Q2 2025 The North West Company Inc Earnings Call
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Daniel McConnell: We thank you very much for watching the conference of the BITRA SUP. We thank you very much for watching the conference of the BITRA SUP.
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Operator: Please stand by; your meeting is about to begin. Please be advised that this conference call is being recorded.
Daniel McConnell: Please stand by, your meeting is about to begin, please be advised that this conference call is being recorded.
Operator: Welcome to the North West Company Inc.
Operator: 2nd quarter results conference call.
Speaker Change: Welcome to the Northwest Company Inc. 2nd Quarter Results Conference Call. I would like to turn the media over to Mr. Stem McConnell, President and Chief Executive Officer. Mr. McConnell, please go ahead.
Daniel McConnell: I would like to turn the meeting over to Mr. Dan McConnell, President and Chief Executive Officer. Mr. McConnell, please go ahead.
Daniel McConnell: Thank you very much, and good morning, and welcome to the North West Company 2nd quarter conference call. I'm joined here today by John King, our Chief Financial Officer; Alexis Cloutier, our VP of Legal and Corporate Secretary.
Stem McConnell: Thank you very much and good morning and welcome to the Northwest Company, second quarter conference call. I'm joined here today with by John King, our Chief Financial Officer and Alexis Kooche, our VP of Legal and Corporate Secretary. I'm going to start the meeting by asking Alexis to read our disclosure statement.
Alexis Cloutier: I'm going to start the meeting by asking Alexis to read our disclosure statement.
Alexis Cloutier: Thank you, Dan. Before we begin today, I remind you that certain information presented may constitute forward-looking statements. Such statements reflect North West's current expectations, estimates, projections, and assumptions. These forward-looking statements are not guaranteed the future performance and are subject to certain risks, which could cause actual performance and financial results in the future to vary materially from those contemplated and forward-looking statements. Any forward-looking statements are current only as of the date they're made, and the company describes any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future results, or otherwise.
Alexis Kooche: Thank you, Dan. Before we begin today, I remind you that certain information presented may constitute forward-looking statements.
Speaker Change: Such statements reflect Northwest current expectation, estimates, projections and assumptions.
Speaker Change: These forward-looking statements are not guaranteed the future performance and are subject to certain risks which could cause actual performance and financial results in the future to very materially from those contemplated and forward-looking statements.
Speaker Change: Any four bookings statements are currently as of the date they made and the company disclaims any intention or obligation to update or revise any four-looking statements, whether the result of new information, future results or otherwise, other than what's required by law.
Alexis Cloutier: Other than what's required by law. For additional information on these risks, please see North West Annual Information Form and its MDNA under the heading Risk Factors.
Speaker Change: For additional information on these risks, please see Northwest Annual Information Forum in its MD&A under the heading risk factors.
Speaker Change: Thank you for watching!
Daniel McConnell: Okay, thanks, Alexis. I will begin by providing a brief overview of this course's results. I'll then provide some additional color on sales within our Canadian and international operations before making some comments on the key factors impacting our consolidated gross profit and expenses.
Speaker Change: Thanks for watching!
Speaker Change: I will begin by providing a brief overview of this course results, all then provide some additional color on sales with an Arcaneidian and International Operations, before making some comments on the key factors impacting our consolidated gross profit and expenses. Finally I'll wrap up with a few comments on our outlook in next 100 programs before we'll call up for some questions.
Daniel McConnell: Finally, I'll wrap up with a few comments on our outlook in the next 100 program before we open and call up for some questions. All right, so let's dive right in. Overall, we are very pleased with the results of this quarter, especially considering the impact of some non-comparable factors this year, and the fact that we are up against a 17.5% increase in net earnings in the second quarter of last year. Our second quarter results this year were driven by strong top-line growth, with consolidated sales up 4.6% and gross profit up 7.5% for the quarter. However, the strong sales and gross profit results did not fully translate to the bottom line in the quarter, and it was primarily due to three factors.
Speaker Change: All right, so let's dive right in.
Speaker Change: Overall, we are very pleased with the results of this quarter, especially considering the impact of some non-comparable factors this year, and the fact that we are up against the 17.5% increase in net earnings in the second quarter of last year. Our second quarter results this year were driven by strong top-line growth, but consolidated sales up 4.6% and grows profit up 7.5% for the quarter.
Speaker Change: However, the strong sales and growth traffic results did not fully translate to the bottom line in the quarter and there's primarily due to three factors. First, learning from our investment in transport and ducts, which is a Canadian shipping company serving the Arctic. We're down 1.8 million compared to last year due to higher vessel repairs, which have also temporarily delayed the start of the sea lift season in Canada.
Daniel McConnell: First, earnings from our investment in Transport and Duck, which is a Canadian shipping company serving the Arctic, were down 1.8 million compared to last year due to higher vessel repairs, which have also temporarily delayed the start of the sea lift season in Canada. Second, a 1.8 million dollar net increase in expenses resulting from two non-comparable expenses, which include higher share-based compensation costs this year, partially offset by the loss of our store in Fox Lake, Alberta, last year due to wildfire. Third, the implementation of the global minimum tax that resulted in a 1 million dollar increase in tax expense for the quarter.
Speaker Change: Second, a $1.8 million net increase in expenses resulting from two non-comparable expenses which include higher share-based compensation costs this year, partially offset by the loss of our store in Fox Lake, Alberta last year due to wildfire.
