Q1 2022 Metro Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Metro Inc. 2022 first 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 we will be quite a bit of assistance. Please press star zero for the operator.
Note that the call is being recorded on Tuesday January 25, 2022, and I would like to turn the conference over to Siobhan Kadosh manager Investor Relations and Treasury. Please go ahead.
Thank you.
Good afternoon, everyone and thank you for joining US today My comments will focus on the financial results of our first quarter, which ended on December 18th.
With me today is Mr. Eric enough, Vice President and Chief Executive Officer and Paul.
Executive VP and Chief Financial Officer.
During the call we will present, our first quarter results and comment on its highlights. We will then be happy to take your questions.
Before we begin I would 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 the forward looking statements expressions, such as expect intend confident that will and other similar expressions.
Alright, generally indicated are forward looking statements.
The forward looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries did.
And the general economy, and our annual budget as well as our 2021 2022 actions on these forward looking statements do not provide any guarantees as to the future performance of the company and are subject to potential risks known and unknown as well as uncertainties that could cause the outcome to differ materially.
A description of these risks, which could have an impact on these statements could be found under the risk management section of our 2021 annual report as with the preceding with the COVID-19 pandemic constitutes areas that could have an impact on the business operations project synergy and performance of the company. We believe these days.
It's to be reasonable and prudent 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 age of console.
Thank you, Sean and good afternoon, everyone.
For the quarter total sales were 4.3 dollars 17 billion, an increase of <unk>, 9% over last year, and seven 1% when compared to the first quarter of 2024.
Food same store sales declined by one 4% for the quarter, but grew by eight 5% on a two year basis.
Pharmacy same store sales were up seven 7%.
Those margins stood at 19.9% itself versus 19, 7% for the same quarter last year led by strong performance in pharma.
Operating expenses were down $7 4 million year over year.
It represented 10, 1% of sales versus 10, 4% last year, the lower level of operating expenses is mainly due to a reduction in pandemic related expenses, which stood at $28 million last year.
Operating expenses are up 4% when compared to fiscal 2020.
EBITDA for the quarter totaled $424 1 million up 24, 9 million or six 2% when compared to last year's EBITDA and as a percentage of sales EBITDA was nine 8% versus nine 3% last year.
Adjusted net earnings were $214 2 million compared to $197 7 million last year, an increase of eight 2% and our adjusted net earnings per share were <unk> 88 up 11, 4% versus last year's adjusted EPS of <unk> 79 assess the impact of the labor conflict is opportune impacted last year's EPS by five cents.
12 weeks into fiscal 2022 capital expenditures amounted to $1 $41 5 million, that's up $51 6 million versus last year.
The higher level of capital expenditures as a result of our ongoing investments.
And 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.
The amount also includes the purchase of the Prime real estate property in Ottawa, where we operate a metro store.
At the end of the first quarter, we had 360 stores equipped with self checkout and 109 stores with electronic shelf labels.
So far in fiscal 2022, we opened three new food basics. We also relocated another another metro store and carried out measured renovations in three stores, representing a net increase of 76000 square feet or 4% of our food retail network.
On November 19th we renewed our normal course issuer issuer bid program, sorry enabled enabling us to repurchase 7 million shares between November 25th 2021, and November 24th of this year and as of January 14th The company had repurchased 650000 shares for consideration of $41 2 million, representing an average share.
Price of 63 and 38 cents.
In closing the board of directors yesterday declared a quarterly dividend of <unk> 27, and a half cents per share an increase of 10% versus last year. This is the 28th consecutive year of dividend growth and represents a payout of about 31% of last year's adjusted net earnings.
Well that's it for me I'll now turn it over to Eric.
Thank you and good afternoon, everyone.
We are pleased with our strong first quarter results driven by continued sales growth on top of record sales last year and good expense control.
On a two year basis, we delivered sales growth of seven 1%.
Adjusted EBIT of 15, 3% and adjusted EPS growth of 23, 9% all of which exceed our long term annual financial targets.
Food same store sales were down one 4% in the quarter, but up eight 5% when compared to fiscal 'twenty 'twenty.
Actions were up in Q1, but are still below 2020.
Average basket size was down versus last year, but remains significantly higher than two years ago.
For the quarter, our internal food inflation was three 5% up four up from 2% in the prior quarter driven by the meat and grocery categories.
Promotional penetration has increased as consumers manage their budgets in this inflationary environment and I assure you that our merchandisers are working hard to continue to provide great value to customers and all of our banners.
Since the end of the quarter the spread of the omicron variant that has impacted our operations and those of our suppliers putting pressure on our supply chain.
Our team has worked in collaborations with suppliers to mitigate the impacts and there's more people return to work at our suppliers and in our operations overall supply chain pressure.
Has started to ease.
