TSE:L Loblaw Companies Q1 2024 Earnings Report C$213.68 +0.34 (+0.16%) As of 04/17/2025 04:00 PM Eastern Earnings HistoryForecast Loblaw Companies EPS ResultsActual EPSC$1.72Consensus EPS C$1.70Beat/MissBeat by +C$0.02One Year Ago EPSN/ALoblaw Companies Revenue ResultsActual Revenue$13.58 billionExpected Revenue$13.29 billionBeat/MissBeat by +$293.50 millionYoY Revenue GrowthN/ALoblaw Companies Announcement DetailsQuarterQ1 2024Date5/1/2024TimeN/AConference Call DateWednesday, May 1, 2024Conference Call Time10:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckInterim ReportEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Loblaw Companies Q1 2024 Earnings Call TranscriptProvided by QuartrMay 1, 2024 ShareLink copied to clipboard.There are 11 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen, and welcome to Loblaw Companies Limited First Quarter 2024 Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, May 1, 2024. I would now like to turn the conference over to Mr. Operator00:00:29Roy McDonald. Please go ahead, sir. Speaker 100:00:32Thank you, Lara, and good morning, everybody. Welcome to Loblaw Companies Limited Q1 2024 results call. I'm joined this morning by PerrBank, our President and Chief Executive Officer and by Richard Dufresne, our Chief Financial Officer. As always, before we begin the call, I'll remind you that today's discussion will include forward looking statements, which may include, but are not limited to, statements with respect to Loblaw's anticipated future results. These statements are based on assumptions and reflect management's current expectations, as such are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations. Speaker 100:01:16These risks and uncertainties are discussed in the company's filed materials with the Canadian Securities Regulators. Any forward looking statements speak only as of the date they're made, and the company disclaims any intention or obligation to update or revise any forward looking statements whether as a result of new information, future events or otherwise other than what's required by law. Also certain non GAAP financial measures may be discussed or referred to today. So please refer to our annual report and other materials filed with the Canadian Securities Regulators for a reconciliation of each of these measures to the most directly comparable GAAP financial measures. And with that, I'll turn the call over to Richard. Speaker 200:02:01Thank you, Roy, and good morning, everyone. Our first quarter results demonstrate continued delivery Speaker 300:02:11of Speaker 200:02:14On a consolidated basis, revenue grew by 4.5 percent to 13,600,000,000 and EBITDA increased by 6.6%. Adjusted diluted net earnings per share grew by 11% to a $1.72 On a GAAP basis, our net earnings per share grew by 14%. Drug retail delivered another strong quarter. Our absolute sales increased 4.2% and same store sales grew 4%. Front store same store sales grew by 0.7% lapping growth of 10.3% last year. Speaker 200:02:45Cosmetics and Health and Beauty continue to deliver very strong results supported by elevated cough and cold sales. Overall, we are very pleased with the ongoing strength of our front store business. We have made the decision to exit most of our electronics category. As such, it will negatively affect our front store sales for all of 24 as we cycle out of it. Pharmacy and Healthcare Services grew same store sales by 7.3% driven by broad strength in prescription services. Speaker 200:03:16Our specialty and acute prescription growth led our pharmacy numbers. Additionally, customers continue to respond very positively to the convenience and level of care we offer through our more than 2,100 pharmacies across the country. In Food Retail, we recorded strong top line growth with absolute sales up 4.4% and same store sales growth of 3.4%. Our internal inflation rate was lower than food CPI again this quarter. This helped bring CPI grocery inflation below the headline total inflation rate in Canada for the first time in over 2 years. Speaker 200:03:52Our strong same store sales combined with a lower internal inflation rate clearly highlights the strength of our discount banners, private label brands and PC Optimum offers. Tonnage, traffic and market share performance were all strong. We saw market share gains in both our market and hard discount banners with solid tonnage growth in each. As expected, the consumer shift to discount continued with our hard discount banners outperforming our conventional stores. Right hand side had a negative impact on food same store sales of 66 basis points. Speaker 200:04:26These categories remain accretive to our gross margin and we continue to carefully manage inventory levels. Online sales in the quarter increased 16.1% and delivery continues to outperform as a channel. Across Food Retail, our strong sales, market share and tonnage performance are a clear indication that our efforts resonate with customers. More and more Canadians choose our stores for value, quality and service. Total retail gross margin was 31.6 percent growing 30 basis points. Speaker 200:04:57Higher drug retail margin mainly due to sales mix and continued progress in reducing shrink drove our improvement this quarter. We have executed on a number of initiatives to improve shrink in our stores and are pleased with the positive momentum. We remain focused on delivering stable gross margin this year in line with our financial framework. Turning to SG and A, our spend rate as a percentage of sales increased 40 basis points driven by year over year impact of certain real estate activities and costs related to network optimization, partially offset by operating leverage. Adjusted Retail EBITDA increased by $62,000,000 yielding a margin of 10.9% in line with last year. Speaker 200:05:39The quarter saw a strong performance at the bank. PC Financial's revenues increased 10.7% driven by growth in the credit card portfolio and strong services growth at our mobile shop. We were excited to launch Noname Mobile in the quarter, providing Canadians with a great opportunity to save on their mobile plans and even more PC Optimum points to put towards free groceries faster. 1 mobile expert called it the best deal in the country and I agree with them. The bank's adjusted earnings before tax increased by $32,000,000 with higher interest income and lower operating costs offsetting higher credit losses and loss provisions. Speaker 200:06:17We remain very comfortable with the risk profile of the bank's portfolio. We have a strong and well capitalized balance sheet and we continue to take a conservative position in our provisioning. On a consolidated basis, adjusted EBITDA increased by 6.6 percent to $1,540,000,000 Our retail free cash flow used in operating activities was $359,000,000 as we typically see a seasonal outflow in Q1. In the quarter, we repurchased $470,000,000 worth of common shares and announced a 15% dividend increase, our 13th consecutive annual increase. Our balance sheet remains strong and we continue to improve our key return metrics. Speaker 200:06:56Our return on equity sits at 22.6% and our return on capital at 11.6%. Looking ahead, we continue to be pleased with our market share performance in food. That said, in the Q2, we will be lapping 6.1% food income in the comparative quarter versus 3% in Q1 of 2023. So we expect Q2 Food same store sales to be lower than Q1. In Drug, cough and cold sales are slowly returning to normal. Speaker 200:07:24As discussed on the last call, we expect to continue to deliver on our financial framework. I will now turn the call over to Per. Speaker 300:07:31Thank you, Richard, and good morning, everyone. I'm pleased to be here to discuss our Q1 results with you. We ended the quarter where we started the year with confidence, strength and momentum across our businesses. Last quarter, I talked about the tremendous commitment, diversity and experience of our team from coast to coast. Together, we continue to execute well across our businesses, keeping costs low and providing superior value, quality and service to Canadians. Speaker 300:08:01That focus contributed to another quarter of consistent operational and financial performance. This was especially evident in the strength of our food business. Richard highlighted the financial results, the key metrics are around volume and our numbers for both traffic and items sold in our food stores this quarter were very strong and positive in both our discount and conventional banners. Canadians are recognizing that we are providing the combination of value, quality and service that they want and they're rewarding us with their business. They are voting with their feet. Speaker 300:08:37I'm not sure you have all seen our new hit of the month promotion, which is really working well for us. Hit of the Month offers a great price on a few selected items and it's available at the same price in all our food and drug stores across the country. But this is not the only value