Q2 2019 Earnings Call

All participants please standby your meeting is ready to begin please be advised that this conference call is being recorded.

Good day and welcome to the Northwest Company Inc. second quarter results Conference call I would now like turn the meeting over to Mr., Edward Kennedy, President and Chief Executive Officer Mr. Kennedy. Please go ahead.

Good morning, and welcome to our second quarter Conference call. Joining me. This morning are John King or.

Chief Financial Officer and.

The amount of Sutton, who is our VP of legal and corporate Secretary before I.

Getting to the call I'll ask amounted to read our.

Disclaimer transcript.

Thank you Edward before we begin I remind you that certain information presented today may constitute forward looking statements.

Such statements reflect northwest current expectations estimates projections and assumptions. These forward looking statements are not guarantees of 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 in the forward looking statements for additional information on these risks risks. Please see northwest annual information form and its mdna under the heading risk factors and Rick Thanks Amanda.

So I'll go through the the key points in the quarter and and then as usual open the call for questions.

A lot of what would happen in the second quarter was was similar to the first in the sense that we've we've got two very distinct stories in our business on the from the better performance side.

Our our core northern businesses had another strong quarter, our comps were in the.

Between the three and a half 5% range across food and general merchandise.

In the north and as Weve.

As we said before I've commented on the.

The general economic conditions are favorable for us.

And that includes Alaska, which had a strong fishing season, and as we head into the PFT, which is expected to be equal to last year's.

We're certainly optimistic that whether its northern Canada with infrastructure spending.

Mining activity, we should be.

Going for sales managing the business on the margin side with the expenses.

Control, but but really it gets sales mode.

And that's the way, we look at things and.

With the work that we're doing in different areas it seems to be paying off.

And then longer term, we continue to build our business in other ways.

If I skip down to the to the Caribbean.

And is it really a market by market story, there because of that is think nature of the.

Of the economies.

But also the competitive situations overall our.

What we call our call or cost you less competitive strategy, which focuses on signature categories.

Everything from fresh produce and meet all the way into.

Baby and actually liquor. These have all been strong drivers for us and.

Although call came up a little short of plan. They were they were up nicely to last year as was our our business and the bird in the various Virgin Islands. If there is a soft spot in cost you less it wasn't on the Pacific side.

A little bit in Fiji and in American Samoa.

So when we step back and look at the business and our remote retailing.

Strengths and how it's being.

Brought to market were generally pleased.

There's always room for improvement, but we like where the where the trend is going.

Before talking about joining Tiger I, just want to talk about costs, what we referred to as non store costs.

The margin operating margin gains.

Above ROI for all of our banners X joining tiger are before admin.

We have talked about.

I'm not sure what the right term is any more were there unusual or one time or restructuring, but as we.

Behind the scenes change our business so that we can.

Running more localized put more authority closer to the regions that we we do business in.

There has been a cost attached to that we've disclosed and talked about the relocation of our.

Of our office.

Store support office in Seattle.

Actually backup to Anchorage, and then creating an office in Florida.

Thats being going along fine from a.

Sure the pacing of it in the staffing as a few key roles, we still need to fill.

But it's also involve the relocation and some people not in the business.

That we're in the business before so between relocation and.

Termination of some of those costs us build back into Canada, there have been some changes in Canada as well.

But and perhaps we should have been clear on that at the last quarter that where those costs will be incurred and a little higher than we might have thought in June as well.

They're not out of control, but there is a timing factor there. So so certainly that was a.

I think we had talked we talked about in the in the in the room.

Mdna in the press release, three and a half million dollars is the range of those kinds of costs that were incurred so.

Some of that will carry forward, we're going to have some more some more of that cost cleaned up in Q3.

And then we'll we'll be stable as far as that goes with our.

Our regional approach to the business in the in the office relocations too.

To Anchorage in Florida.

So now to join Tiger I joined Tiger clearly underperformed again, it was a drag for us if I break it down I'd say that.

Weak seasonal performance hurt us and that's that's kind of the.

This third the mixes or the drink in the sense of.

You need to have seasonal sales driving margin dollars, we had some very strong comps against us in may.

Which were tough to beat on June was.

It was very very poor weather wise that thered be our prime selling season, and then July we had great weather that was markdown season.

But behind behind the the remedy the surface there are we.

We've had to take a hard look at how we're running the stores. We actually you have made a management change this week on the leadership side of join Tiger and.

The operationalization of.

