Q3 2024 Metro Inc Earnings Call

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M M: Thank you for watching!

Unknown Executive: In the next video, we'll see you in the next video. Good morning, ladies and gentlemen, and welcome to the Metro Inc. 2024 third quarter results, Mark Time, or Participate Lines, or Nelission, only Mark. Following the presentation, we will conduct a question and answer session. If at any time during this call, you require... Please press star zero for the up.

Sharon Kadoche: Good morning, ladies and gentlemen, and welcome to the Metro Inc. 2024 third quarter results conference call. At this time, all participant lines are in the listen-only mode. Following the presentation, we will conduct a question and answer session. And if at any time during this call you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on Wednesday, August 14, 2024. And I would like to turn the conference over to Sharon Kadoche, Director, Investor Relations and Treasury. Please go ahead.

Sharon Kadoche: I know that this call is being recorded on Wednesday, August 14, 2012. And I would like to turn the conference over to Sharon Kadoche, Director of Investor Relations and Treasury. Thank you, Sylvie. Good morning, everyone, and thank you for joining us today.

Sharon Kadoche: Thank you Sylvie. Good morning everyone and thank you for joining us today. Our comments will focus on the financial results of our third quarter which ended on July 6th.

Unknown Executive: Our comments will focus on the financial results of our third quarter, which ended on July. With me today is Mr. Eric LaFleche, President and CEO, Francois Thibault, Executive VP and CFO, Marc Giroux, COO Food, and Jean-Michel Couture, President of the Pharmacy Division. During the call, we will present our third quarter results and comment on its highlights. We will then be happy to take your questions. Before we begin, I would like to remind you that in today's discussion, different statements that could be construed as forward-looking information. In general, any statement which does not constitute a historical fact may be deemed a forward-looking statement.

Speaker Change: With me today is Mr. Eric Lafleche, President and CEO , Francois Thibault, Executive VP and CFO , Marc Giroux, COO Food, and Jean-Michel Couture, President of the Pharmacy Division.

Speaker Change: During the call, we will present our third quarter results and comment on its highlights. We will then be happy to take your questions.

Unknown Executive: Words or expressions such as expect, intend, are confident that will, and other similar words or expressions are generally indicative of forward-looking statements. Such forward-looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy, our annual budget, and our 2024-2025 action plan. These forward-looking statements do not provide any guarantees as to the future performance of the company and are subject to potential risks, known and unknown, as well as uncertainties that could cause the outcome to differ materially.

Speaker Change: Before we begin, I would like to remind you that we will use in today's discussion different statements that could be construed as forward-looking information. In general, any statement which does not constitute a historical fact may be deemed a forward-looking statement.

Speaker Change: Words or expressions such as expect, intend, are confident that will and other similar words or expressions are generally indicated a forward-looking statement.

Speaker Change: The forward-looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy, our annual budget, and our 2024-2025 action plan.

Speaker Change: These forward-looking statements do not provide any guarantees as to the future performance of the company and are subject to potential risks, known and unknown, as well as uncertainties that could cause the outcome to differ materially.

Unknown Executive: Risk factors that could cause actual results or events to differ materially from our expectations as expressed in or implied by our forward-looking statements are described in the Risk Management section of our 2023 Annual Report. We believe these forward-looking statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward-looking statements, except as required by applicable law.

Speaker Change: Risk factors that could cause actual results or events to differ materially from our expectations as expressed in or implied by our forward-looking statements are described under the Risk Management section in our 2023 Annual Report.

Francois: We believe these forward-looking statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward-looking statements except as required by applicable law. I will now turn the call over to Francois.

François Thibault: I will now turn the call over to Francois. Thank you, Sharon, and good morning, everyone. For the quarter, total sales reached $6.65 billion, an increase of 3.5% versus the same period last year. Same-store sales were up 2.4% in food and up 5.2% in pharmacies. Our gross margins amounted to 19.6% of sales, essentially flat when compared to our third quarter last year. Operating expenses amounted to $681.7 million, up 4.8% versus last year, and as a percentage of sales, they stood at 10.2% versus 10.1% in the same quarter last year.

François Thibault: The higher ratio is mainly due to the startup of our new automated distribution center for fresh and frozen products in Taban, and we also continue to have higher third-party e-com fees in Las Vegas. Last year's operating expenses did include $5.1 million of launch costs related to the Mois Loyalty Program. It has been dealt with a quarter total of 620.2 million, representing 9.3% of sales and is up 1.6% year over year when we remove the gain and loss of sales of assets. Total depreciation and numberization expense for the quarter was 174 million, up 14.5 million versus last year. And a significant portion of the increase is due to our new tail bun in. [inaudible] WC Bird, sorry.

François Thibault: We also started depreciating the Fresh Phase II investment in Toronto in the last month of the quarter. Net financial costs for the third quarter were $46.6 million compared to $37.1 million last year, and the increase is due to a higher level of debt and interest rates, as well as lower capitalized interest related to our distribution center automation project. Adjusted net earnings were $305 million, compared to $314.8 million last year, a 3.1% decrease, and our adjusted net earnings per share amounted to $1.35, flat year-over-year.

Francois: Thank you, Sharon, and good morning, everyone. For the quarter, total sales reached $6.65 billion, an increase of 3.5% versus the same period last year. Same-store sales were up 2.4% in food and up 5.2% in pharmacy.

Francois: Our gross margins stood at 19.6% of sales, essentially flat when compared to our third quarter last year.

Francois: Operating expenses amounted to $681.7 million, up 4.8% versus last year, and as a percentage of sales they stood at 10.2% versus 10.1% in the same quarter last year.

Speaker Change: The higher ratio is mainly due to the startup of our new automated distribution center for fresh and frozen product in Taban, and we also continue to have higher third-party e-com fees than last year.

Speaker Change: Last year's operating expenses did include $5.1 million of launch costs related to the Mois loyalty program.

Speaker Change: EBITDA for the quarter totals $620.2 million, representing 9.3% of sales, and is up 1.6% year-over-year when we remove the gain and loss of sales of assets.

Speaker Change: Total depreciation and amortization expense for the quarter was $174 million, up $14.5 million versus last year, and a significant portion of the increase is due to our new tail bond in D.C.

Speaker Change: We also started depreciating the Fresh Phase II investment in Toronto in the last month of the quarter.

Speaker Change: Net financial costs for the third quarter were $46.6 million compared to $37.1 million last year, and the increase is due to a higher level of debt and interest rates, as well as lower capitalized interest related to our distribution center automation projects.

Speaker Change: Adjusted net earnings were $305 million compared to $314.8 million last year, a 3.1% decrease, and our adjusted net earnings per share amounted to $1.35, flat year over year.

François Thibault: On the retail side, in the first 40 weeks of Fiscal 24, we opened six Super C stores, including two conversions. We carried out major expansions and renovations of seven stores and relocated another one for a net increase of 237,000 square feet, or 1.1% of our food retail net. Under a normal course issue of bid program, we may repurchase up to 7 million shares between November 25, 2023, and November 24, 2024. As of August 2nd of this year, we have repurchased 6,045,000 shares for a total consideration of $430 million, representing an average share price of $71.14. In clothing, our third quarter results are tracking well to the guidance we provided in November for fiscal 24. That's it for me.

Speaker Change: On the retail side, in the first 40 weeks of Fiscal 24, we opened six Super C stores, including two conversions. We carried out major expansions and renovations of seven stores and relocated another one for a net increase of 237,000 square feet, or 1.1% of our food retail network.

Speaker Change: Under a normal course issuer bid program, we may repurchase up to 7 million shares between November 25, 2023 and November 24, 2024.

Speaker Change: As of August 2nd of this year, we have repurchased 6,045,000 shares for a total consideration of $430 million, representing an average share price of $71.14.

