Q3 2022 Loblaw Companies Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the Loblaw companies Limited third quarter 2022 results conference call.
At this time all lines are in listen only mode. Following the presentation, we'll conduct a question and answer session. If at any time during the call you require immediate assistance. Please press star zero for the operator. This call's being recorded on November 16th 2022, I would now like to turn the conference over to Roy Macdonald.
Please go ahead.
Great. Thank you very much Colin and good morning, everybody welcome to our third quarter 2022 conference call I'm joined in the room. This morning by Galen Weston, our chairman President and by Richard Ukraine, Our Chief Financial Officer.
And before we begin the call I'll remind you that today's discussion will include forward looking statements, which may include but are not limited to statements with respect to loblaw as anticipated future results.
These statements are based on assumptions and reflect management's current expectations and 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 <unk>.
Forward looking statements speak only as of the date they are made.
<unk> 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 is required by law.
Also certain non-GAAP financial measures may be discussed and referred to today.
Please refer to our annual report and other financial materials filed with the 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.
In Q3, we delivered another quarter of steady operational and financial performance, reflecting our focus on our core retail businesses.
Our strong value offering best in class loyalty program, and leading food and drug retail businesses continue to position us well in a challenging marketplace.
On a consolidated basis revenue grew by eight 3% adjusted EBITDA increased by 10, 3% and adjusted earnings per share grew by 26, 4% to $2 one a share.
In drug retail absolute sales increased 10, 3% and same store sales grew seven 7% lapping an increase of four 4% last year.
Front store same store sales grew by 10, 7%.
We continued to see strong growth and margin accretive categories like cosmetics, and OTC, which are both showing double digit growth again this quarter front store sales drove <unk> gross margin improvement.
Pharmacy same store sales grew four 7% acute.
Acute and chronic prescription volumes are continuing to show steady growth and are approaching pre pandemic levels.
Pharmacy services have seen demand for COVID-19 vaccines and testing slow versus last year, while core pharmacy services like med reviews of rebound at.
All in all services are on track to deliver similar performance to last year's record sales.
In food retail absolute sales increased seven 4% and same store sales grew six 9% led by the strength of our discount banners.
In fact, we are pleased with our performance across all our banners and our market share improved over the quarter.
Performance in our discount banners continued to strengthen as market share in traffic improved year over year.
We continue to see a larger share of wallet spend and our discount banners. Although not included in our same store sales numbers. We are very excited about the performance of the seven stores that have been converted from market to discount in Quebec for more are opening over the next few weeks.
Having the right customer offer in each trading area remains a key priority.
The macro environment is favoring our discount banners, but our market banners are also delivering strong results and outperforming their conventional peer group. This is evidenced that our value proposition is resonating.
In food retail right hand side had a negative impact on same store sales of 120 basis points having.
Having said that our inventory levels in those categories remained healthy.
Online sales in the quarter increased 3% lapping flat growth last year, and 175% sales growth in Q3 of 2020.
We are pleased with our online penetration rates, which are trending well above pre pandemic levels, even as customers returned to in store shopping.
Retail gross margin in Q3 was 38% up 10 basis points compared to last year, driven by continued strength in the higher margin mix of cosmetics and OTC categories, and our drug retail businesses.
Gross margin performance in food retail was flat.
Private label offering and promotional effectiveness enabled us to balance value and deliver sustainable performance.
In light of our strong bottom line result, this quarter I thought it might be helpful. If I commented a bit on.
A bit more detail on how inflation has impacted our performance.
First and foremost the pressure on cost is more significant than anything I've seen in my career and.
And it's translating to increased prices everywhere, particularly in food.
It is a global issue facing all countries in all sectors and policymakers around the around the world are doing what they can to bring it under control.
When it comes to food prices, we know Canada is doing better than most with some of the lowest inflation ended G. Seven but that is no comfort for customers, who are paying over 10% more for their intent essentials than we were just 12 months ago.
At Loblaw, we're taking active measures to combat the pressure on behalf of our customers and it's important to keep in mind that the levers available to us are limited.
We are a food distributor, we buy goods from suppliers and then sell them to customers. So.
