Q2 2022 Metro Inc Earnings Call
Yes.
[music].
Good morning, ladies and gentlemen, and welcome to the Metro Inc. 2022 second quarter results Conference call.
At this time all lines are in listen only mode. Following the presentation, we will conduct a question and answer session and if at any time. During this call you require immediate assistance. Please press star zero for the operator not that the call is being recorded on Thursday April 21st 2022, and I would like to turn the conference over to Sharon.
<unk> manager of Investor Relations and Treasury. Please go ahead.
Thank you Jim Good morning, everyone and thank you for joining guys city, our comments will focus on the financial results of our second quarter, which ended on March 12.
With me today is Mr. Eric La Fleche, President and CEO , and Paul Sackey bone executive VP and CFO .
During the call we will present, our second quarter results and comment on its highlights. We'll then be happy to take your questions.
Before we begin I would like to remind you that we were using 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 well and other similar expressions are generally indicated.
Our forward looking statements.
The forward 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 2021 2022 action plan.
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 risks 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 personnel at this time and represent our expectation the company does not intend to update any forward looking information, except as required by applicable law.
I'll now turn the call over to pass it off.
Thank you Sharon and good morning, everyone.
For the quarter. Our total sales were 4.2 dollars 74 billion, an increase of one 9% over last year food.
Food same store sales increased by 0.8% for the quarter, while pharmacy same store sales were up nine 4%.
Our gross margin stood at 21% of sales versus 22% with same quarter last year.
Operating expenses were down $5 5 million year over year and represented 10, 4% of sales versus 10, 7% of sales last year.
The lower level of operating expenses is mainly due to a reduction in pandemic related expenses, which stood at 29 million in the second quarter of last year.
Our EBITDA for the quarter totaled $414 million or up four 5% when compared to last year's EBITDA.
As a percentage of sales EBITDA was nine 7% versus nine 4% last year.
The adjusted net earnings were $204 million seven compared to $194 seven last year, that's an increase of five 1% and our adjusted net earnings per share were 84 cents, that's up seven 7% versus last year adjusted EPS of <unk> 78 cents.
For the first half of our fiscal year capital expenditures amounted to $286 million, an increase of a little more than 76 million versus last year and the higher level of capital expenditures and mainly the 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.
At the end of the second quarter, we had 380 stores equipped with self checkouts and 218 stores with electronic shelf labels.
We plan on adding another 54 stores equipped with the self checkout technology and 26 stores equipped with electronic shelf labels by our fiscal year end.
We also started rolling out self checkouts and select pharmacies and we now have 27 pharmacies equipped with that technology.
Halfway through the current fiscal year, we have opened four new food stores, we relocated another metro store and carried out major renovation or six doors, representing a net increase of 150000 square feet or 0.5 per cent of barstool retail them.
Turning to our current normal course issuer bid program, we have repurchased between November 25, 2021, and April 1st of this year to 35 million shares for a total consideration of $156 3 million and that represents an ever share price of 66 51 cents.
As a result of the seven day labor conflicts with our fulltime distribution center employees in Toronto, our third quarter results will be impacted by the direct cost of the strike and the impact of a new four and a half year collective agreements, which are estimated at about 10 million pretax.
That's it for me I'll now turn it over to Eric.
Thank you Francois and good morning, everyone. We are pleased with our results in the second quarter. We grew sales by one 9% EBITDA by four 5% and earnings per share by seven 7%. That's on top of a strong quarter last year and despite a challenging operating environment marked by the omicron virus.
And the labor shortages throughout the supply chain.
Food same store sales were up 8% in the quarter and the two year stack for the first eight weeks of the quarter that is the pre COVID-19 comparable period was at plus 11, 5%.
With most government measures lifted and customers gradually returning to pre pandemic behavior.
To see an increase in traffic and a decline in the average basket and our food stores.
Our discount banners are growing faster than our conventional banners and online sales are stabilizing.
