next year. Thank you.
Well again.
We hope to.
Keep our margin rates healthy and we will do the best we can but there's clearly.
Isn't out there and we.
We want to stay very competitive and provide value to our customers. So can that put pressure on the gross margin rate it could so I'm not going to guarantee.
Right.
I think we have experienced merchandisers.
We have a good mix with conventional discount pharmacy, so we're looking for.
The inflation, we are planning to deliver our numbers. So gross margin as part of that but you know we have to manage the rate than with our expenses and with our tonnage and it's all in Mexico as you know to deliver the bottom line. So.
For sure the gross margin as they keep your eye on it's something we look at that very closely.
There.
There can be movement in the rates and in times like these so we'll see how we do.
That's helpful. And then maybe a quick question on E. Commerce, just curious you know other than the dark store in Montreal can you share with us what other initiatives are being deployed to further improve online profitability over the longer term.
Well, it's execution and it's processes and it's just getting more efficient every day every week every month.
Clearly volume helps to to achieve a better profitability.
So you know.
We have a good team.
We're putting a lot of effort into our systems.
<unk>.
To be efficient I think we are investing at the right level.
We're adding capacity at a measured pace and.
You know looking to generate a contribution.
As I said no surprises.
We've there, it's dilutive versus brick and mortar, but it's it's a it's part of our mix our customer with some of our customers want to E com and you're there for them and we will deliver them.
Let them pick up at our stores, so again execution.
<unk> is the name of the game.
Got it.
With good people and good systems and hopefully our profitability.
It keeps getting better.
Great and maybe just a couple of quick ones on operating expenses for the first one just a clarification.
Was any of the $10 million.
How's the integration from jumping too.
<unk> realized in the quarter or are they still to come.
Surprises for fiscal 2022.
Okay and first of all I'll, just say another quick one.
For the quarter, if I exclude the COVID-19 related expenses.
Like your operating expenses.
For the fiscal 'twenty one from the time you were up about three 5%.
Again do you expect a similar growth rate for next year again.
Sort of what are some of the major puts and takes.
Well, it's a again, it's what we're seeing now is the reverse of what we saw pandemic. When we had high Covid expenses last year, our increase in SG&A was not you know.
Our year was not that much higher it's the same thing now we have lower COVID-19 expenses, although as I said the line is getting blurry.
As part of the way, we operate but we have lower corporate expenses, but we will we have more operating expenses and services that will reintroduce a hot foods a tomorrow. Some some some some maintenance some advertising as I said it was up as well. So we always manage you know we always manage our cost in line with our in line with our sales volume.
So are we.
We intend to continue to do all we can to improve and create operating leverage. So we try to keep the increase in operating expenses are lower than the increase in cell. That's sorry, that's our that's our them without affecting obviously service in and remaining competitive. So I think you know.
No.
Just on the gross margin discussion we had earlier, we're gonna be doing the same thing on cost containment going forward.
So we can expect.
You know, it's the same sort of operating leverage that we keep delivering.
Great and then all the best for the holiday season.
Great. Thank you.
Thank you.
Question will be from Mark Petrie at CIBC. Please go ahead.
Yeah, I just wanted to follow up with regards to the launch of the click and collect program at at P. J C are there any expenses or material expenses to you.
Through the launch of that and does that effect.
Next and then they sort of store level cost I assume those all are borne by the franchisee, but just any any comment with regards to the economic impact of that would be helpful.
So it's not material.
And so at our level and neither for the franchisees.
They bear the cost of retail operations and the staff to provide the service.
But it's part of there as far as part of their operation.
We don't expect a material impact on them.
Thank you.
Thank.
Thank you at.
At this time there are no further questions I would like to turn the call back to Sharon Kudos.
Thank you all for your interest in Metro and we will speak again soon to discuss our first quarter results on January 25th Thank you.
Thank you ladies and gentlemen, this does conclude your conference call for today once again.
For attending and at this time, we ask that you. Please disconnect your lines.
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Thank you.
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