TSE:NWC North West Q1 2023 Earnings Report C$55.97 +0.06 (+0.11%) As of 05/6/2025 04:18 PM Eastern Earnings HistoryForecast North West EPS ResultsActual EPSC$0.43Consensus EPS N/ABeat/MissN/AOne Year Ago EPSN/ANorth West Revenue ResultsActual Revenue$593.60 millionExpected RevenueN/ABeat/MissN/AYoY Revenue GrowthN/ANorth West Announcement DetailsQuarterQ1 2023Date6/7/2023TimeN/AConference Call DateWednesday, June 7, 2023Conference Call Time3:00PM ETConference Call ResourcesConference Call AudioConference Call TranscriptInterim ReportEarnings HistoryCompany ProfilePowered by North West Q1 2023 Earnings Call TranscriptProvided by QuartrJune 7, 2023 ShareLink copied to clipboard.There are 7 speakers on the call. Operator00:00:06Welcome to the NorthWest Company, Inc. 1st Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Dan McConnell, President and Chief Executive Officer. Mr. Operator00:00:17McConnell, please go ahead. Speaker 100:00:19Thank you and good afternoon and welcome to The NorthWest Company First Quarter Conference Call. I'm joined here today with John King, our Chief Financial Officer and Amanda Sutton, our VP of Legal and Corporate Secretary. I'm I'll start the meeting by asking Amanda to read our disclosure statement. Speaker 200:00:35Thank you, Dan. Before we begin, I remind you that certain information presented today may constitute forward looking statements. Such statements reflect North West's current expectations, estimates, projections and assumptions. These forward looking statements are not guarantees of future performance and are subject to certain risks, which could cause actual performance and financial results in the future to vary materially from those contemplated In the forward looking statements. For additional information on these risks, please see North West's annual information form Speaker 300:01:14Thanks, Samantha. Before I begin, let me once again thank everyone who participated in the AGM this morning. For today's call, I'll start by providing a brief overview of our Q1 results. Then I'll provide commentary around our outlook, including our journey needed and Building for the Future before opening up for questions. Our consolidated sales in this quarter increased 7.5% consumer shopping trends we've seen over the past few quarters. Speaker 300:01:49Our customers continue to shift spending towards food and essentials and away from discretionary purchases as a result of higher cost inflation and lower government income support. Our gross profit rate continues to be impacted by increasing merchandise and freight costs So we're not fully passed through retail prices in the Canadian operations. Combined with changes in sales plan and an increase in markdowns, These pressures have reduced our consolidated gross profit rate by 73 basis points. That said, our gross profit dollars were up 5% compared to the same quarter last year. On the flip side, our expenses during this quarter increased by $16,600,000 or 12.3%. Speaker 300:02:31Cost inflationary pressures on staff and fuel based utilities expenses coupled with new store expenses and foreign exchange impact on net earnings, which excludes impacts of share based compensation costs, were down $5,100,000 or 16.4 percent. Let me provide some additional context on sales results starting with our Canadian operations. In Canada, sales increased 8.4% in total and were up 2.2% on a same store basis. As we continue to lap pandemic related sales increases last year, The main factors contributing to the overall increase were inflation, the new store openings last year and an overall good in stock position. Same store food sales increased 3.4% and same store general merchandise sales decreased 3.4%. Speaker 300:03:28As previously mentioned, the shift in consumer spending towards food and away from discretionary general merchandise purchases was still a factor, but certainly less pronounced compared to previous quarters. The key factor worth noting is that North Star Air had another strong quarter with both top line and bottom line growth driven By increases in 3rd party cargo contracts as well as in passenger volumes. In the international operations, The contrast in the Canadian operations was a much tougher quarter in international operations from a sales perspective. Total sales were down 0.5% in the last year There's a significant shift in consumer spending from general merchandise to food. There were 2 key factors that impacted sales in the Q1. Speaker 300:04:12First, there's less income support compared to last year and second to a lesser degree the closure of our Costi Less Curacao store earlier in the quarter. Let me unpack you about income support. Yes, income support is reduced in general compared to last year, but in particular, there was Given the fact that during the pandemic, there was a temporary boost of SNAP benefits that ranged between $95 and up to the maximum benefit allotted for that particular family in Agency. This increased SNAP benefit expired in February, which combined with the impact of higher inflation negatively affected customers purchasing power resulted in a shift in the spending. This combination of lower income support payments and higher inflation was a key factor that resulted in a 16.5% decrease in general merchandise, same store sales and a 0.6% increase in food sales. Speaker 300:05:17Now in terms of gross profit expenses. During previous calls, we've highlighted inflation and cost Controls are top priority for our business. We're still seeing cost increases, although at a more moderate pace compared to the last three quarters of 2022. Communities we serve in the North, the