Speaker Change: and Sir, the implementation of the global minimum tax that resulted in a million dollar increase in tax expense for the quarter.
Daniel McConnell: The net impact of these factors resulted in a 3 percent decrease in net earnings this year compared to the strong net earnings last year. That said, within this backdrop, we are very pleased with our results that delivered increases in adjusted even of 6.1 percent and adjusted net earnings of 1.6 percent.
Speaker Change: The Indian Impact of these factors resulted in 3% decrease in net earnings this year compared to the strong net earnings last year.
Speaker Change: That said, within this backdrop, we're very pleased with our results that deliver increases in adjusted even that of 6.1%. An adjusted net earnings of 1.6%.
Daniel McConnell: With that context provided, let me unpack the operational results. This led by strong food sales. Sales were positively impacted by increased consumer demand arising from First Nations drinking settlement payments to individuals. However, the volume of these payments in the second quarter relative to the total settlement remains low. That said, we expect to see these payments continue throughout the remainder of this year and into 2025. We also experienced increased consumer demand in certain markets from First Nations, Child and Family Services, and the Jordan's Principle, programs that help provide greater access to nutritious food. The positive impact of these factors was somewhat muted by higher sales in the second quarter last year, resulting from the impact of the government inflation relief payments, including the grocery rebate paid to individuals to help mitigate higher cost of living.
Speaker Change: with that context provided let me unpack the operational results.
Speaker Change: Sales and Canadian operations increased 5.6% for the quarter and we're up 6.8% on a same start basis led by strong food sales. Sales are positively impacted by increased consumer demand arising from first nations drinking settlement payments to individuals, however the volume of these payments in the second quarter relative to the total settlement remains low.
Speaker Change: That said, we expect to see these payments continue throughout the remainder of this year and into 2025. We also experienced increased consumer demand and certain markets from First Nations Child and Family Services and the Jones Principle. Programs that help provide greater access to nutritious food.
Speaker Change: The positive impact of these factors was somewhat muted by higher sales in the second quarter last year, resulting from the impact of the government inflation relief payments, including the grocery rebate paid to individuals to help mitigate higher cost of living.
Daniel McConnell: Underpinning these financial drivers is a good in-stock position and improved execution at store level, particularly in fresh categories, as we remain focused on operational excellence as part of our next 100 program.
Speaker Change: Underpinning these financial drivers because a good-in stock position and improved execution at a store level, particularly in fresh categories as we remain focused on off-racial excellence as part of our next 100-program.
Daniel McConnell: In contrast, our international operations had a more challenging economic environment, which contributed to its softer performance in the quarter. Sales and our international operations increased by 0.8%, and we're up 0.9% on the same start basis, as the sales increase from new stores was partially offset by lower wholesale sales. We grew economic conditions, particularly in tourism-dependent markets in Alaska and the South Pacific, and a slower start to the commercial fishing season in Alaska reduced discretionary spending in certain markets. The shift in discretionary spending is evident in our sales mix, with food sales of 1.1%, well general merchandise sales decreased by 2.5% compared to last year.
Speaker Change: and Contrast are international operations had a more challenging economic environment, which contributed to a softer performance in the quarter.
Speaker Change: Sales and Render National Operations is increased by 28 percent and we're up 0.9 percent on the same start basis as the sales increase from new stores was partially offset by lower wholesale sales.
Speaker Change: We're at economic conditions, particularly in tourism dependent markets in Alaska and the so specific, and a slower start to the commercial fishing season in Alaska, reduce discretionary spending in certain markets.
Speaker Change: This shift industry, expanding is evident in our sales mix with food sales up 1.1% Well, gentlemen, our merch and I sales decreased by 2.5% compared to last year.
Daniel McConnell: Okay, let me transition here and talk about consolidating gross profit results. Our gross profit rate for this quarter increased by 91 basis points, largely as a result of two key factors. First, a shift in sales blend, which includes the decrease in sales in our lower-margin wholesale business. And second, we also experience improvement in markdowns and shrink compared to the prior year, and an increased focus on being in stock and execution in fresh departments.
Speaker Change: Okay, let me transition here and talk about consolidating gross profit results.
Speaker Change: Our gross profit rate for this quarter increased by 91 basis points largely as a result of two key factors. First, a shift in sales blend, which includes the decrease in sales and our lower margin wholesale business. And second, we also experienced an improvement in markdowns and shrink compared to the prior year. And an increased focus on being in stock and execution, contrast departments.
Daniel McConnell: I will now briefly touch on the key factors that contributed to higher expenses in the quarter. During the quarter, expenses increased by 10.1%, and we're up 127 basis points as a percentage of sales. This increase was mainly driven by non-comp expenses. I noted at the beginning of the call, which included the higher impact of vessel repairs in transport conduct, and the increase in share-based compensation, partially offset by the $3.7 million loss in our Fox Lake store, destroyed by wildfires last year. In addition to these factors, inflationary Edmonds and labor costs and increase in depreciation and the impact of foreign exchange on the translation of international operation expenses also contributed to the increase in expense for the quarter.
Speaker Change: I will now briefly touch on the key factors that contributed to higher expenses in the quarter.
Speaker Change: During the quarter expenses increased by 10.1% and we're up 127 basis points as a percentage of sales.