Turning to pharmacy comparable sales were up seven 7% with continued solid growth in prescription sales in front of store sales up a strong eight 9% driven by over the counter medications, resulting from the stronger cold and flu season, good seasonal merchandise sales as well as lower sales last year.
Due to the labor conflict.
Our online grocery sales were flat versus the same quarter last year, but up 167% over two years ago.
Continue to deliver against our plan with 185 Metro stores, now offering click and collect across the provinces, Quebec, and Ontario, 14 hub stores offering delivery service and one dedicated facility and the high density Montreal market.
We have recently launched a two hour express delivery service on Metro D C E and the greater Montreal, and Toronto areas, and we will roll out the service to more stores in Quebec, and Ontario over the coming months.
We also started offering the click and collect service in addition to our existing delivery service in pharmacy in mid November .
And now more than 270 pharmacies offer these services across Quebec, and Ontario, and New Brunswick.
We believe our flexible E com model position positions us well to meet consumer demand as it evolves.
Our supply chain projects are progressing well productivity and our new produce facility continues to improve and I'm pleased to announce that we have reached another milestone with the completion of our new fully automated frozen food distribution center in Toronto earlier this month.
<unk> to the new facility is underway and will gradually ramp up over the next few months.
At Quebec construction of the new fresh and frozen automated facility in that bond is on track and scheduled for 2023 opening.
Looking ahead, while we can't predict exactly how the pandemic will evolve we expect in the short term our food sales demand to remain relatively flat versus last year, but to compare very favorably to pre pandemic levels.
In our pharmacy Division, we expect strong comparable sales in the second quarter as we are cycling six weeks of government restrictions on the sale of non essential goods in Q2 last year.
In closing I invite you to take a look at our 'twenty to 'twenty two 'twenty six corporate responsibility plan unveiled today.
Which builds on the progress we achieved over the last decade and set ambitious goals for the company in terms of sustainable development.
That's it for me, we'll take your questions. Thank you.
Thank you ladies and gentlemen, if you do have any questions. Please press star followed by one on your Touchtone phone.
Here, a three told prompt acknowledging your request and if you would like to withdraw your question simply press Star followed by two if you're 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 will be from Kenrick tie at ATB capital markets. Please go ahead.
Thank you and good afternoon.
Eric I Wonder if you could provide some insights on how consumer response to inflationary pressures in this cycle has perhaps.
In past cycles, just given the backdrop, we're dealing with in some of the complexity. We're dealing with have you seen less product constitution. These sort of the early stages of inflation ramp and you spoke into promotional penetration, but any additional thoughts.
Okay.
Yeah.
Thank you yeah. So like I said in the opening remarks, our inflation is a higher than normal. It's it's it has increase quickly. So so so consumers are adjusting their behavior for sure. They are buying more on promotions or buying more private label and so there's a bit of a trading down there is a.
A shift I would say back to pre pandemic levels in the discount penetration versus conventional penetration in the general market. So we've seen that shift and our consumers are adjusting to the inflationary realities. So.
As I pointed out earlier at the AGM you know, we're working really hard to contain those inflationary pressures by offering offering the best value. We can the merchandisers I think are doing a great job to a de minimis impact on our consumers and all of our vendors. So we're watching it closely.
Clearly an important issue.
Thank you and just one quick follow up for me on slide you called out.
Impact on gross margins are sort of the recovery in pharma can you provide any more color on the the driving more in times of need.
Gross margin.
Business that provides game quarter.
Well as you remember we are we were comping a labor conflict last year in pharmacy, So obviously that affected sales.
And so combined with a great a great seasonal season. The OTC program. This year. This explains the improvement in gross margin in pharmacy.
Just to pick up on that.
Last year during the conflict in Q1, we secured our deliveries of Rx over commercial merchandise from the warehouse. So that was a priority was medications, obviously, so the sale of our friend and or commercial merchandize out of a warehouse last year was it was impacted by those by the contingency plan. So this year.
We are we see.
All that so that's clearly benefited gross margin from from our Afirma Division.
Great. Thanks, so much I'll get back in here.
Thank you next question will be from Peter Sklar BMO capital markets. Please go ahead.
Afternoon.
Our confronts a while can you talk a little more in depth about the labor situation you.
You went to clay indicated that supply chain is getting a little better.
I'm just wondering if you expect it like two <unk>.
If things are going to get tighter again, given the you know the vaccination requirements that Canada recent introduce for truckers and as well can you talk about the labor situation in your stores, just anecdotally I've been in some stores and it seems there's some big holes in the shelves and.
To be fewer cashiers. So are you having trouble getting labor in your stores and.
How is that impacting your ability to to stock. The shelves do you think youre going to have to curtail store hours and how is all that going to play out. Thanks.
Okay. There's a lot a lot to cover there clearly the pandemic has had just a beginning a an impact on the supply chain are mostly labor shortages across across the chain from our suppliers to logistics providers to ourselves. So I would say that there there are labor pressures are.
