Q1 2024 Loblaw Co Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to Loblaw companies limited first quarter 'twenty 'twenty four results conference call. At this time all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session. If at any time. During this call you are quite immediate assistance.
Operator: Good morning, ladies and gentlemen, and welcome to Loblaw Companies Limited's first quarter 2024 results conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, May 1st, 2024. I would now like to turn the conference over to Mr. Roy MacDonald. Please go ahead, sir.
Please press star zero for the operator.
This call is being recorded on Wednesday may four 2024.
I would now like to turn the conference over to Mr. Mcdonald. Please go ahead Sir.
Roy MacDonald: Thank you, Larry. Good morning, everybody.
McDonald: Thank you Laura and good morning, everybody welcome to Loblaw companies limited first quarter 2024 results call.
Roy MacDonald: Welcome to Loblaw Companies Limited's first quarter 2024 results call. I'm joined this morning by Per Bank, our President and Chief Executive Officer, and by Richard Dufresne, our Chief Financial Officer. As always, before we begin the call, I'll remind you that today's discussion will include forward-looking statements, which may include, but are not limited to, statements with respect to Loblaw's anticipated future results. These statements are based on assumptions and reflect management's current expectations.
McDonald: I'm joined this morning by peer bank, our President and Chief Executive Officer, and by Richard to frame, our Chief Financial Officer.
As always preferred will begin the call I'll remind you that today's discussion will include forward looking statements, which may include but are not limited to statements with respect of loblaw as 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 MacDonald: As such, they are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations. These risks and uncertainties are discussed in the company's filed materials with the Canadian Securities Regulators. Any forward-looking statements speak only as of the date they are made, and 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 is required by law.
These risks and uncertainties are discussed in the company's filed materials with the Canadian Securities regulators and the forward looking statements speak only as of the date, they're made and the company disclaims any intention or obligation to update or revise any forward looking statements whether as a result of new information future.
McDonald: Her events or otherwise other than what's required by law also certain non-GAAP financial measures may be discussed or two 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.
Roy MacDonald: 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 measures. And with that, I'll turn the call over to Richard.
McDonald: And with that I'll turn the call over to Richard.
Richard Dufresne: Thank you, Roy, and good morning, everyone. Our first quarter results demonstrate continued delivery of steady operational and financial performance. Our top-line performance was strong, with earnings growth in line with our framework. On a consolidated basis, revenue grew by 4.5% to $13.6 billion, and EBITDA increased by 6.6%. Adjusted diluted net earnings per share grew by 11% to $1.72.
Richard: Thank you Roy and good morning, everyone.
Richard Frame: Our first quarter results demonstrate continued delivery of steady operational and financial performance. Our topline performance was strong with earnings growth in line with our framework.
Richard Frame: On a consolidated basis revenue grew by four 5% to $13 6 billion and EBITDA increased by six 6%.
Richard Frame: Adjusted diluted net earnings per share grew by 11% to $1 72.
Richard Dufresne: On a gap basis, our net earnings per share grew by 14%. Drug Retail delivered another strong quarter; our absolute sales increased 4.2%, and same-source sales grew 4%. Front store same store sales grew by 0.7%, lapping growth of 10.3% last year. Cosmetics and health and beauty continue to deliver very strong results, supported by elevated cough and cold sales. Overall, we are very pleased with the ongoing strength of our front store business. However, we have made the decision to exit most of our electronics category.
Richard Frame: On a GAAP basis, our net earnings per share grew by 14%.
Richard Frame: Drug retail delivered another strong quarter, our absolute sales increased four 2% and same store sales grew 4% front store front store same store sales grew by <unk>, 7% lapping growth of 10, 3% last year cosmetics and health and beauty continued to deliver very strong results supported by elevated cough and cold sales or.
Richard: We're all we are very pleased with the ongoing strength of our front store business.
Richard: We have made the decision to exit most of our electronics category as such it will negatively affect our front store sales for all 24, as we cycle out of it.
Richard Dufresne: As such, it will negatively affect our front store sales for all of 24 as we cycle out of it. Pharmacy and healthcare services grew in Saint-Sans by 7.3%, driven by broad strength in prescription services. Our specialty and acute prescription growth led our pharmacy numbers. Additionally, customers continue to respond very positively to the convenience and level of care we offer through our more than 2,100 pharmacies across the country. In food retail, we recorded strong top-line growth with absolute sales up 4.4% and same-store sales growth of 3.4%. Our internal inflation rate was lower than food CPI again this quarter.
Richard: Pharmacy and healthcare services grew same store sell by seven 3% driven by broad strength in prescription services, our specialty and acute prescription growth led our pharmacy numbers. Additionally, customers continued to respond very positively the convenience and level of care, we offered through our more than two.
Richard: 100 pharmacies across the country and.
Richard: In food retail, we recorded strong top line growth with absolute sales up four 4% and same store sales growth of three 4% our internal inflation rate was lower than food CPI again. This quarter. This helped bring CPI growth grocery inflation below the headline total inflation rate in Canada for the first time.
Richard Dufresne: This helped bring CPI grocery inflation below the headline total inflation rate in Canada for the first time in over two years. Our strong same-store sales combined with a lower internal inflation rate clearly highlight the strength of our discount banners, private label brands, and PC Optimum offers. Tonnage, traffic, and market share performance were all strong. We saw market share gains in both our market and hard discount banners, with solid tonnage growth in each. As expected, the consumer shift to discount continues, with our hard discount banners outperforming our conventional sales. Right Hand Side had a negative impact on food same-store sales of 66 basis points.
Richard: Over two years or.
Richard: Our strong same store sales combined with a lower internal inflation rate clearly highlights the strength of our discount banners private label brands and PC optimum offers.
Richard: Traffic and market share performance were all strong we saw market share gains in both our market and hard discount banners with solid tonnage growth and each unexpected the consumer shift to discount continues with our hard discount banners outperforming our conventional stores.
Richard: Right on site and then add a negative impact on food same store sales of 66 basis points. These categories remain accretive to our gross margin and we continue to carefully manage inventory levels.
Richard Dufresne: These categories remain accretive to our gross margin, and we continue to carefully manage inventory levels. Online sales in the quarter increased 16.1%, and delivery continues to outperform as a channel. Across food retail, our strong sales, market share, and tonnage performance are a clear indication that our efforts resonate with customers. More and more Canadians choose our stores for value, quality, and service.
Richard: Online sales in the quarter increased 16, 1% and delivery continues to outperform as a channel.
Richard: A graph food retail our strong sales market share and tonnage performance are a clear indication that our efforts resonated with customers more and more Canadian choose our stores for value quality and service.
Richard Dufresne: The total retail growth margin was 31.6%, growing 30 basis points. Higher drug retail margins, mainly due to sales mix and continued progress in reducing shrink, drove our improvement this quarter. We have executed on a number of initiatives to improve shrink in our stores and are pleased with the positive momentum. We remain focused on delivering stable gross margin this year in line with our financial framework. Turning to SG&E, our spend rate as a percentage of sales increased 40 basis points driven by the year-over-year impact of certain real estate activities and labor costs and costs related to network optimization, partially offset by operating leverage.
Richard: Total retail gross margin was 31, 6% growing 30 basis points higher drug retail margin, mainly due to sales mix and continued progress in reducing shrink drove our improvement this quarter. We have executed on a number of initiatives to improve shrink in our stores and are pleased with the positive momentum we really.