Apply chain continues to be challenging mostly because of product shortages from our vendors.
For the quarter, our internal food basket inflation accelerated to about 5% up from a three 5% in the prior quarter.
The industry continues to experience higher than normal inflationary pressures and cost of goods sold transportation and labor.
The main categories driving inflation at retailer meet and grocery.
Promotional penetration is back to pre pandemic levels as consumers are more value oriented our teams remain focused on delivering value to consumers by providing quality products at competitive prices and all of her matters.
Turning to pharmacy comparable sales were up nine 4% with a seven 7% increase in prescription drugs helps by Covid related activities, such as the distribution of rapid tests.
Commercial sales were up a strong 13, 3% supported by growth in the over the counter medications, particularly cough and cold products.
As well as lower sales last year due to the six week ban on the sale of non essential products.
Our online grocery sales were up 6% versus the same quarter last year and up 250% versus two years ago.
We are seeing demand stabilize as unfortunate as consumers return to pre pandemic behavior and off to shop in store more often.
We are pleased with our dedicated facility in Montreal with key metrics progressing in the right direction.
On the click and collect side, we continued to deliver against our plan with some 210 metro stores now offering click and collect across the provinces of Quebec and Ontario.
This allows us to reach close to 90% of the population of Quebec, and 75% in Ontario.
<unk> also offers to click and collect service now in more than 290 pharmacy.
We're confident in our prudent investment approach, our flexible E com model and in the team we have built over the last seven years to continue meeting consumer demand as it evolves.
Turning to our supply chain investments this quarter, we reached a key milestone with the startup of our fully automated frozen D C and Toronto.
All stores are now service from this new facility, which is ahead of our schedule.
Produce towards productivity and the new <unk> facility, which we opened last year continues to improve.
As you know the full time employees in our Toronto distribution centers were on strike for one week at the beginning of the month.
We reached a satisfactory agreement, which will allow us to remain competitive although the first year salary increases are higher than usual, mainly because of the current high inflation environment.
Looking ahead, we expect food sales in the short term to remain relatively stable versus last year.
In pharmacy, we expect positive sales trends, although moderating versus the first half of the year given last year's Deconfinement, which started taking effect in Q3 and positively impacted both prescription and front end sales.
In closing I'm proud to mention that Theres accuracy banner ranked number one in the recent leisure reputation survey. This marks the second time in the last three years that consumers designate <unk> as the most admired company in Quebec, which is a reflection of the strength of the brand the trust of consumers and the quality of the services provided by the pharmacy.
Owners.
As well the Metro banner in Quebec ranked number one for grocery in the leisure customer experience index for the fifth year in a row.
So with that thank you and we'll now take your questions.
Thank you, ladies and gentlemen, if you would like to ask a question. Please slowly press star followed by one on your Touchtone phone you will then hear a tweak on prompt acknowledging your request and if you would like to withdraw from the question queue. Please press star followed by two and if you're using a speaker phone. We do ask that you. Please lift the handset before pressing Andy.
Keith. Please go ahead and press Star one now if you have a question.
And your first question will be from Irene Mattel That's RBC. Please go ahead.
And good morning, everyone. Eric I was wondering if you could just give us a little bit more color around what youre seeing with <unk>.
Humor Hazier private label.
Promotional penetration those sorts of things.
Good morning, I read so of <unk>.
<unk> same story as we said at the end of January .
Clearly the inflationary.
The picture is a is accelerating so that's having an impact on consumers are discount vendors are are are growing nicely faster than our conventional vendors. So there is a search for value, there's a shift of discount happening for sure.
Customers trading down Theres high inflation in certain categories I can think of certain meat cuts or this particular, so that's having an impact on consumer behaviors are trading down for cheaper goods.
The grocery side, a private label is doing really well because it's great value in a lower price point in general.
Promotional penetration as I said in my opening statement is back to pre pandemic levels whenever whenever there is you're expecting inflation like this.