They have been there pre pandemic.
Amplified somewhat in the pandemic and they clearly amplified when the only crawling variant started to spread in late December So I would say the last four or five weeks were really tough.
And with us with a big Spike in the virus. We felt this in our operations our suppliers felt that so that we we have been a challenge for sure and you have seen some holes. There was no panic in the stores I think consumers understand what's happening after three years of funds I mean, there's no real hoarding.
But clearly there are more holes than we would like to offer to our customers and working hard on that so the good news is the five day isolation a rule for for for people.
Close contact or with with the virus is helping to bring people back to work. So more recently, we've seen more people come back are in our shop and at our suppliers. So we're trying to get a route to a better position, which has started to happen. So I think the worst is behind us, but with this virus you never know.
So.
We keep a close eye on it.
So.
I Didnt merchandize stocking ourselves clearly a big priority in and are working in that direction as far as labor in our stores.
The pandemic affected our increased absenteeism for sure, but we we we had labor challenges as an industry and we're addressing that we're recruiting as best we can.
It's the only technology in our stores with self checkout to to mitigate the impact of not finding kashi roosa for certain shifts, but overall I think we're managing it pretty well.
It's not perfect clearly it's been tough for like I said, the last few weeks, but we think it's going to get better on the vaccination of truckers, it's it's having or will have mostly an inflationary impact on the cost of our merchandise coming in from the U S produced especially.
We saw an uptick in the transportation costs are right away, but we're getting the merchandise.
And so our transportation providers are able to service us for the most part there's always exceptions, but for the most part where we're getting the merchandise, but the there's an inflationary.
Issue that comes with it with that requirement so.
It's a it's a challenge, but I think we're we're working really hard to I think our teams are doing a under the circumstance is a pretty good job and to provide our customers are the best.
Make sure that we can and we.
Look forward to improving our.
Our in stock position.
I'm sorry for that.
I'll answer thank you.
<unk>.
Yeah.
Thank you. Your next question will be from Irene <unk> of RBC.
RBC. Please go ahead.
Thanks, and good morning, sorry, good afternoon gentlemen.
I don't think we've quite beat this horse from every angle yet so.
I was wondering about certain merchandising and promotional strategies and I'm thinking here, Eric about the fly it right and the challenge is in putting together the fire. When you don't know what you're going to get necessarily in and you don't know how much you're going to get so can you just talk a little bit about sure.
The key skill sets that you guys have that really make a difference in this kind of environment or you know, whether we should just expect to see kind of tender fliers.
Oh Flyers are not thinner than they they were and where we're working hard to provide as many promotions as we did before I said for the penetration is increasing of the floor.
In recent weeks with the with more inflation, we're seeing that and increase penetration. So no. We have no intention of cutting promotions were working with our suppliers to see what product can be featured in win so there's a lot of work behind the scenes are again, there are some hits and misses in there and sometimes we don't get the product were supposed to get.
When we get it late so that we're not the in stock as much as we'd like to be in our stores, but again, it's it's it's unusual extraordinary circumstances that peak and omicron clearly had an impact but I think the worst is behind us and I think our merchandize.
I have enough experience to work with the with the suppliers to a provider a good commercial offer with a great value to our customers.
That's great. Thank you that's really helpful. And then I was really interested in your commentary around the return of traffic at discount.
So if you think back to pre B S inflationary cycles like this.
Do you think we're kind of imbalance now are close to imbalances in terms of what we should be expecting discount versus conventional.
Yeah. So the shift back to discount are you know.
I think it was expected and it was it was normal and I think a little higher inflation has perhaps.
Accelerated it a little bit, but as we all know during the first phase or the most part of the pandemic conventional supermarkets immediate supermarkets benefited with the one stop shop and did well. So we all expected that to revert back to discount at some point and I think we're there.
Yep. Thanks, so much.
Thank you next question will be from Mark Petrie of CIBC. Please go ahead.
Yeah. Thanks, good afternoon.
With the trade down that Youre seeing Eric I'm, just wondering if there are certain categories that do better or worse or if it's just sort of trading around within categories and I guess, maybe I'm thinking specifically about prepared foods and H M are obviously more expensive than you know consumers preparing themselves, but cheaper option than restaurants, just curious what youre seeing them in.
That part of the store.
Yeah.
Yeah, well, there's a there's ups and downs of everywhere.
I would say prepared foods in general are up versus last year. So we're.
I don't consider that necessarily a trading down and we're trading up it's just revert reverting back to more normal levels in the fresh meat category because of certain really high our cost increases.
Our promotional strategy or merchandising strategy was adjusted with a different cuts of meat.
Lower price cuts of meat, sometimes so some trading down just with our promotional mix is happening so and things like that happen in private label in grocery frozen and dairy.
