Q1 2023 Loblaw Companies Limited Earnings Call

Speaker 2: will conduct a question and answer session. If at any time during this call you require immediate assistance please press star 0 for the operator. This call is being recorded on Wednesday May 3rd 2023. I would now like to turn the conference over to Roy McDonald. Please go ahead. Great thanks very much Julie and good morning everybody. Welcome to the

Speaker 3: which may include but are not limited to statements with respect to levels anticipated for future results. 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 natural results or events to differ materially from our expectations. These risks and uncertainties are not limited to statements with respect to levels anticipated for future results.

Speaker 3: otherwise, other than what's required by law. Also, certain non-GAAP financial measures may be discussed or referred to, so please refer to our annual report and other materials filed with the Canadian Securities Regulators for a reconciliation of each of these measures. Now I will turn the call over to Richard. Thank you, Roy, and good morning, everyone.

Speaker 3: I'm pleased to report that we started 2023 building on the strength of last year.

Speaker 3: We continue to deliver consistent operational and financial results with solid top-line performance and strong earnings growth.

Speaker 3: We remain focused on delivering value to consumers and carefully managing our expenses, all part of retail excellence.

Speaker 3: On a consolidated basis, revenue grew by 6% and EBITDA increased by 7.8%.

Speaker 3: Adjusted earnings per share grew by 14% to $1.55 a share. As a reminder, we are lapping a very strong Q1 last year where food same-store sale growth outperformed, gross margin grew by 80 basis points and EPS grew 20.4%.

Speaker 3: On a gap basis, our earnings per share reflected a 0.8% decline as we lapped one-time gains last year.

Speaker 3: In drug retail, absolute sales increased 10.7% and same-store sales grew 7.4%, lapping an increase of 5.2% last year.

Speaker 3: Front store, same store sales grew by 10.3%.

Speaker 3: as continued strong demand growth in margin accretive categories like cosmetics and HABBA. OTC performance remains strong but off its peak. Pharmacy same source cell grew 4.7% driven by growth in acute and chronic scripts partially offset by lower COVID vaccines and testing.

Speaker 3: Overall, we are encouraged by the steady and strong pace of growth in pharmacy services.

Speaker 3: These services represent an exciting new business for Loblaw and we continue to expect them to drive long-term growth. Looking ahead, after lapping pandemic headwinds in pharmacy and Q1, we should see a return to more normal front-star growth rates going forward.

Speaker 3: In food retail, absolute sales increased 3.8% and same store sales grew 3.1% and reflect a 110 basis point timing impact of Q1 this year starting on January 1st when most of our food stores were closed versus a January 2nd start last year.

Speaker 3: In Q1, our internal food inflation number was generally in line with CPI.

Speaker 3: Right-hand side remains a drag on our same source cell performance to the tune of 60 basis points in the corner.

Speaker 3: Omicron last year was a key driver of our same store sale lumber.

Speaker 3: Our hard discount banners continue to outperform the overall discount channel, delivering strong profit and item count growth as customers continue to focus on value offerings.

Speaker 3: In Quebec, our discount position continues to grow. We converted one Pro Vigo store to Max C at the end of the quarter, two more have opened since and we will convert eight additional stores in Q2.

Speaker 3: We continue to deliver outside sales performance in these Maxi conversions, and we are particularly excited by the traction of our Maxi banner in the Quebec market.

Speaker 3: Our market banners are also performing well and continue to outperform their peer group. Having the right customer offer in all of our stores remains a key focus.

Speaker 3: As I mentioned, our right-hand side had a negative impact on same-store sales at 60 basis points. This improved from Q4 as apparel sales growth was strong and H&E was only slightly negative this quarter.

Speaker 4: We remain comfortable with our inventory levels.

Speaker 4: Our private label brands continue to outperform national brands, growing sales more than twice the rate of national brands. And No Name continues to resonate well with Canadians, delivering strong double-digit sales growth in the quarter.