Promotional penetration increases we've seen that before and we see strong are strong I would say sales whenever we feature.
Key item.
That's a that has.
Experienced deflation, let's call it let's let's talk about beef a.
Whenever it with ground beef as an add that these volumes are.
Very very high because people people who are.
Focus on those items.
So there is a search for value are happening are accelerating.
That said I think we're very well positioned with this supersede food basics, our metro stores with their merchandising program with a with good value all the time so.
It's Stacy it's it's a tougher environment, but I think we're performing well in that environment.
That's great. Thank you and Eric how would you qualify or describe the competitive environment right now given that everybody is facing the same challenges that you are both in terms of rising costs, but also the availability issue.
I think the competitive environment is.
The same it was a few months ago.
Very competitive, but everybody has issues with the supply chain everybody is experiencing.
Cost increases.
Industry wide and that's why you're seeing inflation in retail the.
Those cost increases with the rest of the increase.
The increases that we're all experiencing.
Reflecting themselves at retail and that's why you're seeing this accelerated inflation, but I would describe the <unk>.
Kind of environment does a rational highly.
Highly competitive but.
But stable.
That's great. Thank you Eric.
Next question will be from Michael Vanilla at TD Securities. Please go ahead.
Hi, good morning.
So the general expectation heading into this year was that inflation would be pretty high in the first half and then moderate some in the second half hour with all that's going on how has that changed metros view in terms of what the inflation might look like for the balance of this year.
Hard to say Michael.
But we're seeing or hearing from our from our suppliers that we.
We have we have experienced cost increases over the last several months and where he ignores is that there will be more coming so we don't have that that's a definite but it looks like inflation will be here for a little while longer how long I don't know that the shorter the better.
And.
But it's hard to see much further than that with.
Although the global and EM.
The impacts of the war fuel energy prices. There is so much so many variance to our to the inflationary picture is that it's really hard to see and interest rates are going up how long for how fast.
We will see what impact it has on the inflation over the next several months. So we will have to adjust accordingly right.
Alright, and the increases that are still to come or are they in particular categories.
Well grocery a CPG.
You know there is theres going to be continued pressure there because.
Facing the additional cost pressures so we expect that to continue so.
Again, we will sit down with our suppliers, we will see exactly with justified and how fast and what can be what can be done.
It's a difficult environment, but are we.
At the end of the day everybody wants to know.
Protector volumes protect ourselves. So we have to we have to manage the inflationary pressures right now for sure.
Celebration of inflation is is not something we like it at all.
Two two fast two is not good so we have to manage the cost increases as best we can to protect value for the customers and protect volumes at retail.
Alright.
You alluded to that in your outlook statement.
Related to the risk of prolonged inflation and labor shortages are on margins.
How long like how long can this go on before you start to see increased pressure on the gross margins you think.
Hum.
We have some pressure a bit of pressure on our gross margin in food right now.
And so again I think we have an experienced merchandisers and who we are striving to continue to provide value and adjust on what what's available what can get them to deliver a good values at good prices without the without do with as little inflation as possible. So you know the margin rate may be under some pressure a bit hopefully.
We will protect the merchant.
And then just last question on the drug same store sales are really strong.
And yet he has benefited a lot from some of the increased services in the last a year or so at least.
It's a drug test this quarter longer term model.
What kind of pharmacy services do you think could replace some of these higher level.
<unk> test kits and vaccines in that that we've been seeing over the last year.
Well there is there are there are medical procedures that are now allowed for pharmacists to perform and so so those can qualify our services and added revenue on the prescription quote unquote front for pharmacies.
Renewal of prescriptions.
<unk> I think are here to stay and.
I think it was the pharmacy channel will be very <unk>.
Important for the distribution of vaccines going forward, even more than before.
So I think pharmacy services or are in a good position to continue to grow I'm not going to give it I can't give you guidance on exactly.
How and how much but.
We see that for sure as a growth opportunity going forward.