Speaker Change: This increase was mainly driven by non-compact spances. I noted at the beginning of the call, which included the higher impact of vessel repairs in transport and duct and the increase in share-bease compensation, partially offset by the 3.7 million dollar loss, and our Fox Lake Sturder, destroyed by wildfires last year.
Speaker Change: and an addition to these factors in flacenary headbens and labor costs and increase into appreciation and the impact of foreign exchange on the translation of international operation expenses also contributed to the increase in expense for the court.
Daniel McConnell: As mentioned on previous calls, we have highlighted our efforts to control expenses at the store level through the next 100 initiatives. This includes reviewing store resources and launching initiatives to optimize labor scheduling to line with customer demand using a data-driven approach.
Speaker Change: As mentioned on previous calls, we have highlighted our efforts to control expenses at the store level through the next 100 initiatives. This includes reviewing store resources and launching initiatives to optimize labor scheduling to line with customer demand using a data driven approach.
Daniel McConnell: With that overview of our results, I will finalize by speaking briefly about our look for this year and provide a few remarks on the next 100 program. The macroeconomic term really looks uncertain, particularly in our international operations and tourism-dependent markets and countries that do not have government income support programs or individuals. As it relates to water settle and payments in Canada, we expect an increasing consumer demand, particularly towards the end of this fiscal year and on into 2025. By one return, the impact of government and Canada transfer and settlement payments combined with higher infrastructure and services spending is expected to benefit Indigenous peoples in the communities we serve.
Speaker Change: with that overview of our results. I will finalize by speaking briefly about our look for this year and provide a few remarks on the next one on our program.
Speaker Change: The macroeconomic room, uh, term really looks, uh, unsearched, particularly in our international operations and tourism dependent markets and countries that do not have government income supposed to regret for individuals. As it relates to the water settle and payments in Canada, we in expect an increasing consumer demand, particularly towards the end of this fiscal year and on into 2, any 25.
Speaker Change: Longer term, the impact of government and candidate transfer and settlement payments, combined with higher infrastructure and services spending, is expected to benefit Indigenous peoples in the communities we serve.
Daniel McConnell: Through the next 100 program, our teams are driving operational excellence, expanding our capabilities, and pursuing value for our customers, our employees, and our shareholders. The outcome of this work in the next 100 programs is expected to drive annualized incremental EBIT, which is anticipated to start later this year and continue to accelerate through 2025 and 2026 as these initiatives reach maturity. As we lay the groundwork for these improvements, we anticipate incurring some one-time costs for professional fees and other expenses. These one-time costs are expected to incur in the back half of this year and continue to 2025 as the next 100 initiatives are operationalized.
Speaker Change: Through the next one on a program, our teams are driving our pre-social excellence, expanding our capabilities and pursuing value for customers, our employees and our shareholders.
Speaker Change: The outcome of this work in the next 100 programs is expected to drive annualizing incremental EBIT, which is anticipated to start late this year and continue to accelerate through 2025 and 2026 as these initiatives reach maturity as we in the ground work for these improvements, we anticipating curing some one-time cost for professional fees and other expenses. These one-time costs are expected to incur in the back half of this year and continues to 2025 as the next 100 initiatives operationalized.
Daniel McConnell: Our expectation is that the incremental EBIT from these initiatives will more than offset the one-time costs; however, there will be a timing difference as these one-time costs will be incurring before the full annualized benefits are achieved. We will provide further information on these one-time costs and our quarterly ports as they are incurred.
Speaker Change: Our expectation is that the incremental EBIT from these initiatives will more than offset the one-time costs. However, there will be a timing difference as these one-time costs will be incurring before the full annualized benefits are achieved.
Speaker Change: will provide further information on these one-time costs and are quarterly for each as they are in food.
Daniel McConnell: On that note, let me wrap up by highlighting that we are very proud to ever see from the Canadian Rocher in impact a war in the diversity, equity and inclusion category for our Indigenous procurement strategy. Diversity, equity, and inclusion are core principles of who we are as a company, and this award is reflective of our promise to Indigenous peoples.
Speaker Change: I'm that note, let me wrap up by highlighting that we are very proud to ever see you from the community brochure in the impact of war in the diversity equity and inclusion category for our Indigenous procurement strategy. Diversity, equity and inclusion are core principles of who we are as a company.
Mr. Ward: and Mr. Ward is reflective of our promise to indigenous peoples.
Daniel McConnell: With that, I will now open it up for any questions. Thank you.
Speaker Change: with that I will now open it up for any questions. Thank you. We will now take questions from the telephone lines.
Operator: We will now take questions from the telephone lines. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time. If you have a question, there will be a brief pause of participants to register for questions. Thank you for your patience. Once again, please press star one at this time. If you have a question.
Speaker Change: If you have a question, please press star 1 on your devices keypad. If you may cancel your question at any time by pressing star 2, please press star 1 at this time. If you have a question, there will be a brief pause of participants' register for questions. Thank you for your patience.
Speaker Change: Once again, please press star 1 at this time if you have a question.
Michael Van Elst: Would you have a question from Michael Van Elst from Katie Cohen? Please go ahead.
Speaker Change: We'd have a question from Michael Van Ailes from TV Colon. Please go ahead.
Michael Van Elst: Hi, thank you.
Michael Van Elst: A few questions for you. So just looking at the higher same store sales in Canada, particularly on the food side, it was quite strong, and you did highlight some areas where they had the higher access to nutritional foods. So is this part of the $48 billion child welfare reform program, or that's supposed to come over the next 10 years, or is this something?
