CACI International Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
January 30, 2024

There are 11 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to Metro Inc. 2024 First Quarter Results Conference At this time, note that all lines are in a listen only mode. But following the presentation, we will conduct a question and answer session. Also note that the call is being recorded, Tuesday, January 30, 2024. And I would like to turn the conference over to Sharon Kadoche, Manager, Investor Relations and Treasury.

Operator

Please go ahead.

Speaker 1

Good afternoon, everyone, and thanks for joining us today. Our comments will focus on the financial results of our Q1, which ended on December 23. With me today is Mr. Eric La Fleche, President and CEO and Francois Thibault, Executive VP and CFO. During the call, we will present our Q1 results and comment on its highlights.

Speaker 1

We will then be happy to take your questions. 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 historical fact may be deemed a forward looking statement. Words or expressions such as expect, intend, or confident that, will and other similar words or expressions are generally indicative of forward looking statements. The forward looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy and our annual budget and our 2024, 2025 action plan.

Speaker 1

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

Speaker 2

to differ

Speaker 1

materially. Risk factors that could cause actual results or events to differ materially from our expectations as expressed in or implied by Our forward looking statements are described under the Risk Management section in our 2023 Annual Report. We believe these forward looking statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward looking statements except as required by applicable law. I will now turn the call over to Francois.

Speaker 3

You, Shailan, and good afternoon, everyone. For the quarter, total sales reached RMB 4,970,000,000, an increase of 6.5% versus the same period last year. Food same store sales were up 6.1% And sales were positively impacted as the week preceding Christmas fell in the Q1, whereas last year it fell in the Q2. When we adjust for the Christmas shift, that is when we compare same store sales for the 12 week period ending December 23, 2023, With the one ending December 24, 2022, food same store sales increased by 3.4%. We will have the reverse effect in the 2nd quarter.

Speaker 3

Pharma same store sales were up 3.9% when comparing the 12 week period ending December 23, 2023 with the one ending December 24, 2022. Our gross margin stood at 19.6 percent of sales, same as in the Q1 last year. Operating expenses amounted to $506,400,000 up 10.5 percent versus last year. Operating expenses as a percent of sales was 10.2% versus 9.8% in the same quarter last year. As expected, the higher ratio is mainly due to the commissioning of our new automated DC for fresh and frozen products in Tabun as we incur temporary duplication of costs and learning curve inefficiencies.

Speaker 3

We also have higher third party e com fees than last year. EBITDA for the quarter totaled 468,100,000 up 1.2% year over year and up 2% when removing the gains on disposal of assets. Total depreciation and amortization expense for the quarter was $131,100,000 up $11,000,000 versus last year. A significant portion of the increase is due to our new Telbaun DC. Net financial costs for the Q1 were $32,400,000 compared with $27,100,000 for the corresponding quarter of 2023 and the increase is mainly due to an increase in debt, higher interest rates and lower capitalized interest related to our distribution center automation projects.

Speaker 3

Our effective tax rate stood at 20 5% last year, reflecting a favorable tax adjustment in respect of prior years. Adjusted net earnings were at CAD235,000,000 compared to $237,600,000 last year, a 1.1 percent decrease and our adjusted net earnings per share amounted to 1.02 up 2% versus last year adjusted EPS of $1 After 12 weeks in fiscal 2024, capital expenditures amounted to $117,300,000 versus $129,300,000 last year. On the retail side, during the Q1, we opened 3 Super C stores and carried out major expansions and renovations of 4 stores for a net increase of 88,400 Square Feet or 0.4% of our food retail network. Turning to in store technology. We ended the quarter with 502 food stores and 63 pharmacies equipped with self checkout technology.

