Q1 2024 Metro Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to Metro Inc. 2024 first quarter results conference call. At this time note that all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.
At times during this call you require me to the assistance. Please press star zero for the operator also note that the call is being recorded Tuesday January 30th 2024, and I would like to turn the conference over to Sheldon Kadosh manager Investor Relations and Treasury. Please go ahead.
Sheldon Kadosh: Good afternoon, everyone and thanks for joining US today my comments will focus on the financial results, Although first quarter, which ended on December 23.
Sheldon Kadosh: With me today is Mr. Eddie can you flesh, president and CEO and.
Sheldon Kadosh: Executive VP and CFO during the call we will present, our first quarter results and comment on its highlights will then be happy to take your questions.
Sheldon Kadosh: We begin I would like to remind you that we will use in today's discussion different statements that could be that could be construed as forward looking information in general any statement, which does not constitute a historical fact may be deemed to be forward looking statements.
Sheldon Kadosh: Or is it a expressions such as expect intend or confident that well and other similar words or expressions are generally indicative of forward looking statements.
Sheldon Kadosh: <unk> looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy, and our annual budget and our 'twenty 'twenty four 'twenty 'twenty five actions by 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.
Sheldon Kadosh: Risk factors that could cause actual results or events to differ materially from our expectations as expressed in or implied by our forward. Looking statements are described under the risk management section in our 'twenty to 'twenty three annual report.
Sheldon Kadosh: We believe these forward looking statements to be reasonable and prudent at this time and represent our expectations.
Sheldon Kadosh: The company does not intend to update any forward looking statement, except as required by applicable law.
Speaker Change: I will now turn the call over to talk about.
Speaker Change: Okay.
Speaker Change: Thank you, Sean and good afternoon, everyone.
Speaker Change: For the quarter total sales reached $4 974 billion, an increase of six 5% versus the same period last year.
Speaker Change: Same store sales were up six 1% and sales were positively impacted as the week preceding Christmas fell in the first quarter, whereas last year. It fell in the second quarter.
Speaker Change: When we adjust for the Christmas shifts that is when we compare our same store sales. So that's what we've period ending December 23, 2023 with the one ending December 24, 2022 food same store sales increased by three 4%.
Speaker Change: We will have the reverse effect in the second quarter.
Speaker Change: Pharmacy same store sales were up three 9% when comparing the 12 week period, ending December 23, 2023, with the one ending December 24 2022.
Our gross margin stood at 19, 6% of sales same as in the first quarter last year.
Speaker Change: Operating expenses amounted to 500 million six $506 million for obtain <unk>, 5% versus last year.
Speaker Change: Operating expenses as a percent of sales was 10, 2%.
Speaker Change: She was nine 8% in the same quarter last year as expected the higher ratio is mainly due to the commissioning of our new automated D C for fresh and frozen products in Gabon, as we encourage temporary duplication of costs and learning curve inefficiencies.
Speaker Change: We also have higher third party E comm fees than last year.
EBITDA for the quarter total auto 68, 1 million up one 2% year over year and up 2% when removing the gains on the disposal of assets.
Speaker Change: Total depreciation and amortization expense for the quarter was $131 1 million.
Speaker Change: 11 million versus last year, a significant portion of the increase is due to our new job on D. C.
Speaker Change: Net financial cost for the first quarter were $32 4 million compared with $27 1 million for the corresponding quarter of 2003, and the increase was mainly due to an increase in debt higher interest rates and lower capitalized interest related to our distribution automation projects.
Speaker Change: Our effective tax rate stood at 25% versus 26, 5% last year, reflecting a favorable tax adjustment irrespective of prior years.
Speaker Change: Adjusted net earnings were $235 million compared to $237 6 million last year, a one 1% decrease in our adjusted net earnings per share amounted to a dollar to up 2% versus last year adjusted EPS of a dollar.
Speaker Change: After 12 weeks in fiscal 'twenty for capital expenditures amounted to $117 3 million versus $129 3 million last year.
Speaker Change: On the retail side during the first quarter, we opened three Super C stores and carried out major expansions and renovations of four source for a net increase of 88.
Speaker Change: The 8400 square feet or 24% of our food retail network.
Turning to in store technology, we ended the quarter with 502 food stores and 63 pharmacy is equipped with self checkout technology.
Speaker Change: As for electronic shelf labels at the end of Q1, we had 345 foot stores and 46 pharmacies quick with that technology.
Speaker Change: Under our normal course issuer bid program as of January 19th of this year, we have repurchased one 675 million shares for a total consideration of $113 7 million, representing an average share price of $68 89.
Speaker Change: Yeah.
Speaker Change: The board of directors yesterday declared a quarterly dividend of $33.05 a share or $1 34 on an annual basis, an increase of 10, 7% versus last year.
This is the 13th consecutive year of dividend growth and represents a payout of about 30% of last year's adjusted net earnings in line with our policy.
Speaker Change: In closing our first quarter results are tracking well to the guidance. We provided in November for fiscal 'twenty for that EBITDA to grow by less than 2% versus the level reported in fiscal 'twenty three and adjusted net earnings per share to be flat to down 10 cents versus the level reported in fiscal 'twenty three.
Speaker Change: That's it for me and I'll turn it turn it over to Eric.
Eric: Thank you Francois and good afternoon, everyone.
Eric: We recorded solid results in the first quarter as our teams continued to deliver good value to your customers at all our food and pharmacy banners.
Eric: Total sales grew by six 5% EBITDA by one 3% and adjusted EPS by 2% as expected our results were impacted by the commissioning of our new automated D C for fresh and frozen products and deadline.
Eric: Transition from our other facilities is causing some duplication of expenses and lots of efficiency, but the good news is that's all.
Eric: Also said we are on track with our plan and with the guidance. We gave you in November.
Eric: As Todd also measured mentioned food same store sales were up six 5% and when adjusted for the Christmas shift same store sales were up three 4%.
Eric: Our internal food basket inflation decelerated to about 4% lower than the reported CPI and down from five 5% in the previous quarter.
Eric: For the quarter, our tonnage or food tonnage was up with higher transaction counts, while the average basket remained stable overall.
Eric: Promotional penetration remained high and private label sales continue to outpace national brands.
Eric: We are very pleased with the performance of our discounts food stores reopened three new supersedes during the quarter with very encouraging early results. This brings the total to 106 Super C stores over the last 15 months, we opened nine new discount stores in Quebec, and Ontario and in another form.
<unk> are scheduled to open this fiscal year.
Eric: Our online food sales grew by 105% versus last year, while the market with stable.
Eric: Growth continued to be fueled by third party pardee partnerships and the expansion of click and collect so our discount banners.
Eric: As we begin to lap the start of these initiatives, we expect the year over year growth of online sales to moderate over the coming quarters.
Eric: Total pharmacy comp sales were up three 9% on top of seven 7% in the first quarter last year prescription.
Eric: Prescription sales were up a strong six 6% driven by professional services and specialty medications.
Eric: Commercial sales were down one 2% in the quarter as OTC sales declined compared to exceptionally high demand for cough and cold products last year. This.
Eric: This was partly offset by continued growth in cosmetics and habit.
