Q2 2023 Loblaw Companies Limited Earnings Call
The only thing.
Good morning, ladies and gentlemen, and welcome to the Loblaw companies Limited second quarter 2023 results conference call.
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During the presentation, we will conduct a question and answer session.
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This call is being recorded on Wednesday July 26 2023.
Now I'd like to turn the conference over to Roy Macdonald to please go ahead.
Thank you Michelle good morning, everybody and welcome to the Loblaw companies Limited second quarter 2023 results call as always I'm joined this morning with in the room with Galen Weston, our chairman and President and with Richard Dufresne, Our Chief Financial Officer.
And 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 la Bloods and 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 for this morning.
Any forward looking statements speak only as of the date, they're made the company disclaims any intention or obligation to update or revise any forward looking statements whether as a result of new information future results or where 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.
I am pleased to report that we continued to delivered consistent operational and financial results with solid topline performance and start winning as well.
We remain focused on delivering value to consumers and carefully managing our expenses all parts of retail excellence.
On a consolidated basis revenue grew by six 9% and EBITDA increased by nine 4%.
Adjusted earnings per share grew by 14, 8% to $1 94 a share.
On a GAAP basis, our earnings per share reflected a 36% increase.
This was unusually high as we lap a $100 million one time charge last year, specifically related to <unk>.
In drug retail absolute sales increased seven 4% and same store sales grew five 7%.
Stores same store sales grew by 5% on continued strength in cosmetics and health and beauty Ot.
OTC performance remained strong but off its peak levels. Similarly growth in our drug business has moderated as it lapped last year's post pandemic reopening.
Pharmacy same store sales grew six 3% driven by growth in the acute and chronic script.
Actually offset by lower cotton with vaccines and testing at the same time, we're pleased with the growth of services related to expanded scope of practice.
And food retail absolute sales increased six 4% and same store sales grew six 1%.
In Q2, our internal food inflation number was generally in line with the CPI. However, shoppers are grocery stores actually beat inflation by taking advantage of our pricing private brand and hard discount stores that means that our loblaw shoppers experienced a lower rate of inflation and CPI.
As we battle inflation, we remain highly concerned about ongoing cost increases.
And I wanted to offer some facts.
This year suppliers have raised the price we pay for product by more than $1 billion. This is double what we would expect normally.
We have received double digit increases from the same suppliers that will gave us double digit increases last year.
That's why you see products that are noticeably more expensive than they were just a couple of years ago.
While cost increases are coming in from all tiers of our supplier base.
Global brand standouts.
Let me give you an example.
Since inflation began one of our largest vendors.
Metal price increases totaling 50% or a quarter billion dollars.
That's just one supplier.
Here's another good illustration in Q2, the average price for meat fruit and vegetable purchased in our stores were up in the mid single digits, but the average person purchase and the.
In the center of store, where you find the biggest brands was up in the double digits.
At the same time, our food project could put profit margins have declined as our costs are growing faster than our prices. The math is very simple cost increases from big brands were well above this food inflation and our food margin decline.
Justin the grocer profiteering, just don't add up.
Food inflation is a global problems the causes ranged from climate change to war, we know that some cost increases are justified, but many are enough there.
The price of transportation wheat flour paper and plastic Oh, well off 2022 high.
Our teams are actively reaching out to our largest suppliers pressing for cost decreases based on these facts.
With lowered cost we will lower prices.
Returning to our performance our ability to deliver value is reflected across our food business or how hard discount banners continued to outperform the overall discount channel delivering strong traffic and items.
Item count growth.
Customers continue to focus on value offerings and in Tibet, our discount position continues to grow we converted 10, probably go stores to Max <unk> in the quarter and we will convert another 10 stores in Q3.
We continue to be very pleased with the sales growth being generated from these converted stores.
Our Martha banners remained healthy despite the ongoing shift to discount stores.
I think the right customer offer in all of our stores remains a key focus.
Right hand side posted a solid quarter with all major categories delivering positive same store sale and apparel outpacing food same store sales that said net net it remains a drag on our same store sales performance to the 260 basis points in the quarter.
We remain comfortable with our inventory levels.
