TSE:L Loblaw Companies Q2 2024 Earnings Report C$226.95 +1.93 (+0.86%) As of 04:17 PM Eastern Earnings HistoryForecast Loblaw Companies EPS ResultsActual EPSC$2.15Consensus EPS C$2.14Beat/MissBeat by +C$0.01One Year Ago EPSN/ALoblaw Companies Revenue ResultsActual Revenue$13.95 billionExpected Revenue$14.07 billionBeat/MissMissed by -$127.50 millionYoY Revenue GrowthN/ALoblaw Companies Announcement DetailsQuarterQ2 2024Date7/25/2024TimeN/AConference Call DateThursday, July 25, 2024Conference Call Time10:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckInterim ReportEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Loblaw Companies Q2 2024 Earnings Call TranscriptProvided by QuartrJuly 25, 2024 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00ladies and gentlemen, and welcome to Loblaw Companies Limited Second Quarter 2024 Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, July 25, 2020 I would now like to turn the conference over to Mr. Roy McDonald. Operator00:00:28Please go ahead, sir. Speaker 100:00:30Great. Thank you very much, Lara, and good morning, everybody. Welcome to the Loblaw Companies Limited Second Quarter 2024 Results Conference Call. As usual, I'm joined this morning by Per Bank, our President and Chief Executive Officer and by Richard Dufresne, our Chief Financial Officer. So before we begin the call, I'll remind you that today's discussion will include forward looking statements, which may include, but are not limited to statements with respect to Loblaw's anticipated future results. Speaker 100:01:02These statements are based on assumptions and reflect management's current expectations, as such are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations. These risks and uncertainties are discussed in the company's materials filed with the Canadian Securities Regulator. Any forward looking statements speak only as of the date they're made and the company disclaims any intent or obligation to update or revise any forward looking statements whether as a result of new information, future events or otherwise, other than what's required by law. Also, certain non GAAP financial measures may be discussed or referred to today, so please refer to our annual report and other materials filed with the Canadian Securities Regulators for a reconciliation of each of these measures to the most directly comparable GAAP financial measure. And with that, I'll turn over this morning's call to Per. Speaker 200:02:03Thank you, Roy. Good morning, everybody. Before we get to our quarterly performance, I would like to touch upon the settlement of class action lawsuits that we jointly announced with George Weston Limited this morning. This matter concerns our involvement in an industry wide price fixing arrangement between 2,000 and 1 and 20 15 on certain packaged bread products. As a reminder, upon discovering the arrangement in 2015, we self reported immediately to the Competition Bureau and have been cooperating ever since. Speaker 200:02:36We have apologized for this price fixing behavior and reinforced the rigorous action taken at the time to address the issue, including overhauling how pricing is managed and significantly enhanced our compliant programs. These measures, which remain in place today, are industry leading and include the establishment of an independent compliance office reporting to the Law of Law Board of Directors that has oversight of day to day compliance with laws and policies, including pricing practices. The settlement is subject to the finalization of a binding settlement agreement with the plaintiff lawyers and court approval. I'll now turn the call to Richard to discuss the quarter. Speaker 300:03:17Thank you, Per, and good morning, everyone. I will just add that we are pleased to be able to put this issue behind us at both Loblaw and George Weston. It's over. In 2024, we are seeing the normalization of our retail business. The pandemic and the subsequent period of high global food inflation are now behind us. Speaker 300:03:39As we compare our performance this year versus last, we see our same store performance slowing. At the start of 2023, food inflation was over 11%. It's now back to normal. Categories like cough and cold, which have been running at elevated levels for a while are stabilizing. We expected this last year and as such built our 2024 plan to reflect normalization while continuing to deliver our financial framework. Speaker 300:04:10Our Q2 results demonstrate that. We continue to deliver steady operational and financial performance. Our performance continues to reflect our ongoing commitment to retail excellence and our continued focus to provide value to our customers. On a consolidated basis, revenue grew by 1.5 percent to $13,900,000,000 and adjusted EBITDA increased by 4.5%. Adjusted diluted net earnings per share grew by 10.8 percent to $2.15 On a GAAP basis, our net earnings declined by 10% or $51,000,000 reflecting the impact of the charge related to the class action settlement. Speaker 300:04:52In terms of the financial details of today's announced settlement, the incremental cash impact to the company is $156,500,000 plus related legal and professional costs, all of which Loblaw has taken as a charge this quarter. The remainder is comprised of $96,000,000 previously paid out by the company under the Loblaw Card Program. The company will fund the one time cash cost with cash on hand. First and most important, this payment will not impact prices for consumers. At both Loblaw and George Weston, these payments will not impact the company's currently disclosed financial outlook, its capital expenditures including dividends and buybacks. Speaker 300:05:37Drug retail absolute sales increased 2.4% and same store sales grew 1.5%. Pharmacy and Healthcare Services grew same store sales by 5.4%, driven by broad strength in prescription and healthcare services. Our specialty acute and chronic prescription growth led our pharmacy numbers. Additionally, customers continue to respond very positively to convenience and expanded level of primary care we offer through our more than 2,100 pharmacies across the country. Front store same store sales declined by 2.4%, lapping growth of 5% last year. Speaker 300:06:18Beauty continued to deliver strong growth, in particular across the prestige category. We are seeing the normalization of the front store business after a few years of outsized growth. Remember that pre COVID, our front store same store sales growth averaged around 3%. Headwinds from lower spending on certain food and household items and our decision to exit certain electronics categories will impact front store comp expectations for the balance of the year. That said, we remain pleased by the underlying strength and profitability of the front store and we expect improvement in same store sales in Q3 and Q4. Speaker 300:07:01Overall, Drug Retail sales growth continued to outperform Food and have a positive impact on our margin mix. In Food Retail, we were lapping strong same store sales growth of 6.1% last year. Q2 same store sales grew an additional 0.2% with absolute sales up 1%. At Loblaw, we are committed to do our part to lower inflation. In Q2, our internal inflation on food was in line with CPI. Speaker 300:07:29Canada's