Speaker 4: Online sales in the quarter decreased 1.1% lapping elevated demand last year due to pandemic-related restrictions. We are pleased to see sequential improvement in our online sales penetration over the past three quarters, currently sitting at the highest level since Q1 of last year.

Speaker 4: Retail gross margin was 31.3% up 20 basis points compared to last year.

Speaker 4: Gross margin benefited from growth in high margin front store categories in drug retail and retail excellence related initiatives offsetting higher shrink.

Speaker 4: We recorded a slight decrease in food retail margin as costs continue to rise faster than sales.

Speaker 4: We are continuing to see elevated cost increase from our food suppliers.

Speaker 4: This includes small and medium sized Canadian vendors catching up on costs and we're doing our best to expedite those. More concerning, we're still seeing outsized cost increases rolling in from large global consumer goods companies exceeding what we would be expecting at this point.

Speaker 4: Year-to-date, suppliers have increased our product costs nearly $1 billion, which is down from last year at this time, but more than double the annual historic norm.

Speaker 4: Another careful quarter of cost management resulted in an improvement of 10 basis points in our SG&A rate as a percentage of sales.

Speaker 4: Adjusted retail EBITDA increased by $105 million or 8.2% in the quarter, yielding a margin of 10.9% up 20 basis points compared to last year.

Speaker 4: PC Financial's earnings before tax declined by $20 million, largely a function of an increase in the credit loss provision this year compared to a release in the comparative quarter. The core business performance remains in line with our expectations, with revenue up $52 million driven by higher interest income and an increase in consumer spending.

Speaker 4: 383 million dollars worth of common ships.

Speaker 4: Looking ahead, we remain confident in our plan and our ability to execute in our core businesses while advancing our growth initiatives.

Speaker 4: and it's been evident as we've delivered steady and consistent performance each quarter. This focus will continue to benefit our business going forward.

Speaker 3: I will now turn the call over to Galen. Thank you Richard and good morning. I was pleased with our performance in the quarter, particularly as we lapped pandemic tailwinds from Q1 2022.

Speaker 3: As we work hard to deliver value to our customers in the face of persistent cost inflation, we saw good underlying momentum and strong overall results. It was nice to see a recent poll showing Canadians view Loblaw as the grocer doing the most to help with inflation.

Speaker 4: Shoppers Drug Mart had another standout quarter with high margin beauty and coffin cold sales continuing to drive our retail gross margin results.

Speaker 3: COVID-related vaccinations and testing declined year over year, while other pharmacy services like medication reviews and minor ailment prescribing grew rapidly as pharmacists continue to step up and improve access to high quality primary care across the country wherever provincial regulations allow. COVID-related vaccinations and testing declined year over year, while other pharmacy services like medication reviews and minor ailment prescribing grew rapidly as pharmacists continue

Speaker 3: In our food business, we stayed laser focused on delivering value to customers.

Speaker 3: And Canada is now one of the few OECD countries that has seen food inflation moderate in recent months.

Speaker 3: Once again, we did not pass the full amount of cost inflation to customers, leading to food gross margin declines, yet again this quarter.

Speaker 3: Our approach continues to work. Market stores outperformed peers, our discount division grew shares through more traffic and bigger baskets, engagement in PC optimum loyalty rose substantially, and President's Choice and No Name grew at more than twice the pace of the big national brands.

Speaker 3: With Q1 behind us, we're comfortable with our position. Looking forward, we will invest more than $2 billion into the economy, creating thousands of jobs, adding discount supermarkets in underserved regions, expanding our T&T supermarket chain and continue to open pharmacist-led clinics with plans to add more than 70 new points of primary care to our of primary care to our respective've nature.

Speaker 3: for patients in Alberta, Ontario, Nova Scotia, New Brunswick, and PEI. As our business advances, so too do our ESG commitments.

Speaker 5: fighting climate change and advancing social equity. Our latest D.S.G. report outlining our progress is now available at loblaw.ca.