Online sales in the quarter increased 13, 9%, reflecting the strength of our digital businesses as we lap our first post COVID-19 quarter growth was led by T Chek delivery and online pharmacy.
We continue to enhance our customer experience and differentiate ourselves by offering more choice and flexibility.
Retail gross margin was 31, 1% down 30 basis points compared to last year, the driving factor was higher shrink and drug where we also saw pressure from lower services revenue.
In food, we control costs, well investing our savings and to lower prices.
Across our retail segment another quarter of careful cost management resulted in an improvement of 60 basis points in our SG&A rate as a percentage of sales.
Adjusted retail EBITDA increased by $142 million or nine 8% in the quarter, yielding a margin of 11, 8% up 40 basis points compared to last year.
Yes.
We see financial adjusted earning before tax declined by $22 million largely a function of increased net credit losses and loss provisions and <unk>.
Interest rates this year.
The top line business performance remains in line with our expectations with revenue up $51 million driven by higher interest income and an increase in consumer spending.
On a consolidated basis adjusted EBITDA margin was 11, 9% in the quarter up 20 basis points compared to last year.
Our retail free cash flow was $600 million in Q2, reflecting higher capex spend and lapping one year onetime tax recoveries from last year.
In the quarter, we repurchased $500 million worth of common shares.
Looking ahead, our second half same store sales will reflect comparisons against a very strong sales performance last year in both food and drug.
At the bank, we expect continued revenue growth from the growth in our portfolio and we expect to see ongoing pressure on credit loss provisions given current economic forecast. However, we remain confident in our ability to deliver our full year outlook I will now turn the call over to Galen.
Thank you Richard and good morning, I was pleased with another quarter of consistent performance. The business charted strong core results, providing continued confidence that we are delivering retail excellence and serving our customers well.
And our drug business, we've returned to a more normal growth rate in our front store elevated sales of cough and cold med subsided, while beauty remained brisk.
Although COVID-19 surfaces of decline nationwide, we are increasing our range of patient care in fact feels like every month, another province moves to expand and fund services that pharmacist can provide to plug growing gaps and primary care systems.
Just this morning, New Brunswick announced its first six pharmacy primary care clinics. Following an innovative recent rollout of 26 in Nova Scotia.
Yesterday in Ontario, we unveiled two pharmacy sites redesigned to provide more clinical services and a better patient experience will invest in a total of 72 of these clinics. This year another step towards the pharmacy of the future and our journey to improving Canadians access to primary care.
In our food business market stores continued to perform well lifted in part by the customer response to our President's choice summer product lineup, including new customer favorites like frozen mochi and Batesville the Pi there.
Ongoing shift to discount continued to pick up steam driving high growth in our stores are hard discount locations have never been busier with our highest ever customer counts double digit growth and no frills was recently named the most trusted store for low prices.
And we'll add 25 more to the network this year.
As customers focus on value sales in our private brands continued to outpace national brands, delivering an average savings as highest 25% and more Canadians are turning to PC optimum points to fill their carts with redemption rates climbing.
We're delighted to see a recent survey that said Canadians are paying more attention to loyalty programs and that PC optimum is by far their favorite used an incredible nine out of 10 times.
As has been the case since this period of inflation began climbing our food gross margins declined.
The business was highly efficient in the quarter and reinvested those savings and promotions.
And once again, our product cost increased more than our prices.
Despite Canada, having one of the lowest food inflation rates in the world. We continue to face historic cost increases.
As our business moves forward, so do our efforts to manage our impact on the environment. It was a busy quarter in this regard shortly after our first electric truck hit the road, we announced that five hydrogen fuel cell electric trucks will join the fleet, allowing zero emission deliveries and we announced that electricity purchased for all Alberta supermodel.
<unk> drug stores offices and distribution centers will soon come entirely from wind Sun and water the impact will be the equivalent of taking all the homes in a city the size of last bridge off the grid and will cut our national carbon footprint by 17%.
We continue to execute well against our business plans and our purpose of helping Canadians live life, well I'll now open the call for questions. Thank.
Thank you Caylin Michel if you'd please introduce the Q&A process.
Thank you ladies and gentlemen, we will now begin the question and answer session.
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One moment. Please for your first question.