Eric: We continue to be pleased with our loyalty program. We have now reached over $2 5 million active members more than double the size of the Minto anymore.
Eric: Remember swipe swipe rates loyalty sales penetration and member engagement rates continued to grow across all banners and have surpassed all pass program metrics for Mitsui, what at Metro and air miles at Chuck.
Eric: We see cross shop spending and visits increasing with potential for more as we leverage our personalization capabilities.
Eric: Coming back to our 10, one automated DC during the quarter, we completed the transfer of all frozen products as well as fresh seafood.
Eric: We are currently transitioning fresh meat and deli products and as I said productivity and the facility is tracking the business plan as our teams are leveraging our experience from the commissioning of our D C and Toronto.
Eric: Going forward the cost increases received from the big CPG companies will start to be reflected in retail prices in February the.
Eric: The number of increases will be more normal than than the peak we saw during.
Eric: During the last two years.
Eric: On the pharmacy side, we will be going up against tough comps again in the second quarter as we continued to lap extraordinary demand and OTC medication due to post COVID-19 cough and cold symptoms last year.
Eric: So if you look at last month, we published our annual corporate responsibility report, which improved disclosure and additional targets. We believe that our approach to corporate responsibility as an asset and realizing our purpose to nourish the health and wellbeing of our communities and creating long term value for our shareholders.
Speaker Change: That's it for me, Thank you and we'll be happy to take your questions.
Speaker Change: Thank you, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone you will then Huey.
Speaker Change: Acknowledging your request and if you would like to withdraw from the question queue. Please press star followed by two and using a speakerphone you will need to know.
Speaker Change: Your handset before pressing Andy Keith. Please go ahead Crestar one now if you have any questions.
And your first question will be from Irene <unk> with RBC. Please go ahead.
Irene: Thanks, Dan and good afternoon, everyone.
Irene: Eric in your commentary it sounds as though we're really seeing a continuation of competitive intensity and consumer behavior.
Irene: For calendar Q4, your fiscal Q1, I guess is that a fair statement and have you seen any change in Q1 to date.
Irene: I think Thats a fair assessment, that's what we're seeing is pretty consistent like I tried to describe that it's highly promotional promotional as it was there's some trading down going on private label sales are continuing to grow at a much faster clip than national brands and discount are now the shift of discount.
Irene: <unk> continues to happen so very similar to the previous quarter, yes.
That's great. Thank you and you also mentioned price increases we've heard from some of your peers that domestic suppliers. The price increase your class has been more modest but the big multinationals still being kind of aggressive can you talk about what we should be.
Irene: Thinking.
Irene: Pricing in 2024.
Irene: So like I said in my opening statement.
Irene: Post cost freeze, which starts next week.
Irene: Some prices at retail will start to increase the good news is the number of.
Irene: The increases is going back to more normal levels compared to what we saw in the last two years. So there is a search substantial reduction in the number of requests.
Irene: The size.
Irene: The request varies.
Irene: But the general average is certainly lower than what we saw last year. So I don't I don't have a precise number but I think we're returning to a more normal inflation levels gradually.
Irene: So mid single digit.
Irene: Some categories, a little less than that for some categories are higher than that some other commodity driven.
Irene: Categories can be even more than that but those are more exceptions. So in general, it's it's trending better trending towards normal, but still higher than normal.
Speaker Change: That's great. Thank you.
Speaker Change: Thank you.
Speaker Change: Next question will be from Tami Chen.
Tami Chen: <unk> capital markets. Please go ahead.
Tami Chen: Great. Thanks for the question.
Wanted to ask about the ramp of the D. C. So as I recall for Toronto Phase one I believe that was completed over a span of I think about two years or so and what youre launching in this fiscal year is a lot larger in scope. So can you.
Tami Chen: Help us.
<unk> just remind us I guess what gives you the confidence that you can stand up all of this in this one year or is it because the technologies and the equipment and turbine or are the same as what was in Toronto phase one so you're viewing this year's ramp as a bit of a rinse and repeat even though it is larger in scope.
Tami Chen: So yes for sure there is a lot of the learnings of what happened in Toronto Toronto Fresh Phase one was the first project. We then followed up with the freezer, which went better and now the third one is the big one in and and get back which is fresh and frozen. So this fall. It was very focused on frozen and so it was a comparable ramp up.
Tami Chen: Start up and what we did with our frozen project in Toronto.
Tami Chen: And we started fresh seafood towards the end of the quarter took a pause for the holidays and now in January we're back with a fresh meat and deli, that's going to take place over the next several weeks so.
Tami Chen: For sure it's a big project and that's why we talked about headwinds and the extra expenses that we incurred.
Operator: Good afternoon, ladies and gentlemen, and welcome to Metro Inc.'s 2024 First Quarter Results Conference. Next time, note that all lines are in echo only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator.
Tami Chen: Startup of big building like that but a lot of learnings from the from the Toronto projects a lot of our teams here in Quebec went to Toronto to work in a startup over there so it's everything's going faster and better so and we plan for it so.
Operator: Also, note that the call is being recorded Tuesday, January 30th, 2021. And I would like to turn the conference over to Sharon Kadosh, Manager, Investor Relations, and Treasury. Please go ahead.
Tami Chen: The budget, we made the plans we have made in the guidance. We gave you were based on better better better quicker ramp ups here in Montreal, and we're tracking on plan. So we're very pleased with that it's a huge effort by a lot of people here.
Sharon Kadosh: Good afternoon, everyone, and thank you for joining us today. Our comments will focus on the financial results of our first quarter, which ended on December 23rd. With me today is Mr. Eric Lafleche, President and CEO, and François Thibault, Executive VP and CFO. During the call, we will present our first quarter results and comment on their highlights. We will then be happy to take requests. Before we begin, I would like to remind you that in today's discussion, we will use different statements 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, are confident that, will, and other similar words or expressions are generally indicative of forward-looking statements.
Tami Chen: But so far it's going well.
Speaker Change: Okay. That's good to hear and my follow up is on pharmacy.
Tami Chen: When I look at it John could you over the years I don't see much unit growth.
Speaker Change: A call at your Investor Day last year, you alluded to wanting to invest more and I believe it was the hover aspect forefront of store, but can you just remind us right now how are you thinking about your overall strategy for pharmacy over the medium to long term. Thanks.
So so we are the leading player in pharmacy in Quebec with a shocker to the clear leader in Korea. So we have two banner strategy.
Speaker Change: We have close to.
Sharon Kadosh: The forward-looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy, and our annual budget and our 2024-2025 action plan. 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 expectations as expressed in or implied by. Our forward-looking statements are described under the risk management section of our 2023 annual report. We believe these forward-looking statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward-looking statements except as required by applicable law. Thank you, Sharan, and good afternoon, everyone.
Tami Chen: So close to her.
Tami Chen: 670 pharmacy.
Tami Chen: Yeah.
Tami Chen: So where we're not adding units as much as growing organically with our current network. So we've optimized the network there were a few conversions a two shot pursuit.
Tami Chen: And so so our focus is very much on growing organically growing sales front store and how about in the existing fleet.
Tami Chen: More than and then growing the store count So professional services.
Tami Chen: We are certainly growing a first line of the health care system is.