Speaker 5: It does an excellent job of demonstrating the many ways our purpose comes to life through a more inclusive workforce, a pledge to feed and care for families, and the belief that we can substantially reduce our environmental footprint by making the right choices. I hope you'll get a chance to take a look.

Speaker 5: Looking forward, we will continue to execute well against our purpose of helping Canadians live life well, doing so while operating a successful business and delivering reasonable financial results. I'll now open the call for questions.

Speaker 3: Thank you, Gayle. Thank you. Go ahead, Julie, and introduce the Q&A process.

Speaker 2: Thank you. Ladies and gentlemen, should you have a question, please press the star followed by the one on your touch tone phone. If you would like to withdraw your question, please press the star followed by the two. One moment please for your first question. Your first question comes from George Dumas from Scotiabank. Please go ahead.

Speaker 6: Yeah, good morning, Galen and Richard. Can you maybe talk a little bit about the performance of your market banners in Quebec and Ontario, maybe from a market share standpoint? Will you characterize the environment there as maybe more competitive than in the last few quarters?

Speaker 5: Yeah, so let me give you a little bit of perspective. We try not to give too much detail on the regional breakdown of performance. So from a total business perspective, the market division continue to outperform their peer group. We're obviously reducing the number of ProbbyGo stores that we have in Quebec.

Speaker 5: We're very pleased with the underlying performance of the conventional business there. I'd say from a market competitiveness perspective, it is very competitive everywhere right now. It continues to be very rational, but increasingly promotional, and people are putting their best value forward to support consumers, and we're doing absolutely the same.

Speaker 5: talk to what the justification maybe from them is for the higher pricing and just generally speaking what areas of the store do you think could see the highest price increases maybe as we go into the spring and summer? Yeah, look I think you know those are those are important you know confidential conversations. We wanted to call it out you know because it is one of the big drivers of cost inflation that we are seeing.

Speaker 5: in the commodity cost environment.

In the area of the store that you think you might see the most, the highest inflation is going to be, if you can share that comment maybe.

Not really. I mean remember in the fresh departments, you know, costs move up and down very quickly, you know, on a week-to-week basis and in the center of the store there's just so many different categories. It'd be tough to generalize. Got it. And just one last question, maybe for Richard. I understand that there's an expectation to hold to slightly expand gross margins this year. Can you maybe help us understand the cadence maybe of those improvements? Will there be more, I guess it'll be more difficult in the second half, but any comment you can share.

on the evolution in gross margin. Thanks. We commented, George, that we were expecting gross margin to be stable during the year and we continue to feel confident in our ability to do that for the next three quarters.

kind of the evolution in gross margin. Thanks. We commented, George, that we were expecting gross margin to be stable during the year and we continue to feel confident in our ability to do that for the next three quarters. Okay, thanks.

Your next question comes from Irene Natal from RBC Capital Market. Please go ahead.

Thanks and good morning. If you could please update on what you're seeing in terms of consumer behavior, you know, sensitivity promotions, trade down, all of that kind of thing.

Yeah Irene, I feel like you ask that question every quarter and I and in preparation for this call I always try and find something you know new or different to to add. I'm afraid I can't do that this time around. It's really the same stuff.

Same trends as previous quarters, you know, we continue to observe that shift to discount. That'll be no surprise to you. We've commented on the growth of private label. You know, there's no signs of that slowing down. I touched on that increased promotional intensity. You know, that is continuing to build, but it's worth noting that we're still not back at levels of promotional penetration that we saw in 2019, so there's still some distance to travel there. You know, the one...

high quality fresh food option available, particularly in our market division stores.

That's very helpful. Thank you. And yeah, I do ask every quarter. So just following on with the private label, you already have industry leading private label penetration. As you see private label growing, is it sort of consumers buying more categories? Where exactly are you seeing?

today and has really been the case for the last six months has been in the no-name brand and that's people trading into value and I think we're very fortunate because we invested a lot in the quality of the no-name formulations over the last four or five years and so I think what's happening here is customers are buying the product, they're realizing that they're not making a quality...

the last one from me, shifting gears a little bit. I want to understand the commentary around you said you're going to add 70 points of primary care across Canada. Are these the the pharmacist staffed...

sort of consultation offices and I you know can you tell us what you're seeing there and how those are working for you? Yeah so it's a combination of specific off-site independent locations so think about them as medical clinics that are operated by by pharmacists.

