Q4 2023 Metro Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the Metro Inc. 2023 fourth quarter results Conference call.
At this time all lines are in a listen only mode, but following the presentation. We will conduct a question and answer session and if at any time. During this call you'll require immediate assistance. Please press star zero for an operator also note that this call is being recorded on Wednesday November 15th 2023, and I would like to turn the conference.
Over to Chevron Kadosh. Please go ahead.
Necessarily good.
Good morning, and thank you for joining guys city.
This will focus on the financial results of our fourth quarter, which ended on September 30th with me today is Mr. Eric La Fleche, President and Chief Executive Officer, and Scott Drake.
Executive VP and Chief Financial Officer during the call, we will present, our fourth quarter results and comment on its highlights.
And then be happy to take your questions.
Before we begin I would like to remind you that we will use in today's discussion different treatment that could be construed as forward looking information in general any statement, which does not constitute a historical fact may be deemed a forward looking statement words or expressions, such as expect intend confident that will and other similar words.
Spreadsheet are generally indicative of forward looking statements.
The forward looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries. The general economy, our annual budget and our 2023 2020 for action plan is.
These forward looking statements do not provide any guarantees as to the future performance of the company and are subject to potential risks known and unknown as well as uncertainties that could cause the outcome to differ materially.
Risk factors that could cause actual results or events to differ materially from our expectation is expressed in or implied by our forward. Looking statements are described under the risk that has been section in our 2022 annual report. We believe these forward looking statements to be reasonable and pertinent at this time and represent our expectation the comp.
<unk> does not intend to update any forward looking statement, except as required by applicable law I will now turn the call over to Papa.
Thank you Sharon and good morning, everyone I have more to cover the usual this quarter.
I'll start by highlighting that the fourth quarter of this fiscal year had 13 weeks versus 12 weeks for the same quarter last year.
Also our fourth quarter was unfavorably impacted by $36 7 million pretax of estimated loss profits and direct costs from a labor conflict 27 Metro stores in the greater Toronto area that lasted five five weeks.
This figure applies to the 27 stores and does not include other unfavorable impacts which affected our network such as those resulting from the illegal picketing of our distribution centers.
For competitive reasons, we do not disclose the impact on the sales of these 27 stores.
Turning to our results sales reached five point.
$5.072 billion, an increase of 14, 4% versus same period last year and when we exclude the 13 week sales grew by five 4% food.
Food same store sales were up six 8% in the quarter and pharmacy same store sales up five 5% the comparable food sales figure excludes the impact of the strike.
Gross profit was unfavorably impacted by $36 3 million as a result of the strike and gross margin for the quarter came in at 19, 5% versus 24% in the same quarter last year. The decrease in gross margin reflects the impact of lost sales related to the labor conflict as well as a decline in our food margin, partly offset by an increase in there.
Pharma Division.
Operating expenses amounted to $540 3 million, that's up 13, 5% or four 7% when we exclude the 13th week.
The net impact of the labor conflict on operating expenses in the fourth quarter 2023 was an increase of 400000.
$400000.
Operating expenses as a percentage of sales was 10, 7% same as last year, but if not for lost sales due to the strike operating expenses as a percentage of sales would have been lower than last year.
EBITDA for the quarter totaled $448 million up one 5% year over year and represented eight 8% of sales versus 10% last year or nine 7% of sales when we remove the large gain on sale of assets that we did last year.
Total depreciation and amortization expense for the quarter was $125 million versus $119 eight last year and the four 2% increase reflects the additional investment in supply chain logistics as well as that sort of technology.
Adjusted net earnings were $228 8 million compared to $19 4 million last year, a four 3% increase in our adjusted net earnings per share amounted to 99 cents up seven 6% versus last year's adjusted EPS of <unk> 92.
The strike had an unfavorable impact on adjusted EPS of <unk> 12 per share.
Whereas the extra week had a favorable impact of <unk> 12 per share as well.
At the end of fiscal 2023 capital expenditures amounted to close to 680 million versus $6 one last year.
