Q2 2024 Loblaw Companies Ltd Earnings Call
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Speaker Change: Good morning, ladies and gentlemen, and welcome to Loblaw companies Limited second 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 are quiet and you get assistance. Please press star zero.
Operator.
This call is being recorded on Thursday July 25th tiny tiny for I would now like to turn the conference over to Mr. Roy Mcdonald. Please go ahead Sir.
Roy MacDonald: Great. Thank you very much Laura and good morning, everybody welcome to the Loblaw companies Limited second quarter 2024 results conference call as usual I'm joined this morning by peer Bank, our President and Chief Executive Officer, and by Richard Dufresne, Our Chief Financial Officer, So before we.
Speaker Change: 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 as anticipated future results.
Speaker Change: 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.
Speaker Change: These risks and uncertainties are discussed in the company's materials filed with the Canadian Securities regulator.
Speaker Change: Any forward looking statements speak only as the date they are made and the company disclaims any intent 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.
Speaker Change: Just to 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.
Pair: And with that I'll turn it over this morning's call to pair. Thank you Ryan good morning, everybody before we get to I'll call. It a performance I would like to touch upon the settlement of class action lawsuits that we jointly announced with George Weston Limited this morning.
Speaker Change: This matter of concern our involvement in an industry wide price spacing arrangement between 2001 and 2015 on certain packaged bread products.
Speaker Change: As a reminder, upon discovering the arrangement in 2015, we self reported immediately to the competition Bureau, and have been cooperating ever since we have apologized for this price patient behavior and reinforce the rigorous action taken at the time to address the issue, including overhauling how pricing is managed on <unk>.
Speaker Change: <unk> enhanced our compliance programs.
Speaker Change: These measures.
Speaker Change: Which remains in place today are industry, leading and include the establishment of an independent compliance officer reporting to the Loblaw Board of directors that has oversight of day to day compliance with laws and policies.
Speaker Change: Holding pricing practices.
Speaker Change: The settlement is subject to the Finalization of a binding settlement agreement with the plaintiffs lawyers and court approval.
Richard: I'll now turn the call to Richard So this cost per quarter.
Richard Dufresne: Thank you per and good morning, everyone.
Speaker Change: I will just add that we are pleased to be able to put this issue behind us at both loblaw and George Weston.
Richard: Over.
Speaker Change: In 2024, we are seeing the normalization of our retail business.
Speaker Change: They make a.
Speaker Change: Subsequent period of high global food inflation are now behind us.
Speaker Change: As we compare our performance this year versus last we see our same store performance slowing.
Speaker Change: At the start of 2023 food inflation was over 11%, it's now back to normal categories, like cough, and cold, which had been running at elevated levels for a while are stabilizing.
Speaker Change: We expect that this last year and as such built our 2024 plan to reflect normalization, while continuing to deliver our financial framework.
Speaker Change: Our second quarter results demonstrate that we continue to deliver steady operational and financial performance. Our performance continues to reflect our ongoing commitment to retail excellence and our continued focus to provide value to our customers.
Speaker Change: On a consolidated basis revenue grew by one 5% to $13 9 billion and adjusted EBITDA increased by four 5%.
Speaker Change: Adjusted diluted net earnings per share grew by 10, 8% to $2 15.
Speaker Change: On a GAAP basis, our net earnings declined by 10% or $51 million, reflecting.
Speaker Change: The impact of the charge related to the class action settlement.
Speaker Change: In terms of the financial details of todays announced settlement the incremental cash impact to the company is $156 $5 million plus related legal and professional costs all of which loblaw has taken as a charge this quarter.
Speaker Change: The remainder is comprised of $96 million previously paid out by the company under the Loblaw card program the.
Speaker Change: The company will fund the one time cash cost with cash on hand.
Speaker Change: First and most important this payments will not impact prices for consumers.
Speaker Change: Both loblaw and George Weston.
Speaker Change: These payments will not impact the company's currently disclosed financial outlook, its capital expenditures, including dividends and buybacks.
Speaker Change: Drug retail absolute sales increased two 4% and same store sales grew one 5%.
Speaker Change: Pharmacy and healthcare services grew same store sales by five 4% driven by broad strength in prescription and health care services are specialty acute and chronic prescription growth led our pharmacy numbers. Additionally, customers continued to respond very positively to the convenience and expanded level of.
Speaker Change: Primary care, we offer through our more than 2100 pharmacies across the country.
Speaker Change: Front store same store sales declined by two 4% lapping growth of 5% last year.
Speaker Change: Beauty continued to deliver strong growth.
Speaker Change: In particular across the prestige category.
Speaker Change: We are seeing the normalization of the front store business. After a few years of outsized growth.
Speaker Change: Remember that pre Covid, our front store same store sales growth averaged around 3%.