Speaker 3

As for electronic shelf labels, at the end of Q1, we had 345 foot stores and 46 pharmacies equipped with that technology. Under our normal course issuer program, as of January 19 this year, We have repurchased 1,675,000 shares for a total consideration of 113,700,000 representing an average share price of $68.89 The Board of Directors yesterday declared a quarterly dividend of 0.33 dollars a share or $1.34 on an annual basis, an increase of 10.7% versus last year. This is the 30th consecutive year of dividend growth and represents a payout of about 30% of last year's adjusted net earnings in line with our policy. In closing, our Q1 results are tracking well to the guidance we provided in November for fiscal 2024 that is EBITDA to grow by less than 2% versus the level reported in fiscal 'twenty three and adjusted net earnings per share to be flat to down $0.10 versus the level reported in fiscal 'twenty three. That's it for me.

Speaker 3

I'll now turn it over to Eric.

Speaker 2

Thank you, Francois, and good afternoon, everyone. We recorded solid results in the Q1 as our teams continue to deliver good value to customers in all our food and pharmacy banners. Total sales grew by 6.5%, EBITDA by 1.3% and adjusted EPS by 2%. As expected, our results were impacted by the commissioning of our new automated DC for fresh and frozen products in Terban. The transition from our other facilities is causing some duplication of expenses and loss of efficiency.

Speaker 2

But the good news is, As Francois said, we are on track with our plan and with the guidance we gave you in November. As Francois also Mentioned food same store sales were up 6.5% and when adjusted for the Christmas shift, same store sales were up 3.4%. Our internal food basket inflation decelerated to about 4%, lower than the reported CPI and down from 5.5% in the For the quarter, our tonnage our food tonnage was up with higher transaction counts, while the average basket remained stable overall. Promotional penetration remained high and private label sales continued to outpace national brands. We are very pleased with the performance of our discount food stores.

Speaker 2

We opened 3 new Super Cs during the quarter with very encouraging early results. This brings the total to 106 Super C stores. Over the last 15 months, we opened 9 new discount stores in Quebec and Ontario and another 4 are scheduled to open this fiscal year. Our online food sales grew by 105% versus last year, while the market was stable. Growth continued to be fueled by 3rd party partnerships and the expansion of click and collect to our discount banners.

Speaker 2

As we begin to lap the start of these initiatives, we expect the year over year growth of online sales to moderate over the coming quarters. Total pharmacy comp sales were up 3.9% on top of 7.7% in the Q1 last year. Prescription sales were up a strong 6.6% driven by professional services and specialty medications. Commercial sales were down 1.2% in the quarter as OTC sales declined compared to exceptionally high demand for cough and cold products last year. This was partly offset by continued growth in cosmetics and HAVA.

Speaker 2

We continue to be pleased with our loyalty program. We have now reached over 2,500,000 active members, more than double the size of Metro M1. Member swipe rates, Loyalty sales penetration and member engagement rates continue to grow across all banners and have surpassed All path program metrics for Matoetois Moi at Metro and Air Miles at Jean Coutu. We see cross shop spending And visits increasing with potential for more as we leverage our personalization capabilities. Coming back to our Terban automated DC.

Speaker 2

During the quarter, we completed the transfer of all frozen products as well as fresh seafood. We are currently transitioning fresh meat and deli products. And as I said, productivity in the facility is tracking the business plan as our teams are leveraging our experience from the commissioning of our DCs in Toronto. Going forward, the cost increases received from the big CPG companies will start to be reflected in retail prices in February. The number of increases will be more normal than the peak we saw during the last 2 years.

Speaker 2

On the pharmacy side, we will be going up against tough comps again in our second quarter as we continue to lap extraordinary demand in OTC medication due to post COVID cough and colds symptoms last year. To conclude, last month, we published our annual corporate responsibility report with improved disclosure and additional targets. We believe that our approach to corporate responsibility is an asset and realizing our purpose to nourish the health and well-being of our communities and in creating long term value for our shareholders. That's it for me. Thank you and we'll be happy to take your questions.

Operator

And your first question will be from Irene Nattel at RBC. Please go ahead.