Richard: Main focus on delivering stable gross margin this year in line with our financial framework.
Richard: Turning to SG&A, our spend rate as a percentage of sales increased 40 basis points driven by year over year impact of certain real estate activities and labor costs and costs related to network optimization, partially offset by operating leverage.
Richard Dufresne: Adjusted Retail EBITDA increased by $62 million, yielding a margin of 10.9%, in line with last. The quarter saw strong performance at the bank. BC Financial's revenues increased 10.7%, driven by growth in the credit card portfolio and strong services growth at our mobile shop. We were excited to launch No Name Mobile in the quarter, providing Canadians with a great opportunity to save on their mobile plans and earn even more PCOptimum points to put towards free groceries faster.
Richard: Adjusted retail EBITDA increased by $62 million, yielding a margin of 10, 9% in line with last year.
Richard: Orders are strong performance at the bank BC financials revenues increased 10, 7% driven by growth in the credit card portfolio and strong services growth at our mobile shop, we were excited to launch <unk> mobile in the quarter, providing Canadians with a great opportunity to save on their mobile plans and even more PC optimum points to put towards.
Richard: Free groceries faster, while mobile expert call. This the best deal in the country and I agree with them.
Richard Dufresne: One mobile expert called it the best deal in the country, and I agree with them. The bank's adjusted earnings before tax increased by $32 million, with higher interest income and lower operating costs, offsetting higher credit losses and loss provision. We remain very comfortable with the risk profile of the bank's 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 increased by 6.6% to $1.54 billion. Our retail free cash flow used in operating activities was $359 million, as we typically see a seasonal outflow in Q1.
Richard: The bank's adjusted earnings before tax increased by $32 million with higher interest income and lower operating cost offsetting higher credit losses and loss provisions.
Richard: We remain very comfortable with the risk profile of the bank's portfolio, we have a strong and well capitalized balance sheet and we continue to take a conservative position in our provisioning.
Richard: On a consolidated basis, adjusted EBITDA increased by six 6% to $1 $54 billion.
Richard: Our retail free cash flow used in operating activities was $359 million as we typically see a seasonal outflow in Q1 in the quarter, we repurchased $470 million worth of common shares and announced a 15% dividend increase our 13th consecutive annual increase our.
Richard Dufresne: In the quarter, we repurchased $470 million worth of common shares and announced a 15% dividend increase, our 13th consecutive annual increase. Our balance sheet remains strong, and we continue to improve our key return metrics. Our return on equity sits at 22.6%, and our return on capital is at 11.2%. Looking ahead, we continue to be pleased with our market share performance in food. That said, in the second quarter, we will be lapping 6.1% food incomes in the comparative quarter versus 3% in Q1 of 2023.
Richard: Our balance sheet remains strong and we continue to improve our key rhetoric return metrics are return on equity sits at 22, 6% and our return on capital at 11, 6%.
Richard: Looking ahead, we continue to be pleased with our market share performance in food.
Richard: In the second quarter, we will be lapping six 1% food and comps in the comparative quarter versus 3% in Q1 of 2023. So we expect due to food same store sales to be lower than Q1, and drug cough and cold sale are slowly returning to normal.
Richard Dufresne: So we expect Q2 food same-store sales to be lower than Q1. However, drug, cough, and cold sales are slowly returning to normal. As discussed on the last call, we expect to continue to deliver on our financial framework. I will now turn the call over to Peter.
Richard: As discussed on the last call, we expect to continue to deliver on our financial framework I will now turn the call over to bear secondary.
Per Bank: Thank you, Richard, and good morning everyone. I'm pleased to be here to discuss our first quarter results with you. We ended the quarter where we started the year with confidence, strength, and momentum across our businesses. Last quarter, I talked about the tremendous commitment, diversity, and experience of our team from coast to coast. Together, we continue to execute well across our businesses, keeping costs low and providing superior value, quality, and service to Canadians. That focus contributed to another quarter of consistent operational and financial performance. This was especially evident in the strength of our food business. Richard highlighted the financial results.
Bear Secondary: Thank you Richard and good morning, everyone I am pleased to be here to discuss our first quarter results with you. We ended the quarter on web has started the year with confidence strength and momentum across our businesses.
Bear Secondary: Last quarter I talked about the tremendous commitment diversity and experience of our team from coast to coast together, we continue to execute well across our businesses.
Bear Secondary: Keeping costs, low and providing superior value quality and service to Canadians that Paul was contributed to another quarter of consistent operational and financial performance.
Bear Secondary: This was especially evident in the strength of our food business Richard highlighted the financial results key metrics around volume and our numbers are those tracking in items sold in our food source. This quarter were very strong.
Per Bank: The key metrics are around volume, and our numbers for both traffic and items sold in our food stores this quarter were very strong and positive in both our discount and conventional banners. Canadians are recognizing that we are providing the combination of value, quality, and service that they want, and they're rewarding us with their business. They are voting with their feet.
Bear Secondary: And positive in both our discount and conventional banners Canadians are recognizing that we are providing the combination of value quality and service that they want and they are rewarding us with their business they are voting with their feet.
Bear Secondary: Im not sure you have all seen our new here that the months promotion.
Per Bank: I'm not sure you have all seen our new Head of the Month promotion, which is really working well for us. Head of the Month offers a great price on a few selected items, and it's available at the same price in all our food and drug stores across the country. But this is not the only value driver. Across our banners, we are giving Canadians better value for money by giving them relevant promotions both through our Strong Flyer program and personal offers from our leading digital PC Optimum program.
Bear Secondary: Which is really wasn't well costs hit us our motto is a great price on a few selected items and it's available at the same price and all our food and drop stores across the country.
Bear Secondary: But this is not the only value driver across our banners youre, keeping canadians better value for money by giving them relevant promotions, both troughs on fire program and Personalised offers from our leading digital PC optimum program.
Per Bank: Canadians remain very focused on value, and our Maxi and Noful banners continue to rise on the horizon. We are building on last year's momentum with a plan for more conversions plus net new stores to add more than 50 additional hard discounts. I talk a lot about the strengths of our hard-to-spot banners, but I'm also excited about our opportunities in our supermarket industry. Let me give you an example.
Bear Secondary: Canadians remain very focused on value and our <unk> continue to outperform.
Bear Secondary: We are building on last year's momentum.
Bear Secondary: Our plan for more conversions, plus net new stores to add more than 50 additional hot discount stores.
Bear Secondary: I talk a lot about the strength of our hottest call panels, but I'm also excited about opportunities in our supermarket Division <unk>.
Per Bank: We have brought together all our superstores nationally under the leadership of Frank Gambioli. We will now operate 180 larger format stores across the entire country, from coast to coast, leveraging the success of our Western Real Canadian Superstores with better scale, better support, and more consistent customer offers, while also working on improvement to our right-hand side of merchandise. This is just the beginning.
Bear Secondary: To give you. An example, we have brought together all our superstars nationally under the leadership of Frank can be OLED. We will now operate 180 large format stores across the entire country from coast to coast leveraging the success of vessel.
Bear Secondary: Of our vessel real Canadian Superstore us with better scale, better support and more consistent customer office, while also working on improvements to our right hand side of merchandising.
Per Bank: We'll have a few test doors ready in the fall, and depending on the results, we'll evaluate how to bring these learnings to the rest of the store. This will help us to offer even more value and selection to consumers, driving more traffic and sales to these great stores. Across the board, we continue to build on the strength of our assets and opportunities to drive our business forward, and we will be bringing even more excitement to all our stores.