Speaker Change: In closing, our third quarter results are tracking well to the guidance we provided in November for Fiscal 24. That's it for me, I'll now turn it over to Eric.

Eric Fleche: I'll pass it over to Eric. Thank you, Francois, and good morning, everyone. We recorded solid comparable sales growth in the third quarter, on top of a very strong quarter last year, reflecting effective merchandising and good execution in our food and pharmacy banners. Our teams did an excellent job of offering good value to our customers across all banners in a challenging environment. This resulted in overall market share gains in dollars and tonnage. For the quarter, food same-store sales were up 2.4% for a two-year stack of 12.

Eric: Thank you, Francois, and good morning, everyone.

Eric: We recorded solid comparable sales growth in the third quarter, on top of a very strong quarter last year, reflecting effective merchandising and good execution in our food and pharmacy banners.

Eric: Our teams did an excellent job to offer good value to our customers across all banners in a challenging environment. This resulted in overall market share gains in dollars and tonnage.

Eric: For the quarter, food same-store sales were up 2.4% for a two-year stack of 12%.

Eric Fleche: Our discount vendors continue to fuel this growth on top of high comps and discounts last year. As Francois mentioned, so far in fiscal 24, we opened six Super C stores. Three more stores will open in the fourth quarter, a Food Basics in Ottawa, Petawawa, that just opened, plus a Super C in Montreal and a Metro store in Ottawa. Our internal food basket inflation continued to decelerate and came in slightly lower than the reported food CPI of 1.1% for the period.

Eric: Our discount vendors continue to fuel this growth on top of high comps and discount last year.

Eric: As Francois mentioned, so far in fiscal 24, we opened six Super C stores. Three more stores will open in the fourth quarter. A Food Basics in Ottawa that just opened, plus a Super C in Montreal and a Metro store in Ottawa.

Speaker Change: Our internal food basket inflation continued to decelerate and came in slightly lower than the reported food CPI of 1.1% for the period.

Eric Fleche: Similar to previous quarters, transaction count was up in all banners with higher foot traffic growth on the discount side, and the average basket came down slightly. Promotional penetration was up compared to last year, as cost of living pressures are still present and consumers search for value. Private label sales continue to outpace national brands.

Speaker Change: Similar to previous quarters, transaction count was up in all banners, with higher foot traffic growth on the discount side, and the average basket came down slightly.

Speaker Change: Promotional penetration was up compared to last year as cost of living pressures are still present and consumers search for value. Private label sales continue to outpace national brands.

Eric Fleche: Online sales grew by 35% compared to our third quarter last year, fueled by third-party partnerships for same-day delivery and the ongoing expansion of our click-and-collect service to our discount banner. The service is now deployed at Super C and in progress at Foodbase. On the pharmacy side, we delivered a strong performance this quarter with comp sales of 5.2% for a two-year stack of 11.4%. Commercial sales were up 3% driven by a strong cold season and growth in core categories such as OTC, HABA, and Cognitive. Prescription sales were up 6.3%, driven by organic growth, specialty medications, and professional service.

Speaker Change: Online sales grew by 35% compared to our third quarter last year, fueled by third-party partnerships for same-day delivery and the ongoing expansion of our click and collect service to our discount banners. The service is now deployed at Super C and in progress at Food Basics.

Speaker Change: On the pharmacy side, we delivered a strong performance this quarter with comp sales of 5.2% for a two-year stack of 11.4%.

Speaker Change: Commercial sales were up 3% driven by a strong cough and cold season and growth in core categories such as OTC, HABA and cosmetics. Prescription sales were up 6.3% driven by organic growth, specialty medications and professional services.

Eric Fleche: We are well positioned to deliver on the expanded role of pharmacists with our dedicated pharmacist owners and our leading footprint across Quebec. In May, we celebrated a successful first year for our MWAA Rewards Program. In addition to more than doubling the number of active members from 1.2 to 2.5 million, over $65 million in points were redeemed by members on their Every Day Essentials. Members spend on average 50% more than non-members, and we are very pleased with the level of cross-shopping and customer engagement in our different food and pharmacy banners.

Speaker Change: We are well positioned to deliver on the expanded role of pharmacists with our dedicated pharmacist owners and our leading footprint across Quebec.

Speaker Change: In May, we celebrated a successful first year for our MOIS Rewards Program. In addition to more than doubling the number of active members from 1.2 to 2.5 million, over $65 million in points were redeemed by members on their Everyday Essentials.

Speaker Change: Members spend on average 50% more than non-members and we are very pleased with the level of cross-shopping and customer engagement in our different food and pharmacy banners.

Eric Fleche: We look forward to the launch of more rewards in Ontario later this fall. Our new automated fresh and frozen facility in Tabun is now fully operational, with productivity levels ramping up in line with our plan. During the quarter, we transferred most of the dairy volume from our Laval DC to Turban.

Speaker Change: We look forward to the launch of more rewards in Ontario later this fall.

Speaker Change: Our new automated fresh and frozen facility in Terrebonne is now fully operational, with productivity levels ramping up in line with our plans. During the quarter, we transferred most of the dairy volume from our Laval DC to Terrebonne.

Eric Fleche: As planned, on June 10th, we launched the final phase of our Toronto Automated Fresh Facility, starting with the transfer of produce volume from the conventional section of Phase 1 to the new automated section in Phase 2. Other fresh categories like meat, deli, and dairy will transfer gradually from our old facility every week until the end of September. With both phases now in operation, we expect to see a step change in overall productivity once activities reach the steady state. The benefits will be gradual and will come from efficiency gains and lower transportation costs.

Speaker Change: As planned, on June 10th, we launched the final phase of our Toronto Automated Fresh Facility, starting with the transfer of the produce volume from the conventional section of Phase 1 to the new automated section in Phase 2.

Speaker Change: Other fresh categories like meat, deli, and dairy will transfer gradually from our old facility every week until the end of September.

Speaker Change: With both phases now in operation, we expect to see a step change in overall productivity once activities reach the steady state. The benefits will be gradual and will come from efficiency gains and lower transportation costs.

Unknown Executive: To conclude, and as we approach the end of this transition year in our distribution centers, and while food inflation continues to decline, we know the environment remains difficult for many of our customers, and our teams are focused on delivering the best value possible to them, and we remain confident in our ability to create long-term value for our shareholders. Thank you, and we'll be happy to take your questions. Thank you. Ladies and gentlemen, if you would like to ask a question, please press the star followed by one on your touch screen. You will then hear a three-tone prompt acknowledging you're in the audience. And if you would like to withdraw from the question... Prestau, followed by... If you're using a speakerphone, please lift your hand.

Speaker Change: To conclude, and as we approach the end of this transition year in our distribution centers,

Speaker Change: And while food inflation continues to decline, we know the environment remains difficult for many of our customers, and our teams are focused on delivering the best value possible to them, and we remain confident in our ability to create long-term value for our shareholders.

Speaker Change: Thank you and we'll be happy to take your questions.

Speaker Change: Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your touch screen.

Speaker Change: You will then hear a three-tone prompt acknowledging you're ready. And if you would like to withdraw from the question queue, simply press star followed by two.

Speaker Change: And if you're using a speakerphone, please lift the handset first before pressing any keys. Please go ahead and press star 1 now if you do have any questions.

Irene Nattel: Before pressing N, please go ahead and press star 1 now if you do have any questions. And your first question will be from Irene Nattel at RBC Capital Markets. Please go ahead.

Speaker Change: And your first question will be from Irene Nattel at RBC Capital Markets. Please go ahead.

Eric Fleche: Thanks, and good morning, everyone. Another great quarter from you guys. Thinking about consumer behavior, from your commentary, Eric, it sounds as though what you're seeing in stores is really a continuation, or are you seeing any kinds of shifts at all as we continue to hear a narrative around consumers really tightening, tightening, tightening. Very similar consumer behavior across our networks. So as we've been reporting every quarter for over a year, almost two years, I would say, the search for value continues.

