TSE:L Loblaw Companies Q2 2023 Earnings Report C$226.87 -0.08 (-0.04%) As of 05/6/2025 04:18 PM Eastern Earnings HistoryForecast Loblaw Companies EPS ResultsActual EPSC$1.94Consensus EPS C$1.93Beat/MissBeat by +C$0.01One Year Ago EPSN/ALoblaw Companies Revenue ResultsActual Revenue$13.74 billionExpected Revenue$13.64 billionBeat/MissBeat by +$96.00 millionYoY Revenue GrowthN/ALoblaw Companies Announcement DetailsQuarterQ2 2023Date7/26/2023TimeN/AConference Call DateWednesday, July 26, 2023Conference Call Time10:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckInterim ReportEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Loblaw Companies Q2 2023 Earnings Call TranscriptProvided by QuartrJuly 26, 2023 ShareLink copied to clipboard.There are 10 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen, and welcome to the Loblaw Companies Limited Second Quarter 2023 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, July 26, 2023. I would now like to turn the conference over to Roy McDonald. Operator00:00:28Please go ahead. Speaker 100:00:31Thank you, Michelle. Good morning, everybody. Welcome to the Loblaw Limited's Q2 2023 results call. As always, I'm joined this morning In the room with Galen Weston, our Chairman and President and with Richard Dufresne, our Chief Financial Officer. And before we begin the call, I want to remind you that today's discussion will include forward looking statements, which may include, but are not limited With respect to Lovela's anticipated future results. Speaker 100:01:02These statements are based on assumptions and reflect management's current expectations And as such, are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations. These risks and uncertainties are discussed in the company's materials filed with the Canadian Securities Regulators this morning. Any forward looking statements speak only as of the date they are made. The company disclaims any intention or obligation to update or revise any forward looking statements whether as a result of new information, future results 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 measure. Speaker 100:01:59And with that, I will turn the call over to Richard. Speaker 200:02:02Thank you, Roy, and good morning, everyone. I'm pleased to report that we continue to deliver consistent Carefully managing our expenses, all part of retail excellence. On a consolidated basis, revenue grew by 6.9% and EBITDA increased by 9.4%. Adjusted earnings per share grew by 14.8 percent to $1.94 a share. On a GAAP basis, our earnings per share reflected a 36% increase. Speaker 200:02:39This was unusually high as we lapped A $100,000,000 one time charge last year specifically related to PC Bank. In Drug Retail, absolute sales increased 7.4% And same store sales grew 5.7%. Front store same store sales grew by 5% on continued strength in cosmetics and health and beauty. OTC performance remains strong, but off its peak levels. Similarly, growth in our drug business has moderated as it lapsed Last year's post pandemic reopening. Speaker 200:03:13Pharmacy same store sales grew 6.3% driven by growth in acute and chronic scripts, partially offset by lower COVID vaccines and testing. At the same time, we're pleased with the growth of services related to expanded scope of practice. In Food Retail, absolute sales increased 6.4% and same store sales grew 6.1%. In Q2, our internal food inflation number was generally in line with the CPI. However, shoppers in our grocery stores actually beat inflation by taking advantage of our pricing, private brand And hard discount stores. Speaker 200:03:48That means that our Loblaw shoppers experienced a lower rate of inflation than CPI. As we battle inflation, we remain highly concerned about ongoing cost increases and I wanted to offer some facts. This year, suppliers have raised the price we pay for products by more than $1,000,000,000 This is double what we would expect normally. We have received double digit increases from the same suppliers who gave us double digit increases last year. That's why you see products that are no More expensive than they were just a couple of years ago. Speaker 200:04:23While cost increases are coming in from all peers of our supplier base, the largest global Let me give you an example. Since inflation began, one of our largest vendors A submitted price increase is totaling 50% or $250,000,000 That's just one supplier. Here's another good illustration. In Q2, the average price for meat, fruit and vegetable purchased in our stores were up in the mid single digits, but The average purchase in the center of store where you find the biggest brands was up in the double digits. At the same time, our food profit margins have declined as our costs have grown faster than our prices. Speaker 200:05:07The math is very simple. Cost increases from big brands were well above Canada's food inflation and our food margin declined. Suggesting of grosser profit hearing just don't add up. Food inflation is a global problem. The causes range from climate change to war. Speaker 200:05:24We know that some cost increases are justified, but many are not. The price of transportation, wheat, flour, paper and plastic All well off 2022 highs. Our teams are actively reaching out to our largest suppliers pressing for cost decreases based on these facts. With lowered cost, we will lower prices. Returning to our performance, our ability to deliver value was reflected across our Food business. Speaker 200:05:51Our hard discount banners continue to outperform the overall discount channel, delivering strong traffic and item count growth Customers continue to focus on value offerings. And in Quebec, our discount position continues to grow. We converted 10 Provigo stores to Maxi in the quarter and we will convert another 10 stores in Q3. We continue to be very pleased with the sale growth Our market banners remain healthy despite the ongoing shift to discount stores. Having the right customer offer in all our stores remains a key focus. Speaker 200:06:28Right hand side posted a solid quarter with all It remains a drag on our same store sales performance to the 260 basis points in the quarter. We remain comfortable with our inventory levels. Online sales in the quarter increased 13.9%, reflecting the strength of our digital businesses As we lap our 1st post COVID quarter, growth was led by PCX delivery and online pharmacy. We continue to enhance Ourselves by offering more choice and flexibility. Retail gross margin was 31.1%, down 30 basis points compared to last year. Speaker 200:07:14The driving factor was higher shrink in drug where we also saw pressure from lower services revenue. In food, we control costs well investing our savings Across our retail segment, another quarter of careful cost management resulted in an improvement of 60 basis points in our SG and A rate as a percentage of sales. Adjusted Retail EBITDA increased by $142,000,000 or 9.8 percent in the quarter, yielding a margin of 11.8 percent, up 40 basis points compared to last year. PC Financial adjusted earnings before tax Declined by $22,000,000 largely a function of increased net credit losses and loss provisions and higher interest rates this year. The top line business performance remains in line with our expectations with revenue up $51,000,000 driven by higher interest income and an increase On a consolidated basis, adjusted EBITDA margin was 11.9% in the quarter, up 20 basis points compared to last year. Speaker 200:08:17Our retail free cash flow was $600,000,000 in Q2, reflecting higher CapEx spend and lapping one time tax recoveries from last year. In the quarter, we repurchased $500,000,000 worth of common shares. Looking ahead, our second half same store sales will reflect comparisons against our very strong Sales performance last year in both food and drug. At the bank, we expect continued revenue growth from the growth in our portfolio and we expect to see ongoing pressure on credit Loss provisions given current economic forecast. However, we remain confident in our ability to deliver our full year outlook. Speaker 200:08:53I will now turn the call over to Galen. Speaker 300:08:56Thank you, Richard, and good morning. I was pleased with another quarter of consistent performance. The business charted strong core results, Providing continued confidence that we are delivering retail excellence and serving our customers well. In our drug business, we returned to a more normal growth rate. Decline nationwide, we are increasing our range of patient care. Speaker 300:09:24In fact, it feels like every month another province moves to expand and fund Services that pharmacists can provide to plug growing gaps in primary care systems. Just this morning, New Brunswick announced First, 6 Pharmacy Primary Care Clinics following an innovative recent rollout of 26 in Nova Scotia. Yesterday in Ontario, we unveiled 2 pharmacy sites redesigned to provide more clinical services and a better patient experience. We'll invest in a total of 72 of these clinics this year, another step towards the pharmacy of the future and our journey to improving Canadians access to primary care. In our food business, market stores continue to perform well, Lifted in part by the customer response to our President's Choice summer product lineup, including new customer favorites like frozen mochi and ubeit boba pie. Speaker 300:10:17The ongoing shift to discount continued to pick up steam driving high growth in our stores. Our hard discount locations have never been busier with our highest ever customer counts, Double digit growth and No Frills was recently named the most trusted store for low prices. And we'll add 25 more to the network this year. As customers focus on value, sales in our Private Brands continue to outpace National Brands, Delivering an average savings as high as 25 percent and more Canadians are turning to PC Optimum points to fill their carts with redemption rates climbing. We were delighted to see a recent survey that said Canadians are paying more attention to loyalty programs and that PC Optimum is by far their favorite, Used an incredible 9 out of 10 times. Speaker 300:11:05As has been the case since this period of inflation began climbing, our food gross margins declined. The business was highly efficient in the quarter and we invested those savings in promotions. And once again our product costs increased more than our prices. Despite Canada having one of the lowest food inflation rates in the world, We continue to face historic cost increases. As our business moves forward, so do our efforts to manage our impact on the environment. Speaker 300:11:35It was a busy quarter in this regard. Shortly after our first electric truck hit the road, we announced that 5 hydrogen fuel cell electric trucks will join the fleet, Allowing 0 emission deliveries. And we announced that electricity purchased for Alberta