Bear Secondary: This is just the beginning.
Bear Secondary: You'll have a few test Australia in default and depending on the response, we'll evaluate how to bring these learnings to the rest of the stores. This will help us to offer even more value and selection to consumers to drive more traffic and sales to these great stores.
Bear Secondary: Across the board, we continue to build on the strength of our assets and opportunities to drive our business forward.
Bear Secondary: And we will be bringing even more excitement to all our stores I look forward to sharing more details of these new programs as the year progresses.
Per Bank: I look forward to sharing more details of these new programs as the year progresses. I'm pleased with the performance of our digital business in the quarter. As Richard mentioned, our online sales increased by 16%. That's the highest level in two years.
Bear Secondary: I am pleased with the performance of our digital business in the quarter as Peter mentioned, our online sales increased by 16%.
Bear Secondary: Highest level in two years.
Per Bank: We continue to enhance our customer experience and differentiate ourselves by offering more choice and flexibility. Turning to pharmacy, we delivered another strong quarter in shoppers and pharma pre-stores, primarily led by the Strengthened Front Store, where we were able to deliver same-store sales growth on top of double-digit growth last year. That continual strength was again led by our beauty business and the strong cough and cold season. Our produced beauty categories again delivered high single-digit growth.
Bear Secondary: We continue to enhance our customer experience and differentiate ourselves by offering more choice and flexibility.
Bear Secondary: Turning to pharmacy, we delivered another strong quarter and shovels and pharma Crystal was primarily led by strength in <unk>, where we were able to deliver same store sales growth on top of double digit growth last year.
Bear Secondary: Is that continuing strength was again led by our beauty business and a strong cough and cold season.
Bear Secondary: Our prestige beauty categories again delivered high single digit growth in pharmacy, our associate owners and the teams are playing an increasingly important role in serving the health needs of Canadians and we continue to be a preferred destination for Canadians looking for help managing their complex needs.
Per Bank: In Pharmacy, our associate owners and their teams are playing an increasingly important role in serving the health needs of Canadians, and we continue to be a preferred destination for Canadians looking for help managing their complex needs. I wanted to share a powerful example of how skill and scale come together to highlight our value to consumers and help to grow our business. At Shoppers, our beauty customers are already well represented amongst our most loyal PCOptimum customers.
Bear Secondary: I wanted to share a powerful example of how scaling scale from to get us to highlight our value to consumers and help to grow our business at Chavez our beauty customers.
Per Bank: Already well represented amongst our most loyal PC optimum customers.
Per Bank: So two months ago, our beauty specialist launched a campaign to highlight the power of PC Optimum and our PC MasterCard to the rest of their clients. This message resonated really well, generating thousands of applications for a new PC Optima Mastercard and higher than average conversion rates. Speaking of PG Finance, the bank also had a strong start to the year. Richard highlighted our double-digit sales... But our mobile services business actually grew faster than our credit card business in the quarter.
Per Bank: Two months ago, our beauty specialist launched a campaign to highlight the power of PC optimum and our PC Mastercard to the rest of their clients. This.
Per Bank: This message resonated really well January thousands of applications for a new PC optimum octagon and higher than average conversion rate.
Per Bank: Speaking of <unk> financial the Bank also had a strong start to the year Richard highlighted our double digit sales growth, but our mobile services business actually grew faster than our telecom business in the quarter.
Per Bank: The launch of No Name Mobile is just another example of us using our scale and scope to provide everyday value to Canadians. Looking ahead, our focus remains on our strategic pillars of retail excellence, driving growth, and investing in the future, while at the same time embedding ESG into everything we do. This year, you'll see our investment build. With our investment, you'll see us building even more new stores, including over 20 shoppers drop marts. Behind the scenes, we're also investing in focused initiatives to drive positive environmental and social change. I would like to share a couple of examples that I'm particularly proud of.
Per Bank: A lot of no name mobile is just another example of us using our scale and scope to provide everyday value to Canadians.
Bear Secondary: Looking ahead, our focus remains on our strategic pillars of retail excellence driving growth and investing in the future while at the same time embedding DHT into everything we do.
Per Bank: This year, you will see our investment built.
Per Bank: With our investments, you'll see us building, even more new stores, including over 20 show by swap months behind the scenes. We're also investing in focused initiatives to drive positive environmental and social change I.
Per Bank: I would like to share a couple of examples and I'm, particularly proud of.
Per Bank: As of year-end 2023, we achieved an 11% reduction in Scope 1 and 2 carbon emissions towards our net zero target. As part of our carbon plan, we have entered into a renewable energy plan to eliminate carbon emissions from electricity purchases in Versa. And we rolled out our first 40, 14 heavy-duty fully electric transport trucks. And I recently had the opportunity to drive one of these vehicles, and they are very impressive, and I must admit I had a bit of fun there.
Bear Secondary: As of year end 2023, we achieved an 11% adopting new scope, one and two carbon emissions towards our net zero target.
Per Bank: As part of our carbon plant, we have entered into renewable energy plan to eliminate carbon emissions from electricity purchases in Brazil, and we rolled out our first 40 14 heavy duty fully electric transport trucks, and I recently had the opportunity to drive in one of these vehicles and they're very impressive and I must admit.
Per Bank: Had it been upon that.
Per Bank: On food waste, we diverted more than 78000 metric tons of food waste up 20% from last year.
Per Bank: On food waste, we diverted more than 78,000 metric tons of food waste, up 20% from last year. Our disability centers and each of our food and drug retail stores now have an individual partnership with a food recovery program to make sure that good food goes to people in need, and we reduce the waste into landfills. Today, we publish our 17th Annual EG report. I hope you find it useful.
Per Bank: Distribute in centers in each of our food and drug retail stores now have an individual policy with a food recovering program to make sure.
Per Bank: Good food goes to people in need and we reduced our waste into landfills.
Bear Secondary: Today, we published our 17 annual ESG report I hope.
Per Bank: I hope that you will take the time to review the details of these and the many other exciting and important initiatives that we have underway. We will now open it for questions. Thank you. Thank you very much, Per. Larry, can I ask you to introduce the Q&A process?
Per Bank: That you will you'll take the time to review the details of these and the many other excitement and important initiatives that we have underway.
Larry: We'll now open it for questions. Thank you thanks, very much per and Laura can I ask you to introduce the Q&A process.
Per Bank: Okay.
Operator: Sorry, we can't hear you, Lara.
Speaker Change: Sorry, we can't hear you layer.
Lara: Apologies I was on mute.
Operator: Apologies, I was on mute. All right, everyone, ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star, followed by the number one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Should you wish to decline from the polling process, please press star, followed by the number two. If you are using a speakerphone, please lift your hands up before pressing any key. One moment, please for your first question. Our first question comes from the line of Irene Nattel from RBC Capital Markets.
Larry: Everyone, Ladies and gentlemen, you will now begin the question and answer session.
Speaker Change: A question. Please press star followed by the number one on your Touchtone five you'll hear with you Tom Tom that's not liking the request did you receive.
Operator: A decline from the pooling. Please press star followed by the numbers too.
Speaker Change: Please go ahead.
Operator: Helen please lift the handset before pressing.
Operator: One moment. Please for your first question.
Speaker Change: Our first question comes from the line of Ivy Natal from RBC capital markets go ahead. Please.