Your first question comes from George <unk>.
Scotiabank. Please go ahead.
Hi, Good morning, Thanks for taking my questions. Richard I believe last call you mentioned, a 6.6% Q1 exiting the food same store sales just wondering if you can talk to the trends that happened kind of intra quarter. In Q2 was it stable how was the exit any general comments you can have on the market share for the banner a market matters.
Yeah, So you're right that said that that was a that's what that's what we sort of guided towards I think the key perspective to take into consideration as you look at our sales trajectory in dollars and that that continue okay, and that's what generated a 6% same store performance in Q2, but.
You need to take into consideration than that last year Q3, and in food and why is that.
7% same store sale in Q4 was 8%, okay. So we're going to be cycling that versus like this quarter, we cycled, 1%. So it's so while sales trajectory will continue we're going to be cycling against those figures. So you're going to see you're going to see same store sales drop because of that but that doesn't mean, our sales are dropping and you're going to be the same for <unk>.
For for drug drug has been 6% this quarter. It was 6% last year, but if you look at Q3 and Q4 of last year Q3 was 8% same store sale in Q4 was 9%. So we're gonna be facing into that as we go forward, but like that this is part of our plan and.
And so and we still remain very very.
Very good regarding our outlook.
Okay, and just market share comments, you have made for the AR market matters.
<unk> market share like Oh positive trajectory.
In the quarter and.
That's what I would say.
Okay, and can you talk a little bit to shrink or what areas of the business is the most prevalent and what impact that had on gross margins, maybe one way to fix it.
How confident you are in kind of maintaining the gross margin slot I guess yeah.
Very good question I think I think that's everybody's question for this morning, So yes loan.
Gross margin is down 30 basis points, okay in food, it's a combination of shrink but also of also of what we call trading margin. Okay. Between the fact that our costs have gone up a little bit more than our price and shoppers. It's essentially all shrink. Okay. So so we've been talking about shrink for a few quarters now I think the key point on shrink is that we have.
Been investing capital and and and Labor and star for for close to a year now and our view right. Now. It's early though is we see it peaking we've got indicators that are telling us that the that that it is peaking and in certain instances getting a little bit better.
We will comment on that in the next quarter, because we're gonna be a recounting.
A significant number of stores in this quarter. So we will be able to affirm this with confidence when.
When we released Q3 and it's important for US as we plan for a 2024.
So I don't know if that is helpful.
Other than that we feel good about our gross margin performance going forward.
Okay, well thanks for that just one last one if I may one of your competitors observe that.
Promotional penetration exceeding pre pandemic levels, but just wondering how you guys. How do you guys see that in.
Perhaps any commentary you can share it to that.
Yes, what we have commented on on pre pandemic.
<unk> promotional penetration.
What we realize also in our own approach to our business. So we took out a lot of inefficient promotions as you'll remember in our in 2020, So we're pretty much at what we call a normalized level of promotional penetration at the moment.
And so we're not going to comment too much on that in the future just think about us being being back there now.
Okay. Thanks for your comments.
Okay.
Thank you.
The next question comes from Irene Mattel of RBC capital markets. Please go ahead.
Thanks, and good morning, everyone I guess, what we're all struggling with is the interplay between.
The tougher comps a year ago, so slowing same store sales, but also your ability to get some margin catch up which was so challenging when we were facing that almost double digit inflation. So can you talk to a little bit some of the puts and takes there and how we should be thinking about that.
Okay. I mean, good question I think I think for US like we have been focused on stability of gross margin and <unk> and we still feel we're stable like down 30 basis points for us we're in the zone with what we spend most time focused on is the growth rate of our SG&A. Okay.
Because if we can manage our SG&A growth rate as a percentage versus the year before and that's what will allow us to land on our financial framework and if you look at the performance. We've had so far this year and if I look ahead for the second half I feel good about my SG&A cost curve and so therefore that gives us.
And our ability to deliver on our plan.
That's really helpful. Thank you and how should we be thinking also about the interplay between the consumer trade down activity promotional intensity like where does that all kind of shake out in terms of gross margin is it a tailwind or is it a headwind.
