Q4 2023 Loblaw Companies Ltd Earnings Call

Operator: Good morning, ladies and gentlemen, and welcome to the Loblaw Companies Limited 4th Quarter 2023 Results Report. At this time, all lines are in Islington, India. Following the presentation, we will conduct a question and answer session. If at any time during this call you require assistance, please press star zero for the option. This call is being recorded on Thursday, February 26th.

Good morning, ladies and gentlemen, and welcome to the left most company limited fourth quarter 2022 results conference call. At this time all lines are in it.

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. This call is being recorded on Thursday February 22nd 2024, I would now like to turn the conference over to Mr. Mcdonald. Please go ahead Sir.

Roy McDonald: I would now like to turn the conference over to Mr. Roy McDonald. Please go ahead. Thank you, Sinthu, and good morning, everybody. Welcome to the Loblaw Companies Limited fourth quarter and full year 2023 results conference call. I am happy to be joined here this morning by Per Bank, our President and Chief Executive Officer, and by Richard Dufresne, our Chief Financial Officer. So before we begin the call, I want to remind you that today's discussion will include forward-looking statements, which may but are not limited to, statements with respect to Loblaw's anticipated future results, and these statements are based on assumptions and reflect management's current expectations, and as such, are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations.

Thank you Tim and good morning, everybody welcome to the Loblaw companies limited fourth quarter and full year 2023 results conference call.

I'm happy to be joined here. This morning by peer bank, our president and Chief Executive Officer.

And by Richard Dufresne, our Chief Financial Officer, So before we begin the call I want to remind you that today's discussion will include forward looking statements made.

It may but are not limited to statements with respect to lob loss anticipated future results. These statements are based on assumptions and reflect management's current expectations.

And as such are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations.

Roy McDonald: These risks and uncertainties are discussed in the company's materials filed with the Canadian Securities Regulatory Commission. However, any forward-looking statements speak only as of the day they're made. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, other than what's required by law. Also, certain non-GAAP financial measures may be discussed or referred to today, so please refer to our annual report and other materials filed with the Canadian Securities Regulators for a reconciliation of each of these measures to the most directly comparable GAAP financial measure. And with that, I'll turn the call over to Roy. Thank you, Roy, and good morning, everyone.

These risks and uncertainties are discussed in the company's materials filed with the Canadian Securities regulators and any forward looking statements speak only as of the day. They are made the company disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information future events or other.

Wise other than what's required by law.

Also certain non-GAAP financial measures may be discussed or referred to today. So please refer to our annual report and other materials filed with the Canadian Securities regulators for a reconciliation of each of these measures to the most directly comparable GAAP financial measure and with that I'll turn the call over to Richard.

Thank you Roy and good morning, everyone. We.

Vishal: We are very pleased to deliver another year of consistent operational and financial results. Our businesses continue to perform well, reflecting our focus on retail excellence. For the full year, revenue came in at just under $60 billion, and we generated earnings in excess of $2 billion.

We are very pleased to deliver another year of consistent operational and financial results are.

Our businesses continued to perform well, reflecting our focus on retail excellence.

On the full year revenue came in at just under $60 billion and we generated earnings in excess of $2 billion.

Vishal: We plan to reinvest over two billion dollars back into the Canadian economy and in jobs through our 2024 capital program. Turning to the quarter, I am especially pleased with our performance given that we are lapping an extremely strong Q4 last year when sales grew almost 10%, EBITDA increased by double digits, and EPS grew 16%. We accomplish this by remaining focused on delivering value to consumers, carefully managing our expenses, and continuing to invest for the future. On a consolidated basis, revenue grew by 3.7%, and EBITDA increased by 9.4%. Adjusted diluted net earnings per share grew by 13.6% to $2 a share.

We plan to reinvest over $2 billion back into the Canadian economy and in jobs through our 2024 capital program.

Turning to the quarter I'm, especially pleased with our performance given that we are lapping an extremely strong Q4 last year. When sales grew almost 10% EBITDA increased by double digits and EPS grew 16%.

We accomplished this by remaining focused on delivering value to consumers carefully managing our expenses and continuing to invest for the future.

On a consolidated basis revenue grew by three 7% and EBITDA increased by nine 4%.

Justin diluted net earnings per share grew by 13, 6% to $2 per share on.

Vishal: On a gap basis, our net earnings available to common shareholders grew by 2.3%. In drug retail, Absolute sales increased 4.9%, and same store sales grew 4.6%. Front store performance exceeded our own expectations this quarter, given our strong performance in Q4 last year. Front store same store sales grew by 1.7% while lapping growth of 11.5% last year. Cosmetics and Health and Beauty continue to deliver very strong results, while OTC sales remain strong. Overall, we are very pleased with the ongoing strength of our front store business. Pharmacy and healthcare services same-store sales grew by 8%, driven by growth in acute and chronic prescriptions, including continued strength in specialty drugs. At the same time, we're pleased with the growth of services related to an expanded scope of practice. These services doubled in the quarter compared to last year.

On a GAAP basis, our net earnings available to common shareholders grew by two 3%.

In drug retail absolute sales increased four 9% and same store sales grew four 6%.

Front store performance exceeded our own expectations in this quarter given our strong performance in Q4 last year.

<unk> stores same store sales grew by one 7%, while lapping growth of 11, 5% last year.

Medics and health and beauty continued to deliver very strong results OTC sales remained strong overall, we are very pleased with the ongoing strength of our front store business.

Pharmacy, and healthcare services same store sales grew by 8% driven by growth in acute and chronic prescriptions, including continued strength in specialty drugs.

At the same time, we're pleased with the growth of services related to expanded scope of practice. These services doubled in the quarter compared to last year.

Vishal: In food retail, Absolute Sales increased 2.7%, and Same Store Sales grew 2%, compared to last year's growth of 8.4%. Our offers are responding well with customers, demonstrated by higher traffic and continued market share momentum. Our leading hard-discount grocery banners outperform NQ4 and lead our performance, bringing value to Canadians at a time of heightened cost-of-living pressure. Our internal food inflation was significantly lower than CPI again this quarter. This clearly demonstrates the role we are playing to help stabilize food prices for our consumers. In Q4, our average item price increase was the lowest it has been in more than two years.

In food retail absolute sales increased two 7% and same store sales grew 2% again last against last year's same store sales growth of eight 4%.

Our offers are resonating well with customers demonstrated by higher traffic and continued market share momentum, our leading hard discount grocery banners outperformed in Q4 and lead our performance, bringing value to Canadians at a time of heightened cost of living pressure.

Our internal food inflation was significantly lower than CPI again this quarter.

This clearly demonstrates the role we are playing to help stabilize food prices for our consumer customers in.

In Q4, our average item price increase was the lowest it has been in more than two years.

Vishal: Loblaw continues to leverage its strength to bring value to our customers. The strength of our discount offering across the country is evident as consumers continue to migrate their shopping to hard discount stores. In Quebec, we have converted 24 Provigo stores to Maxi and plan to convert another 30 stores this year.

Loblaw continues to leverage its strength to bring value to our customers.

The strength of our discount offering across the country is evident as consumers continue to migrate their shop to hard discount stores in Quebec. We have converted 24 private goes starts to maxi and plan to convert another 30 stores this year.

Vishal: We believe the outperformance of our hard discount stores will continue as Canadians seek value to help manage through the challenges of this extended period of economic uncertainty. Although Discount continues to outperform conventional grocery, our market banners remain very healthy, and we are pleased with our performance. Having the right customer offer in all our stores remains a key focus. The right-hand side has a negative impact on same-store sales of 80 basis points again this quarter. These categories remain accretive to our gross margin as we continue to carefully manage inventory levels. Online sales in the quarter increased 14.6% and exceeded $3.3 billion on a full-year basis.

We believe the outperformance of our how hard discount stores will continue as Canadian seek value to help manage through the challenges of this extended period of economic uncertainty.

Although discount continues to outperform conventional grocery our market banners remained very healthy and we are pleased with our performance having the right customer offer in all our stores remains a key focus.

Right hand side at a negative impact on same store sales up 80 basis points again this quarter. These categories remain accretive to our gross margin as we continue to carefully manage inventory levels.

Online sales in the quarter increased 14, 6% and exceeded $3 $3 billion on a full year basis, we continue to enhance our customer experience and differentiate ourselves by offering more choice and flexibility delivery continues to outperform as a channel.

Vishal: We continue to enhance our customer experience and differentiate ourselves by offering more choice and flexibility. Delivery continues to outperform as a channel. Total retail gross margin was 31.1%, in line with our full-year rate of 31%.

Total retail gross margin was 31, 1% in line with our full year rate of 31% in Q4, our margin was up 50 basis points as we lapped a decline of 30 basis points last year.

