Q1 2025 Metro Inc Earnings Call
Okay.
Good afternoon, ladies and gentlemen, and welcome to the Mitchell.
2005 first quarter results conference call at this time all participant lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.
In fact any time during this call you'll be quite I mean, you did assistance. Please press star zero for the operator.
Note that this call is being recorded on Tuesday January 28 2025.
And I would like to turn the conference over to Mr. Sharon Kadosh.
Sharon Kadosh: Director of Investor Relations and corporate finance.
Okay.
Matthew Sydney: Matthew Sydney, Good afternoon, everyone and thank you for joining US today My comments will focus on the financial results of our first quarter, which ended on December 21st with me today is Mr. <unk>, if he could have less president and CEO executive.
Sharon Kadosh: Executive VP and CFO musket chief.
Matthew Sydney: Chief operating officer, and President of the Pharmacy Division.
Sharon Kadosh: During the call we will present, our first quarter results and comments on Israelis.
Matthew Sydney: And then be happy to take your questions before.
Matthew Sydney: 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 forward looking statements words or expressions, such as expect intend or confident that will and other similar words or expressions.
Matthew Sydney: Generally indicative of forward looking statements.
Matthew Sydney: The forward looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries. The general economy, our annual budget and our 2025 action plan.
Matthew Sydney: 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.
Matthew Sydney: 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 'twenty 'twenty four annual report.
Speaker Change: 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 statement, except as required by applicable law I will now turn the call over to pencil out.
Speaker Change: Thank you Shannon and good afternoon, everyone.
Speaker Change: I'll start by going over the key income tax highlights for the quarter.
Speaker Change: First we had a resolution of an income tax position related to prior years, which had a favorable impact of $20 6 million.
Speaker Change: And we adjusted our net earnings for this game.
Speaker Change: Resolution of the stockpile also had an impact on operating expenses and interest expense, which I will go over shortly.
Speaker Change: Secondly, we all we also benefited from a provincial tax holiday of $6 1 million.
Speaker Change: Related to the commissioning of our new automated distribution center for fresh and frozen parking turbine.
Speaker Change: Which is in the legible and large investment project in Quebec.
Speaker Change: The total cash holiday represents approximately $66 million and we estimate it will be recognized over a period of three years.
Speaker Change: Benefits or cash in nature and are part of the original business case pick up on.
Speaker Change: Turning to our results total sales in the first quarter reached $5 12 billion, an increase of 2.9% versus the same period last year.
Speaker Change: Food same store sales were up 1%, while sales were negatively impacted by the transfer of two significant pre Christmas shopping days till the second quarter. This year.
When we adjust for this calendar shift same store sales for food were up two 4%.
Speaker Change: In pharmacy, we recorded same store sales of five 1% our.
Speaker Change: Gross margins stood at 19, 7% of sales versus 19, 6% in the same quarter last year.
Speaker Change: Operating expenses amounted to $528 5 million up four 4% versus our Q1 last year.
Speaker Change: Operating expenses as a percentage of sales was 10, 3% versus 10, 2% in the same quarter last year.
Speaker Change: The increase in operating expenses is mainly due to the launch of the Moi rewards program in Ontario, and the recording of professional fees regarding the resolution of a $20 6 million tax gain I described at the beginning.
Speaker Change: If not for these two items operating expenses as a percentage of sales would've been similar to Q1 last year and when we considered the Christmas shift that ratio was slightly lower than last year.
Speaker Change: EBITDA for the quarter totaled 481, 5 million, representing nine 4% of sales same as in our first quarter of last year and was up two 9% year over year.
Speaker Change: Total depreciation and amortization expense for the quarter was $133 6 million up $2 5 million or one 9%.
Speaker Change: Net financial cost for the first quarter were $3 7 million compared to $32 4 million last year down 1.7 million year over year, and then and the decrease was mainly due to the recording of interest receivable regarding the resolution the resolution of the tax file I described at the beginning and that's partly offset by the fact that we no longer capitalize interest related to the <unk>.
Speaker Change: Automation projects as we did last year.
Speaker Change: Our effective tax rate of 18.2% is lower than the effective tax rate of 25% in the first quarter of last year as a result of the $20 6 million cash gain in the tub on tax holiday.
Speaker Change: Adjusted net earnings were $245 4 million compared to 35 million last year, a four 4% increase in adjusted net earnings per share amounts of dollars 10 versus $1 two since last year, and that's up seven 8% year over year.