Irene Ora Nattel: Thanks and good morning everyone. I was wondering if you could please give us a little bit more detail on what you're seeing in terms of consumer spending patterns, you know, trade down, promotional penetration, and also sort of discretionary spending, more discretionary versus less discretionary items. What are you seeing there, please?
Irene Ora Nattel: Thanks, and good morning, everyone.
Irene Ora Nattel: I was wondering if you could please give us a little bit more detail on what youre seeing in terms of consumer spending patterns.
Irene Ora Nattel: Trade down promotional penetration.
Irene Ora Nattel: And also sort of discretionary more discretionary versus less discretionary items, what youre seeing there. Please.
Per Bank: Yeah, thank you, Irene. I think we are seeing more of what we have seen over the past half year. So customers continue to look for value. And what we have offered them in the course of extra promotions, whether it's our greater no-name promotion at the beginning or some of the other initiatives that we are doing, customers are turning into buying more into our promotions. So we are getting more value, and that's actually across the whole piece.
Speaker Change: Yes. Thank you I mean I think.
Per Bank: We are seeing more off what we have seen over the past half year. So so customer that they'll continue to look for value.
Speaker Change: Well, we have all four of them in the quarter of extra.
Per Bank: Extra promotions, whether it's.
Per Bank: Our grades in O&M promotion at the beginning of some of the other leases that we are doing customer, they're turning into buying more into into our promotions. So we're giving them more value and thats actually across the piece, it's both in our shoppers and our silver and in our market Division plus and on also so customer they are acting kind of the same everywhere.
Per Bank: It's both in our shoppers, in our super, and in our market division, plus in our no-sales. So customers are acting kind of the same everywhere. But when that's said, we are seeing that customers are voting with their feet, and they are going even more into our hard discount stores. So I think that's more of the same as we have seen before.
Per Bank: This is Seth we are we are seeing that customer if they are they're voting with their feet and they are growing even more into into our hottest gone stores. So so I think thats small is the same as we have seen before.
Speaker Change: That's great. Thank you and presumably private label continues to grow more rapidly than national brands.
Per Bank: That's great, thank you. And presumably, Private Label continues to grow more rapidly than National Brands? I think what we will see this year is that I expect both the national...
Per Bank: I think what we will see this year is that I expect both the national brand and the control brand to grow at the same pace because we have started some new initiatives where the brands are getting a little bit more focused. But when customers want to mitigate their own inflation, that's when we see that they're buying into our control brands, they're buying more on promotions, and they're shifting to discounts. But overall, I think this year we'll probably see that they're moving at the same pace because we are happy with the level that we're seeing.
Per Bank: Thank robin you'll see this year is that I expect that both the national brand and controlled manner.
Per Bank: So with.
Per Bank: But at the same pace because we have we have started some new initiatives, where the brands are getting a little bit more focused but.
Per Bank: But when customers they want to mitigate their own inflating. That's when we are seeing that they are buying into our into our control brands theyre buying more on promotions and their ships into today's call, but overall I think this year, we'll probably see that they are moving at the same pace because we are happy with the level that we are that we see.
Speaker Change: Sorry, I was on mute.
Per Bank: Sorry, I was on mute. Just switching gears for a moment. Code of Conduct, a lot of discussion recently. Still wondering if you could please just update us on where you stand at this point and how we should expect it to proceed. Yeah, I think we might have a bit of an issue
Per Bank: Just switching gears for a moment code of conduct a lot of discussion recently, so wondering if you could please just update us on where you stand at this point.
Per Bank: And how we should expect it to proceed.
Per Bank: Yeah, I think we might have a bit of a... A new perspective Here Because our teams have been working closely with the committee over the past weeks, and I think the code is beginning to get into a place where I'm starting to become cautiously optimistic. Where it's going to land, you know, I'm, of course, not sure, but I'm more optimistic now than before that we can land an agreement on the coast.
Speaker Change: Yes, I think we might have a bit of.
Per Bank: New perspective because.
Per Bank: Our teams have been working.
Per Bank: Working closely with the committee over the past weeks.
Per Bank: The code is beginning to get into.
Per Bank: Into a place where.
Per Bank: I am starting to become cautious optimistic we're going to land.
Per Bank: It's not not sure but.
Per Bank: Martin optimistic now than before that we can learn and agreement on that on the quote.
Speaker Change: That's great. Thank you.
Per Bank: Thank you. Our next question comes from the line of Mark Petrie from CIBC go ahead. Please.
Mark Robert Petrie: Thank you. Our next question comes from the line of Mark Petrie from CIBC. Go ahead.
Mark Robert Petrie: Good morning. First, on gross margin performance, could you just talk about the relative performance in food, and then when it comes to the favorable mix at shoppers, is that really beauty outperforming and food underperforming?
Mark Robert Petrie: Hey, good morning.
Mark Robert Petrie: First on the gross margin performance could you just talk about the relative performance in food and then when it comes to the favorable mix at shoppers is that really beauty outperforming in food underperformance.
Richard Dufresne: No, I think what we're seeing is essentially our... What's happening is our trading margin is more or less flat, and shrink is getting better. That's the key thing, and that's what you should expect to continue to see in Q2, because Q2 last year was our quarter of peak shrink. So that's what's driving gross margin mostly.
Speaker Change: No I think I think what we're seeing is essentially the R.
Richard Dufresne: What's happening is our trading margin is more or less flat and shrink is getting better. That's that's the key thing and that's what you should expect to continue to see in Q2, because Q2 last year was our quarter of peak shrink. So that's what's driving gross margin mostly.
Richard Dufresne: Yeah, understood. And it was stable in food, is that fair?
Speaker Change: Yeah understood and it was stable in food is that fair.
Richard Dufresne: Uh, it was better than food. The gross margin was better in food, and shrink improved in food. Like what we said to the market is, we expect the shrink to improve by about 20 basis points this year on top of the flat trading margin. And if you look at year over year, we're already at 16 basis points in Q1, so we're well on our way to delivering on our shrink improvement targets for 2024.
Richard Dufresne: It was better in food.
Richard Dufresne: Okay, Okay with better gross margin was better than food and shrink improved and so we'd like.
Richard Dufresne: What we've said to the market as we expect the shrink to improve by about 20 basis points. This year on top of flat trading margin and if you look at year over year, though we're already at 16 basis points in Q1, So we're well on our way to deliver on our shrink improvement for 2024.
Speaker Change: Okay helpful. Thank you.
Per Bank: And Per, I know you have plans for the right-hand side of the... Page PAGE of NUMPAGES www.verbalink.com, Realistic timing for right-hand side to become a. Yeah, I think it's a good question and I have, while I have high ambitions, I'm cautious to promise a lot, especially in this meeting, but we will see the first three stores no later than end of Q3, at least that's our plans right now, so three test stores, and before then we'll probably do some quick wins and roll some initiatives out at the right hand side of the stores, but it's still early days and we have some of the quick wins in one or two stores now, so we are starting to see the results that I expected to see, but I think it's good to save a bit till later so we can continue to improve our numbers, https://www.perbank.com [inaudible] Let me, let me just
Speaker Change: I know you have plans for the right hand side of the store, but could you just give us a sense of the timing on when we should expect to see some of those changes.
Per Bank: And what do you think is realistic timing for right hand side to become a tailwind to the food retail same store I think it's a it's a good question and I have a while I have high ambitions I am cautious to promise a lot in there.