No it does well in times like this so that's all contributing to what's happening at the deal and are in line with the inflation that we're seeing.
Okay, Great and I'm just.
Wondering how the sort of challenges of accelerated inflation are different in your pharmacy business, our French door. If at all then in the food business I know, there's obviously a structural difference just with regards to the business model, but commentary about about about inflation and in pharmacy versus a grocery please.
We're not seeing a as high a inflation in health and beauty products that we sell in was it mostly in our pharmacies there is inflation, but at more normal more normal levels.
In the 2% range or so so it's clearly the spike is more on the food side. So.
I would call the inflation levels trends in farm a pretty normal.
Okay. Thanks, and then just one follow up first of all I, sorry, I know you don't normally comment on the on the segmented them our results, specifically, but and apologies if I missed this in the comments you were talking about the benefit from the from the growth in pharmacy on gross margins, but could you just comment about the gross margin.
Performance in the food business, specifically was it was it stable or up or down could you could you give us any indication.
Okay.
With a well it was slightly down from where they are.
I'll leave it at that but he was slightly down.
So there's some very scenario, where the inflationary pressures that we're facing we did not pass all of it.
Understood understood. Thanks, very much guys and all the best.
Yep. Thank you.
Thank you next question will be from Michael Van <unk> at TD Securities. Please go ahead.
Thank you.
I wanted to ask about e-commerce , and when we look at the trend a year ago.
We saw the.
Volume ramping up as we got into the winter months.
And so the growth rate was much higher in the winter months last year or so.
You just said that it was flat essentially in the first.
First quarter are you seeing it ramping up again in the second quarter or is it not I would assume that would mean, there would be trending lower year over year.
So yes, we're seeing an uptick in our E comm demand in E. Comm sales are basically since Christmas or after Christmas I think a lot has to do with the government measures announced closures of restaurants and the stay at home.
Restrictions I won't call it a full locked down but it's a it feels like it so.
With this rapid spread have only grown I think a lot of people or stay at home and went went back online or went online. So yeah. We're seeing we've seen the uptick for sure.
Online, we that's sort of coincided with the rollout of our click and collect.
Offer in food at Metro, Quebec, and Metro, Ontario, So we worked hard over the last I know the.
Summer and fall to roll it out.
And.
Volume is clearly picked up since Christmas and click and collect so that was that was timing. It's the same thing in pharmacy, we rolled it out the click and collect and that's that's also ramping up.
Okay. So would you say that they're ramping up enough to be to show growth year over year or is it still kind of flat.
Well.
The quarters not finished in that it gives you a guidance, but it feels like it should go up.
Okay and that so you're talking about the COVID-19 costs as well I would assume they are relatively stable in Q1, but.
In Q2.
You announced another gift card. So is it the same amount that $8 million or so that we saw last time it was provided to employees.
Yes. It is yeah, well, yeah, we announced it last week are you know we did a three times last year, we felt the last week.
It was the right time right thing to do this year. After our the last few weeks that I. Just described are in enough detail, it's been very challenging for people and they've done a great job. So we felt it was the right thing to do so it's 8 million yes.
Okay and apart from that has the surge in army crime.
Require you to spend more than other types of Goldman at cost or is that you have is that stable right now.
Stable.
Perfect Alright, thank you very much.
Yeah, Michael. Thank you next question will be from Vishal Shah.
Please go ahead.
Hi, Yeah. Thanks for taking my question.
Just related to.
The in stock positions that.
That you have in your in your different battery types conventional and discount are they impacting one banner and board.
Another.
No are you know.
We service our stores from them, where the same warehouses and in Quebec, and Ontario, The general our in stock position is similar between between all over from vendors.
And with the same comment applies for labor shortages, given the smaller labor number at a discount stores are you finding a more understaffed there.
Well, it's all a question of proportions of that.
As a percentage of employees are there.
That's definitely this thing is pretty similar.
There's like you say less services in a discount store. So you can you can you can absorb a absence he has done a little better and the discount format.
Speaker 1: a little better in a discount format, but it's also a challenge there.
But it's also a challenge there so.
Yeah.
Speaker 1: As I said earlier, as people return back to work following the peak of Omicron, we will be in a position to...
I said earlier is our people return back to work following the peak of overdrawn.
We will be in a position to.
Speaker 1: fill our shelves better and offer a better experience to our customers.
Phil ourselves better and offer a offer a better experience to our customers.
Speaker 2: Okay, and with respect to your conventional banners, have labor shortages placed pressure on some of your service counters and if so, did that impact the margins in the court?
Okay and with respect to your conventional banners that have a labor shortage has placed pressure on some of your service.
If its counters and what and if so did that impact margins in the quarter.