Alright, thank you.
Thank you next question will be from Kennewick tie at ATB capital markets. Please go ahead.
Thank you and good morning.
With respect to the labor shortages can you speak to her.
How those exited the Cola fantastically potent management moving into the summer and how you are managing labor shortages have the pressures eased all things sort of standing still or have you, perhaps seen an improvement in certain markets with respect to T. O T. A library of climate as well as install and then you'll have a distribution network.
So yes, we continue to experience labor shortages.
The absenteeism caused by Covid is under.
Under control.
We saw a spike in cases in January or in the last few weeks actually we saw we saw again more and more infections. Some absenteeism, but the return to work is there's much more rapid than it was.
So the Covid issue I think is manageable in terms of impact.
The impact on our labor in the stores and in D. C. But there is a structural shortage of labor that we.
We are managing with and trying to improve so recruiting programs retention programs salary increases all of the above to improve decided that the labor picture, but it is a reality.
The industry that it's.
There are some shortages so.
Manageable.
We have good teams and we think we have good HR programs too.
Do as best we can but I'd be lying to say that.
Please standby.
Please go ahead.
So yes. Thank.
Thank you Eric I forgot what the yeah.
I think I'll call it the majority of that answer.
At the granularity of that if I could just stay on the topic of the labor discussions, perhaps a clinical fronts la Francois did I hear you correctly, you called out a $10 million pre.
Pre tax impact on the new agreement.
The effect of the third quarter and could you just remind us if there are any other collectible material agreements.
The next to the balance is either this year or next I am a little out of sync on that.
So I can make the $10 million.
Amount that we fly for Q3, the bulk of that amount is direct cost of the strike.
So transportation security et cetera, and waste of perishables and the biggest portion of that that those direct costs are waste of perishable items are to be that we faced there is a smaller portion that is related to a retroactive adjustment for wages and benefits as per the new labor agreement, but as I said the majority.
You already have that $10 million is direct costs.
Due to the strike.
Sorry for that and then just.
As far as material agreements going forward we have.
We have agreements that.
Our negotiated every year in the stores warehouses.
The Montreal meat and frozen D. C contract is up this year and will be renegotiate over the course of the summer.
So in a normal course of business.
Thank you if I could just a quick final one for me a front store any fallout was driven by our team.
Obviously the E.
Can you comment on essentially Shanghai have you subsequent to the court the Ramsey and any further changes.
Yeah and in the categories that are perhaps driving growth as we head into summer and as sort of the pandemic headwinds restrictions I either further behind us.
No no real noticeable changes.
I think our front end program in our pharmacies as strong or if there is a seasonal programs are strong there are some suppliers.
Issues, there on seasonal coming from China, but.
We think we're in good shape generally.
So no cough and cold.
It was good.
As we head into the summer it's less of it.
[laughter] contributor that's seasonal.
Allergies will come in a.
Solar and all of those cosmetic products.
As the economy has opened up and people get out.
Thank you.
We should be we should be pretty much back to normal over there.
Great. Thank you I'll get back in queue.
Thank you next question will be from Vishal <unk> from National Bank. Please go ahead.
Yes, thanks for taking my questions.
Just on your e-commerce initiatives.
Online food sales were up 6%, if I got that number right.
How should we think about it through the balance of the year as the economies keep on reopening, but youre at the same time, you're adding you're adding more capacity and getting more efficient there any any any factors for us to consider.
Okay.
Yeah. So the 6% is totally come so all models. So that's our dark store our hub stores, our partners a click and collect everything is in there. So there is there is quite a bit of added capacity to get that number so on a comparable basis. Some stores are actually are actually down.
And which is in line with the market in general as we head into the summer season. There is a there is always a softening in E. Com sales as we go into the summer so we're expecting that.
And as I said in my opening statement.
People revert to the old habits and needs.
So, yes, there's going to be a portion of the market on e-commerce for sure.
We expect we expect to.