Speaker 4

Thanks and good afternoon everyone. Eric, from your commentary, it sounds as though we're really seeing a continuation both of competitive intensity End of consumer behavior for calendar Q4, your fiscal Q1, I guess, is that a fair statement and have you seen any changes Q1 to date?

Speaker 2

I think that's a fair assessment. That's what we're seeing. It's pretty consistent. Like I tried to describe, it's highly promotional as it was. There's some trading down going on.

Speaker 2

Private label sales are continuing to grow at a much faster clip than national brands and discount, the shift to discount continues to happen. So Very similar to the previous quarter, yes.

Speaker 4

That's great. Thank you. And you also mentioned price increases. We've heard from some of your peers that domestic suppliers, the price increase requests have been more modest, but the big multinationals Still being kind of aggressive, can you talk about what we should be thinking around pricing in 2024?

Speaker 2

So like I said in my opening statement, post cost freeze, which starts next week, Some prices at retail will start to increase. The good news is the number of increases is going back to more normal levels compared to what we saw in the last 2 years. So there's a substantial reduction in the number of requests. The size of the request varies, but the general average is certainly lower than what we saw last year. I don't have a precise number, but I think we're returning to more normal inflation levels gradually.

Speaker 2

So mid single digit for categories a little less than that, but some categories higher than that. Some other commodity driven categories can be even more than that, But those are more exceptions. So in general, it's trending better, trending towards normal, but still higher than normal.

Speaker 4

That's great. Thank you.

Operator

Thank you. Next question will be from Tamy Chen at BMO Capital Markets. Please go ahead.

Speaker 5

Great. Thanks for the question. Wanted to ask about the ramp of the DC. So As I recall for Toronto Phase 1, I believe that was completed over a span of I think about 2 years or so. And what you're launching in this fiscal year is a lot larger in scope.

Speaker 5

So can you help us Understand or just remind us, I guess what gives you the confidence that you can stand up all of this in this 1 year? Is it Because the technologies and the equipment in Terabon are the same as what was in Toronto Phase 1. So you're viewing this year's ramp as a bit of a rinse and even though it is larger in scope?

Speaker 2

Yes, for sure there's a lot of learnings on what happened in Toronto. Toronto Fresh Phase 1 was first project we then followed up with the freezer which went better and now the third one is a big one in Quebec which is fresh and frozen. So this fall, it was very focused on frozen. So it was a comparable ramp up startup than what we did with our frozen project in Toronto. And we started fresh seafood towards the end of the quarter, took a pause for the holidays and now in general we're back with fresh meat and deli that's going to take place over the next several weeks.

Speaker 2

So for sure, it's a big project. That's why we talked about headwinds and the extra expenses that we incur to start up a big building like that. But a lot of learnings from the Toronto projects. A lot of our teams here in Quebec went to Toronto to work in the start up over there. So everything is going faster and better.

Speaker 2

So And we plan for it. So the budgets we made, the plans we made and the guidance we gave you were based on better, quicker ramp ups here in Montreal And we're tracking on plan. So we're very pleased with that. It's a huge effort by a lot of people here, but so far it's going well.

Speaker 5

Okay. That's good to hear. And my follow-up is on pharmacy. When I look at Jean Coutu over the years, I don't see much unit growth. I recall at your Last year, you alluded to wanting to invest more in, I believe it was the Haba aspect for front of store.

Speaker 5

But Can you just remind us right now how are you thinking about your overall strategy for pharmacy over the medium to long term? Thanks.

Speaker 2

So we are the lead player in pharmacy in Quebec with Jean Coutu, the clear leader and Gruner. So we have a 2 banner strategy. We have close to 670 pharmacies. So we're not adding units as much as growing organically with our network. So we've optimized the network.

Speaker 2

There were a few conversions to Jean Coutu. So our focus is very much on growing organically, growing sales front store and ABBA in the existing fleet. That's more than growing the store count. So professional services are certainly growing. First line of The healthcare system is a big part of our strategy.