On the food retail side. After 12 weeks, we converted two stores and carried out major expansions and renovations at eight stores for a net increase of 18.3 thousand square feet or 21% of our food retail network.
Under our normal course issuer bid program as of January 17th of this year, we have repurchased 1.4 hundred 25 million shares for a total consideration of $129 6 million, representing an average share price of $90.95.
Speaker Change: The board of directors yesterday declared a quarterly dividend of 37 cents, a share or $1.48 on an annual basis and that's an increase of 10, 4% versus last year. This is the 31st consecutive year of dividend growth and represents a payout of about 32% of last year's adjusted net earnings well in line with our policy.
Eric: That's it for me I'll turn it over to Eric.
Eric: Okay. Thank you Francois and good afternoon, everyone.
Eric: We're pleased with our first quarter results, which were driven by solid revenue growth and good expense control our commercial programs continue to resonate with customers in a very competitive market, resulting in overall market share gains in dollars in tonnage again this quarter.
Eric: Our discount banners continued to grow faster than our conventional matters.
Eric: We're seeing that gap narrow as we cycle, our strong discount performance over the past three years.
Eric: Our internal food basket inflation came in slightly higher than the reported food CPI after adjusting for the sales tax holiday.
Eric: We're seeing inflationary pressures on certain commodity prices and also because of the lower Canadian dollar.
Eric: Our teams are working hard to contain those pressures and deliver and continue to deliver value to the customers.
Eric: Similar to our previous quarter transaction count was up and the average basket remained stable.
Eric: Promotional penetration remains elevated and private label sales continue to outpace the national brands.
Eric: Online sales grew by 18% for the quarter fueled by third party partnerships for same day delivery and also the growth of our click and collect service and discount banners.
Eric: Our diversified platform allows us to service customers for express and plan delivery as well as click and collect.
Eric: On the pharmacy side, we delivered another solid quarter with comp sales of five 1%.
Eric: Prescription sales were up seven 3% driven by organic growth specialty medications and professional services, our pharmacy network administered more vaccines this year compared to last year.
Eric: Commercial sales were up 5% and up one 9% when adjusting for the Christmas sales transfer it to Q2 driven by growth in OTC, how 'bout and cosmetics.
Eric: Sales were negatively impacted by the delayed start to the cough and cold season, which happens after Christmas.
Eric: As mentioned on our previous call in fiscal 'twenty five we plan on opening a dozen new stores, mostly mostly discount stores and we are on track with two conversions completed this quarter.
Eric: We're also planning 21 major renovation projects.
Eric: On the pharmacy side, we are planning 30 major projects, including 12 expansions and 18 major renovations of which nine will have our new concept.
Eric: New concept offers more space to key categories like beauty and cosmetics to create new opportunities to discover the wide brand and product assortment we carry.
Eric: The new layout makes it cosmetics Morriss festival throughout the customer journey and seasonal merchandize is positioned in a way that creates excitement and discovery at the beginning of the shopping trip.
Eric: Turning to loyalty we are pleased with the launch of the more program in Ontario, what rewards in store activation and speed of customer enrollments in our program have led to increased traffic and tonnage.
Eric: While rewards is now offered in eight banners across Quebec, Ontario, and New Brunswick, and more than 1175 food stores and pharmacies.
Eric: With over 4 million members and growing.
Eric: So the team is to drive more member engagement in store and across our digital platforms.
Eric: Leveraging more than 10 years of experience with nickel and one in Quebec, we are seeing positive results with incremental spend from members we have enough opportunity to drive cross shopping across our banners and continue to drive basket and loyalty.
Eric: To conclude the significant investments in the modernization of our supply chain. Our loads are largely behind us and we're now focused on realizing efficiency gains and improving our service to our store network.
Eric: The investments have also positioned us well for future growth through the expansion of our retail network in the years ahead.
Eric: We expect to gradually resume our profit growth in fiscal 'twenty, five and we maintain our annual growth target of between eight and 10% of adjusted net earnings per share over the medium and long term.
Eric: We will now be happy to take your questions.
Eric: Thank you, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone.
Eric: We are a problem. That's your ham has been right.
Eric: And should you wish to decline from calling process. Please press star followed by <unk>.
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Speaker Change: Before questions.
Eric: Please go ahead and press Star one now if you have a question.
Eric: First we will hear from Tony Chan BMO capital markets. Please go ahead.