So we are largely dependent on what suppliers ask us to pay for their products suppliers determined the cost and we determined the retail prices.
We have seen unprecedented cost increases from our suppliers this years.
This year and we continue to receive new cost increases part of our job is to evaluate these and pushed back where they do not make sense. We've done that vigorously over the last two years and we'll continue to do so going forward.
Our objective is to make sure that our price on the shelf do not rise faster than supply costs.
Gross margin is an important measure we track to ensure we are delivering on that goal we watch it very closely.
In every quarter since inflation took off last summer gross margins in food has been essentially flat.
This gives us the confidence to say categorically that retail prices are not growing faster than cost and the company is not taking advantage of inflation to drive profit.
In fact, we remain focused on finding ways to provide the best value to Canadians and continue to make investments and lower prices. We measure our success every day at the checkout counter and our strong sales and market share performance. This quarter are a clear indication that our efforts are resonating with customers.
Retail SG&A as a percentage of sales was 23% an improvement of 20 basis points compared to last year adjusted retail EBITDA increased by $175 million or 10, 8% in the quarter, yielding a margin of 10, 5%.
We were pleased with <unk> financial performance revenue was up $53 million driven by higher interchange on interest income that resulted from a broad based increase in customer spending.
Contribution to adjusted EBITDA from the banquet flat in.
In addition to operating causing increment increasing on an on an improvement in consumer activity. We continue to see credit losses normalize towards pre pandemic levels and we increased our credit loss provision to reflect the macroeconomic outlook.
On a consolidated basis adjusted EBITDA margin was 10, 6% in the quarter up 20 basis points compared to last year.
In Q3, we repurchased $403 million worth of common shares representing $3 4 million shares. This bring this brings year to date purchases to $1 2 billion.
We are confirming our full year outlook at the higher end of the range, we provided last quarter I.
I am pleased with our performance again this quarter with our focus on retail excellence, we continue to deliver consistent operational and financial performance I will now turn the call over to Galen.
Thank you Richard and good morning, I'm pleased with the results of the quarter as well the company delivered strong financial performance in both sales and earnings.
All our businesses performed well as we continued to execute and execute against our three strategic pillars of retail excellence driving growth and investing in the future while delivering on our purpose to help Canadians live life well.
This has positioned us well with the economy and the industry have faced unusual pressures.
As the summer ended and Canadians returned both to the Office Center School, we saw a marked acceleration of sales in our beauty is a high margin category. This significantly benefited our results.
And as the weather cooled and people stayed indoors all that extra social contact contributed to more respiratory illnesses than would be typical the combination of COVID-19 RSV and flu brought more customers to our pharmacies, leading to all time highs in the sale of cough and cold meds and sustained growth in prescriptions.
In addition to the traditional strength of shoppers our health services businesses have also done well as you know we're passionate about the vital role pharmacist can play in improving access to health care for Canadians that opportunity as being well demonstrated in our first pharmacist led health clinic in Lethbridge, Alberta.
Based on the strong patient response, we've opened four more clinics in that province before the end of the year and we continue to work with other jurisdictions to expand the scope of practice for pharmacists to complement and enhance existing care models.
In the quarter. We also saw sustained food inflation Richard did a good job of explaining how we're approaching this at loblaw by taking thoughtful and decisive action in the areas that we control. This includes strong pricing programs across our business and great value and our Flyers every week.
As you know we took the unprecedented step of freezing prices on Canada second largest brand no name locking down 1500 items. The response has been overwhelmingly positive leading to even stronger control brand sales outperformance since the announcement.
We also added an incremental point stays event in the quarter offering exceptional point space discounts across our entire business. This event is not one of our most impactful sales drivers of the year and I'm pleased to say that Canadians are on track to save more than $1 billion in points. This year the highest ever.
And I would be remiss, if I didn't call out the recent launch of our holiday Insiders report. It's my favorite since we introduced the report two years ago with a focus on holiday entertaining innovation and value.
The PC everything Pan as the blow away item for the season at just $59 99, and I expect this insiders to be the most successful ever.
This comes as we continue to invest in value, while keeping a firm grip on margins and customers and consumers are responding well to our efforts, we're winning market share overall led by our discount division as customers looking for value increasingly choose to shop with us at the same time, our market division is holding its own against its peers.