Speaker Change: Thank you.
Speaker Change: I have a few questions for you, so just looking at the higher, same store sales in Canada for the equity on the food side, it was quite strong and you did a highlight.
Speaker Change: and Summary is where they had the higher access to nutritional foods. So is this part of the $48 billion child wealth or a form boat? Or that's supposed to come over the next 10 years?
Daniel McConnell: I am Michael. It's down here, obviously. So, yeah, I believe it is. It's a more part of Jordan's principle, but it hasn't been necessarily identified as such, but I think it's just along the whole emphasis behind providing more healthy living options in Northern Canada. But I can't say particularly if it is part of the settlement, but it is definitely aligned with the Jordan's Principle that has some other buckets that have been reached into. So I guess it's just hard because they don't describe in detail where that $48 billion is going to be spent. And I don't think they give a lot of detail on how they're going to fund how they're going to change their approach with Jordan's Principle.
Speaker Change: or is this something separate?
Michael: and Michael, it's down here obviously. So yeah, I believe it is. It's more part of Jordan's principle, but it hasn't been necessarily identified as such, but I think it's just along the...
Michael: the whole.
Speaker Change: emphasis behind providing more healthy living options in Northern Canada. But I can't say particularly if it is part of the settlement, but it is definitely aligned with the Jordan's principle that has some other buckets that have been reached into.
Speaker Change: So I guess it's just hard because they don't describe in detail where that $48 billion is going to be spent.
Speaker Change: and they don't think they give a lot of detail on how they're going to fund how they're going to.
Speaker Change: James.
Daniel McConnell: But do you feel that the spending and the increased access to nutritious foods in certain communities is actually sustainable? Or do you think that this was something that might have been more one time in nature for some reason? I think it's sustainable because I think it's aligned with, again, the overall initiative of the Jordan's Principle. You know what I would almost venture to say that it hasn't really come into the overall benefit of the child benefit, the child welfare benefit. I would say that this is just part of the Jordan's Principle. But as far as what bucket of money it's coming out of, Michael, I can't really, I can't give you that information because it's not entirely clear.
James: and their approach with Jordan's principle, but do you feel that this spending and the increased access to nutritious foods in certain communities is actually sustainable or do you think that this was something that might have been more one-time in nature for some reason?
Speaker Change: I think it's sustainable because I think it's aligned with the, again, the overall initiative of the Jordan's principle. I would, you know, when I would almost venture to say that it hasn't really come into the overall benefit of the,
Operator: for Your Patients. The conference is being recorded. This conference is being recorded.
Operator: Please stand by. Your meeting is about to begin. Please be advised that this conference call is being recorded. Welcome to the North West Company Inc. Second Quarter Results Conference call.
Michael: of the Child Benefit, the Child Will for Benefit. I would say that this is just part of the Jordan's principle, but as far as wet bucket of money it's coming out of, Michael.
Daniel McConnell: I would like to turn the meeting over to Mr. Dan McConnell, President and Chief Executive Officer.
Speaker Change: I can't really, I can't give you that information because it's not entirely clear. Okay, so maybe a better way to ask is, are you seeing this continued, are you seeing the benefits of that continuing into the third quarter? Yes.
Daniel McConnell: Okay, so maybe a better way to ask is, are you seeing this continue? Are you seeing the benefits of that continuing into the third quarter? Yes, the direct answer that would be yes.
Daniel McConnell: Mr. McConnell, please go ahead. Thank you very much and good morning and welcome to the North West Company Second Quarter Conference call. I'm joined here today with by John King, our Chief Financial Officer in Alexis Clucci, our VP of Legal and Corporate Secretary.
Speaker Change: and the direct answer that would be yes.
Daniel McConnell: Excellent. As far as your one-time charges are concerned, how large should we expect these to be? And will you be backing these out of adjusted earnings? Like I said, they're going to come in as they come in. We'll be very directive as far as what they are. So that'll give you an indication on the size. I mean, really, it's too early.
Speaker Change: Good.
Alexis Clucci: I'm going to start the meeting by asking Alexis to read our disclosure statement. Thank you, Dan. Before we begin today, I remind you that certain information presented may constitute forward-looking statements. Such statements reflect North West current expectations, estimates, projections and assumptions. These forward-looking statements are not guarantees a future performance and are subject to certain risks which could cause actual performance and financial results in the future to vary materially from those contemplated and forward-looking statements.
Speaker Change: Excellent. As far as your one-time charges are concerned,
Alexis Clucci: Any forward-looking statements are current only as of the date they're made and the company descends any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future results, or otherwise. Other than what's required by law. For additional information on these risks, please see North West annual information form and its MDNA under the heading risk factors.
Speaker Change: How large should we expect these to be and will you be backing these out of adjusted our use?
Speaker Change: Like I said, they're going to come in as they come in will be very direct of as far as what they are.
Speaker Change: So that will give you an indication on...
Daniel McConnell: We don't want to disclose that at this point, Michael, but we will give a lot more information once they come in. And like I said in the call, we expect some to start coming in later half of this year, which I think will create a sequence, if you will, as to how we report it and how we expect you to interpret it. Okay, at this stage, do you expect to remove it from adjusted earnings?
Speaker Change: on the size. I mean, really it's...