Supermarkets, drugstores, offices and distribution centers will soon come entirely from wind, sun and water. The impact will be the equivalent of taking all the homes in a city the size of Lethbridge off the grid and will cut our national carbon footprint by 17%. We continue to execute well against our business plans and our purpose of helping Canadians live life well. Speaker 300:12:13I'll now open the call for questions. Speaker 100:12:16Thank you, Galen. Michelle, if you'd please introduce the Q and A process. Operator00:12:21Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from George Doumet, Scotiabank. Please go ahead. Speaker 400:12:55Yes. Good morning. Thanks for taking my questions. Richard, I believe last call you mentioned a 6 point 6% Q1 exit in food same store sales. Just wondering if you can talk to the trends that happened kind of intra quarter in Q2. Speaker 400:13:09Was it stable? How was the exit? Any general comments you can have on the market share for the banner market banners? Speaker 200:13:17Yes. So you're right. That's what we sort of guided towards. I think the key perspective to take into consideration as you look at our sales trajectory in Correct in dollars and that has continued, okay. And that's what generated a 6% same store performance in Q2. Speaker 200:13:35But you need to take into consideration then that last year Q3 in food It was 7% same store sales and Q4 was 8%. Okay, so we're going to be cycling that versus like this quarter we cycled 1%. So while sales trajectory will continue, we're going to be cycling against those figures. So you're going to see same store sales drop because of that, But that doesn't mean our sales are dropping. And you're going to see the same for drug. Speaker 200:14:06Drug has been 6% this quarter. It was 6% last year. But if you look at Q3 and Q4 of last year, Q3 was 8% same store sale and Q4 was 9%. So we're going to be facing into that as we go forward, but like this is part of our plan and so and we still remain Very good regarding our outlook. Speaker 400:14:30Okay. And just market share comments you have made for the market banners? Speaker 200:14:35Yes, market share like a positive trajectory in the quarter and that's what I'd say. Speaker 400:14:43Okay. And can you talk a little bit to shrink what areas of the business it's the most prevalent in? What impact that had on gross margins? Maybe what we're doing to fix it? And just how confident you are in kind of maintaining the gross margins flat, I guess, for Speaker 500:14:56the year Speaker 200:14:57and the year? Yes. It's a very good question. I think that's everybody's This morning. So yes, gross margin is down 30 basis points, okay. Speaker 200:15:06In food, it's a combination of Shrink but also of what we call trading margins, okay, being the fact that our costs have gone up a little bit more than our price. In Shrink, it's essentially all shrink, Okay. So we've been talking about shrink for a few quarters now. I think the key point on shrink is that we've been investing Capital and labor in store for close to a year now. And our view right now, it's early though, is we see it We've got indicators that are telling us that it is peaking and in certain instances getting a little bit better. Speaker 200:15:44But we will comment on that in the next quarter because we're going to be recounting significant number of stores in this quarter. So we'll be able to affirm this with confidence when we release Q3 and it's important for us as we plan for 2024. So I don't know if that's helpful. Other than that, we feel good about our gross margin performance going forward. Speaker 400:16:09Okay. Thanks for that. Just one last one, if I may. One of your competitors observed that promotional penetrations exceeding pre pandemic levels. Just wondering How do you guys see that and perhaps any commentary you can share to that? Speaker 400:16:22Thanks. Speaker 300:16:23Yes. We have I commented on pre pandemic promotional penetration. What we realized also in our own approach to our business, we took out a lot of Inefficient promotions as you'll remember in 2020. So we're pretty much at what we call a normalized level of promotional penetration At the moment, and so we're not going to comment too much on that in the future. Just think about us being back there now. Speaker 400:16:52Okay. Thanks for your comments. Operator00:16:57Thank you. The next question comes from Irene Mattel of RBC Capital Markets, please go ahead. Speaker 600:17:05Thanks and good morning everyone. I guess what we're all struggling with is the interplay between The tougher comps a year ago, so slowing same store sales, but also your ability to get some margin Catch up, which was so challenging when we were facing that almost double digit inflation. So can you talk through a little bit some of the puts and takes there and How we should be thinking about that? Speaker 200:17:31Okay, Irene, good question. I think for us like we've been focused on stability of gross margin And we still feel we're stable, like down 30 basis points for us. We're in the zone. But what we spend most time focused on is the growth rate Of our SG and A, okay? Because if we can manage our SG and A growth rate as a percentage versus the year before, that's what will Allow us to land on our financial framework. Speaker 200:17:58And if you look at the performance we've had so far this year and if I look ahead for the second half, I feel good about my And so therefore, that gives us confidence in our ability to deliver on our plan. Speaker 600:18:13That's really helpful. Thank you. And how should we be thinking also about the interplay between the consumer Trade down activity, promotional intensity, like where does that all kind of shake out in terms of gross margin? Is it a tailwind? Is it a headwind? Speaker 600:18:30How does all that come together? Speaker 200:18:32It's noise at the margin, obviously, because we have 2 large businesses on So I like a big conventional business, a big discount business, okay. So obviously discount is a lower gross margin rate than market, but like the and The growth in discount like is markedly higher, like same store sale and discount is markedly higher than market. So you're seeing that at play, But more sales get more dollars. So it's like for us, like we're managing on a consolidated basis and when we look at it On a consolidated what we lose from 1, we get from the other. And so that's what we've experienced so far and that's what we expect going forward also. Speaker 600:19:14So Richard, what I'm hearing you say is that we should be slightly less focused on the gross margin sort of Change 30 basis points up, 20 basis points down, whatever it is and focus on the growth and the gross margin dollars relative to the top line Yes. Yes, both. Speaker 200:19:33Yes, Irene, but we also look at both. We also look at both and There has been a significant effort on shrink that started a year ago because we were starting to see it creep up, Okay. And it was not much noticeable. Now it's noticeable, so we talk about it, but we've taken actions a year ago and we're starting To see the benefits from that, we're not done in our actions. And but so with that plateauing And with what we see ahead, together that allows us to feel decent about our performance for the second half. Speaker 200:20:10And By the way, we're thinking about that as we're planning for 2024. So we're already well advanced in our planning cycle for 2024 and all of these factors are in play as we prepare for next year. Speaker 600:20:24That's great. Thank you. And finally, just one last question. You brought back a fair amount of stock in Q2. How should we be thinking about the aggregate CIB as we look in 2023? Speaker 200:20:38Yes. I mean, if you look at it and you compare it to last year, we're more or less at the same place. I think We're ahead by, I don't know, maybe $50,000,000 So for us, like we're on plan. Speaker 600:20:48That's great. Thank you. Operator00:20:53Thank you. The next question comes from Mark Petrie of CIBC. Please go ahead. Speaker 700:21:00Yes, thanks. Good morning. I wanted to just follow-up on a couple of topics. First, the Shoppers, I know you spoke about Shrink, you're no longer calling it out, Shoppers overall as a margin tailwind. How much of that would you say is its own performance? Speaker 700:21:16And how much is just that the growth rate is now normalizing and no longer materially exceeding the food growth? Speaker 200:21:25If you were to exclude shrink, gross margin in Shoppers would have been up in the quarter. So it was a factor. That's an area where we spent a lot of efforts Like if you go in stores, you'll see what we refer to as fragrance lockups. That's where the professional teams have been focused on. So We've locked up many of these fragrances and you're going to see more of those over the coming months. Speaker 200:21:55And those are high priced items, which When they go, it hurts the bottom line. So as we put that behind, it will definitely help shrink. And interestingly, We're not losing sales. So that was a big fear as we were locking up fragrances that we'd be losing sales, but we're not losing sales. So that's going to start to yield benefits over the coming months. Speaker 700:22:21Yes. Okay, helpful. On the pharmacy services, Galen, I know you talked about it in your comments. But I'm just Sort of curious, you're lapping some of the big COVID driven services, but also expanding these clinics. So where are we at In terms of the progression of that, in terms of headwind versus tailwind, obviously, it's a headwind right now, but is it More of a headwind now than it was a couple of quarters ago or and when does that sort of normalize do you think? Speaker 300:22:56Yeah. So it is a headwind entirely because we're cycling those extraordinary COVID Vaccination and COVID test numbers. And so we really focus on what's happening with the underlying growth rate of The others expanded scope of practice services and we see very encouraging growth trajectories underneath it all. And so it will take until we've cycled through the last of that COVID period before we see call it Meaningful growth in the business on an absolute basis. And remember the way to think about our expanded scope of practice Initiative which includes the pharmacy led clinics and the expanded scope of practice across all these provinces. Speaker 300:23:47Think about it as a fast growing accretive contributor to the business That will drive or will help us drive our financial framework. It's not going to deliver a Step change in growth in sales or in profitability, but it will give us that long term tailwind that will allow us to continue to perform As we have for the last number of years in that business. Speaker 700:24:16Yes, understood. And just maybe just to follow-up on that. Are these pharmacy care clinics like how do the economics