And shoppers drug Mart remains the destination of choice for Canadians looking after their health.
Finally, we continue to execute against our ESG commitments as we published a new human rights statement and our inaugural T. C. F D report.
On the ground, our support for food banks and recovery agencies remain industry, leading and our partnership with Flash foods has reduced to reduce food waste is kept 40 million pounds of food from landfill and saved customers more than $100 million.
As we look forward loblaw is well positioned to meet the challenges ahead, we are executing our strategy and actively supporting Canadians as they seek more value in food and improved access to health care I'll now turn the call over for questions. Thank.
Thank you Galen colon could I ask you to please introduce the Q&A process.
Absolutely. Thank you, ladies and gentlemen, we will now conduct a question and answer session. If you'd like to ask a question. Please press star followed by one on your telephone keypad, if you'd like to withdraw. Your question. Please press star followed by two if you're using a speaker phone. Please lift the handset before pressing any keys one moment for your first question.
<unk>.
Okay. Your first question comes from Mark Petrie from CIBC Mark. Please go ahead.
Hi, This is Kyle filling in for Mark Thanks for taking our questions and congrats on a great quarter, Alright, I Wonder if you could talk about how consumers have been responding loyalty program operates and how that might happen.
Hey, guys inflation has increased for me shifted consumer priorities Handpiece easier you alluded a little bit on the call to the incremental points, but any color. There would be helpful. And can you kind of talk about how that's affecting food drug if at all.
Yeah, absolutely so so the points program.
<unk> continues to build momentum and has done so through through all of 2020 to the.
The incremental point stays made a significant impact on increasing the number of engaged customers actively using the program and across the board, we're seeing customers actively changing their behavior to earn more points and we are seeing more redemptions and the program. Then we would see typically all of this is an indication to us that.
Customers quite rightly see points as our strong equivalent to value add.
And as customers are more value focused they're more focused on earning their PC optimum points.
Okay. That's great. Thank you and then my second question is on the mounting pressure on SG&A, given they've got contracts above normal rates of increase and broad inflation across the business I understand that you're proactively manage your costs, but it would be helpful to hear more about that they can think leigh any thoughts.
You can provide around 2023 and your expectation for expense leverage point D. Lappage after a pretty strong performing so far in 2022.
Okay.
Yes, we always have we always do our best to manage our cost the labor cost pressures that you alluded to are are very prevalent in our business and we're planning for them for FY 'twenty, three and but we need to go and find other other opportunity elsewhere too so that we can deliver on our own.
Our financial plan. So that's the that's our daily job, that's what we need to do every day and.
And we feel confident about the plans we have in place for 2020.
Okay, Great and then my last question is just on the incremental business opportunity.
And get out and get transportation assets and I'm, hoping you can provide a little bit of an update there and ideally gets done for them.
<unk> for the contribution of that question.
And timing.
Yeah. So look we continue to invest in that business. It's it's small today.
But certainly something that we see.
She has material potential for the enterprise.
It's really two things standing in the way of accelerated growth at the moment. One is we need to acquire incremental trucks, you know that takes a little bit of time.
We need to make sure that we have sufficient drivers in our trucks run to run those extra routes and we're actively working to recruit those drivers as we speak but the business is profitable as it stands today and it is growing very much relative.
Quarter over quarter basis, and we expect that to continue as we move into 2023.
Yeah.
Okay perfect I'll pass it on thank you very Max.
Your next question comes from Michael Van <unk> from TD Securities. Michael. Please go ahead.
Thank you and a good quarter.
I wanted to ask a bit more about the discount versus conventional trends in the end.
And whether you are you seeing tonnage over growth overall and yes. It is.
The industry is still seeing tonnage growth and we're just not really seeing it in the simple math.
So Michael we're clearly seeing tonnage growth in our hard discount banners clearly.
Our view is that the industry is still running tonnage negative, albeit much much closer to flat than than what we experienced last year.
So, but we're happy to see that in hard discount which turned positive.
Okay. So and you believe that you gain market share.
When it comes to tonnage.