Irene Natel: Thanks and good morning everyone. Another great quarter from you guys. Thinking about consumer behavior from your commentary, Eric, it sounds as though what you're seeing in stores really a continuation or are you seeing any kinds of shifts at all as we continue to hear narrative around consumers really tightening, tightening, tightening.

Eric Fleche: As I said, people are searching for deals, promotional penetration is really high, and private label sales are doing really well. So it's really, it's really the same environment that we've been describing for several years.

Eric: Very similar consumer behavior across our networks, so as we've been reporting every quarter for over a year, almost two years, I would say.

Eric: The search for value continues. As I said, people are searching for deals, promotional penetration is really high, and private label sales are doing really well. So it's really the same environment as we've been describing for several quarters.

Unknown Executive: And can you talk a little bit about, you know, why you mentioned the increased uptake in terms of cross shopping? Can you talk about what you're seeing more broadly, both at food and pharma, and how maybe you're using some targeted promotions to continue to drive traffic? [inaudible] I'll let Marc answer or give a shot at that.

Speaker Change: Understood, thank you. And can you talk a little bit about, you know, why you mentioned the the increased uptake in terms of cross-shopping. Can you talk about what you're seeing more broadly?

Speaker Change: both at Food and Pharma and how maybe you're using some of some targeted promotions to continue to drive traffic and basket.

Marc Giroux: Thanks, Irene, for the question. So we launched MOA a year ago, as Eric was mentioning. We're able now to use the data and analyze customer behavior across our food banners and across food and pharma. And the point that Eric was making is that we're happy to see consumers engaging more and more in the MOA program but also engaging in our banners as they cross shop between our banners. And as we continue to use the data, the teams have started and will continue and accelerate offers to consumers to promote that cross-shopping, and encourage basket and transaction across our store network in Quebec.

Speaker Change: I'll let Mark answer. We'll give a shot to that. Thanks Irene for the question. So we've launched a year ago with Eric was mentioning our...

Mark: We're able now to use the data and analyze customer behavior across our food banners and across food and pharma.

Mark: and the point that Eric was making is that we're happy to see consumer engaging more and more in the MOA program but also engaging in our banners as they cross shop between our banners.

Mark: And as we continue to use the data, the teams have started and will continue and accelerate offers to consumers to promote that cross-shopping, promote basket and transaction across our store network in Quebec. So we're satisfied about the launch, we're satisfied about the...

Marc Giroux: So we're satisfied about the launch, we're satisfied about the increased performance of Moi, and the team will continue to be focused on offering value through Moi and the program across all of our stores. The next question will be from Tamy Chen at BMO Capital Markets. Please go ahead.

Speaker Change: Increased performance of MOA and the team will continue to be focused and offering value through MOA, through the program across all of our matters.

Speaker Change: Understood, thank you.

Speaker Change: Thank you. Next question will be from Tammy Chen at BMO Capital Markets. Please go ahead.

Tamy Chen: Hi, good morning. Thanks for the question. I wanted to focus more on the DCs here, but first, stepping back, can you talk about Phase 1 in Toronto? I'm just curious about how that has unfolded in terms of the benefits to your results since it's launched. And specifically, I think for this quarter, just given the strong same-store sales versus the year ago, has any of that been driven by the gains from Toronto Phase 1, perhaps also some initial gains from Terrebonne DC?

Tammy Chen: Hi, good morning. Thanks for the questions. I wanted to focus more on their DCs here. Just first stepping back. Can you talk about the phase 1 in Toronto? I'm just curious about that since it's launched.

Speaker Change: how that's unfolded in terms of the benefits to your results and specifically I think for this quarter just given the strong

Speaker Change: Thanks to ourselves, versus the year ago. Has any of that been driven by the games from the Toronto Phase One, perhaps also some initial games out of the the Terrebonne DC?

Tamy Chen: I would say, you know, Toronto phase one was January 23. So it's been a while, so it's up and running. It's a combo DC, right? Phase one was manual and automated. The freezer in Toronto was fully automated.

Speaker Change: I would say, you know, Toronto Phase 1 was January 23.

Speaker Change: So, it's been a while, so it's up and running, it's a combo DC, right? Phase 1 was manual and automated.

Unknown Executive: So those two centers have been in operation for a while, and they have been ramping up well, and I think they are supporting our store network really well. Together with that, we have automated replenishment in our stores. So the combination of our supply chain modernization efforts in Toronto that have been up for longer has contributed to our performance. It's not the main driver, but it's one of the contributing factors. Tabun is still in its very early days.

Speaker Change: The Freezer Toronto was fully automated, so those two centers have been in operation for a while, have been ramping up well, and I think supporting our storm network really well.

Speaker Change: Together with that, we have automated replenishment in our stores. So the combination of our supply chain modernization efforts, clearly in Toronto that has been up for longer, has contributed to our performance.

Speaker Change: It's not the main driver, but it's one of the contributing factors. Tabun is still very early days. We're happy with the performance so far, but it's clearly in the ramp up period, and it would be a stretch to say that Tabun is contributed to the higher seems to ourselves.

Speaker Change: So I hope that answers your question

Unknown Executive: Okay. And my follow-up question is, these VCs, the automated ones in particular, can you remind us how to think about the benefits? specific line items that they help you in your P&L. And, and if you could talk in any way about the magnitudes, the cadence, I think there's just a lot of questions as to how we and investors should think about, especially now with these Terrebonne and Toronto Phase 2 gradually coming to their finish lines, how we should think about the impact that they could have over time on your earnings going forward. Thank you.

Speaker Change: Yeah, that does, okay. And my follow up with these DCs, the Automated ones in particular. Can you remind us how to think about the benefits, just the specific line items that they help you in your PNL? And if you could talk in any way about the magnitude, the cadence, I think there's just a lot of questions us through how we and industry think about, especially now with these table and Toronto Phase 2 gradually coming to their finish line. How we should think about the impact that they could have over time to your earnings going forward. Thank you.

Unknown Executive: These DCs are cost centers. I think we made these big investments to make sure that we remain, first of all, address capacity issues and fresh and frozen. So, the status quo was not an option.

François Thibault: Francois Thibault. Well, listen, these DCs are our co-authenters. I think we made these big investments to make sure that we remain, first of all, address capacity issues and depression frozen. So the such a goal was not an option. We had to invest and I think we picked the best option.

Unknown Executive: We had to invest, and I think we picked the best option. So, the benefits will accrue over a long period of time, but obviously, as Eric said, phase one in Toronto has been performing as planned. So, the benefits will be both on the OPEX and on the gross margin as you improve your stock position and your store service. We also made investments in automatic replenishment.

François Thibault: So the benefits, you know, will accrue over a long period of time, but they obviously, as Eric said, the phase one in Toronto has been performing.

Speaker Change: as planned. So the benefits will be both on the OPEX and on the gross margin as you improve your in-stock position, your store servicing. We also made investments in automatic replenishment. So you should expect, the objective is to have benefits accruing across several lines of the P&L.

Unknown Executive: So, you should expect, the objective is to have benefits accruing across several lines of the P&L, but they will be over time. Now, the other benefits, now that these are fixed cost centers, are as sales increase, as volume increases over time, we also expect to have more benefits just because we will be leveraging a fixed cost operation for all practical purposes. That's how we view the benefit, but these are now cost centers integrated into overall OPEX, and we will manage accordingly, and that's why we say that we expect to be back to our usual profit growth targets starting in fiscal 25.

Speaker Change: but they will be over time. The other benefits, now that these are fixed-cost centers, is that as cells increase, as volume increases over time, we also expect to have more benefits just because we will be leveraging fixed-cost operations for all practical purposes.