Speaker 1: I wouldn't say it impacted our margin but you know at granular level and store XYZ they may have cut hours in the deli or prepared foods you know so in general terms there could be some reduction of hours in certain departments which could have impacted margin in that store but overall for the company and the numbers were reporting to you I wouldn't call that
I wouldn't say it impacted our margin, but you know a granular level and store X y Z. They may have cut hours in the deli and prepared foods.
So in general terms.
There could be a symptom reduction of hours in certain departments, which could have impacted margin in that store, but overall for the company and the numbers we're reporting to you.
I wouldn't call that one out.
Speaker 2: Okay, and with respect to the variety of investments that Metro is making, either through its supply chain investments or its store investments, like the shelf tags or the self checkouts, is the inflation and the labor pressure that Metro is seeing curtailing the rate at which Metro can make investments in delaying projects? No.
And with respect to the variety of investments that are Mexico is making either to a let's.
That said our supply chain investments sorts store investments like the shelf tags with self checkouts.
Or are they if he is the inflation and the labor pressure that metro seen God curtailing, the the rate at which metro can make investments or delaying projects.
No our capital program as a.
Staying assuming a constant then.
Speaker 1: staying constant, and you're familiar with our supply chain projects. Our CAPEX for retail renovations and new stores is pretty similar year-to-year, and the technology budgets are part of that for stores. The inflationary situation is not impacting our CAPEX, although some of these construction costs are very high these days, and we're looking at every project before we invest on a renovation.
You're familiar with our supply chain projects, we are capex for retail rent.
Our renovations and new stores is pretty similar year to year and the technology budgets for part of that for stores. So no.
The inflationary.
The situation is not impacting our capex. Although you know some of these construction costs are very high these days and we're looking at every project before we invest on the renovation.
Speaker 1: Especially the sizable renovations, we make sure the numbers work out because construction costs are a much bigger factor.
Especially the <unk>.
Sizeable renovations, we make sure the numbers work out because construction costs are a much bigger factor.
Okay and lastly, maybe you can just provide some extra color on the the trial faster.
Speaker 2: Okay. And lastly, maybe you can just provide some extra colour on the Toronto Fresh DC and the level of performance it's at and the automated...
Appointment to Cat M D. The automatic supposed to D C.
So the automated the frozen D. C. Just started we turned the basically the.
Speaker 1: So the automated pros and the e-t just started. We turned basically the...
The operation on this past week, where silver piloting some stores out of that D. C. Last week just started so we're gonna do more and more stores every week. So we see it for a process of four to five months disorder that better, but we will do what do we have to do to do it properly.
Speaker 1: past week. So we're piloting some stores out of that DC last week, just started. So we're going to do more and more stores every week. So we see a process of four to five months, the shorter the better. But we'll do what we have to do to do it properly, to transition from the old freezer to the new freezer.
The transition from the old freezer to the new freezer.
And it takes some time, but I think we're in a good in a good position since it's the second when we're doing it and I'm confident that the transition will go well, it's a lot of work, especially in the midst of a pandemic so not easy work, but it's gonna get done so produce I said in my.
Speaker 1: But I think we're in a good position since it's the second one we're doing.
Speaker 1: and I'm confident that the transition will go well. It's a lot of work, especially in the midst of a pandemic.
Speaker 1: Not easy work, but it's going to get done. So produce, I said in my remarks, productivity is improving. So, you know, we're adjusting systems and processes and schedules and everything. So we're working with our unionized employees and with Vitron, our technology partner, to optimize. So, again, big project, a lot of change management, but going in the right direction. And I'm pleased with the improvement, certainly, over the last few months.
Remarks, our productivity is improving so you know, we're adjusting systems and processes and schedules and everything so we're working with our unions.
Unionized employees in vitro and our technology partner to optimize so again big project a lot of change management, but going in the right direction and I'm pleased with the improvement certainly over the last few months, we have room to grow or we're never happy we wanted to be better and I'm confident that it will continue to improve.
Speaker 1: We have room to grow, we're never happy, we want it to be better and I'm confident that it will continue to improve.
Thank you.
Speaker 3: Thank you. As a reminder, ladies and gentlemen, if you do wish to ask a question, please press star followed by one.
Thank you.
Ladies and gentlemen, if you do wish to ask a question. Please press star followed by one on you touched on the phone with you.
Speaker 3: Your next question will be from Patricia Baker at Scotiabank.
Your next question will be from Patricia Baker at Scotia Bank. Please go ahead.
Thank you very much most of my major questions have been asked I just have a few minor ones. So firstly with respect to the supply chain.
Speaker 4: Thank you very much. Most of my major questions have been asked, but I do have a few minor ones. So, 1stly, with respect to the supply chain disruptions and where you've seen the holds, are they primarily in the grocery category? Or are they also in the fresh category? Are they, is there a focus on where those holds are? Where you're seeing the shortages?
And we've seen the whole are they are they primarily in the grocery category or they also in the fresh category are they like that.
Okay.
Focus on where those hold times.