Speaker Change: It's too early we don't want to disclose that at this point Michael, but we will give a lot more information once they come in and like I said in the
Speaker Change: and Nicole, we expect some to start coming in later half of this year, which I think will create a sequence if you will as to how we report it and how we expect you to interpret it.
Speaker Change: Okay, at this stage, do you expect to?
Michael Van Elst: Yeah, perfect. And then on the vessel repair repairs at TNI. You mentioned that it delayed the start to the sea lift shipping season.
Speaker Change: We're moving from adjusted earnings.
Speaker Change: Yeah.
Daniel McConnell: Okay, thanks, Alexis. I will begin by providing a brief overview of this course results. I'll then provide some additional color on sales within our Canadian and international operations before making some comments on the key factors impacting our consolidated growth profit and expenses. Finally, I'll wrap up with a few comments on our outlook in the next 100 program before opening the call-up for some questions. All right, so let's dive right in. Overall, we are very pleased with the results of this quarter, especially considering the impact of some non-comparable factors this year.
Speaker Change: He mentioned that it delayed the start to the sea lift shipping season.
Daniel McConnell: I guess the question I have is I know how important is getting your inventory up into the North at the lower cost as wondering if... Did it shorten the shipping season for you? And did you get the inventory into the north that you wanted to? Yes, we did. We got the inventory into the north that we wanted to. Okay, so we shouldn't expect any additional impact from that event in the coming quarters. Correct.
Speaker Change: I guess the question I have is I know how important is you're getting your inventories up into the north at the lower cost as wondering if did it shorten the shipping season for you and did you get the inventory into the north that you wanted to.
Speaker Change: Yes, we did. We got the inventory into the North that we wanted to.
Daniel McConnell: And the fact that we are up against the 17.5% increase in net earnings in the second quarter of last year. Our second quarter results this year were driven by strong top-line growth with consolidated sales up 4.6% and gross profit up 7.5% for the quarter. However, the strong sales and gross profit results did not fully translate to the bottom line in the quarter, and it was primarily due to three factors. First, earnings from our investment in transport and nook, which is a Canadian shipping company serving the Arctic, were down 1.8 million compared to last year due to higher vessel repairs, which also temporarily delayed the start of the sea lift season in Canada.
Speaker Change: Okay, so we shouldn't expect any additional impact from that event in the coming quarters. Correct.
Michael Van Elst: I think that's it. Other than, you know, it sounds quite positive in Canada, given that sales are starting to pick up already, even though we're not really seeing meaningful payments being made yet another water or child reform. Well, for reform.
Daniel McConnell: Second, a 1.8 million dollar net increase in expenses resulting from two non-comparable expenses, which include higher share-based compensation costs, this year partially offset by the loss of our store and Fox Lake Alberta last year due to wildfire. Third, the implementation of the global minimum tax that resulted in a million dollar increase in tax expense for the quarter. The net impact of these factors resulted in a 3 percent decrease in net earnings this year compared to the strong net earnings last year. That said, within this backdrop, we are very pleased with our results that delivered increases in adjusted even of 6.1 percent and adjusted net earnings of 1.6 percent.
Speaker Change: I think that's it. Other than, you know, it sounds quite positive in Canada given that sales are starting to pick up already, even though we're not really seeing meaningful.
Speaker Change: Payments being made yet in another water or child reform, welfare reform.
Daniel McConnell: And I guess the first question is, does that, before I get on to national, is that, would you agree with those statements? Yeah, yeah, we're optimistic about the outlook in our Canadian business for sure.
Speaker Change: and I guess the first question is does that before I get on to national, is that what you agree with those statements?
Speaker Change: Yeah, yeah, we're optimistic about the outlook in our Canadian business for sure.
Daniel McConnell: And then on the international side, obviously more has been given the macro and economic conditions. And are you seeing that deteriorate further, because you're still able to grow their sales modestly, which is a positive given this in this environment. So are you still expecting to be able to grow, or is there some bigger headlines coming in your scene? No, our anticipation, our intent is to definitely is to grow. Yeah, and that's on the international side, right? Correct.
Speaker Change: and then on the international side, your obviously more has been given the macro and that economic conditions. Are you seeing that deteriorate further because you're still able to grow their sales modestly, which is.
Speaker Change: which is a positive given in this environment. So are you still expecting to be able to grow or is there some bigger headwinds coming in your seat?
Speaker Change: Now our anticipation and our intent is to definitely, is to grow.
Daniel McConnell: With that context provided, let me unpack the operational results. Sills in Canadian operations increased 5.6 percent for the quarter, and we're up 6.8 percent on the same start basis. Sills led by strong food sales. Sales were positively impacted by increased consumer demand arising from First Nations drinking settlement payments to individuals. However, the volume of these payments in the second quarter relative to the total settlement remains low. That said, we expect to see these payments continue throughout the remainder of this year and into 2025.
Speaker Change: and that's on the International side, right? Correct. Okay.
Michael Van Elst: Okay.
Michael Van Elst: All right, I think that's it for now. Thanks very much. All right. Thanks, Michael.
Speaker Change: for this video.
Speaker Change: Alright, I think that's it for now. Thanks very much. Alright, thanks Michael. Thank you. Once again, please press star one at this time if you have a question. And the next question is from Mark Petrie from CIBC. Please go ahead.
Operator: Thank you.