driver. Across our banners, we're giving Canadians better value for money by giving them relevant promotions both through our strong flyer program and personal offers from our leading digital PC Optimum program. Canadians remain very focused on value and our Maxi and No Fill banners continue to outperform. Speaker 300:09:13We are building on last year's momentum with a plan for more conversions plus net new stores to add more than 50 additional hard discount stores. I talk a lot about the strength of our hard discount banners, but I'm also excited about our opportunities in our supermarket division. Let me give you an example. We have brought together all our superstores nationally under the leadership of Frank Ambioli. We will now operate 180 larger format stores across the entire country from coast to coast, leveraging the success of Western of our Western Real Canadian superstores with better scale, better support and more consistent customer offers, while also working on improvement to our right hand side of merchandising. Speaker 300:10:02This is just the beginning. We'll have a few test stores ready in the fall and depending on the results, we'll evaluate how to bring these learnings to the rest of the stores. This will help us to offer even more value and selection to consumers to drive more traffic and sales to these great stores. Across the board, we continue to build on the strength of our assets and opportunities to drive our business forward. And we will be bringing even more excitement to all our stores. Speaker 300:10:30I look forward to sharing more details of these new programs as the year progresses. I'm pleased with the performance of our digital business in the quarter. As Richard mentioned, our online sales increased by 16%, that's the highest level in 2 years. We continue to enhance our customer experience and differentiate ourselves by offering more choice and flexibility. Turning to pharmacy. Speaker 300:10:54We delivered another strong quarter in Shoppers and Pharmapristos, primarily led by strength in Frontstone, where we were able to deliver same store sales growth on top of double digit growth last year. That continuing strength was again led by our beauty business and a strong cough and cold season. Our prestige beauty categories again delivered high single digit growth. In pharmacy, our associate owners and their teams are playing an increasingly important role in serving the health needs of Canadians. And we continue to be a preferred destination for Canadians looking for help managing their complex needs. Speaker 300:11:31I wanted to share a powerful example of how scale and scale come together to highlight our value to consumers and help to grow our business. At Shoppers, our beauty customers are already well represented amongst our most loyal PC Optimum customers. So 2 months ago, our beauty specialist launched a campaign to highlight the power of PC Optimum and our PC Mastercard to the rest of their clients. This message resonated really well, generated 1,000 of applications for a new PC Optima Mastercard and higher than average conversion rate. Speaking of PC Financial, the bank also had a strong start to the year. Speaker 300:12:08Richard highlighted our double digit sales growth, but our mobile services business actually grew faster than our credit card business in the quarter. The launch of no name mobile is just another example of us using our scale and scope to provide everyday value to Canadians. Looking ahead, our focus remains on our strategic pillars of retail excellence, driving growth and investing in the future, while at the same time embedding ESG into everything we do. This year, you'll see our investment built with our investment, you'll see us building even more new stores, including over 20 shoppers drop months. Behind the scenes, we're also investing in focused initiatives to drive positive environmental and social change. Speaker 300:12:52I would like to share a couple of examples that I'm particularly proud of. As of year end 2023, we achieved an 11% reduction in scope 1 and 2 carbon emissions towards our net zero target. As part of our carbon plan, we have entered into a renewable energy plan to eliminate carbon emissions from electricity purchases in Alberta, And we rolled out our first 14 heavy duty fully electrical transport trucks. And I recently had the opportunity to drive in one of these vehicles and they're very impressive and I must admit I had a bit of fun there. On food waste, we diverted more than 78,000 metric tons of food waste, up 20% from last year. Speaker 300:13:33Our distribution centers and each of our food and drug retail stores now have an individual partnership with a food recovery program to make sure good food goes to people in need and we reduce the waste into landfill. The many other excitement and important initiatives that we have underway. We'll now open it for questions. Thank you. Speaker 100:14:03Thanks very much, Per. Lara, could I ask you to introduce the Q and A process? Sorry, we can't hear you, Lara. Operator00:14:56Our first question comes from the line of Irene Nattel from RBC Capital Markets. Go ahead please. Speaker 400:15:03Thanks and good morning everyone. I was wondering if you could please give us a little bit more detail on what you're seeing in terms of consumer spending patterns, trade down, promotional penetration and also sort of discretionary more discretionary versus less discretionary items, what you're seeing there, please? Speaker 300:15:26Yes. Thank you, Irene. I think we are seeing more of what we have seen over the past half year. So customer, they are continuing to look for value. And what we have offered them in the quarter of extra promotions, whether it's our great and no name promotion at the beginning or some of the other initiatives that we're doing, customers they're turning into buying more into our promotions. Speaker 300:15:52So we're getting them more value, and that's actually across the piece. It's both in our shoppers, in our super and in our market division plus in our hotels. So customers, they are acting kind of the same everywhere. But when this is set, we are seeing that customers they are rolling their feet and they're going even more into a hard discount stores. So I think that's more of the same as we have seen before. Speaker 400:16:19That's great. Thank you. And presumably, private label continues to grow more rapidly than national brands? Speaker 300:16:27I think what we'll see this year is that I expect both the National brand and the Control brand will grow with the same pace because we have started some new initiatives where the brands are getting a little bit more focused. But when customers, they want to mitigate their own inflating, that's when we are seeing that they are buying into our control brands. They're buying more on promotions and they're shifting to this down. But overall, I think this year, we'll probably see that they are moving to the same pace because we are happy with the level that we are seeing. Speaker 400:17:11Sorry, I was on mute. Just switching gears for a moment. Code of conduct, a lot of discussion recently still. Wondering if you could please just update us on where you stand at this point and how we should expect it to proceed? Speaker 300:17:27Yes, I think we might have a bit of a new perspective here because our teams have been working closely with the committee over the past weeks. And I think the code is beginning to get into a place where I'm starting to become cautious, optimistic. Where it's going to land? I'm of course not sure, but I'm more optimistic now than before that we can land an agreement on the code. Speaker 400:17:58That's great. Thank you. Operator00:18:03Thank you. Our next question comes from the line of Mark Petrie from CIBC. Go ahead please. Speaker 500:18:10Hey, good morning. First, on the gross margin performance, could you just talk about the relative performance in food? And then when it comes to the favorable mix at Shoppers, is that really Beauty outperforming and Food underperforming? Speaker 200:18:25No. I think what we're seeing is essentially our what's happening is our trading margin is more or less flat and shrink is getting better. That's the key thing and that's what you should expect to continue to see in Q2 because Q2 last year was our quarter of peak shrink. So that's what's driving gross margin mostly. Speaker 500:18:46Yes, understood. And it was stable in Food, is that fair? Speaker 200:18:51It was better in Food. Speaker 500:18:53Okay. Speaker 200:18:54It was better. Gross margin was better in food and shrink improved in food. Like what we said to the market is we expect the shrink to improve by about 20 basis points this year on top of flat trading margin. And if you look at year over year though, we're already at 16 basis points in Q1. So we're well on our way to deliver on our shrink improvement for 2024. Speaker 500:19:19Okay, helpful. Thank you. And Per, I know you have