Vishal: In Q4, our margin was up 50 basis points as we lapped a decline of 30 basis points last year. This reflects sequential shrink momentum and initiatives such as our freight business, which allow us to invest in value while delivering stable margin performance. Turning to SG&A, our spend rate as a percentage of sales increased 10 basis points and included a number of one-time costs this quarter that offset our operating leverage. We finalized two important labor agreements in the quarter, which will benefit over 24,000 colleagues and bring certainty to our costs and operations. With these agreements in place, we do not have another major labor contract up for negotiation until the second half of 2026.

This reflects sequential shrink momentum and initiatives such as our freight business, which allow us to invest in value, while delivering stable margin performance.

Turning to SG&A, our spend rate as a percentage of sales increased 10 basis points and included a number of onetime cost this quarter that offset our operating leverage we finalized two important leaguer labor agreements in the quarter, which will benefit over 24000 colleagues and bring certainty to our cost and operation.

With these agreements in place we do not have another major labor contract up for negotiation until the second half of 2026.

Vishal: Adjusted retail EBITDA increased by $114 million, yielding a margin of 10.8%, up 40 basis points compared to last year. This quarter saw strong performance at the bank. PC Financial's revenues increased 16.8%, driven by growth in the credit card portfolio, supported by an increase in customer spending and higher mobile shop sales. Adjusted earnings before tax increased 45.5%, with higher interest income and lower operating costs partly offset by higher credit losses and loss provision.

Adjusted retail EBITDA increased by $114 million, yielding a margin of 10, 8% up 40 basis points compared to last year.

This quarter saw a strong performance of the bank PC financials revenues increased 16, 8% driven by growth in the credit card portfolio supported by an increase in customer spending and higher mobile shop sales.

<unk> earnings before tax increased 45, 5% with higher interest income and lower operating costs, partly offset by higher credit losses and loss provisions, we remain very comfortable with the risk profile of our portfolio, we have a strong and well capitalized balance sheet and we continue to take a conservative position and.

Vishal: We remain very comfortable with the risk profile of our portfolio. We have a strong and well-capitalized balance sheet, and we continue to take a conservative position in our provisioning. On a consolidated basis, adjusted EBITDA margin was 11.2% in the quarter, up 50 basis points compared to last year. Our retail pre-cash flow was $512 million, and we repurchased $494 million worth of common shares in the quarter.

Our provisioning.

On a consolidated basis adjusted EBITDA margin was 11, 2% in the quarter up 50 basis points compared to last year.

Our retail free cash flow was $512 million, and we repurchased $494 million worth of common shares in the quarter.

Vishal: On a full-year basis, our retail free cash flow was $1.7 billion, and we purchased $1.8 billion worth of common shares. We invested approximately $2.1 billion in CapEx. And our free cash flow generation continues to be very strong, as demonstrated again in 2023. Our balance sheet remains strong, and we continue to improve our key return metrics. Our return on equity sits at 22.2%, and our return on capital is 11.5%.

On a full year basis, our retail free cash flow was $1 $7 billion, and we repurchased $1 $8 billion worth of common shares we invested approximately $2 1 billion and Capex.

And our free cash flow generation continues to be very strong as demonstrated again in 2023.

Our balance sheet remains strong and we continue to improve our key return metrics are return on equity sits at 22, 2% and our return on capital at 11, 5%.

Vishal: Looking ahead to 2024, we have a solid plan in place to continue to deliver consistent financial and operational performance while advancing our growth initiatives. This will allow us to continue to deliver value to our customers and to our shareholders. Specifically, we are accelerating the opening of new stores. We plan to open over 40 new stores in 2024 and convert another 30 stores. Our real estate strategy is working. For the full year 2024, we expect our retail business to grow earnings faster than sales and adjusted earnings per share growth in the high single digits. We plan to invest approximately $2.2 billion in capital expenditures or $1.1 billion net of proceeds from planned property disposal.

Looking ahead to 2024, we have a solid plan in place to continue to deliver consistent financial and operational performance, while advancing our growth initiatives. This will allow us to continue to deliver value to our customers and to our shareholders. Specifically, we are accelerating our opening of new stores.

We plan to open over 40, new stores in 2024 and convert another 30 stores to discount our real estate strategy is working.

For the full year 2024, we expect our retail business to grow earnings faster than sales and adjusted earnings per share growth in the high single digits, we plan to invest approximately $2 $2 billion in capital expenditures or $1 1 billion net of proceeds from planned property disposal again, we plan to reach.

Per: Again, we plan to return most of our strong retail-free cash flow to shareholders through dividends and share buybacks. We begin the new year confidently as we are carrying our Q4 momentum into Q1. I will now turn the call over to Per. Thank you, Vishal, and good morning, everyone.

Turned most of our strong retail free cash flow to shareholders through dividends and share buybacks.

We begin the new year confidently as we are carrying our Q4 momentum into Q1, I will now turn the call over to Pat.

Thank you Richard and good morning, everyone. This is my first analyst call since joining the organization as CEO it.

Per: This is my first analyst call since joining the organization as CEO. It has been an exciting time for me, and I have been looking forward to sharing my thoughts and our progress with you. From my perspective, the past several months have been amazing.

It has been an exciting time for me and I have been looking forward to sharing my thoughts and our progress with you.

In my perspective, the past several months have been amazing.

Per: I've travelled the country, talking to customers, visiting colleagues, suppliers, investors, and other important stakeholders. I have learned so much about Canadian customers and about the Loblaw business. Two things really struck me during my travels.

Traveled the country talking to customers.

And colleagues suppliers investors and all the important stakeholders I have learned so much about Canadian customers and about the loblaw business too.

Two things have really struck me during my travels first at Loblaw, we have a unique and very special relationship with our customers in fact with most Canadians.

Per: First, at Loblaw, we have a unique and very special relationship with our customers, in fact, with most Canadians. This means that they have higher expectations of us. Customers are increasingly rewarding us with their business. But they're also not shy about letting us know when we can do things better.

This means that they have higher expectations of cost cuts.

Customers are increasingly rewarding us with their business.

Were also not shy about letting us know when we can do things better secondly, loblaw has tremendous strengths and the commitment diversity and experience of our team coast to coast.

Per: Secondly, Loblaw has tremendous strength in the commitment, diversity, and experience of our team coast to coast. Together, we are executing well across our business and have an excellent foundation to build upon, including the great assets and proven strategies we are pursuing to drive consistent growth and performance. Our focus remains on our strategic pillars of retail excellence, driving growth, and investing for the future, while at the same time embedding ESG into everything that we do. Turning to the quarter, I am very pleased with our results. We experienced continued market share momentum and top line sales growth against a very strong Q4 last year. In our food business, we lacked very strong same-store sales and drove further growth.

Together, we are executing well across our business and have an excellent foundation to build off on including the great asset and proven strategies, we are pursuing to drive consistent growth and performance.

Our focus remains on our strategic pillar of retail excellent driving growth and investing in the future while at the same time embedding ESG into everything that we do.

Turning to the quarter I am very pleased with our results. We experience continued modest share momentum on top line sales growth against a very strong Q4 last year.

In our food business, we lapped very strong same store sales and drove further growth increasingly Canadians are looking for and rewarding value.

Per: Increasingly, Canadians are looking for and rewarding value. In my view, Loblaw is better positioned than any other food retailer to deliver value. One of our focus areas is to relentlessly pursue new opportunities to unlock value and respond to customers' needs. To illustrate, we continue to leverage our leading control brands, promotional activity, and personalized PC optimum offers. We are also expanding our hard discount Maxi and No Food Store by opening 31 hard discount locations last year alone. Our recently announced Here's a Month campaign is a great demonstration of our unique ability to appeal to Canadians and our commitment to provide them with unmatched value on some key everyday products across our banners. Customer response to this program has been terrific.

In my view <unk> is better positioned than any other food retailer to deliver value.

One of our focus areas is to relentlessly pursue new opportunities to unlock value and respond to customers' needs to industry. We continue to leave our leading control brands promotional activity and personalized PC optimum office.

We are also expanding our hottest long maxi <unk> store.

By opening 31 hot discount locations last year alone.

Recently announcing that amongst campaign is a great demonstration of our unique ability to appeal to appeal to Canadians and our commitment to provide them with unmatched value offering on some key everyday products across our banners.

Customers respond to this program has been terrific.

Per: We are in the early days of this program, and there are more exciting things to come. Canadians continue to seek greater value as they face challenging and persistent inflationary pressures, and we are committed to delivering that. Once again, our internal inflation was lower than grocery CPI, while our food gross margin is still below pre-COVID levels. Food price increases in our stores are as low as they have been over the past two years.

The early days of this program and they're more exciting things to come Canadians continue to see greater value.

<unk> faced challenging and persistent inflationary pressures and we are committed to delivering that.

Once again, our internal inflation was slower than closing CPI, while our gross margin is still below pre COVID-19 levels.