Speaker Change: Headwinds from lower spending on certain food and household items and our decision to exit certain electronics categories will impact front store comp expectations for the balance of the year that said, we remain pleased by the underlying strength and profitability of the front store and we expect improvement in same store sales.
Speaker Change: In Q3 and Q4.
Speaker Change: Overall drug retail sales growth continued to outperform food and have a positive impact on our margin mix in food retail we were lapping strong same store sales growth of six 1% last year.
Speaker Change: Q2 same store sales grew an additional 2% what absolute sales up 1%.
Speaker Change: At Loblaw, where we are committed to do our part to lower inflation in.
Speaker Change: In Q2, our internal inflation on food was in line with CPI <unk>.
Speaker Change: Canada food inflation was once again lower than overall inflation in this quarter in fact, it's been lower every month since February.
Speaker Change: If we look at our average article price data, which reflects the actual items purchased by our customers. Our actual inflation rate was much lower than CPI in the quarter, which aligns with our positive tonnage performance.
Speaker Change: The consumer shift to discount continues with our hard discount banners outperforming our conventional stores delivering strong results with solid tonnage growth and higher traffic. We remain very pleased with the success of our conversions and the ongoing success of our Maxi banner in Quebec.
Speaker Change: I know that many of you visit visited one of our new small format no frills in the quarter. It's still very early days, but we are very pleased with customer reaction.
Speaker Change: Looking ahead to Q3, we expect that another 20, new Maxi and no frills stores as we continue to bring more value to communities across the country.
Speaker Change: With that said across our banners, we delivered solid market share performance and our actual food tonnage increased in food retail discount continues to grow market share and our conventional stores are outperforming compared to their peers.
Speaker Change: Right and side at a negative impact on food same store sales of 87 basis points. These categories remain accretive to our gross margin and we continue to carefully manage inventory levels.
Speaker Change: Online sales in the quarter increased 14, 2% and delivery continues to outperform as a channel. We are very pleased with our online sales penetration.
Speaker Change: Across food retail our strong traffic and market share performance are a clear indication that our efforts continue to resonate with customers.
Speaker Change: More and more Canadians choose our store for value quality and service.
Speaker Change: That said as expected our food retail same store sales growth came in a little a little soft based on last year's performance.
Speaker Change: Looking ahead, our Q3 is off to a stronger start we are seeing improved same store sales performance and positive tonnage.
Speaker Change: Total retail gross margin was 32% growing 90 basis points.
Speaker Change: Continued progress in reducing shrink and higher drug retail margin due to sales mix mix drove our retail gross margin improvement this quarter food pricing was not a margin driver.
Speaker Change: We've continued our focus on reducing shrink and remain pleased with our momentum with both food and drug demonstrating strong improvements that said improving shrink remains a major focus and opportunity for us.
Speaker Change: Turning to SG&A, our spend rate as a percentage of sales increased 60 basis points, driven by lower operating leverage year over year impact of certain real estate activities and labor costs and costs related to network optimization or.
Speaker Change: Our teams continue to do a great job managing costs.
Speaker Change: Second quarter retail EBITDA increased by $62 million, yielding a margin of 12, 1%.
Speaker Change: We delivered strong performance at the bank PC financials revenue increased five 5% driven by growth in the credit card portfolio and strong services growth in our mobile shop. The bank's adjusted earnings before tax increased by $13 million with higher interest income and lower operating cost offsetting higher credit losses.
Speaker Change: We remain very comfortable with the risk profile of the bank's portfolio. We continue to take a conservative position in our provisioning with a strong and well capitalized balance sheet.
Speaker Change: On a consolidated basis adjusted EBITDA increased by four 5% to $1 71 billion.
Speaker Change: Our retail free cash flow was $475 million, and we repurchased $482 million worth of common shares.
Speaker Change: Our balance sheet remains strong and we continue to improve our key retro return metrics in the quarter Loblaw credit rating was upgraded to triple B plus with.
Speaker Change: S&P, citing the diversity and resilience of our operating performance.
Speaker Change: Our return on equity sits at 23, 1% and our return on capital at 11, 6%.
Speaker Change: As we look ahead to the second half of the year and specifically Q3, we remain confident in our ability to deliver our financial framework and our EPS targets.
Speaker Change: Q3 is off to a good start on both sales and market share and gross margin should continue to benefit from our shrink improvement.
Speaker Change: Our focus on new stores is gaining traction more are coming soon and we are already hard at work on our plans for 2025, I'll now turn the call back over to Pierre Thank you Richard.
Pierre: We began this year with strong momentum in our food and drop business in the first quarter, we delivered higher customer visits and growth in total units sold.