plans for the right hand side of the store, but could you just give us a sense of the timing on when we should expect to see some of those changes take effect? And what do you think is realistic timing for right hand side to become a tailwind to the food retail same store? Speaker 300:19:36Yes, I think it's a good question. And I have while I have high ambitions, I'm cautious to promise a lot and especially in this meeting. But we will see the first three stores no later than end of Q3, at least that's our plans right now. So 3 test stores. And before then, we will probably do some quick wins and roll some initiatives out at the right hand side of the stores, but it's still early days. Speaker 300:20:02And we have some of the quick wins in 1 or 2 stores now. So we are starting to see the results that I expected to see. But I think it's good to save a bit to later, so we can continue to improve our numbers. Speaker 500:20:16Yes. Okay. And maybe for Richard, can you quantify or help us sort of frame what you expect the impact be of the exit of electronics in Shoppers on both same store sales growth and margin? Speaker 200:20:33Let me just say it's a few $100,000,000 business. That's right now is declining like double digit because we're slowly exiting it. Speaker 500:20:44So Okay. Perfect. It's helpful. And I'll pass the line. Thanks. Speaker 500:20:49All the best. Operator00:20:53Thank you. We have our next question coming from the line of Michael Van Aelst from TD Securities. Go ahead please. Speaker 600:21:01Hi, good morning. Strong performance on the food same store sales, but I want to focus to start on just on the front store on drug because I'm just trying to combine everything that you said, but you talked about the cosmetics and the beauty in general being stronger. Is it just staying strong and kind of moving sideways? Or is it actually still growing? Was that what you were saying was growing high single digits? Speaker 200:21:36It's staying strong, Mike. That's the best way to characterize it. And I mentioned in my remarks that we now start to see cough and cold starting to like revert back to normal. So we'll see over the next few months how that goes, but we started to see that over the last few weeks. Speaker 600:21:54Okay. So, Per made a comment something was growing high single digits, I think. What was that? Speaker 200:22:01Sorry, Mike, I missed the question. Speaker 300:22:03That was the beauty. Yes, that was the beauty, yes. That was the beauty. So you are right. So Gena in the beauty category is actually growing over and above the food, which it has done in the past and that's also what we predict going forward. Speaker 300:22:17And with higher margin in that part of the store, we're very pleased with that. Speaker 600:22:23Okay. So was the offsets to the strong performance in Beauty, it was the 2 offsets was cough, bone, flu and electronics and were there others? Speaker 200:22:35Food and also is a bit negative too, Mike. Speaker 600:22:39Okay, great. On the e commerce, the 16% growth was staying pretty strong. One of your peers said that it was that they thought the food industry was growth was flat from e commerce, but the 3 of you are all delivering some decent growth. So what are you seeing on e commerce in food? And is it more in your discount banners versus your conventional banners? Speaker 300:23:12So we are seeing that the overall on online is up 16%. The beauty is up a bit more and food is up a bit less. So food is up still double digit. And if I look at the contribution of our food online, it's almost 15% to 20% of our total growth in the food sector. So it's good. Speaker 300:23:36It's a good contribution that we have. But no, it's not more hard discount. It's as much from the normal channels that we have. And as you know that we are both offering food online from our hard discount, from our convention and from our super source. And we're still seeing the same mix that most of the shops are being picked up in our stores. Speaker 300:23:57So it's still clear and collect that matters the most, which of course we are really happy with. So meaningful contribution. Speaker 100:24:06So why Speaker 300:24:06is this pickup is flat, Speaker 200:24:10PCX is up a lot and what we call marketplace, Linz the Carton and DoorDash are up double digit. But the big, big growth like big is PCX delivery. That's where we're getting like triple digit growth. Speaker 600:24:28Okay. So triple digit growth in PCA X, I think I cut you off at one point, but and then you said, some growth in the 3rd parties as well though. Yes. Speaker 300:24:38Not as Speaker 200:24:38much. Not to the same extent, but Speaker 600:24:40yes. Okay. So why aren't we seeing better growth in discount e commerce versus conventional e commerce given the health of the consumer? Speaker 300:24:51Because I think we are not focused much on e commerce and discount. Discount is a discount. There's no flows. And it's primarily in the bigger stores where we can cope with picking in stores. So for me, it's more a play in the market and in the super stores and you also see that around the world. Speaker 300:25:11It's not a lot of discounters doing it. But we are picking up and we are doing better, but it's still relatively small in the discount part. Speaker 600:25:20Great. Thank you very much. I'll pass it on. Operator00:25:25Thank you. Our next question comes from the line of Tammy Chen from BMO. Go ahead please. Hi, good morning. Thanks for Speaker 700:25:33the question. I wanted to ask how are you driving this tonnage improvement? What would you call out as the biggest game changers? Because it doesn't appear to be at the expense of food margin. As you said, your trading margin is flat. Speaker 700:25:49But you mentioned there's more uptake as your promotion. So I would still think that would translate to some impact on your trading margin. So I'm just trying to understand how it seems you're striking a balance, a good balance between both good tonnage, but it's not coming at the expense of your food Speaker 300:26:16still some decent margin because you're absolutely right. Some of our promotions are driving a lot of growth. But still remember, in the beginning of the year, we had a great no name campaign and customers, they locked our no name campaign and buying more into those even though that was not driven by promotions. So again, I think I said it before, I would love to get more support for our CPGs, our suppliers because they do have money to invest and many of them they're also looking for volume. So we have some good strategic partnerships with them that does help both us and them. Speaker 700:26:58Okay, got it. And with respect to the trade down by the consumer, would you say at this point the degree that they've shifted into discount has stabilized? Or are you still seeing right now every period as we go through Still more and more are going into discount? Speaker 300:27:17Yes. Let's see. We it's difficult to predict the future. But actually, I will probably see that it's going to continue, but continue with a slower pace than before. But I think the shift to discount will continue over the next many years like it has done in probably any other country where discount is a dominant factor. Speaker 700:27:43Got it. Thank you. Operator00:27:48Thank you. Our next question comes from the line of Vishal Shreedhar from National Bank. Go ahead please. Speaker 800:27:57Hi. Richard, in the past, you've segmented Shoppers EBITDA for us on the calls from time to time. That's very useful. Wondering if you could help us understand the healthcare services piece within drug retail revenues. How large is that portion of the drug retail sales? Speaker 200:28:15Hi, good morning, Michel. We don't want to share that for obvious reasons, but like we're very happy with the growth in services. And so that continues to be a growth vector for us. Speaker 800:28:29Okay. So a higher margin growth vector, correct? Speaker 200:28:32Yes. Speaker 800:28:34Okay. You delivered 0.3% square footage growth in the quarter. Wondering how you see the mix of square footage growth between drug retail and food as that number accelerates looking forward? Speaker 200:28:50Yes. This year, Lois, it's think about like in terms of new stores, we're talking 40 plus new store, 20 ish shoppers and the balanced food. And on top of that, we've got conversion, which we refer to as network optimization. So that was what I was referring to in our SG and A because 2024 is more or less the last year that we'll have a large network optimization program. So that's you see some noise in our SG and A in the quarter. Speaker 800:29:24Okay. Okay. So we should think of square footage growth being more biased towards food in 2024. That's correct? Speaker 200:29:32Yes, because food stores are bigger than Chopper store, yes. Speaker 800:29:36Okay. And going forward as well? Speaker 200:29:39Well, we'll talk about that next year when we're there. Speaker 800:29:42Okay. Can you