Tami Chen: A big part of our strategy.
Tami Chen: All the digital work that we can do to.
Tami Chen: Increased customer engagement.
Tami Chen: It is going to be happening at chocolate, So theres, a big digital components of the lab, that's already in place and we're going to we're going to build on that too to increase our digital connections for for commercial sales in the front end with our with our <unk> program. So.
François Thibault: For the quarter, total sales reached $4.974 billion, an increase of 6.5 percent versus the same period last year. Food stamp store sales were up 6.1%, and sales were positively impacted as the week preceding Christmas fell in the first quarter, whereas last year it fell in the second quarter. When we adjust for the Christmas shift, that is, when we compare same-store sales for the 12-week period ending December 23, 2023, with the one ending December 24, 2022, food same-store sales increased by 3.4%. We will have the reverse effect in the second quarter.
Tami Chen: We like our position, we like the structural demand the demographics for pharmacy, especially in Quebec and.
Tami Chen: As the clear leader and we are well positioned to work too.
Tami Chen: As you would to do well.
Okay. Thank you.
Speaker Change: Thank you next.
Speaker Change: The next question will be from Vishal.
Vishal: Scotiabank. Please go ahead.
Yes, hi, good afternoon American ethanol. So I just wanted to follow up on the pricing discussion. So so food CPI in.
Vishal: In the U S and Canada, there seems to be a pretty significant difference.
François Thibault: Pharma same-source sales were up 3.9% when comparing the 12-week period ending December 23rd, 2023, with the one ending December 24th, 2020. Our gross margin stood at 19.6% of sales, the same as in the first quarter last year. Operating expenses amounted to $506,000.004, up 10.5% versus last year.
Vishal: I wanted to get your take on that did you see that as a kind of a five to six month lag and we're back to the U S levels or do you think there's something more structural in Canada that keeps the Canadian inflation running kind of well above the 2% to 3% range. This year.
Vishal: Hmm.
Speaker Change: Well there are some structural difference.
Speaker Change: Differences between that between the two countries some regulated markets in Canada that you don't necessarily see in the U S. So that's contributing to a higher structural rate of inflation, but it's not that material.
François Thibault: Operating expenses as a percentage of sales were 10.2% versus 9.8% in the same quarter last year. As expected, the higher ratio is mainly due to the commissioning of our new automated DC for fresh and frozen products in Taoban as we incur temporary duplication of costs and learning curve inefficiencies. We also have higher third-party e-com fees than last year. If it died for the quarter, total revenue would be $468.1 million, up 1.2% year over year, and up 2% when removing the gains on disposal of assets. Total depreciation and amortization expense for the quarter was $131.1M, up $11M versus last year.
Speaker Change: I think the good news is here.
Speaker Change: The year over year inflation rate coming down.
Speaker Change: That's over months prices prices have stabilized.
Speaker Change: Over the last few months and year over year number keeps coming down.
Speaker Change: Certainly quarter.
Speaker Change: We recorded so.
Speaker Change: Pleased with that the increases we're getting.
Speaker Change: Like I said, theres still coming in lower quantities and for lower prices, but it's still going to cause some inflation. We expect in the next year, albeit at more normal levels, we always say more normal is 2% to 3%.
Speaker Change: We're not quite there yet, but we're getting there.
François Thibault: A significant portion of the increase is due to our new Taoban. Net financial costs for the first quarter were $32.4 million, compared with $27.1 million for the corresponding quarter of 2023. The increase is mainly due to an increase in debt, higher interest rates, and low capitalized interest related to our distribution and automation project. Our effective tax rates stood at 25% versus 26.5% last year, reflecting a favorable tax adjustment in respect of the prior year. Adjusted net earnings were $235 million compared to $237.6 million last year, a 1.1% decrease, and our adjusted net earnings per share amounted to $1.02, up 2% versus last year's adjusted EPS of $1. After 12 weeks in fiscal 24, capital expenditures amounted to $117.3 million versus $129.3 million last year.
Speaker Change: Okay. Thanks for that and I just wanted to talk about the front store in the negative comp there first off was there an impact at all from the Christmas week.
Speaker Change: In there and can you talk a little bit about how the cosmetics and how volumes trended and how soon can we maybe get back to those kind of low single digits mid single digit cadence there.
Speaker Change: So the front store number we gave you for pharmacy is perfectly comparable so theres no Christmas effect.
On that and so a couple of things last year as I tried to explain our front store sales were high at 10%.
Speaker Change: Very strong OTC demand this was post COVID-19 symptoms trifecta.
Speaker Change: Respiratory COVID-19 influenza name. It there was a lot of cough and cold symptoms last fall and we were comping that and the cough and cold season started later this year. So theres less OTC demand. This year that is the biggest contributor to the decline is a decline in OTC.
Speaker Change: As you know generates.
François Thibault: On the retail side, during the first quarter, we opened three Super C stores and carried out major expansions and renovations of four stores for a net increase of 88,400 square feet, or 0.4% of our food retail network. Turning to in-store technology, we ended the quarter with 502 food stores and 63 pharmacies equipped with self-checkout technology. As for electronic shelf labels, at the end of Q1, we had 345 stores and 46 pharmacies equipped with that technology. Under our normal course issuance program, as of January 19th of this year, we have repurchased 1.675 million shares for a total consideration of $113.7 million, representing an average share price of $68.89. The Board of Directors yesterday declared a quarterly dividend of $0.335 a share, or $1.34 on an annual basis, an increase of 10.7% versus last year.
Speaker Change: Generates traffic.
Speaker Change: The pharmacy and you now may have an impact on the rest of the front store. So that's the biggest one.
Speaker Change: <unk>.
Speaker Change: If I look at Q2 with it with you.
Speaker Change: Cough and cold season, now firmly in place.
Speaker Change: Even if we comped good high numbers in front end.
Speaker Change: Q2, and we're seeing we're seeing better trends because of the cough and cold one other factor I might add for Q1 and for those of you who don't live in Quebec, There was a significant public sector strike for several weeks teachers and then for several days general strikes. So you know disposable.
Speaker Change: And then in November December in this province was not where it used to be so that that had an impact a bit on seasonal sales.
Speaker Change: No.
Speaker Change: Hopefully that's all behind us.
Speaker Change: That's helpful and just one last yeah. Thanks.
Speaker Change: Thanks for that maybe if I could ask one quick one.
Speaker Change: Without really getting into specific numbers, but just order of magnitude.
Speaker Change: I mean in terms of timing I think you mentioned in your Investor day that you expect <unk> to be fully ramped up in kind of Q2 Q3, this fiscal year and I think fresh two by Q1.
Speaker Change: Next fiscal year should we expect I guess, the full margin contribution from from everything to play out by kind of Q1 'twenty fiscal 'twenty five or is that is that fair.
François Thibault: This is the 30th consecutive year of dividend growth and represents a payout of about 30% of last year's adjusted net earnings, in line with our policy. In closing, our first quarter results are tracking well to the guidance we provided in November for Fiscal 24, that is, EBITDA to grow by less than 2% versus the level reported in Fiscal 23, and adjusted net earnings per share to be flat to down 10 cents versus the level reported in Fiscal 23. That's it for me.