Demand to stabilize let's call it that.
Alright and between.
The various offers that you have Uh huh.
Click <unk> collect delivery yet you have your corner shop offer do you see consumers gravitating more towards one or another or is it relatively stable since your last update.
Well clicking.
Click and collect as we add capacity.
Is growing but from a zero base. So it's still it's still a minority.
Our models over the years was developed with the hub stores and delivery. So that's still the lion's share.
The partnership is progressing well also so for competitive reasons.
I'll try to keep it at that but there.
Ah Theres a trend in general in E comm for delivery immediacy short windows two hours 30 minutes next day. So I think our offer is well suited to that it's flexible, it's agile and with our own.
Uh huh.
Models plus the.
Corner shop partnerships, particularly where we can meet the customer demand.
For a more immediate short term deliveries.
Okay, and you talked about our services being a bigger part and just switching gears here to P&C services being potentially a bigger part of P. J <unk> offer in the future one of your peers.
Completed acquisitions to expand their medical offer.
With that I would like Mark I'm wondering if the metro is also considering.
Pursuing acquisitions to expand the depth.
Pharmacy.
Yeah, like we said we're always looking.
To expansion ideas in food and pharmacy in Canada. So.
Technology.
Yes.
Our tools that help to.
Our food and pharma offer professional services or front end and pharmacy is something that we could look at but it has to be in line with our.
With our model and with the regulatory environment in Quebec, which is different.
So.
Yes, we looked at different opportunities. So it's a good fit strategically and that adds value to our patients and customers.
Clearly we're interested so.
I'll leave it at that.
Thanks for the color.
Yep.
Thank you next question will be from Peter Sklar with Bank of Montreal. Please go ahead.
So earlier in the call you described all the trade down effects, you're seeing which seem to be accelerating with this.
Tough inflation, we're seeing.
Is that going to present itself in terms of your financial metrics in terms of.
Same store sales margins profitability are there.
Are the number is going to fallout differently then.
And we should be alerted to that.
Not I don't think so and.
Like I said, we have a mix of banners are a mix of geography.
Strong in the city's strong throughout the province provinces of Quebec.
Eric are you still there I think I lost you.
Hello.
Please standby.
Okay.
Yeah.
Okay.
Yeah.
Okay.
Please go ahead.
Eric are you back.
We don't know what's going on yeah. Okay.
Bad Karma today on the telecommunications so.
Just following up on that so when you have a sale.
That goes from a metro to a food basics do you care about that in terms of.
Returns and profitability or are you indifferent.
That's a good question net net.
We have you know.
Comparable profitability.
Bottom line on the <unk>.
On the EBITDA and contribution line so it's.
Pretty similar but it depends.
Vary by geography or by store, but overall big picture.
What we like about our mix to have discount in conventional and the transfer of sales from one to the other.
Can impact our gross margins and same store sales, but at a at the bottom line. We think it protects us well you have less SG&A and so.
It all catches up with the contribution.
Net.
Okay. Okay got it switching topics so back on this inflation, but not just the food inflation, but just a question on overall food inflation, because it's just not food its energy rent.
Interest rates are going up everything have you seen any evidence that.
Consumers are actually spending like their monthly or weekly spend is less on grocery than it has been just because theyre just being overwhelmed by the inflationary headwind that they have to budget.
No.
Our baskets are still very healthy there are theyre down year over year because of the there's more traffic.
A bit of a softer basket versus a year ago, but the basket size versus pre COVID-19 is still very healthy so are we.
And we think food dollars are at home.
Home for consumption at home are still in good shape.
Okay. Good to hear and then excuse me just lastly, a question on the the Toronto DC strike Francois is that going to be an adjustment or it's going to be in Europe .
It's going to be in the earnings and you're just calling it out so we know.
Yes, I'm, just calling it out as part of business, but it is it doesn't happen it doesn't happen very often so I wanted to flag it.