We invested less than our original guidance, mostly due to some real estate purchases that were postponed.
For fiscal 2024, we expect capex to reach a record level north of about $800 million as we continue our investments and amortize it modernization of our supply chain in both provinces Capex will reduce to a more normal level post 2024.
On the retail side fiscal 'twenty three was a busy year as we opened eight new stores in Quebec, We opened one metro store and three Super CS while converting another metro to a superseding guests know and in Ontario, We opened one metro store and two food basics. We also carried out major renovation and 10 stores, representing a net increase of 250.
<unk> 6003, underscore feet or one 2% of our food retail network.
And the pipeline for fiscal 'twenty four we are budgeting eight new discount stores, including two conversions and one new Metro stores. We will also undertake more than 25 major renovation projects.
Under our normal course issuer bid, we have repurchased over $6 7 million shares for total consideration of $484 4 million, representing an average share price of $72 nine the program ends on November 24th and we plan on renewing it as we remain committed to returning excess free cash flow to our shareholders through share repurchases.
I will finish by providing an outlook for fiscal 2024.
As we speak we are ramping up our new state of the art automated distribution center north of Montreal, and the expansion of our Montreal produced facility as planned.
We are also preparing for the launch of the final phase of our automated fresh facility in Toronto next spring.
While these investments position us well for continued long term profitable growth, we are facing significant headwinds in fiscal 'twenty four as we incur some temporary duplication of costs and learning curve learning curve inefficiencies as well as higher depreciation and lower capitalized interest in comparison the investment we made so far in Ontario to modernize the supply chain.
We're phase over a longer period.
Therefore, we will not fully absorb these additional expenses and we are currently forecasting EBITDA to grow by less than 2% in fiscal 'twenty four versus the level reported in fiscal 'twenty three and adjusted net earnings per share in fiscal 2000 for it to be flat to 10 cents down versus the level reported in fiscal 'twenty three we expect to resume our profit growth.
Fiscal 'twenty four and we are maintaining our publicly disclosed annual growth target of between eight and 10% for net earnings per share over the medium and long term.
For me I'll turn it over to Eric.
Thank you Francois and good morning, everyone.
We are pleased with our fourth quarter results, which were achieved in a challenging operating environment that included a $5 five weeks strike at 27 Metro stores in Ontario.
For the first time in our history sales for the year exceeded 20 billion and net earnings reached $1 billion.
Our sales momentum remained strong fueled by our discount banners and pharmacy.
For the quarter food same store sales were up six 8% driven by the continuing shift to discount for a two year stack of plus 15%.
Our internal food basket inflation decelerated to five 5%, which is about 2% lower than the reported food CPI and down from 8% in our third quarter.
Similar to previous quarters transactions were up the average basket increased slightly tonnage was up promotional penetration remained high and private label sales continue to outpace national brand.
In pharmacy, we delivered a strong balanced performance. Despite the expected decrease in demand for over the counter medication as we were lapping exceptionally strong sales in Q4 of last year.
Total pharmacy comparable sales were up 5.5.
5% on top of seven 4% in the fourth quarter last year.
Prescription sales were up six 7% driven by the dispensing fee indexation growth and high cost molecules and professional services.
Commercial sales were up three 1%, primarily driven by it cosmetics and seasonal.
The two year stack is 13, 5% for prescription sales and 13, 3% for commercial products.
As you know the employees in 27 of our Metro stores located in the GTA. We're on strike for five five weeks.
In August we reached a satisfactory five year collective agreement, which provides significant wage increases as well as pension and benefits improvements for all employees.
As an offset we were able to improve scheduling flexibility, which will lead to increased productivity.
Turning to our loyalty program. We are pleased with the early results following the launch of the more program in Quebec.
We doubled our member base, which now accounts for more than $2 4 million members with the majority of shopping at least two of our banners.
And what program performance continues to improve week over week with healthy growth in swipe rates and loyalty sales penetration.
We see many opportunities to grow customer engagement with more personalized offers and communications to our customers based on their shopping habits across our banners.