Eric: Hi, good afternoon. Thanks for the question.
Eric: Focus on there.
Eric: Sure.
Eric: First for this quarter.
Eric: Quarter.
Eric: Our costs related to the launch of law.
Eric: Carryover so.
Eric: But the fever.
Eric: I used to think of our profile.
Eric: Which was the larger.
Eric: Although I'm not yes.
Eric: I'm not going to segregate the two but it's the combination of the two is about two 7 million, which is why I said that if you exclude those you get back to a similar percentage of as a sales as last year, but there are quite similar inside I mean, it's not a it's.
Eric: It's about the two material events in the quarter totaling $7 million.
Eric: So one is related to my lunch and one is the resolution of the type of younger but I thought she referred to D. CS.
Eric: Sorry, I didn't understand.
Eric: I thought you said the.
Eric: The the resolution of the tax gain and the launch of more reward that's what I was referring to that all 7 million.
Eric: Correct, yes.
Eric: First.
Okay sorry.
Eric: I appreciate that.
Eric: Two follow ups here.
Uh huh.
Eric: Launch costs to get the program often running in Ontario.
Eric: Let's.
Eric: Go away or is it.
Eric: A new level of cost that's just required just for quite a while program in Ontario.
Eric: This is a one time marketing, mostly marketing advertising and so forth. The larger program, it's not points. It's a it's really SG&A for the launch of the program.
Eric: Okay.
Eric: And my other question before I turn it over now I'm, referring to the.
Speaker Change: Holiday pharma.
Eric: Not the other.
Speaker Change: One 9 million.
Speaker Change: A million over three years, so that's pretty significant I think that would be like five or $6 million a quarter I just wanted to clarify.
Speaker Change: Tax holiday.
Speaker Change: That's going to come over the next three years.
Jason: Jason here.
Jason: EPS growth target over the next three years.
Jason: So this is this is this as I said this is cash a cash reduction in taxes it'll be for the next three years, a little more in 'twenty four and then a pretty at a 25% pretty even 'twenty six 'twenty seven.
Jason: They are a part of our they're part of the original business case, having said that you don't do big automation projects, just because of the tax benefits. So we would've done the projects without it but it is an additional.
Jason: Lever is an additional consideration among many that are allowed us to go forward. So we would have confirmed the 8% to 10% we will confirm the 8% to 10% even without it but it is part of our it is part of it we part of our growth targets in and.
Jason: Before the 8% to 10% growth objective that we have it just means that everything else being equal we have a little a little more upside available to us.
Jason: Yeah.
Jason: Okay got it.
Jason: I'll pass it on.
Jason: Thank you.
Speaker Change: Next question will be from Irene Lasalle RBC capital markets. Please go ahead.
Speaker Change: Thanks, and good afternoon, everyone. You did a great job of talking about consumer behavior, So I'm not going to ask about that.
Irene Lasalle: But I will ask about the slight uptick that we saw in the same store sales in Rx, which is kind of interesting given.
Irene Lasalle: Timing of cough and cold. So can you talk a little bit about sort of what the components of that would be but also what your expectations would be as we move through later this year and we assume that that the bill is passed here in Quebec cabin, extending the scope of service.
Irene Lasalle: So as long as I'm sure, it's going to take that.
Irene Lasalle: That's a great question as Eric mentioned, we're seeing a lot of.
Irene Lasalle: The growth of the retail Rx sales growth coming from specialty services and in this quarter. We saw good performance in terms of vaccinations.
Irene Lasalle: So it's really along those three inorganic growth, we're continuing to grow the number of patients we serve every quarter and that's.
Irene Lasalle: And that shows.
Irene Lasalle: The dedication of our pharmacy teams are putting you in everyday to make sure that we service the customer the patients well and there are other coming back looking forward.
Irene Lasalle: We expect similar growth.
Irene Lasalle: Perhaps more normal to what we saw in the previous quarters, but this quarter. It was just those factors that explain.
Irene Lasalle: Together the uptick that you saw in the Rx sales.
Irene Lasalle: As for the timing of the.
Irene Lasalle: Enlarged practice, we don't have timing, we're waiting for regulations. So this.
Irene Lasalle: This spring or summer, sometimes in 2025 pharmacists will be allowed to perform more sort of services and that will also help.
Irene Lasalle: It's hard to put a number on that.
Irene Lasalle: But it's positive.