Speaker Change: That's how we view the benefit, but these are now cost centers integrated into overall OPEX.

Speaker Change: And we will manage accordingly and we will, that's why we say that we expect to be back to our usual profit growth targets starting in fiscal 25.

Unknown Executive: So just to add to that, clearly, with automation, we will save labor; we are not necessarily cutting jobs necessarily, we are adding capacity, we are doing more volume, more throughput through our DCs with basically the same labor force, so our cost per case from a labor point of view is coming down, will come down, that's offset by a higher amortization, and higher investment.

Speaker Change: So just to compliment on that, clearly with automation we will save labor.

Speaker Change: We're not cutting jobs necessarily, we're adding capacity, we're doing more volume, more throughput through our DCs with basically the same labour force, so our cost per case from a labour point of view is coming down, will come down. That's offset by higher amortization, higher investment.

Unknown Executive: So these investments will meet, we are confident they will meet our return targets, and so far, we are pleased with that. These are large investments, they are for the long term, they will take time to give us the full benefit, but we are confident we are well on our way to getting there, and so far, we are meeting our targets and our plans. Great, thank you. The next question will be from Chris Lee at Desjardins, please go ahead. Well, good morning, everyone.

Speaker Change: So...

Speaker Change: These investments will meet, or we're confident will meet our return targets, and so far we're pleased with that. So these are large investments, they are over the long term, they will take time to give us the full benefit, but we're confident we're well on our way to getting there, and so far we're meeting our targets and our plans.

Speaker Change: Great, thank you.

Speaker Change: Thank you. Next question will be from Chris Lee at Desjardins. Please go ahead.

Unknown Executive: Just a few questions for me. I guess starting with this, the strength of your food comp this quarter, are you able to share whether it's well balanced between both Ontario and Quebec? Well, as we said in the opening remarks, it's driven mostly by discount. That said, we're pleased with our conventional store performance on a relative basis. Conventional is under pressure in both markets. No question about that.

Chris Lee: Good morning everyone. Just a few questions from me. I guess starting with just the strength in your food comp this quarter, are you able to share whether it's sort of well balanced between both Ontario and in Quebec?

Speaker Change: Well, as we said in the opening remarks, it's driven mostly by discount.

Speaker Change: That said, we're pleased with our conventional store performance on a relative basis. Conventional is under pressure in both markets, no question about that. But overall, versus other conventionals, we're pleased with our performance. And overall, when we combine discount and conventional, as I said, we're seeing some market share and tonnage gains.

Unknown Executive: But overall, versus other conventionals, we're pleased with our performance. And overall, when we combine discount and conventional, as I said, we're seeing some market share and tonnage gains. They were pleased with our performance, good execution by our teams, and good merchandise. Okay, that's helpful. Thanks, Eric. And maybe it's just really the one, I don't know, it's not easy to answer at all, but just obviously there was a boy, a boy club, one of your competitors during the quarter.

Speaker Change: Pleased with our performance, good execution by our teams, and good merchandising.

Unknown Executive: Did you notice any notable benefits from that? [inaudible] No, it's hard to pinpoint benefits from that single event. Okay, okay. Okay. And then just follow up on the question about the cross shop. I remember last year you invested and you kind of disclosed that, before Moi was launched, the cross shop was around 60%. That was about a year ago.

Speaker Change: Okay, that's helpful. Thanks, Eric. And maybe this is really the one, I don't know if it's easy to answer at all, but just obviously there was a boycott by one of your competitors during the quarter. Did you notice any notable benefits from that event?

Speaker Change: No, it's hard to pinpoint to that single event.

Speaker Change: Okay, okay, that's fine. Okay, and then just follow up on the question about the cross-shop. I remember last year, at your investor day, you kind of disclosed, you know, before Moire was launched, your cross-shop was around 60 percent. That was about a year ago. I was wondering if you can share what is that percentage now?

Unknown Executive: I was wondering if you could share what that percentage is now? Chris, I don't remember sharing that information, but what I can tell you is that post-launch of MOIS, we're very satisfied with the sales penetration on the card. We're above target in our food banners, and in pharma, we are also above air miles penetration pre-launch. And as we continue to track CrossShop across our banner, our goal is to really maximize the overall walleture of our customers, and that's where the focus of the team is.

Speaker Change: Chris, I don't remember sharing that information, but what I can tell you is

Speaker Change: that post-launch of Moi were very satisfied with the cells penetration on the card.

Speaker Change: were above target in our food banners and in pharma we are also above air miles penetration pre-launch.

Speaker Change: and as we continue to track across across our banner, our goal is to really maximize the overall walleture of our customer. And that's where the focus of the team is. We shared with you that we invested in technology to allow us to personalize better personalized.

Unknown Executive: We shared with you that we invested in technology to allow us to personalize better, personalize at a greater scale, and that's what we're executing on right now. Okay, thanks for that. And maybe this last one before I get back to the queue.

Speaker Change: at a greater scale, and that's what we're executing on right now.

Unknown Executive: Francois, I guess, you know, you sort of reiterated that the phase two of your DC modernization will be done by the end of September, the end of fiscal year this year. I'm just wondering, as we look on to next year, are there any more lingering costs related to this initiative that we should be thinking about as you kind of gradually ramp up the automation? Any more costs that we should be aware of as we kind of think about the outlook for next year?

Speaker Change: OK, thanks for that and maybe this last one before I get back to the queue. Francois, I guess, you know, sort of reiterate that the face to of your DC monetization will be done by end of September.

Speaker Change: end of fiscal year this year.

Speaker Change: I'm just wondering, you should have...

Speaker Change: As we look out to next year, are there any more lingering costs related to this initiative that we should be?

Speaker Change: Thinking of Bois to kind of gradually ramp up the automation.

Speaker Change: and more costs that we should be aware of as we kind of think about the outlook for next year. Thank you.

Unknown Executive: Thank you. Yeah, well, obviously, as we just launched Fresh Phase 2, there will be similar duplication of costs, not the same magnitude, but similar costs in terms of extra labor as you're running two sites at the same time, transferring volumes. So you've got transport, you've got shunting, you've got utilities.

Speaker Change: Yeah, well, as we just launched Fresh Phase 2, there will be similar duplication of cost, now the same magnitude, but the similar cost in terms of the extra labor, as you're running two sites at the same time.

Speaker Change: Transpring volume, so you got transport, you got shun thing, you got utilities, so you'll see a similar pattern, not the same magnitude, but similar pattern to what we had to tell one.

Unknown Executive: So you'll see a similar pattern, not of the same magnitude, but a similar pattern to what we had at Talban. And that should start to ease as we enter Fiscal 25. Now, it'll take some time to take care of some of the old sites that we have, but in terms of the impact versus this year, it'll be quite minimal. So we don't expect any other lingering extra costs. It will be focused on ramping up and generating the efficiencies of these two sites in Quebec and Ontario. Thanks very much; you're not the best.

Speaker Change: and that should start to ease as we enter a fiscal 25.

Speaker Change: It will take some time to take care of some of the old sites that we have, but in terms of the impact versus this year, that will be quite minimal.

Speaker Change: Any other lingering extra costs, it will be focused on ramping up and generating the efficiencies of these two sites in Quebec and Ontario.

Speaker Change: Thanks very much and all the best.

Unknown Executive: Thank you, Chris. The next question will be from Michael Van Elst at TD Cowan. Please go ahead. Good morning and thank you.

Speaker Change: Thank you.

Speaker Change: Next question will be from Michael Van Elst at P.D. Cowan. Please go ahead.

Unknown Executive: I just want to follow up on the DC that when you look at the scaling complexity of Toronto face to transition, is it, would you say it's similar or maybe a little bit easier than then terabond was in Q2? Thank you. Pretty similar. Again, every time we do the first one, it's always harder than the second one.