Our online food sales were up 116% versus last year, beating total market food E comm sales, which were essentially flat.
Our growth is fueled by third party partnerships and by expanding click and collect to our discount stores.
Turning to our supply chain, we started operations last month in the frozen section of our new <unk> D. C. North of Montreal. This new automated distribution center represents the future of metros fresh and frozen product distribution in Quebec.
It will strengthen our market position generate new opportunities for our company and our employees and enabled us to remain competitive while pursuing our growth.
The state of the art facility is expected to ramp up in stages over the coming months and be fully operational by the end of fiscal 'twenty four and.
In Toronto are fresh phase, one and frozen D. C are tracking to the business plan and teams are getting ready for fresh phase two set to begin operations next summer.
As we begin our fourth quarter, our first quarter. The current trend of food inflation stabilizing months over months and declining year over year is continuing as we will cycle high inflation numbers over the next three quarters.
However, we are still receiving price increase requests from the big CPG companies, which our teams will negotiate as much as possible. So we expect food inflation to moderate going forward.
On the pharmacy side, we will be going up against tough comps in the first half of fiscal 'twenty four as we lapsed the extraordinary demand and OTC medication due to post COVID-19, cough and cold symptoms last year.
Following our commitment in October 22 to rigorously evaluate the feasibility and cost of achieving the achieving the science based targets initiative net zero standard.
The company reviewed and adjusted the scope of its existing objectives by committing to set near term emission reduction targets in line with the <unk> standards.
We are setting science based targets that are ambitious but realistic.
In closing I want to address the outlook first of all just gave you for fiscal 'twenty four.
As you know, we normally do not give guidance and we don't intend to give guidance in the future. However, we wanted to be transparent on the impact of our major investments. We will have on our results for fiscal 'twenty, four which I would describe as a transition year I.
I am confident that these key investments will improve our competitive position, allowing us to better serve our customers and will position us well to continue our long term profitable growth.
That's it thank you and we'll be happy to take your questions.
Thank you.
Ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone will Dan here.
Acknowledging your request and if you would like to withdraw from the question queue.
Followed by two.
If youre using a speakerphone you will need to lift the handset first before pressing any keys. Please go ahead and press Star one now if you do have a question.
And your first question will be from Tami Chen of BMO capital markets. Please go ahead.
Hi, good morning, Thanks for the question.
Wanted to start with the fiscal 'twenty four outlets.
So can you elaborate a bit more on what the challenges were I think you alluded to that.
It was all phased over a longer period. So over here just trying to do everything faster.
Moving to some issues in the press release had called out some learning curve inefficiencies. So are you able to elaborate on all of that a bit more.
Yes. Thank you. Thank you for the question, it's exactly that in Ontario, We did fresh phase one in 2021, we did the freezer in 2022.
And we're going back there next spring refresh phase two here in 2024, we have fresh and frozen for Quebec.
Which is just opening so it's a Mega center, it's a five year 550000 square feet brand new automated DC.
We're operating in that center right now, but we have not cease the operations and the former D. C. So the former fresh and frozen Dcs in Quebec City and in Montreal are still operating to this day as we transition volume from from from those Dcs to the new DC. It will be done over several months, we started with frozen things are going well.
We're gonna do fish next then we're going to take a pause for the holidays and then go early in the year, starting with the with the fresh product. So there is there is duplication and warehousing costs.
Costs and transportation costs. So there are nonrecurring.
Excess costs for sure then we will expand our produce DC in Montreal to.
Enable our growth, we're moving all dairy products from that D. C to the new automated <unk>. So that's another transition.
And then we ramp up the new expanded space.
Hi, Joe They May get approved and then we go back to throw it all in the same fiscal year to do fresh phase II. So there's a lot of moving moving pieces a lot of work. We're confident it's going to go well, but it's going to it's going to it's going to cost money.
Cost money to do that especially in the first year and that's why we're transparent and we're saying that's it that's a big headwind.