Are you seeing any shortages.
Speaker 1: Yeah, groceries as an issue because there's more variety basically in Centre Store and that's the biggest issue. We're getting product, people can fill out their order but clearly there's our SKUs missing, there's variety missing, there could be sizes missing as our suppliers are adjusting their production.
Yeah groceries are grocery there is an issue because theres a theres more a variety basically of in center store and that's that's the biggest issue where were getting product people can fill out their order, but clearly there is or excuse me, saying there's variety of missing there could be sizes missing is as our suppliers are adjusting their production.
Speaker 4: Given their constraints, we don't offer necessarily the full variety in our center store. So that's grocery, dairy, frozen, those categories, you tend to see a little more holes than you would see in our fresh departments. Okay, thank you. I'm going to have two questions that are specific.
Given their constraints, we don't offer the necessarily the full variety of in our center store. So that's grocery dairy frozen those categories you tend to see a little more holes that you would see in our fresh departments.
Thank you and then I have two questions that are specific to Quebec now in your outlook. When you discuss your outlook for a pharmacy.
Speaker 5: when you discussed your outlook for pharmacy sales, you did mention that you expect that the rapid, that distribution of the rapid tests could be a nice tailwind for pharmacy in the near term. And at the outset in Quebec, it was pretty chaotic, that distribution, not necessarily from you guys, but from the government getting them to where they were going to be distributed. Has that kind of calmed down and become more orderly?
And then that you expect the rapid distribution of the rapid tests could be a nice tailwind for pharmacy in the near term and I think I am the outside outset.
Outside in Quebec was pretty chaotic that distribution are not necessarily from you guys, but from a government getting them to where they were gonna be distributed hasn't that are kind of calm down and become more auto links.
Getting better where as we get more quantities and more supply. So so the governments for those who are not in Quebec.
Speaker 1: It's getting better as we get more quantities and more supply. So the government, for those who are not in Quebec, put the distribution, free distribution of rapid tests in the hands of the community pharmacies.
It put us put the distribution free distribution of rapid tests in the hands of the community pharmacies and every community pharmacies was basically he's getting 108 kids a day. So that's not many kits for for fruit for many pharmacies, especially as you're going through.
Speaker 1: And every community pharmacy was basically getting 108 kits a day. So that's not many kits for many pharmacies, especially as young.
Speaker 1: which have large volumes, so that caused a lot of frustration early on, people lining up and trying to get online, so it was hectic, it was chaotic, like you said.
I wish you have large volumes so that that caused a lot of frustration early on.
People lining up and are trying to get online. So it was a it was I think it was chaotic like you said and it's getting better as supply has increased we would like to have more and I think the government will be in a position to supply more so it's good it's better every week, but it wasn't easy.
Speaker 1: It's getting better as supply has increased. We would like to have more and I think the government will be in a position to supply more. So it's getting better every week.
Speaker 5: Okay, so another thing exclusive to Quebec, Eric, is the fact for the last three Sundays, the grocery stores have not been allowed to open. You know, it was only three Sundays, but I'm still curious what you might have seen there in terms of consumer behavior. Did you see people, you know, reverting more to online, you know, because of that on those days? Did you see a bigger uptick in the Saturday or was there just not any discernible difference? No, it was
Okay. So another thing exclusive to Quebec, Eric is the fact that the last three Sunday, because you've talked it not been allowed to open them.
It was only three Sundays, but I'm still curious what what you might have seen there in terms of consumer behavior did you see people are you know we brought in more T online you know.
Because of that on those days did you see a bigger uptick in the Saturday Oh all of it.
Or was there just not any discernible difference.
Oh It was a it was another element that made our life more complicated for sure. So three Sundays are now behind US we were opened this past Sunday.
Speaker 1: element that made our life more complicated for sure. So three Sundays are now behind us. We were open this past Sunday.
Speaker 1: but the three Sundays we were closed in food, not in pharmacy, but in food. So yes, most of the volume transfers to the Saturday or the Monday, it puts pressure on other days. In an environment where we had supply chain issues that we've talked about at length today, it made it more complicated. So it was a challenge, it's behind us, and move on.
This Sunday, we were close in food not in pharmacy, but in food. So yes, most of the volume transfers to the Saturday or the Monday It puts pressure on other days and in an environment, where we had supply chain issues that we've talked about at length.
Today It made it made it made it more complicated so it was a challenge is behind us and move on.
Speaker 5: Yeah, let's hope it stays behind you. And then, just lastly, a slight clarification. So, you talked about discount reverting back, you know, reverting back, we're getting more shoppers in the discount box. So, when you say revert back, so what you're referring to there is that we're back more or less to the normal levels that we saw pre-pandemic as opposed to heightened or elevated levels.