food inflation was once again lower than overall inflation in this quarter. In fact, it's been lower every month since February. If we look at our average article price data, which reflects the actual items purchased by our customers, our actual inflation rate was much lower than CPI in the quarter, which aligns with our positive tonnage performance. The consumer shift to discount continues with our hard discount banners outperforming our conventional stores, delivering strong results with solid tonnage growth and higher traffic. We remain very pleased with the success of our conversions and the ongoing success of our Maxi banner in Quebec. Speaker 300:08:12I know that many of you have visited one of our new small format no frills in the quarter. It's still very early days, but we are very pleased with customer reactions. Looking ahead to Q3, we expect to add another 20 new Maxi and No Frills stores as we continue to bring more value to communities across the country. With that said, across our banners, we delivered solid market share performance and our actual food tonnage increased in food retail. Discount continues to grow market share and our conventional stores are outperforming compared to their peers. Speaker 300:08:48Right hand side had a negative impact on food same store sales of 87 basis points. These categories remain accretive to our gross margin and we continue to carefully manage inventory levels. Online sales in the quarter increased 14.2% and delivery continues to outperform as a channel. We are very pleased with our online sales penetration. Across Food Retail, our strong traffic and market share performance are a clear indication that our efforts continue to resonate with customers. Speaker 300:09:18More and more Canadians choose our store for value, quality and service. That said, as expected, our food retail same store sales growth came in a little soft based on last year's performance. Looking ahead, our Q3 is off to a stronger start. We are seeing improved same store sales performance and positive tonnage. Total retail gross margin was 32% growing 90 basis points. Speaker 300:09:45Continued progress in reducing shrink and higher drug retail margin due to sales mix drove our retail gross margin improvement this quarter. Food pricing was not a margin driver. We've continued our focus on reducing shrink and remain pleased with our momentum with both Food and Drug demonstrating strong improvements. That said, improving shrink remains a major focus and opportunity for us. Turning to SG and A, our spend rate as a percentage of sales increased 60 basis points driven by lower operating leverage, year over year impact of certain real estate activities and labor costs and costs related to network optimization. Speaker 300:10:25Our teams continue to do a great job managing costs. 2nd quarter retail EBITDA increased by $62,000,000 yielding a margin of 12.1%. We delivered strong performance at the bank. PC Financial's revenue increased 5.5% driven by growth in the credit card portfolio and strong services growth at our mobile shop. The bank's adjusted earnings before tax increased by $13,000,000 with higher interest income and lower operating costs offsetting higher credit losses. Speaker 300:10:56We remain very comfortable with the risk profile of the Bank's portfolio. We continue to take a conservative position in our provisioning with a strong and well capitalized balance sheet. On a consolidated basis, adjusted EBITDA increased by 4.5 percent to $1,710,000,000 Our retail free cash flow was $475,000,000 and we repurchased $482,000,000 worth of common shares. Our balance sheet remains strong and we continue to improve our key return metrics. In the quarter Loblaw's credit rating was upgraded to BBB plus with S and P citing the diversity and resilience of our operating performance. Speaker 300:11:36Our return on equity sits at 23.1 percent and our return on capital at 11.6%. As we look ahead to the second half of the year and specifically Q3, we remain confident in our ability to deliver our financial framework and our EPS targets. Q3 is off to a good start on both sales and market share and gross margin should continue to benefit from our shrink improvements. Our focus on new stores is gaining traction, more are coming soon and we are already hard at work on our plans for 2025. I will now turn the call back over to Per. Speaker 200:12:14Thank you, Richard. We began this year with strong momentum in our Food and Drug business. In the Q1, we delivered higher customer visits and growth in total units sold. Customer visits continued to grow across our business in the 2nd quarter as our commitment to provide value, quality and service continue to be recognized by our customers. Canadians remain focused on value. Speaker 200:12:38The shift to discount continued as sales growth in our hard discount banners again outperformed our conventional banners. We're pleased to see our internal inflation decline for the 6th consecutive quarter. This is helping lower food inflation for Canadians. While this is great news, we know that it is little consolation to families still struggling to meet their household needs. To address this, we're always working to deliver even greater value and affordability across our store network. Speaker 200:13:08For example, in our hard discount division, our team opened 14 new Maxi and No Fill stores in the quarter, introducing exciting new programs aligned with our commitment to providing everyday low prices. We introduced and expanded programs like throwback pricing, more aggressive flyers and more everyday low prices. Also in the quarter, we eliminated multi bikes in all our Maxi and NoFur stores. This change means that our customers can now get great value from purchasing only one item instead of having to purchase several items to get the same savings. This was an issue for many discount customers. Speaker 200:13:48It is regular feedback that I receive as I talk to customers in our stores. We replace this program with everyday low prices on individual items. This decision is absolutely the right decision for our hard discount customers, but it will be a slight headwind on our sales growth this year. Where counter most customer traffic and tonnage were both up as we continue to gain market share in the quarter. Across our super and market banners, we continue to provide a very strong full service grocery offering. Speaker 200:14:22Retail excellence played an important role in our operational and financial success and differentiate our conventional grocery business. The team has been busy improving our offering and providing more value for full service customers. We have lowered prices and enhanced our assortment in key areas like multicultural, prepared meals, fresh and natural foods. I talked before about our plans to reenergize the merchandise of our right hand side of our stores. We have started to try out some of our new initiatives to create more excitement in this area. Speaker 200:14:56In a few of our stores, we now offer new apparel brands like Puma, Hurley and Fortnite. We're still very early in this journey, but are pleased with the initial results. I'm pleased to report that our traffic was up in the quarter in both our hard discount