It will impede our reported profits next year, but it positions us well for the future depreciation is going to go up no question about that capitalized interest.
No no longer capitalized so that's affecting.
Our bottom line next year, so in a nutshell, it's a big transition year.
We're confident that's going to go well, we have learned a lot in Toronto, we expect ramp up periods to be to be faster here in Quebec, but theres always some some learnings and there are some issues as you as you start new Dcs.
New systems.
New ways of doing things, so it's going to be it's going to have an impact next year. That's why that's why we're doing this.
Onetime guidance.
Okay.
Okay, I guess I'm wondering as a follow up to that.
It was more of I guess post Dol.
The Ontario work.
I'm just curious as to why for the second round of work largely in Quebec at the.
Taiwan is much shorter and so much more going on.
Well.
Ontario, we built the.
Our projects on existing land on exists it was our existing facilities that we built.
Next to it demolished and did it in phases. So we were able to stage. It here the new DC and tablet is one site one big facility for both fresh and frozen. So it's all at the same time and then when you opened this large facility you want to you want to increase throughput you wanted to bring to you you want to bring merchandize interim from all the other <unk>.
So the dairy which is with our produce today is going to go into the automated facility. So that's going to incur some costs, but it's going to improve the profitability or the returns on the new big fixed fixed cost facility. So.
It's just that the sequencing in Quebec is faster because of its one big center.
Okay got it and my last question.
Or are you expecting this to be fully resolved by the end of.
Fiscal year or.
Could there be some spill over into our fiscal 'twenty five.
Reading your question outlook part of it sounded as though you expect this all to be.
The drivers will be fully resolved within 24. Thanks.
Yeah, well, we're saying that post fiscal 'twenty four it will be back on our growth path and our growth track too and we maintain our long term average.
Medium and long term annual target growth objectives are maintained.
10% EPS has been a longtime number and we're still committed to it.
Okay. Thank you.
Thank you.
Our next question will be from Irene Mattel RBC capital markets. Please go ahead.
Thanks, and good morning, everyone.
Following on the discussion about the guidance can you. Please walk us through what your anticipated return on investment is does it exceed your I guess mid teens hurdle rate.
Over what period of time should we expect to see those returns Carlo.
Hey, Irene good.
Good morning, well same as what we said for Ontario.
Our internal rate of return and return on investment that we're looking at is the same whatever the project a new store renovation and conversion of Capex is capex funded from the same sources. So we are looking for the same.
Double digit after tax cash on cash return.
Obviously this is a longer term projects you don't get this you obviously don't get the savings in the first couple of years like you do for a store for example.
Over the medium term you start to get you start to get there, but we will we are confident we will achieve our targeted rate of return as a as expected and based on way as Eric said based on the experience we've had so far in Ontario.
We're confident that we are that we're in good position to achieve that rate of return.
That's great. Thank you.
If we could turn back to operations. Please obviously really nice number on the same store sales from what you were saying it sounds as though.
Key metrics are going in the right direction can you talk about what youre seeing in terms of consumer behavior, where you think the incremental traffic is coming from and what youre seeing in conventional versus discount. Thank you.
Thank you for the question no material change to our kind of customer behavior.
Trends, we've been observing for the last.
A year and a half now that the shift of discount continues.
The growth in sales on the conventional side versus discount there is a gap and that gap is significant we are well positioned with our super C and food basics to capture that growth. So we're very pleased with our traffic and our tonnage.
Our discount stores.
The momentum is strong and we're happy about that so trading down private label growth heavy duty from promotional pressure or not pressure, but penetration is consistent with what we've described over the previous calls and that's that's still happening. So it's a it's a very key.
A live environment as more discount to square square footage is being added to the market. It's it's having an impact for sure, but we're well positioned to to continue to grow in that market.
That's great. Thank you.
Thank you next question will be from Mark Petrie of CIBC. Please go ahead.
Yes, good morning, actually just a follow up maybe first on that food same store sales result, I know you don't like to get into the details but.