Irene Lasalle: Understood and then.
Irene Lasalle: Just just finishing off with P. J C.
Irene Lasalle: Certainly get sort of the late start.
Irene Lasalle: Late start sorry to cough and cold, but was there anything above and beyond that just in terms of furniture store.
Irene Lasalle: Any anything about the timing of the tax holiday anything that.
Irene Lasalle: That was perhaps a little bit unusual positive or negative in that store.
Irene Lasalle: The two Christmas days are a factor.
Irene Lasalle: That's why we gave you two numbers 0.5, and $1 nine and the delayed call cough and cold those are the two.
Irene Lasalle: Most important contributing factors to this same store sales number you see.
Irene Lasalle: Like I said, hi, Buck cosmetics OTC.
Irene Lasalle: Excluding cough and cold where we're strong.
Irene Lasalle: We're pleased with that because I'm sure yes.
Irene Lasalle: Yes.
Irene Lasalle: Especially with our merchandising mix.
Irene Lasalle: Those two days more important seasonal what's important to jobs.
So if you were compared to perhaps other other pharmacies, who are more focused on Rx and OTC. They may have gotten less of the Christmas shift impact obviously, the OTC arent Coca Cola that had been there, but theres also sued us.
Irene Lasalle: It is important because it is part of our overall mix.
Irene Lasalle: That's great. Thank you.
Irene Lasalle: Yes.
Irene Lasalle: Thank you. Thank you.
Irene Lasalle: Next question will be from Chris Li Please.
Irene Lasalle: Please go ahead.
Chris Li: Hi, Good afternoon, everyone first of all Im sure Youre not going to Miss answering questions on SG&A and tax once you retire.
Chris Li: So with that in mind I do have a couple of follow ups on just SG&A and tax if that's okay.
Chris Li: Just on the potential tax holiday I, just want to make it clear from a modeling perspective is the $6 million benefit.
Chris Li: In Q1, a good run rate for that.
Chris Li: So $6 million per quarter in 2025.
Chris Li: It's a good run rate for this year it will be a little lower.
Chris Li: And the next two years in total it's going to be roughly $25 26. This year and then 2020, that's our best estimate so far so it's pretty linear a bit of catch up this year, but for all of that.
Chris Li: What you see in Q1 is a good is a good indication for the rest of the year.
Speaker Change: Okay. That's helpful. And then just another one on SG&A. So when we exclude a 7 million costs on LOE team professional fees. The SG&A dollars increased by around 3% compared to last year, which is fairly normal, but I would've thought it would've increased by less than 3% simply because the year ago quarter had a lot of DC ramp up costs, which.
Chris Li: Presumably presumably it in.
Chris Li: This year am I thinking about it.
Chris Li: Okay.
Chris Li: So youre right. When you exclude those two items is about 3% and what I've said also if you adjust for the Christmas shift, which you know there is a significant.
Chris Li: Sales that were transferred to Q2 that that gives a little lower number than 3%. So having said that you are right.
Chris Li: We are we are comping high duplicated costs last year's or those costs have come down. There's no question. There's still some we still have the old Weyerhaeuser, we closed that still under our our ownership and we have to we have to manage it. So that is one example, but overall, yes. The dcs in terms of the of the duplicate costs are performing as.
Chris Li: As expected there is pressure in other areas not just the do you see this pressure in labor and energy and professional fees, a critical Harrison and the E. Comm sales that we have is good for the gross margin, but there's a reason as you know so it's not just a D C. So.
Chris Li: That's why we try to manage you know I've always I've been calling it out for a couple of years that there's a bit of a lag in opex, reflecting the high inflation, we had a few years ago and we're managing it.
Chris Li: As best we can so I think overall when you consider those pressures to be flat.
Chris Li: Flat year over year in terms of percentage of sales.
Chris Li: We're quite pleased with that the biggest you know as we move throughout Q2 and Q3 those were busy quarter in terms of duplicate it costs and so we expect to see a similar trend in terms of a comping those DC costs as we move forward, but I would say that the quarter is pretty much as expected.
Speaker Change: Okay, great. Thanks, Thanks for that and maybe one for Eric and Mark.
Speaker Change: You've obviously gone through a lot of cycles, whereas a lot of ebbs and flows in terms of.
Speaker Change: Input cost pressure and inflation and we're now in a period, where there's was attending dollar could be tariffs and other issues and I'm. Just wondering like just based on your experience is there anything different about this time the cycle.