Of the called the giant Tiger system, and how we can be better at that and also leaned into join Tiger two to support us.

You've heard some of these things before a lot of it is block and tackle at store level.

We don't fundamentally believe that the.

Joining tigers. The store concept is is fatally flawed. It doesn't mean, it's the only way those stores can be run as joined Tigers, but it is something that we were not giving up on it all that way.

We just know that whatever we do whatever the stores are they have to be well executed and we we think we've dropped the ball there and.

The change we made at the leadership level isn't the the beyond the end all.

We all own this and have to come up with better better execution. So specifically to seasonal a lot of that has to do with our.

Markdown management are ordering.

Theres, some things that backed up a bit I think before I go on.

Indirect effects of of China shipping rates with.

The tariff crunch avoidance.

And some delays there, but Bakken are what we can control.

It's the day to day.

Work, we take on with our fashion managers on the floor our store managers the the field support.

To make sure we're ordering.

The right mix, we're getting behind the key items that will drive the business, we're not shy on that.

Sometimes when you're not a franchise you can be shy.

There is no excuse, though we've done very very well with this model in the past.

Get back to some of the basics on how that can work for us now and in the future.

And that carries forward to the other parts of the.

Hard goods and soft goods part of the business, it's not just seasonal.

Window coverings is a huge business.

I joined Tegra across Canada, and we need to get our share. There's no reason, we can't but we have to commit to the space and the quantification that will drive that business. So.

These are all things that.

Sometimes it's easier said than done the individual that's coming into to run the division for us.

Did run the division.

For over 10 years during a much more profitable growing phase.

And and we have we believe he is the right fit for getting back to some of these disciplines that will will drive our bottom line or protect our bottom line, but also protect our market share.

On the food side, so the other half of the business much lower margin.

It's being at risk for a while I think at this point that weve over managed the business by trying a lot of different things that impacted margin and didn't have not driven the traffic to the extent that they are expected to.

In this case food has to be stabilized in terms of shrink some of the things again that weve tried have cost us.

Our fresh meat has we over invested in that program, but it into all the stores and we paid a price in the first half of our promotional strategies. We're also costly so we're pulling back on that and again trying to.

Realizing that food still has a very important traffic driving role, but not trying to get more out of it than it deserves.

And and making sure that our focus on on the hardwood and softwood side of the business is where it needs to be from a timing standpoint, you heard me say this in June and I.

And I am disappointed that I got it wrong of course that I couldn't.

But if I would not have forecasted as tough a quarter that we just had and I'm not forecasting that for Q3 as we model. This out and we look at our comps from last year, which were very bad.

We don't see that kind of a drag.

The magnitude of the drag on performance that we had.

And just to remind investors I mean giant tiger, there's a number of things with GE with northwest I commented at our at our annual meeting that.

It wasn't core in terms of our competencies.

You can draw up all kinds of conclusions from that except that it puts it in a in a tougher situation in terms of a focus and.

We have to delegate that focus we have to lean into GTN their expertise.

And not assume that that we have it because.

There's enough going on in the life of northwest too.

To build a proprietary expertise there visibility what we're paying join Tiger for.

But it's.

It still is something that in totality.

I'll talk about that in the back end of the business the buying volume it creates for us the distribution efficiencies.

That is material in terms of being a benefit so we we like the volume, we obviously want to be more profitable.

The delta on that decline in profitability has been.

Painful for us in terms of overall results, but we also take a long term view, we hope our investors do as well.

We know we have a very solid business.

We've got fantastic, we think locations with our stores, we've built them out very thoughtfully in Western Canada, We've got good store teams.

And we think it's.

That collection of stores locations is still very.

Very valuable.

And then it again it drives efficiencies in the rest of our business, which are sometimes hard to attain.

Given the wide breadth of of of how we operate so we certainly don't take that for granted we put the right amount of value against that in terms of protecting it.

So thats, where giant tiger sets.

It's a focus.

And without being a total distraction from the other very attractive upsides, we have in our business and I think we have the right balance in place.

And.

We're going to keep our foot down on performance improvements.

And I.

When I look at Q3, Q4, I see us with much more upside to these would be the first two quarters of the year in terms of Lovejoy Tiger performance.

So thats the comment on on that I'll make right now in GTN of course.

The fully prepared to answer any questions you have.

There weren't a lot of other focus a highlights we opened our 45th giant Tiger store in North Alford.

I'll just point out that we are continue to be optimistic and positive about our our more northern in rural Jain Tiger locations and this would be one of those we have another one opening in metal excess cash in which we think will be very successful as a hub for north central Saskatchewan.