Speaker 2

All the digital work that we can do to Increased customer engagement is going to be happening at Jean Coutu. So there's a big digital component of the lab that's already in place and We're going to build on that to increase our digital connections for commercial sales in the front end with our Moi program. So We like our position. We like the structural demand, the demographics for pharmacy, especially in Quebec. And as a cheerleader, we're well positioned to do well.

Speaker 5

Great. Thank you.

Operator

Thank you. Next question will be from George Doumet at Scotiabank. Please go ahead.

Speaker 6

Yes. Hi. Good afternoon, Eric and Francois. I just wanted to follow-up on the pricing discussion. So food CPI in the U.

Speaker 6

S. And Canada, there seems to be a pretty significant difference. Just wanted to get your take on that. Did you see that as a kind of a 5 to 6 month lag and we're back to the U. S.

Speaker 6

Levels? Or do you think there's something more structural in Canada That keeps the Canadian inflation running kind of well above the 2% to 3% range this year?

Speaker 2

Well, there are some structural differences between the two countries, some regulated markets in Canada that you don't necessarily see in the U. S. So that's contributing to A higher structural rate of inflation, but it's not that material. I think the good news is here is that the year over year inflation rate coming down. Month over month prices have stabilized over the last few months and the year over year number coming down early quarter, every quarter.

Speaker 2

So pleased with that. The increases we're getting, like I said, they're still coming in lower quantities and for lower prices, but it's still going to cause some inflation we expect in the next year, albeit at more normal levels. We always say more normal is 2% to 3%. We're not quite there yet, but we're getting there.

Speaker 6

Okay. Thanks for that. I just want to talk about the front store, the negative comp there. First off, was there an impact at all from the Christmas week in there? And can you talk a little bit about How the cosmetics and how the volumes trended and how soon can we maybe get back to those kind of low single digits, mid single digit cadence

Speaker 2

there? So the front store number we gave you for pharmacy is perfectly comparable. So there's no Christmas effect on that. So a couple of things. Last year, as I tried to explain, front store sales were high at 10%, Very strong OTC demand.

Speaker 2

This was post COVID symptoms, trifecta, respiratory COVID, influenza, name it. There was a lot of cough and cold symptoms last fall and we were comping that. And the cough and cold season started later this So there is less OTC demand this year. That is the biggest contributor to the decline. It's a decline in OTC, which as you know, generates traffic into pharmacy and may have an impact on the rest of the front store.

Speaker 2

So that's the biggest one. If I look at Q2 with the cough and cold season now permanently in place, even if we comp good High numbers in front end in Q2. We're seeing better trends because of the cough and cold. One other factor I might add For Q1, for those of you who don't live in Quebec, there was a significant public sector strike for several weeks, teachers and then for several days general strikes. So disposable income in November, December in this province was not where it used to be.

Speaker 2

So that had an impact a bit on seasonal sales. So hopefully that's all behind us.

Speaker 6

Yes, that's helpful. Just one last one.

Speaker 2

Yes, thanks

Speaker 6

for that. Maybe if I just ask one quick one. Without really getting into specific numbers, but just order of magnitude, Perhaps in terms of timing, I think you mentioned in your Investor Day that you expect Terabon to be fully wrapped up in kind of Q2, Q3 this fiscal year and I think fresh to you by Q1 Next fiscal year, should we expect, I guess, the full margin contribution from everything to play out by kind of Q1 fiscal 2025. Is that fair?

Speaker 2

Well, Telbon started in Q1. We're transitioning we're in Q2 and we're transitioning. So we're not going to be all done and perfectly productive by the end of Q3. We said that it's going to take all of this fiscal year to get this thing started up. So Q1 next year is more the number where we should be in good shape.

Speaker 2

Phase 2 Toronto Fresh, we start in June or thereabouts. So it's going to be a ramp up there all summer. We expect it to go well, but ramping up is ramping up. Also, I can get back to you on the exact timing there, but that too is going to take it's going to take you 2 months. So is it before Christmas Looks like the around that, I also can get back to you.