Speaker Change: Thanks.
Speaker Change: Well <unk> started in Q1.
Speaker Change: Transitioning they were in Q2, and we're still transitioning so we're not going to be all done in perfect perfect productive by the end of Q3, we said it's going to take all of this fiscal year to get this thing started up. So Q1 next year is more of a number where we should be in good shape phase II Toronto fresh we start in June.
Speaker Change: Or thereabouts, so it's gonna be a wrap up there all summer.
Speaker Change: We expect it to go well, but ramping up is ramping up well.
Eric LaFleche: I'll now turn it over to Eric. Thank you, Francois, and good afternoon, everyone. We recorded solid results in the first quarter as our teams continued to deliver good value to customers in all our food and pharmacy banners. Total sales grew by 6.5%, EBITDA by 1.3%, and adjusted EPS by 2%. As expected, our results were impacted by the commissioning of our new automated VC for fresh and frozen products in Terrebonne. The transition from our other facilities is causing some duplication of expenses and loss of efficiency, but the good news is, as Haswa said, we are still on track with our plan and with the guidance we gave you in November. As Francois also mentioned, Pooh's same-store sales were up 6.5%, and when adjusted for the Christmas shift, same-store sales were up 3.4%. Internal food basket inflation decelerated to about 4%, lower than the reported CPI, and down from 5.5% in the previous quarter. Thank you. Bye.
Speaker Change: I was hoping to get back to you on the exact timing there, but that too is going to take it's going to take a three months. So.
Speaker Change: Is it before Christmas or it looks like the around that.
Speaker Change: So I can get back to you.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Thank you next question will be from Michael Van <unk> of TD Cowen. Please go ahead.
Michael Van: Alright, thank you.
Michael Van: When did that.
Michael Van: Turbine D C actually opening Quebec.
It was in October I don't have the exact date for you last October.
Michael Van: Yes, there is a bit of course on there wasn't great, but I remember you said it was early in October so.
Okay. So then when should we expect to see peak duplicate overhead costs in peak inefficiencies.
Speaker Change: Well, where Michael we're seeing it now as a in Q1, we are basically at the peak.
Speaker Change: And Jeremy duplication learning curve inefficiencies and so forth, it's going to continue.
Speaker Change: Throughout the year, but I believe everything else is according to plan, but you should start to see some improvement on that front as the year progresses, but then we had this fresh phase two that's going to start so we're going to have that overlap and as Eric said by what by by the first quarter of next year, we expect that most of those are duplicate headwinds and.
Speaker Change: Inefficiencies will be behind us some expenses will remain like depreciation that's that's not going away, but the increase next year will be much more manageable much more manageable.
Eric LaFleche: For the quarter, our tonnage, our food tonnage, was up, with higher transaction counts, while the average basket remained stable overall, promotional penetration remained high, and private label sales continued to outpace the national brand. We are very pleased with the performance of our discount food store. We opened three new Super C's during the quarter, with very encouraging early results. This brings the total to 106 Super C stores.
Speaker Change: Year over year than what we're seeing today. So we're living it now in terms of the peak.
Speaker Change: Okay. Because I was just trying to understand if you started it have you opened in late October and you only have say two versus three months in Q2 is it possible that the duplicate overhead costs are actually and inefficiencies for that matter are actually higher in Q2.
Speaker Change: Sure.
Speaker Change: A similar picture to be honest, it's still a very compressed timeframe Q1, Q2, that's where the bulk of it will be and then we're gonna and then we're going to see some improvements as the year progresses.
Eric LaFleche: Over the last 15 months, we opened nine new discount stores in Quebec and Ontario, and another four are scheduled to open this fiscal year. Our online food sales grew by 105% versus last year while the market was stable. Growth continued to be fueled by third-party partnerships and the expansion of Click and Collect to our discount banner. As we begin to lap the start of these initiatives, we expect the year-over-year growth of online sales to moderate over the coming quarters. Total pharmacy comp sales were up 3.9% on top of 7.7% in the first quarter last year. Prescription sales were up a strong 6.6%, driven by professional services and specialty medication. Commercial sales were down 1.2% in the quarter as OTC sales declined compared to the exceptionally high demand for cough and cold products last year.
Speaker Change: Perfect.
Speaker Change: Capex was quite low in the first quarter.
Speaker Change: Despite your guidance for capex to be over $809 for the year. So why is.
Speaker Change: Capex would have been high to start the year given everything is opening but.
Speaker Change: What.
Speaker Change: What should we expect or are we still expecting over 800 million for the full year, yes.
Speaker Change: Yes.
Speaker Change: Not changing it.
Speaker Change: Now, we'll see what we are in Q2, it's that some of it is very choppy in terms of where it falls quarter say, where second quarter. So no change for now, but I will update you as we as we go forward.
Okay, and then just finally I know you mentioned the discount is still growing faster than conventional but are you seeing growth.
Speaker Change: In conventional is as inflation flows are we seeing any change in the pace of growth in conventional.
Speaker Change: No.
I don't think you can we could we could say that.
Speaker Change: Clearly there is a lot more growth on the on the discount side.
Speaker Change: We're pleased with the.
Speaker Change: Gross or the levels that we're seeing in conventional we have some growth.
Eric LaFleche: This was partly offset by continued growth in Cognetics and HABA. We continue to be pleased with our MOI loyalty program. We have now reached over 2.5 million active members, more than double the size of Mtoi MOI.
Speaker Change: But it hasnt changed its asked the question so.
Speaker Change: I'm trying to answer on a relative basis.
That said, we're pleased with our relative performance in conventional and both of our markets. So we look at the Nielsen numbers every week here and.
Eric LaFleche: Members' swipe rates, loyalty sales penetration, and member engagement rates continue to grow across all banners and have surpassed all past program metrics for Métro and Air Miles at Jean-Claude. We see cross-shop spending and visits increasing, with potential for more as we leverage our personalization capabilities. Coming back to our Tehran Automated DC, during the quarter, we completed the transfer of all frozen products as well as fresh seafood. We are currently transitioning fresh meat and deli products, and as I said, productivity in the facility is tracking the business plan as our teams are leveraging our experience from the commissioning of our DCs in Toronto. Going forward, the cost increases received from the big CPG companies will start to be reflected in retail prices in February.
Speaker Change: We're trending okay.
Speaker Change: But.
Speaker Change: The gross is more on the discount side.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you next question will be from Mark Petrie of CIBC. Please go ahead.
Mark Petrie: Yes, good afternoon, just to follow up on that last topic.
Eric.
Mark Petrie: Would you say that the sales performance gap.
Mark Petrie: Between discount unconventional is stable is it is it growing or is it narrowing.
Mark Petrie: It's stable is there it varies by region.
Eric: It's a change in the market there's some.
Eric: Some conversions happening at a pretty rapid clip. So the size of the discount by is growing so fast that creates a mathematical exercise gross on.
Eric LaFleche: The number of increases will be more normal than the peak we saw during the last two years. On the pharmacy side, we will be going up against tough comps again in our second quarter as we continue to face extraordinary demand for OTC medication due to post-COVID cough and cold symptoms. To conclude, last month we published our annual Corporate Responsibility Report with improved disclosure and additional targets. We believe that our approach to corporate responsibility is an asset in realizing our purpose to nourish the health and well-being of our communities and in creating long-term value for our shareholders. That's it for me.