and market division. This is a testament to the positive customer response to all the things we are doing to deliver great value to Canadians. As expected, our grocery our sales and grocery were a little soft, mostly based on last year's strong performance of 6.1% growth. Speaker 200:15:28Aside from this, it's hard to isolate one specific factors for the softness. As you begin quarter 3 with a stronger start, I want to highlight our new promotion. Last quarter, I talked about the success of our hit of the month program. That success continues in quarter 2 with unbeatable offers on 9 popular grocery items. Today, I'm super excited to announce our new Marvel program coming to all stores in August. Speaker 200:15:55So if you're not a big Marvel fan, be prepared that someone behind you at the checkout will be tapping you on your shoulder asking if they can bring your trading cards home to their kids, of course, only if you don't want them. So who says it shouldn't you shouldn't have fun shopping? Turning now to our drug retail business. As Richard highlighted, we were having a very strong quarter last year. The growth also reflects long term trends that continue to position us very well for the future. Speaker 200:16:27This is why our plan includes opening 20 new pharmacies this year and continuing to expand our pharmacy led clinics across the country. In Frontstorm, our perceived beauty is still delivering very good numbers. However, I expect to see our sales growth normalizing this year as we will be impacted by lower sales of electronics and household products. Pharmacy and Healthcare Services continued its momentum from last quarter and with specialty drops and new primary care services leading our top line growth. There seems to be a steady stream of announcement across the country showcasing the impact of pharmacies providing care for patients. Speaker 200:17:06The Nova Scotia government reported that pharmacy clinics have contributed to a nearly 10% decline in emergency room visits for non urgent or less urgent cases. Quebec Table Bill 67 giving pharmacists more power to serve as one stop shop for people with minor health problems or common illness, including prescribing certain drugs and extending prescriptions. And yesterday, Ontario announced that it's looking to expand the ability of pharmacy to provide patient care by treating additional common ailments, administering more vaccines and performing more point of care testing. This quarter, we are proud to announce that the signed based target initiative or SBTI has approved log loss emission targets around the reduction of scope 1 and 2 emissions 50% by 2,030 and our commitment that suppliers representing 70% of our total spend will have signed based targets by 2027. This is important as you recognize that our plans and ambitions are the highest global gold standards. Speaker 200:18:13Looking ahead, our focus remains on our strategic pillars of retail excellence, driving growth and investing in the future, while at the same time embedding ESG into every 2 medium. Our success allows us to make important investment into growth areas, operational efficiencies and in protecting our planet. These in turn allows us to offer Canadians the best value and service. We do remain confident in the strength of our assets and are encouraged by the customer momentum we're seeing into the Q3. We now open the call for questions. Speaker 200:18:48Thank Speaker 400:18:51you. Operator00:18:53Thank you. Ladies and gentlemen, you will now begin the question and answer session. Our first question comes from the line of Michael Van Aelst from TD Cowen. Go ahead please. Speaker 500:19:31Hi, thank you. I wanted to actually start on the drug side of the business. You commented on some of the front store weakness. Beauty still seems to be growing strong. And I'm wondering is the beauty category still growing holding in strong? Speaker 500:19:48Or is it shoppers just gaining market share or both? Speaker 200:19:53So yes, the front store is down 2 point 4 and we are lapping strong sales from last year over 2024 and we will be normalizing over the year. We have seen it mostly being impacted by electronics and household product, which of course is low margin. And to your question about persistability, we are delivering over and above the market and are seeing some really, really strong numbers there, while at the same time our pharmacy business continues to be very strong. And it's going to be normalizing during next quarter. We probably won't be positive, but it's going to be better than you saw in Q2. Speaker 200:20:31But the high margin categories as the prestige beauty is growing and we are really happy with the numbers we're seeing there. Speaker 300:20:38Yes, Mike, beauty is very, very strong. Like if you were to isolate one category that always surprises us is men's fragrance is the one that's always growing really high. But yes, so that continues. Speaker 500:20:52Okay. And then can you update us on your market share in some of the key beauty categories? Speaker 200:21:01We don't have exactly market share in the key beauty categories, but I think it's important to say that these prestige beauty is growing over and above the food sales growth. So the market in total is actually growing with low double digit growth. That's at least what we are seeing. So it's a good place to be in. We don't have the market, the specific market share for that. Speaker 200:21:25And if we have, I'm sure Roy will come back to you. Speaker 500:21:28Okay. All right. Then on the pharmacy services, obviously, it looks like the services are growing pretty rapidly. How is Loblaw's progressing in the rollout of its clinics? And based on some of the new announcements out of Ontario and other provinces, Speaker 400:21:54clinics as we Speaker 200:21:54were last time we the new clinics as we were last time we spoke. And actually, yesterday, we opened a new superstore, and we opened with clinics and we saw some really, really good traction there even the first day without talking about it. And which you are alluding to like the development on in Ontario is really, really great news for the people of Ontario. And we do believe that it will provide significant benefits in reducing the pressure in the health care system and being better for patients. So we stay confident. Speaker 200:22:29And at the end of next year, we will probably be at around 2 50 clinics. At the Speaker 500:22:36end of next year? Speaker 200:22:38Yes. Speaker 500:22:39Okay, perfect. Thank you. Operator00:22:43Thank you. Our next question comes from the line of Irene Mattel from RBC Capital Markets. Go ahead please. Speaker 600:22:52Thanks and good morning everyone. Now that Mike's covered off the pharmacy piece, can we please drill down on this food same store sales number? I think fair to say it was weaker than most of us expected. I think we understand consumer trade down, inflation. You mentioned multi buy right hand side of the store, but there was also the boycott. Speaker 600:23:13Can you talk about the puts and takes and where you saw the most pressure and I guess maybe where you're seeing some nice gains? Speaker 300:23:21Yes, Irene. So yes, same store sales look softer than they actually are because of