And then another portion of that 70 is actually creating dedicated space inside pharmacies themselves for pharmacists to provide a similar level of dedicated care. We have 10 of these clinics operating across the country primarily in Alberta right now.

and we are very, very pleased with their performance. You know, broadly speaking, you know, what the Canadian consumer is, you know, making a decision to get primary care service, you know, from a pharmacy for a minor ailment and a diagnosis and prescription. It's taking them, you know.

The improvement in access as a result of this expanded scope for the everyday Canadian is quite remarkable and something that we think will continue to make a really positive impact on the country from an access to care perspective.

That's really helpful. Thank you. Your next question comes from the line of Michael Van Hulst from TD. Please go ahead.

Thank you and good morning. I want to start with the price increases that you were talking about and last year had multiple increases kind of steadily throughout the year. This year do you expect it to be the same or do you expect to see more front-end weighted like more weighted to the Q1 increases you've already seen?

We don't know, Michael. We just tallied the cost increase requests as they come in. As I was saying in my remarks, so far this year, the number is lower than what we got last year, but it's still...

more than double what we were getting prior to the pandemic. So when we look at what's happening with the commodity price environment like…

We're still surprised to see these big numbers, but they're still coming in. So inflation is definitely going down, but it's not going down as fast as we thought. I can't predict the future, Mike.

Okay, so the $1 billion in product cost increase, was that all in Q1 or is that up until today? Year to date, we recorded a year to date number because we track that number every week.

Okay, and the number that we were typically getting prior to the pandemic was around 400 million on an annual basis.

And last year in 2022, the number was north of 2 billion.

So we're already at a billion year today. It's lower than where we were last year, so we're definitely heading in the right direction, but it's still quite high. And the 2 billion number last year, or over 2 billion last year, that was for the full year? That wasn't your today? That was for the full year, yes. Okay, that's helpful.

And as far as the indication that you're seeing, or like the ones that have been already approved and coming through in the next few months, is that, are there still a lot of that, a number of those or? You've got all our numbers. We just shared you all our numbers. You've got everything.

You had flat financial services EBITDA. So, can you just walk us through the changes below the EBITDA line?

Yes, essentially in the bank, as we have written in the press release and in my remarks, the core performance of the bank continues to be well. Spending is increasing, so that's definitely helping, but it's the movement in what we call ECL, which is expected credit losses, which are reserves that are dictated by OSPI.

and that are, it's essentially a mathematical formula. And last year we were releasing reserves and this year we are increasing reserves and that delta is what is essentially the driver of the drop in 20 million in earnings before tax.

So if it weren't for that our earnings per share would have been up another 4%. So you you called out I think a five minute million dollar reversal last year and six million dollar provision this year. So that's an 11 million dollar swing. Was that not included in the DA then?

It's all, we look at it only at the earnings before tax, that's how we look at it at the bank. The bank is a bit different than when we look at our food business, it's all in there because there's stuff in interest expense because how they fund themselves, so it's a little bit more complicated.

I could walk you through this offline Mike if you want. Okay yeah that would be helpful and so the changes that have been made so far on that that's bringing the market the

the reserves up to up to date with the current economic expectations for the remainder of the year and so should we assume that that

That year-over-year impact isn't as meaningful if the economic conditions do not change? It's tough to predict, Mike, but it should converge back to normal as the year progresses.

Okay, thank you. Just finally, the Rx services, the volume, sorry, the volume in pharmacy was down 1.9. Is this, does this include the services component? Yes, yes, that's a prescription, yes, it counts as a prescription.

I'm sorry, what was the services, the change in the services?