isolate for us the impact on SG and A associated with these optimization initiatives? Speaker 200:29:49It's like it's no, okay, but it's like it's not insignificant, like it's more than $10,000,000 Speaker 800:29:59Okay. And did you highlight for us the impact of right hand side of the comp? Speaker 300:30:05Yes. Speaker 200:30:06Yes, yes, yes, 66 basis points. Speaker 800:30:08Okay. Speaker 200:30:09Hopefully, over time, we can switch that around. Speaker 300:30:12That's the plan. Speaker 800:30:13Absolutely. Okay. Thank Speaker 300:30:18you. Operator00:30:19Thank you. We have our next question coming from the line of George Doumetz from Scotiabank. Go ahead please. Speaker 900:30:27Yes. Good morning, Karen and Richard. Just a follow-up to the SG and A discussion. It was 6 Speaker 200:30:41Thank you for asking that question. Because we said at the beginning of the year, we expect our SG and A rate to be flat and that is still the plan. The reason I feel confident about that is we've got some tailwind in the second half of the year, which will allow us to offset what we're going to be facing in the first half. So that's how I would characterize SG and A for the year. Speaker 900:31:06Okay, understood. And Richard, we put up 11% EPS growth for Q1. Your annual guidance calls for high single digits. So we're early in the year, I get it, but maybe any areas that you have pointed that perhaps could see a deceleration as the year progresses? Speaker 200:31:24What we continue to say, George, is that we feel confident that we're going to be hitting EPS within our framework, 8% to 10%, and that continues to be the plan. Speaker 900:31:36Okay. And just a final one for me. On the capital gains changes recently announced, should we think of any changes at all to maybe land sales or George Weston activity as a result of all that? Speaker 200:31:50Not really. Like it's pretty minimal the impact on this. Speaker 900:31:57Okay. Thanks for your answers. I'll pass the line. Thank Operator00:32:02you. Thank you. We have our next question coming from the line of Chris Lee from Desjardins. Please go ahead. Speaker 1000:32:11Hi, good morning, everyone. My first question is, I think on the last earnings call, you had mentioned that your food gross margin is still well below the pre pandemic level. Is that mostly because of the mix source discount and investment in pricing and how to shrink? And then I guess a follow-up question to that would be, as conditions normalize over the longer term, do you think there's a potential for food margin to return to the pre pandemic level? Or do you expect it to be structurally lower going forward? Speaker 1000:32:40Thanks. Speaker 300:32:40Maybe I can start to answer the last question, then Ulrich can take it from there. I think that for us, we are going for a stable gross margin. And then we want to grow the business because we want to take whatever we can negotiate of better terms and reinvest back into prices to give our customers more value because that's what they need and thereby growing the business. I think that's kind of the strategy of it, not to start to harvest a lot Speaker 200:33:08of more margin just because we can. So Chris, if we go back in history, we don't want to go back to pre pandemic levels. If you remember, we got back in Loblaw, I guess in the spring of 2021. And the result of our action was a significant improvement in gross margin trend of the business. And so stability in gross margin continues to be our objective. Speaker 200:33:34Having said that, like even in Q1, we have not reached the peak level of gross margin that we've hit in I think it was in Q2 of 2021. So we're still below that in that high mark. Speaker 1000:33:47Okay, that's helpful. Thank you. And then maybe switching here to the pharmacy clinics, are you able to share with us how many pharmacy clinics did you open this quarter? And are you on track to open roughly about 140 this year? Speaker 300:34:01Yes. I think we opened 6 so far year to date. And yes, we are on track to do the 140 that we talked about in the last time. Yes, Chris. Speaker 200:34:10As you know, real estate in the winter, we don't open many things. So it starts to accelerate now. So you're going to see that pick up over the coming months. Speaker 1000:34:20And this might be a bit too early to say, but I think in the past you've mentioned that in Alberta, the clinics that you've opened last year, you did see some notable halo impact on front store sales from those pharmacy clinics. Just curious to see are you continuing to see that impact as you open more pharmacy clinics and then mature enough to actually help that we're seeing that in the front store sales number? Speaker 300:34:46I think we'll have to get back to you on that exact number, but I haven't heard anything that we're continuing to see these stores trading over and above the others, but we'll have to come back to you on that one. Speaker 1000:34:59Okay. That's great. And my last question, more highlighted question, Pierre, to you. You guys obviously have a world class loyalty program. A lot of investment have been made over the years to really enhance the personalization with target offerings. Speaker 1000:35:12I guess my question is that, my question is as the stakes in the loyalty game continue to increase with new offerings by competitors, especially in Ontario later this year, what does the roadmap for PC Optimum look like over the longer term? Like what can members expect more than what they're doing from you? Speaker 300:35:30We have taken 2 new tools. So internal names, we call it CDP and P13N. So Lorne and the team, they are much, much better this year than last year to do some mass personalization to our customers. So our individual customers, they will get targeted offers, which is good for them and good for our business. So we are seeing the numbers that we are having more digital engaged customers, which is driving some of the growth and also incremental growth. Speaker 300:36:00So we stay bullish on having one of the best loyalty program, digital programs in the world right now. So we're going to do more of that definitely. Great. Speaker 1000:36:12Thanks very much. Operator00:36:17Thank you. We have our next question coming from the line of Mark Petrie from CIBC. Go ahead please. Speaker 500:36:33Yes, thanks. I just wanted to follow-up. Obviously, hard discount is a key focus for you and an area of strength and growth. And I know SKU count is one of the key levers within that concept or that channel in terms of driving efficiency. Could you just talk about what you're seeing there, the potential for shifts in efficiencies? Speaker 500:36:54I know you sort of had some tests. I'm just curious if you're at the point where that you think that's scalable Speaker 300:37:09art discount, if I have to be a little bit trilled to ourselves, we are running them a bit like supermarkets. So we can do it better and I think we can take more efficiency gains in our home discount stores. But for me, it's important to state that we will continue to put proportionally more labor into our produce and into our meat because Canadians, they love the greater produce and meat offers that we are offering in our heart discount. So we will not be covering the German discounters there. We will do more of what we do already, but trying to be more efficient. Speaker 300:37:44And yes, I have a list of things that we can do and that we will do and we will improve our efficiency, but I'm not that willing to share those with the world right now. Speaker 500:37:56So this is something that's still sort of in the test and refining? Speaker 300:38:00Yes. We haven't even started yet. So we're not even seeing it yet because some of the initiatives that we're going to plan, it takes time. I also need to be careful because we have put in place a lot of new initiatives since I came on board. So we need to phase it in, so the business and the organization can cope with it. Speaker 300:38:20And I also need to have some good initiatives next year. Speaker 500:38:24Understood. Appreciate that. Thank you. Operator00:38:30Thank you. There are no further questions at this time. I would now like to turn the call back over to Mr. McDonald for final closing comments. Speaker 100:38:39Thanks very much. Thanks everybody for your time this morning. If you have any follow-up questions, call or drop me an email. And I'll ask you to mark your calendars for Thursday, July 25 to when we'll be releasing our Q2 results. Have a great day. Speaker 100:38:55Thank you. Operator00:38:58Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallLoblaw Companies Q1 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckInterim report Loblaw Companies Earnings HeadlinesLoblaw Companies Limited (TSE:L) Receives C$204.88 Average Price Target from BrokeragesApril 20 at 1:31 AM | americanbankingnews.comDemolition to make way for Independent grocery store expansion in Wolfville, N.SApril 18 at 6:14 AM | msn.comNew “Trump” currency proposed in DCFormer Presidential Advisor, Jim Rickards, says Trump could “rewire our economy and hand millions of Americans a chance at true financial independence in the months ahead.” We recently sat down with Rickards to capture all the key details on tape. 