Speaker Change: Customer additions continued to grow across our business in the second quarter as our commitment to provide value quality and service continues to be recognized by our customers.
Speaker Change: Canadians remain focused on value.
Speaker Change: The shift to discount continuous sales growth and I'll hop discount banner again outperformed our conventional bonus we're pleased to see our internal inflation declined for the sixth consecutive quarter.
Speaker Change: This is hoping lower food and placement for Canadians.
Speaker Change: While this is great news, we know that it is little consolation to family students dropping to meet their household needs.
Speaker Change: To address this we're always working to deliver even greater value and affordability across our store network for example.
Speaker Change: Discount Division our team opened 40, new <unk> stores under koto, introducing citing new programs aligned with our commitment to providing everyday low prices.
Speaker Change: We introduced an expanded programs like trollback pricing more aggressive flying us and more everyday low price.
Speaker Change: Also in the quarter, we eliminated multi bonds and all our maxi and local stores.
Speaker Change: This change means that our customers can now get great value from purchasing only one item instead of having to purchase several items to get the same savings.
Speaker Change: This was an issue for many of these phone customers. It is regular feedback that I receive as I talk to customers in our source.
Speaker Change: We replaced this program with everyday low prices on individual items. This decision is absolutely the right decision for hot discount customers, but it will be a slight headwind on our sales growth this year.
Speaker Change: We're counter most customer traffic and tonnage were both up as we continue to gain market share in the quarter.
Speaker Change: Across our silver and market balance we continue to provide a very strong full service grocery offering.
Speaker Change: Recent excellence plays an important role in all of them.
Speaker Change: Operational and financial success and differentiate our conventional grocery business. The team has been busy improving our offering and providing more value for our full service customers.
Speaker Change: We have lower prices and enhance our assortment in key areas like multicultural prepared meals fresh and natural foods.
Speaker Change: I talked before about our plans to re energize the merchandise of our right hand side of our stores. We have started to try on some of our new initiatives to create more excitement in this area.
Speaker Change: And as you all saw we now offer new apparel brands like Puma earlier in Portland.
Speaker Change: We still very early in this journey, but I'm pleased with the initial results.
Speaker Change: I'm pleased to report that our traffic was up in the quarter in both our hard discount and monetization.
Speaker Change: A testament to the positive customer response to all of the things we are doing to deliver great value to Canadians.
Speaker Change: As expected our grocery.
Speaker Change: Our sales in grocery relative soft mostly based on last year's strong performance of six 1% growth.
Speaker Change: As high aside from this it's hard to isolate one specific factor for the softness.
Speaker Change: As you begin policy with a strongest start I want to highlight our new promotion last quarter I talked about the success of our hero Kamath program that success continues in quarter two with unbeatable offers on nine public grocery items today I'm Super excited to announce our new modern program coming to all stores in all of.
Speaker Change: So if youre not a big Mama fan beef app that someone someone behind you to check out we'd be telling you on your shows up asking if they can bring your trailing cost home through decades of course, only if you don't want them, So who say it shouldn't you shouldn't have fun shopping.
Speaker Change: Turning now to our drug retail business as Richard highlighted we were lapping a very strong quarter last year.
Speaker Change: The growth also reflect long term trends that continue to position the position us very well for the future. This is why our plan includes opening 20, new pharmacies in this year and continuing to expand our pharmacies clinics across the country.
Speaker Change: And front store, our prestige beauty is still delivering very good numbers. However, I expect to see our central normalizing. This year as we will be impacted by lower sales of electronics and household products.
Speaker Change: Pharmacy and healthcare services continues its momentum from last quarter.
Speaker Change: And with speciality drops a new primary cash services, leaving our topline growth.
Speaker Change: That seems to be a steady stream of announcement across the country showcasing the impact of pharmacies, providing care for patients.
Speaker Change: Those are government reported that pharmacy clinics have contributed to a nearly 10% decline in emergency room visits for nonrecurring or less urgent cases cubic Teva Bill 67, giving bonuses more power to serve is once one stop shop for people with minor health problems are common illness, including prescribing surgeons.
Speaker Change: Rocks.
Speaker Change: And extending prescriptions and yesterday, Ontario announced and it's moving to expand the ability of pharmacy to provide patient care by treating additional combinations.
Speaker Change: Administering more maintenance more vaccines and performing more point of care testing.
Speaker Change: This quarter, we are proud to announce that the science based targets initiative or SPT I, that's approved loblaw emission targets around the reduction of our scope, one and two emissions, 50% by 2030, and a commitment that suppliers, representing 70% of our total spend will have time based targets by 2027.
Speaker Change: This is important to recognize that our plans and ambitions.
Speaker Change: Highest global gold standards.
Speaker Change: 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.