Operator: Once again, please press star one at this time if you have a question.
Mark Petry: And the next question is from Mark Petry from CIBC.
Mark Petry: Please go ahead. Yeah, hi there.
Mark Petry: Good morning. I just had a couple follow-up questions to Mike's questions. First, just on the inventory levels, like I know it's flat on a dollar basis, sort of your year at the end of the quarter or flatish. How should we interpret that? Is some of that affected from the delay into the sea lift season, which you've caught up now in Q3, or how should we think about that? Well, we've had some it's flat and it's flat off some pretty significant sales increases, as you as you know last year. So it's it's it's I'd say it's optimism and it's it's realism in the point that we we feel and we know we're in stock and ready for and ready for business.
Mark Petrie: Hi there. Good morning. I just had a couple of questions to my questions. First, just on the inventory.
Mark Petrie: Lovels, like I know it's flat on a dollar basis, sort of year rear at the end of the Coral Flattish. How should we interpret that? Is some of that affected from the...
Daniel McConnell: We also experienced increased consumer demand in certain markets from First Nations Child and Family Services and the Jordan's Principle. Programs that help provide greater access to nutritious food. The positive impact of these factors was somewhat muted by higher sales in the second quarter last year, resulting from the impact of the government inflation relief payments, including the grocery rebate paid to individuals to help mitigate higher cost of living. Underpinning these financial drivers is a good in stock position and improved execution at store level, particularly in fresh categories as we remain focused on operational excellence as part of our next 100 program.
Speaker Change: from the delay into the seal of season, which you've caught up now in Q3 or how should we think of it.
Speaker Change: Well, we've had some, it's flat, it's flat off some pretty significant sales increases as you know last year. So it's, it's, I'd say it's optimism and it's, it's realism in the point that we, we, we, we feel and we know we're in stock and ready for, and ready for business.
Daniel McConnell: But it's, it's, it's an optimism for sure, Mark. Okay, so you would have expected it to be down otherwise if it weren't for the optimism and the build in your inventory is around some of these sales opportunities. That's correct. Yeah, okay. Fair enough.
Speaker Change: but it's an optimism for sure. Mark. Okay, so you would have expected it to be down otherwise if it weren't for the optimism and the build in your inventory is around some of these sales opportunities. That's correct.
Daniel McConnell: In contrast, our international operations had a more challenging economic environment, which contributed to its softer performance in the quarter. Sills in our international operations increased by 0.8 percent, and we're up 0.9 percent on the same start basis as the sales increase from new stores was partially offset by lower wholesale sales. We care economic conditions, particularly in tourism dependent markets in Alaska and the South Pacific, and a slower start to the commercial fishing season in Alaska reduced discretionary spending in certain markets. The shift in discretionary spending is evident in our sales mix with food sales of 1.1 percent. Well, general merchandise sales decreased by 2.5 percent compared to last year.
Daniel McConnell: And, and I guess just on that, obviously the food seems your sales growth is excellent to see. But the merch lagged a little bit. Could you just talk about some of the dynamics there and how you expect those two to sort of move relatively speaking as the payments kind of flow through and accelerate? Yeah, I think there's definitely a positive correlation between the general merchandise increase in sales and obviously with some of the settlement money coming into market. So, the good news is we're ready for business, and we have strong relationships with our vendors to ensure that there's a demand and cycle in place where, if we don't have it in stock, then we can definitely get it with some of the agreements that we've been putting in place recently with some of our vendors.
Mark Petrie: Yeah, okay, fair enough. And I guess just on that obviously the food signature sales growth is excellent to see, but the merch lag a little bit. Could you just talk about some of the dynamics there and how you expect?
Mark Petrie: those two to sort of move relatively speaking as the payments kind of flow through and accelerate.
Speaker Change: Yeah, I think there's definitely a...
Daniel McConnell: Okay, let me transition here and talk about consolidated gross profit results. Our gross profit rate for this quarter increased by 91 basis points largely as a result of 2 key factors. First, a shift in sales blend, which includes the decrease in sales in our lower margin wholesale business. And second, we also experience an improvement in markdowns and shrink compared to the prior year and an increased focus on being in stock and execution and fresh departments.
Speaker Change: positive correlation between the general merchandising, crease, and sales, and obviously with some of the settlement money coming into market.
Speaker Change: The good news is we're ready for business and we have strong relationships with our vendors to ensure that there's a demand, there's a demand and cycle in place where if we don't have it in stock, then we can definitely get it with some of the agreements that we've been putting in place recently with some of our vendors. Fortunately,
Daniel McConnell: Fortunately, the rest of our businesses is doing well when some of the other customers of some of our major vendors are not having maybe the same increases we are. So, it's afforded us the right or the opportunity to kind of help out some of our vendors in some more creative negotiating or more creative deal structures.
Speaker Change: You know that the rest, our businesses is doing well when some of the other customers of some of our major vendors are not having maybe the same increase as we are, so it's afforded us the right or the opportunity to kind of help out some of our vendors and it's more creative.
Daniel McConnell: I will now briefly touch on the key factors that contributed to higher expenses in the quarter. During the quarter expenses increased by 10.1 percent, and we're up 127 basis points as a percentage of sales. This increase was mainly driven by non-comp expenses. I noted at the beginning of the call, which included the higher impact of vessel repairs in transport conduct. And the increase in sharebees compensation partially offset by the 3.7 million dollar loss in our fox lake store, destroyed by wildfires last year.