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Email Address About Loblaw CompaniesLoblaw is one of Canada's largest grocery, pharmacy, and general merchandise retailers, operating the most expansive store footprint in Ontario and maintaining sizable presences in provinces like Quebec and British Columbia. Key grocery banners include Loblaw, No Frills, and Maxi, while its pharmaceutical operations are the product of its 2014 acquisition of Shoppers Drug Mart. The firm carries a robust private-label assortment, with top sellers like President's Choice and No Name. In addition to its retail operations, Loblaw oversees a financial-services business, which provides credit card services and guaranteed investment certificates, and also operates its PC Optimum loyalty program. 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There are 11 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen, and welcome to Loblaw Companies Limited First Quarter 2024 Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, May 1, 2024. I would now like to turn the conference over to Mr. Operator00:00:29Roy McDonald. Please go ahead, sir. Speaker 100:00:32Thank you, Lara, and good morning, everybody. Welcome to Loblaw Companies Limited Q1 2024 results call. I'm joined this morning by PerrBank, our President and Chief Executive Officer and by Richard Dufresne, our Chief Financial Officer. As always, before we begin the call, I'll remind you that today's discussion will include forward looking statements, which may include, but are not limited to, statements with respect to Loblaw's anticipated future results. These statements are based on assumptions and reflect management's current expectations, as such are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations. Speaker 100:01:16These risks and uncertainties are discussed in the company's filed materials with the Canadian Securities Regulators. Any forward looking statements speak only as of the date they're made, and the company disclaims any intention or obligation to update or revise any forward looking statements whether as a result of new information, future events or otherwise other than what's required by law. Also certain non GAAP financial measures may be discussed or referred to today. So please refer to our annual report and other materials filed with the Canadian Securities Regulators for a reconciliation of each of these measures to the most directly comparable GAAP financial measures. And with that, I'll turn the call over to Richard. Speaker 200:02:01Thank you, Roy, and good morning, everyone. Our first quarter results demonstrate continued delivery Speaker 300:02:11of Speaker 200:02:14On a consolidated basis, revenue grew by 4.5 percent to 13,600,000,000 and EBITDA increased by 6.6%. Adjusted diluted net earnings per share grew by 11% to a $1.72 On a GAAP basis, our net earnings per share grew by 14%. Drug retail delivered another strong quarter. Our absolute sales increased 4.2% and same store sales grew 4%. Front store same store sales grew by 0.7% lapping growth of 10.3% last year. Speaker 200:02:45Cosmetics and Health and Beauty continue to deliver very strong results supported by elevated cough and cold sales. Overall, we are very pleased with the ongoing strength of our front store business. We have made the decision to exit most of our electronics category. As such, it will negatively affect our front store sales for all of 24 as we cycle out of it. Pharmacy and Healthcare Services grew same store sales by 7.3% driven by broad strength in prescription services. Speaker 200:03:16Our specialty and acute prescription growth led our pharmacy numbers. Additionally, customers continue to respond very positively to the convenience and level of care we offer through our more than 2,100 pharmacies across the country. In Food Retail, we recorded strong top line growth with absolute sales up 4.4% and same store sales growth of 3.4%. Our internal inflation rate was lower than food CPI again this quarter. This helped bring CPI grocery inflation below the headline total inflation rate in Canada for the first time in over 2 years. Speaker 200:03:52Our strong same store sales combined with a lower internal inflation rate clearly highlights the strength of our discount banners, private label brands and PC Optimum offers. Tonnage, traffic and market share performance were all strong. We saw market share gains in both our market and hard discount banners with solid tonnage growth in each. As expected, the consumer shift to discount continued with our hard discount banners outperforming our conventional stores. Right hand side had a negative impact on food same store sales of 66 basis points. Speaker 200:04:26These categories remain accretive to our gross margin and we continue to carefully manage inventory levels. Online sales in the quarter increased 16.1% and delivery continues to outperform as a channel. Across Food Retail, our strong sales, market share and tonnage performance are a clear indication that our efforts resonate with customers. More and more Canadians choose our stores for value, quality and service. Total retail gross margin was 31.6 percent growing 30 basis points. Speaker 200:04:57Higher drug retail margin mainly due to sales mix and continued progress in reducing shrink drove our improvement this quarter. We have executed on a number of initiatives to improve shrink in our stores and are pleased with the positive momentum. We remain focused on delivering stable gross margin this year in line with our financial framework. Turning to SG and A, our spend rate as a percentage of sales increased 40 basis points driven by year over year impact of certain real estate activities and costs related to network optimization, partially offset by operating leverage. Adjusted Retail EBITDA increased by $62,000,000 yielding a margin of 10.9% in line with last year. Speaker 200:05:39The quarter saw a strong performance at the bank. PC Financial's revenues increased 10.7% driven by growth in the credit card portfolio and strong services growth at our mobile shop. We were excited to launch Noname Mobile in the quarter, providing Canadians with a great opportunity to save on their mobile plans and even more PC Optimum points to put towards free groceries faster. 1 mobile expert called it the best deal in the country and I agree with them. The bank's adjusted earnings before tax increased by $32,000,000 with higher interest income and lower operating costs offsetting higher credit losses and loss provisions. Speaker 200:06:17We remain very comfortable with the risk profile of the bank's portfolio. We have a strong and well capitalized balance sheet and we continue to take a conservative position in our provisioning. On a consolidated basis, adjusted EBITDA increased by 6.6 percent to $1,540,000,000 Our retail free cash flow used in operating activities was $359,000,000 as we typically see a seasonal outflow in Q1. In the quarter, we repurchased $470,000,000 worth of common shares and announced a 15% dividend increase, our 13th consecutive annual increase. Our balance sheet remains strong and we continue to improve our key return metrics. Speaker 200:06:56Our return on equity sits at 22.6% and our return on capital at 11.6%. Looking ahead, we continue to be pleased with our market share performance in food. That said, in the Q2, we will be lapping 6.1% food income in the comparative quarter versus 3% in Q1 of 2023. So we expect Q2 Food same store sales to be lower than Q1. In Drug, cough and cold sales are slowly returning to normal. Speaker 200:07:24As discussed on the last call, we expect to continue to deliver on our financial framework. I will now turn the call over to Per. Speaker 300:07:31Thank you, Richard, and good morning, everyone. I'm pleased to be here to discuss our Q1 results with you. We ended the quarter where we started the year with confidence, strength and momentum across our businesses. Last quarter, I talked about the tremendous commitment, diversity and experience of our team from coast to coast. Together, we continue to execute well across our businesses, keeping costs low and providing superior value, quality and service to Canadians. Speaker 300:08:01That focus contributed to another quarter of consistent operational and financial performance. This was especially evident in the strength of our food business. Richard highlighted the financial results, the key metrics are around volume and our numbers for both traffic and items sold in our food stores this quarter were very strong and positive in both our discount and conventional banners. Canadians are recognizing that we are providing the combination of value, quality and service that they want and they're rewarding