Price increases in all stores as slow as they have been over the past two years, we are pushing back whenever we can on suppliers' cost increases and we are finding ways more ways to be efficient to keep prices low for our customers.

Per: We are pushing back whenever we can on suppliers' cost increases, and we are finding more ways to be efficient to keep prices low for our customers. Our colleagues are doing a great job to reduce costs and be more efficient, allowing us to reinvest back into the business and help offset inflation. Our hard discount banners are outpacing the market, and we are well placed to benefit from the ongoing discount shift and trade down effect. Armada banners continue to perform well.

Our colleagues are doing a great job to reduce cost and be more efficient, allowing us to reinvest back into the business and help offset inflation.

Just kind of been outpacing the market and we are well placed to benefit from the ongoing discount sheath and trade down effect.

Amount of banners continued to perform well leased.

Per: These stores are being refocused on value, and we are targeting our offers in a more meaningful way to our customers. We are pleased with the early results. In pharmacy, we are also lacking very strong results from last year.

These stores are being refocused on value and we are targeting all of us in a more meaningful way to our customers.

We are pleased with your energy results in pharmacy, you're also lapping very strong results from last year.

Per: Our continued positive same-store sales growth reflects the continued strength in front-store beauty products and from strong-store sales in cough and cold categories. Customers continue to respond very positively to the convenience and level of care we offer at our more than 2,100 pharmacies and clinics, and over 20,000 healthcare professionals, and our PC Health Interactive app. We have seen a very positive reaction across the country to our ability to deliver an expanded scope of practice in our pharmacies, including our 74 new pharmacy-based clinics. Our pharmacies provided 2.4 million prescribing services last year. Another way to think about it is that we freed up an additional 2.4 million appointments with doctors. This is important when wait times are long and many Canadians do not have a family doctor.

Our continued positive same store sales growth reflected continued strength in front of our beauty products and from strong store sales and cough and cold category Custer.

Customers continue to respond very positively to the convenience lever kind of convenient and level of care, we offer through our more than 2100 pharmacies and clinics and over 20000 health care professionals, and our PC health Interactive App.

We have seen a very positive direction across the country to our ability to deliver expanded scope of practice in our pharmacies, including our 74, new pharmacy based cleaning.

Pharmacy provided $2 4 million prescribing services last year.

Another way to think about it is that we freed up and additional $2 4 million appointment with doctors.

This is important when wait times, how long and many Canadians do not have a family doctor.

Per: We will continue to invest in this area, with more than 140 new clinics already planned for this year. Another area in which we are unlocking value is the digital domain. We are harnessing the combined strength of Loblaw Digital's loyalty and advanced technology, and we are well-positioned to create seamless and personalized experiences that enhance our customers' shopping journeys and deliver exceptional value. In particular, we are investing in our personalization platform, which will allow us to surface the most appealing and relevant offers to our customers, depending on their personal preferences. Canadians continue to take advantage of PCOptimum loyalty points across our business and at record levels, with increasing digital customer engagement, more meaningful and personal offers, and effective promotion. This high level of engagement PCOptimum enjoys creates a loyalty loop for us and is resulting in an increasing share of customer value.

We will continue to invest in this area.

More than 140, new clinics already planned for this year.

Another area in which we are unlocking value is the digital domain. We are harnessing the combined strength of <unk> digital loyalty in advance and we are well positioned to create seamless and personalized experiences that enhance our customers' shopping journey and deliver exceptional value.

In particular, we are investing in our personalization platform that will allow us to serve faced the most appealing and relevant offers to our customers depending on their personal preferences.

<unk> continued to take advantage of PC optimum loyalty points across our business.

And at record levels with.

With increasing digital customer engagement more meaningful personal and office and effective promotions.

High level of engagement PC optimum enjoys greater loyalty to pause and issues surrounding an increasing share of customer wallet.

Per: Building on the leadership position of our loyalty program, we are working to increase digital engagement on our PC Optimum platform by providing our members greater value. To illustrate, we have seen a double-digit increase in weekly active users in 2023. Another area of growth is the expansion of our reach. In 2024, we'll continue to invest to update and expand our store network and distribution center. This is part of our capital program, where we expect to reinvest a total of $2.2 billion back into communities across the country. This record investment reflects our commitment to enhancing the store network, creating job opportunities, and improving access to affordable food and healthcare services for Canadians. This year's investment is in addition to more than $10 billion the company has invested in since 2016.

Building on our leadership position of our loyalty program. We are working to increase engagement on our PC optimum platform by providing our members greater value to illustrate we have seen a double digit increase in weekly active users in 2023.

Another area of growth is expansion of our reach in 2024, we will continue to invest to update and expand our store network and distribution centers.

This is.

Part of our capital program, where we expect to reinvest a total of $2 2 billion back into communities across the country.

This record investment reflects our commitment to enhancing the Stefan edberg tracing job opportunities.

And improving access to affordable food and health care services for Canadians. This year investment in addition to more than $10 billion. The company has invested in since 2016 I mentioned at the outset. The Canadians have high expectations of Loblaw, we do a loss but of course, we can always do better one of the many ways. We are working to live up.

Per: I mentioned at the outset that Canadians have high expectations of Loblaw. We do a lot, but of course, we can always do better. One of the many ways we are working to live up to those expectations and be a leader is our commitment to environmental, social, and governance leadership. As part of our overall ESG framework, we have two main pillars of advancing social equity and fighting climate change.

To meet expectations and be a leader is our commitment to environmental social and governance leadership.

Part of our overall ESG framework, we have two main pillars of advancing social equity and fighting climate change I'm.

Per: I'm pleased to share that today we have issued some early priority disclosures around these two pillars. This is in advance of our annual ESG report, which is scheduled to be issued in April. On these pages, you read about some of the significant strides we have made on our SEA agenda. For example, in plastics, we've taken a leadership position to drive change across our industry. On our target to reduce plastic waste by ensuring all control brands and in-store plastic packaging are recyclable or reusable by 2025, we have made excellent progress, achieving 64% compliance in 2023. We have also made considerable progress in reducing our food waste. On our way to our target of zero food waste to landfill by 2030, 100% of our corporate stores are now partnered with food banks and other food recovery agencies, more than doubling our food donation rate in 2023 and moving us much closer to our zero waste target, and our colleagues and customers to be particularly proud of working together. Our PC Children's Charity came very close to reaching its 2025 target of feeding one million Canadian children in schools across the country.

I am pleased to share that today, we have issued some early project disclosures around these two pillars.

This is in advance of our annual ESG report, which is scheduled to be issued in April.

These pages you read about some of the significant strides we have made on our ESG agenda.

Salmon and plastic we're taking a leadership position to drive change across our industry.

On our time to reduce plastic waste by ensuring all control brand and installed plastic packaging are recyclable or reusable by 2025, we have made excellent progress achieving 64% compliance in 2023.

We also made considerable progress in reducing our food waste on.

On our way to our target of sheer food waste to landfill by 2000, 3100% of our corporate stores and our partner with food banks and other food recovery agencies more than doubling our food donation rate in 2023, and moving us much closer to our CR rate target.

And our colleagues and customers to be particularly proud working together are peachy children. Cherokee came very close to reaching a 20 to 25 target of feeding 1 million Canadian children in schools across the country.

For your ongoing support of this important initiative.

I'm proud of this progress and I look forward to future engagements with you on our <unk> journey to sum up we delivered another strong quarter to wrap up a very successful year, we opened and converted over 40 stores expanded our scope of <unk>.

And greatly advanced our ESG initiatives I'm proud of how our team is delivering retail excellence trading value of our customers and our shareholders.

I would like to extend a heartfelt thanks to all of our colleagues for your pursuit of these goals every single day.

Entering the new year, our portfolio our portfolio of businesses remain strong and well positioned to deliver for Canadians will increasingly turning to us for value and service.

Per: Thank you for your ongoing support of this important initiative. I'm proud of this progress, and I look forward to future engagements with you on our ESG journey. To sum up, we delivered another strong quarter to wrap up a very successful year. We opened and converted over 40 stores, expanded our scope of healthcare care, and greatly advanced our ESG initiatives. I'm proud of how our team is delivering retail excellence and creating value for our customers and our shareholders. I would like to extend a heartfelt thanks to all of our colleagues for your pursuit of these goals every single day.

Our core focus remains on delivering retail excellent X.

Executing well across our operations.

And an unrelenting focus on our customers.

Which is what allows us to continue to invest in our business and in growth personally I.

I am looking very much forward to working with the team and unlocking further value to drive growth across our business with that I'll open the call for any questions that you may have thank you.

Thank you ladies.

If you'd go ahead and introduce the process for asking questions.

Thank you, Sir ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone you will hear suite.