Speaker Change: Our success allows us to make important investments into growth areas operational efficiencies and in protecting our planet. These in turn allows us to offer Canadians the best value and service.
Speaker Change: We do remain confident in the strength of our assets and anchored by the customer momentum we are seeing into the third quarter. We now open the call for questions. Thank you.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, you will now begin the question and answer session.
Speaker Change: So do you have a question. Please press star followed by the number one on your Touchtone.
Speaker Change: You won't hear with feet on palms acknowledging every class.
Speaker Change: City climb from the polling process. Please press star followed by the numbers too.
Speaker Change: If youre using a speaker phone please lift your handset before pressing anarchy.
Speaker Change: Please for your first question.
Speaker Change: Our first question comes from the line of Michael Vanilla Sandy Cowen go ahead. Please.
Speaker Change: Alright, thank you.
Michael Van Aelst: I wanted to actually start on the drug side of the business.
Speaker Change: You commented on some of the friends Star weakness.
Speaker Change: Beauty is still seems to be growing strong and I'm wondering is the beauty category is still growing holding in strong or is it shoppers just gaining market share or both.
Speaker Change: So so yeah. The front store is down 2.2 pencil and we all know lapping strong sales on from last year.
Speaker Change: Our 2024, and we will be normalizing over the and we have seen that mostly being impacted by a by electronics and household product, which of course is low margin and to your question about prestige beauty, we are delivering over and above the market.
Speaker Change: Seeing some really really strong numbers there while at the same time, all pharmacy business continues to be very strong.
Speaker Change: And it's gonna be normalized enjoying doing next quarter, we probably won't be a positive, but it's going to be better than than you saw in Q2, but the high margin casually says that prestige beauty is growing and we are really happy with the numbers we are seeing that.
Speaker Change: Yes, Mike beauty is very very strong.
Speaker Change: If you were to isolate one category that always surprises US is men's fragrance is the one that's always growing really high but yeah. So that continues.
Speaker Change: Okay, and then can you update us on your market share and then some of the key beauty categories.
Speaker Change: We don't have exactly <unk> categories, but I think it's important to say that.
Speaker Change: These proceeds beauty is growing over and above the food the food Faisal so the market in total is actually growing and we do it.
Speaker Change: Low double digit growth.
Speaker Change: At least what we're seeing so it's a good place to be and we don't have the amount of the specific models here for that and if we have I'm sure you would come back to you.
Speaker Change: Okay, Alright, and then on the.
Speaker Change: Pharmacy services, obviously, it looks like the services are growing pretty rapidly.
Speaker Change: Loblaw is progressing and the rollout of its clinics.
Speaker Change: And based on some of the new announcement inside of Ontario, and other provinces.
Speaker Change: What's your outlook for the pharmacy services side over the next year.
Speaker Change: We will continue to be as bullish on the on the new clinics as we as we were.
Speaker Change: Last time, we spoke and actually yesterday, we opened a new a new superstore and we opened it with with clinics and we saw some really really good traction there even the first day without without talking about it and which you are alluding to like the development on.
Speaker Change: In Ontario, really really great news for the people of Ontario, and we do believe that it will provide significant benefits introducing the pressure in the health care system and b being better for patients. So so we stay confident then at the end of next year, we will probably be at or around 250.
Speaker Change: Okay. Thanks.
Speaker Change: At the end of next year.
Speaker Change: Okay perfect. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from the line of Irene Mattel from RBC capital markets go ahead. Please.
Irene Ora Nattel: Thanks, and good morning, everyone. As you know that makes covered off the pharmacy piece can we please drill down on the same store sales number I think fair to say it was an incredible stress expected I think we understand consumer trade down inflation, you mentioned multi buy right hand side of the store, but that was all set a boy.
Speaker Change: Can you talk about the puts and takes in and where you saw the most pressure and I guess, maybe where youre seeing some some nice gains.
Speaker Change: Yeah, I mean, so yes same store sales look softer than they actually are less because of the year over year comps like that and I think it is worth talking about Q1 and Q2. So Q1, we delivered 3% same store sale, but in the year before was 3%. So it's 6%. So in Q2, we delivered at 6% and were too so we're.
Speaker Change: Essentially essentially flat. So we're so so the trend the sales trend from Q1 to Q2 is pretty much. The same having said that there were a couple of factors that impacted sales like in particular I would call. It like a I don't know the wet spring. Our if you remember me may of last year, which I do.
Speaker Change: Remember vividly with extremely hot and our Garden Center sales were through the roof Sun care allergy like where like beating records and so this year. We had made a was very rainy and cold and so those categories suffered significantly so therefore that that.
Speaker Change: Definitely definitely.
Speaker Change: Factor and regarding what you just mentioned that the last part of your question, we did notice a bit of an impact in certain stores in specific markets, but.