We're yes, we gained market share overall in both businesses together, yes.
Okay and then.
I asked this question on an earlier call today, but.
<unk> beauty.
When do you start lapping tougher comps because it's been growing very rapidly over the past year and and how sensitive rather than to the economic downturns in the past when from shoppers perspective.
Yeah, Michael I guess I guess, the beauty category started to get going when the restrictions ended last I guess last June .
And they've been going strong ever since so we've lapped that and it continues to go go.
Go strong so so.
So I can't predict the future, but it's still it looks good and.
In the context of a recession, we feel those are like small indulgent indulgence as that.
People will continue to spend on and so when we look at our results. Historically. This is not this is not very much affected. So we think that this trend should continue.
That's helpful. And then finally on financial services, you had very good revenue growth your EBITDA was down slightly.
Can you just give us some details on that on the level of PC Alger you had this year and the outlook for that.
And the health of your credit card holders now.
Okay. So so.
So yes, so the drop in EBIT EBT is driven essentially by.
The movement in our expected credit losses provisions, Okay, which is in the banking world is a big deal. So this is driven by.
Unemployment rate forecast driven by bank Big banks, and so that's something we need to do.
Having said that when you look at when you look at the customer are clearly, we're starting to see a trend going the other way like that consumer spending is slowing down and we're starting to see delinquencies go up again, so, but we're still far from the levels. We were prior to the pandemic, but theyre definitely there's definitely been a <unk>.
And trend.
Okay, and what was the PCL level this year versus last year.
The Vcs what sorry.
The <unk> for this year versus last year.
Oh <unk>.
Oh I don't have that number in my head Michael I've got a number but I will check and get back to you.
Alright, Thank you very much.
Your next question comes from Kendrick tie from ATB capital markets Hendrik. Please go ahead.
Thank you and good morning, just a follow up on the on the boots on the beauty question could you give some indication of where we are.
Yeah peak to trough in terms of how much of a recovery, we have seen sort of going looking back pre pandemic type levels on beauty on beauty spend and then perhaps also just on the evolution of that.
<unk> spend or call. It the derivative impact you commented Galen, we still have a big lift and beauty through the summer and fall.
The increase of the socializing.
In part contributed to increased cases.
How are you thinking about the risk of that is increased cases now on the other side, perhaps slowing that recovery in beauty as we move through the holiday season and into the.
First quarter of next year.
So on beauty, we're definitely.
Past that pre pandemic levels. So we're so far so we're essentially essentially back to normal and as I was saying earlier to Michael I think that I think I expect that trend to continue.
As two cases, I think you refer more to the other.
They're aspect beyond beauty in front of store, which is cough and cold and cough and cold.
Had that conversation with a lot of investors over the last year, typically cough and cold follows a U shaped curve, okay like it's high at the beginning of the year abates during the summer and then picks up in the fall what we've experienced this year has been a flatline, okay and it's been flat until about I don't know.
Month and a half.
And so but a month and a half ago. It started to accelerate based on the comments again was talking about and now we're running at record levels of cough and cold that we've never seen before so so.
Very tough to forecast, what's going to happen next year.
But that's what we're experiencing right now.
And so thank you Henrik I think as a follow up to your question about I think what you were asking was do we see.
Some kind of a behavioral shutdown negatively impacting our beauty sales I think the answer to that would be it depends entirely on what kind of consumer behavior change takes place.
If it's masks, probably not and if it's if there's some form of lockdown and it certainly would but you know what.
Not reading anything about that level of severity at this point and so as per Richard's point, we think it's going to continue.
At this more normalized level of performance.
Thats great. Thank you James.
Just.
Switching gears on the the loyalty resets from a number of El competitive and it's obviously been a very headline heavy couple of months.
How are you thinking about.
Your sort of absolute and relative proposition on these resets.
Ability if you need to move quickly should you see any material changes.
With respect to the value propositions and then perhaps also more specifically how are you thinking about that.
<unk>.
Most importantly in the short to medium term.
So I'm going to let the prospectus.
Yeah.
Okay, yes, so the so the first question.
Is about loyalty.
And relative to the new entrants.