Eric: On the discount side in Quebec.
Eric: In Ontario, I would say that the discount market growth is there's a lot more stable, but it's again, it's higher than conventional.
Speaker Change: Yeah understood Okay. Thanks.
Speaker Change: Then I know you don't give gross margin obviously by segment.
Speaker Change: But any commentary you can provide just anecdotally about the relative performance would be would be helpful and I'm guessing the timing shifts.
Speaker Change: It didn't really affect the consolidated rate much at all but maybe a slight tailwind I don't know if you have any comment there.
Speaker Change: Yeah, so mark as possible here, it's pretty flat across banners in divisions. So nothing.
Operator: 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. We will then hear a three-tone prompt acknowledging... If you would like to win... and Peter Starr.
Speaker Change: Really.
Speaker Change: What stands out from one versus the other and Youre right issue doesn't that doesn't have an impact on there.
Speaker Change: Yeah, Okay, and then just last one obviously, though theres some public reports about assets for sale in the pharmacy sector and hoping just at a high level you could address your priority.
Operator: For more information, visit www.fema.gov. If using a speakerphone, you will need to lift the handset before pressing the button.
Speaker Change: When you are evaluating M&A and specifically the relative strategic importance of having a national presence.
Operator: Please go ahead and press star 1. Thank you. Have a nice night. This question will be from Irene Natal at RBC. Please go ahead. Thanks, and good afternoon, everyone. Eric, from your commentary, it sounds as though we're really seeing a continuation, both of competitive intensity and of consumer behavior, for calendar Q4. Your fiscal Q1, I guess, is that a fair statement? And, you know, have you seen any changes in Q1 to date? I think that's a fair assessment.
Speaker Change: <unk>.
Speaker Change: Well you know like.
Speaker Change: We always say our M&A.
Speaker Change: And Jim always on and we're looking at opportunities in food and pharmacy in Canada, I can't comment on any specific file.
Speaker Change: We lived through for a strategic fit we look for value creation for our shareholders long term.
Speaker Change: Those parameters have not changed and we have a balance sheet that they can take on.
Speaker Change: And a significant acquisition if it's a if it presents itself.
Eric LaFleche: That's what we're seeing. It's pretty consistent, like I tried to describe, but it's highly promotional, as promotional as it was. There's some trading down going on. Private label sales are continuing to grow at a much faster clip than national brands.
Speaker Change: Yeah understood. Okay, all the best take care of them.
Speaker Change: Thank you.
Speaker Change: As a reminder, ladies and gentlemen, if you do have any questions. Please press star followed by one on your Touchtone phone.
Speaker Change: And your next question will be from Vishal.
Vishal: <unk> Bank. Please go ahead.
Vishal: Hi, Thanks for thanks for the questions.
Eric LaFleche: And discounts, you know, the shift of discounts continues to happen. So, very similar to the previous quarter. That's great.
Vishal: Hey, I just wanted to get some perspective on gross margin in the year over year change and can you give me a sense of the puts and takes for instance discount was growing the e-commerce business growing quickly no pressure in front store and OTC and seasonal which are presumably high margin discount categories. So it seems to me that all else equal in grocery going quicker than <unk>.
Eric LaFleche: And you also mentioned price increases. We've heard from some of your peers that domestic suppliers' price increase requests have been more modest, but the big multinationals are still kind of aggressive. Can you talk about what we should be thinking about around pricing in 2024?
Vishal: It seems like all else equal there should be pressure on gross margins, but you were able to hold it flat.
Vishal: What were the big drivers on the other side and did I get my my Big factors right in the way I characterized it.
Speaker Change: Yes, but there's also efficiencies that we have that we have we highlighted that last year with the with the Ontario.
Eric LaFleche: So, like I said in my opening statement, after the cost freeze, which starts next week, some prices at retail will start to increase. The good news is that the number of increases is going back to more normal levels compared to what we saw in the last two years. So there's been a substantial reduction in the number of requests, um, the size of the request varies, but the general average is certainly lower than what we saw last year. So I don't have a precise number, but I think we're gradually returning to more normal inflation levels. So mid-single digit, for some categories a little less than that, for some categories a little higher than that. Some other commodity-driven categories can be even more than that, but those are more exceptions. But in general, it's trending better, trending towards normal, but still higher than normal. That's great, thank you.
Speaker Change: Freezer are that we're able to generate some good efficiencies as well that helps the margins. So it's not just the mix. It's also all of our operational.
Speaker Change: Efforts at reducing costs and reducing efficiency. So all this blended we were able to keep gross margins stable year over year, both food and pharmacy.
Speaker Change: Okay. So it's largely the initiatives that you've been working on those or that was the offsetting factor.
Speaker Change: Several initiatives and you know.
Nothing nothing moves the needle by itself, but all the alcohol considered it adds up.
Speaker Change: But your point about the mix of our valid as well that's LC that goes into the equation.
Speaker Change: Uh huh.
Speaker Change: And just wanted to get your sense on.
Eric LaFleche: Thank you. The next question will be from Tammy Chen at BMO Capital Markets, please go ahead. Great, thanks for the question. I wanted to ask about the ramp up of the DCs.
Speaker Change: Some of the growth in the pharmacy business on the professional services side and and and.
Speaker Change: And maybe even on the specialty side wondering if the the spa.
Eric LaFleche: So as I recall, for Toronto phase one, I believe that was completed over a span of, I think about, two years or so. And what you're launching this fiscal year is a lot larger in scope. So can you help us, understand or just remind us guess what gives you the confidence that you can stand up all of this in this one year? Is it because the technologies and the equipment in Terrebonne are the same as what was in Toronto phase one, so you're viewing this year's ramp as a bit of a rinse and repeat even though it is larger in scope. So yes, for sure, there are a lot of learnings from what happened in Toronto Toronto, Fresh phase one was the first project. We then followed up with the freezer, which went better.
Speaker Change: Specific pharmacy formats that you have are tailored sufficiently to address the growth in these segments in terms of consultation grips.
Speaker Change: And the like and if not is there ability to retrofit your.
Speaker Change: Our existing locations quickly given the franchise structure.
Speaker Change: A little bit different than a corporate structure. So how do we think about your ability to capture that growing market.
Speaker Change: That's a that's a good question. So we are encouraging our franchisees to expand some space for professional services.
Speaker Change: All of the clinic and nurses in the ER.
And those services so in general there is.
Speaker Change: Good space and we're well equipped to provide those services and you see it in our Rx sales growth, which as I said was fuelled by specialty.
Eric LaFleche: And now the third one is the big one in Quebec, which is fresh and frozen. So this fall, it was very focused on frozen. So it was a comparable startup than what we did with our frozen project in Toronto, and we started fresh seafood towards the end of the quarter, took a pause for the holidays, and now, in general, we're back with fresh meat and deli that's gonna take place over the next several months. So, for sure, it's a big project.
Speaker Change: The specialty and services. So we're doing it will there be more opportunities in the future to do it yes, we think so so as we as we renovate.