Speaker Change: That will cause you to be a bit more shall we say concerned around the ability to kind of manage that or is that going to be just that.
Speaker Change: Basic blocking and tackling that you guys have always done.
Speaker Change: Yeah, we will manage as best we can.
Speaker Change: We have returned to normal quarter to quote unquote normal inflation food inflation levels through 24 for the first quarter of 'twenty five what's ahead I've said many times I don't have a crystal ball. There is a lot of noise. There is volatility there is uncertainty the weakening Canadian dollar is our biggest concern, especially this time of year when we buy a.
Speaker Change: Products from the U S or priced in U S dollars from other sources. So yeah. It's out there it's something we need to manage as best we can but we don't control all the levers are.
Speaker Change: Our teams are really focused on delivering value to customers every day, finding the right product the right sources to continue to offer value so watching the markets closely.
Speaker Change: And hoping that inflation stays as normal as possible.
Speaker Change: Great Thanks, and all the best.
Speaker Change: Thank you.
Speaker Change: Next question will be from Michael Van <unk>.
Speaker Change: Please go ahead.
Ali: Alright, Thank you Ali.
E Commerce.
Speaker Change: Growth remains quite strong can you give us an idea of the relative importance of metro dot Caa and that growth rate versus your third party.
Ali: Within the garden and others.
Mark: Hi, it's mark here. So as you know we have a multi platform model, where we offer our customers click and collect so they can come to our store to collect their orders they could do express delivery through a third party.
Ali: And we have our own.
Ali: Platform, a metro SCA food basic does he supersede SCE.
Ali:
Ali: Consumer demand has been over the last few quarters I'd say.
Ali: Low double digit in the market.
Ali: And the demand for express delivery has been greater than planned delivery. So our growth is coming as Eric has mentioned at the beginning from both click and collect and express.
Ali: <unk>, which is done by third parties through our partnership.
Ali: Click and collect is done through <unk> got together, yes, yes. It is 100% through our all of our banners dossier and we last year, we were in deployment of click and collect.
Ali: In food basic.
Ali: And Super C. After have been our metro stores Metro banner stores.
Ali: So last year, our growth for the year at about 40% was coming also from added capacity this year.
Ali: Knowing from.
Ali: From growing demand for our service at 18%. So we were satisfied with our growth in the first quarter that grow will probably.
Ali: Tempur as we as we go forward.
Ali: Yes.
Ali: For our services.
Ali: So in terms of.
Ali: Exact relative performance, we're not going to segregate it for you.
Both Metro dossier entered party our sources of growth.
Ali: And like Mark said, we are a multi platform model and we're pleased with the flexibility that agility. So we can service customers.
Ali: For our next day same day or pick up so I think it's a pretty flexible model that works for us.
Speaker Change: Okay, great. Thank you.
Ali: As far as the.
Ali: Christmas shift in the front door of the pharmacy, there is it more <unk>.
Ali: And then I would have thought and I don't remember that being called out to the same degree as.
Ali: And we've heard some food same store sales being.
Ali: Being shifted because of Christmas, so which categories would have been.
Ali: The main contributors to that Christmas shift and I'm, assuming you saw the pickup.
Ali: As soon as you rolled into Q2.
Ali: Yes, so I think thats part of our merchandising mix, we're very strong on seasonal general merchandize and confectionery and those are very attributable to our seasonal program and those are the two categories that we saw shifted.
Ali: Towards Q2 this year.
Ali: As you can see it.
This is an important part of our overall mix.
Ali: Okay.
Ali: So so confection last minute trips confectionary gifts toys, whatever on those last two days or big data junk suite, especially more than doing it.
Ali: So that explains that surprised me too much.
Ali: Yeah.
Ali: Alright.
Ali: Sorry, just one last debt.
Ali: Shot at the duplicate duplicate overhead costs and Opex.
Ali: I seem to remember that duplicate overhead costs for peak in Q1 last year is that right and.
Ali: To what extent of those fallen off and when do you see them gone out of your numbers fully.
Ali: So it was high but it was not the peak so the peak was in Q2 and Q3.
Ali: And so that's the first thing and secondly, there are some remaining as I said, but a good portion I've been.
Ali: And some are some remain obviously, but as I said, we are tracking as planned but the piece of your question was Q2 and Q3.
Ali: Okay are you willing to give us any kind of indication of how much those were.
