Q1 2022 Loblaw Companies Ltd Earnings Call
Okay.
Good morning, ladies and gentlemen, and welcome to the Loblaw companies Limited first quarter 2022 results conference call.
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This call is being recorded today Wednesday may 4th 2022, and I would now like to turn the conference over to Mr. Roy Macdonald Vice President of Investor Relations. Please go ahead Sir.
Great. Thanks, very much Michelle and good morning, everybody welcome to the Loblaw companies Limited first quarter 2022 results conference call.
As usual I'm joined here this morning by Galen Weston, our chairman and President and by Richard <unk>, Our Chief Financial Officer.
Before we begin the call I want to remind you that today's discussion will include forward looking statements, which may include but are not limited to statements with respect to <unk> anticipated future results and the impact of the COVID-19 pandemic.
These statements are based on assumptions and reflect management's current expectations as such are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations.
These risks and uncertainties are discussed in the company's materials filed with the Canadian Securities regulators and any forward looking statements speak only as of the date. They are made the company disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information future events.
Or otherwise other than what's required by law also certain non-GAAP financial measures may be discussed or referred to today. So please refer to our annual report and other materials filed with the Canadian Securities regulators for a reconciliation of each of these measures to the most directly comparable GAAP financial measure.
And with that I will turn the call over to Richard.
Thank you Roy and good morning, everyone. The first quarter of 2022 saw continued strong performance across our business continuing on our momentum from 2021.
We delivered solid sales performance, coupled with stability in our gross margin.
We continue to focus on market share and our pricing position and carefully manage our expenses all part of our focus on retail excellence.
We started the quarter in Lockdown, then as restrictions ease consumer behavior shifted as people began to gather returned to the office and travel again in.
Inflation accelerated in the quarter, which accelerated the shift to discount in food retail.
Our mix of assets across food and drug retail along with our strong e-commerce and loyalty offering helped us deliver strong results in this evolving environment.
Given that we are now cycling two years of the pandemic, we will focus on comparisons to prior year and providing insight to our performance and will no longer share a two year average data points as comparisons.
We're pleased to report strong and steady results in the first quarter on a consolidated basis revenue grew by three 3% adjusted EBITDA increased by 10, 3% and adjusted earnings per share grew by 24% to $1 36, a share in.
In the quarter, both our food and drug retail businesses contributed to our performance.
In drug retail absolute sales increased five 4% while same store sales increased by five 2% lapping a decline of one 7%.
Front store same store sales grew by three 6%.
As we move past the initial lockdowns early in the quarter, we began to experience acceleration in sales growth in our in our higher margin categories led by OTC and cosmetics.
Pharmacy same store sales grew six 8% once again, driven by our Covid vaccine and testing services, which were not material in Q1 last year.
And food retail absolute sales increased two 4% and same store sales grew two 1% perf.
Performance in our discount banner strengthen and for the first time since the pandemic began we saw the sales mix between our discount and market businesses return to pre pandemic levels as we exited the quarter.
Although customer buying pattern shifted as restrictions are loosened and inflation continued our market banners remained strong and continued to perform well against our conventional grocery peers.
In Q3 last year, we announced our network optimization initiatives.
Over the last few weeks three converted stores have been completed we are pleased with their sales performance, which is running ahead of expectations more conversions are underway.
Our Omnichannel performance remained strong online sales decreased by nine 8% lapping last year's 133% growth rate during a period with more stringent lockdown measures.
We see volumes now are leveling off after a peak of activity experienced in January this year through the latest series of locked in our digital businesses delivered $3 billion in sales over the last 12 months.
Continuing to run well above pre COVID-19 levels.
Our Omnichannel network is well positioned we continue to enhance our customers' shopping experience through our digital platform, while offsetting its costs through optimizing operational efficiencies deploying new technology and refine our delivery offerings.
In the quarter, we further expanded our local store based offering expanding PC Express delivery same day service to over 300 stores.