the year over year comps. And I think it's worth talking about Q1 and Q2. So Q1, we delivered 3% same store sales, but and the year before was 3%, so it's 6%. So in Q2, we delivered last year 6% and we're 0.2%. Speaker 300:23:41So we're essentially flat. So the trend, the sales trend from Q1 to Q2 is pretty much the same. Having said that, there were a couple of factors that impacted sales like in particular, I would call it like, I don't know, the wet spring or if you remember May. May of last year, which I do remember vividly was extremely hot and our garden center sales were through the roof, sun care, allergies, like we're like beating records. And so this year, we had made was very rainy and cold. Speaker 300:24:18And so those categories suffered significantly. So therefore, that was definitely a factor. And regarding what you just mentioned in last part of your question, we did notice a bit of an impact in certain stores in specific markets. But that said, at the end of the quarter, things have returned to normal. Speaker 200:24:40Yes. And I would add that while the overall financial impact was minor, for us every single customer is important to us and one customer loss is one too many. And I have spent a lot of time speaking to customers and different stakeholders. And I do listen to them because their feedback is really, really helpful and we welcome it. It makes us better. Speaker 200:25:03So multi buyers is just one of the pieces of feedback that I have gotten since I came to Canada. And it's actually because customers told me that they didn't like the multi buy. That's why we have removed them. It was the biggest irritant to customers. And also therefore, we continue to work hard every day to win the trust and loyalty of our customers. Speaker 200:25:25And I would say that our stores, they are in a great shape. Our promotions are better than ever. And our prices are really, really competitive at the moment. So I'm pleased that the customers are recognizing that more and more week by week. And as we said before, both traffic and tonnage is off quarter over quarter. Speaker 300:25:44Yes, Irene, just to give a little bit of clarification, us removing multi buys is actually hurting us on sale at first. And so but we expect that over time we're going to recover that as customers buy more stuff other than what they were buying. Speaker 200:26:00Yes. Think about if you have to buy 2 ketchup and then there will be a time where you have used these 2 bottles of ketchup and then when that's over then you go and buy one again. So that will just be a time before that sales will come back. But what is important here is that when you are on a tight budget, we don't force you to buy 2 bottle ketchup, then you can actually afford to buy the mustard because we are seeing a trend that more and more customers, they only have $30, dollars 40, dollars 50 to spend, and we want them to be able to spend it on the products that they want to buy. So I think that's why it seems like a little thing, but it's actually a really, really good thing for our customers at this current division. Operator00:26:47Thank you. Our next question comes from the line of Mark Petrie from CIBC Capital Markets. Go ahead please. Speaker 700:26:56Yes, thanks. Good morning. Just following up on that topic, appreciate the comment about the stronger trends in Q3 to date for both food and front store. I'm just curious what you would attribute that to, I guess, most specifically on the food side. Is it just a matter of maybe lapping some easier numbers? Speaker 700:27:17Or do you think there's something different in how you're presenting to the customer, shifting competitive environment, that type Speaker 400:27:24of thing? Speaker 300:27:28I think to me, it's our strategies are working. You look at hits of the month, which we started in February, like we're starting to get better at it. We're still learning the ropes, but that's definitely resonating with customers. But obviously, last year's performance will also be a factor. If I remember correctly, I think our same store sales in Q3 was 4.5, So lower than 6. Speaker 300:27:53So that's definitely a factor that's going to drive same store sales in Q3. Speaker 200:27:57And I agree with you that it is a competitive market in Canada. It is really competitive. It has been for the last year and it still is. I just believe that the initiative that we are deploying have deployed with Hitters a month so far, but also our Marvel program. I'm sure that will excite customers. Speaker 200:28:15So we are trying more and more to utilize the skill and scale of the entire group also by doing some enterprise promotions. We haven't done that in the past. So Marvel, remember that's across all our stores, including shoppers. And when we do something with our entire store portfolio, we can make something that's better for customers because just promoting like banner by banner instead of doing it all together, we get more value for our money. So I stay really confident in our strategy going forward and the initiatives that we have. Speaker 200:28:54So I believe we have a strong trade plan for the second half of twenty twenty four And stay really, really confident in our strategy. And as we have discussed before, it is about growing with our our hard discount business. It's growing with shoppers, 20 new stores and it's keeping our absolute market share with our market and total stores. And we are deploying a lot of initiatives in each single part of our business. So growing and keeping cost low and thereby also being confident in delivering financial framework. Speaker 200:29:29So I'm quite excited about the things that we have in the pipeline. Speaker 700:29:33Yes, understood. Okay, thank you. And then if I could just follow-up, I wanted to ask about sort of the competitive dynamics specifically in Quebec. Obviously, it's a market where your asset mix in food has been shifting to discount very materially. And curious if you're seeing the market dynamics adjust at all and if there are any different in Quebec versus other parts of the country? Speaker 200:29:58I think on specific on Quebec, I think I'll be guessing too much if I try to answer question. So let's come back to you on that one. Speaker 700:30:06All right, fair enough. Thanks and all the best. Operator00:30:12Thank you. Our next question comes from the line of Vishal Shreedhar from National Bank. Go ahead please. Hi, Speaker 800:30:21thanks for taking my questions. Per, I just I want to ask you just to get your perspective now that you've been at Loblaw for some time. Obviously, you've made a lot of changes at the grocery side of the business, some of them fairly significant. On the Shopper side, not as much. Shopper's is a little bit of a unique Canadian business with the high low proposition and the strong beauty. Speaker 800:30:49Wondering if that's something that it just takes more time for you to familiarize yourself with the offer? Or is that more of an endorsement of the model and you think that shoppers as it is and the drivers that it has? Speaker 200:31:00No, that's a very good question because when I came to Canada a year ago, I was really looking deeply into the shoppers model and I was a little bit suspicious in the beginning