on these sort of stack up versus other Investment opportunities in the store network, and I'm sort of thinking of just regular store renovations or new stores. What are the paybacks look like for those care clinics? Speaker 300:24:42So it depends. There's a pharmacist Lead clinic inside a pharmacy and that has a very high payback relative What you would consider to say a new store, think about it as an incremental renovation with Meaningful sales upside, so that would be superior to the sort of regular return rate. And then you have the standalones which are far less in number than the in stores And they have slight what I'd describe as slightly pressured core returns Until you add the pharmacy prescription on top of it, which has always been a major amplifier For any investment that we've made in medical clinics and then it delivers a very healthy return that would be in line with or above Return rates we get for Shoppers Drug, Mark. Speaker 200:25:47Yes, Mark, just to give you some order, like we've built 2 of these and it's our first two. So We didn't spend much time focused on the return, but like we're talking a few $100,000 This is not 1,000,000 of dollars. And I can tell you the first two, I'm sure they will look amazing because they want to make it look good for us. But The next ones that are coming once we know that the concept is working, we're going to tighten the screws on the cost, but it's not a big cost. So it's not something that you should worry about from a big CapEx standpoint. Speaker 700:26:29Yes, understood. Appreciate the comments. All the best. Operator00:26:35Thank you. The next question comes from Tamy Chen of BMO Capital Markets. Please go ahead. Speaker 800:26:43Yes, thanks for the questions. First, wanted to go back to the SG and A. Richard, could you maybe elaborate a little bit more on this quarter in particular, you were able to get Pretty good leverage. What were some of the areas that this came from? And how should we think about that going forward when it seems like Right on the gross margin side, whether it's shoppers or also the food side, there's limitations to which you can pass through your costs? Speaker 200:27:11Yes. So obviously, when your top line goes up 7%, it's definitely helping your SG and A rate, okay? So but that's not typical of the growth we get normally in our business. So we don't look at it as a percentage of sales. We look at it as a percentage And if you want to drive operating leverage, you need to have your SG and A grow at the lower rate than your top line. Speaker 200:27:36So that's what we're focused on and we've laid out plans that allow us to deliver on that. And our plans for 2023 are quite robust. And based on what we see coming ahead, that gives us confidence that we should be able to deliver on our framework. And as I was mentioning earlier, Right now, we're working on 2024 and we're adopting the same approach. We need to make sure that the growth in our SG and A in dollars Doesn't grow too fast because then we won't be able to deliver on 2024. Speaker 200:28:08So we're taking actions now to make sure that this happens and that's Again in 2024, we should be able to continue to deliver on our framework. So the plan is laid out. It's not like we're going to take more Like we have our plan laid out and if we just deliver on our plan, we should deliver on our framework. Speaker 800:28:29Okay. And Within that, I'm curious specifically on the whole labor and wage environment. I think last quarter, you Over the last few months, we're at the higher end of the normal range. And I'm just wanting to understand If you think at this point, there might be still some incremental catch up for you and your labor costs With respect to broader market wage inflation that we've seen over the last 2 or so years, or are you largely through that? Speaker 200:29:02So we know always what's coming, okay. Like we know when negotiations happen and so we budget that in our plan as like everything else. And so we budgeted what's to come. As we've answered that question, Galen has answered that question a few times recently and we talk about like we've been in Higher end of the range, but it's at the higher end of a range that we're planning for. So that's how we're thinking about it. Speaker 200:29:28And right now, based on what we see, we should be In our plans on what we see ahead. And to Speaker 300:29:35your question about catch up, no, we don't have any Substantial catch up issues that we're facing. Think about them more as normal course negotiations and then the thing that we Try and be careful of is locking in growth rates that would not be in line with a long term inflation rate. So That's where we try and land these agreements. Speaker 800:30:02Okay. Thank you. Operator00:30:08Thank you. The next question comes from Michael Van Aelst of TD Securities. Please go ahead. Speaker 900:30:16Thank you. You mentioned about the some of the costs coming down or vendor costs coming down, but not necessarily Showing up in the cost of goods sold yet. Can you talk about what give us some insight as to what some of the pushback is from vendors as to why they aren't pushing it down Why they're still trying to push through price increases? Speaker 300:30:37Yeah, so I mean a couple of things. First of all, We're seeing meaningful shifts in a whole line of commodities that are core ingredients in these products And so that's why we expect products that are heavy in these ingredients to start to Slow and ultimately turn the other way. You'll have to ask the packaged goods manufacturers what their perspective is On why they're not bringing retail prices down. They have a litany of explanations for us, but the fundamentals If the cost of the inputs are starting to slow and reverse, then ultimately we should see some component of that Show up in cost increases and look we operate as you know we source a lot of Control Brand product And so we have pretty good visibility into how this should evolve. Having said that, I don't think It's reasonable to expect an aggressive reversion or a shift into a deflationary environment. Speaker 300:31:53The reductions that we're seeing in commodities are moderate. They're notable, meaningful, but It's not at this point headed towards a cost reversal. Speaker 900:32:05All right. On your private label sourcing, is that cost plus? Speaker 300:32:10No, it's negotiated differently depending on the vendor. Speaker 900:32:16So does that mean you're not necessarily getting Cost reductions from your private on your private label either? Speaker 300:32:23No, all I'm saying is that we negotiate them on a case by case basis And we are seeing reductions in some cases with a couple of national brands and with Control brand vendors as well. Speaker 900:32:37Okay. Because I'm trying to see how the cost environment is influencing your private label Penetration, it seems like it's still growing. I'm wondering how close you think we are to peak levels in private label. And then I know in the past you've talked about CPG companies are eventually going to try to push back and get some volume back, but it seems like it's tough for them to do if they're Still taking double digit increases. So, where do you see private label penetration peaking out, I guess, How soon and what are you expecting over the next year, let's call it? Speaker 300:33:17Yes, you're right. We have talked about this a few times You know that we would expect again the larger brands to start investing to drive volume and we're seeing some Signs of it, but it's emerging more slowly than probably we expected earlier in the year And that's benefiting our Control Brands. And so today our Control Brands are still growing faster than National Brands. And we do think that that will rebalance At some point in the relatively near future, but that really is up to the big brands to determine when and how. Speaker 900:33:58Okay. And can you just comment whether you're holding on to your margins in private label or are you seeing any erosion there? Speaker 300:34:07No, we're holding on to our margins. Speaker 200:34:09Yes, we are. And I think on Control Brand, I think Galen made the point like we're still growing faster than National Brand. Because of the environment we're in, if you actually go one level down and you look at no name versus PC, no name is still growing like high double digit. So So in today's environment, we expect that to continue just because of the nature of what we're in right now. Speaker 900:34:33Okay. All right. And then just on the tonnage, I know people like to try and for tonnage out of your inflation and your same store sales, but what are you seeing And your tonnage numbers and how do they what do you believe is happening with your market share? Speaker 200:34:52So I can take Tanuj Leur like to give you a sense of Tanuj Leur like it's clearly positive in discount. It's somewhat negative and conventional. Net net low it's about flat, okay? So that's where we are right now which is a significant improvement from where we were at the So but you're now clearly seeing discount being positive territory and it's been the case For a few quarters now. So that should help you figure out how we're doing on share. Speaker 200:35:25We feel We're progressing on share. And so, yes, so that's where we stand right now. Speaker 900:35:35All right. Thank you. Operator00:35:40Thank you. The next question comes from Vishal Shreedhar of National Bank. Please go ahead. Speaker 500:35:48Hi. I was hoping you could update us on some of your adjacent value drivers like Trade as a Service and Media, I know you've saw some screens in your stores and maybe where those businesses are and How much do you think they can grow in the near term? Speaker 300:36:08Yes. So they're all progressing nicely. We don't have a Frame for you, Vishal, so 3rd party transport, it's a meaningful contributor Now in terms of its size and scale, we're investing a little bit of capital in it to continue that growth trajectory and remain optimistic About its potential, media is much smaller. As we mentioned last quarter, we've just completed well, last quarter we completed A big infrastructure, technical infrastructure project which we call RMP which is essentially the tool that allows Advertisers, easier access to our customer audiences and to advertise with us and we're getting really terrific responses back from From the industry in regards to that tool, we're delivering on all our financial targets in relation To media now, but it remains small and it's yet to sort of ramp up At a level where we would be relevant to comment to you on its size and scope. But with both of these, Just keep in mind that our goal is to use these adjacencies to drive that long term financial framework. Speaker 300:37:32In the same way that pharmacy services are going to do that, that's what transport helps us do, that's what