Retail gross margin in Q1 was 31, 1% up 80 basis points compared to last year.
Drug retail led our margin expansion in the quarter with its higher gross margin rate growth in pharmacy services categories contributed to this expansion COVID-19 vaccines and testing led this growth. While we also saw traction medication reviews and prescribing services.
Higher margin categories within front stores, such as OTC and cosmetics continued their momentum benefiting from customers, who returned to socializing and office based work.
Gross margin.
Performance in food retail also improved slightly reflecting our pricing and promotion strategies, which leverage our unique datasets. We now feel confident in our ability to scale up some of these strategies, along with allowing us to benefit both sales and margin.
We are pleased with our growth performance for Q1, and our competitive positioning in the market.
As the year unfolds, we are focused on delivering consistency in our gross margin performance and are confident in our ability to do so.
Retail SG&A as a percentage of sales was 24% an improvement of 10 basis points compared to last year.
We lap higher corporate costs in the prior year and continued to benefit from sales leverage and operating efficiency. This.
This was partially offset by higher labor costs across our network, including the higher costs associated with the growth in pharmacy services.
Adjusted retail EBITDA increased by $140 million or 12, 2% in the quarter, yielding a margin of 10, 7%.
We were pleased with PC financials performance in the first quarter revenue was up $21 million driven by higher interchange on interest income with a broad based increase in customer spending.
Contributing to adjusted EBITDA from bank with strong, but decreased $15 million year over year as we lap last year's gain related to reversals in expected credit loss reserves.
On a consolidated basis adjusted EBITDA margin was 11% in the quarter up 70 basis points compared to last year.
In Q1, we repurchased $148 million worth of common shares representing one 3 million shares.
Maintaining our cadence of annual dividend increases to date, we announced our 11th consecutive annual increase raising our quarterly dividend by 11%.
Looking ahead and macro factors continue to make forecasting challenging in Q2, we expect eat at home trends to continue to taper, we expect inflation to remain elevated in the short term. However, inflation may moderate in the second half of the year as we begin to lap higher levels from the second half of 2021 and see the impact of <unk>.
Actions taken by central banks.
That said there are broader macro and geopolitical factors that are outside of our control that impact the inflation landscape.
While we continue to experience challenges within our supply chain.
Rock position at improve and we remain confident in our ability to navigate the situation.
Our full year outlook remains unchanged.
I'll now turn the call over to Galen.
Thank you Richard and good morning, I am pleased with our performance in the quarter with a backdrop of high inflation globally and the return of normal routines here at home the breadth of our business and its range of well defined value and services are resonating with consumers into 2022 or.
Our drug segment stood out this quarter driving a significant portion of our sales and gross margin growth as consumer behavior normalized customers returned to our shoppers beauty counters generating excellent results in our higher margin categories like cosmetics cough and cold a strengthened significantly prescription counts increased and pharmacy services continued.
Theyre multiyear expansion a strong indication of the relationships patients continued to build with their pharmacists as convenient and trusted health care partners. A recent <unk> survey named shoppers drug Mart the country's most reputable company a great position. When you are in the business of care.
Our food business continued to face global supply chain challenges and cost increases across the board, including for fuel shipping ingredients and packaging. We are watching these structural pressures closely.
At the moment as Richard said, we see signs that inflation is moderating however, external forces are significant and complex, making accurate predictions difficult.
Within the current environment, all divisions are performing well I'm, particularly encouraged by our discount division, which represents 60% of our grocery sales.
Our hard discount no frills and Maxi stores are a bellwether for customers seeking value in Q1 sales growth was strong.
This is an indication of the Canadian consumers steadily increasing focus on value, we see similar signs in the performance of our market leading private label program.
After President's choice are no name brand is the second largest in the country and through the promise of excellent products at incredibly low prices sales are at all time highs.