Speaker Change: Some of the pharmacies.
Speaker Change: That space will.
Speaker Change:
Speaker Change: Will be examined for sure and will be optimized for us for the pharmacist to capture that demand.
Speaker Change: Okay and in terms of the ability your ability to.
Speaker Change: To incent the franchisees to renovate their stores does that is that a relatively direct process or is it more on their position on whether they want to proceed or not.
Eric LaFleche: That's why we talked about headwinds and the extra expenses that we incur to start up a big building like that. A lot of learnings from the Toronto projects; a lot of our teams here in Quebec went to Toronto to work on the start-up over there. Everything's going faster and better, and we plan for it. So the budgets we made, the plans we made, and the guidance we gave you were based on better, quicker ramp-ups here in Montreal, and we're tracking on plan. So we're very pleased with that. It's a huge effort by a lot of people here, but so far, it's going well. Okay, that's good to hear. And my follow-up is on pharmacy. When I look at Jean Coutu over the years, I don't see much unit growth.
Speaker Change: Well.
Speaker Change: They they are franchisees, it's their store business. So the decision has to be there, but we are encouraged and we help financially and we provide sort of planning services.
Speaker Change: Germany for all sorts of our equipment and real estate and everything so but at the end of the day the franchisees.
Speaker Change: And it is an owner and and it's it's it's just balance sheet in his decision.
Speaker Change: We work closely with them and we are.
Provided all the necessary incentives to keep our network modern.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Next question will be from Chris Lee at <unk>. Please go ahead.
Chris Lee: Well good afternoon, everyone. Maybe first of all I'll just start up with a few modeling type questions.
Chris Lee: I was wondering is it fair to assume that if we exclude those D C ramp up costs or inefficiencies related to the ramp up the SG&A expense rate for the quarter would have been at least stable given that you had some pretty solid top line growth.
Eric LaFleche: I recall at your investor day last year, you alluded to wanting to invest more in, I believe it was the HABA aspect for front of store. But can you just remind us right now, what is your overall strategy for pharmacy over the medium to long term? Thanks. So we are the leading player in pharmacy in Quebec with Jean Coutu, the clear leader, and Brunet. So we have a two-banner strategy, and Terence O'Connor. 670 Pharmacy. Huh?
Speaker Change: Yeah, So I won't give you a precise breakdown, but if you remove those extra costs in these inefficiencies and so forth. When you also factor in the higher E. Com, Our third party fees that we have in terms of percentage of cells. It would've been roughly similar to last year.
Speaker Change: You're right.
Eric LaFleche: So we're not adding units as much as growing organically with our current network. So we've optimized the network. There were a few conversions to Jean Coutu.
Speaker Change: Okay. That's very helpful. And then second modeling question just on maybe on the depreciation and interest expense levels for Q1 do you think there is roughly a good run rates.
Speaker Change: Year.
Speaker Change: Well I I last quarter I gave you I gave some guidance to safe to expect that the total variance in depreciation would be $50 million.
Eric LaFleche: So our focus is very much on growing organically, growing sales, and front store and ABBA in the existing fleet. That's more than... and Deepak Chopra is a big part of our strategy. All the digital work that we can do to increase customer engagement is going to be happening at Jean Cloutier.
Speaker Change: Including obviously, the new site. So we worried about a 11 million more this quarter and that's a true peers out of 13, that's a run rate of about 47 and <unk> 48. So we're we're on that run rate now there'll be some some capex coming a little later, but it's not you know I think we're exactly are the run rate we gave last November.
Eric LaFleche: So there's a big digital component of the lab that's already in place, and we're going to build on that to increase our digital connections for commercial sales on the front end with our MOIS program. We like our position. We like the structural demand, the demographics for pharmacy, especially in Quebec, and as a cure leader, we're well positioned to, would do well. Great, thank you. The next question will be from Georges Dumais at Scotiabank; please go ahead. Yeah, good afternoon, Eric and Francois.
Speaker Change: Thank you, Okay and then.
Speaker Change: That was roughly the EPS benefit from the Christmas week shift in the quarter.
Well, we don't really segregate that week, it's part I think there is no surprise that the calendar being what it is because of the the way last year fell.
Speaker Change: It's part of the it's part of our result, we wanted to be transparent. So when we we have to be transparent to say look that included a full week before Christmas, whereas last year. It was in the second quarter. So we shifted that.
Comparison to be to be apples to apples and you'll see the reverse in Q2 and when you look at accumulative.
Speaker Change: <unk>. After Q2 is this will all be neutralized, obviously, so yeah. It's a it's it's it's it's a it's more sales more cost and its a normal contribution, but we don't we don't really segregate that where you can do the math I'm sure they'll get something yet.
Eric LaFleche: I just wanted to follow up on the pricing discussion. So food CPI in the US and Canada seems to be a pretty significant difference. I just wanted to get your take on that.
Eric LaFleche: Do you see that as a kind of a five to six month lag before we're back to US levels? Or do you think there's something more structural in Canada that keeps Canadian inflation running kind of well above the 2% to 3% range this year? Well, there are some structural differences between the two countries, some regulated markets in Canada that you don't necessarily see in the U.S., so that's contributing to a higher structural rate of inflation, but it's not that material.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: And I know you guys get asked this question almost every quarter, but when we look at your same store sales and just look at the street, Matt and takeaway, you're 4% inflation being quiet Matt.
Speaker Change: Mac would suggest that there was a bit of negative some tonnage but per Eric's remarks, opening you said Theres Powell.
Speaker Change: Think about what is the disconnect and just help us understand so again the real the real quarter increase is a six 1% same store. That's the those are the sales for the quarter.
Speaker Change: But that's that's the fact and the inflation was a was about four so I can tell you we did increased tonnage.
Eric LaFleche: I think the good news is here, the year-over-year inflation rate is coming down. Month-over-month prices have stabilized over the last few months, and the year-over-year number keeps coming down, certainly Quarlett recorded. I am pleased with that.
Corey: Now Corey.
Corey: When you shift when you showed the calendar for for Christmas It gets a little closer but.
Corey: The reality is we are seeing some positive tonnage.
Corey: I would add to that the private label sales growth.
Eric LaFleche: The increases we're getting, like I said, are still coming in lower quantities and for lower prices, and people are joining us live! Okay, thanks for that. And I just want to talk about the front store, the negative comp there. First off, was there any impact at all from the Christmas week? And can you talk a little bit about how the cosmetics and how about volumes trended? And how soon can we maybe get back to those kind of low single digits, mid single digit cadence? So the front store number we gave you for pharmacy is perfectly comparable, so there's no Christmas effect on that. So there are a couple of things.
Corey:
Corey: Deflationary and increases tonnage so net net even with the Christmas shift.
Corey: We had food tonnage growth.
Speaker Change: Got it.
Nielsen numbers are attentive backpacks.
Speaker Change: And all of them.
Speaker Change: House.
Speaker Change: Got it Okay. That's fine and then just the rising discount square footage that you've been seeing in Quebec is it fair to say.
Speaker Change: Manageable overall for the for you guys.
Speaker Change: So the square footage, we're adding square footage one of our competitors is a converting conventional to discounts. So in the same square footage.