Ali: No.
Ali: Alright.
Ali: Thanks very much.
Ali: Thank you.
Speaker Change: Next question will be from Vishal Shah of National Bank. Please go ahead.
Vishal Shah: Hey, guys, thanks for taking them.
Speaker Change: Eric I was hoping to get your thoughts on.
Vishal Shah: The industry competitiveness looking forward.
Speaker Change: At a time when population growth is set to slow all the grocers seem to be.
Speaker Change: Yes.
Speaker Change: Some seem to be accelerating square footage growth and others seem to be growing it and the focus seems to be in particular in discount. So I just wanted to get your thoughts on how this dismay.
Speaker Change: This may unfold in terms of igniting more competition, particularly at a time when inflation is possibly set to rise associated with them.
Speaker Change: These tariff events.
Speaker Change: Yeah.
Speaker Change: Hum.
Speaker Change: We're in a very competitive industry.
Speaker Change: Always said, we've always said that population growth.
Speaker Change: It could be lower going forward with lower immigration levels, we'll see we'll see how that plays out.
Speaker Change: I think the square footage growth for US is controlled there was a bit of catch up.
Speaker Change: Last year.
Speaker Change: Uh huh.
Speaker Change: Ambitious, but I wouldn't say.
Speaker Change: Too aggressive of a program for next year in terms of adding square footage, yes, we're opening some new stores in markets, where we're underpenetrated and where we see opportunities. So we think that we will be able to compete.
Speaker Change: Most of the new store footage.
Speaker Change: <unk> is on the discount side can that generate more competition, yes, and Ken but I think we're well positioned with with all of our stores our vendors our formats to to compete in.
Speaker Change:
Speaker Change: We've done well, we have a long track record and we go market by market, we optimize our network and we try to gain share and please our customers.
Speaker Change: It sounds trite, but oh, that's how we compete.
Speaker Change: Okay.
Speaker Change: Regarding the square footage of your you discount stores do you anticipate them to be about the same size as your it systems towards or do you think it's going to be smaller in size.
Speaker Change: Well it depends.
Speaker Change: If it's a new build greenfield.
Speaker Change: They call it suburban or rural or small town market they tend to be on our on the discount side about 35000 feet. That's the model, we like our size, we like but they can vary up or down a little bit depending on the on the real estate opportunities in the markets when we convert stores.
Speaker Change: Because we have a few of those they tend to be smaller.
Speaker Change: In size, but again there are exceptions, there too so.
Speaker Change: I think our discount stores, both in Quebec and Ontario.
Speaker Change: Sure well anywhere between 20 to 50000 feet, depending on the market.
Speaker Change: And.
Speaker Change: That's how we that's how we will compete.
And with escalating construction costs and general pervasive inflation do you anticipate that these <unk>.
Speaker Change: He is a capex initiatives will yield similar returns as or at your historical projects.
Speaker Change: Are you accepting a lower return.
Speaker Change: It's a good question, it's something we manage carefully construction costs have gone up significantly over the last five years or so.
Speaker Change: Yeah. It does it does it have an impact on our return.
Speaker Change: Unfortunately, we've had some sales growth.
Speaker Change: We've got good success with some of these new stores and overall, we're pleased with with our returns.
Speaker Change: Is certain in certain areas.
Speaker Change: Cases, sometimes we we do do accept a somewhat of a lower return, but long term.
Speaker Change: And with the average of our of our spend and the projects that we have we're pleased we're pleased with the returns, but it's something we try to manage as best we can.
Speaker Change: Those costs have gone up so.
Speaker Change: We've got to stay disciplined.
Speaker Change: Okay, and maybe just one last one here in terms of the sales tax holiday how should we think about the deal.
Speaker Change: The uplift to sales if any associated with this.
Speaker Change: We haven't seen an uplift in volume or tonnage of the items that are <unk>.
Speaker Change: Benefited from a sales tax holiday in food and pharmacy since our since that holiday is in force, we haven't seen a change in behavior or a change in tonnage for those products.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Next question.
Speaker Change: <unk> will be from Jonathan Pong.
Speaker Change: Scotiabank. Please go ahead.
Speaker Change: Thank you and good afternoon.
Speaker Change: I wanted to come back to some of the metrics on the food business that you cited Eric the promo penetration you'd said it remains elevated private label growing above the pace of national brands, and a shrinking discount or pardon me a shrinking gap between discount unconventional how are those metrics compared to say a quarter ago or two quarters ago.