In the space in our industry. So the program in PC optimum is designed with an enormous amount of flexibility in it.
I think you can see we're out there marketing today that you can earn up to 10% and in savings. If you actively engage in all of the sort of components of the program and you can earn at various lower degrees if your.
If your level of engagement is less and we can toggle up and down that investment on a per customer basis, so our capacity to be precise.
In response to any competitive activity as is almost.
On unlimited, having said that we feel extremely confident about the value proposition that is already in the market and we're not seeing any signs at this point.
Anybody.
Fundamentally matching it so that continues to be good and we see.
Our robust performance in our in.
In the markets with PC optimum where competitors have have launched in terms of Quebec Youre speaking now of <unk>.
Of our of our renovation program I'm guessing is outright kendra.
And part of our innovation program, but also just closing out the loyalty discussion I mean, the more material to the resets and as Quebec based so just trying to understand that given that that will come to market a lot sooner than.
The other bakeries set that we're seeing which has a much longer time to time to market.
Yeah, well I think it's the same answer that I provided before.
Our view we're confident.
And I.
I think one of the things that makes PC optimum, particularly strong at a time like this is it's it's available in all of our discount formats.
And that's not the case with everybody in the market.
Great. Thank you I'll get back in queue.
Okay.
Your next question comes from George <unk> from Scotiabank George Please go ahead.
Yeah, Hi, good morning, billing and Richard just wondering through your consumer analytics data that you have are you seeing at all a new cohort.
Sharpen our discount banners, perhaps higher earners in anything there, what's the ability maybe to retain those guys.
And the longer term.
Yes, we are seeing at seeing a new cohort, maybe not a new cohort they've always been.
Customers like that shopping in our discount business, but certainly.
In the old school.
Version of analytics, we're seeing a lot more Mercedes on range Rovers in the parking lot in those stores than than that than would've been the case before.
You know look who knows.
How many of those customers will ultimately stay in the discount format, but that discount growth has been.
<unk> has been prevalent across our industry for a decade and a half.
Which suggests that the the discount formats are successfully converting higher income customers.
And we see the same thing through our investment in the quality of our value proposition.
Quality of our supermarkets, the quality of our opening price point control brands all of these things are very.
Satisfying I think why not when a higher income customer comes into one of our discount stores and so if you were asking me to speculate I would say that we're better equipped to hang onto those customers today than perhaps we would have been with the discount formats of a decade ago.
Okay. Thanks, So I'm just curious about the pace and maybe the magnitude of the shift towards towards private label and then maybe how that compares to past periods of economic stress is it similar is happening more acutely and can you maybe talk about dynamics shifts kind of within our own private label assortment if any.
Yeah.
So.
It's a long time since we've had this kind of food price inflation pressure in fact, I think even back in the eighties. It wasn't anywhere near this high.
No name was born out of a high inflation environment.
There was an opportunity to deliver the same quality product at a significantly lower price than what was being offered by the national brands and it took off.
Very similar context to the one that we're facing today.
And over the last five or six years, we've made a considerable effort to increase the quality.
Of our no name product.
Our simple check program is a good example of that and so we are seeing an enormous amount of.
Of new trial.
<unk>.
And I don't know what it was like in the 19 eighties, but I certainly in my time in the business haven't seen.
This kind of growth and an opening price point brand.
Ever so it's pretty significant one of the bigger reasons for that we think because we've got a broad assortment of no-name products and produce.
Which is one of the most acute areas for price inflation in the market right now.
And just like your question about discount formats.
Be optimistic that we'll hang on to a lot of customers in that and the known named category as well I do want to say, though that President's choice is growing.
As well.
Not at the same rate as no name, but it's also.
Putting up terrific numbers, and we expect that to continue to and no name also has a value gap to the national brand. So when you think of those two being the largest two consumer brands in the industry, both being better priced than national brands. It's a good place to be.
Okay, Great and just one last one if I may for shock and could you talk a little bit if you exclude the proceeds from property sales can you maybe talk about capex for next year.
How should we just generally think about.
Capital intensity of the business over the next little bit.
Yes, I can start to give you a glimpse we're going to give you more details when we release Q4, but like.
Going to increase our gross capex.