Speaker Change: Negotiating are more creative deal structures.
Daniel McConnell: Yeah, okay, understood, and I guess just on my last question is just with regards to the competitive dynamics that you're observing in the Canadian market, just given the flow through of some of these benefits and the expectations, have you observed any changes to how your competitors are approaching the market? Nope, I mean, everybody's working with the same vigor and obviously as they always have, and we're obviously through the next 100 really focusing on increasing and improving our capabilities to ensure that we get our share of the business as well. So, we're really focused on operational excellence, which would I'd say give us our fair percentage of the business that is coming into the markets.
Speaker Change: Yeah, okay, understood. And, and I guess just on my last question is just with regards to the competitive dynamics.
Speaker Change: that you're observing in the Canadian market just given given the flow through of some of these benefits and the expectations have you observed any changes to how your competitors are approaching the market.
Daniel McConnell: In addition to these factors, inflationary headbands and labor costs, and the increase in depreciation, and the impact of foreign exchange on the translation of international operation expenses, also contributed to the increase in expense for the quarter.
Daniel McConnell: As mentioned on previous calls, we have highlighted our efforts to control expenses at the store level through the next 100 initiatives. This includes reviewing store resources and launching initiatives to optimize labor scheduling to line with customer demand using a data driven approach.
Speaker Change: No, I mean everybody's working with the same vigor and there's no one in the world.
Speaker Change: obviously is the early tavern.
Speaker Change: We're obviously...
Speaker Change: through the next 100, really focusing on increasing and improving our capabilities to ensure that we get our share of the business as well. So we're really focused on operational excellence which would...
Daniel McConnell: With that overview of our results, I will finalize by speaking briefly about our look for this year and provide a few remarks on the next 100 program. The macroeconomic term really looks uncertain, particularly in our international operations and tourism dependent markets and countries that do not have government income support programs or individuals. As it relates to water settle and payments in Canada, we expect an increasing consumer demand, particularly towards the end of this fiscal year and on into 2025.
Speaker Change: I'd say give us our fair percentage of the business that is coming into the markets.
Mark Petry: Yeah, understood.
Mark Petry: Okay, thanks for all the comments, guys. All the best. Yeah, thanks, Mark.
Speaker Change: Thank you for all the comments guys, all the best. Yeah, thanks Mark, good talk.
Operator: It's good talking.
Operator: Thank you.
Daniel McConnell: There are no further questions registered at this time, and I'd like to turn the call back over to Mr. McConnell.
Speaker Change: Thank you.
Speaker Change: there are no further questions registered at this time and I'd like to turn the call back over to Mr. McConnell.
Daniel McConnell: Okay, well, thank you everybody who's tuned in, and I look forward to speaking with you again in December for quarter three. Thank you.
Mr. McConnell: Okay, well thank you everybody, everybody who's tuned in and I look forward to speaking with you again for December for quarter three.
Daniel McConnell: By one return, the impact of government and Canada transfer and settlement payments combined with higher infrastructure and services spending is expected to benefit Indigenous peoples in the communities we serve. Through the next 100 program, our teams are driving operational excellence, expanding our capabilities and pursuing value for our customers, our employees and our shareholders. The outcome of this work in the next 100 programs is expected to drive annualized incremental EBIT, which is anticipated to start later this year and continue to accelerate through 2025 and 2026 as these initiatives reach maturity.
Operator: The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation. Thank you.
Speaker Change: Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.
Speaker Change: Thank you.
Daniel McConnell: As we lay the groundwork for these improvements, we anticipate incurring some one-time costs for professional fees and other expenses. These one-time costs are expected to incur in the back half of this year and continue to 2025 as the next 100 initiatives are operationalized. Our expectation is that the incremental EBIT from these initiatives will more than offset the one-time costs, however, there will be a timing difference as these one-time costs will be incurring before the full annualized benefits are achieved. We will provide further information on these one-time costs and our quarterly ports as they are incurred.
Daniel McConnell: On that note, let me wrap up by highlighting that we are very proud to have received from the Canadian Rocher in the impact of war on the diversity, equity and inclusion category for our Indigenous procurement strategy. Diversity, equity and inclusion are core principles of who we are as a company and this award is reflective of our promise to Indigenous peoples.
Daniel McConnell: With that, I will now open it up for any questions. Thank you.
Operator: We will now take questions from the telephone lines. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time. If you have a question, there will be a brief pause of participants to register for questions. Thank you for your patience. Once again, please press star one at this time if you have a question.
Michael Van Elst: Would you have a question from Michael Van Elst from KD Collin? Please go ahead. Thank you. A few questions for you. Just looking at the higher same store sales in Canada, particularly on the food side, it was quite strong. You did highlight some areas where they had the higher access to nutritional foods. Is this part of the $48 billion child welfare reform program or that's supposed to come over the next 10 years?
Michael Van Elst: Or is this something? I am Michael. It's down here obviously. So yeah, I believe it is. It's a more part of Jordan's principle, but it hasn't been necessarily identified as such. But I think it's just along the whole emphasis behind providing more healthy living options in Northern Canada. But I can't say particularly if it is part of the settlement, but it is definitely aligned with the Jordan's principle that has some other buckets that have been reached into.