media helps us do. So you need to look at it as all enablers of us delivering that long term growth rate rather than any of them Contributing to an outsize or step up in terms of earnings growth. Does that make sense? Speaker 500:37:57Thank you for that color. Just changing topics here on Life Mart. How is the integration progressing? And how should we think about Loblaw's appetite for further acquisitions and what kind of sphere should we think I think of them being in, if that in fact being contemplated. Speaker 300:38:18Yes. So start with Primary Care Delivery, which is the foundation of our sort of adjacent to pharmacy healthcare strategy And that is driven by pharmacists in the manner that we've discussed on this call over the last few minutes. And then think about another adjacency Which is other forms of care delivery that would be complementary to that experience. That's where Lifemark sits And that was the driver behind that acquisition. It has good economics and that it's accretive, it has a good market tailwind. Speaker 300:38:59So It should grow on its own at a sales rate that is higher than the rest of our core business. On a standalone basis, Its long term capacity to contribute is accretive and attractive. But the reason that we bought it was because we thought that we could grow that business faster than others by linking it to our Existing healthcare customer in a more integrated way. That's really the prize. And I would say that we are making steady Progress testing that thesis and the value of that integration and we'll continue to report on progress. Speaker 300:39:46But we're not going to make any more material acquisitions in adjacent healthcare delivery spaces until we are absolutely certain You know that we are a good owner for these kinds of assets, that there's a synergy within the enterprise from owning them. So we still got work to do to convince ourselves that that is in fact the case and you won't see any Incremental M and A until we're certain that it is. Speaker 500:40:15Okay. And maybe a last one for me, just on the population growth and The disparate levels of growth across the country, are you seeing the impact of that as you look at your business and saying, hey, these regions are benefiting more from Population growth and we're seeing that in our stores, there'll be some less so. And so maybe some areas are more competitive or less growth as a result? Speaker 300:40:39Yes, I mean we see it every day. The changing demographics in markets all across the Country, you see demographic shifts, you see cultural shifts. There are markets where customers are Where Canadians are moving to small towns and there are small towns on the periphery of big cities that are growing faster today than they were At any point in the last 20 years that constitutes a new opportunity perhaps for an incremental store. You've heard us talk about TNT and the extraordinary success that we continue To experience when we open new TNT stores almost anywhere in the country that is a reflection of immigration and the heavy weighting of Asian immigrants coming into the country. We've been refining our no frills business To better serve the South Asian customer and we've seen fantastic results coming from our work on that front. Speaker 300:41:48And then there's the other tailwind which is you want to add square footage that's in line with accelerating population growth and As you've heard Richard describe on a number of occasions, we are continuing to build our pipeline of new stores So that we can meet that demand and make sure that we're getting our fair share of the population growth in the country. So It's a big and important driver and it's one of the reasons to have long term optimism about Loblaw, You know is that population growth tailwind and knowing that everybody needs to eat and that we have formats that meet effectively Operator00:42:40Thank you. The next question comes from Chris Lee of Desjardins. Please go ahead. Speaker 500:42:53Hi, good morning. Maybe I'll just start off with a couple of quick Clarification questions. Richard, in the beginning, I think you mentioned that you expect food sales to drop in the second half because of tough I just want to clarify, I think you meant sales growth to maybe moderate and not necessary decline Speaker 200:43:14I did not say sales are going to drop. Speaker 300:43:16You did. Okay. But you meant, yes. Just the growth rate Speaker 100:43:20is going to slow. It's going Speaker 200:43:21to slow. Yes, Sorry, yes, yes, yes. You're not going to see the same store sales because we're going to be cycling higher comp, but Okay. Correction, mate. Thanks, guys. Speaker 500:43:33Okay. Sorry. I just want to make sure. Okay. That's great. Speaker 500:43:36And then just on the shrink, and again, just wanted to clarify. So The strength you saw in drug is predominantly because of theft in the beauty category. And so you have put measure in place, so that should Correct, so in due time. And on the food side, I just want to clarify what's driving that is because of The new store growth and being more precise with inventory count, is that what's been causing higher shrink on the food side? Speaker 200:44:03No, it's still organized crime and grocery also, albeit not at the same As we witness in choppers Speaker 500:44:15as a rate. Okay. So in both instances makes mainly That's causing that higher shrink? Speaker 200:44:22Yes. Speaker 500:44:24Okay. That's great. And then just on e commerce, are you seeing any notable increase In adoption either at Loblaw or the industry or has the adoption remained largely stagnant because of high inflation And the shift to discount. Speaker 300:44:40Yes, so you saw that our numbers I think were up 13% in terms of overall e commerce Volume, it's important to note that a disproportionate part of that is the pharmacy business. So Digital pharmacy prescription digital prescription filling. And so I'll just focus on PC Express as a good proxy for See for these sort of consumer product online adoption. So that's in and around flat. It's kind of the way to think about it, maybe a little bit better than that With substantial growth on the delivery side of the equation and a little bit of decline On the pickup side and that's blended out and you get essentially to flat. Speaker 300:45:28And We are still waiting to see what the normalized post COVID growth rate is for e commerce, But it's certainly not going backwards and we expect it to continue to grow as we look forward. A couple of interesting updates I can provide between last quarter and now we launched the PC Pass, which is Our subscription product for PC Express for pickup and delivery, we've seen fantastic adoption of that product. It's now up to about 10% of the total sales in PC Express. And then of course, we continue to work away On improving the overall value proposition and I'm delighted to say we're at all time highs in terms of our service levels and our fill rates For our customers, so the service just gets better and better and we continue to have high conviction that that is A really valuable service for our best customers, and that it will continue to grow. Okay. Speaker 500:46:34That's super helpful. I was going to ask you, one of your large discounting competitors recently launched a subscription program for e commerce and You guys obviously have a strong one as well. And I was just going to ask, among the many tools that Loblaw has at your disposal, how effective is the subscription program To retaining customers, I think you just sort of answered my question there. Speaker 300:46:57Yes, it's really been quite powerful. And probably the most encouraging insight is that we've acquired many more new customers with the subscription service than we expected. We thought As you would that it would be primarily a retention tool and it is serving that function but it's also been a way for us to acquire new Speaker 500:47:22That's great. And then maybe finally, I know I act this almost every quarter, but just any new updates on Any potential changes in generic drop prices? Speaker 300:47:33No updates on that. I think We've actually got some certainty with the I can't remember now what the organization is called. I think we have clarity on generics and branded for the next Couple of years. We'll follow-up with you to make sure I'm giving you the right insight on that. But no, nothing on the horizon That would constitute a meaningful risk. Speaker 500:47:57That's great. Thanks very much. Operator00:48:02Thank you. The next question comes from Irene Nattel of RBC Capital Markets. Please go ahead. Speaker 600:48:09Thanks. Just one follow-up question, if I might, on Shoppers and Beauty. What are you seeing now in terms of demand run rates? And as consumer wallets are being squeezed, are you seeing any pressure there? How successful are the promotions that you're running using PC To mom, that cut for Beauty specifically. Speaker 300:48:30Yes, Beauty continues to be robust And I think there's 2 forces at work. The first one is Beauty on the kind of the luxury spectrum of Spend on myself, it's actually relatively low priced. So the alternative of buying a high end cosmetic product or fragrant versus Buying an expensive handbag or a dress. And so it tends to be a lot more recession proof Then perhaps other categories and we are certainly seeing that continue in our business. The second one which is important to remember is we've had a big retailer exit the market In Nordstrom's in recent months and that volume, they were big beauty retailer and volume needs to Back out into the market and we would be a disproportionate beneficiary of that in the local geographies where we would be Competing with them. Speaker 300:49:34So that's also helpful for a business like ours. Speaker 600:49:40That's great. So the lipstick index Speaker 300:49:44Yes. Operator00:49:46Thanks, Galen. Thank you. There are no further questions at this time. Please continue with closing remarks. Speaker 100:49:58Great. Well, thank you everybody for your time this morning. Please reach out to me if And I'll ask you to mark your calendars for Wednesday, November 15 at 10 am when we will reconvene to discuss our Q3 results. Thanks everybody and have a great day. Operator00:50:18Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallLoblaw Companies Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckInterim report Loblaw Companies Earnings HeadlinesOption-related insider selling at Loblaw Companies (L)May 7 at 12:37 AM | theglobeandmail.comResearch Analysts Issue Forecasts for TSE:L Q3 EarningsMay 6 at 2:11 AM | americanbankingnews.comBuffett’s favorite chart just hit 209% – here’s what that means for goldA Historic Gold Announcement Is About to Rock Wall Street For months, sharp-eyed analysts have watched the quiet buildup behind the scenes. Now, in just days, the floodgates are set to open. The greatest investor of all time is about to validate what Garrett Goggin has been saying for months: Gold is entering a once-in-a-generation mania. Front-running Buffett has never been more urgent — and four tiny miners could be your ticket to 100X gains.May 7, 2025 | Golden Portfolio (Ad)Loblaw Companies (TSE:L) Price Target Raised to C$253.00May 4 at 2:47 AM | americanbankingnews.comLoblaw Companies (TSE:L) Price Target Raised to C$234.00May 4 at 2:47 AM | americanbankingnews.comLoblaw Companies (TSE:L) Price Target Raised to C$245.00May 4 at 2:47 AM | americanbankingnews.comSee More Loblaw Companies Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Loblaw Companies? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Loblaw Companies and other key companies, straight to your email. 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. The firm's controlling shareholder is George Weston Limited, which owns 52.6% of the equity.View Loblaw Companies 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 ARM (5/7/2025)AppLovin (5/7/2025)Fortinet (5/7/2025)MercadoLibre (5/7/2025)Cencora (5/7/2025)Carvana (5/7/2025)Walt Disney (5/7/2025)Emerson Electric (5/7/2025)Johnson Controls International (5/7/2025)Lloyds Banking Group (5/7/2025) 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 10 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen, and welcome to the Loblaw Companies Limited Second Quarter 2023 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, July 26, 2023. I would now like to turn the conference over to Roy McDonald. Operator00:00:28Please go ahead. Speaker 100:00:31Thank you, Michelle. Good morning, everybody. Welcome to the Loblaw Limited's Q2 2023 results call. As always, I'm joined this morning In the room with Galen Weston, our Chairman and President and with Richard Dufresne, our Chief Financial Officer. And before we begin the call, I want to remind you that today's discussion will include forward looking statements, which may include, but are not limited With respect to Lovela's anticipated future results. Speaker 100:01:02These statements are based on assumptions and reflect management's current expectations And as such, are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations. These risks and uncertainties are discussed in the company's materials filed with the Canadian Securities Regulators this morning. Any forward looking statements speak only as of the date they are made. The company disclaims any intention or obligation to update or revise any forward looking statements whether as a result of new information, future results 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 measure. Speaker 100:01:59And with that, I will turn the call over to Richard. Speaker 200:02:02Thank you, Roy, and good morning, everyone. I'm pleased to report that we continue to deliver consistent Carefully managing our expenses, all part of retail excellence. On a consolidated basis, revenue grew by 6.9% and EBITDA increased by 9.4%. Adjusted earnings per share grew by 14.8 percent to $1.94 a share. On a GAAP basis, our earnings per share reflected a 36% increase. Speaker 200:02:39This was unusually high as we lapped A $100,000,000 one time charge last year specifically related to PC Bank. In Drug Retail, absolute sales increased 7.4% And same store sales grew 5.7%. Front store same store sales grew by 5% on continued strength in cosmetics and health and beauty. OTC performance remains strong, but off its peak levels. Similarly, growth in our drug business has moderated as it lapsed Last year's post pandemic reopening. Speaker 200:03:13Pharmacy same store sales grew 6.3% driven by growth in acute and chronic scripts, partially offset by lower COVID vaccines and testing. At the same time, we're pleased with the growth of services related to expanded scope of practice. In Food Retail, absolute sales increased 6.4% and same store sales grew 6.1%. In Q2, our internal food inflation number was generally in line with the CPI. However, shoppers in our grocery stores actually beat inflation by taking advantage of our pricing, private brand And hard discount stores. Speaker 200:03:48That means that our Loblaw shoppers experienced a lower rate of inflation than CPI. As we battle inflation, we remain highly concerned about ongoing cost increases and I wanted to offer some facts. This year, suppliers have raised the price we pay for products by more than $1,000,000,000 This is double what we would expect normally. We have received double digit increases from the same suppliers who gave us double digit increases last year. That's why you see products that are no More expensive than they were just a couple of years ago. Speaker 200:04:23While cost increases are coming in from all peers of our supplier base, the largest global Let me give you an example. Since inflation began, one of our largest vendors A submitted price increase is totaling 50% or $250,000,000 That's just one supplier. Here's another good illustration. In Q2, the average price for meat, fruit and vegetable purchased in our stores were up in the mid single digits, but The average purchase in the center of store where you find the biggest brands was up in the double digits. At the same time, our food profit margins have declined as our costs have grown faster than our prices. Speaker 200:05:07The math is very simple. Cost increases from big brands were well above Canada's food inflation and our food margin declined. Suggesting of grosser profit hearing just don't add up. Food inflation is a global problem. The causes range from climate change to war. Speaker 200:05:24We know that some cost increases are justified, but many are not. The price of transportation, wheat, flour, paper and plastic All well off 2022 highs. Our teams are actively reaching out to our largest suppliers pressing for cost decreases based on these facts. With lowered cost, we will lower prices. Returning to our performance, our ability to deliver value was reflected across our Food business. Speaker 200:05:51Our hard discount banners continue to outperform the overall discount channel, delivering strong traffic and item count growth Customers continue to focus on value offerings. And in Quebec, our discount position continues to grow. We converted 10 Provigo stores to Maxi in the quarter and we will convert another 10 stores in Q3. We continue to be very pleased with the sale growth Our market banners remain healthy despite the ongoing shift to discount stores. Having the right customer offer in all our stores remains a key focus. Speaker 200:06:28Right hand side posted a solid quarter with all It remains a drag on our same store sales performance to the 260 basis points in the quarter. We remain comfortable with our inventory levels. Online sales in the quarter increased 13.9%, reflecting the strength of our digital businesses As we lap our 1st post COVID quarter, growth was led by PCX delivery and online pharmacy. We continue to enhance Ourselves by offering more choice and flexibility. Retail gross margin was 31.1%, down 30 basis points compared to last year. Speaker 200:07:14The driving factor was higher shrink in drug where we also saw pressure from lower services revenue. In food, we control costs well investing our savings Across our retail segment, another quarter of careful cost management resulted in an improvement of 60 basis points in our SG and A rate as a percentage of sales. Adjusted Retail EBITDA increased by $142,000,000 or 9.8 percent in the quarter, yielding a margin of 11.8 percent, up 40 basis points compared to last year. PC Financial adjusted earnings before tax Declined by $22,000,000 largely a function of increased net credit losses and loss provisions and higher interest rates this year. The top line business performance remains in line with our expectations with revenue up $51,000,000 driven by higher interest income and an increase On a consolidated basis, adjusted EBITDA margin was 11.9% in the quarter, up 20 basis points compared to last year. Speaker 200:08:17Our retail free cash flow was $600,000,000 in Q2, reflecting higher CapEx spend and lapping one time tax recoveries from last year. In the quarter, we repurchased $500,000,000 worth of common shares. Looking ahead, our second half same store sales will reflect comparisons against our very strong Sales performance last year in both food and drug. At the bank, we expect continued revenue growth from the growth in our portfolio and we expect to see ongoing pressure on credit Loss provisions given current economic forecast. However, we remain confident in our ability to deliver our full year outlook. Speaker 200:08:53I will now turn the call over to Galen. Speaker 300:08:56Thank you, Richard, and good morning. I was pleased with another quarter of consistent performance. The business charted strong core results, Providing continued confidence that we are delivering retail excellence and serving our customers well. In our drug business, we returned to a more normal growth rate. Decline nationwide, we are increasing our range of patient care. Speaker 300:09:24In fact, it feels like every month another province moves to expand and fund Services that pharmacists can provide to plug growing gaps in primary care systems. Just this morning, New Brunswick announced First, 6 Pharmacy Primary Care Clinics following an innovative recent rollout of 26 in Nova Scotia. Yesterday in Ontario, we unveiled 2 pharmacy sites redesigned to provide more clinical services and a better patient experience. We'll invest in a total of 72 of these clinics this year, another step towards the pharmacy of the future and our journey to improving Canadians access to primary care. In our food business, market stores continue to perform well, Lifted in part by the customer response to our President's Choice summer product lineup, including new customer favorites like frozen mochi and ubeit boba pie. Speaker 300:10:17The ongoing shift to discount continued to pick up steam driving high growth in our stores. Our hard discount locations have never been busier with our highest ever customer counts, Double digit growth and No Frills was recently named the most trusted store for low prices. And we'll add 25 more to the network this year. As customers focus on value, sales in our Private Brands continue to outpace National Brands, Delivering an average savings as high as 25 percent and more Canadians are turning to PC Optimum points to fill their carts with redemption rates climbing. We were delighted to see a recent survey that said Canadians are paying more attention to loyalty programs and that PC Optimum is by far their favorite, Used an incredible 9 out of 10 times. Speaker 300:11:05As has been the case since this period of inflation began climbing, our food gross margins declined. The business was highly efficient in the quarter and we invested those savings in promotions. And once