Speaker 6

Okay. Thanks guys.

Operator

Thank you. Next question will be from Michael Van Aelst at TD Cowen. Please go ahead.

Speaker 7

Hi, thank you. When did the Terabon, do you see actually opening in Quebec?

Speaker 2

It was in October. I don't have the exact date for you, last October.

Speaker 7

There's a price on the rate, but I remember you said

Speaker 3

it was early in October. So

Speaker 7

Okay. So then when should we expect to see Peak duplicate overhead costs and peak inefficiencies?

Speaker 3

Well, Michael, we're seeing it now as in Q1, we are Basically at the peak in terms of duplication, learning curve deficiencies and so forth. It's going to continue throughout the year, but I believe everything else is according to plan that you should start to see some improvement on that front as the year progresses. But then we have this fresh Phase 2 That's going to start. So we're going to have that overlap. And as Eric said, by the Q1 of next year, We expect that most of those duplicate headwinds and efficiencies will be behind us.

Speaker 3

Some expenses are will remain like Appreciation, that's not going away. But the increase next year will be much more manageable year over year than what we're seeing today. So we're living it now in terms of the peak.

Speaker 7

Okay. Because I was just trying to understand if you started it If you opened it late October and you only had say 2 months versus 3 months in Q2, is it possible that the Duplicate override costs are actually and efficiencies for that matter are actually higher in Q2?

Speaker 3

It will be a similar picture, to be honest. It's still a very compressed time frame, Q1, Q2. That's where the bulk of it will be. And then we're going to see some improvements as the year progresses.

Speaker 7

Okay, perfect. Your CapEx was quite low in the Q1 despite your guidance for CapEx to be over $800,000,000 for the year. So Why is I would have thought CapEx would have been high to start the year given everything's opening, but What should we expect? Are we still expecting over $800,000,000 for the full year?

Speaker 3

Yes. So I'm not changing it right now. We'll see where we are in Q2. Some of it is very choppy in terms of where it falls quarter or second quarter. So no change for now, but I will update you as we go forward.

Speaker 7

And then just finally, I know you mentioned the discount still growing faster than conventional, but are you seeing growth In conventional as inflation slows, are we seeing any change in the pace of growth in conventional?

Speaker 2

No, I don't think you can we could what we could say that. Clearly, there's a lot more growth On the discount side, we're pleased with the growth or levels that we're seeing in conventional. We have some growth, But it hasn't changed, that's the question. So I'm trying to answer on a relative basis. That said, We're pleased with our relative performance in conventional in both of our markets.

Speaker 2

So we look at the Nielsen numbers every week And we're trending okay, but the growth is more on the discount side.

Speaker 7

Okay. Thank you.

Operator

Thank you. Next question will be from Mark Petrie at CIBC. Please go ahead.

Speaker 8

Good afternoon. Just to follow-up on that last topic, Eric, would you say that the sales performance gap Between discount and conventional is stable, is it growing or is it narrowing?

Speaker 2

It's stable. It varies by region. There's a change in the market. There's Some conversions happening at a pretty rapid clip. So the size of the discount pie is growing.

Speaker 2

So that creates a mathematical Growth on the discount side in Quebec. In Ontario, I would say that the discount market growth is This is a lot more stable, but it's again, it's higher than conventional.

Speaker 8

Yes, understood. Okay, thanks. And then I know you don't give gross margin obviously by segment, but any commentary you could provide just anecdotally about the relative performance Would be helpful. And I'm guessing the timing shift didn't really affect the consolidated rate much at all, but maybe a slight tailwind. I don't know you have any comment there?

Speaker 3

Yes. So Mark, it's Francois here. It's pretty flat across banners and divisions. So nothing really stands out from 1 versus the other. And you're right, this ship doesn't have an impact on that.

Speaker 4

Yes.

Speaker 8

Okay. And then just last one, obviously, there's some public reports about assets for sale in the pharmacy sector and Hoping just at a high level you could address your priorities when you're evaluating M and A and specifically the relative strategic importance of having a national presence? Thanks.