impact of higher fuel and transportation costs on the shelf prices is greater when compared to Southern retailers given the remote nature of our markets. Our teams have prioritized operational excellence to help mitigate the impact of inflation We have a team developed approach to making sure we retain the trust of our customers while trying to manage our revenues and gross profit dollars. Speaker 300:06:04Therefore, in some instances, the impact of higher merchandise and freight cost inflation was not fully passed through in retail prices. This balancing act coupled with the changes in sales plan and higher markdowns on drug merchandise given the demand shifts highlighted earlier The 12.3% increase in the quarter is primarily driven by cost inflation, the impact of foreign exchange on the translation of the international operation expenses, The impact of inflation compared to the Q1 last year contributed to a decrease in overall expenses and specifically staff costs and utility expenses. Asset. We were slow to adjust our store labor hours based on the changes in sales. This is a key area of focus as we look to drive more productivity and efficiency intercost structure. Speaker 300:06:57The impact of foreign exchange rates on the translation of our international operations expenses was also Factor and accounted for almost a quarter of the overall increase. Typically, we are naturally hedged for this, but given the international sales results, and then higher impact during this quarter. All right, now let me take a few comments on the inventory. Our levels are higher than last year, largely due to inflation that affected the resupply of winter road inventory and higher channel merchandise inventory in the Canadian operations. The impact of foreign exchange on the translation of international operations inventories was also a large factor. Speaker 300:07:34The increase in general merchandise inventories in Canada East Beasley, mainly concentrated in snow machines, ATVs, boats and motors, as well as home furnishings and appliances. Given the durability of these items and the relevance they have in the communities we serve, we expect to sell through these items. We We have adjusted our ordering where needed as we continue to calibrate our inventory levels based on current demand. That said, we didn't have the sell through we expected in some apparel and categories, which resulted in additional markdowns in the quarter. Okay, now before providing commentary on the outlook, I want to offer a few notes on recent developments of the business. Speaker 300:08:13First, as noted in our media release early in May, Our northern store in Fox Lake Alberta was destroyed by the wildfires in Western Canada. Thankfully, our staff in the community has been safely evacuated. Unfortunately, this is also this also results in the loss of our 80 homes and other facilities within the community. Secondly, a few weeks ago, Super Typhoon Boar made landfall in Guam. I'm happy to report that our employees are safe. Speaker 300:08:43The damage to our 3 stores in Guam appears to be minimal. However, there will be some building and equipment repairs and product loss Tunica Power Outages. Both the fires and typhoons are a devastating situation for many people across the communities we serve and we are working with local resources All right, let's transition and talk about the outlook and our journey ahead. Throughout our history as a company, we have proven time and time again that we are resilient and that we are committed to making an impact on the communities that we serve. As noted in my ATM remarks, we are excited about our journey ahead and operational excellence strategies in a couple of heavy initiatives. Speaker 300:09:28We believe it is essential for us to be proactive, tackle head on the market shifts impacting the business and work on optimizing both top and bottom line levers. I won't repeat all my comments from our AGM this morning, but I want to highlight a few key points. Starting with our goal, While optimizing margins and delivering meaningful ESG outcomes. The key initiatives are targeted driving efficiencies in our core business, reducing costs enhancing our customer value offer. This will drive sustainable top and bottom line growth while fulfilling our ESG goals. Speaker 300:10:11For example, we are focusing on key opportunity areas like 1, operational efficiency. This includes Things Link optimizing how we transport goods across our land, air and sea network to help mitigate freight cost inflation, Reducing inventory shrink and enhancing our spiraling we're planning. Ultimately, these operational efficiencies will grow the bottom line. 2, improving our customer offering, creating value by creating the right assortment and merchandising ineffectively. This will help grow gross margin rate from top line by driving volume of higher demand and higher margin items our customers want. Speaker 300:10:52Underpinning this work is developing our analytical capabilities across the business to drive data driven decision making that will support assortment planning, pricing and promotions. This gives you a flavor of what we are targeting in the journey ahead. And we look forward to updating you More on than as the course come. With that, let me open it up for any questions. Thank you. Speaker 300:11:18Thank Operator00:11:18you. Yes, thank you. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, Please get your hands up before making your selection. If you have a question, please press star 1 on the device's keypad. Operator00:11:36You can cancel your question also. There will be a brief pause while the participants register. We thank you for your patience. The first question is from Michael Van Aelst from TD Cowen. Please go ahead. Operator00:12:03Your line is open. Speaker 400:12:05Thank you. Good afternoon. I'll start with a clarification. In your press release, you said that revenue excluding ForEx was up 5.1%. Food was up 3.4% and GM was down 4.5%. Speaker 400:12:18I don't understand that math, Our total can be up more than food. The GM was down. I'm not sure if I'm reading that incorrectly. Speaker 500:12:33I think the total, Mike, was I think there's the foreign exchange pieces what's coming into that. Speaker 400:12:40So the food okay, because it's just a continuing incentive. So I'm assuming that food and GM number was not excluding ForEx then, is that what you're saying? Speaker 500:12:49Yes, that's correct. Speaker 400:12:52Okay. All right, thank you. And then so you talked about how people are shifting from GM to food. But overall, food isn't growing significantly more than what it is historically, and particularly in the international, it was down 0.6%. So is it strictly the SNAP benefit lower SNAP benefits that resulted in the lower food same store sales in international? Speaker 400:13:16Or are you seeing more competition for economic pressures. Speaker 100:13:22I would say it's Gladys, so no, we're definitely not just to clarify, we were up 0.6%. Not that it's a Significant change, but we're up 0.6% in food and international. That's okay. And no, We're not losing market share. There is definitely an alter shift in purchases, like I said, over To food from GM, but it's really just, I think, the cost pressures on the communities that we're serving. Speaker 100:13:53So it's that would probably have to be The summary of it, a lot less money in market in particular than last year, up considerably obviously from prior years before pandemic. But it really was Q1 of last year, Michael, it was still there was still a lot of money in market. And as a result, we had a very strong quarter. So it's really it's the comp what we're comparing it against and it's a factor of Not having the disposable income, I guess, that they have in the past, but definitely not giving up market share and there's been no increased competition, I was mentioning. Speaker 400:14:35Perfect. Thank you. And then the watershed on maintenance, I'm finding it Kind of hard to figure out when these are coming. Is there do you know anything about the timing of when those are going to start reaching the people in the North And how significant they might be? Speaker 100:14:50Well, we expect them to be significant in the range of the inventory increase that you see in our balance sheet. And we also anticipate that they're going to be coming in Q3 and Q4 of this year. But to your first comment, It's not conclusive, but from the due diligence and the poking around that we've done, that's when we are preparing for it and that's why We're ready for sales when that money does arrive. Speaker 400:15:19Okay. So Q3, Q4, it sounds like it's split up like people who, I guess register and applied for it, got it initial early, get it in Q3 and Q4 and other people get it the following year, I believe, right? Speaker 100:15:33Yes, that's correct. Speaker 400:15:34Okay. Speaker 100:15:35So people are keen and probably have a number of ATBs in their eyes are A little more eager and aggressive in getting the money that we can that they can turn over into some of the things that they're required or that they're looking to get. Speaker 400:15:51Okay. And then just finally, I guess the OpEx was up, I think, 13% excluding stock based comp. Can you rank the various factors that you talked about that's driving this growth rate and why each one of them will get cycled? Speaker 300:16:06Sure. Speaker 100:16:08Well, staffing, as I mentioned, was definitely a big one. There's a couple of factors there. Obviously, where there's Minimum wage has increased. We have we're paying more for employees. We also have Some factors in there that we can control. Speaker 100:16:27As I mentioned, we were slow to react to some of the volume reductions. So that's something that I can assure you that we are fully focused on to bringing it more in line with our expectations and budget. I mentioned also a number of the initiatives. Like this is something that we were anticipating as far as the not only because of the inflation, but because of The money reduction in market. So we've been looking and setting ourselves up in the program that we've developed and the journey that I talked about to be more productive, to gain more synergy out of our business, to make sure we get our expenses in line over the future quarters. Speaker 100:17:07Some of the things obviously are going to be a little quicker that we can respond to as in some of the things I just indicated, getting our sales and labor ratios in line at the store level and then other things will have a little bit more of a delayed impact, But we nonetheless know that there's a lot of productivity that we can still gain from kind of through a more focused approach throughout the entire business. So I'd say staff costs, occupancy and some of our occupancy costs, obviously, the diesel generated power. Utilities were up pretty significantly in the quarter. I'd say those are probably a couple of the big levers. Speaker 400:17:54And you mentioned freight in the press release, but Freight seems to be coming down for some. Are you seeing that yet? Speaker 100:18:02We're starting to see it into the future quarters. We know that there's opportunities to bring it down, But it hasn't come down quickly enough for