Per: Entering the new year, our portfolio of businesses remains strong and well-positioned to deliver for Canadians who are increasingly turning to us for value and service. Our core focus remains on delivering retail excellence, executing well across our operations, and an unrelenting focus on our customers, which is what allows us to continue to invest in our business and in growth. Personally, I'm looking very much forward to working with the team and unlocking further value to drive growth across our business. With that, I will open the call to any questions that you may have. Thank you. Thank you. Thank you, Pear.

Managing your request if you would like to withdraw your question. Please press the star followed by the.

First question comes from Mark Petrie from CIBC. Please go ahead. Your line is open.

Mark. Please go ahead your line is open.

Oh, yes, sorry, thanks, and good morning.

First would you say the performance gap between discount and conventional.

Sales growth is stable or is it expanding at this point.

It's about the same mark as we've seen over the last few quarters.

Operator: If you'd go ahead and introduce the process for asking questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your left. You will hear three times prompt acknowledgements.

Okay. Thanks.

And I also wanted to ask about the dynamic.

That youre seeing in terms of the balance between national brands and control brands. Obviously private label is a massive part of your sales and earnings base.

Mark Petrie: If you would like to withdraw your question, please press the star followed by the. Our first question comes from Mark Petrie from CIBC. Please go ahead; your line is open. Mark, please go ahead; your line is open. First, would you say the performance gap between discount and conventional sales growth is stable, or is it expanding at this point? It's about the same, Mark, as we've seen over the last few quarters. Okay, thanks.

They've been strong performers and outpacing national brands I know, there's a natural tension there that you are always managing but I'm curious just to hear your perspectives per I guess, just given your experience in Europe the.

The different dynamics, there and then what you've seen in Canada, not just at loblaw, but in the market overall.

Yes, I think that we haven't we haven't changed our strategy on pursuing our our control brands, but what <unk> said I do believe that we can believe that we can grow with the with both national brands and our control brands because like like the heat up the months that we are we are only doing the day national brands because.

Per: And I also wanted to ask about the dynamic that you're seeing, you know, in terms of the balance between national brands and control brands. Obviously, your private label is a massive part of your sales and earnings base. They've been strong performers and are outpacing national brands. I know there's a natural tension there that you're always managing, but I'm curious just to hear your perspectives, Per, I guess, given your experience in Europe, the different dynamics there, and then what you've seen in Canada, not just at Loblaw, but in the market overall. No, yeah, I think that we haven't changed our strategy of pursuing our control brands, but when that is set, I do believe that we can grow with both national brands and our control brands. Because, like the hit of the month, here we are, we are only doing national brands because we think that we can tap into and help the national brands grow and, hopefully, also tap into the profit pool because they actually make a lot of money, and hopefully, they will support us in growing.

We think that we can we can tap in and help the national banks grow and hopefully also tap into to the profit pool, because they actually make them make a lot of money and hopefully they will support us in growing so so it comes down to that I think we can grow with both national brands and control brands at the same time to the benefit of our customers because many of them.

Our customers they still wants both control brands and they also love some of the National brands.

Understood, Okay, and then Richard or maybe per what do you see as the drivers for.

Neutralizing the right hand side of the store as a headwind to the food same store sales result, and do you think that could be an area of growth at some point or is it is it just a question of as you said as.

As you sort of said managing inventory.

To preserve the gross margin yes.

Good point and when we talk about right hand side of the stores, we are talking about super stores only and it is of course something that we are we are looking into and we are talking about health and beauty. We are talking about non food and we are talking about about clothing. So so yes. It is something that's on our mind is something that we are we are working with and of course.

Per: So it comes down to that. I think we can grow with both national brands and controlled brands at the same time to the benefit of our customers because many of our customers still want both control brands and they also love some of the national brands. Yeah, understood. Okay.

We would like to pursue some some growth, but it's too early to to reveal anything but its definitely on my mind to two.

To do even better at the right hand side of this one and it is margin enhancing as well.

Yeah understood. Okay. Thank you I'll pass the line all the best.

Per: And then Richard, or maybe Per, what do you see as the drivers for neutralizing the right-hand side of the store as a headwind to the food same-store sales result? And do you think that could be an area of growth at some point? Or is it just a question of, as you sort of said, managing inventory to preserve the gross margin? Yeah, no, it's a very good point.

Thanks.

Thank you. The next question comes from Irene <unk> from RBC capital markets. Please go ahead. Your line is open.

Thanks, and good morning, everyone.

Per: And when we talk about the right-hand side of the stores, we are talking about superstores only. And it is, of course, something that we are looking into, and we are talking about health and beauty, we are talking about non-food, and we are talking about clothing. So, yes, it is something that's on our minds. It's something that we are working on. And, of course, we would like to pursue some growth there. It's too early to reveal anything, but it's definitely on my mind to do even better on the right-hand side of the store. And it is margin enhancing. Yeah, I understand. Okay, thank you all. I'll pass the line.

You noted that your internal inflation works I think significantly is the word you used ratio below CPI. So.

Or are you walking this line.

<unk> two.

To invest in pricing it sounds as though to deliver value for consumers, while simultaneously project protecting the gross margin.

Yes.

So I think I think we need to be careful Irene and when we look at the numbers because like.

Mark Petrie: All the best. Thank you. Thanks and good morning, everyone.

It's Matt and if you look in Q4 last year not like we add comp sale in food that was north of 8% inflation was running.

Irene: You know, you noted that your internal inflation was, I think, significantly, as the word you used, Richard, below CPI. So how are you walking this line of continuing to invest in pricing, it sounds as though, to deliver value for consumers while simultaneously protecting the gross margin? So I think we need to be careful, Irene, when we look at the numbers, because it's math.

Very high single digits. So we're lapping those numbers so that that is a factor, but when you. When you look at our strategies like we continue to do what's right to where to invest to drive to drive traffic to our stores and that's what we're really focused on the comp performance or the inflation is just.

Richard: And if you look at Q4 last year, we had a comp sale in food that was north of 8%. Inflation was running very high, single digits, so we're lapping those numbers. So that is a factor.

Yeah.

And implicit number that comes out of all of this but like you look at what we're doing now like we're very happy with what's happening.

Richard: When you look at our strategy... Like, we continue to do what's right, to invest, to drive traffic to our stores, and that's what we're really focused on. The comp performance or inflation is just an implicit number that comes out of all of this. But, like, look at what we're doing now. We're very happy with what's happening with our market share performance, specifically in the discount, and so that tells us that our strategies are working. That's very helpful. Thank you. And can you talk about what you're seeing?

With our market share performance, specifically in discount and so that tells us that our strategies are working.

That's very helpful. Thank you.

And can you talk about what Youre seeing you know we're hearing a lot from whether it's together to retail or other retailers period or suppliers, what youre seeing in terms of consumer be trade down behavior.

And sort of as you think about 2024, what your underlying expectations are on that side.

Per: You know, we're hearing a lot from, whether it's the other food retailers, other retailers, period, or suppliers, what you're seeing in terms of consumer trade down behavior. And and sort of as you think about 2024, what your underlying expectations are on that? Yeah, so for this year, I think we will see more of the same. So, what we saw last year is that customers are increasingly looking for value, and they are doing it in three ways. So one, they are buying more into our promotions because that's a way of mitigating their own internal inflation. Two, they are buying more into the control brand, especially our no-name brand which has been really, really successful. And then thirdly, moving more to hard discounts. So I think that's the three things that we will see more of this year, as we saw last year. understood.

Yes. So for this year I think you'll see more of the same. So so what we have seen seen last year is that customer they are increasingly looking for value and doing it in three ways. So one they are buying more into our promotions because that's a way of mitigating their own internal inflation to that buying more into.

The control brands, especially our our new name is.

Really really successful.

And then thirdly, moving more to more to hot discount. So I think that that's the three things that we will see more this year as we saw last year.

Speaker Change: Understood. Thank you and.

Speaker Change: As we think about this consumer value seeking behavior can you talk about what youre seeing in front of store shoppers, where you have a.

Per: Thank you. And, you know, as we think about this consumer value-seeking behavior, can you talk about what you're seeing in front of store shoppers where you have a larger component of discretionary spending? Spence.

Speaker Change: Larger component.

Speaker Change: Discretionary.

Speaker Change: No yeah, it's funny, because when I speak to some of our our beauty do too many of those I wouldn't shufflers and when I did my my interruption I was curious to see how customers are responding to beauty for family, it's a bias fragrance for $100.

Per: No, yeah, it's funny because when I spoke to some of our beauty managers out in shoppers when I did my introduction, I was curious to see, you know, how customers are responding to beauty. For example, if they buy a fragrance for $100, actually, customers, they don't care; it feels like it's not the same customer as we have in our grocery stores because in a grocery store, then 10 cents of a leaf of bread means so much to them, but we don't see the same in shoppers. They are not as price sensitive when they buy more expensive beauty products.

Speaker Change: Actually the customers they don't care if feels like it's not the same customers we have in our grocery stores because in the grocery store.

Speaker Change: 10 cents of a lever of growth of breadth means so much to them, but we don't we don't see the same in.