So services are down year over year. That was our plan, by the way, because COVID testing and COVID vaccines were so strong last year. But we're quite pleased with the performance of other services such as flu, med reviews and other, which expanded scope of care falls into. And that is what we're doing.

offsetting somewhat what's happening with COVID. We will be covering all of the COVID stuff. Like our plan is for services to be a bit down this year towards last year, but the growth in other stuff is still quite significant.

We will be covering all of the COVID stuff. Our plan is for services to be a bit down this year to ours last year, but the growth and other stuff is still quite significant. All right, thank you, Richard.

And your next question comes from Mark

Thanks, good morning. The SG&E increase seemed to moderate a little bit from what we've seen the last couple quarters. I know you've spoken about your work to look for cost efficiencies, but hoping you can just expand a little bit on those initiatives. I don't know if you can give an example. And then also, could you just talk about the labour market, what you're experiencing today in terms of wage rate inflation, or perhaps what type of increases you're agreeing to in your most recent union contracts?

So in SG&E, Marc and I have discussed this at length a few times already this year. We did most of our work last year to get ready for this year and so that is we are executing on our plan so that we can limit the growth of SG&E expense.

to a number that will allow us to deliver on our financial framework and we're already working right now on the plan for next year on that. So that's more of the same. Labour, there's still a lot of issues with labour, like turnover and our stores continue to run really high, but we're happy to see that in certain areas of our business it's improving, like for example drivers, we no longer have any issues sourcing drivers.

You know, with the inflation adjusted minimum wage, which exists across most of the country now, you know, we are seeing stored labor pressure on the wage line. But when it comes to the labor negotiations that we are having, we've successfully agreed and ratified a number of agreements over the last...

I also wanted to follow up on your comments with regards to prepared food and I think the dynamics you're describing make a lot of sense. I'm just hoping you can talk about your efforts specifically there and I know for instance there was a meal kit business that was sort of changed or dropped a couple of years ago but I'm just curious if you see any other opportunities.

in the form that you would be thinking of. We were not able to make it work effectively. We couldn't make it work on a delivery basis and we struggled to make it work from an in-store pickup basis. Where we've seen really extraordinary results is in the stores in what we call the mealtime.

with butter you just throw it into the oven and you know it's a fresh very very simple meal. We have you know seven or eight different recipes for programs like that. We also have pre-cooked programs as part of the of the mealtime marketplace and what we've been doing is we've been actively expanding that.

will embrace here. We think we've got something that's really good. The second place that we're investing in and seeing really great responses is in what we call sort of the Panafresco value proposition, which was born out of Fortinos. Bathurst and Lakeshore has the full pod concept of Panafresco.

reasonably capital intensive, the other is really just about rolling out the product program.

Okay, thanks for that. And are any of those programs available through like third-party delivery providers?

Yeah, Panafresco, I believe, is available through third-party delivery and we have a couple of programs in stores in downtown Toronto that are also available through the delivery marketplaces but it's not a big driver of the overall business in those fresh preparedness. Yeah, sure, understood. Okay and then just last one Richard.

We are all expecting to get warm weather. We had a weekend three weeks ago. I don't know what happened since. So we need nicer temperatures to get a few of these things going. But other than that, nothing unusual. Okay, appreciate the comments. All the best.

Your next question comes from Peter Sklar from BMO Capital Markets. Please go ahead.

Good morning. I just wanted to discuss the 3.1% same-store sales you experienced in food. When you were talking about that, I understand the 110 basis points because you have that day closure related to New Year's and I understand the 60 basis points related to the right-hand side.

But you still had 10 to 11% inflationary tailwind. And so I know, Galen, you're really skeptical of this discussion. I think you call it street mass, but putting that aside, it implies that you lost some traffic, traffic was down or baskets were smaller. But on the other hand, you're saying that.