us to have the benefit in the Q1. But yes, we do anticipate that it's going to be coming down in the future quarters. Speaker 400:18:19Great. Thank you. I'll hand it over to someone else. Speaker 500:18:22Mike, just before you go, I want to step back To circle back to your opening comment on the sales there, I misspoke. Like that is I see the sense that you're referring to, it is excluding foreign exchange And the numbers that you quoted there, including general merchandise. The difference that isn't there is other sales, Which the key driver there was, as Dan talked about, was the performance of the airline in the Canadian operations. Speaker 400:18:51Okay, perfect. Thank you. Operator00:18:56Thank you. Star 1. The next question is from Steve MacLeod from BMO Capital Markets. Please go ahead. Your line is open. Speaker 600:19:13Thank you. Good afternoon. Just wanted to dig in a little bit on the gross margin. Obviously, still seeing inflation coming through on that number. And I'm just wondering if you look, are you seeing the ability to pass through price? Speaker 600:19:30Or are you seeing inflation easing at all sort of when you think about where you are today versus maybe compared to the end of the quarter? Speaker 100:19:40We do see inflation easing somewhat, but we also like I said, we do we are taking a balanced approach to passing on More margin, particularly in Canada. In the international, our rate is in a reasonable position. It's more of a sales issue as I indicated and then managing some expenses that correlate to those sales. But in Canada, yes, we do have to push on More margin, but we also have to pull a lot of the levers that I just spoke about with Michael, and that is getting more efficiencies and productivity out of our existing business. So it's kind of a 2 pronged approach. Speaker 100:20:17But by all means, we do we are obviously in a situation we do have to start passing on more of those the inflationary pressures onto the customer. Speaker 600:20:28Right. Okay. Okay. That's helpful. And then as you think about the balance of the year, I know lots of moving parts, but you are beginning to comp more normalized periods beginning in Q2. Speaker 600:20:43So I'm just curious, Operator00:20:45how do Speaker 600:20:45you view that evolving through the year? I mean, do you expect to see sort of more significant sales growth when you roll into Q2 and Q3 compared to what you've seen over the last couple of quarters? Or is it perhaps a bit more muted just given the fact that we're seeing lots of puts and takes around things like macro and the ongoing impacts of inflation? Speaker 100:21:07I think my bigger opportunities are going to be well, my outside opportunity later in the year is definitely on Some of the money coming into the markets through the water settlement is an example. But I do think this is going to be a focus on managing our back of the house, managing our expenses, Going back and realizing some of the value that maybe has been taken from us from our vendors, to put it bluntly. I think there's room there for us to capture more value for our margin and for our customers as well. But I do really think it's going to be a back of the house game and it's really going to be tightening up and getting more productivity out of our existing business, which I am optimistic. This is something, again, I know I've spoken about it briefly on past calls and quarters, but it's something that we've been ramping up and we're I would say we're ready for the challenge. Speaker 100:21:59And I mentioned some of the examples of the items or work streams that we're going to be focusing And I can tell you, we're all hands around deck, and it's going to be that's where we're going to be putting our focus over the next 2 quarters for sure. Speaker 600:22:15Okay. That's great. Thanks, guys. Thanks. Thank Operator00:22:21you. There are no further questions registered at this time. I will return the call back to Mr. McConnell. Speaker 100:22:28Okay. Well, thank you very much, Paul, and we will speak to you next quarter. Operator00:22:35Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallNorth West Q1 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsInterim report North West Earnings HeadlinesInvest $10,000 in These Consumer Staples Stocks for Steady Income Through 2030April 17, 2025 | msn.comPDP postpones North-Central, South-South, South-West congressesApril 10, 2025 | msn.comTrump wipes out trillions overnight…Is there anybody more powerful than Donald Trump right now? In a single tariff announcement, he wiped out nearly $5 trillion in wealth from the S&P 500 and $6.4 trillion from the Dow Jones… Not to mention the countless trillions of dollars lost in every market around the world… leaving the major political powers scrambling in fear of Trump’s next move.May 7, 2025 | Porter & Company (Ad)PDP postpones N’Central, S’South, S’West congressesApril 10, 2025 | msn.comJust in: PDP postpones N’Central, S’South, S’West congresses, reason emergesApril 10, 2025 | msn.comPDP to hold South South, South West, North Central Zonal congresses in AprilMarch 16, 2025 | msn.comSee More North West Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like North West? Sign up for Earnings360's daily newsletter to receive timely earnings updates on North West and other key companies, straight to your email. Email Address About North WestNorth West (TSE:NWC), through its subsidiaries, engages in the retail of food and everyday products and services to rural communities and urban neighborhood markets in northern Canada, rural Alaska, the South Pacific, and the Caribbean. The company operates