But we're not going to adjust earnings officially.
Okay and.
Like as you know like during that one week strike there were some big calls on.
Now on the shelves in the stores and on.
<unk>.
I don't know if you have a way of measuring this or maybe just anecdotally like how did the consumer behavior. When they came into metro store. They saw a big hole in the shelf.
Did they did they leave and go to competitors and if that was the case have they come back to their normal shopping habits and come back to Metro do you think there was any of that shifting around during the one week strike.
Okay.
The strike is not good being short of product is not good. So clearly we lost some sales during a big week, which was the Easter week.
So it had an impact and we werent.
Stores were opened and we did get customers in and they still bought from us, but they can maybe get at also the we lost we lost some tonnage for sure for.
For sure during that week. The good news is it's one week it was only one week.
We're back stores are filling up.
This week as much as possible.
And last and it's it's a you know we're not exactly where we wanted to be.
We're not exact 100% back to normal, but we will be shortly.
Given the general.
<unk> stock issues in the supply chain issues that we've experienced for months I think a lot of customers are are quote unquote understandable in.
Are not penalizing us too much. So I think we'll be okay, but clearly we werent servicing customers the way we like to.
That weekend Toronto for sure.
And what is the impact.
Significant enough that like we should curtail our same store sales assumptions for the third quarter or it's just not that meaningful.
Hopefully it won't be that meaningful it's a form period quarter Q3 for us.
We'll we'll.
We will do everything to get it back.
Good merchandising and good store conditions I think our teams did a great job under a lot of pressure and I think our customers. Appreciate it that we got a lot of good comments from customers even during the strike.
So.
Good loyal customer base and I think.
I think we can manage over the over the next few months okay. Thank you.
<unk>.
Thank you next question will be from Mark Petrie at CIBC. Please go ahead.
Yeah. Thanks, Good morning, Eric you highlighted the promo penetration is back to pre pandemic levels I just wanted to clarify that this is up from from last quarter and then so my question is how much of a constraint or the uncertainties and challenges in the supply chain.
With regards to how you're promoting in the sort of programs you'd like to have in place and in this environment in particular.
So the first part of your question, yes, promo rates are up slightly versus the previous quarter and.
Like I said, we expected that with some of the inflationary picture that we're talking about.
The constraints on supply chain, so it's up to us to work with our with our vendors to manage our manage our promotions manage.
How are we how we go to market. So that we have availability as much as we can to not disappoint customers. So it's a lot of coordination and collaboration with with vendors to have a effective programs.
To deliver on that.
It's a day to day work to to do that so there are constraints there are issues.
They need to be managed and we've been at it for free for several months years now.
Over two years of this.
But it's not going away. Unfortunately, it's going to be with us for a while at Ts.
Yeah, and I guess that was that was sort of my follow up is just sort of your sense on how that has trended sort of over the last quarter or two and then your expectations over the next quarter or two if it doesn't sound like you expect that to change though.
Yeah. So again, we I think made.
<unk> made some improvements, but the service levels to our stores from our warehouses are not where they were pre pandemic and it's mostly caused by vendor shortages.
So we do have some issues, sometimes it's not within our own shop, but it's mostly because we were not getting the product or we're not we're not getting enough product. So I think thats an industry wide issue. So we have to work with our with our vendors in and manage as best as best we can like you. Just said, we expect that to continue over the next little while.
Absolutely understood. Okay, and then I guess, maybe just related to that a little bit with regard to the labor situation. How does the tightness in the market effect you sort of you know tangibly is it is it mostly in your costs or is it more on the store conditions or service levels from the distribution network.
Okay.
She had vacant positions.
In stores.
Your your.
You are affecting your the way you go to your customers so the in stock level the.
Service level, the wait times so.
<unk> technology with self checkouts to to help us.
Speed up their lines at going out so it's it's a.
It just puts pressure on the general condition of the store when Youre missing labor and if youre missing labor in a in a word.