again our product costs increased more than our prices. Despite Canada having one of the lowest food inflation rates in the world, We continue to face historic cost increases. As our business moves forward, so do our efforts to manage our impact on the environment. Speaker 300:11:35It was a busy quarter in this regard. Shortly after our first electric truck hit the road, we announced that 5 hydrogen fuel cell electric trucks will join the fleet, Allowing 0 emission deliveries. And we announced that electricity purchased for Alberta Supermarkets, drugstores, offices and distribution centers will soon come entirely from wind, sun and water. The impact will be the equivalent of taking all the homes in a city the size of Lethbridge off the grid and will cut our national carbon footprint by 17%. We continue to execute well against our business plans and our purpose of helping Canadians live life well. Speaker 300:12:13I'll now open the call for questions. Speaker 100:12:16Thank you, Galen. Michelle, if you'd please introduce the Q and A process. Operator00:12:21Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from George Doumet, Scotiabank. Please go ahead. Speaker 400:12:55Yes. Good morning. Thanks for taking my questions. Richard, I believe last call you mentioned a 6 point 6% Q1 exit in food same store sales. Just wondering if you can talk to the trends that happened kind of intra quarter in Q2. Speaker 400:13:09Was it stable? How was the exit? Any general comments you can have on the market share for the banner market banners? Speaker 200:13:17Yes. So you're right. That's what we sort of guided towards. I think the key perspective to take into consideration as you look at our sales trajectory in Correct in dollars and that has continued, okay. And that's what generated a 6% same store performance in Q2. Speaker 200:13:35But you need to take into consideration then that last year Q3 in food It was 7% same store sales and Q4 was 8%. Okay, so we're going to be cycling that versus like this quarter we cycled 1%. So while sales trajectory will continue, we're going to be cycling against those figures. So you're going to see same store sales drop because of that, But that doesn't mean our sales are dropping. And you're going to see the same for drug. Speaker 200:14:06Drug has been 6% this quarter. It was 6% last year. But if you look at Q3 and Q4 of last year, Q3 was 8% same store sale and Q4 was 9%. So we're going to be facing into that as we go forward, but like this is part of our plan and so and we still remain Very good regarding our outlook. Speaker 400:14:30Okay. And just market share comments you have made for the market banners? Speaker 200:14:35Yes, market share like a positive trajectory in the quarter and that's what I'd say. Speaker 400:14:43Okay. And can you talk a little bit to shrink what areas of the business it's the most prevalent in? What impact that had on gross margins? Maybe what we're doing to fix it? And just how confident you are in kind of maintaining the gross margins flat, I guess, for Speaker 500:14:56the year Speaker 200:14:57and the year? Yes. It's a very good question. I think that's everybody's This morning. So yes, gross margin is down 30 basis points, okay. Speaker 200:15:06In food, it's a combination of Shrink but also of what we call trading margins, okay, being the fact that our costs have gone up a little bit more than our price. In Shrink, it's essentially all shrink, Okay. So we've been talking about shrink for a few quarters now. I think the key point on shrink is that we've been investing Capital and labor in store for close to a year now. And our view right now, it's early though, is we see it We've got indicators that are telling us that it is peaking and in certain instances getting a little bit better. Speaker 200:15:44But we will comment on that in the next quarter because we're going to be recounting significant number of stores in this quarter. So we'll be able to affirm this with confidence when we release Q3 and it's important for us as we plan for 2024. So I don't know if that's helpful. Other than that, we feel good about our gross margin performance going forward. Speaker 400:16:09Okay. Thanks for that. Just one last one, if I may. One of your competitors observed that promotional penetrations exceeding pre pandemic levels. Just wondering How do you guys see that and perhaps any commentary you can share to that? Speaker 400:16:22Thanks. Speaker 300:16:23Yes. We have I commented on pre pandemic promotional penetration. What we realized also in our own approach to our business, we took out a lot of Inefficient promotions as you'll remember in 2020. So we're pretty much at what we call a normalized level of promotional penetration At the moment, and so we're not going to comment too much on that in the future. Just think about us being back there now. Speaker 400:16:52Okay. Thanks for your comments. Operator00:16:57Thank you. The next question comes from Irene Mattel of RBC Capital Markets, please go ahead. Speaker 600:17:05Thanks and good morning everyone. I guess what we're all struggling with is the interplay between The tougher comps a year ago, so slowing same store sales, but also your ability to get some margin Catch up, which was so challenging when we were facing that almost double digit inflation. So can you talk through a little bit some of the puts and takes there and How we should be thinking about that? Speaker 200:17:31Okay, Irene, good question. I think for us like we've been focused on stability of gross margin And we still feel we're stable, like down 30 basis points for us. We're in the zone. But what we spend most time focused on is the growth rate Of our SG and A, okay? Because if we can manage our SG and A growth rate as a percentage versus the year before, that's what will Allow us to land on our financial framework. Speaker 200:17:58And if you look at the performance we've had so far this year and if I look ahead for the second half, I feel good about my And so therefore, that gives us confidence in our ability to deliver on our plan. Speaker 600:18:13That's really helpful. Thank you. And how should we be thinking also about the interplay between the consumer Trade down activity, promotional intensity, like where does that all kind of shake out in terms of gross margin? Is it a tailwind? Is it a headwind? Speaker 600:18:30How does all that come together? Speaker 200:18:32It's noise at the margin, obviously, because we have 2 large businesses on So I like a big conventional business, a big discount business, okay. So obviously discount is a lower gross margin rate than market, but like the and The growth in discount like is markedly higher, like same store sale and discount is markedly higher than market. So you're seeing that at play, But more sales get more dollars. So it's like for us, like we're managing on a consolidated basis and when we look at it On a consolidated what we lose from 1, we get from the other. And so that's what we've experienced so far and that's what we expect going forward also. Speaker 600:19:14So Richard, what I'm hearing you say is that we should be slightly less focused on the gross margin sort of Change 30 basis points up, 20 basis points down, whatever it is and focus on the growth and the gross margin dollars relative to the top line Yes. Yes, both. Speaker 200:19:33Yes, Irene, but we also look at both. We also look at both and There has been a significant effort on shrink that started a year ago because we were starting to see it creep up, Okay. And it was not much noticeable. Now it's noticeable, so we talk about it, but we've taken actions a year ago and we're starting To see the benefits from that, we're not done in our actions. And but so with that plateauing And with what we see ahead, together that allows us to feel decent about our performance for the second half. Speaker 200:20:10And By the way, we're thinking about that as we're planning for 2024. So we're already well advanced in our planning cycle for 2024 and all of these factors are in play as we prepare for next year. Speaker 600:20:24That's great. Thank you. And finally, just one last question. You brought back a fair amount of stock in Q2. How should we be thinking about the aggregate CIB as we look in 2023? Speaker 200:20:38Yes. I mean, if you look at it and you compare it to last year, we're more or less at the same place. I think We're ahead by, I don't know, maybe $50,000,000 So for us, like we're on plan. Speaker 600:20:48That's great. Thank you. Operator00:20:53Thank you. The next question comes from Mark Petrie of CIBC. Please go ahead. Speaker 700:21:00Yes, thanks. Good morning. I wanted to just follow-up on a couple of topics. First, the Shoppers, I know you spoke about Shrink, you're no longer calling it out, Shoppers overall as a margin tailwind. How much of that would you say is its own performance? Speaker 700:21:16And how much is just that the growth rate is now normalizing and no longer materially exceeding the food growth? Speaker 200:21:25If you were to exclude shrink, gross margin in Shoppers would have been up in the quarter. So it was a factor. That's an area where we spent a lot of efforts Like if you go in stores, you'll see what we refer to as fragrance lockups. That's where the professional teams have been focused on. So We've locked up many of these fragrances and you're going to see more of those over the coming months. Speaker 200:21:55And those are high priced items, which When they go, it hurts the bottom line. So as we put that behind, it will definitely help shrink. And interestingly, We're not losing sales. So that was a big fear as we were locking up fragrances that we'd be losing sales, but we're not losing sales. So that's going to start to yield benefits over the coming months. Speaker 700:22:21Yes. Okay, helpful. On the pharmacy services, Galen, I know you talked about it in your comments. But I'm just Sort of curious, you're lapping some of the big COVID driven services, but also expanding these clinics. So where are we at In terms of the progression of that, in terms of headwind versus tailwind, obviously, it's a headwind right now, but is it More of a headwind now than it was a couple of quarters ago or and when does that sort of normalize do you think? Speaker 300:22:56Yeah. So it is a headwind entirely because we're cycling those extraordinary COVID Vaccination and COVID test numbers. And so we really focus on what's happening with the underlying growth rate of The others expanded scope of practice services and we see very encouraging growth trajectories underneath it all. And so it will take until we've cycled through the last of that COVID period before we see call it Meaningful growth in the business on an absolute basis. And remember the way to think about our expanded scope of practice Initiative which includes the pharmacy led clinics and the expanded