us with their business. They are voting with their feet. Speaker 300:08:37I'm not sure you have all seen our new hit of the month promotion, which is really working well for us. Hit of the Month offers a great price on a few selected items and it's available at the same price in all our food and drug stores across the country. But this is not the only value driver. Across our banners, we're giving Canadians better value for money by giving them relevant promotions both through our strong flyer program and personal offers from our leading digital PC Optimum program. Canadians remain very focused on value and our Maxi and No Fill banners continue to outperform. Speaker 300:09:13We are building on last year's momentum with a plan for more conversions plus net new stores to add more than 50 additional hard discount stores. I talk a lot about the strength of our hard discount banners, but I'm also excited about our opportunities in our supermarket division. Let me give you an example. We have brought together all our superstores nationally under the leadership of Frank Ambioli. We will now operate 180 larger format stores across the entire country from coast to coast, leveraging the success of Western of our Western Real Canadian superstores with better scale, better support and more consistent customer offers, while also working on improvement to our right hand side of merchandising. Speaker 300:10:02This is just the beginning. We'll have a few test stores ready in the fall and depending on the results, we'll evaluate how to bring these learnings to the rest of the stores. This will help us to offer even more value and selection to consumers to drive more traffic and sales to these great stores. Across the board, we continue to build on the strength of our assets and opportunities to drive our business forward. And we will be bringing even more excitement to all our stores. Speaker 300:10:30I look forward to sharing more details of these new programs as the year progresses. I'm pleased with the performance of our digital business in the quarter. As Richard mentioned, our online sales increased by 16%, that's the highest level in 2 years. We continue to enhance our customer experience and differentiate ourselves by offering more choice and flexibility. Turning to pharmacy. Speaker 300:10:54We delivered another strong quarter in Shoppers and Pharmapristos, primarily led by strength in Frontstone, where we were able to deliver same store sales growth on top of double digit growth last year. That continuing strength was again led by our beauty business and a strong cough and cold season. Our prestige beauty categories again delivered high single digit growth. In pharmacy, our associate owners and their teams are playing an increasingly important role in serving the health needs of Canadians. And we continue to be a preferred destination for Canadians looking for help managing their complex needs. Speaker 300:11:31I wanted to share a powerful example of how scale and scale come together to highlight our value to consumers and help to grow our business. At Shoppers, our beauty customers are already well represented amongst our most loyal PC Optimum customers. So 2 months ago, our beauty specialist launched a campaign to highlight the power of PC Optimum and our PC Mastercard to the rest of their clients. This message resonated really well, generated 1,000 of applications for a new PC Optima Mastercard and higher than average conversion rate. Speaking of PC Financial, the bank also had a strong start to the year. Speaker 300:12:08Richard highlighted our double digit sales growth, but our mobile services business actually grew faster than our credit card business in the quarter. The launch of no name mobile is just another example of us using our scale and scope to provide everyday value to Canadians. Looking ahead, our focus remains on our strategic pillars of retail excellence, driving growth and investing in the future, while at the same time embedding ESG into everything we do. This year, you'll see our investment built with our investment, you'll see us building even more new stores, including over 20 shoppers drop months. Behind the scenes, we're also investing in focused initiatives to drive positive environmental and social change. Speaker 300:12:52I would like to share a couple of examples that I'm particularly proud of. As of year end 2023, we achieved an 11% reduction in scope 1 and 2 carbon emissions towards our net zero target. As part of our carbon plan, we have entered into a renewable energy plan to eliminate carbon emissions from electricity purchases in Alberta, And we rolled out our first 14 heavy duty fully electrical transport trucks. And I recently had the opportunity to drive in one of these vehicles and they're very impressive and I must admit I had a bit of fun there. On food waste, we diverted more than 78,000 metric tons of food waste, up 20% from last year. Speaker 300:13:33Our distribution centers and each of our food and drug retail stores now have an individual partnership with a food recovery program to make sure good food goes to people in need and we reduce the waste into landfill. The many other excitement and important initiatives that we have underway. We'll now open it for questions. Thank you. Speaker 100:14:03Thanks very much, Per. Lara, could I ask you to introduce the Q and A process? Sorry, we can't hear you, Lara. Operator00:14:56Our first question comes from the line of Irene Nattel from RBC Capital Markets. Go ahead please. Speaker 400:15:03Thanks and good morning everyone. I was wondering if you could please give us a little bit more detail on what you're seeing in terms of consumer spending patterns, trade down, promotional penetration and also sort of discretionary more discretionary versus less discretionary items, what you're seeing there, please? Speaker 300:15:26Yes. Thank you, Irene. I think we are seeing more of what we have seen over the past half year. So customer, they are continuing to look for value. And what we have offered them in the quarter of extra promotions, whether it's our great and no name promotion at the beginning or some of the other initiatives that we're doing, customers they're turning into buying more into our promotions. Speaker 300:15:52So we're getting them more value, and that's actually across the piece. It's both in our shoppers, in our super and in our market division plus in our hotels. So customers, they are acting kind of the same everywhere. But when this is set, we are seeing that customers they are rolling their feet and they're going even more into a hard discount stores. So I think that's more of the same as we have seen before. Speaker 400:16:19That's great. Thank you. And presumably, private label continues to grow more rapidly than national brands? Speaker 300:16:27I think what we'll see this year is that I expect both the National brand and the Control brand will grow with the same pace because we have started some new initiatives where the brands are getting a little bit more focused. But when customers, they want to mitigate their own inflating, that's when we are seeing that they are buying into our control brands. They're buying more on promotions and they're shifting to this down. But overall, I think this year, we'll probably see that they are moving to the same pace because we are happy with the level that we are seeing. Speaker 400:17:11Sorry, I was on mute. Just switching gears for a moment. Code of conduct, a lot of discussion recently still. Wondering if you could please just update us on where you stand at this point and how we should expect it to proceed? Speaker 300:17:27Yes, I think we might have a bit of a new perspective here because our teams have been working closely with the committee over the past weeks. And I think the code is beginning to get into a place where I'm starting to become cautious, optimistic. Where it's going to land? I'm of course not sure, but I'm more optimistic now than before that we can land an agreement on the code. Speaker 400:17:58That's great. Thank you. Operator00:18:03Thank you. Our next question comes from the line of Mark Petrie from CIBC. Go ahead please. Speaker 500:18:10Hey, good morning. First, on the gross margin performance, could you just talk about the relative performance in food? And then when it comes to the favorable mix at Shoppers, is that really Beauty outperforming and Food underperforming? Speaker 200:18:25No. I think what we're seeing is essentially our what's happening is our trading margin is more or less flat and shrink is getting better. That's the key thing and that's what you should expect to continue to see in Q2 because Q2 last year was our quarter of peak shrink. So that's what's driving gross margin mostly. Speaker 500:18:46Yes, understood. And it was stable in Food, is that fair? Speaker 200:18:51It was better in Food. Speaker 500:18:53Okay. Speaker 200:18:54It was better. Gross margin was better in food and shrink improved in