How does all that come together, it's noise that the margin obviously, because we have two large businesses side like a big a big conventional business a big discount business. Okay. So so obviously discounted at a lower gross margin rate than the market, but like the and the growth in discount like is markedly higher like same store.
Hal and discount those markedly higher than the end markets are you seeing that at play, but more sales get more dollars. So.
So it's like for us like we're managing on a on a consolidated basis and when we look at it on a consolidated what what we lose from one we get from the other and so that's what we've experienced so far and that's what we expect going forward also.
So Richard what I'm hearing you say is that we should be slightly less focused on the gross margin.
Change 30 basis points up 20 basis points down whatever it is and focus on the growth in the gross margin dollars relative to the topline.
Yeah.
Yes, Irene, but we also look at both we also look at both and and like.
There has been a significant effect on shrink that started a year ago, because we were starting to see it creep up.
And and it was not much noticeable now it's noticeable so we talk about it but we've taken actions a year ago and we're starting to.
To see the benefits from that and we're not done and our actions and and but so so with that plateau, Wang and with what we see ahead together that allows us to feel decent about our performance for the second half and by the way we're thinking about that as we're planning for 24. So so.
Were already well advanced in our planning cycle for 'twenty four and all of these factors are in play as we as we prepare for next year.
That's great. Thank you and finally, just one last question.
Yeah Jeremy.
Fair amount of stocking in Q2, how should we be thinking about the aggregate in CIB as we look in.
In 2023.
Yeah, I mean, if you look at it and you compare it to last year were more or less at the same place I think we're ahead by I don't know maybe $50 million. So for us like we are on plan.
That's great. Thank you.
Yes.
Thank you. The next question comes from Mark Petrie of CIBC. Please go ahead.
Yeah. Thanks, Good morning, I wanted to just follow up on a couple of topics first the shoppers I know you spoke about.
Drink, you're no longer calling it out shoppers are overall as a margin tailwind how much of that would you say is its own performance.
How much is just that the growth rate is now normalizing and no longer materially exceeding the food the fleet growth.
Well, if you were to exclude shrink gross margin and shoppers would have been up in the quarter. So so so so it wasn't it was a factor that's an area where we we spent a lot of efforts like like.
Like if you go into stores Youll see a what we refer to as fragrance Lockups, though that's where AR is.
The professional fees that have been focused on so we we've locked up many of these are these fragrances and youre going to see more of those over the coming months and those are high priced items, which are when they go where it hurts the bottom line. So so as we put that behind.
It'll definitely help shrink and interestingly, we're not losing sales so that was a big fear as we were locking up fragrances that we'd be losing sales, but we're not losing sales. So so that's going to start to yield benefits over the over the coming months.
Yep, Okay helpful.
On the pharmacy services Galen I know you've talked about it in your in your comments.
I'm just sort of curious you know youre lapping some of the big coping driven services.
But also expanding these clinics, so where are we at in terms of the progression of that in terms of.
<unk> versus tailwind, obviously, it's a headwind right now but is it more of a headwind now than it was a couple of quarters ago or or and and when does that sort of normalize do you think.
Yeah. So it is a headwind.
Entirely because we're cycling those extraordinary COVID-19 vaccination in Covid test numbers and so we really focus on what's happening with the underlying growth rate of the expanded scope of practice services and.
And we see very encouraging growth trajectories underneath it all and so it will take until we've until we've cycled through the last of our you know.
That that Covid period, before we see call it.
Meaningful growth.
In the in the business and on an absolute basis and remember the way to think about our expanded scope of practice initiative, which includes.
The pharmacy like clinics and the expanded scope of practice across all of these provinces think about it as a as a as a fast growing accretive.
A contributor to the business that will drive or will help us drive our financial framework, it's not going to deliver a step change in growth in sales or in our profitability, but it will give us that long term tailwind that will allow us to continue to perform as we have for the last number of.
Years in that business.
Yeah understood and just maybe just a follow up on that.
Or are these pharmacy care clinics like how did the economics on these sort of stack up versus the other.
Investment opportunities in the store network and I'm sort of thinking of just regular store renovations or new stores.
What are the paybacks look like for those care clinics.
So it it depends.
There's a pharmacist led clinic inside a pharmacy.