When combined with the over $1 billion of savings we are on track to deliver to Canadians through our PC optimum program, our consumers know they can count on us for the best value.
Delivering value as core to our customers' purpose, our company's purpose of helping Canadians live life, well, but equally important is our commitment to make a positive impact in the communities we serve.
With that in mind I am delighted to announce the release of our 2021 ESG report now online at Loblaw dossier. The report shares the details of our progress to date and our ambitious goals for the future on a wide range of environmental social and governance topics with a particular focus on our two biggest.
Internal priorities of advancing social equity and fighting climate change.
This is an increasingly essential part of the shareholder value creation model for Loblaw as we've worked to marry strong financial performance with excellent ESG credentials.
I will now open the call for questions.
Thank you Gayla and Michelle if you'd pleased to remind us how to.
Lineup for a question.
Thank you, Sir ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question. Please press star followed by the one on your Touchtone phone.
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Please standby one moment for your first question.
Your first question comes from Michael Van <unk> of TD Securities. Please go ahead.
Hi, good morning.
Very good quarter.
And.
Yes.
Overall, it looks like you are right.
I would've thought you are ahead of plan.
In Q1 after.
After a strong result in the way you guys talked about your outlook for the year last quarter. So I'm, just curious as to who.
Why you felt that you could increase your guidance for the year or is this just.
Cautious because of the uncertainty or is there anything thats changed in the fundamentals.
That may also be slowing down in the back part of the year.
Good morning, Michael Yes uncertainty as to the second half is definitely a factor, but when you look at our performance last year like.
We were.
We delivered like increasingly improving results as the year progresses. So.
So when we look at where we are now versus our plan like we feel that our current outlook is.
That's correct, we will update it as the year progresses, but for now we feel good with what we're what we have out there.
Okay.
When we look at the gross margin improvement is quite impressive.
Are you able to.
Separate.
What was coming from mix improvement in your business and what was coming from retail excellent initiatives.
Tough to do exactly what we can easily separate is where like food versus drug and as we mentioned in our remarks.
In this quarter it was predominantly drug.
And driven mostly by pharmacy services, which last year were just the beginning and whereas this year, we're running strong so those services.
The significantly higher margin than that than the rest of the business and that was the big the big driver of our gross margin rate improvement, we did see some slight improvement in on food retail, but it was small compared to the overall increase.
Okay, and when do you expect to start lapping the higher level of pharmacy services.
The best way to describe it Michael is that pharmacy services, we're increasing throughout last year. So every quarter. We saw an increase so so it's going to be an increasing trend that will will face as the year progress, but the team has put together some good plans for for that portion.
The business for 2022.
Okay, Alright, great and then just finally.
And you talked about.
We've seen prices, obviously significant cost inflation and price inflation.
Being pass through.
When you aside from the.
Actual food cost true cost of goods sold from your suppliers.
How are you dealing with the higher cost of labor plastic bags.
Things like that how are you able to pass that along at all.
Those costs are obviously like throughout the business, but likely the pale in comparison.
Two the cost cost increase coming from from.
Goods for resale and so those are the ones we focus more on in the rest like we're just managing so so like supply chain is Galen was mentioning is a good example, where we are we've been doing a decent job in sort of trying to offset those internally.
Okay alright, thank you.
Your next question comes from Irene <unk> of RBC capital markets. Please go ahead.
Thanks, and good morning, everyone before I get to my question just a quick follow up from John .
To Mike's question on the gross margin the absolute level of gross margin in Q1 is higher than the average over 2021 do you think that 31% level is sustainable.
Yes.
Thank you that's very clear.
So now if we could just talk a little bit about <unk>.
Tumor behavior.
Houston discount is now backed private label is now back what are you seeing in terms of promotional sensitivity to the sensitivity and ability to pass on and I will say that on the maple leaf called this earlier this morning.
Mccain noted they are not seeing consumer resistance to price increases in the form of lower volumes when they do raise prices.