Speaker 2

Well, like we always say, Our M and A engine is always on and we're looking at opportunities in food and pharmacy in Canada. I can't comment on any specific file. We look for a strategic fit. We look for value creation for our shareholders long term. So those parameters have not changed.

Speaker 3

And we have a balance sheet that can take on a significant acquisition if it presents itself.

Speaker 8

Yes, understood. Okay, all the best. Take care.

Operator

Thank you. And your next question will be from Vishal Shreedhar at National Bank. Please go ahead.

Speaker 9

Hi, thanks for the questions. I just want to get some perspective on gross margin and the year over year change. And can you give me a sense of the puts and takes? For instance, discount was growing, the e commerce business growing quickly, No pressure in front store and OTC and seasonal, which are presumably high margin discount categories. So it seems to me that all else equal and grocery growing quicker than pharmacy, it like all else equal, there should be pressure on gross margins, but you were able to hold it flat.

Speaker 9

What were the big drivers on the other side? And did I get my big factor is right in the way I characterized it?

Speaker 3

Yes. But there's also efficiencies that we have that We highlighted that last year with the Ontario freezer that we're able to generate some good efficiencies as well that helps the margin. So it's not just mix, it's also our operational efforts at reducing costs and reducing efficiency. So All this blended, we were able to keep gross margins stable year over year, both food and pharmacy.

Speaker 9

Okay. So it's largely the initiatives that you've been working on. Those were that was the offsetting factor?

Speaker 3

There were several initiatives and Nothing moves the needle by itself, but all considered, it adds up. But your point about the mix are valid as well. Obviously, that goes into the equation.

Speaker 9

And just want to get your sense on some of the growth in the pharmacy business on the professional services side And maybe even on the specialty side, wondering if the specific pharmacy formats that you have are tailored sufficiently to address the growth in these segments in terms of consultation rooms and the like? And If not, is there ability to retrofit your existing locations quickly given the franchise structure A little bit different than a corporate structure. So how do we think about your ability to capture that growing market?

Speaker 2

That's a good question. So we're encouraging our franchisees to expand some space for professional services and call the clinic and nurses and those services. So in general, there's Good space and we're well equipped to provide those services. And you see it in our Rx sales growth, which as I said was fueled by specialty and services. So we're doing it.

Speaker 2

Will there be more opportunities in the future to do it? Yes, we think so. So as we renovate Some of the pharmacies, that space will be examined for sure and will be optimized for us for the pharmacists to capture that demand.

Speaker 9

Okay. And in terms of the ability your ability to incent the franchisees to renovate their stores. Is that a relatively direct process or is it more on their volition of whether they want to proceed or not?

Speaker 2

Well, they are franchisees. It's their store and their business. So the decision has to be theirs. But we encourage and we help financially And we provide certain planning services and procurement for all sorts of equipment and real estate and every lot. So, but at the end of the day, the franchisee is independent as an owner and it's his balance sheet and his decision.

Speaker 2

Again, we work closely with them And we provide all the necessary incentives to keep our network modern.

Speaker 10

Thank you.

Operator

Next question will be from Chris Lee at Desjardins. Please go ahead.

Speaker 10

Good afternoon, everyone. Maybe Francois, I'll just start off with a few modeling type questions. First one is, is it fair to assume that if we exclude Those DC ramp up costs or inefficiency related to the ramp up, the SG and A expense rate for the quarter would have been at least stable given that you had some pretty solid top line growth?

Speaker 3

Yes. So I won't give you a breakdown, but if you remove those extra costs and these inefficiency and so forth, when you also factor in the higher e comm 3rd party fees that we have. In terms of percentage of sales, it would have been roughly similar to last year. So you're right.

Speaker 10

Okay. That's very helpful. And then second modeling question just on maybe on the depreciation interest expense level for Q1. You think there is roughly a good run rate for the rest of the year?