And that has a has a very high payback relative to.
You know what you would consider say a new store think about it as a as an incremental renovation.
With meaningful sales upside so that would be superior to the to the sort of regular.
Our return rate and then you have the stand alone which are far less.
In number than in stores and they have slight what I'd describe as slightly pressured.
Core.
Returns until you add the pharmacy prescription.
On top of it which has always been you know a major amplifier for any investment that we've made and and medical clinics.
And in that it delivers a very healthy return that would be in line with or above.
Turn rates, we get for shoppers drug Mart, Yeah, Mark just to give you some murder.
We have built two of these though and it's our first two so we didn't spend much time focused on the return, but like we're talking a few hundred thousand dollars. So this is not this is not in millions of dollars.
And I can tell you the first two I'm sure they're gonna look amazing because they want to make it look good for US now, but the next ones that are coming once we know that the concept is working we're going to we're going to tighten the screws on the cost, but it's not it's not a big cost so it's not something that.
You Shouldnt worry about from that Big Capex.
Standpoint.
Understood I appreciate the comments all the best.
Thank you. The next question comes from Tami Chen of <unk>.
BMO capital markets. Please go ahead.
Yeah. Thanks for the question I first wanted to go back to the SG&A Richard could you.
Maybe elaborate a little bit more on it this quarter in particular are you able to get pretty good leverage and what were some of the areas that they came from and how.
How should we think about that going forward when it seems like right on the gross margin side, whether its shoppers who are also on the food side.
There's limitations to which you can pass through your cost.
Yes.
So obviously when your top line goes up 7%, that's definitely helping your SG&A rate. Okay. So so but that's not typical of the growth we get normally in our business. So we don't look at it as a percentage of sale, we look at it that the percentage growth versus the year before and if you want to drive operating leverage you need to have your S. J.
<unk> grew at a lower rate than your topline and so that's what we're focused on and we've laid out plans that allow us to deliver on that and our plans for 'twenty three or a quite robust and based on what we see coming ahead that gives us confidence that we should be able to deliver on our framework and I always mentioned.
I was mentioning earlier right now we're working on 2024 and we are adopting the same approach we need to make sure that we get a growth in our SG&A in dollars.
That doesn't grow too fast because then we won't be able to deliver on 2020 for us. So we're taking actions now to make sure that this happens and that's how our again in 'twenty four we should be able to continue to deliver on our framework.
So the plan is laid out so it's not like we're going to take more initiatives now like we have our plan laid out and if we deliver on our plan we should deliver on our framework.
Okay and within that I'm curious, specifically on the whole labor and wage <unk>.
<unk> I think last quarter U S says the number ratified agreements over the last few months were at the higher end of the normal range and I'm just wanting to understand.
And if you think at this point there might be still some incremental catch up for you and your labor cost.
With respect to broader market wage inflation that we've seen over the last two or so years or are you largely through that.
So we know always what's coming okay, like we know when negotiations happen and so we budget that in our in our plan.
Like everything else and so so we budgeted and what's to come as as we've answered that question Galan has answered that question a few times recently and we talk about like we've been in at the higher end of that range, but it's at the iron or a range that we're planning for so so that's how that's how we're thinking about it and right now based on what we see we should within.
And our plans on what we see ahead and to your question about catch up no. We don't we don't have any substantial catch up issues that we're facing.
About the more as normal course negotiations and then the thing that we that we try and and and be careful of is is locking in growth rates that would would not be in line with our long term inflation rate. So that's that's where we we try and land these agreements.
Okay. Thank you.
Yeah.
Thank you. The next question comes from Michael Van <unk> of TD Securities. Please go ahead.
Thank you you mentioned about the some of the cost coming down or vendor costs coming down, but not necessarily showing up in cost of goods sold yet.
You talk about what give us some insight as to what some of the pushback is from vendors as to why they are pushing it down or why they are still trying to push through price increases.
Yeah. So so.
Couple of things first of all we're seeing meaningful shifts in a whole line of commodities.
You know that our core ingredients in these in these products.
And so that's why we expect products that are heavy in these ingredients to start to slow and ultimately turn the other way you'll have to ask the packaged goods manufacturers what their perspective is on on why they are not bringing retail prices.