Yeah. So so I sort of picked my words carefully we are seeing a steady shift.
Towards <unk>.
Consumer sensitivity around value as opposed to a dramatic left turn it's been building now for for a number of quarters and we see the strong signals as we mentioned in our discount business and then also even within our market Division business increased interest in things like Lake Nona.
Private label, so that translates also into increased promotional sensitivity and I think.
Which you tried to get out as we're kind of back to normal or call it back to pre COVID-19.
Price sensitivity promotional sensitivity, we're not yet seeing that.
That's expected.
Shifting that comes when you have plus 6% inflation for <unk>.
Month after month.
We think that's an indication of the consumer having more money.
In their wallets still than they would've had pre COVID-19 levels, but we're watching it very carefully because prices are continuing to grow.
Sumer behavior is shifting its the usual things smaller pack sizes sensitivity to higher price points, all of that stuff and it's an indication that that.
If inflation doesn't begin to moderate because of some of these external forces that we've been talking about.
It's going to increasingly become a concern but the reason that we emphasized the strength of our discount business as a reminder, that during COVID-19. It was a headwind for us.
During an inflationary period, we see it as a tailwind.
And no name as the unsung control brand that we have inside our portfolio.
And we've done a lot of work on that over the last number of years and are really encouraged by what we're seeing from the customer in terms of their enthusiasm for that product.
Thanks.
Very helpful and I guess, we're all shopping like matters now.
Just switching actually just following up on that you've got a lot of data in PC financial around broader consumer spending.
Any color that you can share with us from that perspective in terms of just what youre seeing.
Well, we look at it very carefully I want to be careful.
Here It gives us an extra sort of layer of visibility into consumer behavior. It's one of the.
The data sources that gives us some incremental degree of confidence around the strength of the consumer balance sheet. The strength of the PC optimum balance sheet or the PC financial balance sheet is very good.
And that suggests that the consumer is.
Is in reasonably good shape, but you can see that.
What youre hearing from the from the Big banks.
As well.
That's great and finally last one from me.
You guys mentioned improving sales of cosmetics.
Do you have a sense.
In aggregate, we are cosmetic sales are today relative to pre pandemic.
Yeah.
Oh, that's a good question I mean, there is still growing.
Fast.
And so I don't know if theyre all the way back to.
To pre pandemic levels, but if they're not there yet they will be very soon based on the rates of growth of course subject to a change in consumer behavior I don't want to understate either the.
The strength that we're seeing in OTC.
I think there've been a few headlines in the paper over the last few weeks about the flu being back.
That certainly seems to be the case when we look at OTC and also people who are managing COVID-19 on the milder side are also.
Diving back into all of the cold medicines as well. So those are really the two places that we've seen a very marked shift in sales growth in the last quarter.
That's great. Thank you.
Your next question comes from Mark Petrie CIBC. Please go ahead.
Yes, thanks, good morning.
Just with regards to your efforts on promo optimization I think you basically said, it's now embedded in the organization and.
And you are sort of at a run rate on that is that a fair summary.
Summary.
Well.
So call it the first phase.
Which is.
A very small number of tools that we developed during the pandemic and have now been deploying at scale one of the one of those internally we call the hero engine, which is a promotional.
Algorithm that drives incremental sales through loyalty, but and then there are a set of tools that are being used to.
To pick items and to pick promotional prices.
With the same kinds of incremental objectives.
Yes, that's ramping up I'd say that those tools are being deployed at scale now, but we have a world class analytics team, who is working on the next two or three tools at the moment and those tools are primarily focused around increasingly intelligent audience building.
So imagine.
Identifying particular audiences with particular propensity.
Want to buy certain things or to be responsive to certain <unk>.
Kind of messages or promotions that is kind of the next phase. So when you ask Richard the question what do we see in terms of margin expansion potential over time, one of the reasons for our.
Optimism.