Clearly the continued shift to discount as a tailwind for you and you're gaining share but wanted to ask about the relative performance and full service how that has trended from Q3 to Q4 and if the share gains look different by channel.
Well, we're pleased with our share performance.
Byproducts and by format.
Compared to two are the direct competition.
Competition so.
We won't disclose more than that but the share of our conventional stores versus the conventional peer set is growing if you exclude the strike in Ontario.
Of course.
So we were pleased with that and it's been consistent over the last several quarters on the discount side our share has been growing.
Sure for over a year in.
In Quebec as the discount market.
Size due to a competitor converting many many stores as that pie grows on the discount side. We are very pleased with our growth, but on a relative market share basis discount.
It is.
The performance is not the same as it was a quarter or two ago, but in total market terms.
Our discount vendors in Quebec are growing share for sure.
I hope that's clear, yes, yes, no that is clear. Thank you I appreciate the color there.
First of all just to clarify with regards to same store sales for this period does your do though I think you said the stripes stores are included in same store sales, but does that mean that the DIFM.
The full period of in the same store sales base.
<unk> those those stores that were impacted by the strike, but then in the in the in the in the current period. They were they were not included is that right or they were excluded in both.
Were excluded in both yes. So the 27 stores for six weeks are out of the same store sales numbers last year and this year yes.
Yeah understood. Okay, and then one more question if I could please I mean, obviously, there's a lot of volume pressure.
In the industry, just given the shifts in consumer behavior and I am curious just to hear how you think about the impact in your business, obviously lots of different elements.
Across private label penetration and promotional investments cost leverage is that a factor in your outlook for fiscal 'twenty four or is it really.
I mean, thats predominantly the DC issues, but just curious about the sort of industry.
Industry pressures for fiscal 'twenty four.
No the guidance, we're giving on on EPS for next year is all related to the headwinds due to our distribution program monetization program. The market is the market, we expect to compete really well and to continue to do well.
From a from an operations point of view.
Sales growth and margins.
<unk> market share.
Those were very confident we will continue to perform well.
The headwinds are related to the distribution program.
Okay I appreciate all the comments and all the best.
Thank you Kim.
Next question will be from George at <unk>.
Scotiabank. Please go ahead.
Yes. Good morning, guys, just a follow up on the table and is there a way you can maybe give us a sense of the margin benefit that we should expect.
Once that's ramped up and presumably we should grow well above 8% to 10% in fiscal 'twenty five as we've got some of that benefit from Sorbonne, but maybe any color there would be I appreciate it.
Well as we said at the rate of return that we get and the investments are long term, which by twin by the bulk of these extra costs are on.
On the education, and learning curve efficient inefficient and so forth.
It will be behind is expected to be behind US post 24. So yes, as we did in Ontario, you you were looking for improvements or at least more tools to be able to 222 to improve our margin better in store.
Servicing better in stock positions better quality, which all has a rippling effect on our on our growth.
So that's why we're confident that we are we maintain our that we maintain our growth targets.
Just a little more color than that we're not going to give we're not going to give you specific.
Numbers on the benefits.
But.
Just as an example for those of you on the Investor Day, who saw the frozen DC youre able to see.
The automation level.
The number of employees and the volume that we're doing that is going through that facility and we were able to internalize a lot of formerly DSD product into our warehouse. So we're going to do the same in Quebec were confident that this will help improve service to stores. It will help improve in stock position in stores. It will help our sales and that will help our margins. It will help our same store.
Sales it will help our market share. So there's a lot of factors at play when you do big supply chain investments that should benefit at retail we're seeing some of that in Ontario, with our frozen D. C and we expect more of the same in fresh and frozen down the road in Quebec were not going to give you an exact number but in our in our business case and the return calculations we do.
We do put.
Put some money in there for the for those benefits. So that's why we're confident we're going to get the returns that we need on the investments that we needed to make we were we needed capacity we needed to grow and are these investments were required so.
It wasn't as if we could continue to operate in our Dcs over the next 30 years, we there we've grown a lot in the last 20 years and we want to grow some more in the next 20 years. That's why we make these investments for the long term.