Per Bank: Especially in this meeting, but we would see the first three stores no later than end of Q3 at least that's our that's our plans right now so three test stores and before then we would probably do some quick wins in row, some initiatives out at the right hand side of the stores, but it's still early days and we have.
Per Bank: Some of the quick wins and we wanted to install US now. So we are starting to see the results that I expected to see about that but I think it's good to to save a bit too late so we can continue.
Per Bank: To improve our numbers.
Speaker Change: Yeah Okay.
Speaker Change: And maybe for Richard.
Per Bank: Can you quantify or help us sort of frame what you expect the impact to be of the exit of electronics in and shoppers.
Per Bank: On both same store sales growth and margin.
Per Bank: Let me just say it's a few hundred million dollar business. That right now is declining, hot like double-digit now because we're slowly exiting it.
Speaker Change: Let me let me just say its a few hundred million dollar business. That's right now is declining.
Per Bank: By double digits, because we're slowly exiting and so on.
Mark Robert Petrie: Okay, perfect, helpful, and I'll pass the line. Thanks, all the best.
Speaker Change: Okay perfect that's helpful and.
Speaker Change: I'll pass the line thanks, all the best.
Speaker Change: Thank you.
Michael Van Aelst: We have our next question coming from the line of Michael Van Aelst from TD Securities.
Mark Robert Petrie: Our next question coming from the line of Michael Van <unk> from TD Securities go ahead.
Michael Van Aelst: Hi, good morning. Strong performance on the food same-store sales, but I want to focus on just the front store on drugs. I'm just trying to, you know, combine everything that you said, but you talked about cosmetics and beauty in general being stronger. Is it actually, is it just staying strong and kind of moving sideways? Or is it actually still growing? Was that what you were saying about growing high signal digits?
Speaker Change: Hi, good morning.
Michael Van Aelst: Strong performance on the on the food same store sales, but I want to focus to start on just on the.
Michael Van Aelst: The French door on drag to that.
Michael Van Aelst: I'm just trying to.
Michael Van Aelst: Combine everything that you said, but.
Michael Van Aelst: You talked about the cosmetics and beauty in general being stronger is it.
Michael Van Aelst: Just staying strong and kind of moving sideways.
Michael Van Aelst: Or is it actually still growing or is that what you were saying it was growing high single digits.
Per Bank: It's staying strong, Mike. That's the best way to characterize it. And I mentioned in my remarks that we are now starting to see cough and cold starting to revert back to normal. So we'll see over the next few months how that goes, but we started to see that over the last few weeks.
Speaker Change: That's it's staying strong Mike that's the best way to characterize it and I mentioned in my remarks that the whereas network. We now start to see golf in coal starting to like revert back to normal. So we will see over the next few months how that goes but we started to see that over the last last few weeks.
Michael Van Aelst: Okay, so a pair made a comment that something was growing in high single digits. I think what it was
Speaker Change: Okay. So paramount a comment something was growing high single digits.
Speaker Change: What was that.
Speaker Change: Sorry, Mike I missed the question if that works that way.
Per Bank: Sorry, Mike, I missed the question. That was the beauty. Yeah, that was the beauty, yeah. That was the beauty. So you are right. So, generally, the beauty category is actually going over and above the food category, which it has done in the past, and that's also what we predict going forward. And with higher margins in that part of the store, we are very pleased.
Per Bank: Yes that was the beauty. So you are right. So so so dana in the beauty category is actually growing our open up off the food, which it has done in the Boston. That's also what we predict going forward.
Per Bank: And with the.
Per Bank: We had higher margin investment.
Per Bank: So we are very pleased with that.
Michael Van Aelst: Okay, so what are the offsets to the strong performance and beauty? The two offsets were cough, bone flu, and electronics. And were there others?
Speaker Change: Okay. So what the offsets to the strong performance in beauty.
Michael Van Aelst: It was the two offsets were cough cold and flu in electronics or are there others.
Michael Van Aelst: Food and also there is a bit negative too Mike.
Michael Van Aelst: Okay.
Michael Van Aelst: Right. On e-commerce, the 16% growth was staying pretty strong. One of your peers said that it was that they thought the food industry was growing at a flat rate compared to any other industry, but the three of you are all delivering some decent growth. So what are you seeing on e-commerce in food? And is it more in your discount banners versus your conventional banners?
Michael Van Aelst: Great.
Michael Van Aelst: On the e-commerce, the 16% growth.
Michael Van Aelst: I was staying pretty strong.
Michael Van Aelst: One of your peers said that they thought the crude industry was growth was flat.
Michael Van Aelst: Any commerce, but the three of your all.
Michael Van Aelst: Delivering some decent growth. So what are you seeing on e-commerce and food.
Michael Van Aelst: Is it more than your discount banners versus your conventional banners.
Per Bank: So we are seeing that overall online shopping is up 16%. Beauty is up a bit more, and food is up a bit less. So food is still up double digits. And if I look at the contribution of our food online, it's almost 15 to 20% of our total growth in the food sector. So it's a good contribution that we have. But no, it's not a harder discount. It's just as much from the normal channels that we have.
Michael Van Aelst: So we are seeing that the overall on an online is up 16%. The beauty is off a bit more in food as it's up a bit less so so food is up still.
Per Bank: Still double digit and if I look at the contribution of our food online. It's it's almost <unk>.
Per Bank: 15% to 20% of our total growth in the food sector. So it's it's good it's a good contribution to.
Per Bank: That we have but no it's not it's not more hot discounted say smartphone from the non attainment that we haven't as you know that we are also offering a food online from our hottest down from a conventional in pharma are still with us and we've been seeing I seem to say makes that most of <unk>.
Per Bank: And as you know, we are both offering food online from our hard discount or from our convention and from our superstores. And we are still seeing the same mix that most of the shops are being picked up in our stores. So it's still clear and correct that matters the most, which, of course, we are really happy. It's a meaningful contribution.
Per Bank: Most of the shops are being picked up in our store so still a clear and collect that that made us the most which of course, we would be really happy with.
Per Bank: So meaningful contribution.
Per Bank: So why is it that PCX is up a lot? And what we call Marketplace, Instacart, and DoorDash are up double digits. But the big, big growth, like really big, is PCX delivery. That's where we're getting like... triple digit growth.
Per Bank: Yes.
Speaker Change: Got it.
Per Bank: And pick up this flat <unk> is up a lot.
Per Bank: And what we call market placements that garden indoor dash are up double digit.
Per Bank: But the big Big growth like Big <unk> delivery, that's where we're getting late.
Per Bank: Triple digit growth.
Michael Van Aelst: Okay, so triple digit growth in PCX. I think I cut you off at one point, but then you said some growth in third parties as well. Yeah, not as much.
Per Bank: Okay. So triple digit growth in PCA actually I think I cut you off at one point, but then you said.
Michael Van Aelst: Some growth in the third parties as well, though not as much not to the same extent, but yes. Okay. So why aren't we seeing better growth and discount e-commerce versus conventional ecommerce.
Per Bank: Not to the same extent, but yes.
Michael Van Aelst: Okay, so why aren't we seeing better growth in discount e-commerce versus conventional e-commerce given the health of the consumer?
Michael Van Aelst: Given the health of the consumer.
Michael Van Aelst: Because I think we are not focused as much on ecommerce and desktop discount as the discount is no shows and it's primarily in the biggest source, where we can cope with with peaking at repeating install so for me it's more a play in that in the market in <unk> and you also see that around the world It's not a.