Northern stores, which offers food, financial services, and general merchandise; NorthMart stores that provides fresh food products, apparel, and health products and services; and Quickstop convenience stores that provides ready-to-eat food products, and fuel and related services. It also operates Giant Tiger junior discount stores, which offers family fashion, household products, and food products; Valu Lots discount center and direct-to-customer food distribution outlet; solo market, a store in remote market; Pharmacy and Convenience stores; and NWC Motorsports, a dealership that offers sales, service, parts and accessories for Ski-doo, Honda, Can-am and other premier brands. In addition, the company distributes produce and fresh meats to independent grocery stores; provides contract tele-pharmacist services to rural hospitals and health centers; and engages in the water and air-based transportation businesses. Further, it operates Alaska Commercial Company stores that provides food and general merchandise to remote and rural regions; Pacific Alaska wholesale, a distributor to independent grocery stores, commercial accounts, and individual households; Riteway food markets; and Cost-U-Less mid-size warehouse stores, which offers discount food and general merchandise. The company was founded in 1668 and is headquartered in Winnipeg, Canada.View North West ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Palantir Stock Drops Despite Stellar Earnings: What's Next?Is Eli Lilly a Buy After Weak Earnings and CVS-Novo Partnership?Is Reddit Stock a Buy, Sell, or Hold After Earnings Release?Warning or Opportunity After Super Micro Computer's EarningsAmazon Earnings: 2 Reasons to Love It, 1 Reason to Be CautiousRocket Lab Braces for Q1 Earnings Amid Soaring ExpectationsMeta Takes A Bow With Q1 Earnings - Watch For Tariff Impact in Q2 Upcoming Earnings Monster Beverage (5/8/2025)Coinbase Global (5/8/2025)Brookfield (5/8/2025)Anheuser-Busch InBev SA/NV (5/8/2025)ConocoPhillips (5/8/2025)Shopify (5/8/2025)Cheniere Energy (5/8/2025)McKesson (5/8/2025)Enbridge (5/9/2025)Petróleo Brasileiro S.A. - Petrobras (5/12/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 7 speakers on the call. Operator00:00:06Welcome to the NorthWest Company, Inc. 1st Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Dan McConnell, President and Chief Executive Officer. Mr. Operator00:00:17McConnell, please go ahead. Speaker 100:00:19Thank you and good afternoon and welcome to The NorthWest Company First Quarter Conference Call. I'm joined here today with John King, our Chief Financial Officer and Amanda Sutton, our VP of Legal and Corporate Secretary. I'm I'll start the meeting by asking Amanda to read our disclosure statement. Speaker 200:00:35Thank you, Dan. Before we begin, I remind you that certain information presented today may constitute forward looking statements. Such statements reflect North West's current expectations, estimates, projections and assumptions. These forward looking statements are not guarantees of future performance and are subject to certain risks, which could cause actual performance and financial results in the future to vary materially from those contemplated In the forward looking statements. For additional information on these risks, please see North West's annual information form Speaker 300:01:14Thanks, Samantha. Before I begin, let me once again thank everyone who participated in the AGM this morning. For today's call, I'll start by providing a brief overview of our Q1 results. Then I'll provide commentary around our outlook, including our journey needed and Building for the Future before opening up for questions. Our consolidated sales in this quarter increased 7.5% consumer shopping trends we've seen over the past few quarters. Speaker 300:01:49Our customers continue to shift spending towards food and essentials and away from discretionary purchases as a result of higher cost inflation and lower government income support. Our gross profit rate continues to be impacted by increasing merchandise and freight costs So we're not fully passed through retail prices in the Canadian operations. Combined with changes in sales plan and an increase in markdowns, These pressures have reduced our consolidated gross profit rate by 73 basis points. That said, our gross profit dollars were up 5% compared to the same quarter last year. On the flip side, our expenses during this quarter increased by $16,600,000 or 12.3%. Speaker 300:02:31Cost inflationary pressures on staff and fuel based utilities expenses coupled with new store expenses and foreign exchange impact on net earnings, which excludes impacts of share based compensation costs, were down $5,100,000 or 16.4 percent. Let me provide some additional context on sales results starting with our Canadian operations. In Canada, sales increased 8.4% in total and were up 2.2% on a same store basis. As we continue to lap pandemic related sales increases last year, The main factors contributing to the overall increase were inflation, the new store openings last year and an overall good in stock position. Same store food sales increased 3.4% and same store general merchandise sales decreased 3.4%. Speaker 300:03:28As previously mentioned, the shift in consumer spending towards food and away from discretionary general merchandise purchases was still a factor, but certainly less pronounced compared to previous quarters. The key factor worth noting is that North Star Air had another strong quarter with both top line and bottom line growth driven By increases in 3rd party cargo contracts as well as in passenger volumes. In the international