Speaker Change: In sharp us, they're not as price sensitive in Dubai, the Dubai pneumonia expensive beauty beauty pause, but when this is set then when we discuss and we talk about our heat up the month products. So for example, the crafting that 55 is also sold across all of our shop us because we also want our customers and our service.

Per: But when this is said, then when we discuss and talk about our hit of the month product, so, for example, the Kraft Dinner at 55, it's also sold across all our shoppers because we also want our customers in our shoppers' rock mart to have that feel of value, especially in the grocery part. But it's kind of a different... a different business. And are you seeing, last question I promise, a step up in redemption activity on those higher price point items at Shopify? We're seeing a slightly higher redemption activity in total hiring. I actually don't, I haven't looked at the specifics of it, but like, because customers have a tighter wallet, they're using their points more, and we're definitely seeing that. That's great. Thank you. And I love the LinkedIn post, by the way.

Speaker Change: <unk> to have that that fee for value, especially in the grocery part, but it's kind of a different.

Speaker Change: A different business.

Speaker Change: And are you seeing.

Speaker Change: Last question I promise.

Speaker Change: Are you seeing a step up in redemption activity.

Speaker Change: Those higher price point items at shoppers.

Speaker Change: We're seeing.

Speaker Change: Slightly higher redemption activity in total hiring.

Speaker Change: Like I actually don't I haven't looked at the specific of it but like because our customers have a tighter wall. That's known they are using their points more and we're seeing we're definitely seeing that.

Speaker Change: That's great. Thank you and love the Linkedin posts by the way thanks.

Irene: Thanks. Thank you. Our next question comes from George Dumont from Scotiabank. Please go ahead with your line of, Yeah, good morning, guys. Richard, I just wanted to hone in on the drivers of the high single-digit EPS growth that you're calling out for next year in terms of maybe, you know, goalposts for sales, gross margin, and SG&A, and buyback activity came in kind of ahead of expectations in 23. Do you expect to buy back the same number of shares in 24? Yeah, so the drivers for 2024 are going to look a lot like the drivers in 2023.

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: Next question comes from George <unk> from Scotia Bank. Please go ahead. Your line is open.

George: Hi, Good morning, guys. Just wanted Richard just wanted to hone in on the driver in the high single digit EPS growth that you're calling out for next year in terms of maybe.

George: Gulfport for sales gross margin and SG&A and buyback activity came in kind of ahead of expectations and 23 do you expect.

George: To buy back the same number of shares in 2004.

Speaker Change: Yes, so the drivers for 'twenty.

Speaker Change: 24 are going to look a lot like the drivers in 'twenty three we expect gross margin to be more or less stable SG&A rate will be more or less stable, because where we have the labor cost pressures that everybody's been facing but we put in place initiatives to offset to reduce cost to be able to to a tumor.

Richard: We expect gross margin to be more or less stable, as the Gini rate will be more or less stable because we have the labor cost pressures that everybody's been facing, but we put in place initiatives to offset, to reduce costs, to be able to manage those. And we are expecting a small tailwind from shrink. So together, these three things will allow us to deliver on our framework, and the answer to the last part of your question is yes, we expect to return again a significant portion of our excess free cash flow, and free cash flow should be more or less in line in 2024 as it was in 2023. Great, thanks.

Speaker Change: <unk> dose and we are expecting a small tailwind from shrink so together these three things well.

Speaker Change: Will allow us to deliver on our framework and the answer to your last part of your question is yes. We are we expect to return again, a significant portion of our excess free cash flow and the free cash flow shouldnt be more or less in line in 'twenty four and it was in 'twenty three.

Speaker Change: Great Thanks for that.

Richard: I know it's probably a bit of a crystal ball question, but we saw material deceleration with TPI in January. Just wondering when we can see maybe a more pronounced disinflation at the center of the store? Oh, we're seeing it now.

Speaker Change: I understand it's probably a bit of a crystal ball question, but we saw material deceleration with CPI in January just wondering when do you think you can see maybe a more pronounced disinflation at the center of the store.

Speaker Change: We're seeing it now like.

Richard: Like our inflation, if you were to look at our inflation measurement for a period, because we look at it every month, unlike when we report the quarter, it's actually been going down steadily since January 2023. And so the number we finished in December was lower than the average that we're reporting for the quarter. So inflation, I'd say right now, seems to be stabilizing. And it's still positive.

Speaker Change: Like our inflation if you were to look at our inflation measurement for period, because we look at it every month like unlike when we report the quarter, it's actually been going down steadily since January 2023.

Speaker Change: And so the number we finished that in.

Speaker Change: Timber was lower than the average debt that we're at we're reporting for that for the quarter. So so inflation.

Speaker Change: See right now seems to be stabilizing and and it's still positive but it's.

Richard: But the next number we report should be lower than what we reported in Q4. Okay, thanks. And just maybe one last one.

Speaker Change: The next number we report should be lower than what we reported in Q4.

Speaker Change: Okay. Thanks, and just maybe one last one prepare them if you could talk a little bit about you think of the long term plans to grow square footage.

Per: If you can talk a little bit about the long-term plans to grow square footage on the grocery side of the business, just one repair where you see the most potential for growth. I think it's too early to say, but clearly you can see that we are stepping up in our new sole growth already this year. So we are paying attention to it and looking for opportunities, but more to come on that later. Thanks guys, good quarter.

Speaker Change: At the grocery side of the business, just wondering where you see the most runway for growth.

Speaker Change: I think it's too early to say, but but but clearly you can see that we are stepping up in our new store growth already already this year. So.

Speaker Change: So we are we are paying attention to it and looking for looking for opportunities, but but more to come later on that.

Speaker Change: Okay. Thanks, guys good quarter.

Speaker Change: Thank you.

Speaker Change: Thank you. The next question comes from Tami Chen from BMO. Please go ahead. Your line is open.

George Dumont: Thank you. The next question comes from Tammy Chen from BMO. Please go ahead, your line is open. Hi, good morning.

Tami Chen: Hi, good morning, Thanks for the question.

Tammy Chen: Thanks for the question. I wanted to talk about shrinks at shoppers. Richard, you briefly alluded to it in the previous question, but I believe you were expecting, and it sounds like you did see sequential improvement in the shrink this quarter versus Q3. And so can you talk a bit about where you stand now as you exited last year, like is the headwind really modest now, and you're assuming that the first half of this year, you're going to largely get back to a normal level? Yeah, I think we are cautious and positive about shrink, and we're seeing that it's coming down since last quarter, and we're entering into this year at the level where we want it to be. But it's something that we are paying really, really attention to, and we need to work hard to continue to reduce shrink and especially in shoppers because that's where we have the most expensive products and we have done a lot, so the teams have locked up We are looking at the top 50 shrink stores, and we are implementing gates, but we are paying a lot of attention to it because we know it's important to continue the traction area of getting the shrink down. I don't know if you have anything to add.

Tami Chen: I wanted to talk about shrink at shoppers make sure you briefly alluded to it on the previous question, but.

Tami Chen: I believe you were expecting and it sounds like you did see sequential improvement in.

Tami Chen: And the shrink this quarter versus Q3, and so can you talk a bit about where you stand now.

Tami Chen: Last year like is the headwind really modest now Andrew.

Tami Chen: Youre, assuming that the first half of this year youre going to largely get back to a normal level.

Andrew: Yes, I think we are.

Andrew: We are cautiously positive on the screen and we are seeing that it's it's coming it's coming down since system last quarter and we are entering into this year.

Andrew: Is that where we want it to be but.

Andrew: But it's something that we're paying really really attention to and we need to work hard to continue to reduce shrink in this space and Chavez because that's.

Andrew: That's where we have the most expensive products and we have done a lot. So so the teams have locked up a lot of products. We are looking at sub 50 screens stores and will be implementing gates.

Andrew: But we're paying a lot of attention to it because we know it's important to continue the trajectory of.

Speaker Change: Of getting the screen Tom I don't know if you have anything Richard I think that's good.

Richard: No, I think that's good. Okay, that's good to hear. Then some of the other pieces in the gross margin. So you mentioned freight as a service. And I think there's also been rebidding with vendors that has been a bit of a tailwind. Can you talk about those two?

Tom: Okay. That's good to hear then the other piece there and the gross margin. So you mentioned right is this survey.

Speaker Change: And I think there's also then.

Speaker Change: We're bidding with vendors that has been a bit of a tailwind can you talk about those two.

Richard: Like, were they quite meaningful in terms of tailwinds this quarter? Freed as a Service is starting to be meaningful, yes. So it's not a few basis points; it's more than that, and so this is a business that has grown quite significantly in 2023, and we are anticipating some, again, outsized growth in 2024 for that business. And you should think, as a service, we are helping our suppliers because they only use us when they can get cheaper freight than elsewhere, so that's always a good thing for Canadians. Okay, I got it.