Coming up in Q4.

I think with that with those comments operator, I'll now open the call for questions.

Thank you if you would like to ask a question from signal by pressing star one and your telephone keypad.

Joining us today using a speaker phone. Please make sure your mute function is turned off the line signals return equipment.

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Again that is Turkey, followed by the digit one.

Well hear from your first caller. Please go ahead.

Hey, it's not bank, it's the IVC.

Jimmy Good morning, Matt, Hey, Hey, good morning.

I guess I wanted to start talking about reinsurance commentary you had in your outlook. So we already knew that it costs $4 million more this year, but you suggested that maybe.

Cost could rise further could you just talk a bit more about how you see insurance costs playing out.

In future years and is there a chance that you could lose insurance on certain assets that are currently insured and how all that would look.

Sure I'll take them out yeah as I put in the whereas we put in the outlook. There we are seeing.

You know increasing pressures on on insurance, both from a premium perspective, and a reduction in capacity and writing insurance and if you look at what's happened with a introduced recently with Hurricane Dorian for example, and the and the devastation that is as half and insurance companies are.

Cutting back on how much insurance, they're going to be writing in those regions, particularly.

The Caribbean so that in and of itself I think is going to put more pressure on premiums as well as the losses coming out of not only hurricane Dorian buckle, Dr., Umbria et cetera. So I do see a continued pressure on insurance premiums how much that will be going forward is is.

Not known yet.

We've we've locked in most of our insurance premiums for the year, we do have.

Some policies that renewed late Q2, and some that will renew in Q3, so we'll get a little bit more visibility.

In Q3 on on that piece of it but I do see premiums.

They're not going down that's for sure. It's a question of how much. They go up and so that's 0.1 0.2, I think it's important to focus on.

I mentioned, what we can control in our business and we're very focused on loss control we've talked about in in the report increasing the resiliency of our stores in the Caribbean to a category five hurricane level.

In Northern Canada, Weve can conducted.

Loss mitigation audits from a fire risk perspective, and making changes there so.

Everything that we can do to control and reduce the risk of loss. That's what we're doing but there are some global conditions here in insurance side that are.

Continuing to be at play.

Okay, and then in terms of the capital investment on your end is there is there an estimate you could provide in terms of annual annual capex or anything like that in terms of.

Weatherproofing your assets.

The amount of the other program.

Maybe John you can comment how much we spent this year what we were forecasting next year for that it's not significant but.

It's a female stimulus dollars yeah. It would be like the hurricane resiliency piece is this year and that once we do that then that will be behind us, it's about about $3 million Canadian.

On on that piece of it ongoing in Canada, we would expect.

The capex to run around $2 million to $3 million in terms of northern Canada.

And I think that that work will continue on certainly through this year and into next year as well.

Okay, and then I wanted to shift to giant Tiger.

I guess first is are you still playing with the strategy and the store model in giant Tiger or with the New leader are you are you getting towards a point, where you're where you're looking to execute on the plan.

The plan is being focused on four.

Credit for both two quarters already in.

Simple.

For the main part to it is gap closing like type stores and join Tiger East that we think are.

Should be the ones that we chase in terms of performance and execution. So we break down.

Where there is a gap or it could be.

By a class department the category.

It could do with.

Margin rate or sales per store and we would then we get further into the details of why we're we're falling short on what should be.

Should be a comparable performance that's been going on but we're not happy with is the is the focus and execution at store level.

And the way ours were structured on this.

We have a president of pay in retail with two divisions, northern count or retail.

Enjoy tiger essentially.

And.

His time as being full more into GT and then of course working with the joint Tiger team.

The leadership change we've made is that the the VP of that of the giant tiger team level.

And.

Does that individual again as I mentioned has a lot of familiarity with the giant Tiger division hasn't been directly.

Engage in it for some time so.

We've given him.

The accountability to get this plan.

Fully executed, but also to step back a little bit we don't want to do a complete step back because we think we know what we're supposed to be doing here.

But.

He is he is the first and thats walking in the stores.

All the time or will be and if it through his his eyes, we want to make sure that we have missed anything so I think inevitably there got to be a few small tweaks to the.

So where we focus.

But it's not like a.

Ill take three months to figure this out that we have a we have targets ahead.

On a daily basis, and some things and.

He understands that so.

I think it will be.

80% were doing already better and 20% if we find some new ideas.

We're going to be open to those.