Yeah, let's hope it stays behind you and then just lastly, a clarification. So you talked about discounts reverting back reverting back we're getting more shoppers and the discount box. So when you say have you bought back so what you're referring to there that went back more or less to the normal levels that we saw pre pandemic as opposed to heightened our elevated level.
Yeah.
Yeah.
That's what I'm, referring to and again at Metro we have.
Speaker 1: So I'm referring to, and again, at Metro, we have to.
Speaker 1: a good portfolio of banners with a discount and a significant discount presence in both Quebec and Ontario. We have Adonis also. And Metro provides great value, so I think we're well-positioned to serve all of Quebec.
A good portfolio of banners with a discount in a significant discount presence in both Quebec, and Ontario, where they're going it's also and metro provides great value. So I think we're well positioned in it.
Because of all of our customers.
And yeah. So the discount was rude reverting back as the market I think phenomenon and we're well positioned to capture it.
Speaker 1: And yeah, so the discount reverting back is a market, I think, phenomenon, and we're well positioned to capture it.
Okay. Thank you very much.
Thank you.
Speaker 3: The next question will be from Chris Lee at Desjardins.
Next question will be from Chris Lee.
Please go ahead.
Speaker 6: Eric, I know there are many moving parts and you don't have a crystal ball, but just wondering, can you share with us some of the major puts and takes that you see impacting gross margin for the year? Do you believe, you know, stable margin is a reasonable expectation, or do you see some downside risk because of the inability to fully pass on all the cost increases at the retail level? Thank you.
Oh, hi, good afternoon.
I know, there's many moving parts in and then you don't have a crystal ball, but just wondering can you share with us some of the major puts and takes that you see impacting gross margin for the year do you believe you know stable margin is a reasonable expectation or do you see some downside risk because of the inability to fully pass on all the cost increases.
At the retail level. Thank you.
Speaker 1: Yeah, well that's a hard one and you're right, I don't have a crystal ball. I do know that we're getting cost increases, we're getting more increases.
Yeah, well, that's a that's a hard one and you're right I don't have a crystal ball I do know that we're.
We're getting our cost increases we're getting a war increases.
Speaker 1: this time of year than we usually do. It's usual in our industry and food to get cost increases in the next days and weeks.
At this time of year than we usually do and it's usually in our industry and food to get our cost increases are.
The late January early February so in the next days and weeks there there's a significant.
Speaker 1: There's a significant amount of products that will have cost increases. So how much of that will be reflected at retail? We will be very competitive, we monitor prices everywhere, and we intend to remain competitive. So I think there could be some risk short-term to gross margin rate as those cost increases come in. And if we can...
A significant amount of products that will have cost increases so how how much of that will be reflected at retail we will be very competitive we monitor prices everywhere.
And we intend to remain competitive so I think there's there could be some risk short term to gross margin rate is are those as those cost increases come in and if we can.
Pass them on at retail so it typically takes it takes a bit of time, so that we've been there before and we managed through it before but it's something it's it's a watch out for sure on the gross margin other than those cost increases, which which is a key a key element I think where we're confident that in our in our.
Speaker 1: pass them on at retail. So it typically takes a bit of time. We've been there before and we've managed through it before, but it's a watch out for sure on the gross margin. Other than those cost increases, which...
Speaker 1: I think we're confident in our
Sure.
Speaker 1: in our strategy, our merchandisers on the fresh side, I think are going to do a good job and I think we can deliver a margin and the diversification with pharmacy I think is another helpful element. We saw it in this quarter so overall I think we're confident.
And our strategy and our merchandisers are on the fresh side.
Figure or are going to do a good job and I think we can deliver a margin and the diversification with pharmacy I think is another helpful element we saw it in this quarter.
So overall I think we're confident to that because we can deliver a good gross margin numbers, but it's a it's competitive.
Speaker 1: We can deliver good gross margin numbers, but it's competitive.
Okay, that's helpful and maybe specifically how.
Speaker 6: Okay, that's helpful. And maybe specifically, how big of a contributor has the increase in private label sales to the gross margin in a quarter or in the last couple of quarters? Has it been a notable contributor or not really?
Think of the country or has the increase in private label sales to gross margin.
Quarter over the last couple of quarters has it is it been a notable contributor or not really.
Well that's it.
It's a key contributor overall always.
Speaker 1: key contributor overall always, you know, with the uptick, you know, private label penetration is doing well, you know, we're seeing the same in our gross margin. I wouldn't call it out as a...
With the uptick in our private label penetration is doing well.
You know we work with.
We're seeing the same in our gross margin I wouldn't call it out as a big difference in the gross margin that we're reporting.
Speaker 1: It's a big difference in the gross margin that we're reporting, but clearly it's a contributor. But the supply chain issues that we talked about affect private label, too. Some suppliers are in difficult positions there, too, and we're not getting all the merchandises we need sometimes is in private label. So it plays out everywhere.