Speaker Change: That said at the at the end of the quarter things have returned to normal.
Speaker Change: And I would add that why do you all want financial impact was minor for US every single customers and important to us and.
Speaker Change: One customer losses is one too many and I have spent a lot of time speaking to customers and different stakeholders and I do listen to them because the feedback is really really helpful and we will come in it makes us better so multi devices just.
Speaker Change: One of the pieces of feedback that I have gotten since I came to Canada, it's actually because customers.
Speaker Change: Hold me that they didn't like to multiply it that's why we have removed from it was the biggest irritant to customers.
Speaker Change: And also therefore, we continue to work hard every day to win the trust and loyalty of our customers and I would say that also was.
Speaker Change: They are in a great shape, our promotions are better than ever and our prices are really really competitive at the moment. So I am pleased that our customers are recognizing that more and more and more week by week and F N b.
Speaker Change: Both traffic and tonnage is up quarter over quarter.
Speaker Change: Yes, I mean, just to give us better clarify vacation us removing multi byte is actually hurting us on sale at Hearst and so, but we expect that over time, we're going to recover that SaaS customers.
Speaker Change: <unk> bye bye more stuff other than what they were buying things.
Speaker Change: Think about it.
Speaker Change: You have to buy to catch up and then there'll be a time, where you have <unk> to catch up and then therefore, then you'll go back and buy one against that that will just be a time before before that tastes will when it.
Speaker Change: We will come back, but what is important here is that.
Speaker Change: When you're on a tight budget, we don't foresee to buy to go catch up then you can actually afford to buy the most of it because we are seeing a trend of more and more customer. They only have 30 40 $50 to spend and we want them to be able to spend it on the products that they want to buy so I think that's why it seems like a little thing, but it's actually a really muted.
Speaker Change: Good thing for our customers.
Speaker Change: Our discount division.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Mark Petrie from CIBC capital markets go ahead.
Mark Robert Petrie: Yeah. Thanks, Good morning, just following up on on that topic.
Mark Robert Petrie: I appreciate the comment about the stronger trends in Q3 to date for both food and front store.
Mark Robert Petrie: Just curious what you would attribute that to I guess, most specifically on on the food side is it just a matter of.
Speaker Change: Maybe lapping some easier numbers or do you think theres something different and how you are presenting to the customer shifting competitive environments.
Speaker Change: Type of thing.
Speaker Change: I think to me, it's our strategies are working and you look at you look at the head of the month, which we started in February like.
Speaker Change: We're starting to get better at it we're selling we're still learning the ropes, but that's definitely that's definitely resonating with customers, but obviously last year's performance. While it will also be a factor if I remember correctly I think our same store sales in Q3 was $4 five so so lowered at six of that that's definitely a factor that's going to drive same store sales in Q3.
Speaker Change: And I agree with you that it is a competitive market in Canada. It is really competitive. It has it has been for the last year and it still is I just believe that the initiatives that we are deploying has deployed what hit us a month, so far but also all of our Marvel Marvel program I'm sure that will excite customers. So we are.
Speaker Change: Trying more and more to utilize to scale and scale of the entire group also by doing some enterprise promotions, we haven't done that in the past so mom and remember that's across all of our source, including including shop us and when we do.
Speaker Change: Do something with.
Speaker Change: Our entire swap portfolio, we can make something that's better for customers because just promoting like banner by banner instead of doing it all together, we get more and more value for our money. So so I say, yes, I would say really confident in our strategy.
Speaker Change: Going forward and easy to use that we have so I believe we have a we have a strong trade painful for the second half of 2024.
Speaker Change: And stay really really confident in Australia in and as we have discussed before it is about growing with our hottest comfort business its growing but shove US 20, new 20, new stores and it's keeping an absolute market share with all market until those stores and we are deploying a lot of you needed to have in each single part of.
Speaker Change: Our business, so growing and keeping cost low and thereby also being confident in delivering on our financial framework. So look so I'm quite excited about the things that we haven't done pipeline.
Speaker Change: Yeah understood. Okay. Thank you and then if I could just follow up I wanted to ask about sort of the competitive dynamics specifically in Quebec.
Speaker Change: It's a market where your asset mix in food has been shifting to discount very materially and I'm curious if you're seeing the market dynamics suggest at all.
Speaker Change: If there any different in Quebec versus other parts of the country.
Speaker Change: I think on species on Capex, I think I'd be guessing to modify or try to answer that question. So so let's come back to you on that one.
Speaker Change: Alright fair enough, thanks, and all the best.
Speaker Change: Thank you. Our next question comes from the line of Vishal.
Speaker Change: <unk> <unk> from National Bank go ahead. Please.
Vishal: Hi, Thanks for taking my questions.