operations, The contrast in the Canadian operations was a much tougher quarter in international operations from a sales perspective. Total sales were down 0.5% in the last year There's a significant shift in consumer spending from general merchandise to food. There were 2 key factors that impacted sales in the Q1. Speaker 300:04:12First, there's less income support compared to last year and second to a lesser degree the closure of our Costi Less Curacao store earlier in the quarter. Let me unpack you about income support. Yes, income support is reduced in general compared to last year, but in particular, there was Given the fact that during the pandemic, there was a temporary boost of SNAP benefits that ranged between $95 and up to the maximum benefit allotted for that particular family in Agency. This increased SNAP benefit expired in February, which combined with the impact of higher inflation negatively affected customers purchasing power resulted in a shift in the spending. This combination of lower income support payments and higher inflation was a key factor that resulted in a 16.5% decrease in general merchandise, same store sales and a 0.6% increase in food sales. Speaker 300:05:17Now in terms of gross profit expenses. During previous calls, we've highlighted inflation and cost Controls are top priority for our business. We're still seeing cost increases, although at a more moderate pace compared to the last three quarters of 2022. Communities we serve in the North, the impact of higher fuel and transportation costs on the shelf prices is greater when compared to Southern retailers given the remote nature of our markets. Our teams have prioritized operational excellence to help mitigate the impact of inflation We have a team developed approach to making sure we retain the trust of our customers while trying to manage our revenues and gross profit dollars. Speaker 300:06:04Therefore, in some instances, the impact of higher merchandise and freight cost inflation was not fully passed through in retail prices. This balancing act coupled with the changes in sales plan and higher markdowns on drug merchandise given the demand shifts highlighted earlier The 12.3% increase in the quarter is primarily driven by cost inflation, the impact of foreign exchange on the translation of the international operation expenses, The impact of inflation compared to the Q1 last year contributed to a decrease in overall expenses and specifically staff costs and utility expenses. Asset. We were slow to adjust our store labor hours based on the changes in sales. This is a key area of focus as we look to drive more productivity and efficiency intercost structure. Speaker 300:06:57The impact of foreign exchange rates on the translation of our international operations expenses was also Factor and accounted for almost a quarter of the overall increase. Typically, we are naturally hedged for this, but given the international sales results, and then higher impact during this quarter. All right, now let me take a few comments on the inventory. Our levels are higher than last year, largely due to inflation that affected the resupply of winter road inventory and higher channel merchandise inventory in the Canadian operations. The impact of foreign exchange on the translation of international operations inventories was also a large factor. Speaker 300:07:34The increase in general merchandise inventories in Canada East Beasley, mainly concentrated in snow machines, ATVs, boats and motors, as well as home furnishings and appliances. Given the durability of these items and the relevance they have in the communities we serve, we expect to sell through these items. We We have adjusted our ordering where needed as we continue to calibrate our inventory levels based on current demand. That said, we didn't have the sell through we expected in some apparel and categories, which resulted in additional markdowns in the quarter. Okay, now before providing commentary on the outlook, I want to offer a few notes on recent developments of the business. Speaker 300:08:13First, as noted in our media release early in May, Our northern store in Fox Lake Alberta was destroyed by the wildfires in Western Canada. Thankfully, our staff in the community has been safely evacuated. Unfortunately, this is also this also results in the loss of our 80 homes and other facilities within the community. Secondly, a few weeks ago, Super Typhoon Boar made landfall in Guam. I'm happy to report that our employees are safe. Speaker 300:08:43The damage to our 3 stores in Guam appears to be minimal. However, there will be some building and equipment repairs and product loss Tunica Power Outages. Both the fires and typhoons are a devastating situation for many people across the communities we serve and we are working with local resources All right, let's transition and talk about the outlook and our journey ahead. Throughout our history as a company, we have proven time and time again that we are resilient and that we are committed to making an impact on the communities that we serve. As noted in my ATM remarks, we are excited about our journey ahead and operational excellence strategies in a couple of heavy initiatives. Speaker 300:09:28We believe it is essential for us to be proactive, tackle head on the market shifts impacting the business and work on optimizing both top and bottom line levers. I won't repeat all my comments from our AGM this morning, but I want to highlight a few key points. Starting with our goal, While optimizing margins and delivering meaningful ESG outcomes. The key initiatives are targeted driving efficiencies in our core