scope of practice across all these provinces. Speaker 300:23:47Think about it as a fast growing accretive contributor to the business That will drive or will help us drive our financial framework. It's not going to deliver a Step change in growth in sales or in profitability, but it will give us that long term tailwind that will allow us to continue to perform As we have for the last number of years in that business. Speaker 700:24:16Yes, understood. And just maybe just to follow-up on that. Are these pharmacy care clinics like how do the economics on these sort of stack up versus other Investment opportunities in the store network, and I'm sort of thinking of just regular store renovations or new stores. What are the paybacks look like for those care clinics? Speaker 300:24:42So it depends. There's a pharmacist Lead clinic inside a pharmacy and that has a very high payback relative What you would consider to say a new store, think about it as an incremental renovation with Meaningful sales upside, so that would be superior to the sort of regular return rate. And then you have the standalones which are far less in number than the in stores And they have slight what I'd describe as slightly pressured core returns Until you add the pharmacy prescription on top of it, which has always been a major amplifier For any investment that we've made in medical clinics and then it delivers a very healthy return that would be in line with or above Return rates we get for Shoppers Drug, Mark. Speaker 200:25:47Yes, Mark, just to give you some order, like we've built 2 of these and it's our first two. So We didn't spend much time focused on the return, but like we're talking a few $100,000 This is not 1,000,000 of dollars. And I can tell you the first two, I'm sure they will look amazing because they want to make it look good for us. But The next ones that are coming once we know that the concept is working, we're going to tighten the screws on the cost, but it's not a big cost. So it's not something that you should worry about from a big CapEx standpoint. Speaker 700:26:29Yes, understood. Appreciate the comments. All the best. Operator00:26:35Thank you. The next question comes from Tamy Chen of BMO Capital Markets. Please go ahead. Speaker 800:26:43Yes, thanks for the questions. First, wanted to go back to the SG and A. Richard, could you maybe elaborate a little bit more on this quarter in particular, you were able to get Pretty good leverage. What were some of the areas that this came from? And how should we think about that going forward when it seems like Right on the gross margin side, whether it's shoppers or also the food side, there's limitations to which you can pass through your costs? Speaker 200:27:11Yes. So obviously, when your top line goes up 7%, it's definitely helping your SG and A rate, okay? So but that's not typical of the growth we get normally in our business. So we don't look at it as a percentage of sales. We look at it as a percentage And if you want to drive operating leverage, you need to have your SG and A grow at the lower rate than your top line. Speaker 200:27:36So that's what we're focused on and we've laid out plans that allow us to deliver on that. And our plans for 2023 are quite robust. And based on what we see coming ahead, that gives us confidence that we should be able to deliver on our framework. And as I was mentioning earlier, Right now, we're working on 2024 and we're adopting the same approach. We need to make sure that the growth in our SG and A in dollars Doesn't grow too fast because then we won't be able to deliver on 2024. Speaker 200:28:08So we're taking actions now to make sure that this happens and that's Again in 2024, we should be able to continue to deliver on our framework. So the plan is laid out. It's not like we're going to take more Like we have our plan laid out and if we just deliver on our plan, we should deliver on our framework. Speaker 800:28:29Okay. And Within that, I'm curious specifically on the whole labor and wage environment. I think last quarter, you Over the last few months, we're at the higher end of the normal range. And I'm just wanting to understand If you think at this point, there might be still some incremental catch up for you and your labor costs With respect to broader market wage inflation that we've seen over the last 2 or so years, or are you largely through that? Speaker 200:29:02So we know always what's coming, okay. Like we know when negotiations happen and so we budget that in our plan as like everything else. And so we budgeted what's to come. As we've answered that question, Galen has answered that question a few times recently and we talk about like we've been in Higher end of the range, but it's at the higher end of a range that we're planning for. So that's how we're thinking about it. Speaker 200:29:28And right now, based on what we see, we should be In our plans on what we see ahead. And to Speaker 300:29:35your question about catch up, no, we don't have any Substantial catch up issues that we're facing. Think about them more as normal course negotiations and then the thing that we Try and be careful of is locking in growth rates that would not be in line with a long term inflation rate. So That's where we try and land these agreements. Speaker 800:30:02Okay. Thank you. Operator00:30:08Thank you. The next question comes from Michael Van Aelst of TD Securities. Please go ahead. Speaker 900:30:16Thank you. You mentioned about the some of the costs coming down or vendor costs coming down, but not necessarily Showing up in the cost of goods sold yet. Can you talk about what give us some insight as to what some of the pushback is from vendors as to why they aren't pushing it down Why they're still trying to push through price increases? Speaker 300:30:37Yeah, so I mean a couple of things. First of all, We're seeing meaningful shifts in a whole line of commodities that are core ingredients in these products And so that's why we expect products that are heavy in these ingredients to start to Slow and ultimately turn the other way. You'll have to ask the packaged goods manufacturers what their perspective is On why they're not bringing retail prices down. They have a litany of explanations for us, but the fundamentals If the cost of the inputs are starting to slow and reverse, then ultimately we should see some component of that Show up in cost increases and look we operate as you know we source a lot of Control Brand product And so we have pretty good visibility into how this should evolve. Having said that, I don't think It's reasonable to expect an aggressive reversion or a shift into a deflationary environment. Speaker 300:31:53The reductions that we're seeing in commodities are moderate. They're notable, meaningful, but It's not at this point headed towards a cost reversal. Speaker 900:32:05All right. On your private label sourcing, is that cost plus? Speaker 300:32:10No, it's negotiated differently depending on the vendor. Speaker 900:32:16So does that mean you're not necessarily getting Cost reductions from your private on your private label either? Speaker 300:32:23No, all I'm saying is that we negotiate them on a case by case basis And we are seeing reductions in some cases with a couple of national brands and with Control brand vendors as well. Speaker 900:32:37Okay. Because I'm trying to see how the cost environment is influencing your private label Penetration, it seems like it's still growing. I'm wondering how close you think we are to peak levels in private label. And then I know in the past you've talked about CPG companies are eventually going to try to push back and get some volume back, but it seems like it's tough for them to do if they're Still taking double digit increases. So, where do you see private label penetration peaking out, I guess, How soon and what are you expecting over the next year, let's call it? Speaker 300:33:17Yes, you're right. We have talked about this a few times You know that we would expect again the larger brands to start investing to drive volume and we're seeing some Signs of it, but it's emerging more slowly than probably we expected earlier in the year And that's benefiting our Control Brands. And so today our Control Brands are still growing faster than National Brands. And we do think that that will rebalance At some point in the relatively near future, but that really is up to the big brands to determine when and how. Speaker 900:33:58Okay. And can you just comment whether you're holding on to your margins in private label or are you seeing any erosion there? Speaker 300:34:07No, we're holding on to our margins. Speaker 200:34:09Yes, we are. And I think on Control Brand, I think Galen made the point like we're still growing faster than National Brand. Because of the environment we're in, if you actually go one level down and you look at no name versus PC, no name is still growing like high double digit. So So in today's environment, we expect that to continue just because of the nature of what we're in right now. Speaker 900:34:33Okay. All right. And then just on the tonnage, I know people like to try and for tonnage out of your inflation and your same store sales, but what are you seeing And your tonnage numbers and how do they what do you believe is happening with your market share? Speaker 200:34:52So I can take Tanuj Leur like to give you a sense of Tanuj Leur like it's clearly positive in discount. It's somewhat negative and conventional. Net net low it's about flat, okay? So that's where we are right now which is a significant improvement from where we were at the So but you're now clearly seeing discount being positive territory and it's been the case For a few quarters now. So that should help you figure out how we're doing on share. Speaker 200:35:25We feel We're progressing on share. And so, yes, so that's where we stand right now. Speaker 900:35:35All right. Thank you. Operator00:35:40Thank you. The next question comes from Vishal Shreedhar of National Bank. Please go ahead. Speaker 500:35:48Hi. I was hoping you could update us on some of your adjacent value drivers like Trade as a Service and Media, I know you've saw some screens in your stores and maybe where those businesses are and How much do you think they can grow in the near term? Speaker 300:36:08Yes. So they're all progressing nicely. We don't have a Frame for you, Vishal, so 3rd party transport, it's a meaningful contributor Now in terms of its size and scale, we're investing a little bit of capital in it to continue that growth trajectory and remain optimistic About its potential, media is much smaller. As we mentioned last quarter, we've just completed well, last quarter we completed A big infrastructure, technical infrastructure project which we call RMP which is essentially the tool that allows Advertisers, easier access to our customer audiences and to advertise with us