Is the depth of opportunity that we're scratching the surface on in terms of that analytical database.
Okay. That's helpful. Thank you and then I guess on a related topic, just with regards to margins.
Wanted to ask about sort of procurement more broadly I know this is an area of focus for Robert.
You've made some changes so can you just talk about that work whats the impact of it today, what are your sort of expectations or how does this play out in terms of second half of the year and into 2023.
Yep.
So the principle.
Adjustment that we've made as we now have a central procurement team.
<unk> consolidates.
By in the negotiation.
With our with our vendors, it's a small team, but it's also a very.
<unk>.
A very capable team.
And I think we spoke last quarter about.
The way that that team evaluates the impact of.
Cost inflation on the cost of our good.
And it allows us to negotiate with our vendor base, we believe with an elevated level of precision and we've talked about this before about putting through real justifiable cost increases, but being very careful about accepting cost increases that are not.
Truly justified so that that is one of the big areas of focus of the team the team right now.
Second is developing really intelligent strategies by category to make sure that we have the right cost.
Across the board in in key items and there are techniques that we're using we're probably through two or three of the big categories right now and we're encouraged by the results that we're seeing.
Okay and then.
Just switching to e-commerce. So I just wanted to ask about sort of the margin impact of that business and as sales come off or.
Sort of normalizes.
More normal sort of shopping environment are you right sizing capacity, specifically in food and are you able to scale costs.
The slower demand.
Yes, absolutely I mean, we.
A certain fixed cost base.
Inside our picking picking network across all of our stores.
And I think Richard has commented before at peak sales, we do get a certain amount of leverage on those fixed costs and as the sales come down.
That leverage compresses, a little bit, but that's being offset by all the incremental work that we're doing on pick efficiency.
On on.
Pick up efficiency and then ultimately on the efficiency of our the relationship that we have with our delivery partners. So these things are mixing out.
In in the short term and then I think we've also shared that over time, we expect to see potentially.
Potentially incremental investments in different forms of automation.
We see an increasing opportunity to offset.
That kind of diluted margin through.
Through our media business and monetizing eyeballs on our digital properties.
So we.
We see the heavy investment period.
And therefore, the heavy impact on our gross margin.
Is largely behind us.
Yes.
We.
We know very well.
The net drag or the impact of fixed costs and the infrastructure. We have that's a number we track very carefully.
And year over year now like the incremental impact is not that material. So it's something that we can manage quite quite effectively.
Thanks for that I'll pass the line.
Your next question comes from Patricia Baker of Scotiabank. Please go ahead.
Yes. Thank you very much for taking my questions first just a follow up to an earlier discussion on the gross margin.
Suffers on the front store in the way that you can discuss it.
To be fair to assume that the OTC. The order of magnitude of impact is that the OTC with a greater contributor then cosmetics to the improvement in front store margin Steven.
I actually don't know the answer to that question to be honest separate Tricia I think the biggest the biggest driver on gross margin is essentially like corporate services that is that the biggest contributor.
Okay and then my actual question in Q4 and again in Q1, you indicated that your basket inflation, that's greater than CPI and the PPI in both cases.
High 75% of Q1.
Talk about the dynamic there.
Why your.
Your basket is higher and how.
How much of the inflation of product cost inflation are you passing through.
Yes, Patricio like we for US what's most important is as our pricing position versus that versus our peer that's what we track very well as to how it effects inflation and how others talk about inflation is very tough for us to compare and so but if we if we feel good about our pricing position if we feel good about our.
Our share position, that's that's that's how we manage our business.
Okay.
I'm not sure that I really understood your answer.
Sure.
But I think I think we are.
We're not trying to to manage our business to an inflation number we're trying to manage our business as to as to where we are priced versus our competition and so if we have a good pricing levels versus our peers and everybody is.
Living the same inflation has us everybody is dealing with these cost increases. So if we can maintain good pricing position, that's how we satisfy ourselves that we're well positioned versus our peers.