Speaker Change: Hi, good morning and thank you. I just want to follow up on the DCs. When you look at the scale and complexity,

Speaker Change: of Toronto Phase 2 transition is it would you say it's similar or maybe a little bit easier than than Tarabani was in Q2?

Speaker Change: Pretty similar.

Speaker Change: Again, every time we do the first one, it's always harder than the second one, so fresh two Toronto will benefit from tab bun and tab bun benefit it from Toronto phase one and Toronto for reserve, so we live and learn and we improve every time we do these projects.

Unknown Executive: So, Fresh Phase 2 Toronto will benefit from Terrebonne, and Terrebonne benefits from Toronto Phase 1 and Toronto Freezers. So, we live and learn, and we improve every time we do these projects. So, as I said, we're gradually transferring deli meat and dairy in Toronto from the old cold chain to this new Fresh 2. And, you know... 50 or 60 or 70,000 cases a week are transferring, so by the end of the, by the end of September it will be, it will be done, and so far, so far it's going well, and service to our stores is maintaining at a good level. So, you know, it's something we have to get through, but the teams have been really doing some heavy lifting all year, and everybody's looking forward to getting this behind us by the end of September.

Speaker Change: So, as I said, we're gradually transferring deli meat and dairy in Toronto from the old cold chain to this new fresh two.

Speaker Change: 50,000 or 60,000 or 70,000 cases a week are transferring, so by the end of September it'll be done and so far it's going well and service to our stores is maintaining at good levels.

Speaker Change: It's something we have to get through, but the teams have been doing some heavy lifting all year and everybody is looking forward to getting this behind us by the end of September.

Unknown Executive: Yes, I'm sure. So I'm assuming based on that that we shouldn't really expect disruption to be any significantly different, let's call it, that may be a little bit less than what we saw in... Yeah, that's fair. That's fair.

Speaker Change: Yes I'm sure. So I'm assuming based on that that we shouldn't really expect the disruption to be any any significantly different let's call it that maybe a little bit less than what we saw in Q2.

Unknown Executive: Okay, and then on the gross profit side, so it was pretty stable year over year. I'm sure there are a decent amount of pluses and minuses that go into that. But can you talk a little bit about some of those main sources of gross margin pressure and some of the initiatives you're undertaking to offset them? Well, you know, the market's competitive, promotional environment is strong, so that has an impact. We still get cost increases from vendors on the CPG side, so it's a delicate balance, and it's an effort to come up with the right gross margin and generate the sales that we're looking for.

Speaker Change: Thank you. Thank you.

Speaker Change: That's fair. Okay, and then on the gross profit side, so it was pretty stable year of year. I'm sure there's a decent amount of pluses and minuses that go into that. But can you talk a little bit about some of those main sources of gross margin pressure and some of the initiatives you're undertaking to offset them?

Speaker Change: Well, you know, the market's competitive, promotional environment is strong, so that has an impact. We get cost increases still from vendors.

Speaker Change: on the CPG side, so it's a delicate balance and it's an effort to come up with the right gross margin and generate the sales that we're looking for.

Unknown Executive: Like you said, it's puts and takes, shrink is an issue, theft is an issue, we manage that as best we can, I'm sure we can improve some more, but it's all of the above. So we have targets to meet, and we're trying to do the best mix we can between our sales and our margins, and we're pleased with the results that we've been delivering this year. Yeah, I mean, clearly, just to hold it just to hold it flat in an environment where your promo penetration is hitting highs and your and your shift, there's a shift to discount, and shrink is still an issue. But is there anything you can kind of point to that you're doing? really well too, that's kind of offsetting it; that's a primary offset.

Speaker Change: Like I said, it's puts and takes. Shrink is an issue. Theft is an issue. We manage that.

Speaker Change: As best we can, I'm sure we can improve some more, but it's all of the above, so we have targets to meet and we're trying to do the best mix we can between our sales and our margins and we're pleased with the results that we've been delivering this year.

Speaker Change: Yeah, I mean, clearly to hold it just hold it flat in an environment where you're thermal penetration is hitting eyes and you're shifting, there's a shift to discount and shrink is still an issue, but is there anything you can kind of point to that you're doing?

Speaker Change: really well to that's that's kind of offsetting it that's a primary offset.

Unknown Executive: I can add that it's about delivering value to our customers every week, and I think that's what we've been able to do, that's what our teams have been able to do on a weekly basis through a commercial program. We're well-positioned with our store network and discounts to capture the continued significant growth in discounts. There's still a gap between conventional and discount, and we're well-positioned to capture that. And in conventional, I think our teams have been able to manage the pressure with good promotional programs and meeting customer expectations on a week-to-week basis. So we're happy with how those banners are performing within their segment, even though overall, conventional is under pressure. Hopefully, that gives you a bit of color.

Speaker Change: I think it's about delivering value to our customers every week and I think that's what we've been able to do. That's what our teams have been able to do on a weekly basis through commercial program.

Speaker Change: We're well positioned with our store on that work in discount to capture the continued significant growth in this calendar, so a gap between conventional and discount.

Speaker Change: and we're well positioned to capture that.

Speaker Change: and in conventional, I think our teams have been able to manage the pressure by a good promotional program and meeting customer expectation on a week-to-week basis, so we're happy how we, how those banners are...

Speaker Change: are performing within their segment, even though overall conventional is under pressure. Hopefully that gives you a bit of color.

Unknown Executive: Yeah, that's great. Thanks very much. Thank you. The next question will be from Marc Petrie at CIBC. Yeah, thanks. Good morning.

Speaker Change: Yeah, that's great, thanks very much.

Speaker Change: Thank you. Next question, we'll be from Mark Patriot at CIBC. Please go ahead.

Unknown Executive: I wanted to ask about the Quebec market specifically. Obviously, grocery shopping is always highly competitive with weekly flyers and active loyalty offers. But have you noticed any shifts in the competitive balance in Quebec and, I know discount has taken share, maybe a bit more in Quebec than other regions, just given the score footage growth of the last year or two, but any shift in the relative balance between discount and conventional in Quebec?

Mark Patriot: Thanks, good morning. I wanted to ask about the Quebec market specifically. Obviously, grocery is always highly competitive with weekly flyers, active loyalty offers, but have you noticed any shifts in the competitive balance in Quebec?

Speaker Change: I know discount has taken share maybe a bit more in Quebec than other regions just given the square footage growth over the last year or two but any shift in the relative balance of you know between discount and conventional in Quebec?

Unknown Executive: Well, the discount market in Quebec is growing, as you point out, given the square footage additions on the discount side, massive conversions by one player. We have added square footage with new ones and a few conversions ourselves.

Speaker Change: Well, the discount market in Quebec is growing, as you point out, given the square footage of [inaudible]

Speaker Change: On the discount side, massive conversions by one player, we have added square footage with new one that a few conversions are self. So the discount total market is growing in Quebec, faster than it is in Ontario, because of that square footage and a number of doors.

Unknown Executive: So the total discount market is growing in Quebec faster than it is in Ontario because of that square footage and number of doors. So, like Marc said, it's a reality, the discount conversions are going to end pretty soon, and then we'll see where the market settles. We like our position with a good mix of both conventional and discount. Clearly, there's been a little more pressure on conventional these last couple of years with this shift, but we anticipate that at the end of the conversion wave, our metro banner will be on a good footing to grow again, and we're confident that with our Super C banner, we will capture the growth on the discount side as we've been doing. And with our pharmacy, we deliver value at Jean Coutu and Brudet every day with strong programs.

Speaker Change: So like I said, it's a reality that this count conversions are going to end pretty soon and then we'll see where the market settles. We like our position with the good mix of both conventional and discount.

Speaker Change: Terry, there's been a little more pressure on conventional at the last couple of years with this shift.