Down they.
They have a litany of explanations for.
For us, but the fundamentals are that if the if the cost of the inputs are starting to slow and reverse.
And then ultimately we should see some component of that.
Show up in our cost increases and look we operate as you know we source a lot of control brand product and and and so we have pretty good visibility into.
How this should evolve having.
<unk> said that I don't think it's reasonable to expect a a an aggressive reversion.
Or you know a shift into a deflationary environment.
The reductions that we're seeing in commodities.
Our moderate there notable meaningful but it's not it's not at this point headed towards a cost rehearsal.
Alright on your private label sourcing is that cost plus.
No it's negotiated.
You know differently, depending on the on the vendor.
So does that mean, you're not necessarily getting.
Cost reductions from your private on the private label either.
No. That's all I'm, saying is that we negotiate them on a case by case basis.
And we are seeing reductions in some cases with a couple of national brands, and with and without and with control brand vendors as well.
Because I'm trying to see how the.
You know how the.
Cost environment is influencing your private label penetration it seems like it's still growing I'm wondering how close you think we are at a peak levels in private label.
And then.
I know in the past you've talked about CPG companies are eventually going to try and push back in and get some volume back but it seems like it's tough for them to do it they're still taking double digit increases so.
Where do you where do you see private label.
Penetration peeking out I guess or how soon.
What are you expecting.
Okay.
Over the next year, let's call. It yeah Youre right. We have we have talked about this a few times you know that we would expect again the.
Larger brands to start investing to drive volume and we're seeing some signs of it.
But it is it's emerging more slowly than that than probably we expected you know earlier in the year and.
And that's benefiting our control brands and so today, our control brands are still growing faster than national brands.
And we do think that that will rebalance itself at some point in the relatively near future, but that really is up to the up to the big brands to determine when and how.
Okay.
Can you just comment whether <unk> be.
Holding onto your margins and private label or are you seeing any erosion there.
No we're holding onto our margins, yes, we are.
And I think on control that I think Galen made the point like we're still growing faster than national brand, but because of the environment. We're in if you actually go one level down and you look at no neighbors SPC no name is still growing high double digits. So so in today's environment. We expect that to continue just because of the nature of what we're in right now.
Okay.
Alright, and then just on the tonnage I know people like to try and for China Jodi of inflation in your same store sales, but what are you seeing.
Your tonnage numbers and how do they know what do you believe is happening with your market share.
So I can take time as you know that gives you a sense of tonnage.
Mike.
It's clearly positive and discount it.
It's somewhat negative in conventional net net notes about flat. Okay. So that's where we are right now which is a significant improvement from where we were at this time last year. So so.
But you know clearly seeing discount.
Being positive territory and that's been the case for a for a few quarters now so.
All of that that should help you figure out how we're doing on share we feel were progressing on share and so so so yeah. So that's where that's where we stand right now.
Alright, thank you.
Thank you.
Next question comes from Vishal.
Michelle.
<unk> of National Bank. Please go ahead.
Okay.
Hi, I was hoping you could update us on some of your adjacent value drivers like freight as a service and media I know you saw.
Thoughts on screens in your stores.
And and maybe where those businesses are and how.
How how much you think that can grow and be in the near term.
Yes. So so they are all progressing nicely, we don't have a new.
Frame for you.
It also.
Third party transport.
It's a meaningful contributor now in terms of its size and scale, we're investing a little bit of capital in it to continue that growth trajectory.
We remain optimistic about its potential.
Media is much smaller as we mentioned last quarter, we've just completed while last quarter, we completed.
A big infrastructure technical infrastructure project, which we call RMP, which is essentially the tool that allows.
Advertisers easier access to our customer audiences and to advertise with us and we're getting really terrific responses back from the from the industry in regards to that tool.
We're delivering on all our financial targets in relation to to media now, but it remains it remains small.
And.
It's yet.
To sort of ramp up.
At a level, where we would.
It would be relevant to comment to you on on its size and scope, but with with both of these.
Just keep in mind that our goal is to use these adjacencies to drive that long term financial framework and the same way.