Okay, and what do you think about the improvement in Q3 in Q4.

Is that more about just lapping easier comparables or do you or do you expect the execution to improve in the near term.

Yeah, I think I'll expect it to improve the the factor is whats the confidence our confidence level near term right medium and long I know these.

The store assets I might call them.

Spark the giant Tiger part for second our AR have lots of potential.

Financial potential.

The short term quarter by quarter.

I can't ignore the lock in part.

It's very defensive.

But its just downside mitigation that its just financial fact, I guess that were.

You start to bounce along the bottom more or less so that's behind us that they're on the forecast side, but.

We've learned to nail that everybody has gotten more.

Tuned in and experience on how to manage this.

Who are directly involved including the presentation retail who is.

His lap one year and his role and and although there's there's lots of upside in northern Canada. He knows that.

The gtlds as well so he is out to bid to learn and adjust our.

SVP of food, who plays a key role in all this she was was new to the business and.

There's been some learning adjustments there and I think that's.

That's part of our situation is that we've had some new people enrolls.

And ER.

They are very very capable, but theres still new to the situation.

So that I think that learning gets accelerated and and we you know mistakes could fix quicker and we get dialed in faster. So that gives you more confidence on execution improvement in Q3.

But based on what's just happened in Q2.

Im cautious and.

So there's the shock absorbers, just the weak comps that we're cycling through in terms of downside protection the upside.

I'm still waiting to see this catch hold where we build the momentum on our ours our store execution that we start to see this.

Turnaround and pickup improve store by store, so I won't say that yet.

I haven't seen enough of it.

Thank you.

And as a reminder, that is the starkey followed by the digit one we'll move to the next caller in the queue. Please go ahead.

Hi, I just wanted to start by following up on a few of these things. So I just to clarify for Q3 and Q4 in Jain target you are saying that.

Yes, the comps are so easy that you should at least be able to do as well as last year, but you're just not sure how well how much improvement you can get at this stage.

That would be our going in position on Q3.

Thank you for yes, alright.

And Im sorry, the management change who is running giant Tiger now and what was the.

His name is Scott Mckay.

And he was.

He joined northwest.

Oh early two thousands.

He is going away from northwest for two three years.

Move to our.

International Division.

He was after your anti Tiger for both 10 years.

And it was also a VP of merchandising.

In Canada and in our International Division.

So he was outside the company for the last few years and is coming back in.

Yes.

All right and you talk about.

Yes, Mark down management.

Issues at giant Tiger can you explain a little bit more about exactly what your what the issues were yeah I mean, it's.

It's more aggressive markdowns coming out of June .

With the the weather and and having slow traction.

We I think we've sized that up is this being an overcorrection.

And I think there is part of this led to our change and on the.

On the team.

Think the team is getting skittish and.

Being long on merchandise kind of out of.

Out of the winter and not wanting to be long again going into fall they certainly aren't that.

And then over correcting.

Okay. So I guess it would the management.

Is that the management change that you think is going to help correct that or is it other.

Other initiatives being implemented.

Well beneath the management change or the initiatives and as we think are the right ones. So we had a.

As an example.

For the better part of a day with the giant Tiger.

Executive team that is accountable for.

For buying and merchandising, so we sat down with them and.

Two weeks ago and plan and looked at where these gaps are many most of them were known to us, but just been very very dialed in on that.

So that plant is being worked.

Part of it is prioritization to and that was my earlier comment about.

Focusing on on soft goods and hard goods and.

And.

And not say over managing food not trying to be.

Too aggressive with food Promotionally and.

And putting too much emphasis on categories that are riskier like like fresh meat.

Shifting the manager's attention, making sure that it's on soft goods and hard goods on the floor of the store.

And just totally buying into that.

So that's a softer thing of course, but then within the soft goods and hard goods as being very very focused on which areas of the business, we want to make a difference on.

Sometimes I feel you could swear academy it could hit something that we could improve.

You can actually but some things are just bigger than others. So.

It's that kind of focus and.

I think when you when you have a.

The negative comps and.

And it hurts the business overall.

People can start to get a careful that are right around there has dropped off and.

Try to 10 different things half well.

So of course, that's on everyone, including myself this to make sure Thats a steady hand approach.

And again in the translation of.

What I'm, saying now too.

One of our stores and want to pick this morning, there's a lot of people between that and the key one of the key drivers are translators as the.

The VP role that actually runs that division so.

We want to make sure we have total confidence in that person's ability to.