Okay. Thank you and Patricia maybe just if we go back a few quarters.
One of the things that we talked about as part of the retail Excellence program was.
We got in here and we saw what looked very much to us like.
Over investments.
In certain regions in certain categories in certain types of programs and so part of what's happening right. Now is that we are adjusting.
That base I think one of the terms that <unk> often around the merchant table as we're getting out of what we call low calorie sales things that just were simply not giving us value for for money. So so it would stand to reason that there might be.
<unk> difference between us and others.
In terms of the relative growth of the basket, having said that Richard's point is the most important one.
As we're managing our competitive position not through inflation, but through our relative price position on the effectiveness of our programs and ultimately our market share performance.
That makes sense, but what you are talking about here is kind of recovering from.
I'll pass that pricing position.
Yes, that's certainly one of the forces out there I wouldn't I wouldn't want you to think it was the only one because as you get as you optimize your promotional effectiveness.
Essentially spending less to <unk>.
Yet the equivalent value in the minds of the consumer that will also lead to.
Two two.
Potentially.
Incremental inflation in your in your measure without increasing your without deteriorating your customer value prop that makes sense.
It makes a lot of sense. Thank you for that.
Our next question comes from Chris Li of <unk> Securities. Please go ahead.
Hi, Good morning, I was wondering if you can give us a sense of the magnitude of the outperformance.
Discount banner versus them market during the quarter.
One one is accelerating and the other one is slowing a bit.
Yes.
Sorry.
No no.
But maybe can I just ask with the same store sales into the market Division and these positive during the quarter.
Which one.
The market division market position was slightly negative with slight negative okay. Okay. That's helpful.
And then in terms of just maybe a quick one on the gross margin I was wondering specifically as you see an acceleration from market to discount and my sense is I could be wrong that the gross margin for the market Division is generally higher than discount is there a bit of a.
Our negative shift impact on margin is.
Discount becomes.
If it goes faster.
Yes, mathematically, yes, like but the shift like us.
It is not material. So so all in all.
It's not it's not a material impact.
And maybe Colin on private label I know in the past I think you've disclosed that.
Brand penetration was around sort of 30% in the food segment. I was wondering has that percentage has gone up in recent months and then maybe secondly, how is <unk> capitalizing on the strong demand for private label to strive to drive growth, but more importantly to try to further improve the margin.
Profile over the longer term.
LIBOR portfolio.
Yes.
Yes, private label penetration is up.
Is growing.
Notably faster than than our non private label products and programs and of course.
The design of a private label product takes into account deliberately.
The margin structure and so its about Penny profit you want to earn more penny profit when you sell a control brand product then you earn when you sell a national brand product and that means the margin needs to be significantly higher.
And that's how the program is engineered.
Okay, and your penetration is still around 30%.
Well, it's it's grown.
But but it's not 40%.
Okay. That's helpful. Maybe just a couple a couple of quick ones just on the front store for shoppers. So yes. That's it's helpful that Omicron office, we had a bit of impact in the early part of the quarter. I guess my question is within your categories, where there may be more sensitive to food inflation like the food products that you sell shoppers is that critical category.
Are you seeing more sensitivity in terms of maybe people.
Not buying as much because of high inflation or is the convenience proposition shoppers more than offsetting that.
Tradeoffs.
Yes.
The starting point is that the shoppers drug Mart food proposition is not price led its convenience led the assortment is designed that way. The promotional programs are designed that way and the pricing is designed that way, having said that you certainly have to keep watchful eye on what could be perceived as in salt pricing.
On the shelf.
It's something that the merchandising teams and shoppers drug Mart or are very focused on but it's not the primary driver of business. There. Okay. That's helpful and my last question, maybe just a quick one in financial services.
<unk> has been relatively stable I was wondering what is your outlook for the second half of the year, if we do get into a.