and we're getting really terrific responses back from From the industry in regards to that tool, we're delivering on all our financial targets in relation To media now, but it remains small and it's yet to sort of ramp up At a level where we would be relevant to comment to you on its size and scope. But with both of these, Just keep in mind that our goal is to use these adjacencies to drive that long term financial framework. Speaker 300:37:32In the same way that pharmacy services are going to do that, that's what transport helps us do, that's what media helps us do. So you need to look at it as all enablers of us delivering that long term growth rate rather than any of them Contributing to an outsize or step up in terms of earnings growth. Does that make sense? Speaker 500:37:57Thank you for that color. Just changing topics here on Life Mart. How is the integration progressing? And how should we think about Loblaw's appetite for further acquisitions and what kind of sphere should we think I think of them being in, if that in fact being contemplated. Speaker 300:38:18Yes. So start with Primary Care Delivery, which is the foundation of our sort of adjacent to pharmacy healthcare strategy And that is driven by pharmacists in the manner that we've discussed on this call over the last few minutes. And then think about another adjacency Which is other forms of care delivery that would be complementary to that experience. That's where Lifemark sits And that was the driver behind that acquisition. It has good economics and that it's accretive, it has a good market tailwind. Speaker 300:38:59So It should grow on its own at a sales rate that is higher than the rest of our core business. On a standalone basis, Its long term capacity to contribute is accretive and attractive. But the reason that we bought it was because we thought that we could grow that business faster than others by linking it to our Existing healthcare customer in a more integrated way. That's really the prize. And I would say that we are making steady Progress testing that thesis and the value of that integration and we'll continue to report on progress. Speaker 300:39:46But we're not going to make any more material acquisitions in adjacent healthcare delivery spaces until we are absolutely certain You know that we are a good owner for these kinds of assets, that there's a synergy within the enterprise from owning them. So we still got work to do to convince ourselves that that is in fact the case and you won't see any Incremental M and A until we're certain that it is. Speaker 500:40:15Okay. And maybe a last one for me, just on the population growth and The disparate levels of growth across the country, are you seeing the impact of that as you look at your business and saying, hey, these regions are benefiting more from Population growth and we're seeing that in our stores, there'll be some less so. And so maybe some areas are more competitive or less growth as a result? Speaker 300:40:39Yes, I mean we see it every day. The changing demographics in markets all across the Country, you see demographic shifts, you see cultural shifts. There are markets where customers are Where Canadians are moving to small towns and there are small towns on the periphery of big cities that are growing faster today than they were At any point in the last 20 years that constitutes a new opportunity perhaps for an incremental store. You've heard us talk about TNT and the extraordinary success that we continue To experience when we open new TNT stores almost anywhere in the country that is a reflection of immigration and the heavy weighting of Asian immigrants coming into the country. We've been refining our no frills business To better serve the South Asian customer and we've seen fantastic results coming from our work on that front. Speaker 300:41:48And then there's the other tailwind which is you want to add square footage that's in line with accelerating population growth and As you've heard Richard describe on a number of occasions, we are continuing to build our pipeline of new stores So that we can meet that demand and make sure that we're getting our fair share of the population growth in the country. So It's a big and important driver and it's one of the reasons to have long term optimism about Loblaw, You know is that population growth tailwind and knowing that everybody needs to eat and that we have formats that meet effectively Operator00:42:40Thank you. The next question comes from Chris Lee of Desjardins. Please go ahead. Speaker 500:42:53Hi, good morning. Maybe I'll just start off with a couple of quick Clarification questions. Richard, in the beginning, I think you mentioned that you expect food sales to drop in the second half because of tough I just want to clarify, I think you meant sales growth to maybe moderate and not necessary decline Speaker 200:43:14I did not say sales are going to drop. Speaker 300:43:16You did. Okay. But you meant, yes. Just the growth rate Speaker 100:43:20is going to slow. It's going Speaker 200:43:21to slow. Yes, Sorry, yes, yes, yes. You're not going to see the same store sales because we're going to be cycling higher comp, but Okay. Correction, mate. Thanks, guys. Speaker 500:43:33Okay. Sorry. I just want to make sure. Okay. That's great. Speaker 500:43:36And then just on the shrink, and again, just wanted to clarify. So The strength you saw in drug is predominantly because of theft in the beauty category. And so you have put measure in place, so that should Correct, so in due time. And on the food side, I just want to clarify what's driving that is because of The new store growth and being more precise with inventory count, is that what's been causing higher shrink on the food side? Speaker 200:44:03No, it's still organized crime and grocery also, albeit not at the same As we witness in choppers Speaker 500:44:15as a rate. Okay. So in both instances makes mainly That's causing that higher shrink? Speaker 200:44:22Yes. Speaker 500:44:24Okay. That's great. And then just on e commerce, are you seeing any notable increase In adoption either at Loblaw or the industry or has the adoption remained largely stagnant because of high inflation And the shift to discount. Speaker 300:44:40Yes, so you saw that our numbers I think were up 13% in terms of overall e commerce Volume, it's important to note that a disproportionate part of that is the pharmacy business. So Digital pharmacy prescription digital prescription filling. And so I'll just focus on PC Express as a good proxy for See for these sort of consumer product online adoption. So that's in and around flat. It's kind of the way to think about it, maybe a little bit better than that With substantial growth on the delivery side of the equation and a little bit of decline On the pickup side and that's blended out and you get essentially to flat. Speaker 300:45:28And We are still waiting to see what the normalized post COVID growth rate is for e commerce, But it's certainly not going backwards and we expect it to continue to grow as we look forward. A couple of interesting updates I can provide between last quarter and now we launched the PC Pass, which is Our subscription product for PC Express for pickup and delivery, we've seen fantastic adoption of that product. It's now up to about 10% of the total sales in PC Express. And then of course, we continue to work away On improving the overall value proposition and I'm delighted to say we're at all time highs in terms of our service levels and our fill rates For our customers, so the service just gets better and better and we continue to have high conviction that that is A really valuable service for our best customers, and that it will continue to grow. Okay. Speaker 500:46:34That's super helpful. I was going to ask you, one of your large discounting competitors recently launched a subscription program for e commerce and You guys obviously have a strong one as well. And I was just going to ask, among the many tools that Loblaw has at your disposal, how effective is the subscription program To retaining customers, I think you just sort of answered my question there. Speaker 300:46:57Yes, it's really been quite powerful. And probably the most encouraging insight is that we've acquired many more new customers with the subscription service than we expected. We thought As you would that it would be primarily a retention tool and it is serving that function but it's also been a way for us to acquire new Speaker 500:47:22That's great. And then maybe finally, I know I act this almost every quarter, but just any new updates on Any potential changes in generic drop prices? Speaker 300:47:33No updates on that. I think We've actually got some certainty with the I can't remember now what the organization is called. I think we have clarity on generics and branded for the next Couple of years. We'll follow-up with you to make sure I'm giving you the right insight on that. But no, nothing on the horizon That would constitute a meaningful risk. Speaker 500:47:57That's great. Thanks very much. Operator00:48:02Thank you. The next question comes from Irene Nattel of RBC Capital Markets. Please go ahead. Speaker 600:48:09Thanks. Just one follow-up question, if I might, on Shoppers and Beauty. What are you seeing now in terms of demand run rates? And as consumer wallets are being squeezed, are you seeing any pressure there? How successful are the promotions that you're running using PC To mom, that cut for Beauty specifically. Speaker 300:48:30Yes, Beauty continues to be robust And I think there's 2 forces at work. The first one is Beauty on the kind of the luxury spectrum of Spend on myself, it's actually relatively low priced. So the alternative of buying a high end cosmetic product or fragrant versus Buying an expensive handbag or a dress. And so it tends to be a lot more recession proof Then perhaps other categories and we are certainly seeing that continue in our business. The second one which is important to remember is we've had a big retailer exit the market In Nordstrom's in recent months and that volume, they were big beauty retailer and volume needs to Back out into the market and we would be a disproportionate beneficiary of that in the local geographies where we would be Competing with them. Speaker 300:49:34So that's also helpful for a business like ours. Speaker 600:49:40That's great. So the lipstick index Speaker 300:49:44Yes. Operator00:49:46Thanks, Galen. Thank you. There are no further questions at this time. Please continue with closing remarks. Speaker 100:49:58Great. Well, thank you everybody for your time this morning. Please reach out to me if And I'll ask you to mark your calendars for Wednesday, November 15 at 10 am when we will reconvene to discuss our Q3 results. Thanks everybody and have a great day. Operator00:50:18Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.Read morePowered by