because how good was the model. And the more and more I dig into the shovels model, the more excited I became and the less I wanted really to change. So we have a strong plan. We have a strong strategy in shoppers. And that's also really, really important for me, why change a winning model. Speaker 200:31:31So I don't want to change just for the change the sake of the change. So that's why we stay true to the model that we have. But Richard and I, we did do one change. So I think we discussed with Jeff from Sherwood that we want to do more clinics. So I think on the last call that we said, okay, go ahead, fill as many clinics as we can cope with because we are seeing that, that does help Canadians. Speaker 200:31:56So that's one of the changes that we have made. And then also, ShopUp, they're now engaging in our enterprise different promotions. So yes, we have not changed as lot, but that's more a testament to that the model that we have is working. And I would say the same that yes, we made a lot of changes to the business. But the business I took over was in a very good shape. Speaker 200:32:22So there was lots of places where we are world class just to talk about our control brands, our supply chain, the way we run our stores, the financial rigor we have around controlling our inventory. So lots of things that works better. I have more been focused on what can we do even more to give customers value and that's where I will focus going forward. Speaker 800:32:45Okay. Thank you for that perspective. And just another Richard, once upon a time, there's a perception that shoppers the shopper side of the business was had an ability to hit its targets more consistently, perhaps because of more consistency across the store formats and other reasons. As these businesses, Loblaw and Shoppers get more integrated, have you noticed the performance gap, call it, if that's a fair word term to use, Has that tightened up or are the businesses still performing? It's a Speaker 300:33:21good question, Mike. I'd say our ability to forecast and manage has overall gotten better throughout the organization. So that's benefiting both shoppers and blah, blah. But each business has different dynamics. Those dynamics remain. Speaker 300:33:38So the dynamics that are sort of linked to shoppers remain like when we talk about, I don't know, expanded scope of care or specialty drugs and the growing population that's getting older. Those are sort of tailwinds that shoppers have that's not the same in the food side. So those things continue. Okay. Speaker 800:34:02And maybe if you can give us an update on the smaller NoFo stores and how those are performing versus expectation? Speaker 200:34:09Yes, they are. They're doing really, really well. It's early days, but the 2 stores that we have downtown Toronto, we visited those with our Board this week and they're doing so well. And I spoke to a few customers in the stores. So one customer I spoke to, she told me that she was really, really worried that this store will be congested. Speaker 200:34:30I said, why? Yes, because I'm speaking to everyone I know about how great this store is. We needed a small hard discount in this part of the town because we want access to lower prices. And this is exactly why we're doing it. We are giving more Canadians access to lower prices. Speaker 200:34:47And we're doing it by getting into sites that we wouldn't have considered before because we're going down to even down to 8,000 square feet. And even going down to 8,000 to 10,000, 12,000 square feet, we managed to get 5,000, 6, 7,000 of product into those stores so customers can do a full shopping trip. And if we compare this because what is 5, 6, 7000 products, if you compare that to the German retailer, they would have about 3,000 products in their stores. So it's a great offer to customers. And this is exactly what we want to hone down on and double down on and do more of over the next years. Speaker 200:35:25And in the next quarter, as Richard is talking about this quarter, we're opening almost 20 new node flows and in the Q4 another 17. Speaker 800:35:37Thank you. Operator00:35:42Thank you. Our next question comes from the line of Speaker 600:35:55I guess I'm just surprised that weather was material enough for you to call out. I don't know if you call last Q2, the very hot May was talked about. So the tonnage performance here, the bit of softness, I mean, there was, I guess, you would call it no other factor. It was really just the weather dynamic. And if I think about your true tonnage in this quarter, Q2 versus Q1 of this year, Sorry, Per, I think I heard you say it was up sequentially, but it seems at least on our end, it might have been a bit down sequentially. Speaker 600:36:28So can you just confirm that? Speaker 200:36:30No, yes, that was quarter on quarter like last year. So quarter 2 last year, I was talking about. We were not I didn't compare it to quarter 1 this year. And it is really hard to single out one factor. So yes, Richard mentioned that the season started later than it did last year. Speaker 200:36:54That's one impact. But it is a lot of different reasons why our sales is a little bit softer. But on a 2 year comp base, we are still running strong about 6% like we were in the Q1. And we're also lapping a bit of easier comps in the Q1 on market share. So overall, we are pleased. Speaker 200:37:16Would we have liked a little bit of more and more sales? Yes. But still, we are happy with what we have and even more pleased with a stronger start into quarter 3. Speaker 300:37:28The point that Pierre mentioned is actually relevant. Like our tonnage performance in Q1 was particularly strong, but it benefited from our activities, but also benefited from the fact that Q1 of last year was weak. So we had an easier comp from a tonnage perspective, which we sort of fixed in Q2 of last year. So it made this quarter a little bit tougher to cycle from a tonnage perspective, but we still were able to grow it. So we're pleased with that. Speaker 300:37:57So for us like sales trend is heading in the right direction year to date and that's what we're focused on and that's what we're saying that when we enter Q3, we feel good about hitting our framework. Speaker 600:38:13Okay. Thank you for the clarification there. I'd like to try out Quebec as well is the MAXI, can you talk about clearly, you benefited from share gains there from doing that. Can you talk about the locations you're converting now? What the uplift is like versus the previous ones? Speaker 600:38:36And the first MAXIs that were converted, have they been still trending like they were when you had first done the conversions? And do you see any material competitive responses to all of this? Speaker 300:38:49So yes, the new stores continue to perform really well, still way ahead of sort of prototype expectation for a normal conversion. But yes, also we're getting to the tail end of the conversion. So the lift we're getting is not as strong as the first one, but the first ones we're getting was like a crazy number north of like 100% plus per store. So but the numbers that we're getting are really good. We're gaining significant market share in the province. Speaker 300:39:18It's not we're not talking basis points