Per Bank: because I think we are not focused much on e-commerce and discount. It is a retail business. There's no frills, and it's primarily in the bigger stores where we can cope with picking in stores. So for me, it's more a game in the market and in the super stores, and you also see that around the world. There are not a lot of discounters doing it, but we are picking up, and we are doing better, but it's still relatively small in the discount part.
Per Bank: A lot of these costs doing it but we are seeing in northern we're doing doing better, but it's still it's still relatively small in the discount card.
Speaker Change: Okay, great. Thank you very much I'll pass it on.
Michael Van Aelst: Thank you very much. I'll pass it on.
Michael Van Aelst: Okay.
Tamy Chen: Thank you. Our next question comes from the line of Tamy Chen from BMO. Go ahead, please.
Michael Van Aelst: Thank you. Our next question comes from the line of Kenny Chang from BMO go ahead. Please.
Tamy Chen: Hi, good morning. Thanks for the question.
Tamy Chen: Hi, good morning, Thanks for the question.
Tamy Chen: I wanted to ask how are you driving this.
Tamy Chen: I wanted to ask, how are you driving this? What would you call out as the biggest game-changers because it doesn't appear to be at the expense of food margin? As you said, your trading margin is flat, but you mentioned there's more uptake of your promotion. So I would still think that would translate to some impact on your trading margin. So I'm just trying to understand how it seems you're striking a balance, a good balance between both good tonnage, but it's not coming at the expense of
Tamy Chen: And then what would you call out as the biggest game changer, because it doesn't appear to be at the expense of food margin. As you said you're trading margin is flat, but you mentioned theres more uptake of your promotion. So I would still say that would translate to some impact on your trading margin. So I'm just trying to.
Tamy Chen: Understand.
Tamy Chen: You are striking a balance a good balance between good tonnage, but it's not coming at the expense of margin I think thats.
Per Bank: I think that we can congratulate our great buyers for achieving some good promotions with still some decent margins, because you're absolutely right, some of our promotions are driving a lot of growth, but still remember in the beginning of the year we had a great no-name campaign and customers, they loved our no-name campaign and buying more into those even though that was not driven by promotions, so again I think I said it before, I would love to get more support for our CPGs, our suppliers, because they do have money to invest and many of them are also looking for volume, so we have some good strategic partnerships with them that does help both us and them.
Tamy Chen: Congratulate our grade bias for achieving some.
Per Bank: Some good good promotions, which we sell some some decent decent margins because you're absolutely right. Some of some of our promotions are driving a lot of lot of growth, but still remember at the beginning of the year, we had a great no name campaign and customers.
Per Bank: A lot of our new name.
Per Bank: Campaign and buying more into those even though that that was not driven by by promotion. So again, I think I've said, it before and I would love to.
Per Bank: To give more support for our CPG suppliers because they are they do have money to invest in many of them. They are also looking for a volume. So so we have some good strategic partnerships with them.
Per Bank: Does help both us and them.
Per Bank: Okay got it and.
Per Bank: Okay, got it. And with respect to the trade down by the consumer, would you say at this point the degree that they've shifted into discount has stabilized? Or are you still seeing right now, every period as we go through, just still more and more are going into this? Yeah, let's see. It's difficult to predict the future, but actually I...
Per Bank: With respect to the the trade down by the consumer would you say at this point the degree that they've shifted into discount has stabilized or are you still seeing right. Now every period as we go here.
Per Bank: More and more alright going into bed count.
Per Bank: Yeah, let's see. It's difficult to predict the future, but I will probably see that it's going to continue, but at a slower pace than before. But I think the shift to discount will continue over the next many years, like it has done in probably any other country where discount is a dominant factor.
Per Bank: Let's see we are difficult to predict the future, but actually I would probably see that it's going to it's going to continue but continue.
Per Bank: But at a slower pace than before but I think I think the shift to discount will continue over the next many years like it has done in.
Per Bank: And probably any other country.
Per Bank: <unk> is a dominant factor.
Speaker Change: Got it thank you.
Per Bank: Yeah.
Per Bank: Thank you. Our next question comes from the line of Vishal <unk> from National Bank go ahead. Please.
Vishal Shreedhar: Thank you. Our next question comes from the line of Vishal Shreedhar from National Bank. Go ahead, please.
Vishal Shreedhar: Hi Richard, in the past, you've segmented shoppers' EBITDA for us on the calls from time to time. That's very useful. I'm wondering if you could help us understand the health care services piece within drug retail revenues. How large is that portion of drug retail sales?
Vishal Shreedhar: Hi, Richard in the past, you've segmented shoppers that EBITDA for us on the calls from time to time.
Vishal Shreedhar: That's very useful I'm wondering if you could help us understand the health care services piece within drug retail revenues, how large is that portion of the revenue comes down.
Richard Dufresne: Hi Vishal, good morning. We don't want to share that for obvious reasons, but we're very happy with the growth in services, and so that continues to be a growth vector for us.
Vishal Shreedhar: Hi, good morning, Michelle.
Richard Dufresne: We don't want to share that.
Richard Dufresne: For obvious reasons, but like we're very happy with the growth in services and so that continues to be continues to be a growth vector for us.
Richard Dufresne: Okay, a higher margin, a higher margin growth factor, correct? Yes, yes.
Speaker Change: Okay, sorry, the higher margin higher margin growth factor correct, yes, yes.
Richard Dufresne: Okay.
Vishal Shreedhar: Um, you delivered 0.3% square footage growth in the quarter. I'm wondering how you see the mix of square footage growth between drug retail and food as that number accelerates? Looking forward? Yeah.
Richard Dufresne: You delivered 3% square footage growth in the quarter wondering how you see the mix of square footage growth between drug retail and in food.
Vishal Shreedhar: Is that number accelerates that looking forward, yes, this year, though.
Richard Dufresne: Yeah, this year, though, it's... Think about in terms of new stores. We're talking 40 plus new stores, 20-ish shoppers and balanced food. And on top of that, we've got conversion, which we refer to as network optimization. So that was what I was referring to in RSG&E, because 2024 is more or less the last year that we'll have a large network optimization program, so that's why you see some noise in RSG&E during the quarter.
Richard Dufresne: Think about like in terms of.
Richard Dufresne: New stores, we're talking 40, plus new store 20 ish shoppers in the balanced food and on top of that we've got that we've got conversion, which we referred to as network optimization. So that was what I was referring to in our journey because 2024, it's more or less the last year that.
Richard Dufresne: We will have a large network optimization program. So that's why you see some noise in our journey in the in.
Richard Dufresne: In the quarter.
Speaker Change: Okay. Okay. So we should think of square footage growth be more biased towards food in 2024, that's correct.
Richard Dufresne: Okay, okay. So we should think of square footage growth being more biased towards food in 2024. That's correct.
Richard Dufresne: Yes, because food stores are bigger than shoppers, so yes.
Richard Dufresne: Yes, because food stores are bigger the choppers or yes, okay and going forward as well.
Richard Dufresne: Okay, and I'm going forward as well.
Richard Dufresne: We'll talk about that next year when we're there.
Speaker Change: Well, we'll talk about that next year when we're there.
Richard Dufresne: Okay, can you isolate for us the impact on SG&A associated with these optimization initiatives?
Speaker Change: Okay can you isolate for us the impact on SG&A associated with the optimization.
Richard Dufresne: <unk> initiatives.
Richard Dufresne: It's like it's like it's not okay, but it's like it's not insignificant like it's more than it's more than 10 million dollars.