Speaker Change: We've added a couple of stores also but so yeah on a square footage growth.
Eric LaFleche: Last year, as I tried to explain, front store sales were high at 10%. Very strong OTC demand. This was post-COVID symptoms, trifecta, respiratory, COVID, influenza, name it.
Speaker Change: It's manageable.
Speaker Change: There is an impact it varies by region I said this before in certain areas, we don't feel that much in other areas we feel it.
Speaker Change: More.
Speaker Change: But.
Speaker Change: It's pretty much what we are what we use.
Eric LaFleche: There was a lot of cough and cold symptoms last fall, and we copied that. And the cough and cold season started later this year, so there's less OTC demand this year. That is the biggest contributor to the decline. It's a decline in OTC sales, which, as you know, generates traffic into pharmacies and, you know, may have an impact on the rest of... So that's the biggest.
Speaker Change: That's it.
Speaker Change: That's great and maybe last question just on pharmacy has been a lot of more talks about these high cost specialty drugs, having a structural growth tailwind for them.
Speaker Change: Junk at your office or participate in that segment as well, but I was just curious to see from where you sit today how meaningful are these tailwind do you think.
Speaker Change: Specialty drugs medical and seem to be quite fast.
Speaker Change: And from a profitability perspective, given your franchise mortgage structure do you benefit as much from those growth.
Eric LaFleche: If I look at Q2, with the cough and cold season now firmly in place, even if we count good high numbers in the front end of Q2, we're seeing better trends because of the cough and cold. One other factor I might add for Q1, for those of you who don't live in Quebec, there was a significant public sector strike for several weeks, teachers, and then for several days, general strikes.
Speaker Change: Versus say, even though our corporate Tesla. Thank you.
Speaker Change: Well, it's it's a growing category is a growing sector for sure.
Speaker Change: There are limits on distribution fees in Quebec because of for high cost medicines. There are cat. So we don't make our full distribution margin on them on a on a on a rate basis.
Speaker Change: Uh huh.
Speaker Change: That said there is some growth.
Speaker Change: Yeah.
Eric LaFleche: So, you know, disposable income in November and December in this province was not where it used to be. So that had an impact a bit on seasonal strikes. Hopefully, that's all.
Speaker Change: Jeez are generated by the pharmacist again those are capped also.
Speaker Change: We make a royalty so net net it's a it's a growth area, but it's not linear with other scripts.
Speaker Change: Okay, some lower margin lower margin.
Speaker Change: The normal scripts.
Speaker Change: Okay. Okay. Thank you.
Eric LaFleche: Yeah, thanks for that. Maybe if I just ask one quick one, without really getting into specific numbers, but just an order of magnitude, perhaps maybe in terms of timing, I think you mentioned in your investor day that you expect Terrebonne to be fully wrapped up in kind of Q2, Q3, this fiscal year, and fresh to buy in Q1, next fiscal year. Should we expect, I guess, a full margin contribution from everything to play out by kind of Q1, fiscal 25? Is that fair?
Speaker Change: Thank you.
Speaker Change: At this time, we have no other questions registered please proceed.
Speaker Change: Thank you all for your interest in Metro and please Mark your calendars for our second quarter results on April 24, it. Thank you.
Speaker Change: Thank you ladies and gentlemen, this does.
Speaker Change: This call for today once again, thank you for attending and at this time, we do ask could you. Please disconnect your lines.
Speaker Change: [music].
Eric LaFleche: Well, Tarbonne started in Q1. We're transitioning, we're in Q2, and we're still transitioning, so we're not going to be all done and perfectly productive by the end of Q3. We said it was going to take all of this fiscal year to get this thing started up, so Q1 next year is more the number where we should be in good shape. Phase 2, Toronto Fresh, we start in June or thereabouts, so it's going to be a ramp up there all summer. We expect it to go well, but ramping up is ramping up. Also, I could get back to you on the exact timing there, but that, too, is going to take it too much time before Christmas or slightly around that.
Eric LaFleche: Okay, thanks guys. Thank you, next question will be from Michael Van Elst at TD Cowan, please go ahead. Hi, thank you. When did the Tara Bun, do you see it opening in Quebec? It's in October, I don't have the exact date for you.
Eric LaFleche: Last October. Yeah, there was a press conference on it. It was great.
Eric LaFleche: But I remember you said it was in October. Okay, so then when should we expect to see peak duplicate overhead costs and peak inefficiency? Well Michael, we're seeing it now as in Q1 we are basically at the peak in terms of duplication, learning curve deficiencies, and so forth. It's going to continue throughout the year, but I believe everything else if going according to plan, you should start to see some improvement on that front as the year progresses, but then we have this fresh phase two that's going to start, so we're going to have that overlap, and as Eric said, by the first quarter of next year, we expect that most of those duplicate headwinds and deficiencies will be behind us.
Eric LaFleche: Some expenses will remain, like depreciation, that's not going away, but the increase next year will be much more manageable year over year than what we're seeing today, so we're living it now in terms of, Okay, because I was just trying to understand if you started it, if you opened it in late October, and you only had two versus three months in Q2, is it possible that the duplicate overhead costs are actually, and It'll be a similar picture, to be honest; it's still a very compressed time frame, Q1, Q2, that's where the bulk of it will be, and then we're going to see some improvements as the year progresses. Perfect.
François Thibault: Your CapEx was quite low in the first quarter. I would have thought CAPEX would have been high to start the year given everything is opening. What should we expect? Are we still expecting over $800 million for the full year?
François Thibault: Yeah, so I'm not changing it right now; we'll see where we are in Q2, some of it is very choppy in terms of where it falls, the first quarter or second quarter, so no change for now, but I will update you as we go forward. And then just finally, I know you mentioned the discounts are still growing faster than conventional, but are you seeing growth? conventional as inflation slows?
Eric LaFleche: Are we seeing any change in the pace of growth in conventional? No, I don't think we could say that. Clearly, there's a lot more growth on the discount side. We're pleased with the growth or levels that we're seeing in conventional. We have some growth, but it hasn't changed. That's the question. So I'm trying to answer it on a relative basis.
Eric LaFleche: That said, we're pleased with our relative performance in conventional in both of our markets. So, we look at the Nielsen numbers every week and... Thank you for tuning in.
Eric LaFleche: The growth is more on the... Thank you. Thank you. Next question will be from Mark Petrie at CIBC. Good afternoon. Just to follow up on that last topic, Eric, would you say that the sales performance gap between discount and conventional is stable? Is it growing or is it narrowing?
François Thibault: It's stable, it varies by region, you know, there's a change in the market. Looking ahead... In Ontario, I would say that the discount market growth is a lot more stable. Again, it's higher than... Yeah, understood. Okay, thanks. And then I know you don't give gross margin, obviously, by segment. But any commentary you could provide just anecdotally about the relative performance would be helpful.
François Thibault: And I'm guessing the timing shift didn't really affect the consolidated rate much at all, but maybe a slight tailwind. I don't know if you have any comment there. Yeah, so Mark, it's possible here. It's pretty flat across banners and divisions, so nothing really stands out from one versus the other.