Speaker Change: Well they are quite meaningful in terms of tailwind this quarter.

Speaker Change: Great as a service you.

Speaker Change: Starting to be meaningful yet.

Speaker Change: So so so it's not a few basis points this more than not and so this is a business that has grown quite significantly in 2023, and we are anticipating some.

Speaker Change: Again outsized growth in 2024 for that business and you should think as fate of services, we are helping our suppliers because they are only using us when they can get chiba freight than elsewhere. So.

So that's always a good thing for for Canadians.

Speaker Change: Okay got it and my last question is on.

Per: And my last question is on shoppers, pharmacy comp. So, like you said, it continues to be very strong on the expanded scope. I mean, you've got you ended the year with a bit over 70 locations that have this, but it sounds like it's contributing quite a meaningful component to the comp. You alluded to 2.4 million appointments which is the last year; can you talk a bit about, like, what it will be in 2022? Is that mostly skewed to Alberta? I think that's the most advanced province doing this, right? And so I just want a bit more color on the magnitude of expanded scope has had this quarter and your expectations going forward. Thanks. Yeah, it was zero in 2022. We started that last year.

Speaker Change: And shoppers the pharmacy comp. So like you said it continues to be very strong on the expanded scope I mean, you've got you ended the year with a bit over 70 locations that haven't been great. It sounds like it's contributing quite a meaningful component to the comp.

Speaker Change: You alluded to $2 4 million Portman that what you did last year can you talk a bit about like what was it in 2022 is that mostly skewed to Alberta.

Speaker Change: That's right.

Speaker Change: So I just wanted a bit more color on the magnitude of spend itself has had this quarter and your expectations going forward.

Speaker Change: Yes. It was zero in 2020 until we started that last year. So so this is this is a new initiative and we're actually quite.

Richard: So this is a new initiative, and we're actually quite thrilled with what it's doing for us. So that's why we have 70 plus clinics now and plan to open another 140 this year because we're seeing some great traction. Yeah, and we're continuing the momentum that we saw in Q4. So we feel confident.

Thrilled with what.

What it's doing for us. So that's why like we have 70, plus clinics now and plan to open another 140 <unk>.

Speaker Change: Because we're seeing some some great traction.

Speaker Change: And we are continuing the momentum that we saw in Q4, so we feel confident.

Richard: Okay, thank you. The next question comes from Vishal Shreedhar from National Bank. Please go ahead, your line is open. Hi Para, I just want to talk about some of the recent management changes that were made, including the President of Discount taking over the market. Does this signal changes in the market division focusing more on discount-oriented merchandising tactics? What should we take away from that? Thanks for the question.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you. The next question comes from Vishal <unk> from National Bank. Please go ahead. Your line is open.

Speaker Change: Hi.

Vishal: I just wanted to talk about some of the recent management changes that were made including the.

Vishal: The president of discount taking over market.

Vishal: Does this signal changes in the market division focusing more on discount oriented merchandising tactics, what should we take away from that that change.

Per: For me, when I started my role here, it was a question because we had a discount division consisting of our real Canadian superstores and then our hot discounts. And for me, these are two completely different ways of approaching our customers because in the superstores, you will have, whatever, 40, 50, 60,000 products available for customers. And it's like on 100 to 160,000 square feet. And in a discount store, there is much more limited space. It ranges from 10 to 35,000 square feet.

Speaker Change: I think thanks for thanks for the question and for me when I when I when I started my role Yeah. It was it was a question because we had a discount division consisting of our real Canadian Superstore, and then I'll hop discount and for me. This is.

Speaker Change: Two completely different ways of.

Speaker Change: Our protein our customers because in a super stores, you'll have whatever 40, 40, 50 60000 products available for customers and it's it's like on the 100 to 160000 square feet.

Speaker Change: And in a discount stores, it's much more limited space. It ranges from 10 to 35000 square feet. So it's a different customer experience is a different way of.

Per: So it's a different customer experience. It's a different way of trading. So for me to get the most out of both our market and our superstores and hot discounts, then I thought it made absolutely sense to carve out our hot discounts in a separate division led by Melanie Sink because I think we can get more out of it by doing it this way. Because I also want to really operate the hot discounters as hot discounters. And as customers, they turn more into hot discounts. I think it makes a lot of sense to have that separately. And when I look at the market and superstore division, now, for example, we have the real Atlantic superstores combined with the real Canadian superstores. So now we have a superstore banner coast to coast. We didn't have that before, meaning that we can utilize the strength of negotiating with suppliers and giving great promotions and great offers to customers across the country. And it's a more high-low base as well. So there are so many similarities.

Speaker Change: Trading so for me to get the most out of both our market and I was super stores and half discount than I thought it was absolutely sense to carve out our hot discount in our Southern Division led by led by men in sync because I think we can get more out of it by it by doing it this way because I always want to really.

Speaker Change: The hard discounters as hottest downloads and as customer they turn more into a into hottest down I think it makes a lot of sense to have that separately and when I look at the market in Superstore Division now for example, we have the real Atlantic Superstores.

Speaker Change: I'm fine with the real Canadian Superstore. So now we have a superstore burnup coast to coast, we didn't have that people, meaning that we can utilize this range of negotiating with suppliers and giving greater promotions and great offers to customers across across the country and in some more high low base as well so there's so many similarities and having Frank.

Per: And having Frank only running our market and superstores makes, again, a ton of sense. He's been 38 years in the business, and he's a retailer by heart.

Speaker Change: You're only running our marketing suite results makes again a ton of sense. It's been 38 years in the business and he is a retailer by Aten and it's already now started to implement some some of the thinking and giving more value to our customers in that segment as well. So so yes, it was something that.

Per: And he's already started to implement some of his thinking and giving more value to our customers in that segment as well. So yeah, it was something that I discussed with the chairman very early on and agreed that it was a good thing to do. Okay, just moving on to the Maxi conversions, obviously, you know, The indications are it's been very successful, and continuing with that, and probably likely going across Canada as well. You know, when the first tranche converted underperforming storage, should we expect a similar level of performance as you continue to roll out these Maxi conversions? And how successful do you think these conversions will be in other countries? Let me just talk about Quebec for a second.

Speaker Change: I discussed with the chairman very early and agreed that it was a good thing to do.

Speaker Change: Okay, just moving on to the Mcafee conversions obviously.

Speaker Change: Okay, just moving on to the Mcafee conversions obviously.

Speaker Change: And the indications are it's been very successful and.

Speaker Change: Continuing with that and probably likely going across Canada as well.

Speaker Change: When the first tranche, we're converting underperforming stores should we expect a similar level of performance as you continue to rollout these mcafee conversions.

Speaker Change: And how successful do you think these conversions will be in other parts of Canada.

Speaker Change: So let me just talk about the Quebec for a second.

Richard: Obviously, when we get to the tail end of conversions, we're sort of getting to our stores that are not losing as much money as before. So, for profitability, it's a higher hurdle. But, having said all that, the lift in sales we've been experiencing with those conversions continues to be quite significant. And so, therefore, net-net, as an organization, we're definitely winning. So, that is giving us the confidence to consider doing this beyond Quebec. And that's what the teams are thinking about right now.

Speaker Change: Like obviously, when we get to the tail end of conversions, where we're sort of getting to our stores that are not losing as much money as before so from a profitability.

Speaker Change: It's a higher hurdle, but but having said all of that the lift in sales we've been experiencing windows conversion, there's continues to be quite that.

Speaker Change: Quite significant and so therefore net net as an organization, we're definitely winning so that is giving us the confidence to to consider.

Speaker Change: This beyond Quebec and that said that's what the teams are thinking about right now.

Richard: Okay, and maybe just one on connected healthcare and, you know, how high up the list of priorities is evolving connected health care? When should we think of that meaningfully taking shape in terms of us understanding what the proposition has become at Loblaw? Yeah, I think it continues to play a big role for shoppers, so you should think about it as being extremely important for us, and we are continuing to see great performance on connected healthcare, so it's an important strategic pillar for us. Can you give me some examples of what are the major pillars in Connected Health?

Speaker Change: Okay, and maybe just one on connected health care and.

Speaker Change: How high up the list of priorities is evolving connected health care.

Speaker Change: When should we think of that meaningfully taking shape in terms of us understanding what the proposition has become at loblaw.

Speaker Change: Yes.

Speaker Change: This continues to play to play a big role for Shabbos. So so you should think about it as being extremely important Boston than we are.

Speaker Change: <unk> continues to again see see great performance on connected health care. So it's an important strategic pillar for us.

Speaker Change: Can you give me some examples of what are the major planks.

Good health care.