Speaker Change: Yeah.
Speaker Change:
They are quite comparable.
Speaker Change: Promo in private label is something that we've seen consistently so.
Speaker Change: The promotional rates vary a little bit between the banners, but what we're seeing is they remain very high people are looking for value and we have a we have a strong merchandising programs commercial programs.
Speaker Change: And we.
Speaker Change: We think we do a pretty good job promotion and it resonates with customers. So some of the sales penetration of our promo programs are high.
Speaker Change: They're a bit higher than they used to be.
I would say compared to the most recent quarters, it's pretty consistent private label same thing so theres a pace of growth versus national brands, it's been pretty consistent over the last few years.
Speaker Change: At two weeks.
Speaker Change: And it's still it's still in that in that range the gap with our internal gap in same store sales between conventional and discount it.
And that's that's something that's narrowing.
Speaker Change: Every quarter, so discount had a strong strong growth for three years running so at some point.
Speaker Change: The market settles and you are to come back to you come back to more normal levels of growth and then and then the gap narrows between the two the two.
Speaker Change: Segments. So that's what we're experiencing but we're still seeing higher growth in discount.
Speaker Change: Yeah.
Speaker Change: Alright, that's very helpful. Thank you.
Speaker Change: I wanted to ask a bigger picture question I Wonder if theres any impact you can discern on consumer confidence from all the talk of tariffs and I Wonder. If this is contributing to any change in behavior among customers Youre seeing.
Speaker Change: Mark is going to try that.
Speaker Change: Consumer confidence has been has been low since inflation is going up in cost of living has gone up over the last few years.
Speaker Change: Consumer confidence is still low and uncertainty is not helping with consumer confidence.
Speaker Change: We talked about the.
Speaker Change: Canadian dollar the threat of tariffs that is all contributing to.
Speaker Change: Two consumer confidence being low cost of living is still high so Eric has mentioned it.
Speaker Change: Seeing consumers continuing to look for value.
Speaker Change: And we're adapting our merchandising strategy to be able to to serve customers that are looking for that value in both our format.
Speaker Change: Discount and conventional.
Speaker Change: And when we look at our sales in both those segments were satisfy them, how our commercial programs are answering that.
Speaker Change: Customer demand for value and we are happy with our with our comp sales in both segments.
Speaker Change: Okay.
Speaker Change: Got it and then one last one for me coming back to the topic of loyalty do you expect that Ontario can grow loyalty penetration and engagement.
Speaker Change: Can that grow much faster in Ontario, now that this is the second time through the program and you have a significant amount of experience doing this in Quebec.
Speaker Change: I think your point is valid we've been at loyalty for now more than more than 14 years, we launched metro NY in Quebec in 2010, and the team has built knowledge experience has tested multiple.
Speaker Change: Customer engagement strategy so.
Speaker Change: Eric you mentioned that we're satisfied with the launch in Quebec last year in may or in that last year, but in May 2023. The program has grown across all of our banners since the launch just fall at Ontario really.
Speaker Change: The uptake of customers was faster than anticipated. We are now at $1 5 million members in Ontario totaled $4 million between both provinces. So.
Speaker Change: So we're I would say that we're confident that we can leverage our loyalty program to drive cross shopping across our banners and.
Speaker Change: And deliver personalized and direct to consumer value in the context of continued continued CPE CPI that high end.
Speaker Change: And cost of living.
Speaker Change: Not CPI and the type of cost of living that is high. So we think that our loyalty program will allow us to target our loyal customers and bring value in a personalized way to go to those customers.
Speaker Change: Okay.
Okay I'll leave it there I appreciate the color. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you once again, ladies and gentlemen, a reminder to please press star one if you do have any questions.
Speaker Change: Next will be Mark Carden of UBS. Please go ahead.
Mark Carden: Great. Good afternoon. Thanks, so much for taking the question. So I wanted to start on the gross margin you guys saw a modest.
Mark Carden: Pick up year over year, what were the biggest drivers there and are you seeing any shifts from what you've seen in recent quarters.
Mark Carden: Gross margin is pretty stable, it's enough, it's uptick a little bit versus the same quarter last year, but we were in the same ballpark and.
Mark Carden: Drivers are.
Mark Carden: As we said its promotional private labels contributing and helping there.
The mix of discount and conventional so.