food. Like what we said to the market is we expect the shrink to improve by about 20 basis points this year on top of flat trading margin. And if you look at year over year though, we're already at 16 basis points in Q1. So we're well on our way to deliver on our shrink improvement for 2024. Speaker 500:19:19Okay, helpful. Thank you. And Per, I know you have plans for the right hand side of the store, but could you just give us a sense of the timing on when we should expect to see some of those changes take effect? And what do you think is realistic timing for right hand side to become a tailwind to the food retail same store? Speaker 300:19:36Yes, I think it's a good question. And I have while I have high ambitions, I'm cautious to promise a lot and especially in this meeting. But we will see the first three stores no later than end of Q3, at least that's our plans right now. So 3 test stores. And before then, we will probably do some quick wins and roll some initiatives out at the right hand side of the stores, but it's still early days. Speaker 300:20:02And we have some of the quick wins in 1 or 2 stores now. So we are starting to see the results that I expected to see. But I think it's good to save a bit to later, so we can continue to improve our numbers. Speaker 500:20:16Yes. Okay. And maybe for Richard, can you quantify or help us sort of frame what you expect the impact be of the exit of electronics in Shoppers on both same store sales growth and margin? Speaker 200:20:33Let me just say it's a few $100,000,000 business. That's right now is declining like double digit because we're slowly exiting it. Speaker 500:20:44So Okay. Perfect. It's helpful. And I'll pass the line. Thanks. Speaker 500:20:49All the best. Operator00:20:53Thank you. We have our next question coming from the line of Michael Van Aelst from TD Securities. Go ahead please. Speaker 600:21:01Hi, good morning. Strong performance on the food same store sales, but I want to focus to start on just on the front store on drug because I'm just trying to combine everything that you said, but you talked about the cosmetics and the beauty in general being stronger. Is it just staying strong and kind of moving sideways? Or is it actually still growing? Was that what you were saying was growing high single digits? Speaker 200:21:36It's staying strong, Mike. That's the best way to characterize it. And I mentioned in my remarks that we now start to see cough and cold starting to like revert back to normal. So we'll see over the next few months how that goes, but we started to see that over the last few weeks. Speaker 600:21:54Okay. So, Per made a comment something was growing high single digits, I think. What was that? Speaker 200:22:01Sorry, Mike, I missed the question. Speaker 300:22:03That was the beauty. Yes, that was the beauty, yes. That was the beauty. So you are right. So Gena in the beauty category is actually growing over and above the food, which it has done in the past and that's also what we predict going forward. Speaker 300:22:17And with higher margin in that part of the store, we're very pleased with that. Speaker 600:22:23Okay. So was the offsets to the strong performance in Beauty, it was the 2 offsets was cough, bone, flu and electronics and were there others? Speaker 200:22:35Food and also is a bit negative too, Mike. Speaker 600:22:39Okay, great. On the e commerce, the 16% growth was staying pretty strong. One of your peers said that it was that they thought the food industry was growth was flat from e commerce, but the 3 of you are all delivering some decent growth. So what are you seeing on e commerce in food? And is it more in your discount banners versus your conventional banners? Speaker 300:23:12So we are seeing that the overall on online is up 16%. The beauty is up a bit more and food is up a bit less. So food is up still double digit. And if I look at the contribution of our food online, it's almost 15% to 20% of our total growth in the food sector. So it's good. Speaker 300:23:36It's a good contribution that we have. But no, it's not more hard discount. It's as much from the normal channels that we have. And as you know that we are both offering food online from our hard discount, from our convention and from our super source. And we're still seeing the same mix that most of the shops are being picked up in our stores. Speaker 300:23:57So it's still clear and collect that matters the most, which of course we are really happy with. So meaningful contribution. Speaker 100:24:06So why Speaker 300:24:06is this pickup is flat, Speaker 200:24:10PCX is up a lot and what we call marketplace, Linz the Carton and DoorDash are up double digit. But the big, big growth like big is PCX delivery. That's where we're getting like triple digit growth. Speaker 600:24:28Okay. So triple digit growth in PCA X, I think I cut you off at one point, but and then you said, some growth in the 3rd parties as well though. Yes. Speaker 300:24:38Not as Speaker 200:24:38much. Not to the same extent, but Speaker 600:24:40yes. Okay. So why aren't we seeing better growth in discount e commerce versus conventional e commerce given the health of the consumer? Speaker 300:24:51Because I think we are not focused much on e commerce and discount. Discount is a discount. There's no flows. And it's primarily in the bigger stores where we can cope with picking in stores. So for me, it's more a play in the market and in the super stores and you also see that around the world. Speaker 300:25:11It's not a lot of discounters doing it. But we are picking up and we are doing better, but it's still relatively small in the discount part. Speaker 600:25:20Great. Thank you very much. I'll pass it on. Operator00:25:25Thank you. Our next question comes from the line of Tammy Chen from BMO. Go ahead please. Hi, good morning. Thanks for Speaker 700:25:33the question. I wanted to ask how are you driving this tonnage improvement? What would you call out as the biggest game changers? Because it doesn't appear to be at the expense of food margin. As you said, your trading margin is flat. Speaker 700:25:49But you mentioned there's more uptake as your promotion. So I would still think that would translate to some impact on your trading margin. So I'm just trying to understand how it seems you're striking a balance, a good balance between both good tonnage, but it's not coming at the expense of your food Speaker 300:26:16still some decent margin because you're absolutely right. Some of our promotions are driving a lot of growth. But still remember, in the beginning of the year, we had a great no name campaign and customers, they locked our no name campaign and buying more into those even though that was not driven by promotions. So again, I think I said it before, I would love to get more support for our CPGs, our suppliers because they do have money to invest and many of them they're also looking for volume. So we have some good strategic partnerships with them that does help both us and them. Speaker 700:26:58Okay, got it. And with respect to the trade down by the consumer, would you say at this point the degree that they've shifted into discount has stabilized? Or are you still seeing right now every period as we go through Still more and more are going into discount? Speaker 300:27:17Yes. Let's see. We it's difficult to predict the future. But actually, I will probably see that it's going to continue, but continue with a slower pace than before. But I think the shift to discount will continue over the next many years like it has done in probably any other country where discount is a dominant factor. Speaker 700:27:43Got it. Thank you. Operator00:27:48Thank you. Our next question comes from the line of Vishal Shreedhar from National Bank. Go ahead please. Speaker 800:27:57Hi. Richard, in the past, you've segmented Shoppers EBITDA for us on the calls from time to time. That's very useful. Wondering if you could help us understand the healthcare services piece within drug retail revenues. How large is that portion of the drug retail sales? Speaker 200:28:15Hi, good morning, Michel. We don't want to share that for obvious reasons, but like we're very happy with the growth in services. And so that continues to be a growth vector for us. Speaker 800:28:29Okay. So a higher margin growth vector, correct? Speaker 200:28:32Yes. Speaker 800:28:34Okay. You delivered 0.3% square footage growth in the quarter. Wondering how you see the mix of square footage growth between drug retail and food as that number accelerates looking forward? Speaker 200:28:50Yes. This year, Lois, it's think about like in terms of new stores, we're talking 40 plus new store, 20 ish shoppers and the balanced food. And on top of that, we've got conversion, which we refer to as network optimization. So that was what I was referring to in our SG and A because 2024 is more or less the last year that we'll have a large network optimization program. So that's you see some noise in our SG and A in the quarter. Speaker 