Speaker Change: It's like it's like it's no okay, but it's like it's it's not insignificant.
Richard Dufresne: It's more than that it's more than $10 million.
Richard Dufresne: Okay and could you highlight for us the impact of right hand side on the comp.
Richard Dufresne: Okay, and did you highlight for us the impact of the right hand side on the comp?
Speaker Change: Yes, yes, yes, yes, 66 basis points.
Richard Dufresne: Yeah, yeah, yeah, 66 basis points. Hopefully, over time, we can switch that around. That's the plan. Absolutely.
Richard Dufresne: Okay.
Richard Dufresne: Over time, we can switch that around.
Richard Dufresne: That's the plan absolutely.
Speaker Change: Okay. Thank you.
Richard Dufresne: [inaudible]
Speaker Change: Thank you.
Richard Dufresne: Our next question coming from the line of George <unk> from Scotiabank go ahead. Please.
Speaker Change: Yes, hi, good morning, Richard just a follow up to the SG&A discussion. It was 6% inflation I think you mentioned.
Speaker Change: Some onetime time or is there maybe if you can help us Richard unpack that just to get a good sense of maybe what the run rate could be for the for the rest of the upcoming quarters.
George Doumet: Thank you. We have our next question coming from the line of George Doumet from Scotiabank. Go ahead, please.
Speaker Change: Thank you for asking that question, because we said at the beginning of the year, we expect our SG&A rate to be flat and that is still the plan. The reason I feel confident about that is we've got some tailwind in the second half of the year, which will allow us to offset what we're going to be facing in the first half. So that's how I would characterize.
George Doumet: Follow-up to the SG&A discussion, it was 6% inflation. I think you mentioned some one-time timers there. Maybe if you could help us, Richard, unpack that, just to get a good sense of maybe what the run rate could be for the rest of the upcoming quarters.
Richard Dufresne: Thank you for asking that question. Because we said at the beginning of the year that we expected our SG&E rate to be flat. And that is still the plan. The reason I feel confident about that is we've got some tailwind in the second half of the year which will allow us to offset what we're going to be facing in the first half. So that's how I would characterize SG&E for the year.
Speaker Change: As Jenny.
Richard Dufresne: Four four.
Richard Dufresne: For the year.
Speaker Change: Okay understood and Richard arrived we put up a 11% EPS growth for Q1.
George Doumet: And Richard, you put up 11% EPS growth for Q1, and your annual guidance calls for high single digits. So we're early in the year, I get it, but maybe any areas that you have pointed out that perhaps could see a deceleration as the year progresses?
Richard Dufresne: Annual guidance calls for high single digits.
Richard Dufresne: So we're early in the year I got it but maybe any areas that you appointed the perhaps could see a deceleration.
Richard Dufresne: The year as the year progresses.
Richard Dufresne: What we continue to say, George, is that we feel confident that we're going to be hitting EPS within our framework, 8-10%, and that continues to be the plan.
Richard Dufresne: And what we've continued to say George is that we feel confident that we're going to be hitting EPS within our framework, 8%, 10% and that continues to be the plan.
George Doumet: Okay, just a final one for me on the capital gains changes recently announced. Should we think of any changes at all to maybe land sales or George Weston activities as a result of all that?
Speaker Change: Okay, and just a final one for me.
George Doumet: On the capital gains changes recently announced should be thinking of any changes at all maybe land sales are more towards the western activity as a result of all of that.
Richard Dufresne: Not, not really. Like, it's pretty, it's pretty... It's pretty minimal, the impact on this. Okay, thanks for your answers, all.
Speaker Change: Not not really like it's pretty it's pretty.
Richard Dufresne: It's pretty minimal the impact on the on this.
George Doumet: Okay, thanks for your answers. I'll pop the line.
Speaker Change: Okay. Thanks for the answers offline.
Speaker Change: Thank you.
George Doumet: Okay.
Speaker Change: Thank you.
Christopher Li: Thank you. We have our next question coming from the line of Chris Lee from Digital Dunes. Please go ahead.
George Doumet: We have our next question coming from the line of Chris Lee from Baird. Please go ahead.
Christopher Li: Hi, good morning, everyone.
Christopher Li: Hi, good morning, everyone. My first question is, I think on the last earnings call, you mentioned that your food gross margin is still well below the pre-pandemic level. Is that mostly because of the mix towards discount and investment in pricing, and how to shrink? And then I guess a follow-up question to that would be, you know, as conditions normalize over the longer term, do you think there's a potential for food margins to return to the pre-pandemic level? Or do you expect it to be structurally lower going forward? Thanks.
Christopher Li: My first question I think on the last earnings call. You had mentioned that food gross margin is still well below the pre pandemic level is that mostly because of the mixed source discounting and investment in pricing and higher shrink and then I guess a follow up question to that would be you know as conditions normalize over the longer term do you think there is a potential.
Christopher Li: For food margin.
Speaker Change: Return to the pre pandemic level or do you expect it to be structurally lower going forward. Thanks, maybe maybe I can start to answer the last question and then we can take it from there I think that for us.
Per Bank: Maybe I can start to answer the last question and Richard can take it from there. We are going for a stable growth market, and then we want to grow the business because we want to take whatever we can negotiate on better terms and reinvest back into prices to give our customers more value, because that's what they need, and thereby grow the business. I think that's kind of... Strategy of it not to start with it to have it a lot more art and just because we
Per Bank: We are going for stable stable gross margin and then we want to grow the business because we want to take whatever we can negotiate a better terms and reinvest bag enterprises to give our customers more more value because that's what they need and thereby growing the business I think that's kind of.
Per Bank: The strategy.
Richard Dufresne: Not to stop to harvest a lot of margin just because we can.
Richard Dufresne: So, Chris, if we go back in history, we don't want to go back to pre-pandemic levels. If you remember, we got back into Loblaw, I guess, in the spring of 2021, and the result of our action was a significant improvement in the gross margin trend of the business. And so stability in gross margin continues to be our objective. Having said that, even in Q1, we have not reached the peak level of gross margin that we hit in, I think it was in Q2 of 21. So we're still below that.
Richard Dufresne: So Chris if we go back in history.
Richard Dufresne: We don't want to go back to pre pandemic levels, though if you remember.
Christopher Li: Okay, that's that's helpful. Thank you.
Christopher Li: We got back in Loblaw I guess in the in the.
Christopher Li: Spring of 2021.
Christopher Li: The result of our action was a significant improvement in the gross margin trend of the business and so stability in gross margin is continues to be our objective having said that like even in Q1, we have not reached the peak level of gross margin that we've we've hit then I think it was in Q2 of 'twenty one so we're still.
Christopher Li: Below that.
Speaker Change: Hi, Mark.
Speaker Change: Okay. That's helpful. Thank you and then maybe switching gears to the pharmacy clinics are you able to share with us how many pharmacy clinics that you opened this quarter and are you on track to open roughly about 140. This year, yes, I think we opened six so far year to date and yes. We are on track to do the 140 that we.
Christopher Li: And then maybe switching gears to the pharmacy clinics. Are you able to share with us how many pharmacy clinics you opened this quarter? And are you on track to open roughly about 140 this year? Yeah, I think we opened six so far yesterday. And yes, we are on track to do the 140 that we talked about last time.
Speaker Change: <unk> talked about it in the last last time, Yeah, Chris as you know real estate loan the winter, we don't open to many things so the way it starts to accelerate now so you're going to see that pick up over the coming months.