To put the the plans in place and we weren't there for.

For different reasons.

Until this week actually.

Okay.

So when you talk about poor assortment management, that's that's what you're talking about in terms of your mix between food and MGM and the hard and soft goods category, Yes, It's where you what you put your display space into its where you put your dollars for inventory. It's it's your commitment to the programs that then when you track GT success and it's not that they.

Our success everywhere are you.

But but you've got to take advantage of the information that goes with the franchise model and really really work that hard.

And it's a disciplined there's also you got to be thinking like an owner I mean thats. Another thing that from day, one and we know these stores.

Our corporate stores to that.

That GE has a strong franchise model they also run corporate stores.

So we've got to make sure that we have the enterprising mentality in our stores.

And we're not and again, we're not just directing people to do things.

We have strong suggestions, but we also want them to be free to.

To do what they need to do so part of it is also checking to make sure that we've got.

I think we have very very strong people, but have we had we kept their their education there.

They are sort of the train is it.

On these these different areas of the business. So the next next week they will be in Ottawa.

For the managers slash owners meeting and again, its a chance to catch up on better practices, but we have to do a deeper dive to make sure that our managers understand what the drivers are.

And again Thats part of Scott's job.

Beginning this week.

Okay, and kind of outside of giant tire and your strategy.

Commentary you talk about.

Moving more.

Already in the business to closer to a different banners or regions communities.

But in the past you've also had trouble attracting and keeping strong local management in some of these remote remains well right now what are you not concerned that moving too much authority into these areas is going to if you don't have the right people in place or are you just comfortable now that you have the right people.

Well, if you are applying the wall, John and I would add that pretty would take that what you heard that discussion.

And John May want to simplify the business further and not give as much authority not to put up on the slide but I come from the other side and but absolutely now I would not put the authority and where the capability doesn't exist yet so.

It's a walk and chew gum kind of thing, where we know weve got stores that have that capability instability, so let's double down on there.

I use that word authority, but.

Let them drive more of their pull more of the merchandise into the store instead of us trying to push it from the central where the store doesn't have the capability yet.

Because of turnover and maybe you can fit for will.

Then we are looking to to push that to push that authority down to the regional level. So.

Empower the sales manager for that region or that group of stores to make some of those calls for the stores.

The way, we see it at least they're closer to the action then.

Then the buyer who's.

Those are I still haven't seen yet the software template that that localize the way we want to so we know we have to get you in the incentive is to keep we look at the stores that.

That have the capability and Thats, our number one priority you've heard me say that for the northern business Anyways, and I think what we're fine with.

Dan Mcconnell, who is the president international he's recognizing.

And whether his first priority.

But as he is trying to operationalize has competitive strategy and Colin.

And really push that localization into Alaska.

As soon as becoming his he is finding the right individuals that will.

We'll come into Alaska that will be part of our team Super entrepreneurial.

And what we're finding is the retail background as is increasingly less important than the the enterprising mindset.

And the.

Just the driver that would say I'm really happy being in this kind of setting a little bit of its obviously, we're off to be trapped for some people even when a pig would be looked that way, but certainly anchorage.

And where we do business, so really find those folks that like that kind of work and can.

Can thrive in it and we have many many that do so we know what it looks like.

But.

No, we're not going to push out.

We're not going to localize buying decisions are ordered or quantification decisions, where we don't have the people you had in place to do it well.

So it's going to be a hybrid approach.

All right I'll, let somebody else jump in and get back in the queue. Thank you.

And as a final reminder, that is starkey followed by the digit one if you have a question or comment well move to the next caller. Please state your name and company.

Hi, its Stephen Macleod from BMO warning.

I just wanted to follow up on giant Tiger and I am sorry Verde Im sorry, if you covered this in the last set of questions, but can you just talk a little bit and one thing I thought was interesting and is in your prepared remarks, you talked about over managing the food side of the business and it hasn't really driven traffic can you just talk a little bit about.

How you are approaching the food side of the Jain Tigers I'll stick to drive traffic hire and potentially move away well I think I think we are recognizing the half the baskets don't have putting them at all.

And.

The crossover is there, but it's in terms of who put soft goods in a basket as well as picks up.

Produce or cereal, it's not it's a meaningful percentage, but its not enough that you should just be.

Completely fixated by that so my point there is that.

When you when you tweak something when you say that we have that we took all the fresh meat out of the stores as actually decision was made for us.