In your commentary today, you did gain shares in your market divisions and in your discount banners. I'm just wondering if you could kind of wrap all that up and reconcile those statements. Let's start with market share to be precise. Market share is up in discount. In market, the conventional channel is down.

and we're doing better than the channel. Okay, so our market share in market is down, but it's down less than our peers. So that's exactly what's going on. So to get to your question on same store sale, obviously you need also to look at the stacked math, okay, because we actually did.

have decent numbers. But what really happened here, okay, I think what really happened, people need to appreciate, is we were in lockdown last year because of Omicron, okay, and in lockdown food retail does better because we're stuck home and drug retail does worse for the same reason. So if you look at our same store sale performance in each of the three months of Rwanda

So we started same store sale in P1 at around zero, okay? In P2 we were around four and we finished like around six, okay, in P3. And we said inflation say was around 10 for the whole quarter, okay? It was higher in P1 and lower in P3.

So if you look at Omicron, like which everybody was stuck home for sure, like for sure there's less tonnage because we were not locked out, locked home this quarter. But if you look as we exit the quarter, okay, with inflation a bit lower than the whole quarter and same store sale much higher than our number, like the street math starts to come into place a little bit better and it starts to be a little bit closer to how we we're costs. Okay.

Okay, that's a good explanation. Thank you.

Your next question comes from Chris Lee from Desjardins. Please go ahead.

Hi, good morning everyone. Maybe just a couple of ones on shoppers. You mentioned that front store sales are returning more to normal levels. Does that mean that we should also expect gross margin to start to stabilize as well since it has grown very strongly in the past few quarters? And then maybe related to that, are you seeing any notable slowdown in beauty as the consumer starts to feel more pressure? Thank you.

Front of store continues to do quite well, better than planned, and margin continues to do well.

We keep being surprised with cough and cold, like you remember the story about cough and cold being strong throughout last year and it's off its peak, it's definitely off its peak, but it's still running high and that's a high-margin business and so we're always

thinking that it's going to end anytime soon, but it's not. And so that's something that we worry a bit about. Maybe it's going to revert back to normal, but it's not. So that's definitely helping. So having said that, I think what's important to appreciate from shoppers' perspective, especially on front of the store, is that shoppers last year, because of all my components I was mentioning earlier, was that it was doing worse.

able to continue to deliver. So that's how you should see it, Chris. So we feel good about where Shoppers is right now and how it's positioned for the next few quarters.

That's helpful. And the beauty business in particular, is that still holding up? Yeah, it's holding up nicely.

Perfect. And maybe just another one on shoppers. There's no question that the pharmacy services revenues, there's a lot of long-term upside. I'm just curious to ask, when will you be in a position to perhaps put some numbers around the longer term revenue opportunities from the extended school of practice for promises?

Not for a while. I mean, I think I have shared this before. This is going to be an attractive, very meaningful part of the business, but you shouldn't think about it as a transformational growth.

pressures will likely ease in the second half. Prices are obviously still meaningfully higher than they were a year ago and might be in a recession. So I guess my question is, just based on your experience, how sticky are the shoppers once they have shifted to discounting? Are they going to be there for longer before switching back to the markets even though prices may be stabilizing?

It's a really good question and I'm not sure we know yet. I mean I was looking at some data this morning that showed a drop in the cross shop rate, you know for example in P1 this year and an increase in the performance of the discount business.

That would suggest that customers are increasingly dedicated to a single format shop, which would be worrying for our conventional channel. But in the subsequent periods, we saw that normalize again, and we saw that cross shop rate continue to grow. Find more along the lines of Modern Collections class.

and then we looked back the year before and we saw that that drop seems to be specific to that P1 sort of post-January level. And so, you know, the expectation I think we should have is that there will be a normalization. The broader context though, and I've said this also before, is that in the decade prior to COVID, we're seeing a lot of changes in the COVID-19 pandemic.

You know, we have seen virtually all of the growth coming from the discount channel, largely because that's where all of the competitors, ourselves included, were adding new stores.