Terry: But we anticipate that at the end of the conversion wave, our Metro Banner will be on a good footing to grow again. And we're confident that with our Super C Banner, we will capture the growth on the discount side as we've been doing.

Speaker Change: And with our pharmacy, we deliver value at Jean Coutu and at Brudet every day with strong programs. So we have a good diversified mix and we're pleased with our solid position in the Quebec market, both food and pharma.

Unknown Executive: So we have a good diversified mix, and we're pleased with our solid position in the Quebec market, both food and pharmacy. Okay, I appreciate that. I appreciate the answer. Thank you, Eric.

Unknown Executive: Maybe just to follow up on that, have you seen any different behavior in the full service or conventional channel in Quebec versus other regions of the country, or, I guess specifically for you, Ontario? You mean, within conventional, how are the customers behaving compared to Ontario? I would say the behavior is very similar.

Speaker Change: Yeah, okay, I appreciate that. I appreciate the answer. Thank you, Eric. Maybe just to follow up on that, have you seen any different behavior in the full service or a conventional channel in Quebec versus other regions of the country or I guess specifically for you, Ontario?

Unknown Executive: Consumers are looking for value. They're participating in promotion more. They're trading down, especially in NEAT, I would say, that is the more expensive category. But I would say that the behavior within conventional is similar in both Quebec and Ontario. Okay, and probably one for you Francois, when you look at the business case, coming back to the DC topic, when you look at the business case for the Toronto phases and Turbine, is there any significant difference in terms of the expected return from each of those initiatives or the materiality of the impact on the P&L? No.

Speaker Change: But I would say that the behavior within conventional is similar in both Quebec and Ontario.

Eric: Yeah, okay.

Eric: and...

Francois: and probably one for you, Francois. When you look at the business case coming back to the DC topic, when you look at the business case for the Toronto phases and turbine, is there any significant difference in terms of the expected return from each of those initiatives or the materiality of the impact to the P&O?

Unknown Executive: Obviously, since we started building these business cases back in 2017-2018, the market has changed. We've gone through some events, and costs have gone up, but on a relative basis, the return on these projects is as good as when you compare them to the other alternatives, so we're still, even though the inputs may have changed in terms of cost and so forth, the returns are as they were expected. Sorry, let me just clarify my question.

Speaker Change: No, you know, obviously since we started building these different cases back in the...

Speaker Change: 2017, 2018, I've a seat at the market has changed, we went through some events and costs have gone up, but...

Speaker Change: On the relative basis, the return of these projects are as good.

Speaker Change: As when you compare to other alternatives that we had studied so we're still, even though we, you know, the inputs may have changed in terms of cost and so forth, the returns are as they were expected.

Unknown Executive: What I meant was, those shifts, you know, as the market has shifted and the cost, cost dynamics have shifted over the last number of years, has that affected one of the DC projects more or less than the others? Or have they all been affected similarly? The same. Very similar.

Speaker Change: Sorry, let me just clarify my question. What I meant was...

Speaker Change: Those shifts, you know, as the market has shifted and the cost dynamics have shifted over the last number of years. Has that affected one of the DC projects more or less than the others or have they all been affected similarly?

Unknown Executive: Yeah, okay. Fair enough. Thanks for all the comments, guys.

Speaker Change: The same. Very similar. Yeah. Okay. Fair enough. Thanks for all the comments, guys. All the best.

Unknown Executive: All the best. The next question will be from Vishal Shreedhar at National Bank. Hi, thanks for taking my questions. Your food same-source sales gap versus peers is noteworthy, and I'm just wondering.

Speaker Change: Thanks for watching!

Speaker Change: Next question will be from the Charles Ridaire at National Bank. Please go ahead.

Charles Ridaire: Hi, thanks for taking my questions. Your food chain source fails, gap versus peers is nowhere to me. And I'm just wondering...

Unknown Executive: If there's anything, you know, transient in this quarter and as we look to the next quarter. Pat, is the hold still on, or are there any considerations we should think about? It's difficult to predict same-store sales going forward with the competitive environment, but as you said, we're satisfied with our same-store sales in Q3. I think our programs are responding well, and for us, an indication of performance is tonnage, and we're happy about the tonnage that we're generating.

Speaker Change: If there's anything, you know, transients in this quarter, and as we look to the next quarter, there's a lot of that that we're on. So, so, hold, there's our inconsiderations we should, you should think that.

Speaker Change: Ab...

Speaker Change: It's difficult to predict the same sort of sales going forward with the competitive environment, but as you said, we're satisfied with our, with our same sort of sales in Q3, I think our program are resonating well and for us

Speaker Change: and the indication of performance is tonnage and we're happy about the tonnage that we're generating. It means that the customers are appreciating our programs and are coming through our doors, and that's what the teams are going to try to continue to do.

Unknown Executive: It means that customers are appreciating our programs and are coming through our doors, and that's what the teams are going to try to continue to do. We talked about Moi and Quebec; the team is now using Moi more and more to understand customer behavior and to try to influence that behavior across our different banners, and we're going to be launching next fall in Ontario.

Speaker Change: We talked about what and to back the team are now using more and more and more to understand customer behavior and to try to influence that behavior across our different vendors. And we're going to be launching next fall in Ontario. The first focus is going to be the launch and customer member.

Unknown Executive: The first focus is going to be the launch and customer membership, growing members, and then it'll move to engagement. But overall, we're satisfied with the quarter in the overall competitive environment, and we'll try to continue to go in that direction. But it's difficult to predict, as I said. Thank you.

Speaker Change: Customer membership, growing members, and then it'll move to engagement. But overall, we're satisfied in the quarter and in the overall competitive environment, and we'll try to continue to go in that direction, but difficult to predict, as I said.

Unknown Executive: Management commented on shrink and the challenge with controlling that. I was wondering how that relates to management's initiatives to roll out self-checkout and if that's going to continue at the same pace and self-checkout to be problematic. So shrink is the result of a balanced promotional program and a balanced program at the store that can be executed and tonnaged. But also TEF, as Eric has mentioned, so as consumers' shift behavior and promotional ratio increase, we need to adapt our store operations. So in the first quarter, we saw a little bit of elevated shrink in meat, and the team was able to manage that afterwards. And so that was my first comment.

Speaker Change: Thank you for that. Management commented on shrink and the challenge with controlling that. Just wondering how that relates to management's initiatives to roll out self-check out and if that's going to continue at the same pace and they're doing self-check out to the problematic for controlling shrink.

Speaker Change: So shrink is the results of a balanced promotional program and a balanced program at store that can be executed and tonnaged.

Tessa Verca: but also Tessa Verca, as mentioned, as Consumers Shift Bader and Promotional Arracial Increase.

Speaker Change: We need to adapt our store operations. So, in the first quarter, we saw a little bit of elevated shrink in meat, and the team have been able to manage that afterwards.

Unknown Executive: The second comment is on TEF. And as Eric said, during these challenging times for consumers, TEF has increased in our stores, and we have multiple initiatives to manage TEF from security, from cameras, and at SCO, in particular, we're piloting technology right now to better track consumer behavior at SCO, and hopefully those pilots will be successful and then deployed, and will allow us to better manage TEF. Okay, so self-checkout is proceeding with the rollout.

Speaker Change: and so that was my first comment. Second comment is on the cap.

Speaker Change: and as Eric said, during these challenging time for consumers, as increase in our stores.

Eric: We have multiple initiatives to manage theft from security, from camera, and at SCO in particular, we're piloting technology right now to better track consumer behavior at SCO, and hopefully those pilots will be...

Speaker Change: successful and then deployed and will allow us to better manage that fiscal.

Speaker Change: Okay, so self-checkout is proceeding with the rollout of this plan.

Unknown Executive: Yeah, we're pretty much deployed already in most of our stores. The SCO deployment has happened in the last few years. The continued deployments, I would say, are just adjustments in stores. There's not a major deployment of SCO right now.