business, reducing costs enhancing our customer value offer. This will drive sustainable top and bottom line growth while fulfilling our ESG goals. Speaker 300:10:11For example, we are focusing on key opportunity areas like 1, operational efficiency. This includes Things Link optimizing how we transport goods across our land, air and sea network to help mitigate freight cost inflation, Reducing inventory shrink and enhancing our spiraling we're planning. Ultimately, these operational efficiencies will grow the bottom line. 2, improving our customer offering, creating value by creating the right assortment and merchandising ineffectively. This will help grow gross margin rate from top line by driving volume of higher demand and higher margin items our customers want. Speaker 300:10:52Underpinning this work is developing our analytical capabilities across the business to drive data driven decision making that will support assortment planning, pricing and promotions. This gives you a flavor of what we are targeting in the journey ahead. And we look forward to updating you More on than as the course come. With that, let me open it up for any questions. Thank you. Speaker 300:11:18Thank Operator00:11:18you. Yes, thank you. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, Please get your hands up before making your selection. If you have a question, please press star 1 on the device's keypad. Operator00:11:36You can cancel your question also. There will be a brief pause while the participants register. We thank you for your patience. The first question is from Michael Van Aelst from TD Cowen. Please go ahead. Operator00:12:03Your line is open. Speaker 400:12:05Thank you. Good afternoon. I'll start with a clarification. In your press release, you said that revenue excluding ForEx was up 5.1%. Food was up 3.4% and GM was down 4.5%. Speaker 400:12:18I don't understand that math, Our total can be up more than food. The GM was down. I'm not sure if I'm reading that incorrectly. Speaker 500:12:33I think the total, Mike, was I think there's the foreign exchange pieces what's coming into that. Speaker 400:12:40So the food okay, because it's just a continuing incentive. So I'm assuming that food and GM number was not excluding ForEx then, is that what you're saying? Speaker 500:12:49Yes, that's correct. Speaker 400:12:52Okay. All right, thank you. And then so you talked about how people are shifting from GM to food. But overall, food isn't growing significantly more than what it is historically, and particularly in the international, it was down 0.6%. So is it strictly the SNAP benefit lower SNAP benefits that resulted in the lower food same store sales in international? Speaker 400:13:16Or are you seeing more competition for economic pressures. Speaker 100:13:22I would say it's Gladys, so no, we're definitely not just to clarify, we were up 0.6%. Not that it's a Significant change, but we're up 0.6% in food and international. That's okay. And no, We're not losing market share. There is definitely an alter shift in purchases, like I said, over To food from GM, but it's really just, I think, the cost pressures on the communities that we're serving. Speaker 100:13:53So it's that would probably have to be The summary of it, a lot less money in market in particular than last year, up considerably obviously from prior years before pandemic. But it really was Q1 of last year, Michael, it was still there was still a lot of money in market. And as a result, we had a very strong quarter. So it's really it's the comp what we're comparing it against and it's a factor of Not having the disposable income, I guess, that they have in the past, but definitely not giving up market share and there's been no increased competition, I was mentioning. Speaker 400:14:35Perfect. Thank you. And then the watershed on maintenance, I'm finding it Kind of hard to figure out when these are coming. Is there do you know anything about the timing of when those are going to start reaching the people in the North And how significant they might be? Speaker 100:14:50Well, we expect them to be significant in the range of the inventory increase that you see in our balance sheet. And we also anticipate that they're going to be coming in Q3 and Q4 of this year. But to your first comment, It's not conclusive, but from the due diligence and the poking around that we've done, that's when we are preparing for it and that's why We're ready for sales when that money does arrive. Speaker 400:15:19Okay. So Q3, Q4, it sounds like it's split up like people who, I guess register and applied for it, got it initial early, get it in Q3 and Q4 and other people get it the following year, I believe, right? Speaker 100:15:33Yes, that's correct. Speaker 400:15:34Okay. Speaker 100:15:35So people are keen and probably have a number of ATBs in their eyes are A little more eager and aggressive in getting the money that we can that they can turn over into some of the things that they're required or that they're looking to get. Speaker 400:15:51Okay. And then just finally, I guess the OpEx was up, I think, 13% excluding stock based comp. Can you rank the various factors that you talked about that's driving this growth rate and why each one of them will get cycled? Speaker 300:16:06Sure. Speaker 100:16:08Well, staffing, as I mentioned, was definitely a big one. There's a couple of factors there. Obviously, where there's Minimum wage has increased. We have we're paying more for employees. We also have Some factors in there that we can control. Speaker 100:16:27As I mentioned, we were slow to react to some of the volume reductions. So that's something that I