Christopher Li: Yeah, Chris, as you know, real estate in the winter, we don't open to many things, so it starts to accelerate now, so you're going to see that pick up over the coming months.
Christopher Li: And this might be a bit too early to say, but I think in the past you've mentioned that in Alberta, the clinics that you opened last year, you did see some notable halo impact on front store sales from those pharmacy clinics. I'm just curious to see, are you continuing to see that impact as you open more pharmacy clinics? And is that mature enough to actually help that we're seeing that in the front store sales numbers?
Christopher Li: This might be a bit too early to say, but I think in the past you've mentioned that.
Christopher Li: In Alberta, the clinics that you opened last year you did see some notable halo impact on same store sales.
Christopher Li: From those pharmacy clinics, just curious if you see us continuing to see see that impact as you open more pharmacy clinics, and then mature enough to actually help that.
Christopher Li: We've seen that in the front store sales number I think we'd have to get back to you on that exact number but.
Christopher Li: I think we'll have to get back to you on that exact number, but I haven't heard anything that we're continuing to see. These are all trailing over and above the others, but we will have to come back to you on that one.
Christopher Li: I haven't heard anything that we're continuing to see.
Christopher Li: The C store trading over and above above the others, but we will have to come back to you on that one.
Speaker Change: Okay, that's great and my last question more high level question.
Christopher Li: Okay, that's great. And my last question, a more high-level question for you. You guys obviously have a world-class loyalty program; a lot of investment has been made over the years to really enhance the personalization with target offerings. I guess my question is, as the stakes in the loyalty game continue to increase with new offerings by competitors, especially in Ontario later this year, what does the roadmap for PCOptimum look like over the longer term? What can members expect more than what they're getting?
Christopher Li: You guys, obviously have a world class loyalty program a lot of investment have been nail three years to really enhance personalization with target offerings. I guess my question is is that my question at the stake in the loyalty game continued to increase with new offerings by competitive, especially in Ontario, and later this year what does the roadmap for PC.
Christopher Li: Optimal look like over the longer term.
Christopher Li: <unk> members expect more than what they have done from.
Per Bank: We have taken two new tools, so internal names; we call them CDP and P13N. So Lauren and the team are much, much better this year than last year at doing some mass personalization for our customers. So our individual customers will get targeted offers, which is good for them and good for our business. So we are seeing the numbers that we have more digitally-engaged customers, which is driving some of the growth and also incremental growth. So we stay bullish on having one of the best loyalty programs and digital programs in the world right now. So we are going to do more of that, definitely. Thanks very much.
Christopher Li: You know we have we have taken two new tools. So internal names we call. It GDP E&P 13, and so so long and the team. They are much much better this year than last year to do some mass personalization to our customers. So all individual customers then will get targeted offers which is good for them and good.
Per Bank: For good for our business. So so we are seeing the numbers that we are having more digitally engaged customers, which is driving some of some of the growth and also incremental growth. So.
Per Bank: So we say we stay bullish on having one of the best loyalty program digital programs in the World right now so we're going to do more of that definitely.
Speaker Change: Great. Thanks very much.
Speaker Change: Thank you.
Operator: Ladies and gentlemen, just a reminder, should you have a question, please press star followed by the number one on your touchtone phone. We have our next question coming from the line of Mark Petrie from CIDC.
Speaker Change: Ladies and gentlemen, just a reminder.
Operator: You have a question. Please press star followed by the number one on your Touchtone phone. We have our next question coming from the line of Mark Petrie from CIBC. Please go ahead.
Mark Robert Petrie: Yes. Thanks.
Mark Robert Petrie: I just wanted to follow up. Obviously, hard discount is... you and an area of strength and growth. I know skew count is one of the key levers, concept or that channel in terms of driving efficiency. Talk about what you're seeing there, the potential for shifts in efficiencies. I know you've sort of had some, Curious if you're at the point where that's scalable through the rest of the network or how you're, Yeah, no, you're absolutely right.
Mark Robert Petrie: A follow up.
Mark Robert Petrie: Obviously hard discount is a key focus for you in.
Mark Robert Petrie: In areas of.
Mark Robert Petrie: Strength in growth and I know SKU count as one of the key levers within that concept or that channel.
Mark Robert Petrie: Driving efficiency could you just talk about what youre seeing there.
Mark Robert Petrie: The potential for shifts in efficiencies I know you are you sort of had some tests and just curious if youre at the point where.
Mark Robert Petrie: <unk>.
Mark Robert Petrie: Do you think that's scalable through the rest of the network or how youre sort of thinking about leveraging that.
Per Bank: I think that some of our hard discounts, if I have to be a little bit trivial to ourselves, we are running them a bit like supermarkets. So we can do it better, and I think we can make more efficiency gains in our hard discount stores. But for me, it's important to state that we will continue to put proportionally more labor into our produce and into our meat because Canadians love the great produce and meat that we are offering at our hard discount. So we will not be copying the German discounters there.
Mark Robert Petrie: Absolutely right I think that some of our hottest voluntary if I have to be a little trading to ourselves we are running a bit like like supermodel. So so we can we can we can do it we can do it better and I think we can take more efficiency.
Per Bank: Gains in our discount stores, but for me it's important to state that we are.
Per Bank: We will continue to put proportionately more labor into our projects and into a meat because Canadian talos degree they produce and meat. All said, we our thing and I'll hop is down so we would not be not be copying the German discounting is that we will do more of what we do already but trying to be more efficient and yes, I have a list of things that.
Per Bank: We will do more of what we do already, but we will try to be more efficient. And yes, I have a list of things that we can do and that we will do, and we will improve our efficiency, but I'm not that willing to share those with the world right now, something that's still sort of in the test. Yeah, we haven't even started yet, so we're not even seeing it yet. Because some of the initiatives that we want to plan take time, and I also need to be careful, because we have put in place a lot of new initiatives since I came on board, so we need to phase them in, so the business and the organization can cope with them, and I also need to have some good initiatives next year.
Per Bank: That we can that we can do and that we will do and we will improve our efficiency.
Per Bank: Not that willing to share those with the world right now.
Per Bank: So this is something that's still sort of in the testing and refining we havent, even we haven't even started yet so we're not even seeing it yet because some of the initiatives to improve on a plant. It takes time and I also need to prepare to be careful because we havent, even we have put in place a lot of new initiatives.
Per Bank: Since I came on board. So so so we need to face it and so the business in different states and can cope with it and I also need to have some good initiatives next year.
Speaker Change: Understood appreciate that thank you.
Per Bank: Yes.
Speaker Change: Thank you.
Roy MacDonald: There are no further questions at this time. I would now like to turn the call back over to Mr. MacDonald for his final closing comments.
Roy MacDonald: There are no further questions at this time I would now like to turn the call back over to Mr. Macdonald for final closing comments.
Macdonald: Thanks, very much thanks, everybody for your time. This morning, if you have any follow up questions call or drop me an email.
Roy MacDonald: Thanks very much. Thank you everybody for your time this morning. If you have any follow-up questions, call or drop me an email, and I'll ask you to mark your calendars for Thursday, July 25th, when we'll be releasing our Q2 results. Have a great day.
Roy MacDonald: And I'll ask you to Mark your calendars for Thursday July 25th to when we will be releasing our Q2 results have a great day.
Speaker Change: Thank you.
Speaker Change: Thank you ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a let me Doug.
Operator: Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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