Two years ago by the supplier because they decided supply China, maybe not the best move down but the so then were scrambling we have no. So I really don't know supplier for case ready made so then we find one a year later. Meanwhile, we live with resetting those 12 cases, a put cases with.

Different offering.

And.

And then we're feeling cheap we want to have a shopper needs meet in their basket.

We need to but we're not a full shop I think thats. The other aspect we got to keep reminding ourselves of is that limited space. We have dedicated to food means where we're not.

The only place they are going to go for food can be the first place. They go aspirationally, yes, but realistically where people are going to come because we've got great food deals.

And we're reliably in stock it was a huge convenience factor in the north to the joint Tiger stores give based where they're located.

And our prices are right.

At a discount level visa the other discounters in the market.

When you get past that.

For example in the meat you put the meet all but now you go back to me because you got a supplier and you remember why meet wasn't so great. It's the ordering the shrink both the shrinking it out from a set standpoint.

And she and the the waste and spoilage.

These kinds of items in our stores that is going to go up slight tangent.

Give more stores are located are highly problematic from assessed endpoint.

And we've had a number of very large spike we've had to invest in.

And different safety security measures not just because of fresh meat. It just becomes part of it is because of the.

The math.

Usage in cities like.

When a pig in Saskatoon redesign of some of our downtown stores.

But having said all that my point to this is trying to do too much in a very small space for food trying to replicate too much of a full supermarket and not play into your strengths that again the strengths would be.

Great prices can be at locations.

Consistently in stock.

Solid promotions, but not too cute in terms of couponing and multi buys.

And then.

Then moved to the rest of your store and do that really well because there's a lot of goal to mine on the hard goods and soft goods side of the store so by over managing that that's what I mean.

I don't want to say much more about that because you can't just leave it alone and won't run itself.

But I think we're recognizing that that we want to be able to protect our food margin.

Be price competitive in the market.

But spend our time on the selling floor.

And if you put more fresh and to your store by the way then of course that brings more management. So we had a protess initiative. It was okay. We drill so good produce comps, but we weren't seeing the basket fill up on the other side of the store, where there was more money to be made in the Proteus is not the the margin play that it would be in a supermarket because we only have the best sellers. So.

It had helped against a lower base, but I think again it took a lot of management time to make that produce work well and we have to be very very honest about weather was limited time in the managers day, where they should be getting their sales. So.

Without it could go on with a few more examples of this is pretty granular I know that you just to give you a flavor.

Of how that shift might look going forward.

Okay. That's really helpful. So would you would you expect then that you were moving away from fresh meat and more to or looking at DC. We're looking at a d. skewing in stores that are some stores will get out of it but some will be skewed in terms of.

Higher shrink items and certain cuts that to start carrying their weight. So simplifying it further making that call store by store.

On the produce side, it's about saying okay are we.

How much labor can we put into this this department.

Can we make it simpler and maybe we'd be too and are the Barbie size too high given the the labor we have to put into it any attention to requires in the store manager.

So it's it's something you think you just don't you don't go to the other side of the ditch, but it's it's somewhat literally comes down to.

How many hours the manager's time is involved in this and then looking to take a hard hard look at shrink because that's another point that's been very disappointing as the shrink that we've taken in food.

We should not have done that I mean, there's some risk you've got to take but if I look at cumulatively at our year to date shrink its just unacceptable. So if I go to find out where the culprits are there there are all walking around in the produce in the meat Department.

Okay. So thats helpful. Thank you.

[laughter].

Well move to the next caller in the queue. Please go ahead.

[noise] [noise], Hey, Brian I'll say again I'm a few more questions. So are you willing quantify at all like how how much of an impact the markdowns a giant tiger had on EBITDA.

I don't think I want to break out.

The.

The variances inside of Johnny Tiger I mean is.

We don't do it in totality never mind within what we've highlighted the key factors that that affected performance a giant tiger.

And then it's you know that in aggregate it affected our overall performance, but I.

I won't.

I want to get into each of these.

Alright Saint Thomas.

Is that store is still on schedule to open in Q4.

Yes, I think its November .

I would be careful when we announced it in the market I don't think we have but its opening in Q4.

Okay.

Only in early Q4 put it that way.

And then you talked about also in the strategy section about optimizing your air cargo capability. So what's left to do now that you've got a lot of this stuff in house than you're used to you about your capacity out.

Sure.

Obviously, a couple of minutes on that I think the.

There's a lot to do as it turns out we keep.

Turning over ideas and.

One is the.

I've talked before that sort of more seamless integration where.