Per: Lifemark Acquisition to me is connected to healthcare, like you look at something that's complementary to our business and we look at the performance of Lifemark this year and we're starting to be excited. We have a new leader running the business and she's doing a great job both on top line and bottom line, so that's a good example of a business that's adding to the roster of what Shoppers is offering and then it's all the other initiatives that Shoppers does that brings everything together that is going to just drive the sort of the growth of healthcare in general of which Shoppers is part of. Yeah, and we now have 320 Lifemark clinics in our portfolio, so it is becoming significant. And then of course our future of pharmacy, so we have invested in four future pharmacy locations in Q4 and now totaling of six locations and as you probably remember the future of pharmacy is a full redesign of a dispensary with a waiting room, it's a digital screen, it's precision loggers and it's built to include a consultation room that enables them to function like pharmacy clinics. So we are on it. Okay, and the items like QHX and enabling doctors. Is that still high on the priority list, enabling doctors to send scripts and get their information all digitized? Is that still a focus? That is still happening.

Speaker Change: I'd like to thank Mark acquisition to me is connected health care.

Speaker Change: Like you look at something that's complementary to our business and we look at the performance of life, Mark This year and where we're starting to be excited okay. Like we have a new leader running the business and she is doing a great job bolt on that on topline and bottom line. So that's a good a good example of a business that said adding to <unk>.

<unk> of what shoppers is offering and then it's going to be it's all the other initiatives that the shoppers does that brings everything together that is.

Speaker Change: It is going to just drive drive the.

Speaker Change: That's sort of the growth of <unk>.

Speaker Change: Health care in general of which shoppers as part of and we now have 320 lifelock units in our portfolio. So it is becoming significant and then of course, our future pharmacy. So we have invested in full through the pharmacy locations in Q4, and now totaling six locations as its probably remember that he was at pharmacies.

Full redesign of dispensary with a waiting room, it's digital screens is perceived from loggers and it's built to include a consultation rooms and enable them to function like it like pharmacies clinics. So.

Speaker Change: So we are we own it.

Speaker Change: Okay, and the items like <unk> and enabling doctors.

Speaker Change: Is that still high on the priority list, enabling doctors to use.

Speaker Change: Scripts get their information digitize is that still a focus there.

Speaker Change: That is still happening in terms of the scale of this versus what we just talked about it's not a significant what we just talked about is going to be what's going to drive the whole shoppers drug mart ecosystem of businesses.

Richard: In terms of the scale of this versus what we just talked about, it's not as significant. What we just talked about is going to drive the whole shopper, drug mart ecosystem of businesses. Okay, thank you very much.

Speaker Change: Okay. Thank you very much.

Michael Van Eels: Thank you. Our next question comes from Michael Van Eels of TD Securities. Please go ahead, your line is open.

Speaker Change: Thank you.

Speaker Change: Next question comes from Michael <unk> from TD Securities. Please go ahead. Your line is open.

Per: Thank you. You've covered a lot, but I wanted to go back on to consumer health a little bit. It certainly seems like the industry overall is seeing lower tonnage. Have you seen that level off at all on a sequential basis?

Michael: Okay. Thank you covered a lot, but I wanted to go back on to the consumer health a little bit.

Michael: Certainly seems like the industry overall is seeing lower tonnage.

Michael: Have you seen that.

Michael: Level off at all on a sequential basis our people.

Richard: Have consumers got to the point where they can't really cut too much in terms of the amount of calories they intake? No, we don't see that, and we believe it will be more of the same as last year. So customers, they will still, I think, be at the same level as last year, but again, they will buy cheaper products, they will buy more into the promotion, they will buy more into a control brand, and they will seek out this kind of thing. Yeah, Mike, specifically, the overall tonnage in Q4 was essentially flat. Okay. And when you look at what we were cycling, that's actually pretty good.

Michael: Consumers got to the point, where they can't really cut too much in terms of the amount of calories.

Michael: Rick.

Rick: No. We don't we don't see that and we believe it would be more of the same as last year. So so customer they will still.

Rick: I think b at the same level as last year, but again, they will buy by cheaper product they will buy more into the promotions that will buy mowing too.

Rick: Into a control brand and taking into today's call.

Speaker Change: Yes, Mike specifically the overall tonnage in Q4 was essentially flat, okay, and and when you look at what we were cycling that's actually pretty good okay. Because last year in Q4, we were heavily invested but it's a it's a tale of two stories like.

Richard: Okay, because last year in Q4, we were heavily invested. But it's a tale of two stories, like in discount, like tonnage is up. And, and in market, it's down a bit. So so that's what we're seeing right now. But the overall organization, it's more or less flat.

And discount like tonnage is pop and in market, it's down a bit. So so that's that's what we're seeing right now, but overall organization, that's more or less flat.

Richard: And do you believe you're gaining share? And so, in other words, poundage for the industry is down? Yeah.

Speaker Change: And do you.

Speaker Change: Do you believe you're gaining share and so in other words tonnage for the industries is down.

Speaker Change: Yes.

Richard: We're definitely gaining share and discounts, and in the market, the whole conventional segment is losing share, but we're holding our own versus our peers. That's how you should think about that.

Speaker Change: We are definitely gaining share in discount.

Speaker Change: And in market like the whole conventional.

Speaker Change: Segment is losing share, but we're where we're holding our own versus our peers. That's how you should think about that.

Richard: Okay, and the trade down that we see happening to private label, normally margin accretive. Um... Is that margin upside? Is that still holding true even, as well? Yeah, no name continues to grow faster now, okay, but it's not... It's slowing. It's slowing. Like we saw, like, no one named Spike a lot, especially last year.

Speaker Change: Okay, and the trade down.

Speaker Change: Happening to private label, we all know it normally margin accretive.

Speaker Change: Yeah.

Speaker Change: Is that margin upside.

Speaker Change: Yes.

Speaker Change: Is that still holding true even.

Speaker Change: As you try to hold prices lower.

Speaker Change: Thank you as you would see that as being neutral because if customers are trading down to two.

Speaker Change: So some of our newer named they're buying products at a lower price, but with a higher margin.

Speaker Change: Which <unk> controller business.

Speaker Change: So the penny profit would be the same so it's.

Speaker Change: It's absolutely fine fine for us.

Speaker Change: Yes, no no name continues to grow faster now, okay, but it's not.

Speaker Change: Slowing it's slowing like we saw like no named Pike a lot.

Speaker Change: Especially last year, it's still running higher than normal, but you can see the growth slowly slowly inching back down as national brand growth starts to slowly inch back up I think thats, probably the best way to characterize this.

Richard: It's still running higher than normal, but you can see the growth slowly, slowly inching back down as national brand growth starts to slowly inch back up. I think that's probably the best way to characterize the market. Yeah, so I don't know if you have a crystal ball or not, but wage growth is expected to grow faster than inflation this year. If not,

Speaker Change: So I don't know if you have a crystal ball or not but.

Speaker Change: Wage growth is expected to grow faster than inflation this year.

Speaker Change: That happens.

Richard: Is that enough, do you think, to see? and improve consumer health, or do you think there's, you know, that the hangover is going to be there for a while from all this inflation going to be there into 2022? No, I think it will definitely help, so customers getting more money to spend, of course, that will help, but whether it's enough, it's too difficult to say. And just finally, on e-commerce, can you give us an idea of what the penetration is now? You should get that at the end of the year. And then how does that, how does your performance differ in terms of growth? How does that 15% break down between food and drugs?

Speaker Change: Is that enough do you think to see.

Speaker Change: Improving consumer health or do you think there is.

Speaker Change: The hangover is going to be there for a walk from all this inflation is going to be there for into 2025.

Speaker Change: I think it will definitely definitely hope so so customers.

Speaker Change: Getting more and more money to spend of course that will help but with us enough, it's too difficult to say.

Speaker Change: Okay, and just finally on e-commerce can.

Speaker Change: Can you give us some idea of what the penetration is now usually get that at the end of the year and then how does that how does your performance differ.

Speaker Change: In terms of the growth how does that 15% breakdown between food and drug.

Speaker Change: Yes, no so.

Per: So it is the food part that's growing, and it's good for us, and it's good for our customers because we are helping a lot of customers through life. So when they have small kids, they are buying more of our food offering, and it's close to 6% penetration, and as we stated, we have 3.3 billion total sales, but that's including shoppers as well, and we talk about the food only, it's, of course, a little bit less. But we are growing ahead of the physical stores by a little bit more than double. We're seeing a slight increase in penetration as the year progresses, and I'd say, as we said in our remarks, where the growth in food is coming more from is on the delivery part. So that's where the big chunk of the growth is coming from. Thank you. Thank you. As a reminder to register for a question, please press the star followed by the one on your own. The next question comes from Chris Lee from Desjardins Securities. Please go ahead; your line is busy. Oh, good morning, everyone. Hello Per,

Speaker Change: So it is the food part of that so that's growing and it's good for us and it's good for our customers because we are having a lot of customers through to life. So when they have small case, they are buying more into our food food offering and it's.