here. We're talking percentage points. And so we're going to be coming to the end of the conversion program or close to by the end of this year and now we're starting to supplement it with new stores. So we have also new Maxis that are going to be opening this year that's going to further solidify our presence in the province. Speaker 600:39:45Okay. And the last question I've got is on gross margin. It's so strong this quarter. I mean, aren't you haven't you recovered basically the headwinds from shrink just by that magnitude? So I'm trying to Speaker 300:40:06worst, okay. So therefore, it was an easier comp from a shrink perspective, but our teams have been working hard and they've made significant progress on shrink. So that's why we got such a big lift in gross margin in the quarter. Having said that, like that those shrink-led numbers now are running at lower rate than last year. So you're going to still see that in Q3, but albeit not to the same extent. Speaker 300:40:32So gross margin is going to be up in Q3 quite nicely, but not to the same extent as we saw in Q2. That together with our improved same store sales that we talked about and I've also said in the past that our second half from an SG and A perspective is going to be better. So stronger SG and A performance, stronger gross margin and stronger same store sales that will allow us to hit our framework. Operator00:40:58Thank you. Thank you. Our next question comes from the line of Chris Lee from Desjardins. Please go ahead. Speaker 400:41:08Good morning, everyone. Sorry, I think you answered a lot of the question I was going to ask you. Just maybe follow-up on the SG and A rates. I think previously you have said that you expect the rate to be more or less flat for the full year. So based on the first half result so far, I mean this would imply your SG and A rate will likely be down a little bit, maybe 10 to 20 basis points just based on my math. Speaker 400:41:31Is that kind of what directionally you're referring to? Speaker 300:41:36Yes. But like I don't have visibility in Q4 yet to that level of specificity. But I think I can confidently say that at least for Q3, it should be flat. Speaker 400:41:47Okay. And I think you mentioned last time that you do have some levers you can pull in the second half to achieve that. So it sounds like you have okay. And okay, no, that's helpful. And then maybe just, yes, going back to the gross margin again. Speaker 400:42:01So it sounds like Q3 is going to be up, but not as strong as Q2. Is that what you're saying? Speaker 300:42:07That's exactly what I said. Speaker 400:42:09Okay, perfect. And then maybe just on the and just going back for the food same store sales one last time. So yes, you made a good point like on a 2 year stack basis, Q2 was 6% -ish, which is same as Q1. So that's good. You mentioned Q3 today, it's better than Q2. Speaker 400:42:30But if you look at it on a 2 year stack basis, should we are you seeing kind of running about the same rate like 6% -ish in Q3 as you've seen in Q2 and Q1? Speaker 300:42:40Sure. Hope so. Speaker 400:42:42Okay. That's helpful. And then maybe, Per, just again a couple of follow ups on the pharmacy clinics. I mean, overall, how are they performing relative to your expectation? I'm thinking in terms of both the frequency of patient visits per day and also sales lift that you might be seeing from just incremental traffic to the stores. Speaker 400:43:06How are those metrics trending versus your expectations so far? Speaker 200:43:09No, they are continuing to deliver exactly as expected. So of course, we set out certain criteria as when we improve these new clinics and when we go into our capital meeting and improve them. So they are living up to it and some better than others. But in average, they're actually doing better than our expectation. Also helped by the prescribing is up by 40% to last year. Speaker 200:43:36So they're good. We're pleased. We are going to continue to build new clinics. And of course, what is underway in Ontario is also going to support this. Speaker 400:43:48Okay. And again, yes, my other question is as you continue to get expanded school of practice from the provinces, just from a capacity perspective, like on the ground level for the pharmacist, overall, like do they have pharmacists, overall, like do they have sufficient capacity to take on additional responsibilities? I know you guys have been making some investments in centralization, etcetera. So just, yes, I want to see like from a capacity perspective, are you guys in a good position to take on more responsibility? Speaker 200:44:16Yes. We are in an okay position. But of course, if things change, then we're also going to build up capacity. But at the moment, we don't have a capacity problem and we don't expect to have one going forward. Speaker 400:44:28Okay. And then just a couple of last ones. If I were to switch back to food, just wondering, as inflation continues to moderate a little bit, have you been able to get more promotional support from some of your vendors since I'm sure they're also motivated to drive volume growth? Speaker 200:44:44Yes. It's a really good question what we are seeing that the big CPGs, they're really looking for sales. And that's also why that we are expecting that the tonnage and the growth of our national brands will grow in line with our control brand this year. So even if we are seeing that our non AM is growing a lot, then the national brands will grow a lot because it's going to be supported by some promotional support. That's also why we can do it ahead of the month as we can because we are selling so, so cheap And they just want the volume. Speaker 200:45:24And I think you know that if you're looking at some of the big players out there. Speaker 400:45:29Okay, that's helpful. And Richard, maybe last one for you. If I'm reading your financial statements correctly, it looks like you guys have sold about $59,000,000 of properties with another $33,000,000 held for sale at the end of Q2. I think in your statement, you mentioned you're still on track to dispose about $400,000,000 of property this year. Is that so you do expect a step up in the second half in terms of property sales. Speaker 400:45:52Is that correct? Speaker 300:45:53That's correct. Speaker 400:45:55Okay. Great. Thanks very Speaker 200:45:57much. Thank you. Operator00:46:01Thank you. We have a follow-up question coming from the line of Michael Van Ael from TD Cowen. Go ahead please. Speaker 500:46:22Yes, thank you. So just a question on the financial services side. Can you explain that swing in the financial services revenue growth and margins when you look at Q1 versus Q2? Q1 seemed quite a bit stronger. Speaker 300:46:37Yes, yes, yes. So like we signed a Mastercard contract, Mike. And so we got significant benefits in Q1. Now what we're seeing going forward is the ongoing benefits. So the runway to see now should be the one that continues. Speaker 300:46:53Having said that, Michael, like the key driver of profitability of the bank is the ECL, which is a black box thing. And so we never know how ECL is going to move quarter over quarter. But in a more, I guess, softer economic environment, like it should trend slowly. So if that continues, you should see