Plane ready pallets go right on the plane right off the plane.

We're looking at I would just say without because some of the stuff is is quite innovative and we don't want to talk about it.

That way specifically, but.

A big factor for us is optimizing the weight on the plane and.

It's just in the point, we would say is that when as a third party carrier.

The weight is not their problem. It's your problem they charged by it and.

The collaboration to talk to my is not there is no one national incentive for that.

Because you pay in that but they charge you and you are figuring out stuff in it from a different lens.

So we we've just had is hammered home.

Through the airline actually.

And they've got a very strong people.

Letting us know how this works and.

We've got some ideas that were working on that I think our our innovative.

It could have a major impact I'd like to talk more about them as we.

We roll them out.

I think that what we're doing is.

Completely lined up with building a superior air cargo capability and I'll, just say on this point that.

No one's doing this and in northern Canada cargo jet of course is that.

Pretty successful cargo airline so.

In Alaska, you do see dedicated cargo carriers some are multi modal.

Like London, London Transport is.

Error Rota in water.

And it's just the power of focus that we're starting to to take advantage of so I'll address would be in general but.

I don't want to be more specific for almost competitive reasons.

The other point I want to make it was not your question, but I think a better I'm going to bring it up and that is that.

As we as we look at air cargo.

And the size of our business.

So we've moved over to to northwest.

100% of the cargo in northwest, Ontario.

Manitoba and and.

Regions of none of it with exception of some communities and Baffin Island.

We use a cargo jet plane to fly freight from when a pick to calibrate as well, which is a big growth for us.

So now here we are in our your question was what optimization.

Scale is another factor on our minds.

And it was always there and we talked about further phasing in what I'm describing about cargo growth is now third party cargo growth.

But there is another point to this.

We had a plane and we didnt it wasn't material, but I m-. So last year, we had the mechanics situation with the T. ours.

And trying to figure out how to.

Move from.

Third party maintenance to an in house capacity and dealing with all that disruption.

This year, we had a plane that had a emergency lighting in a lake.

Not an 80 or one of the bottlers.

That plane is actually out of the lake.

Told back to the reported down in Wisconsin at the boss or factory getting.

Retrofitted it should be back in the year and within 30 days, but it was out of the air.

It was in the water for a few weeks.

For four months.

So what well we've recovered off the fleet cover that off.

The quarter was pretty good.

But it is tenuous in the sense that if we had another plane issue.

It's not a big fleet so.

A bigger is better for efficiency or redundancy risk mitigation.

And for growth because we see the north is very very active.

For cargo needs, both sealift cargo and air.

So we're exploring different ways to to grow.

Drove the cargo business for all of those reasons.

It's not a dire situation in terms of.

Are we just upside down on our fleet size.

But.

Seen how this plays out and I and by the way the efficiency improvements that I that I didnt get into detail on a really important because.

If you think about weight in the number of like it cuts into improves.

The efficiency of the planes. So you can use fundamentally less aircraft.

But of an aircraft is down that's desk just.

A risk that we've got to be able to model out and make sure that we've got.

We've got capacity to cover it off.

And again in that against that backdrop is there is that there aren't a lot of planes just hanging around that you can call up it used to be like that.

According to the very experienced folks who run our airline, but it's not as easy today. So you better have some of your own equipment that you can reposition.

And make sure they're to carry the northwest freight or wherever your customers are.

To live up to your standards of performance. So that's also something that we're looking at in the airline now you can say well what does that from a forecast standpoint.

In may of some capital investment implications, but it would be for the right reasons to grow the business. This is not defensive like what I'm talking about is to to grow profitably, but also in a way that reduces the risk of your current size.

And.

We're having those discussions were planning that with the team.

It's all part of the long range plan any ways that we would go to third party customers and add capacity, but having seen now just over a year of some risks that a bit us some that could have.

I'm more convinced than ever that we need to be bigger.

For all those reasons.

Okay and.

I saw that.

Amazon made an investment in cargo jet. So does this do you see this getting.

Amazon into northern Canada in a more efficient way and will they become a competitor again in some of these markets.

I don't think so I think the calibrate wrote today we're.

Money has been lost by someone in buckets.

Through the Amazon Prime membership.

There is.

Probably millions of freight dollars being absorbed by some Lenovo and Amazon, Canada Post I don't know who.

Please.

That model won't be replicated across the rest in northern Canada.

Callaway is a bit exceptional because it has frequency that is justified by the size of the market.