Speaker Change: Is it close to close to 6% penetration and as we stated we have $3 3 billion total phase, but that's including including shell by size as well and we talk about the food only.

Speaker Change: It's of course, a little bit less but we are growing ahead of the physical stores like a little bit more than doubled.

Speaker Change: We're seeing slight slight increase in penetration as the year progressed and and.

Speaker Change: Say as we said in our remarks like.

Speaker Change: Where the growth in food is coming more from it.

Speaker Change: It's on the delivery part, so that's where that's where the big chunk of that growth.

Speaker Change: And the split now is 60% pick up in volume sensitive.

Speaker Change: Alright, thank you.

Speaker Change: Yes.

Speaker Change: Thanks.

Speaker Change: Minded to register for a question. Please press star followed by the one on you touched on.

Speaker Change: The next question comes from Chris Li from Desjardins Securities. Please go ahead. Your line is open.

Chris Li: Hi, good morning, everyone.

Per: I know you kind of answered this in your opening remarks and some questions to the peers as well, but I just want to ask again, you know, given your extensive experience in grocery, especially in discount, what do you see as some of the greatest opportunities in terms of leveraging your experience for the Enhanced Loblaw Value Proposal? No, thanks for that.

Chris Li: Hello, Peter.

Chris Li: You've kind of answered this in your opening remarks.

Chris Li: Some questions to the peers as well, but I just wanted to ask again, given your extensive experience in grocery, especially in discount.

Chris Li: What do you see as some of the latest opportunities in terms of leveraging your experience.

Chris Li: To enhance <unk>.

Chris Li: Value proposition.

No.

Per: I think my experience actually is both in hypermarkets, supermarkets, and in discount. And yeah, in my previous company, our discount penetration was just over 50%. So I think there's a lot of learnings that we can take from Europe.

Chris Li: So thanks for that I think my experience activities, both in hypermarkets supermarket and discount them.

Chris Li: In my previous company, our discount penetration was just over 50%. So so I think that there's a lot of learnings that we can take from from Europe, but as I get to notice this business here in Canada.

Per: But as I get to know this business here in Canada, I also see that there's a lot of learnings that if I were to go back, which I'm not, then there's a lot of learnings that I could take from our hard discount formats here. So I think that we have the strongest hard discount format in both maxi and no-fills in Canada. The way that we prioritize fresh, produce, and meat, I think that's excellent. And then learnings, yeah, just a simple thing like shelf-ready packaging. So if you go to an Aldi and Lidl, you will see that it's 100%, and if you go to our stores, we maybe have 10-15%. So they're just one example.

Chris Li: You see that a lot of learnings and if I was to go back with him. Not then there's a lot of movies that I could take from from our heart discount.

Chris Li: Format here, so I think that we have the strongest half discount formats in both Mexico and <unk> in Canada. The way that we prioritize the fresh produce to meet I think that's excellent.

Chris Li: And yeah, and then learnings yeah, just just the simple thing is.

Chris Li: Feel free to packaging. So if you go to an alien lidl youll see that as 100% implemented and if you go to our stores. We maybe 10, 15%. So that's just one example, so we have we have several examples in several things that we're working with where we can.

Per: So we have several examples and several things that we are working with where we can both take costs out but also other examples where we can give more value to our customers. So it's good, and I learn a lot, and hopefully, I can contribute a little bit with my experience. Great, thanks for that. And then Richard, I just wondered, you know, for your high single-digit EPS growth for the full year, just in on a quarter to quarter basis, can we expect kind of similar highs in the digits kind of spread out consistently through the quarters? Or do you expect to be skewed to one period over the? Yeah, very happy you asked that question, Chris. So actually, when you look at our plan, it's actually very, very stable for every quarter. So our plan, the way it's laid out, should be the same number for every quarter. So in reality, it's probably going to be exactly that low, but that's what the plan contemplates. So there are no spikes in the first year or first half or second half. It's sort of stable throughout the year.

Chris Li: Both are both take take cost out, but also unlike <unk>, where we can give more value to our to our customers. So it's good.

Chris Li: Learn a lot and hopefully I can.

Chris Li: But a little bit with my expense.

Speaker Change: Great. Thanks for that and then Richard I was just wondering with your.

Speaker Change: High single digit EPS growth for the full year.

Richard: On a quarter to quarter basis can we expect kind of similar high single digit kind of spread out through consistently through the quarter. So would you expect to be skew to one period over the other.

Richard: Yes, very happy you asked that question, Chris So actually low when you look at our plan.

Richard: Thanks.

Chris Li: It's actually very very stable for every quarter. So our plan the way it's laid out it should be the same number for every quarter. So.

Speaker Change: He is probably going to be exactly that but that's what the plan contemplates. So theres no spikes in first year first half or second half.

Speaker Change: Stable throughout the year.

Richard: Okay, that's helpful. And then maybe just one on shoppers. Vishal, I think in the past you've said that shoppers account for about 40% of retail EBITDA. Just wondering, do you have an updated number now? What percentage is shoppers? It's in the mid-40s now.

Speaker Change: Okay. That's helpful. And then maybe just one on shoppers ambition I think in the past you've said that shoppers accounted for about 40%.

Speaker Change: I'll detail EBITDA, just wondering do you have an updated number now what percentage of shoppers.

Speaker Change: Yes, it's.

Speaker Change: It's been the mid Forty's now.

Richard: Okay, so if I just, and maybe we can take this offline afterwards, but if I just do the quick math, and you know, based on the revenues for food and drugs that you do disclose publicly, based on that 45% contribution, and that would suggest you're a shopper's market, is more like 17% versus eight or 9% for food implied. I guess my question is, has that margin gap widened? over time?

Speaker Change: Okay and the MS Schwarz, Okay. So if I just maybe we can take this offline afterwards, but if I just do the quick math based on the revenues for food and drug that you disclose publicly based on that 45% contribution that would suggest you with shoppers EBITDA margin is more like 17% versus eight 9% for food implied.

Speaker Change: I guess my question has that margin gap widen over time and if so what has been the drivers and do expect shoppers margin to continue to grow given all the initiatives that you've noted there is still on the come.

Chris Lee: And if so, what have been the drivers, and do you expect shoppers' margin to continue to grow, given all the initiatives that you've noted that are still on the, Yeah, Chris, let's take that one offline. Okay, no worries. So last one, just on shoppers, again, I think this is like the second or third quarter, in a role where you call up specialty drugs as being a driver. Just wondering if you can size up for us the offset, what is how much of a contribution is that helping your comps just on the specialty drugs? It's a relatively new phenomenon, but the average value of these drugs is extremely high, and so it's a driver of average script value, and demand is also very high.

Speaker Change: Yes, Chris let's take that one offline okay. Okay.

Speaker Change: Okay No worries.

Speaker Change: Last one just on shoppers again I think this is like the second or third quarter.

Speaker Change: What do you call a specialty drugs as being a driver.

Speaker Change: Just wondering if you can size up for us the opposite what is how much of a contribution is that helping your comps just on the specialty drugs alone.

Speaker Change: So it's a relatively new phenomenon okay.

Speaker Change: But the average value of these drugs.

Speaker Change: And extremely high and so it's a it's a driver of average scrap value.

Speaker Change: And demand is also very high and the issue we're facing as we.

Richard: And the issue we're facing is we don't have enough supply. That's the issue we're facing. So we don't know what the size of this is yet because we just can't meet demand for the moment. Yeah, especially when Sempec has been short in delivering stuff.

Speaker Change: You don't have enough supply that's the issue we're facing so so we don't know what's the size of this yet because we just can't meet demand for the moment, especially <unk> has been has been shot and delivery.

Richard: Okay, thanks very much. Thank you. There appear to be no further questions. I'll return the conference back to you speakers for any questions. Great, thanks everybody for your time this morning, and if you have any follow-up questions, give me a shout or drop me an email. And finally, please mark your calendars for Wednesday, May 1st, when we'll be releasing our Q1 results. Thanks, and have a great day! Thank you. This does conclude today's conference call. Thank you all for attending. BF-WATCH TV 2021, and The Story of a Girl Who Was Born With Pregnant Women In Her Arms And Her Eyes, And Her Eyes Were Black, And Her Eyes Were Black, And Her Eyes Were Black, And Her Eyes Were Black, And Her Eyes Were Black, And Her Eyes Were Black, And Her Eyes Were Black, And Her Eyes Were Black,

Speaker Change: Okay. Thanks very much.

Speaker Change: Thank you there appear to be no further questions I'll return the conference. Thank you speakers for any closing comments.

Speaker Change: Great. Thanks, everybody for your time this morning, and if you have any follow up questions give me a showed a drop me an email and finally, please mark your calendars for Wednesday may 1st when we'll be releasing our Q1 results.

Speaker Change: And have a great day.

Speaker Change: Thank you. This does conclude today's conference call. Thank you all for attending you may now disconnect your lines.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Sure.