Okay. Thanks, I just wanted to touch on the pharmacy.
Pretty good numbers there. So maybe first on <unk> can you maybe help break out that number how much of that was higher indexation fees, maybe volumes and anything that you can maybe tell us on.
On what's happening over there.
So the Rx number at $6 seven as healthy.
And there as we said indexes indexation of the script fees.
By the government on the public sector scripts same.
Same on the on the private sector fixed fees. So theres indexation of the script fee that's contributing to that lift.
Extensive molecules or expanded are contributing to that lift <unk> has contributed contributing to that lift.
And professional services vaccinations flu shots that that's increasing so there is a lift in the $6 seven on top of the normal Rx AR.
Accounts, so we're pleased with that and our share of Rx in the Quebec market is a very consistent and continues to be number one and we were pleased with our performance.
Okay, and just last one from me shifting where the front store.
Obviously, some some pretty strong numbers there but.
Inflation is high for that for how byproducts. So can you talk a little bit about the volume trends that you.
Are you seeing when it comes to.
In general and.
Are you are you seeing a trade down are you seeing a slowdown.
Can you talk a little bit about that.
Inflation in <unk>.
A little lower than food inflation that we're reporting so it's not abnormally high inflation and have a toll.
The front store sales number is impacted by OTC.
Those numbers are down year over year last year, OTC numbers were sky high because of post COVID-19 and sanitary relief and what not there were a lot of symptoms last year in Q4 and in Q1.
23, so we're cycling that so given that we're pleased with our with our habit performance cosmetics are strong seasonal performance was good so $3 one doesn't sound like a like a homerun, but compared to what we were cycling last year on a two year stack basis, it's quite strong.
And we're pleased with that performance, but theres still going to be pressure for the first half of 'twenty four like I said in my opening statement on an OTC sales because of that in Q1 and Q2 of fiscal 'twenty three.
The cough and cold season, so the symptoms in the flu season was very high and that contributed to a big numbers last year, and we expect that to be lower this year.
Okay, great. Thanks for the color appreciate it.
Thank you.
Next question will be from Vishal.
National Bank. Please go ahead.
Hi, Thanks for taking my questions I just wanted to go back to the <unk>.
The D C and Quebec would you consider the delta that.
That you issued in.
And your outlook for twice fiscal 'twenty four relative to street expectations is that predominantly from.
Planned costs that you saw coming and the street didnt adequately reflected or was there some unplanned initiatives unplanned events in there that caused that delta to magnify. It is a large delta in EBITDA versus the street. So I just wanted to get that thought.
Well we are.
I'm responsible for with the street expectations would be but we've been pretty transparent that we're making these these are well.
All known investments we've been talking about it since 2017 2018, it's it's a multi year program with.
We started it at 800 plus million, it's going to be more like $1 billion because of inflation and construction and all that so.
On this program and as these facilities need to be.
<unk> ramped up and they need to be amortized going forward. So and that's that's the math here. So that's why we're giving that guidance to be very transparent.
Okay, I appreciate that and on the actual.
G&A increase or are you going to give us some specific help on those on those numbers.
Yes, I think we're not going to we're not going to let Michelle and I'm going to break down the headwinds per category and so forth, but I think for depreciation while we.
Can say for next year is that total increase not just not just for the DC that we're talking about but total depreciation expense you can use a $50 million plus delta.
For the year obviously.
Gradual, but the bulk of the increase happening.
In Q1 because of tell by starting life. So you can assume about $50 million more depreciation expense and you can assume about $15 million of lower capitalized interest.
I'll leave it at that in terms of the of the impact for next year.
Okay.
And the duplicative costs are you going to give us any help on those and how long will those <unk> costs stay in the P&L.
We gave you some we gave US back is as we tell you that.
Our EBITDA is expected to grow by less than 2% so.
We are absorbing part of these increases, but we're not absorbing all of it and we will we will we will we will we will obviously as the quarter as we as we progress in the year, we'll talk about our results, but as I said.