the same trajectory going forward. I hope that helps. Speaker 300:47:21That's helpful. Speaker 500:47:22Dan, and were the ECLs higher in Q2 than in Q1? Speaker 300:47:30No, it's in line. It's in line. It's growing on plan like we have a plan for HCL and so far it's growing on plan. Speaker 500:47:41Okay. And how about on the top line? Speaker 300:47:44On top line, there's a bit of noise, but like the big picture point I'd like to spend to share with you is like that our growth in spend in the credit card is not growing as fast as we'd like and it's a testament to the economy. People are spending less outside grocery stores. So that's affecting the top line. But other than that, it's just noise between Q1 and Q2. Speaker 500:48:10Thank you, Richard. Operator00:48:14Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. McDonald for final closing comments. Speaker 200:48:23Great. Thank you very much. Speaker 100:48:25So thanks everybody for your time this morning. Any follow-up questions, drop me an email or give me a call. And if you have your calendar out, Mark, Wednesday, November 13, when we'll be releasing our Q3 results. Thanks everybody and have a fantastic day. Operator00:48:44Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallLoblaw Companies Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckInterim report Loblaw Companies Earnings HeadlinesLoblaw 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.comThe Man I Turn to In Times Like ThisA storm is brewing in the markets: new tariffs, recession warnings, and panic in the headlines. That’s when publisher Brett Aitken turns to Whitney Tilson—a man CNBC once dubbed “The Prophet.” Tilson just released a new prediction that runs counter to what mainstream finance is telling you.May 5, 2025 | Stansberry Research (Ad)Loblaw Companies (TSE:L) Price Target Raised to C$245.00May 4 at 2:47 AM | americanbankingnews.comLoblaw Companies (TSE:L) Price Target Raised to C$230.00May 4 at 1:55 AM | americanbankingnews.comTSE:L Q2 EPS Forecast Lifted by National Bank FinancialMay 4 at 1:19 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 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 Q2Palantir Earnings: 1 Bullish Signal and 1 Area of ConcernVisa Q2 Earnings Top Forecasts, Adds $30B Buyback Plan Upcoming Earnings American Electric Power (5/6/2025)Advanced Micro Devices (5/6/2025)Marriott International (5/6/2025)Constellation Energy (5/6/2025)Arista Networks (5/6/2025)Brookfield Asset Management (5/6/2025)Duke Energy (5/6/2025)Energy Transfer (5/6/2025)Mplx (5/6/2025)Ferrari (5/6/2025) 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 9 speakers on the call. Operator00:00:00ladies and gentlemen, and welcome to Loblaw Companies Limited Second Quarter 2024 Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, July 25, 2020 I would now like to turn the conference over to Mr. Roy McDonald. Operator00:00:28Please go ahead, sir. Speaker 100:00:30Great. Thank you very much, Lara, and good morning, everybody. Welcome to the Loblaw Companies Limited Second Quarter 2024 Results Conference Call. As usual, I'm joined this morning by Per Bank, our President and Chief Executive Officer and by Richard Dufresne, our Chief Financial Officer. So before we begin the call, I'll remind you that today's discussion will include forward looking statements, which may include, but are not limited to statements with respect to Loblaw's anticipated future results. Speaker 100:01:02These statements are based on assumptions and reflect management's current expectations, as such are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations. These risks and uncertainties are discussed in the company's materials filed with the Canadian Securities Regulator. Any forward looking statements speak only as of the date they're made and the company disclaims any intent or obligation to update or revise any forward looking statements whether as a result of new information, future events or otherwise, other than what's required by law. Also, certain non GAAP financial measures may be discussed or referred to today, so please refer to our annual report and other materials filed with the Canadian Securities Regulators for a reconciliation of each of these measures to the most directly comparable GAAP financial measure. And with that, I'll turn over this morning's call to Per. Speaker 200:02:03Thank you, Roy. Good morning, everybody. Before we get to our quarterly performance, I would like to touch upon the settlement of class action lawsuits that we jointly announced with George Weston Limited this morning. This matter concerns our involvement in an industry wide price fixing arrangement between 2,000 and 1 and 20 15 on certain packaged bread products. As a reminder, upon discovering the arrangement in 2015, we self reported immediately to the Competition Bureau and have been cooperating ever since. Speaker 200:02:36We have apologized for this price fixing behavior and reinforced the rigorous action taken at the time to address the issue, including overhauling how pricing is managed and significantly enhanced our compliant programs. These measures, which remain in place today, are industry leading and include the establishment of an independent compliance office reporting to the Law of Law Board of Directors that has oversight of day to day compliance with laws and policies, including pricing practices. The settlement is subject to the finalization of a binding settlement agreement with the plaintiff lawyers and court approval. I'll now turn the call to Richard to discuss the quarter. Speaker 300:03:17Thank you, Per, and good morning, everyone. I will just add that we are pleased to be able to put this issue behind us at both Loblaw and George Weston. It's over. In 2024, we are seeing the normalization of our retail business. The pandemic and the subsequent period of high global food inflation are now behind us. Speaker 300:03:39As we compare our performance this year versus last, we see our same store performance slowing. At the start of 2023, food inflation was over 11%. It's now back to normal. Categories like cough and cold, which have been running at elevated levels for a while are stabilizing. We expected this last year and as such built our 2024 plan to reflect normalization while continuing to deliver our financial framework. Speaker 300:04:10Our Q2 results demonstrate that. We continue to deliver steady operational and financial performance. Our performance continues to reflect our ongoing commitment to retail excellence and our continued focus to provide value to our customers. On a consolidated basis, revenue grew by 1.5 percent to $13,900,000,000 and adjusted EBITDA increased by 4.5%. Adjusted diluted net earnings per share grew by 10.8 percent to $2.15 On a GAAP basis, our net earnings declined by 10% or $51,000,000 reflecting the impact of the charge related to the class action settlement. Speaker 300:04:52In terms of the financial details of today's announced settlement, the incremental cash impact to the company is $156,500,000 plus related legal and professional costs, all of which Loblaw has taken as a charge this quarter. The remainder is comprised of $96,000,000 previously paid out by the company under the Loblaw Card Program. The company