Vishal: I wanted to ask you just a.
Vishal: To get your perspective now that.
Speaker Change: You've been at Loblaw Port for some time, obviously, you've made a lot of changes at <unk>.
Vishal: Grocery side of the business.
Speaker Change: All of them.
Speaker Change: Fairly significant on the shoppers side.
Speaker Change: As much shoppers is a little bit of a unique Canadian business.
Speaker Change: With the high low proposition and the strong beauty wondering if that.
Speaker Change: If that's something that it just takes more time for you to familiarize yourself with the offer or is that more of an endorsement of the model and you think that shoppers as it is and the drivers that it has.
Speaker Change: That's very that's very very good question, because when I when I came to Canada, a year ago I was really looking deeply into the <unk> model and I was like a little bit suspicious that beginning because how good was the model and the more and more into the service model. The more excited I became in the less I wanted really to.
Speaker Change: To change so we have a strong plan we have a strong cited in <unk> and that's also.
Richard: Important for me why change a winning model. So I don't want to change just for the chain to take up the change. So that's why we stay true to the model that we have but Richard and I. We did do one change so I think we've.
Bill: We discussed with our with different showboat, there'll be one or two more clinics. So so I think on the last call that we said. Okay. Go ahead Bill is mainly clinics as we can we can cope with because we see that that does help Canadian so so that's one of the changes that were made and then also shop, but they are now engaging in our enterprise.
Bill: Different different promotions. So so so yes, we have not changed a lot, but that's more a testament to the model that we have is it's working and I would say the same that yes. We made we made a lot of changes to the business, but the business I took over was in very good shape. So there was lots of lots of.
Bill: Places, where we have world class just to talk about our our control brands.
Speaker Change #101: <unk> changed the way we run our stores the financial rigor, we have we have around controlling inventory and lots of things that works better I have Marvin folks on what can we do even more to keep customers value and that's where I would focus going forward.
Speaker Change: Okay. Thank you for that perspective, and just another.
Speaker Change: Richard once upon a time there was a perception that sure.
Speaker Change: Shoppers the shoppers side of the business was.
Richard: Having the ability to hit its targets more consistently perhaps because as you know more consistency across the store formats and other reasons.
Speaker Change: You know as these businesses loblaw shoppers get more integrated.
Speaker Change #108: Have you noticed the performance gap colleagues, if that's a fair word term to use at that has that.
Speaker Change: <unk> tightened up or are the businesses still performing that's a good that's a good question like I say I see our ability to forecast and manage as overall gotten better throughout the organization. So that's benefiting both shoppers and and.
Speaker Change: And loblaw, but each business has different dynamics.
Speaker Change: Was there an amex remained so so the dynamics that are sort of.
Speaker Change: Like linked to shoppers remain like when we talk about I don't know all the expanded scope of care or specialty drugs and the.
Speaker Change: Growing population that's getting all their those are those are sort of the tail.
Speaker Change: Tailwind that shoppers have that's not the same in the food side. So those things continue.
Speaker Change #104: Okay, and maybe if you can give us an update on the smaller newco stores.
Speaker Change: How those are performing versus expectations.
Speaker Change: They are they're doing really really well.
Speaker Change: Early days, but the two stores that we have out onto Ronald.
Speaker Change: I visited those with with our board this week and they're doing so well and I spoke to a few customers and just also to one customer I spoke to C. C.
C. C.: He told me that she is really really worried that this all will be congested.
Speaker Change #112: Yes, because I'm speaking to everyone I know about how great. This though is we needed a small hot discount in this part of the town because we want access to lower prices and this is exactly why we're doing it without giving more Canadians access to lower prices and redoing it by getting into sites that we wouldn't have considered before because we are.
Speaker Change #111: Going down to even down to 8000, 8000 square feet and even going down to eight to 10 12000 square feet. We managed to get 567 thousands of product into those stores. So customers can do a full shopping too and if we compare this because what is $5 600000 products if you compare that to.
C. C.: To the general retailer they would have about 3000 products in the Sos. So if a great offer to customers and this is exactly what we want to hone down on top down on and do more over the next year and in the next quarter. So which is all have out of this quarterly opening almost 20, new <unk>, new <unk> and <unk>.
C. C.: In the fourth quarter another another 17.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change #106: Next question comes from the line of Ken Chan from BMO Capital markets go ahead. Please.
Ken Chan: Hi, Good morning, Thanks for the question going back to food same store sales for one second.
Speaker Change #103: I guess I'm, just surprised that whether it was Jay I'll now for you to call out I don't recall last Q2.
Speaker Change: Hotmail way with talked about so.
Speaker Change #100: The the tonnage performance here a bit of softness I mean, I guess you would call. It no. Other factor was it was really just the weather.