Slowdown situation.
I think I think that business should continue to do well.
<unk> that we've been experiencing has to do with.
The movements in <unk>.
And the expected credit loss reserves, but if you look at the core performance of the business. We're starting to see spend go up again, which is which is very good for us.
But interestingly in Galen was touching on that earlier like payment rate, which is the rate at which people pay down their balance on their credit card continues to be exceedingly high which is an indicator to us that people still have money in their pockets. So we're monitoring this very carefully as an indicator of the health of the.
The Canadian consumer.
Okay that makes sense, thanks, very much and all the best.
Thank you.
Your next question comes from Mike Kendrick tie.
TB capital markets. Please go ahead.
Thank you and good morning.
Could you speak to how the online business perform perhaps relative to your expectations and secondly, how has sort of the changing face of the consumer the changing pressures of consumers that perhaps.
Facing impacting.
I am sorry, consumer behavior around online is there a marked shift in how consumers are shopping online and any insight there would be really useful.
No Mark shift that is a function of inflation, if thats really at the heart of your question.
We are.
We are seeing.
Opportunity to drive online grocery penetration in our discount businesses.
But largely because theres been a shift of consumers in general.
That space and we want to make sure that for customers, who want to buy discount online that they have the best possible access to that to that solution, but otherwise. This is still by and large are less price sensitive shopper.
We've commented in the past that the margin mix is better online that contributes.
Part of the offset for the incremental cost we are still seeing.
Significant growth in our proprietary delivery channel, which Richard mentioned, we've been rolling out which has a fee associated with it which again suggest people are prepared to pay for that convenience.
When it comes to a market like.
The GTA, we would have.
Penetration levels that are running well above.
The numbers that we that we reported today on average for the country.
Thank you guys and then if I could just switch to capital allocation and capital allocation priorities in the context of the changed world in which we love and perhaps some of those changes proving pruning minimal 10 minutes and some might have expected a couple of years ago has any of this impacted your thinking by way of capital allocation.
<unk>, necessitating a rebalancing of those priorities and any insights you can provide there as well would be would be appreciated.
I think that the insight is no.
No fundamental change.
We're still.
Aggressively investing in upgrading our supply chain distribution systems, adding automation.
These were all decisions that were part of our strategy over the last couple of years, we are beginning to.
Due to do more of that.
And then yes, we have seen a bit of a pullback in e-commerce.
And we've seen lots of robust strength in our store networks, but this is this is all within the within the framework.
That we laid out 12 months ago, So no meaningful change in capital allocation approach.
Great. Thank you I'll leave it there.
Your next question comes from Vishal <unk> of National Bank. Please go ahead.
Hi, Thanks for taking my question with regard to pharmacy services.
I was hoping you could give us some perspective on the size of that business once upon a time.
I understood.
Any small business back now it seem seemingly having a meaningful impact on gross margin.
I won't tell you the exact size, but yes, it grew significantly during COVID-19 and.
It is now an important part of our strategy going forward and last year was was a record performance for that business and so shoppers worked hard last year to put together plans to be able to continue to maintain and ultimately continue growing that business, but there is <unk>.
Secondly, portions of it that will be cyclical and that will go away, but but we do feel good about the plans that.
Put in place this year to be able to to.
To continue to have that business perform perform well going forward.
Just to add to that Vishal I think.
What Covid has done both for the Canadian consumer and then also for.
For the public health care system is its really helps everybody understand the complementary role that the pharmacists and the pharmacy can play on kind of basic health care delivery and so.
And vaccinations in Copa tests are just examples med reviews.
Retention.
Prescriptions all of these things are are.
Growing and important parts of the whole health care network and so we see medium term.
The opportunity to grow services through our pharmacies.
Well in excess of the peak that we had in <unk>.
In Covid this year.
Okay. That's helpful.
In your plan when you when you anticipate growing that services business do you see legislation.