can assure you that we are fully focused on to bringing it more in line with our expectations and budget. I mentioned also a number of the initiatives. Like this is something that we were anticipating as far as the not only because of the inflation, but because of The money reduction in market. So we've been looking and setting ourselves up in the program that we've developed and the journey that I talked about to be more productive, to gain more synergy out of our business, to make sure we get our expenses in line over the future quarters. Speaker 100:17:07Some of the things obviously are going to be a little quicker that we can respond to as in some of the things I just indicated, getting our sales and labor ratios in line at the store level and then other things will have a little bit more of a delayed impact, But we nonetheless know that there's a lot of productivity that we can still gain from kind of through a more focused approach throughout the entire business. So I'd say staff costs, occupancy and some of our occupancy costs, obviously, the diesel generated power. Utilities were up pretty significantly in the quarter. I'd say those are probably a couple of the big levers. Speaker 400:17:54And you mentioned freight in the press release, but Freight seems to be coming down for some. Are you seeing that yet? Speaker 100:18:02We're starting to see it into the future quarters. We know that there's opportunities to bring it down, But it hasn't come down quickly enough for us to have the benefit in the Q1. But yes, we do anticipate that it's going to be coming down in the future quarters. Speaker 400:18:19Great. Thank you. I'll hand it over to someone else. Speaker 500:18:22Mike, just before you go, I want to step back To circle back to your opening comment on the sales there, I misspoke. Like that is I see the sense that you're referring to, it is excluding foreign exchange And the numbers that you quoted there, including general merchandise. The difference that isn't there is other sales, Which the key driver there was, as Dan talked about, was the performance of the airline in the Canadian operations. Speaker 400:18:51Okay, perfect. Thank you. Operator00:18:56Thank you. Star 1. The next question is from Steve MacLeod from BMO Capital Markets. Please go ahead. Your line is open. Speaker 600:19:13Thank you. Good afternoon. Just wanted to dig in a little bit on the gross margin. Obviously, still seeing inflation coming through on that number. And I'm just wondering if you look, are you seeing the ability to pass through price? Speaker 600:19:30Or are you seeing inflation easing at all sort of when you think about where you are today versus maybe compared to the end of the quarter? Speaker 100:19:40We do see inflation easing somewhat, but we also like I said, we do we are taking a balanced approach to passing on More margin, particularly in Canada. In the international, our rate is in a reasonable position. It's more of a sales issue as I indicated and then managing some expenses that correlate to those sales. But in Canada, yes, we do have to push on More margin, but we also have to pull a lot of the levers that I just spoke about with Michael, and that is getting more efficiencies and productivity out of our existing business. So it's kind of a 2 pronged approach. Speaker 100:20:17But by all means, we do we are obviously in a situation we do have to start passing on more of those the inflationary pressures onto the customer. Speaker 600:20:28Right. Okay. Okay. That's helpful. And then as you think about the balance of the year, I know lots of moving parts, but you are beginning to comp more normalized periods beginning in Q2. Speaker 600:20:43So I'm just curious, Operator00:20:45how do Speaker 600:20:45you view that evolving through the year? I mean, do you expect to see sort of more significant sales growth when you roll into Q2 and Q3 compared to what you've seen over the last couple of quarters? Or is it perhaps a bit more muted just given the fact that we're seeing lots of puts and takes around things like macro and the ongoing impacts of inflation? Speaker 100:21:07I think my bigger opportunities are going to be well, my outside opportunity later in the year is definitely on Some of the money coming into the markets through the water settlement is an example. But I do think this is going to be a focus on managing our back of the house, managing our expenses, Going back and realizing some of the value that maybe has been taken from us from our vendors, to put it bluntly. I think there's room there for us to capture more value for our margin and for our customers as well. But I do really think it's going to be a back of the house game and it's really going to be tightening up and getting more productivity out of our existing business, which I am optimistic. This is something, again, I know I've spoken about it briefly on past calls and quarters, but it's something that we've been ramping up and we're I would say we're ready for the challenge. Speaker 100:21:59And I mentioned some of the examples of the items or work streams that we're going to be focusing And I can tell you, we're all hands around deck, and it's going to be that's where we're going to be putting our focus over the next 2 quarters for sure. Speaker 600:22:15Okay. That's great. Thanks, guys. Thanks. Thank Operator00:22:21you. There are no further questions registered at this time. I will return the call back to Mr. McConnell. Speaker 100:22:28Okay. Well, thank you very much, Paul, and we will speak to you next quarter. Operator00:22:35Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.Read morePowered by