Speaker Change: The dynamic and if I think about your extra tonnage in this quarter Q2 versus Q1 of this year I'm sorry, Peter I think I heard you say it was up sequentially, but it seem that is on R&D. It might've been a bit down sequentially. So can you just confirm that.
Speaker Change #114: Yeah that was that was quarter on quarter like last year. So quarter. Two last year I was talking about we are not I didn't I didn't compared to quarter. One this year.
Speaker Change: And it is it is really hard to single out one factor so yes.
Speaker Change: Richard mentioned mentioned that that decision started later than it did last year, that's one impact but it is a lot of different reasons why our sales is a little bit softer, but on a two year comp basis, we assume we still running strong about six like we were in.
Speaker Change: The first quarter and we are also lapping easier.
Speaker Change: <unk> comps in the first quarter on market share. So so overall, we are we are pleased would we have liked a little bit of more sales, yes, but.
Speaker Change: But still we are we are happy with what we what we haven't even more pleased with the with a strongest start into quarter three the pointed out the impairment trend is actually relevant like at our tonnage performance in Q1 was particularly strong but benny.
Speaker Change: It benefited from our activities, but also benefited from the fact that Q1 of last year was a was it was.
Speaker Change: Weak so we had an easier comp from a tonnage perspective, which we sort of fixed in Q2 of last year. So it made this quarter a little bit tougher to cycle from a tonnage perspective, but we still were able to grow. It. So we're pleased with that so for us like sales trend is heading in the right direction and year to date and that's what we're focused on and that's.
Speaker Change: What we're saying that when we enter Q3.
Speaker Change: We feel we feel good about hitting our adding our framework.
Speaker Change: Okay. Thank you Sir.
Speaker Change: Yeah.
Speaker Change #102: I'd like to try and put back as well.
Matthew: The Matthew can you talk about them.
Speaker Change: Clearly you benefited from share gains there from doing that.
Can you talk about the the locations you're kind of already know what what's the uplift looks like versus the previous one and.
Speaker Change #107: First nicely that works and brigade have they been still China like they were when you guys first on the conversions and is there any material competitive responses to all of that.
So yes, the new stores continue to perform really well still way ahead of sort of.
Speaker Change: Prototype expectation for normal conversions, but yes, you also we're getting to the tail end of the conversion. So the lift we're getting is not as strong as the first one but the first ones, we're getting with like Crazy number north of 100% plus per store, so but the numbers that we're getting are really.
Good we're gaining significant market share in the province, it's not we're not talking basis points here, we're talking percentage points and so so so we're going to be coming to the end of the conversion program or close to by the end of this year and now we're starting to supplement it with new store. So we have also new Mac sees that aren't going to be opening this year.
That's going to further solidify our presence in the in the province.
Okay and the last question I've got is on gross margin. So strong this quarter I mean, I mean actually haven't you.
Basically the headwinds some shrink them.
Speaker Change #110: Just by that magnitude, so I'm trying to remember last year.
Speaker Change #109: That's a great question so so.
Our shrink in Q2 of last year was the worst okay. So therefore, it was an easier comp.
From a shrink perspective, but our teams have been working hard and they've made significant progress on shrink. So that's why we got such a big lift in gross margin in the quarter, having said that like that those shrink lead numbers now are running at lower rate than last year, So you're going to still see that in Q3.
Albeit not to the same extent so gross margin is going to be up in Q3 quite.
Quite nicely, but not to the same extent as we saw in Q2 that together with our improved same store sale that we talked about and I've also said in the past that our second half from an SG&A perspective is going to be better. So a stronger ginnie performance stronger gross margin and stronger same store sales that will allow us to hit our framework.
Thank you.
Thank you.
Our next question comes from the line of Chris Li from Desjardins. Please go ahead.
Good morning, everyone. Sorry, if you said I think you answered a lot of the question I was going to ask you just maybe follow up on the SG&A rate.
I think previously you've said that you expect the rate to be more or less flat for.
Speaker Change #113: For the full year so.
So based on the first half in sales so far I mean, this would imply U S generate.
Speaker Change: We will likely be down a little bit maybe 10 to 20 basis point just based on my math is that kind of Directionally you are referring to.
Okay.
Speaker Change: Yes, but like I don't have visibility in Q4, it yet to that level of specific specificity, but I think I can confidently say that at least for Q3 it should be flat.
Okay, and I think you mentioned last time that you do have some levers you can pull in the second half to shoot that so it sounds like you have okay.
Okay. No. That's helpful. And then maybe just going back to to go gross margin again, so it sounds like Q3 is going to be up.
But not as strong as Q2 is that is that what you see that's exactly what I said.
Okay, Okay, perfect and then just.