Speaker Change: Yeah, we work pretty much deployed already in most of our stores. The school deployment has happened in the last few years.

Speaker Change: The continued deployments that would say are adjustments in store, there's not a major deployments of school right now. It's more about how do we manage our self-checkout area more efficiently.

Unknown Executive: It's more about how we manage our self-checkout area more efficiently. First, the delivery of customer satisfaction, and second, to manage this. The delivery of customer satisfaction, and second, to manage this. OK, and my last question is, Vishal, if your question is, are we removing self-checkouts from some stores? We haven't gone to that measure yet, but it's something we manage carefully, store by store, market by market, but we're not there yet. We want to provide good service, and the self-checkout is part of that service, with the regular checkouts for customers to get out of our stores as fast as they want.

Speaker Change: First, the delivery customer satisfaction and second, to manage theft.

Speaker Change: Okay, and my last question is, if you're interested in the challenge, your question is, are we removing self-checkouts from some sort of stores we haven't gone to that measure yet? But it's something we manage, carefully store by store, market by market, but we're not there.

Speaker Change: We want to provide good service and the self-checkout is part of that service with the regular checkouts for customers to get out of our stores as fast as they want.

Unknown Executive: Thank you for that clarification. And, you know, Eric, just a conceptual question for you on conventional versus discount, and obviously, the inflation that consumers have seen has placed pressure on the conventional offer. But if you look at some of these newer discount stores being rolled out, some of them have, you know, conventional-like offerings, and I'm wondering if that's causing you to reflect on what conventional is offering to the consumer, if there needs to be an adjustment made to the conventional format, either offering more services, or more exciting products. Is that something that you deem needs to change to get the consumer excited again? Or is it merely an issue of anniversarying the time frame?

Speaker Change: Thank you for that clarification and you know Eric just a conceptual question for you on

Eric: on conventional versus discount and obviously the inflation that consumers have seen has placed pressure on conventional offer. But if you look at some of these newer discount stores being rolled out...

Speaker Change: Some of them have, you know, conventional-like offerings. And I'm wondering if that's causing you to reflect on what conventional is offering to the consumer, if there needs to be an adjustment made to the conventional format, either offering more services, more exciting products. Is that something that you deem needs...

Speaker Change: needs change to get the consumer excited again or is it merely an issue of anniversarying this high inflation?

Unknown Executive: Well, you know, it's the mission of all of our stores to continuously improve their offer in the track cutters. So, clearly, it's a discount, these account stores offer more and are fully renovated, and some brand new stores. They're a chain of stores.

Speaker Change: Well, you know, it's the mission of all of our stores to continuously improve their offer and attract customers.

Speaker Change #100: Clearly, this count stores offer more and are fully renovated and some brand new stores. They're attractive stores, so that puts pressure on the conventional stores. They have to provide.

Speaker Change #100: something different. They have more assortment, more services.

Unknown Executive: The experience for the customer has to be elevated, and I think that's what the Metro Banner is trying to do. So again, market by market, store by store, we are investing in our conventional stores, we're investing in our programs, we're investing in our loyalty programs. So there's more for the consumer in our conventional stores, and it's a differentiated offer versus discount, and that's the way it needs to be. At a conceptual level, it has to be...

Speaker Change #100: The experience for the customer has to be elevated and I think that's what the Metro Banner is trying to do.

Speaker Change #100: So again, market by market store by store, and we're investing in our conventional stores, we're investing our programs, we're investing on our loyalty programs.

Speaker Change #100: So there's more for the consumer.

Speaker Change #100: in our conventional stores, and it's a differentiated offer versus discount, and that's the way it needs to be. So at a conceptual level, it has to be executed that way. And overall, I think we're having some success.

Unknown Executive: Executed that way, and overall, I think we're having some success. Thank you. The next question will be from Michael Van Aelst at TD Cowan. Please go ahead.

Unknown Executive: Thank you. Just a clarification. When we were talking about the performance of discount versus conventional and tobacco, I'd like to try and separate the conversions from the actual kind of same store performance. So if you're able to look in Quebec markets where there are no conversions happening, how meaningful is the gap in performance between conventional and this? Similar, I would say similar to Ontario, so as we're seeing it as we cycle conversions in the market, competitive conversions, or own conversions, we continue to be happy with the performance of our discount stores and conventional stores.

Unknown Executive: That's why Eric earlier said that we're going to be experiencing the turbulence or the square footage growth in the Quebec market, and we're confident that both our discount and conventional offer are competing well. But if you exclude...

Speaker Change #101: Thank you.

Speaker Change #101: Thanks!

Speaker Change #102: Next question will be from Michael Van Elst at TD Cowen. Please go ahead.

Speaker Change #103: I thank you. Just a clarification, when we were talking about the performance of discount versus conventional and tobacco, I'd like to try and separate the...

Speaker Change #104: The conversions from the actual kind of same store performance, so if you're able to look in Quebec markets where there are no conversions happening, how meaningful is the gap and performance between conventional and discount?

Speaker Change #105: Similar, I would say similar to Ontario, so as we're seeing it as recycling conversions in the market competitive conversions are all conversions. We continue to be happy with the performance of our discount stores and conventional stores.

Eric: That's why Eric earlier said that we're going to be cycling the turbulence or the square-footed growth in the Quebec market, and we're confident that both are at this kind of intervention law for our competing well. But if you, if you exclude,

Unknown Executive: The square footage growth and discounts in Quebec, I'd say that the competitive dynamic and the growth of discounts would be similar. Just a compliment on that. So in markets where there are no conversions, so with the status quo, the discount, speaking for ourselves, our discount stores are growing faster than our conventional stores. So when you look at the total market, the number of the gap between conventional and discount stores, the total market gap is quite significant because of all the square footage. And in markets where there's no difference in square footage, there's a gap.

Speaker Change #106: The square footage growth and discount in Quebec, I'd say that the competitive dynamic and the growth of discount would be similar.

Speaker Change #107: Just a compliment on that. So in markets where there are no conversions so a status quo, the discount, speaking for ourselves, our discount stores are growing faster than our conventional stores.

Unknown Executive: It's a much smaller gap, but there's a gap and it's a reality of the market today. [inaudible] And that's why we like to have both, that's why we like to have both banners, and we go to market with both banners and pretty much in every province, speaking for Quebec and more and more in Ontario, we will go with conventional and discount in all markets. Okay, so just, so that's helpful. And just to clarify one a little bit more, so where you aren't having, where you aren't seeing conversions. Is conventional farming actually growing?

Speaker Change #107: So, when you look at the total market, the number, the gap between conventional discounts, the total market gap is quite significant because of all the square footage. In markets where there's no difference in square footage, there's a gap. It's a much smaller gap, but there's a gap.

Speaker Change #107: It's the reality of the market today. And that's why we like to have both banners, and we go to market with both banners, and pretty much in every, speaking for Quebec, and more and more in Ontario, we will go with conventional and discount in all markets.

Speaker Change #108: Okay, so that's helpful and just declare if I want a little bit more, so where are you, where you aren't having.

Unknown Executive: Or is it just, you know, the discount we know is outperforming, but is conventional actually growing? Yeah, in certain markets, there's some growth; it's lower than discount, but there's some growth. In other markets, it really depends market by market, so I'm not going to call out a number for you, but yes, we do have metro stores that are growing in several areas across Quebec and Ontario.

Speaker Change #109: where we aren't seeing conversions. Is conventional actually growing, or is it just, you know, discount we know is outperforming, but is conventional actually growing?

Speaker Change #110: Yeah, in certain markets there's lower, there's some growth, it's lower than discount, but there's some growth. In other markets, you know, it really depends market by market, so I'm not going to call out.

Speaker Change #111: A number for you, but yes, we do have metro stores that are growing in several areas across Quebec and Ontario.