The pharmacy services are going to do that that's what transport helps us do that is what media helps us do so you need to look at it is all enablers of us delivering that long term growth rate rather than any of them.
Contributing to an outsize.
Or step up in terms of earnings growth that makes sense.
Thank you for that color and just changing topics here on unlike Martin.
How is the integration progressing ends and how should we think about.
Loblaw is.
Appetite for further acquisitions and.
What are kind of steer should we think I think of them being and if that in fact being contemplated.
Yeah. So.
To start with.
Primary care delivery.
Which is the foundation of our.
Sort of adjacent to pharmacy health care strategy and that is in you know driven by pharmacists in the manner that we've just discussed on this call over the last few minutes and then think about another adjacency, which is other forms of care delivery that would be complementary.
That experience, that's where life Mark sits.
And that was the driver behind that acquisition and has good economics and that its accretive it has a good market tailwind so it should grow on its own.
At a sales rate that is higher than the rest of our core business on a standalone basis, it's long term.
Our capacity to contribute is.
It is accretive and attractive, but the reason that we bought it.
It was because we thought that we could we could grow that business faster than others by linking it to our existing healthcare customer in a more integrated way that's really the prize and I would say that we are making steady progress you know testing the VAT.
Thesis and the value of that integration.
And we will continue to report on progress, but we're not going to make any more material acquisitions in.
Jason Health care delivery spaces until we're absolutely certain.
That we are a good owner for these kinds of assets.
There's a synergy.
Within the enterprise.
From owning them. So we still got work to do to to convince ourselves that that is in fact, the case and you won't see any incremental M&A until we're certain that it is.
Okay, and maybe a last one for me just on the you.
The population grows and.
Yeah.
Current levels of growth across the country are you seeing the impact of that as you look at your business and saying Hey, These regions are benefiting more from population growth and we're seeing that in our stores and be some less so and so you know maybe maybe some areas are more competitive or less growth as a result.
Oh, Yeah, I mean, we see it every day.
The changing demographics.
In markets all across all across the country, you see demographic shifts you see cultural shifts.
You know there are markets, where where customers are.
We're we're Canadians are are moving to small towns and there are small towns you know on the periphery of big cities that are growing faster today than they were you know at any point in the last 20 years that constitutes.
New opportunity, perhaps for an incremental store.
<unk> heard us talk about TNT and the extraordinary success that we continue to experience when we open new TNT stores almost anywhere in the country that is a reflection of immigration and the heavy weighting of Asian immigrants.
Immigrants coming into into into the country.
We've been refining our known our no frills business.
To better serve the South Asian customer and we've seen fantastic.
Results coming from from our work on that front.
Then there's the other tailwind, which as you know you want to add square footage.
That's in line with accelerating population growth and as you've heard Richard describe on a number of occasions, we are continuing to to.
To build our pipeline of new stores, so that we can meet that demand and and make sure that we are.
We're getting our fair share of the population growth in the country. So it's a big and important driver and it's and it's one of the reasons.
To have long term optimism.
About about loblaw.
Population growth tailwind in knowing that everybody needs to eat and that we have formats that meet effectively just about every demographic.
And every culture.
Thank you.
Thank you.
Once again, ladies and gentlemen, if you do have a question. Please press star one at this time.
The next question comes from Chris Li of <unk>. Please go ahead.
Hi, good morning.
I'll just start with a couple of quick clarification.
Clarification questions Richard in the beginning I think you mentioned that you expect.
With sales to drop in the second half because of tough comps I just wanted to clarify I think you met.
Sales school to maybe moderate.
Accessories declined in the second half.
I did not see sales are going to drop use it okay.
You meant you meant just the growth rate is going to slow that please go ahead, Hello, yes, sorry, sorry, yeah, yeah, yeah, yeah, you're not going to see the same same store sales because we're going to be cycling.
Cycling, a higher comp, but okay coker correction made.
Okay, sorry, I just want to make sure. Okay. That's great and then just on the shrink and again just wanted to clarify so the strength you saw in drug it's predominantly because of the best in the beauty category and so you put measures in place so that should.
Correct itself in due time and then on the flip side I just wanted to clarify what's driving that is it because of the the new store growth and be more precise with inventory turns is that what's been causing higher shrink on the tool set.