So okay and then maybe just on the just going back for the food same store sales. One last time. So you made a good point like on a two year stack basis, Q2 was 6% ish, which is same as Q1. So that's good.
You mentioned Q3 to date, it's better than Q2, but even looking at on a two year stack basis should we are you seeing kind of running about the same rate like 6% ish in Q3 as you've seen in Q2 and Q1.
Sure hope so.
Okay. Okay.
That's helpful.
And then maybe just add again a couple of follow ups.
Pharmacy clinics.
Overall holiday performing relative to your expectation and I'm thinking in terms of both the frequency of patient visits.
Per day, and also sales lift that you might be seeing from just incremental traffic to the stores how are those metrics.
I think versus your expectation so far.
We're continuing to deliver exactly as expected. So so of course, we set out some certain criteria when we improve these nuclear Nathan when maybe go into a Cao Covington meeting and improve them. So so they are living up to it and in some some better than others, but in every they're actually doing better than our expectation also.
By the prescribing is up by by photos into last year. So so so that good we are pleased.
We're going to continue to build new clinics and of course, what are what is underway in Ontario is also a purpose.
Okay.
That was my other question is as you continue to get expanded scope of practice from.
From the provinces.
Capacity perspective like that on the ground level for the pharmacies overall like do they have sufficient capacity to take on additional responsibilities.
I know you guys have been making some investments in the centralization.
Et cetera, So just I just wanted to see like from a capacity perspective that you guys see in a good position to take on more responsibility. We are not wearing okay of precision but of course, if things changed and we always are going to build up capacity, but at the moment. We don't have a capacity problem and we don't expect to have one going forward.
Okay, and then just a couple of last ones, if I had to switch back to food.
Wondering if inflation continues to moderate a little bit have you been able to get more promotional support from some of your vendors since I'm sure. They are also motivated to drive volume growth, yes really.
A good question because what we are seeing that the big Big Cpg's, they're really looking for <unk> and <unk>.
That's also why that is.
Expecting that.
The Daytona and the growth of our National brands will grow in line with our control ramp this year. So even if we are seeing that the our known enemies growing a lot than the national brands will grow a lot because it's going to be supported by a by some promotional support and that's also why we can we can do to hit at the Monday.
As we can because we are selling soap so cheap.
And they just want the volume.
You know that when and if youre looking at it somewhat some of the big players out there.
Okay. That's helpful and Richard maybe last one for you.
I'm reading our financial statements correctly. It looks like you guys have showed about $59 million of properties with another $33 million held for sale at the end of Q2.
I think in your statement you mentioned, you're still on track to dispose of about $400 million of property. This year is that so you do expect a step up in the second half in terms of property sales and that is that correct. That's correct.
Great. Thanks very much thank.
Thank you.
Thank you.
Just a reminder, everyone should you have a question. Please press star followed by the number one on your Touchtone phone.
Mr declines I'm Gonna, calling process. Please press star followed by the number too.
We have a follow up question coming from the line of Michael Van <unk> from TD Cowen go ahead. Please.
Yes. Thank you. So just a question on the financial services side can you explain that swing in the financial services revenue growth and margins. When you look at Q1 versus Q to.
Q Q1 seemed quite a bit stronger.
Yes, so like we signed a mark a mastercard contract Mike.
And so so we got at the significant benefits in Q1, no. What we're seeing going forward as the ongoing benefits of the runway to see now should be the one that continues having said that Michael like the key driver of profitability of the bank is our ECL.
As a black box thing and that and so we never know how ECL is going to move quarter over quarter, but.
More.
More.
Yes.
<unk> economic environment like it should trend slowly. So if that continues you should see the same at the same trajectory going forward I hope that helps that's helpful. Yes.
And worthy.
<unk>.
Yeah.
Higher in Q2 than in Q1.
I know it's in line it's in line.
Yes, it's growing on plan like we have a plan for Hcl and so far in fact, it's growing it's growing on plan.
Okay, and then how about on the top line.
On top line is a bit of noise, but like the big picture point I'd like to spend just to share with you at like the or growth in spend and the credit card is not growing as fast as we'd like and it's a testament to the economy people are spending less outside the outside grocery stores so that.
It's affecting the topline, but other than that that's just noise between Q1 and Q2.
Alright. Thanks.
Thank you Richard.
Thank you.
There are no further questions at this time I'd now like to turn the call back over to Mr. Macdonald for final closing comments.
Great. Thank you very much. So thanks, everybody for your time. This morning any follow up questions drop me, an email or give me a call and if you have your calendar Mark Wednesday November 13, when we'll be releasing our Q3 results. Thanks, everybody and have a fantastic day.
Thank you, Sir ladies and gentlemen. This concludes your conference call for today, we thank you for participating and asks could you. Please disconnect your lines have a lovely day.
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