Unknown Executive: All right, thanks very much. Congratulations. Thank you. Thank you. Once again, ladies and gentlemen, if you do have any questions, press the star followed by 1.

Speaker Change #112: Alright, thanks very much. Congratulations. Thank you. Thank you. Once again, ladies and gentlemen, if you do have any questions, please press star or follow the one on your touchstone phone. And your next question will be from Chris Lee at the Jartek. Please go ahead.

Unknown Executive: Your first question will be from Chris Lee at Deja. Oh, thank you. Just maybe a few quick follow-ups. I'm sorry.

Unknown Executive: Sorry if I missed this already, but was the gross margin largely stable overall, both in food and pharmacy? Yes. Overall, they've Okay. And Francois, you've always said that, you know, a key risk to earnings is sort of the lag between slowing food inflation and the rise in exchange expenses from sort of labor costs. You guys seem to be managing this dynamic very well so far. And so my question is, do you expect this to continue?

Chris Lee: Well, thank you, just maybe a few quick follow-ups. Sorry, sorry if I missed this then I'm already, but what's the most margin, largely, stable, overall voting, food, and pharmacy?

Chris Lee: Yes.

Speaker Change #113: Overall, it was stable.

Speaker Change #113: Francois, you've always said that a key risk to earnings is the lag between slowing food inflation and the rise in exchange expenses from labor costs.

Speaker Change #114: You guys seem to be managing this dynamic very well so far and so my question is I do expect this to continue and are there any new meaningful cost reduction initiatives that sort of give you this confidence?

Unknown Executive: And are there any new meaningful cost reduction initiatives that sort of give you this confidence? You're right; I've been calling this slag in reflecting inflation in OPEX for a while now, and it's still present. Obviously, as inflation declines over time, that pressure will diminish, but we still are seeing some pressures, and we always have several initiatives with the goal to reduce or contain OPEX. I think the trend, if you look at the trend this year, it's trending in the right direction and as expected.

Francois: You're right, I've been calling this flag in reflecting inflation in OPEX for a while now, and it's still present, obviously as inflation declines.

Speaker Change #115: Over time, that pressure will diminish, but we still are seeing some pressures and we have, we always have several initiatives on the goal to reduce or contain OPEC. I think the trend, if you look at the trend...

Speaker Change #115: This year is trending in the right direction and as expected, you know when Q1 or OPEX was up 10 and a half

Unknown Executive: In Q1, our OPEX was up 10.5% year-over-year, in Q2 6.1%, and in Q3 4.8%, probably a little bit over 5% when you account for the launch costs and the econ fees, but it's trending down year-over-year. As a percentage of sales, we went from 40 bps higher SG&A versus last year in Q1, 40 bps in Q2, and now 10 It's trending in the right direction, and as I said, as inflation continues to decline, we expect that pressure will diminish, but you still need to be very focused on maintaining those cost pressures.

Speaker Change #115: Ten and a half percent, you over here in Q2 6.1 and in Q3 4.8.

Speaker Change #115: probably, you know, a little bit over 5% when you account for the model launch costs and the econ fees, but it's trending down year over year. And as a.

Speaker Change #115: as a percentage of sales.

Speaker Change #116: We went from a 40-bit.

Speaker Change #116: Higher as GNA versus last year in 21, 40 this in Q2 and now 10 dips.

Speaker Change #116: You know, closer to the 20 bits when you account for the more launch cost. So it's trending in the right direction, and as I said, as inflation continues to decline, but we expect that pressure will diminish, but it's still not, it's still need to be very focused on maintaining those costs, those cost pressures.

Unknown Executive: That will continue, that will still continue in the short term as I, as I, Oh, okay, that's helpful. And maybe just a couple of last ones, just on CapEx. Are you still on track to, I think, about $650 million targeted for this year? Are you still on track to, have that suspended for this year? Yeah, it'll be closer to that to be around that level. Would it be similar for next year?

Speaker Change #116: That will continue, that will still continue in the short term as I expect it to be.

Speaker Change #117: OK, that's helpful and maybe just a couple of last ones, just on cap eggs, are you still on track two, I think, you're about 650 million target of this year, are you still on track two?

Speaker Change #118: had that spending for this year. Yeah, it'll be closer to that to be around that level. Would it be similar for next year?

Speaker Change #119: I'm not going to call out next year yet, we're going to budget, we're trying to find I think our budget, I'll be able to give more color on the Q4. I said what I've said before is a normal run rate without any other special projects would be, you know, 5, 5, 5, 5, 5, 600 that didn't.

Unknown Executive: That's a normal run rate capex for us, but it's never a run rate year for us. I'll give you more color in Q4 once we've completed our budget. Okay, and the last one for me, I mean, your balance sheet is obviously in good shape with leverage around the low twos. Is there an opportunity for you to perhaps upsize your share buyback next year, especially as your supply chain monetization is now complete and your free cash flow conversion as you're on the two remains very strong? Well, it's a good question.

Speaker Change #119: That's a normal run rate CapEx for us, but it's never a run rate year for us, so I'll give you more coverage once we've completed our budgets.

Speaker Change #120: Okay and the last one for me, I mean your balance sheet is obviously in good shape with leverage around the low twos. Is there an opportunity for you to perhaps upsize your share buyback next year especially as your supply chain modernization is now complete and your pre-cash flow conversion as you're on good two remains very strong?

Unknown Executive: There's been no change in our capital allocation or our leverage targets. So, yes, leverage has been coming down. As you say, we've been generating good cash from operations despite the high level of CapEx, and we've been maintaining a solid balance sheet. So, we said that we wanted to be at no more than three times adjusted debt to a bid from us. That remains the limit. And there's still room to grow that leverage from where it is today, especially now that those big projects are getting behind us with less risk.

Speaker Change #121: Well, it's a good question. There's no change in our capital location, there's no change in our leverage target. So yes, leverage has been coming down, as you say, we've been generating good cash from operations.

Speaker Change #121: despite the high level of CAPEX that we've been we've been maintaining a solid balance sheet.

Speaker Change #121: You know, we said that we don't, we want to be at no more than three times or just a debt to a bit of us. That remains the limit and there's room, you know, there's still room to grow that leverage.

Speaker Change #121: from where it is today, especially now that those big projects are getting behind us, less risk, so it's something that we will be looking at as we enter fiscal 25.

Speaker Change #122: This is very helpful. Thank you.

Unknown Executive: So, it's something that we will be looking at as we enter fiscal 25. Very helpful. Thank you. And at this time, I would like to turn the call back over to Kadoche. Please go ahead.

Speaker Change #123: Thank you.

Speaker Change #123: Thank you, and at this time, I would like to turn the call back over to Candace. Please go ahead.

Unknown Executive: Hey, thank you all for your interest in Metro, and please mark your calendars for our fourth quarter results on November 20th. Thank you. Thank you. Ladies and gentlemen, this concludes today's conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. [music]

Candace: Thank you all for your interest in Metro, and please mark your calendars for our fourth quarter results on November 20th. Thank you.

Speaker Change #125: Thank you. Ladies and gentlemen, this does indeed continue to conference call for today. Once again, thank you for attending. At the time we end.

Speaker Change #125: We ask that you please disconnect your lines.

Speaker Change #126: Have a good day.

Unknown Executive: No, no, no, no, no, no, no, no, no, no, no, no, I'm not going to call out next year yet. We're finalizing our budget. I'll be able to give more color on the Q4. As I've said before, a normal run rate without any other special projects would be $550,000-$600,000.

Unknown Executive: We're happy with the performance so far, but it's clearly in the ramp up here, and it would be a stretch to say that Tabun is contributing to the higher seamstor sales. I hope that answers your question. Yeah, that does.

Unknown Executive: So that puts pressure on the conventional stores. They have to provide something different. They have more equipment, and offer more services.