When you get into smaller markets frequency does drop off but we're doing twice a week service, we think that sufficient sorry sufficient and efficient.

You can over service, a community and it'll be tough economically.

And doesn't really and is it sustainable.

So when you get into the size the communities, we serve and you move to an E Com model and believe me as you would expect we're always modeling this.

I think we don't it's not like we have dealers, who don't want to call, we'll do whatever the customers need that works for them.

But the frequency part comes up again and again there is only so much you can do on a frequency basis.

And then there's the.

The perishability of the product when it gets to the community where is that going to go next et cetera. So there's challenges to the model.

And then it bumps up against the way our customers actually shop.

And Psycho graphic lean when you when you look at that who shops E com.

It's not.

Our customer so our goal is to drive down costs.

And we don't want to it's not we're not tied to legacy bricks and mortar we want to lean out our bricks and mortar.

As much as possible and get our cost continually down still with the margins that we.

We need to get a return but grow our share.

In the north.

And then keep testing in modeling our with the customer with a forward buy will they pantry load. If their homes are are tight overcrowded actually whereas the food going to go and if you don't have the economic capacity to forward buy. It then our job is to get you the best deal through the bricks and mortar or some combination of it.

So I think the we were watching what's going on with Amazon and never take them for granted.

But.

You can overreact to this too so.

We want to be the best and I think the other way to look at this.

If you looked at the value chain of northwest and I try to get into it a bit at the ATM and so year.

Your plan buy and move sell the retail value chain.

We beat increasingly breaking it down.

Within plan.

By moving cell the cell, we feel we have to continue to own although we could model different compensation clause the ownership franchise models with our store they talked about.

Decentralization localization.

But we thats that's IP, that's competitive advantage for northwest on the move to the outbound move Youve heard that before that is the vertical investment and as stated that it is very important differentiator as a lot of spend in that part of the value chain that you can scale relative to anybody else actually.

When you get to the inbound in the distribution.

That's scalable that we the scale that we can achieve.

To get to an efficient DC the bottle volume you need to get the automation robotics and.

In the inbound side containers from China, that's not where we're going to that very outsourced model for us with the right partner.

So you go through then you go to the plan is high on the plan side. Obviously, we should know what people are buying and want to live within the north.

That's unique lifestyle needs, but broad trend.

I see bicycles.

We've got to buy from someone else. So our goal on the what I call broad trend buying is to get together with somebody whether its joint CAGR Canadian tire home hardware.

Today, we use some distributors.

Our goal is to talk to essentially non competing retailers and try to strike the right arrangement on the pure buy side, because we'll never match the scale, we can localize it into the right communities and the right quantities. So we take apart each of those parts of our value chain.

We're looking at.

So what do we do ourselves what's down the road do we partner with others on.

And certainly.

Air cargo is one that we want to do ourselves.

Thank you and just one last hopefully short question.

The.

I think in the last quarter conference call you hinted that you're looking to get a better deal with giant Tiger East.

I'm not sure if I misunderstood you or not but if that's the case can you give us any update on on that.

Yes, I don't I'm sure I can say better deal dislike thought but I.

The point there is to have.

Good discussions with giant tiger that lead to something.

Or go a different direction and.

I alluded to join Tigers got some some very good assortments that could work in the north there are other retailers that we could.

You can take their mix into the north.

Including and the Caribbean actually.

So it's trying to exceed lean into GTN in the way that we're paying the royalties for that they support our business.

That they want us to win.

Not just collecting the or the royalties of course, but they have a very strong stake I think in the brand.

And what's being developed in Western Canada, but can still be developed so it's just having a very good.

Connection with them.

Dave.

And it's been Okay. I mean, we now have a new president a giant tiger as of August Onest and.

We've had some good discussion so I'm, hoping that we can get.

Get more action plans in place we're not the only thing they do of course, they've got other.

Other markets in Canada, but it's more optimizing the relationship for both sides and.

We both have scale that we can share potentially.

These are things that we're exploring and we'll see where that goes.

But it's that's that's kind of the waterfront of our discussions right now.

Thank you.

At this time there are no additional callers in the queue I'd like to turn the conference back over to Mr. Kennedy for any additional or closing comment.

I don't have any additional comments I appreciate all the questions and.

If there is follow up of course as usual. Please please contact our there myself or John directly and we'll we'll do our best to answer answer your follow on questions. Thanks, very much and we'll look forward to being on the call with you in December for Q3.

Thanks.

That does conclude today's teleconference. We thank you all for your participation.