Clearly, it's a contributor but the supply chain issues that we talked about affect private label to some suppliers or or or or in a difficult position there too and we're not getting all the merchandise as we need sometimes it in private label. So it plays out everywhere even in private label.
Speaker 6: Okay, thank you for that. And maybe just one for Francois. I apologize if you disclosed this already, but what's the COVID expenses that were incurred during the quarter?
Thank you for that and maybe just one for Francois I apologize if you disclosed this already but what what's the corporate expenses that were incurred during the quarter.
Speaker 7: Yeah, Chris, as we said on the last call, we're no longer reporting on COVID expenses. One, they, you know, they're coming down versus the peak, obviously, and two, it's
Yeah, Chris as we said on our last call. We are no longer reporting on Covid expenses. One. They you know they are coming down versus the peak obviously into its the its the line between a COVID-19 and non Covid expenses are blurring a quite a bit. It's just part of our normal the normal operating expenses now so we're no longer.
Speaker 7: It's the line between a COVID and non-COVID expense is blurring quite a bit. It's just part of our normal, normal operating expenses now. So we're no longer specifically tracking that number and reporting as such because it's it's not as clear cut as it was before. So that's what we did on the last call.
Specifically tracking that number in and reporting as such because it's it's not as clear cut as it as it was before so that's what we indicated on the last call.
Speaker 6: Okay, that's fair. But I guess suffice to say, given that you guys did call out I think over 100 million expenses last year, based on your early comment that it's been sort of stabilizing, we should expect that to be a fairly good tailwind in terms of reduction in expenses.
Okay, Yeah, that's fair, but I guess suffice to say given that you guys did call out over $100 million of expenses last year based on your early comment that it's been sort of stabilizing we should expect that to be a fairly good tailwind in terms of a reduction in expenses.
Speaker 7: you know, throughout the year. But yeah, some, you know, some, some, but some departments that were open post-pandemic or when restrictions were easing had more labour and services, so it was not a dollar for dollar, but yeah, the purity of the peak of COVID expense of last year, we don't expect that to be repeated.
So as far as being more but yeah. Some you know some some but some departments that were open a post pandemic world when restrictions are easing a more labor and services. So it was not a dollar for dollar but yeah. The purity of the peak of corporate expenses of last year that that's we don't expect that to be repeated.
Okay, great. Thank you and all the best thank.
Thank you Chris.
Speaker 3: Once again, ladies and gentlemen, if you do have any questions, please press star followed by 1 on your touch tone.
Once again, ladies and gentlemen, if you do have any questions. Please press star followed by one on your Touchtone phone and your next question will be from Mark Petrie.
Speaker 3: The next question will be from Mark Petrie at CIBC. Please go ahead.
Please go ahead.
Yeah, Hi, just a quick follow up Eric you already spoke about the relative demand and traffic you are seeing in E. Commerce, you know with with the Omicron waves I'm, just curious, though with the pick up in inflation does that affect how people shop online at all either in terms of basket size or are you seeing the same sort of increase in <unk>.
Speaker 8: Hi, just a quick follow-up. Eric, you already spoke about the relative demand and traffic you're seeing in e-commerce, you know, with the Omicron wave. I'm just curious, though, with the pickup in inflation, does that affect how people shop online at all, either in terms of basket size, or are you seeing the same sort of increase in promo penetration in the online business as well?
Promo penetration in the online business as well.
Speaker 1: It's similar. Yeah, I would not call out notable differences of buying behavior online versus
It's similar yeah.
I would not call out notable differences of buying behavior online versus.
Speaker 1: versus Instora, with the Omicron variant, sizable battery.
Versus in store.
With the Omicron bar variant.
Sizable basket you know margins are.
Speaker 1: It's a good basket, it's a good customer, and we want to service them however they want to shop. I wouldn't call out a big difference there.
It's a good basket a good customer and we want to service them with whoever they want to shop.
I wouldn't call out a big difference there.
Speaker 8: OK, so the same so the same variances as sort of before inflation kind of accelerated, you know, remain in place. Right.
Okay. So this is the same so the same variances.
Before inflation kind of accelerated you know remain in place.
Right.
Okay, great. Thank you.
Yeah.
Speaker 3: Thank you, and at this time we have no further questions. Please proceed.
Thank you and at this time, we have no further questions. Please proceed.
Speaker 9: Thank you all for your interest in METRO and we will speak again soon to discuss our second quarter results on April 20th. Thank you.
Thank you all for your interest in Metro and we will speak again soon to discuss our second quarter results on April 20, <unk>. Thank you.
Thank you ladies and gentlemen, this does indeed conclude your conference call for today. Once again. Thank you for attending at this time, we do ask that you. Please disconnect your lines.
Speaker 3: Thank you. Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we do ask that you please leave your questions in the Q&A box. Thank you.
Speaker 10: .
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Speaker 10: To.