Mark Carden: Same trends.
Mark Carden: And Italy, the same trends in the gross margin is in the same range.
Speaker Change: Got it that's helpful. And then one more follow up from me on tariffs.
Speaker Change: Just if we do see any Canadian retaliatory tariffs on U S. Consumables products would you expect for industry players to largely pass through the pricing and what percentage of your products are imported from the U S and would you be able to pivot on sourcing March again.
Speaker Change: Yes.
Speaker Change: So we don't want to speculate on what tariffs on what side Bye Bye bye.
Speaker Change: By the American government was going to be the response for Canada. We don't know our biggest concern is the Canadian dollar because whether resource U S product at this time of year, we do source more U S product.
Speaker Change: And obviously, it's priced in U S dollars, but the alternative sources for fresh product seasonal.
Speaker Change: For fruits and vegetables, and even some meat categories is priced in U S dollars also.
Speaker Change: That's the risk on U S. The U S dollar CAD U S exchange rate as the risks on inflation for us.
Speaker Change: In the short term and that's what we're trying to manage as best we can and find the best sources of supply to mitigate the risk of cost increases because yes.
Speaker Change: There is pressure there and at some point that has to be reflected in retail.
Speaker Change: Makes sense.
Speaker Change: Speaking as much.
Speaker Change: Just for precision for for those on the call. There were some reports I think this morning that the CPI food.
Speaker Change: One point was two 4%.
Speaker Change: We operate in Quebec, and Ontario in the published CPI for the first quarter was $1 seven for these provinces for the for Ontario, and Quebec.
Speaker Change: Our first quarter and.
Speaker Change: The December number it includes the tax holiday.
Speaker Change: So that's why we say our internal inflation is slightly higher than that.
Speaker Change: Slightly higher than the $1 seven adjusted for tax holiday.
Speaker Change: Yeah.
Speaker Change: Sorry, I just wanted to get that and so it's clear.
Speaker Change: Thanks, so much.
Speaker Change: Good luck guys.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Question is a follow up from Chris Li. Please go ahead.
Speaker Change: Please go ahead.
Speaker Change: Alright, Thanks, and then maybe a quick follow up questions Mark did I hear you right.
Speaker Change: You mentioned the e-commerce.
Speaker Change: So the market was up low double digits.
Speaker Change: Yes.
Speaker Change: And is that mainly driven do you think just buy more services available for the consumer or are you seeing kind of more of a shift in consumer behavior in terms of their willingness to shop more on E Commerce.
Speaker Change: It's difficult for me to evaluate this but.
For sure over the last three years more capacity that's been added in the industry to service customer E Commerce, click and collect express services and our own planned services.
Speaker Change: But we've seen consistent.
Speaker Change: Growth.
Speaker Change: Low double digit in E com for the last few quarters.
Speaker Change: And are you able to chance to disappoint from you guys. What is your food e-commerce penetration rates.
Speaker Change: No we don't share that for competitive reasons.
Speaker Change: Okay, Okay, and then John Michel maybe once.
Speaker Change: One for you just sort of from a regulatory perspective are you seeing any thing on the horizon that is sort of worth monitoring.
Speaker Change: From your perspective.
Speaker Change: Well when we when we look ahead the bill 60.
Speaker Change: It's really what's going to be.
Speaker Change: Bring a lot of change in additional responsibilities for pharmacists and create new opportunities for them to continue to play a proactive role as healthcare providers, but other than that right now so it's really those 67.
Speaker Change: Okay, Great and then maybe last two ones for frontline slide just sorry, if you kind of mentioned this already but just in terms of the depreciation and interest expense. The Q1 run rate other than sort of the normal increase those are good run rates for the rest of the year.
Speaker Change: Yes, it's pretty much adjusted for that for what I described earlier with the interest receivable yes.
Speaker Change: Okay, and then Capex is that $5 50 to 600 is still really good.
Speaker Change: That's still a good number.
Speaker Change: Yes, you saw was lower in Q1 than last year, which is in line with the with the reduced reduce investments, but yes.
Speaker Change: Okay. Thanks very much.
Bruce: Thank you Bruce.
Bruce: Thank you and at this time it appears we have no other questions. Please.
Bruce: Sure.
Speaker Change: Thank you all for your interest in Metro and please Mark your calendars for our second quarter results on April 16. Thank you.
Speaker Change: Thank you ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we ask that you. Please disconnect your lines.
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