Do you see the requirement for legislation change where that's within the existing frameworks.
Yes, it's within the existing framework.
And foremost.
But there is not.
<unk>.
The regulatory framework in each of the provinces is different.
And in certain provinces, where we can do more we're certainly building.
The evidentiary case for why some of these services should be expanded or allowed in other provinces, but it's part of the normal course, we're not we're not we don't need some.
Wide ranging change to take place in order for us to fulfill our objectives, but we'd certainly like to be able to do more in certain provinces.
Okay.
Sure.
In your remarks, I believe you mentioned and I may have got this wrong, a $1 billion and savings associated with optimum for the consumer with.
Was that a 2000 22021 figure and if so do you have a year over year number that you can share with us.
That was what was a 2021 number and no I don't have a.
Our year over year number to share with you.
Okay, and just on Friday front end for shoppers a bit lighter than I would've expected. Despite annualizing. The negative six same store sales growth last year wondering if that was an aberration just related to the.
The ups and downs associated with COVID-19, or is there something else in there that I should consider.
So I think youre right.
When when we started the year in Lockdown shoppers businesses was negatively affected and so so.
So it doesn't perform well under our restrictions so as we can.
Go back to normal we are starting to recover that and we see that trend continuing going forward.
Thanks for the color.
Okay.
Your next question comes from Peter Sklar.
BMO. Please go ahead.
Hi, good morning.
Just a couple of questions here.
One like what's your e-commerce revenues down almost 10%.
Richard what what's your thoughts like bottom bottom line is that good for profitability I would think because your margins are much better on an in store sale.
Versus.
Click and collect sale.
And I guess it assumes that you're capturing that customer as the customer leaves ecommerce and goes to in store I think there has to be an assumption that you are capturing the customer rather than the <unk>.
Other than the customer going to a competitor, but if that's the case.
Bottom line.
Has this been a profitable trend for you and does that noticeably contribute to your grocery gross margin in the quarter.
What you say makes a lot of sense, but like the impact of all of this is pretty marginal on our numbers because what happens is.
The biggest contributor to our to our cost in online is labor to pick in store. So that gets adjusted with the sales performance.
So net net.
Got it.
It doesn't really it's not a big driver of our gross margin performance. The fact that the penetration levels went from X to y.
And the last two quarters.
Okay, and then just lastly, just.
Just kind of anecdotal, but as I look at your fliers, there just seems to be more.
You know more promotions in terms of PC optimum rewards offered on these various promotions in the flyer might might just imagining things or has there been a bit of a change in strategy during the quarter.
So you are right. You are you are seeing in certain places I think maybe this week in particular.
Particular emphasis on PC optimum I'm think about this is not a fundamental strategic shift, but more a series of experiments to understand exactly how.
How to optimize the use of PC optimum across all of the various channels.
Of delivering value to the consumer.
And the fact that youre seeing a bit more of it.
Our Flyers is an indication of success.
And trying to test how far we can we can take it.
But at this point, what Youre seeing is.
Some of what Youre seeing our experiments.
Yes, so and the way you measure success I assume as you make an investment which is the reward.
And then you look at the incremental sales and the margins it generates and what's the return on that investment is that how you look at it Galen.
Right, we have a very.
Effective measure, which we call Ross, which.
Which is the return on sales metric and we measure every single promotion that way, particularly when it comes to those items that are part of the PC optimum program, whether it's in store and flyer or through the App.
Okay. Thank you.
Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one now.
Yeah.
There are no further questions from the phone lines I will turn the conference back over to Mr. Macdonald for closing remarks.
Great. Thanks, very much for your time everybody.
As always if you have any follow up questions can be assured drop me, an email and Mark your calendars for July 27, when we will be releasing our Q2 results. Thanks and have a great day.
Ladies and gentlemen, this does conclude your conference for this morning, we would like to thank you for participating and ask that you. Please disconnect your lines.
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