Based on the experience we had in Toronto, the bulk of these inefficiencies and deprecation should be behind Us post 'twenty forward Thats the expectation.
Got it okay, just changing topics here.
I just wanted to I was hoping you could update us on your view on acquisitions, if theres been any changes in what's your interest in pharmacy assets.
Yes.
Well like we said before Vishal, we are always on.
For acquisitions in food and pharmacy in Canada and.
If an opportunity arises we are we will take a close look.
Okay and is it fair.
To stay on pharmacy assets, you would want to self distribute.
That's where it become available.
That's our model.
Yes, we would prefer.
We'll see we'll see what the opportunities are.
Thank you.
Thank you next.
Next question will be from Michael Van <unk> at TD Cowen. Please go ahead.
Hi, there sorry to go back to this but I wanted to talk.
Just get a better sense.
Timing of the <unk> impact.
Do you expect these duplicate overhead costs.
And the inefficiencies to be highest in the first half of the year or second half of the year like how would you expect that to go through the year.
Well those those kind of fees.
As gradual do you expect to have that.
Youre learning curve by definition is a curve so that the euro part of the year will be tougher than the last part.
We're not going to give you a precise month by month, but that's you could assume a gradual.
The gradual improvement as we move along the fiscal year, just like we just like we had in Toronto.
Okay, Alright, and then.
It was asked before but I just want to clarify a little bit here the.
Lot of these costs that you're calling out for fiscal 'twenty four.
One time in nature or they're temporary.
And the industry continues to progress as you expected so should investors be expecting an outsized growth.
<unk>.
Yes.
<unk> 25 to make up for the shortfall that you're seeing in growth in fiscal 'twenty four.
Well some of the expenses are going to be permanent.
Depreciation as fast what called out is going to be with us for a long time, there's some one time theres. Some cash there are some noncash or some one time theres. Some theres some permanent so it's a mix of all of that.
To say are you going to expect outsized return in one year I don't think that would be fair or appropriate, but we expect it to generate our returns on our investments over time.
We're confident we're going to get there.
But there are some of the some of these expenses are going to be with us and not just for one year some of them as onetime or all of them. Although obviously the growth in depreciation and 25 and beyond will be lower than what we're showing in 'twenty four and then so with the extra volume that we are.
We will be able to absorb going forward is that just it's just that one year that said thats why we call. It a transition year, but after that we will we're in a good position to absorb.
And drive the efficiencies and the margin improvements we discussed.
So when you talk about 8% to 10%.
Adding back onto your 8% to 10% annual growth for EPS.
If we look back.
Five years from now.
Are you, saying, you're expecting to have 8% to 10% CAGR and EPS over that.
Yes.
Yes, that's exactly what we are saying alright.
Similar to historical we're just going to see a drop this year and then you'll make up for it gradually in the following years as you get returns from these investments exactly and as we said we've said in the past those targets that doesn't mean that we hit then every single year. They are there are reasons why you'd like.
We're talking today, where you make investment for the future, but if you, but if you take a period of time and medium to long term. We are we are confident that we can still achieve those targets.
You've done it historically.
Pretty consistent basis, so yes.
Okay, and then finally on labor.
Clearly you alluded to the significant wage increases from this Lee Raymond.
It seems like both.
Your Opex and your competitor that also reported today had higher opex growth as well and.
And I'm, just wondering how much of that.
Coming from Labor at this point like are we seeing.
Where are you already seeing some meaningful increases in labor expense.
Your Opex line this quarter.
Yes, okay.
Some ways from salary wages increases.
Our higher and we've we plan for that.
Im pleased with our performance.
Our opex as a percentage of sales the same as last year and obviously, if you factor in the strike at our percentage of Opex as a percentage of Opex on sales is lower than last year, so well despite despite pressures from from wages and other and other lines. So we're yes to your.
Question, it's a weight wage increase over there, but we've been able to absorb them.
Okay.
Your labor your weight.
Both in Cogs and Opex correct, yes.