Well, it's still it's still organized crime and grocery also.
It's not the same.
Extent as we as we as we are witnessing in shoppers as a as a rate.
Okay. So both in both instances makes many thought that that's causing that.
Shrink yes.
Yes.
Okay. That's great and then just on E. Commerce are you seeing any notable increase in adoption either at loblaw.
Industry or has the adoption you mean, largely stagnant because of high inflation and the shift to discount.
Yes. So so you saw that our numbers I think were up 13% in terms of overall e-commerce.
Volume, it's important to note that that that a disproportionate part of that is the pharmacy business. So our digital pharmacy prescription digital prescription filling and.
So I'll just focus on PC Express.
As a good proxy for sort.
Consumer product online adoption, so that's in and around flat that's kind of the.
To think about it maybe a little bit better than that with substantial growth on the delivery side of the equation.
And a little bit of decline on the.
On the pickup side and Thats blended out and you've got a you've got essentially to flat.
And so you know.
We are still waiting to see what the normalized post COVID-19 growth rate is for <unk> e-commerce, but it's certainly not going backwards and we expect it to continue.
To grow as we look as we look forward a.
A couple of interesting updates I can provide between last quarter and now we launched the PC Pos which is our subscription product for PC express for pickup and delivery, we've seen fantastic adoption of that product. It's now up to about 10% of the total sales in NPC Express and then of course.
We continue to work away on on improving the overall value proposition I'm delighted to say.
We are we're at all time highs in terms of our service levels and our fill rates.
For our customers. So the service just gets better and better and we continue to have high conviction.
That is a really valuable service for our best customers and that it will continue to grow.
Okay. That's super helpful. Because I was going to ask you.
One of your large discount competitors recent launches subscription program for ecommerce.
You guys, obviously have a strong one as Bob and I was just going to ask you know among the many tools that marvell has at your disposal how effective this assistant program should.
So retaining customers I think you just sort of answered my.
Yes, it's really it's really been quite powerful and probably the most encouraging insight is that we've acquired many more new customers with our subscription service than we expected. We thought as you would that it would be primarily a retention tool and it is serving that function, but it's also been.
<unk>.
Way for us to acquire new customers that has surprised us on the upside.
That's great and then maybe finally I know I ask this almost every quarter, but just any new updates on any potential changes in generic drug prices.
No no updates on that I think.
We've actually got some certainty with the I can't remember now what the organization is called I think we have clarity on on on generics and branded for the next couple of years.
We will follow up with you to make sure I'm, giving you the right the right insight on that but no nothing on the horizon that would constitute a meaningful risk.
Okay, that's great thanks very much.
Thank you. The next question comes from Irene <unk> of RBC capital markets. Please go ahead.
Thanks Chip.
One follow up question, if I might on on shoppers and beauty. What are you seeing now in terms of demand run rates and as consumer wallets are being squeezed are you seeing any pressure there.
How successful are the promotions that you're running using PC optimum for.
For beauty specifically.
Yes beauty continues to be robust and I think there's two forces at work. The first one is beauty on the kind of the luxury spectrum of spend on myself, it's actually relatively low priced you know so you know the alternative of buying a.
High end cosmetic product for fragrance versus buying an expensive.
Handbag or address.
And so it tends to be a lot more recession proof.
And then perhaps of other categories and we are certainly seeing that.
No continue in our business the second one which which is it is important to remember is we've had a big retailer exit the market.
In nordstrom's and in recent months and that volume you know there are big beauty beauty retailer that volume needs to go.
Back out into the market.
We would be a disproportionate beneficiary of that in the local geographies, where we would be competing with them. So that's also.
Helpful for for a business like ours.
That's great so the.
The Lipstick index slips yes.
Yes.
Thanks Kelly.
Okay.
Thank you.
There are no further questions at this time, please continue with closing remarks.
Great well. Thank you everybody for your time. This morning. Please reach out to me if you have any questions.
And I'll ask you to Mark your calendars for Wednesday November 15 at 10, a M. When we will reconvene to discuss our Q3 results.
Thanks, everybody and have a great day.
Ladies and gentlemen, this does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
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