800:29:24Okay. Okay. So we should think of square footage growth being more biased towards food in 2024. That's correct? Speaker 200:29:32Yes, because food stores are bigger than Chopper store, yes. Speaker 800:29:36Okay. And going forward as well? Speaker 200:29:39Well, we'll talk about that next year when we're there. Speaker 800:29:42Okay. Can you isolate for us the impact on SG and A associated with these optimization initiatives? Speaker 200:29:49It's like it's no, okay, but it's like it's not insignificant, like it's more than $10,000,000 Speaker 800:29:59Okay. And did you highlight for us the impact of right hand side of the comp? Speaker 300:30:05Yes. Speaker 200:30:06Yes, yes, yes, 66 basis points. Speaker 800:30:08Okay. Speaker 200:30:09Hopefully, over time, we can switch that around. Speaker 300:30:12That's the plan. Speaker 800:30:13Absolutely. Okay. Thank Speaker 300:30:18you. Operator00:30:19Thank you. We have our next question coming from the line of George Doumetz from Scotiabank. Go ahead please. Speaker 900:30:27Yes. Good morning, Karen and Richard. Just a follow-up to the SG and A discussion. It was 6 Speaker 200:30:41Thank you for asking that question. Because we said at the beginning of the year, we expect our SG and A rate to be flat and that is still the plan. The reason I feel confident about that is we've got some tailwind in the second half of the year, which will allow us to offset what we're going to be facing in the first half. So that's how I would characterize SG and A for the year. Speaker 900:31:06Okay, understood. And Richard, we put up 11% EPS growth for Q1. Your annual guidance calls for high single digits. So we're early in the year, I get it, but maybe any areas that you have pointed that perhaps could see a deceleration as the year progresses? Speaker 200:31:24What we continue to say, George, is that we feel confident that we're going to be hitting EPS within our framework, 8% to 10%, and that continues to be the plan. Speaker 900:31:36Okay. And just a final one for me. On the capital gains changes recently announced, should we think of any changes at all to maybe land sales or George Weston activity as a result of all that? Speaker 200:31:50Not really. Like it's pretty minimal the impact on this. Speaker 900:31:57Okay. Thanks for your answers. I'll pass the line. Thank Operator00:32:02you. Thank you. We have our next question coming from the line of Chris Lee from Desjardins. Please go ahead. Speaker 1000:32:11Hi, good morning, everyone. My first question is, I think on the last earnings call, you had mentioned that your food gross margin is still well below the pre pandemic level. Is that mostly because of the mix source discount and investment in pricing and how to shrink? And then I guess a follow-up question to that would be, as conditions normalize over the longer term, do you think there's a potential for food margin to return to the pre pandemic level? Or do you expect it to be structurally lower going forward? Speaker 1000:32:40Thanks. Speaker 300:32:40Maybe I can start to answer the last question, then Ulrich can take it from there. I think that for us, we are going for a stable gross margin. And then we want to grow the business because we want to take whatever we can negotiate of better terms and reinvest back into prices to give our customers more value because that's what they need and thereby growing the business. I think that's kind of the strategy of it, not to start to harvest a lot Speaker 200:33:08of more margin just because we can. So Chris, if we go back in history, we don't want to go back to pre pandemic levels. If you remember, we got back in Loblaw, I guess in the spring of 2021. And the result of our action was a significant improvement in gross margin trend of the business. And so stability in gross margin continues to be our objective. Speaker 200:33:34Having said that, like even in Q1, we have not reached the peak level of gross margin that we've hit in I think it was in Q2 of 2021. So we're still below that in that high mark. Speaker 1000:33:47Okay, that's helpful. Thank you. And then maybe switching here to the pharmacy clinics, are you able to share with us how many pharmacy clinics did you open this quarter? And are you on track to open roughly about 140 this year? Speaker 300:34:01Yes. I think we opened 6 so far year to date. And yes, we are on track to do the 140 that we talked about in the last time. Yes, Chris. Speaker 200:34:10As you know, real estate in the winter, we don't open many things. So it starts to accelerate now. So you're going to see that pick up over the coming months. Speaker 1000:34:20And this might be a bit too early to say, but I think in the past you've mentioned that in Alberta, the clinics that you've opened last year, you did see some notable halo impact on front store sales from those pharmacy clinics. Just curious to see are you continuing to see that impact as you open more pharmacy clinics and then mature enough to actually help that we're seeing that in the front store sales number? Speaker 300:34:46I think we'll have to get back to you on that exact number, but I haven't heard anything that we're continuing to see these stores trading over and above the others, but we'll have to come back to you on that one. Speaker 1000:34:59Okay. That's great. And my last question, more highlighted question, Pierre, to you. You guys obviously have a world class loyalty program. A lot of investment have been made over the years to really enhance the personalization with target offerings. Speaker 1000:35:12I guess my question is that, my question is as the stakes in the loyalty game continue to increase with new offerings by competitors, especially in Ontario later this year, what does the roadmap for PC Optimum look like over the longer term? Like what can members expect more than what they're doing from you? Speaker 300:35:30We have taken 2 new tools. So internal names, we call it CDP and P13N. So Lorne and the team, they are much, much better this year than last year to do some mass personalization to our customers. So our individual customers, they will get targeted offers, which is good for them and good for our business. So we are seeing the numbers that we are having more digital engaged customers, which is driving some of the growth and also incremental growth. Speaker 300:36:00So we stay bullish on having one of the best loyalty program, digital programs in the world right now. So we're going to do more of that definitely. Great. Speaker 1000:36:12Thanks very much. Operator00:36:17Thank you. We have our next question coming from the line of Mark Petrie from CIBC. Go ahead please. Speaker 500:36:33Yes, thanks. I just wanted to follow-up. Obviously, hard discount is a key focus for you and an area of strength and growth. And I know SKU count is one of the key levers within that concept or that channel in terms of driving efficiency. Could you just talk about what you're seeing there, the potential for shifts in efficiencies? Speaker 500:36:54I know you sort of had some tests. I'm just curious if you're at the point where that you think that's scalable Speaker 300:37:09art discount, if I have to be a little bit trilled to ourselves, we are running them a bit like supermarkets. So we can do it better and I think we can take more efficiency gains in our home discount stores. But for me, it's important to state that we will continue to put proportionally more labor into our produce and into our meat because Canadians, they love the greater produce and meat offers that we are offering in our heart discount. So we will not be covering the German discounters there. We will do more of what we do already, but trying to be more efficient. Speaker 300:37:44And yes, I have a list of things that we can do and that we will do and we will improve our efficiency, but I'm not that willing to share those with the world right now. Speaker 500:37:56So this is something that's still sort of in the test and refining? Speaker 300:38:00Yes. We haven't even started yet. So we're not even seeing it yet because some of the initiatives that we're going to plan, it takes time. I also need to be careful because we have put in place a lot of new initiatives since I came on board. So we need to phase it in, so the business and the organization can cope with it. Speaker 300:38:20And I also need to have some good initiatives next year. Speaker 500:38:24Understood. Appreciate that. Thank you. Operator00:38:30Thank you. There are no further questions at this time. I would now like to turn the call back over to Mr. McDonald for final closing comments. Speaker 100:38:39Thanks very much. Thanks everybody for your time this morning. If you have any follow-up questions, call or drop me an email. And I'll ask you to mark your calendars for Thursday, July 25 to when we'll be releasing our Q2 results. Have a great day. Speaker 100:38:55Thank you. Operator00:38:58Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.Read morePowered by