Michael Van Elst: So I guess it's just hard because they don't describe in detail where that $48 billion is going to be spent. And I don't think they give a lot of detail on how they're going to fund how they're going to change their approach with Jordan's principle. But do you feel that the spending and the increased access to nutritious foods in certain communities is actually sustainable? Or do you think that this was something that might have been more one-time in nature for some reason?
Michael Van Elst: I think it's sustainable because I think it's aligned with, again, the overall initiative of the Jordan's principle. I would, you know, what I would almost venture to say that it hasn't really come into the overall benefit of the child benefit, the child welfare benefit. I would say that this is just part of the Jordan's principle. But as far as what bucket of money it's coming out of, Michael, I can't really, I can't give you that information because it's not entirely clear.
Daniel McConnell: Okay, so maybe a better way to ask it is are you seeing the benefits of that continuing into the third quarter? Yes, the direct answer that would be yes. Excellent. As far as your one-time charges are concerned, how large should we expect these to be? And will you be backing these out of adjusted earnings? Like I said, they're going to come in. And as they come in, we'll be very directive as far as what they are.
Daniel McConnell: So that will give you an indication on the size. I mean, really, it's too early. We don't want to disclose that at this point, Michael, but we will give a lot more information once they come in. And like I said in the call, we expect some to start coming in later half of this year, which I think will create a sequence, if you will, as to how we report it, and how we expect you to interpret it.
Daniel McConnell: Okay, at this stage do you expect to remove it from adjusted earnings? Yeah. Perfect. And then on the vessel repair repairs at TNI, you mentioned that it delayed the start to the sea lift shipping season. I guess the question I have is I know how important is getting your inventory up into the North set at the lower cost as wondering you. Did it shorten the shipping season for you? And did you get the inventory into the north that you wanted to? Yes, we did. We got the inventory into the north that we wanted to. Okay, so we shouldn't expect any additional impact from that event in the coming quarters. Correct.
Daniel McConnell: I think that's it. Other than, you know, it sounds quite positive in Canada, given that sales are starting to pick up already, even though we're not really seeing meaningful payments being made yet another water or child reform. Well, for reform. And I guess the first question is, does that, before I get on to national, is that, would you agree with those statements? Yeah, we're optimistic about the, about the outlook in our Canadian business, for sure.
Daniel McConnell: And then on the international side, obviously more has been given the macro and economic conditions. And are you seeing that deteriorate further, because you're still able to grow their sales modestly, which is, which is a positive given this in this environment. So are you still expecting to be able to grow or is there some bigger headlines coming in your scene? No, our anticipation, our intent is to definitely is to grow. Yeah, and that's on the international side, right? Correct. Okay, perfect.
Michael Van Elst: All right, I think that's it for now. Thanks very much. All right. Thanks, Michael. Thank you. Once again, please press star one at this time if you have a question.
Mark Petry: And the next question is from Mark Petry from CIBC. Please go ahead. Yeah, hi there. Good morning. I just had a couple follow up questions to Mike's questions. First, just on the inventory levels. Like I know it's flat on a dollar basis, sort of your year at the end of the quarter or flatish. How should we interpret that? Is some of that affected from the delay into the sea lift season, which you've caught up now in Q3 or how should we think about that?
Mark Petry: Well, we've had some flat off some pretty significant sales increases, as you know, last year. So it's, I'd say it's optimism. And it's it's realism in the point that we we feel and we know we're in stock and ready for and ready for business. But it's it's an optimism for sure. Mark. Okay, so you would have expected it to be down otherwise if it weren't for the optimism and the build in your inventory is around some of these sales opportunities.
Mark Petry: That's correct. Yeah, okay, fair enough. And I guess just on that, obviously the food seems your sales growth is excellent to see. But the merch lagged a little bit. Could you just talk about some of the dynamics there and how you expect those two to sort of move relatively speaking as the payments kind of flow through and accelerate? Yeah, I think there's definitely a positive correlation between the general merchandise increase in sales and obviously with some of the settlement money coming into market.
Mark Petry: So the good news is we're ready for business and we have strong relationships with our vendors to ensure that there's a demand and cycle in place where if we don't have it in stock, then we can definitely get it with some of the agreements that we've been putting in place recently with some of our vendors. Fortunately, the rest of our businesses is doing well when some of the other customers of some of our major vendors are not having maybe the same increases we are, so it's afforded us the right or the opportunity to kind of help out some of our vendors in some more creative negotiating or more creative deal structures.
Mark Petry: Yeah, okay, understood and I guess just on my last question is just with regards to the competitive dynamics that you're observing in the Canadian market, just given the flow through of some of these benefits and the expectations, have you observed any changes to how your competitors are approaching the market? Nope, I mean, everybody's working with the same vigor and obviously as they always have and we're obviously through the next 100 really focusing on increasing and improving our capabilities to ensure that we get our share of the business as well.
Mark Petry: So we're really focused on operational excellence which would, I'd say, give us our fair percentage of the business that is coming into the markets. Yeah, understood. Okay, thanks for all the comments guys, all the best. Yeah, thanks Mark, it's good talking. Thank you.
Daniel McConnell: There are no further questions registered at this time and I'd like to turn the call back over to Mr. McConnell. Okay, well thank you everybody who's tuned in and I look forward to speaking with you again in December for quarter three. Thank you.
Operator: The conference has now ended. Please disconnect your lines at this time and we thank you for your participation. Thank you.