Eric LaFleche: And you're right, this ship doesn't have an impact. Yeah, okay. And then just last one, obviously, though, there are some public reports about assets for sale in the pharmacy sector, and I'm hoping, just at a high level, you could address your priorities when you're evaluating M&A and specifically the relative strategic importance of having a national presence. Well, you know, like we always say, our M&A. And Ginger is always on, and we're looking at opportunities in food and pharmacy in Canada. But I can't comment on any specific file.
Eric LaFleche: We look for value creation for our shareholders..... those parameters, and we have a balance sheet that can take on a significant acquisition if it presents itself. Yeah, understood. Okay, all the best. Take care.
Operator: As a reminder, ladies and gentlemen, if you do have any questions, please press star followed by 1. And your next question will be from Vishal Shreedhar at National Bank. Please go ahead.
Vishal Shreedhar: Hi, thanks for the questions. I just wanted to get some perspective on gross margin and the year-over-year change so that it can give me a sense of the puts and takes.
François Thibault: For instance, discount was growing, the e-commerce business growing quickly, pressure in front store and OTC and seasonal, which are presumably high-margin discount categories. So it seems to me that, you know, all else equal, and grocery growing quicker than pharmacy, things like all else equal, there should be pressure on gross margins, but you were able to hold it flat. What were the big drivers on the other side?
Eric LaFleche: And did I get my big factors right in the way I characterized them? Yes, but there are also efficiencies that we have. We highlighted that last year with the Ontario freezer that we're able to generate some good efficiencies as well that helps the margins. So it's not just the mix, it's also our operational efforts at reducing costs and increasing efficiency. So all this combined, we were able to keep those margins stable year over year, both food and pharmacy. Okay, so it's largely the initiatives that you've been working on. Those were; that was the off.
Eric LaFleche: You know, several initiatives and, you know, nothing moves the needle by itself, but all considered, it adds up. But your points about the mix are valid as well. That helps you. That goes into the equation. And just wanted to get your sense on, you know, some of the growth in the pharmacy business in the professional services and maybe even on the specialty side. Wondering if the specific pharmacy formats that you have are tailored sufficiently to address the growth in these segments in terms of consultation groups, and the like. And if not, their ability to retrofit your existing locations quickly given the franchise structure, you know, a little bit different than a corporate structure. So how do we think about your ability to capture that growing market? That's a good question. So we're encouraging our franchisees to add some space for professional services. College Clinic and nurses and those services.
Eric LaFleche: So in general, there's good space, and we're well equipped to provide those services, and you see it in our sales growth, which, as I said, was fuelled by... Specialty in Service. So, we're doing it. Will there be more opportunities in the future to do it? Yes, we think so. As we renovate some of the pharmacies, that space will be examined for sure and will be optimized for us, for the pharmacy. Okay, and in terms of the ability, your ability to, to incentivize the franchisees to renovate their stores, is that... Is that a relatively direct process, or is it more on their volition or whether they want to proceed?
Eric LaFleche: Well, they are franchisees, it's their store, it's their business, so the decision has to be theirs. But we encourage, and we help financially, and we provide planning services for all sorts of equipment and real estate and everything. But at the end of the day, the French ID is important, independent as an owner and it's, it's his balance sheet. Fisher.
François Thibault: Again, we work closely with them, and we... give them all the necessary incentives to keep our network modern. Thank you. The next question will be from Chris Lee at Desjardins. Oh, good afternoon, everyone. Maybe, first of all, I'll just start off with a few modeling-type questions.
François Thibault: The first one is, you know, is it fair to assume that if we exclude those DC ramp-up costs or inefficiency related to the ramp-up, the SG&E expense rate for the quarter would have been at least stable, given that you had some pretty solid top-line growth? Yeah, so I won't give you a precise breakdown, but if you remove those extra costs and these inefficiencies and so forth, when you also factor in the higher income third-party fees that we have, in terms of percentage of sales, it would have been roughly similar to last year. So you're right. Okay, that's very helpful.
François Thibault: And then a second modeling question just on maybe the depreciation interest expense levels for Q1. Do you think there is roughly a good run rate? for the rest of the year.
François Thibault: Well, last quarter I gave some guidance to say to expect that the total variance in depreciation would be $50 million, including obviously the news sites. We're at about 11 million more this quarter. That's three periods out of 13.
François Thibault: That's a run rate of about 47.5, 48. So we're on that run rate now. There'll be some capex coming in a little later, but I think we're exactly at the run rate we gave last November. That's OK.
Eric LaFleche: And then, What was roughly the EPS benefit from the Christmas week shift in the quarter? Well we don't really segregate that week, it's part, I mean there's no surprise, the calendar being what it is because of the way last year fell, you know, it's part of our results, we want to be transparent so we have to be transparent to say look that included the full week before Christmas whereas last year it was in the second quarter, so we shifted that comparison to be apples to apples and you'll see the reverse in Q2 and when you look at the cumulative results after Q2, this will all be neutralized obviously, so yeah, it's more sales, more cost and it's a normal contribution but we don't really segregate that, but you can do the math, I'm sure you'll get something that's...
Eric LaFleche: Okay, that's fair. And I know you guys get asked this question almost every quarter, but when we again look at your food center sales and just look at the street map, and take away your 4% inflation being implied. Matt Wolley, Peter Sklar, Mark Petrie, Patricia Baker, Keith Howlett, Vishal Shreedhar, Keith Now, when you shift the calendar for Christmas, it gets a little closer, but the reality is we are seeing some positive tonnage in our numbers. Thank you for joining us. Nielsen numbers tend to back that, and Ezekiel Teichman.
Eric LaFleche: Okay, so that's fair. And this is the rising number of discounted square footage that we've been seeing in Quebec. Is it fair to say it's manageable overall for you guys? So the square footage, we're adding square footage. One of our competitors is converting conventional to discount. So in the same square footage, they've added a couple of stores also, but so yeah, on the square footage growth. It is manageable, but there is an impact. It varies by region, however.
Eric LaFleche: I've said this before. In certain areas, we don't feel it much. In other areas, we feel it more.
Eric LaFleche: That's pretty much what we... That's great. And maybe last question, just on pharmacy, there's been a lot of more talk about these high-cost specialty drugs, you know, having a structural growth tailwind for them. I think John Goodjoy obviously participates in that segment as well. But Eric, just curious to see from where you sit today, how meaningful of this tailwind do you think these specialty drugs are getting, which seem to be quite fast? And from a profitability perspective, given your franchise organ structure, do you benefit as much from these growth versus that you do from a corporate store?
Eric LaFleche: Thank you. Well, it's a growing category. It's a growing sector, for sure. There are limits on distribution fees in Quebec because of high-cost medicines. There are caps, so we don't make our full distribution margin on them on a rate basis.
Eric LaFleche: That said, there is some growth. Peter Sklar, Mark Petrie, Patricia Baker, Vishal Shreedhar, Keith Howlett, Lower margin, lower margin than the normal score. Okay, thank you. Thank you. And at this time, we have no other questions registered. Thank you all for your interest in Metro, and please mark your calendars for our second quarter results on April 24th. Thank you. Ladies and gentlemen, this does conclude the conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect, and Elizabeth Heussler. Thanks for watching!
Operator: ...