Starting next year, because we are embarking on a on an automation journey. So so we're talking like a few hundred millions more and.
But one way, which we plan to sort of mitigate the impact on the cash flow of the business as we still have a lot of real estate in loblaw that was not vented in into choice at the time of the IPO and we intend to use it.
Sell a lot of that real estate over the time of this program to mitigate the impact of this increase in capital. So so but I will be back to you in Q4 with more details around that.
Alright, thanks, guys great quarter.
Your next question comes from Vishal <unk> from National Bank. Please go ahead.
Hi, Thanks for taking my questions I think off the top.
Richard You May have said there was 120 bps of pressure on the comp related to right hand side.
Got them.
I'm wondering if how management thinks about alleviating that pressure or is that something we have to live with for the next little bit.
Was there an associated gross margin impact as well.
Somewhat but not that significant it goes to the size of these businesses are not that significant compared to the to the whole to the whole thing.
It's tough to predict.
What's going to happen going forward, but we.
We're focused very much on on on managing shrink in our AR and our inventory so that so that we don't need to do as much sell downs at discount prices and thats been very successful for us over the last the last two years as we've been managing to a sort of a pandemic.
Right and the shrink shrink management on the food side right no.
No, but also also on the other.
On the right hand side, especially in apparel like if you buy too much and you.
We ended up with stuff youre going to have to has to sell it at a huge discount. So we've gone we've become very disciplined in buying the right amount. So that we can sell more stuff at full margin and thats been a key driver of our gross margin improvement in apparel over the last two years.
Okay and just.
Just changing topics here to Rx count growth it seems to be decelerating.
And notwithstanding all the trends that you're that you've talked about it on cough cold and flu incidents and so and so on so that's about 8%. This quarter I'm wondering if there's anything we should read into that decelerating trend over the last few quarters.
No I think there's nothing to read into it as we said in our remarks.
Not back to pre pandemic levels in scripts, but we're getting close and so so so we expect to we expect to get back to there over the next.
Over the next few quarters, and we think that business continues to be to be very healthy.
Okay and.
Maybe another one Richard where we're going to try to try to ask you about 2023, and your <unk> and your thoughts.
<unk> you know very strong earnings growth over the last couple of years I know you're pretty committed to this financial framework and delivering that for shareholders wondering if you can provide any early thoughts on 2023.
Previously the expectation was that <unk> was going to slow in 2022, but it's looking to continue to be strong at least this quarter. So any thoughts on how investors should think about the growth cadence on the EPS line.
For the moment.
We feel confident in our ability to deliver on our financial framework for 2023.
And we will give you more details on that when we released Q4.
Okay, and then the financial framework, that's 8% plus.
Yes.
Alright, thank you.
Your next question comes from Peter Sklar from BMO capital markets. Peter. Please go ahead.
Good morning.
Richard in the past.
We've talked about.
But on the second.
We've talked in the past about since you changed the management team at Loblaw.
You and Galen and Robert Sawyer arrived the various things you've you've worked on that have had an impact on results. So what's kind of top of mind now that.
The group if you are working on what are the things you are addressing.
Well, we're working on the same things Peter like we're just focused on running our business.
Every day, the best way, we can and and all the stuff we've been talking about over the 18 months continues to happen and.
We still have lots to do so so but we do feel good about where we're positioned.
And look forward to.
To 2023.
So theres no particular items you want to call out that are warranting attention.
Real estate real estate remains a.
A key area of focus for us as we said in the past like.
We we.
We've fallen behind from a from a square footage share in this market and so we've embarked on a plan to do.
Accelerate our new store opening this stage time, but I'm happy to say that I have now visibility to a significantly higher number of new stores next year, but it will take until 24 before we reach the cadence of that.
That that we want that we want to get too and.
And there is still going to be more raynaud's in more store conversions that you're going to hear about.
And based on what we've experienced so far we're very pleased with the progress with that so so expect to see expect to see more of that.
Okay.
And then just lastly this.
And that's a bit of an awkward question. This.
Federal government investigation of the of the grocery industry.
I'm just wondering have you heard from them yet.
Anything happening they asked you for information or.
What is going on there.