Well youre not shipping as much product as you'd like.
Picking a shipping so it's all of that needs to be managed and it has an impact.
On.
Salary rates.
To attract people when you need people its a the offer and demand so that puts a little bit of pressure, especially on start rates.
To get labor because everybody is looking for labor not just us.
Throat throughout the market. So it puts it puts added pressure and that contributes to the inflationary picture I don't want to say, it's unmanageable and it's it's a it's I don't want to sound too alarmist. It's just an issue that we have to manage every day.
Yeah understood I think I think we get that in and then just the last follow up on that is is this having much of an impact or similar impact in the pharmacy business as the food or it's it's most acute in the food business and pharmacies are affected but not as materially suffer.
Well on the pharmacy side, the shortages are more lab.
Lab technicians.
That's an issue.
Pre pandemic. It is still an issue today. So that has that has an impact sometimes on speed.
Filling prescriptions.
So.
The front of the store as is.
I would say.
There's less pressure there than there is on the food side. There are just fewer employees in the pharmacy at the front end.
We feel that more in the labs and in our pharmacies, but again managing through it nothing new.
Managing it.
That's all for now thanks, very much and all the best Thanks, Mark Thank you.
Thank you next question will be from Patricia Baker at Scotia Bank. Please go ahead.
Hi, Good morning, everyone just wanted to dig a little deeper Eric and Francois into the vendor product shortages can you talk about how those have been and how.
Roughly proportionate with stores impacted and then as you move through.
Through Q2 and Q3.
Any abatement.
And that any improvement or discontinued.
At the same level.
Issue.
Well it varies.
It varies from week to week or month to months, you see improvement and then we fall back.
Some vendors continue to have issues and are.
We're not shipping us.
On time, sometimes for products that reorder.
It's I would say generally improving but we're not where we need to be and where we'd like to be.
Okay. Thank you that's helpful.
Thank you.
As a reminder, ladies and gentlemen, if you would like to ask a question. Please press star followed by one.
And your next question will be from Chris Lee at Deutsche Bank. Please go ahead.
Hi, good morning.
Just a few quick questions.
Eric if inflation and labor challenges are more prolonged than you expect additional initiatives that you guys can accelerate to try to cut costs and try to mitigate the impact on margins.
Well, yes.
We manage as best we can like we say too.
Our merchandising and have the right products, the right price and provide great value in all of our banners. So that's.
Job one on the cost side technology is a big driver. So we've rolled out over the last two years.
This is not didn't start last week south.
Checkouts electronic shelf labels, we accelerated that rollout knowing we were facing labor issues that are not going away. So.
So we had to do that longer term automation of our warehouses technology in the warehouses.
It will alleviate pressure on labor. So those are all cost saving labor saving initiatives that will help us through.
For the long term.
So.
They are everywhere in the business, we try to manage our costs and we've done that.
For as long as I can remember we continue to do that despite inflationary pressures, we manage as best we can to manage our costs. So.
Not much more I can say.
Well that's helpful. And then another question I have is your food same store sales was up around 1% of your inflation was around 5%. So the street math would imply your tonnage was down roughly about 4% compared to last year is the decline, mostly just cycling through the strong corporate demand from.
From from last year.
Yes.
The economy is more open restaurants or more open.
There are more alternatives.
There so that has an impact on our tonnage so.
Yes, that's the short answer okay.
My question I guess, you also mentioned that gross margins for fluke was down a little bit come compared to last year. I know you won't disclose the percentage, but just anecdotally like directionally the decline accelerate in Q2 versus what it was in Q1.
No.
No not to accelerate its pretty much the same picture that we painted in Q1.
Okay. Okay. Thanks, a lot and best of luck. Thank.
Thank you.
Yeah.
Thank you and at this time, we have no further questions. Please proceed.
Thank you all for your interest in Metro and we will speak again soon to discuss our third quarter results on August 10th Thank you.
Thank you ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
Yeah.
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