Speaker 3

Well, I last quarter, I gave you I gave some guidance say to expect that the total variance in depreciation would be $50,000,000 including obviously the new site. So We were about $11,000,000 more this quarter. That's 3 periods out of $13,000,000 That's a run rate of about $47,500,000,000 So we're on that run rate now. There'll be some CapEx coming a little later, but it's not I think we're exactly at the run rate we gave last November.

Speaker 10

Got you. Okay. And then what was roughly the EPS benefit from the Christmas week shift in the quarter?

Speaker 3

We don't really segregate that week. It's part I mean, there's no surprise, the calendar being what it is because of The way last year fell, it's part of our results. We want to be transparent. So We have to be transparent to say, look, that included a full week before Christmas, whereas last year it was in the Q2. So we shifted that comparison to be apples to apples and you'll see the reverse in Q2.

Speaker 3

And when you look at the cumulative Results after Q2, this will all be neutralized obviously. So yes, it's It's more sales, more cost and it's a normal contribution, but we don't really segregate that. But you can do the math. I'm sure we'll get something there.

Speaker 10

Okay. That's fair. And I know you guys get asked this question almost every quarter. But when we again look at your food center sales and just look at the Street math and take away your 4% inflation, the implied math would suggest that there was a bit of negative tonnage. But per Eric's remarks in the opening, You said there's positive tonnage.

Speaker 10

So I'm just figuring out what is the disconnect and just help us understand.

Speaker 4

Yes,

Speaker 3

sorry. Again, the real quarter increase is 6 1% same store. That's the those are the sales for the quarter. That's the fact and the inflation was above 4%. So I can tell you we did increase tonnage.

Speaker 3

Now, Cory, when you shift the calendar for Christmas, It gets a little closer, but the reality is we are seeing some positive tonnage in our numbers. I would add to that the private label sales growth

Speaker 2

deflationary and increases tonnage. So net net, even with the Christmas shift, we think we had good tonnage growth. And Nielsen numbers tend to back that.

Speaker 1

And is it fair

Speaker 4

to assume And is it fair to assume And is it fair to assume And is it fair to assume And is

Speaker 1

it fair to assume Got

Speaker 10

Got it. Okay. So that's fair. And this is the rising discount square footage that you've been seeing in Quebec. Is it fair to say it's manageable overall for you guys?

Speaker 2

So the square footage, we're adding square footage. 1 of our competitors is converting conventional to discount, so in the same square footage. They've added a couple of stores also. But so yes, on the square footage growth, It's manageable. There is an impact.

Speaker 2

It varies by region. I said this before. In certain areas, we don't feel it much. In other areas, we feel it more. But it's pretty much what we expected.

Speaker 10

That's great. And maybe last question just on pharmacy. There's been a lot of more talks These high cost specialty drugs having a structural growth tailwind for them. I think Jean Coutu obviously participates in that as well. But I was just curious to see from where you sit today, how meaningful of this tailwind do you think are the specialty drugs that are going seem to be quite fast.

Speaker 10

And from a profitability perspective, given your franchise organ structure, Do you benefit as much from those growth versus say you view a corporate store? Thank you.

Speaker 2

Well, it's a growing category. It's a growing sector for sure. There are limits on distribution fees in Quebec because of For high cost medicines, they are capped, so we don't make our full distribution margin on them on a rate basis. That said, there is some growth. These are generated by the pharmacists.

Speaker 2

Again, those are capped also, And we make a royalty. So net net, it's a growth area, but it's not linear with other scripts.

Speaker 10

Okay. So

Speaker 1

I'm sorry.

Speaker 2

Lower margin than normal scripts.

Speaker 10

Okay. Thank you.

Operator

Thank you. And at this time, we have no other questions registered. Please proceed.

Speaker 1

Thank you all for your interest in Metro and please mark your calendars for our 2nd quarter results on April 24. Thank you.

Operator

Thank you. Ladies and gentlemen, this does indeed be the conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.

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CACI International Q1 2024
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