Yeah. So this is this is a fairly standard process.
The protocols are which are I think are easy to to get from from Ottawa and involves.
Anybody who is interested.
Interested making a submission.
As you would expect we're actively participating in the bureaus studying.
Our objective is to make sure that we share.
In a transparent way all the most relevant information and to make sure that the facts of.
What's happening in this inflationary environment are properly understood.
By all by all stakeholders.
And we clearly feel strongly about whats going on in the actions that we're taking to help mitigate.
Mitigate food price inflation.
But from a process point of view if they started the process and are you working on it and some bidding like preparing your submissions et cetera.
Yes.
Okay. Thank you.
Your next question comes from Chris Li from data or Dan Chris. Please go ahead.
Hi, good morning, everyone can.
Can you maybe talk a little bit about the shortage of certain over the counter medication.
When do you expect this situation to return to normal and the impact on your front store sales from a shortage meaningful thank you.
Yes, so there's two things happening.
One is we have substantial demand over and above normal rates in these in these in this particular category.
And the multinationals and the generics, who who manufacture these products are having trouble keeping up with demand. So everybody in the industry is facing the same challenge we're all in the retail industry. We're all on allocation.
And and doing our best in that circumstance to stay in stock and be there for our customers.
So our hope is that these manufacturers as I know, they're working hard continue to improve their production systems and continue to.
To get more and more product available to us at this point it's too.
Difficult to say exactly when.
This shortage will end.
And as I said part of it is being driven by.
By this unusual demand.
And it's hard to say when that is also going to going to abate as well.
Okay. Thanks for that and maybe just sticking with the pharmacy.
Have you seen any improvement in the pharmacist I've done ability.
Can you also maybe provide us with an update on the deployment of south central fill them. Thank you.
Yeah. So.
With with all forms of labor.
At the moment there are challenges.
It's hard to find people to work in stores, that's hard to find.
The work in pharmacies, and it's hard to find people for just about anything.
As it relates to pharmacy specifically.
We are active out there in the marketplace with fat with with the pharmacy colleges we're active.
With.
New immigrants in the country, who are already trained to be pharmacists, we're supporting them on there.
The path to get certification and the various provinces.
But what I'd say is probably the single biggest attraction that we're now seeing for new pharmacists to come to shoppers drug Mart.
Is.
The opportunity in expanded scope of practice.
Young graduates from Pharmacy College today are looking at.
To provide that expanded scope and our ambition in this area as a real draw for that talent and when we do go to these recruiting events. We certainly got a very positive response as a result of that so we expect it will continue to be a source of pressure for us over the next six to 12 months at this.
Point, we don't see it.
Being a meaningful constraint on our growth plans as it relates to expand its scope.
Okay, and how do we deal with the central from deployment of you sort of pathway.
The deployment.
Yes, we're progressing well.
I don't remember the exact percentage, but I think we are in sort of the high thirties.
The percentage of our volume that's flowing through the central fill that centers now and so.
And those are those are being deployed quite.
Quite easily without.
In English.
Okay. Thanks Richard.
One last quick one for you.
So your high teens EPS growth guidance for this year implies roughly sort of mid to single mid single digits.
Percentage growth for Q4 for EPS, which is a quite a bit of a slowdown from the 20%.
First language.
Lapping strong really the main reason for the slowdown where are you seeing anything there.
Near term horizon that will cause that.
Yeah. That's a good question, Chris I think I think.
I think you need to look like we're getting more and more normal market conditions.
And so so this quarter was really high because theres been some volatility because of what's happening with our noncontrolling interest line.
And Roy will give you some details as to how this thing works, but but essentially essentially the if you will.
Take that out of the equation that we're going to we're going to be performing I would say more in line like this quarter in Q4 from an operating perspective, and so so with the information that we're able to provide you should be able to get pretty close to where it will land.
Okay, that's very helpful.
Thank you.
There are no further questions at this time I'll turn it back to Roy for closing remarks.
Great. Thanks, Paul and thank you everybody for your time this morning feel free to reach out to me with your follow up questions and circle year calendars.
During 2003rd when we will be releasing our Q4 results. Thanks, very much and have a great day.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.