Yes, yes.
Alright, thanks very much.
Thank you.
Next question will be from Chris Lee.
Please go ahead.
Hi, Good morning, Eric just a couple of questions just on how to model for next year, maybe Francois.
Wanted to clarify.
Adjusted EBITDA and adjusted EPS that Youre anchoring your financial outlook for fiscal 'twenty four I just wanted to confirm is that <unk>.
Clothing, the extra week and also excluding the strike impact.
It's versus the reported CAGR for 'twenty three as you see them.
As you see them on the P&L.
Okay. So okay got you.
Our reported okay. Okay. That's helpful and then.
And then secondly, just in terms of just the classification of these onetime costs.
Will we see them being receptive.
Most.
Mix of both Cogs and SG&A.
Well.
Most some of it will come back when would you chapter 331 will bring back some of the cost increases to the margin.
When we bring some of these cost increases the margin youll see an impact on margin as well, but mostly mostly.
Mostly.
Opex.
Okay. That's helpful. And then Eric I think you already answered this question with Mark, but I just wanted to touch base again, so I guess.
Im trying to wonder like even one of these one time noise from the DC investments next year do you think you'll still be able to achieve 8% to 10% EPS growth in fiscal 'twenty, four and I guess, what I'm trying to understand is I mean does your outlook also incorporates some caution around the operating environment because as you said there were some tough comps lenders increasing promo penetration.
<unk>.
No like I said to Mark.
Very confident about our kpis and our operating performance in both of our markets. We are well positioned stores are in good shape.
Have a good Capex program.
Confident that our performance in the market will be.
We will be consistent with our with prior experience. So again this this.
Guidance has nothing to do with our with the operating performance all to do with our supply chain program.
Okay. Thanks for that and then my last question just maybe on the gross margin I know the result, obviously included the impact of the strike evil, you've really to exclude that.
Is it fair to say your margin performance would have been somewhat similar to the.
Performance in recent quarters.
In terms of the year over year.
Gross or comparison, which margin, which margins margin gross margin gross to gross margin gross margin sorry.
Gross margin is down for a few factors the strike obviously.
And the margin in food by itself is also declining as it as it has been over the previous quarter's combination of we're not passing on all the cost increases.
And as also and there is also a shift a discount so that also has an impact.
And you also comparing to a gross margin level of last year, which was the highest of the year at 24.
The whole year was that at an average of 20. So you are comping, you're comparing to a very high gross margin last year. So I think all of these factors.
Explain why the gross margin is where it is.
Okay, great. Thanks, guys the Autodesk.
Okay.
Thank you.
Once again as a reminder, please press star one if you have any questions.
And your next question will be from Mark Petrie at CIBC.
Yes. Thanks, just a quick follow up I just wanted to clarify for the for the new facility at Terrebonne does it have automated fresh like what youre going to be putting in in phase two in the GTA and yes, I guess that first.
That's the answer is yes, and it will be.
<unk>.
It will be the pilot or for Toronto, whether we do next next June so when we say learning curve and ramping up on the fresh side theres going to be some of that going on in 10 months. So yes.
It's not fully automated but it's more than 75% automated for fresh and that D. C.
Yeah, Okay, and then is it.
Would you characterize the automation and fresh is more difficult to execute or to ramp.
And then then automated and frozen.
Yes. It presents a few more challenges because it is a mix of conventional and automated picking so.
It has more complications we lived through that for producing Toronto it'll.
It will be.
More automated Intel Bun and it'll be more operated in Toronto. Once we're done phase two next to the next summer, but as we ramp up yes, there are more challenges with on the fresh side than the freezer.
I'll have challenges, but the it's a little more complicated with fresh because it's.
It's it's hybrid yes.
Yeah understood. Okay. That's helpful. Thank you.
Thank you and at this time, we have no other questions registered please proceed.
Thank you all for your interest in Metro and.
And soon to discuss our first quarter results on January 30.
Do you.
Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask could you. Please disconnect your lines.
Okay.
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