Okay, that's helpful. And maybe just a quick last quick one on e-commerce. You mentioned that e-commerce penetration was back to the level it was in Q1 a year ago. Just curious to see if you can share with us what is the e-commerce penetration number. And secondly, no one has a crystal ball, but I'm curious to get your view on where you see online penetration going over the next two or three years.

Yeah, so Richard's giving me the signal. So we're about 5% in terms of e-commerce penetration in food.

predicting what the sort of normalized growth rate for food e-commerce is ultimately going to be still an open question. But as Richard pointed out, we are beginning to see a growth rate. And certainly the high inflationary environment is putting some pressure on.

on online delivery because it's a more costly channel. And so, you know, it'll probably stay, I'm guessing it's going to stay moderated, you know, during the peak of this recession.

Great, okay, thanks very much. Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. Your next question comes from Vishal Sridhar from National Bank. Please go ahead.

Hi, thanks for taking my questions. With respect to the choice property sales, was there a gain in the quarter and if so, did it benefit you down in the retail segment and how much? Not material, Vichael. In the notes, it says 19 million gain.

related to the choice? Was that reflected in the... I thought it was 9, but yeah maybe that's the right number. I thought the gain was 9, but that would be in our numbers. We're selling a little bit more real estate now, but we've always had those little gains throughout the years. So it's not what's driving the business. I see.

related to the choice? Was that reflected in the... I thought it was 9 but yeah maybe that's the right number. I thought the gain was 9 but that would be that would be in our numbers but like we're selling a little bit more real estate now but we've always had those little gains throughout the years though so it's not what's driving the business. I see and when you...

reflected on your outlook for the year, did you reflect on the gains associated with those real estate transactions to fall to the bottom line and that's reflected in your... No. No.

Okay, thanks for that. Switching here to the RX business, the actual price increase in prescription, that includes services because it was larger than usual this quarter.

Okay, thanks for that. Switching here to the RX business, the actual price increase in prescription, that includes services because it was larger than usual this quarter. Yes, it includes services.

Is that the run rate that we should assume for the year? Is there some peculiarity because of the COVID on a year-over-year con? There's any peculiarity. I can check but I don't see any.

Is that the run rate that we should assume for the year? Is there some peculiarity because of the COVID on a year-over-year con? I don't think there's any peculiarity. I don't see any.

Changing topics once again, I was hoping you could reconcile something for me. You know just looking and observing restaurants they seem to be noting in general good trends, seemingly positive tonnage and you know the grocers and I know there's there's peculiarities just associated with restrictions but the grocers seem to be reporting you know negative tonnage at least on the street map that we have. Wondering if that's something that management is looking at or is observed and if so

do you expect that trend to revert where there's increasing people going back to grocery stores? Yeah, I mean, look, I think first and foremost, it's very, very hard to glean much from the year over year tonnage performance numbers because of

all of this COVID disruption. Our tonnage went way up during COVID, the restaurant's tonnage went way down, and we still have that lapping effect inside everybody's numbers, and it just creates confusion and lack of clarity. But definitely the restaurant business is robust right now, despite the inflationary pressures and despite the economic uncertainty.

that we've seen in the past and our explanation for that is that people are trading a restaurant meal during the week for those products. So maybe it's not a fair question to ask given what you've just said.

The reason why I was asking is, is it reasonable, is the restaurant industry as a whole gaining market share from grocers?

and taking away eating occasions? And if so, do we expect that similarly to revert?

Yeah, you're asking if there's a share of stomach trade here that could benefit the grocery industry at some point. It certainly has historically. There has tended to be a benefit to grocers as restaurant business ebbed and some pressure as the restaurant business flowed. I don't know precisely.

what's going on at this moment in time. But it's a reasonable hypothesis. Thanks for the color. Roy, if there are no further questions at this time, please proceed with your closing remarks.

Great, thanks very much everybody for your time. If you have any follow-up questions, drop me an email or give me a shout and mark your calendar for Wednesday, July 26th when we will be releasing our Q2 results. Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and you may now disconnect your lines. Thank you.

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