will fund the one time cash cost with cash on hand. First and most important, this payment will not impact prices for consumers. At both Loblaw and George Weston, these payments will not impact the company's currently disclosed financial outlook, its capital expenditures including dividends and buybacks. Speaker 300:05:37Drug retail absolute sales increased 2.4% and same store sales grew 1.5%. Pharmacy and Healthcare Services grew same store sales by 5.4%, driven by broad strength in prescription and healthcare services. Our specialty acute and chronic prescription growth led our pharmacy numbers. Additionally, customers continue to respond very positively to convenience and expanded level of primary care we offer through our more than 2,100 pharmacies across the country. Front store same store sales declined by 2.4%, lapping growth of 5% last year. Speaker 300:06:18Beauty continued to deliver strong growth, in particular across the prestige category. We are seeing the normalization of the front store business after a few years of outsized growth. Remember that pre COVID, our front store same store sales growth averaged around 3%. Headwinds from lower spending on certain food and household items and our decision to exit certain electronics categories will impact front store comp expectations for the balance of the year. That said, we remain pleased by the underlying strength and profitability of the front store and we expect improvement in same store sales in Q3 and Q4. Speaker 300:07:01Overall, Drug Retail sales growth continued to outperform Food and have a positive impact on our margin mix. In Food Retail, we were lapping strong same store sales growth of 6.1% last year. Q2 same store sales grew an additional 0.2% with absolute sales up 1%. At Loblaw, we are committed to do our part to lower inflation. In Q2, our internal inflation on food was in line with CPI. Speaker 300:07:29Canada's food inflation was once again lower than overall inflation in this quarter. In fact, it's been lower every month since February. If we look at our average article price data, which reflects the actual items purchased by our customers, our actual inflation rate was much lower than CPI in the quarter, which aligns with our positive tonnage performance. The consumer shift to discount continues with our hard discount banners outperforming our conventional stores, delivering strong results with solid tonnage growth and higher traffic. We remain very pleased with the success of our conversions and the ongoing success of our Maxi banner in Quebec. Speaker 300:08:12I know that many of you have visited one of our new small format no frills in the quarter. It's still very early days, but we are very pleased with customer reactions. Looking ahead to Q3, we expect to add another 20 new Maxi and No Frills stores as we continue to bring more value to communities across the country. With that said, across our banners, we delivered solid market share performance and our actual food tonnage increased in food retail. Discount continues to grow market share and our conventional stores are outperforming compared to their peers. Speaker 300:08:48Right hand side had a negative impact on food same store sales of 87 basis points. These categories remain accretive to our gross margin and we continue to carefully manage inventory levels. Online sales in the quarter increased 14.2% and delivery continues to outperform as a channel. We are very pleased with our online sales penetration. Across Food Retail, our strong traffic and market share performance are a clear indication that our efforts continue to resonate with customers. Speaker 300:09:18More and more Canadians choose our store for value, quality and service. That said, as expected, our food retail same store sales growth came in a little soft based on last year's performance. Looking ahead, our Q3 is off to a stronger start. We are seeing improved same store sales performance and positive tonnage. Total retail gross margin was 32% growing 90 basis points. Speaker 300:09:45Continued progress in reducing shrink and higher drug retail margin due to sales mix drove our retail gross margin improvement this quarter. Food pricing was not a margin driver. We've continued our focus on reducing shrink and remain pleased with our momentum with both Food and Drug demonstrating strong improvements. That said, improving shrink remains a major focus and opportunity for us. Turning to SG and A, our spend rate as a percentage of sales increased 60 basis points driven by lower operating leverage, year over year impact of certain real estate activities and labor costs and costs related to network optimization. Speaker 300:10:25Our teams continue to do a great job managing costs. 2nd quarter retail EBITDA increased by $62,000,000 yielding a margin of 12.1%. We delivered strong performance at the bank. PC Financial's revenue increased 5.5% driven by growth in the credit card portfolio and strong services growth at our mobile shop. The bank's adjusted earnings before tax increased by $13,000,000 with higher interest income and lower operating costs offsetting higher credit losses. Speaker 300:10:56We remain very comfortable with the risk profile of the Bank's portfolio. We continue to take a conservative position in our provisioning with a strong and well capitalized balance sheet. On a consolidated basis, adjusted EBITDA increased by 4.5 percent to $1,710,000,000 Our retail free cash flow was $475,000,000 and we repurchased $482,000,000 worth of common shares. Our balance sheet remains strong and we continue to improve our key return metrics. In the quarter Loblaw's credit rating was upgraded to BBB plus with S and P citing the diversity and resilience of our operating performance. Speaker 300:11:36Our return on equity sits at 23.1 percent and our return on capital at 11.6%. As we look ahead to the second half of the year and specifically Q3, we remain confident in our ability to deliver our financial framework and our EPS targets. Q3 is off to a good start on both sales and market share and gross margin should continue to benefit from our shrink improvements. Our focus on new stores is gaining traction, more are coming soon and we are already hard at work on our plans for 2025. I will now turn the call back over to Per. Speaker 200:12:14Thank you, Richard. We began this year with strong momentum in our Food and Drug business. In the Q1, we delivered higher customer visits and growth in total units sold. Customer visits continued to grow across our business in the 2nd quarter as our commitment to provide value, quality and service continue to be recognized by our customers. Canadians remain focused on value. Speaker 200:12:38The shift to discount continued as sales growth in our hard discount banners again outperformed our conventional banners. We're pleased to see our internal inflation decline for the 6th consecutive quarter. This is helping lower food inflation for Canadians. While this is great news, we know that it is little consolation to families still struggling to meet their household needs. To address this, we're always working to deliver even greater value and affordability across our store network. Speaker 200:13:08For example, in our hard discount division, our team opened 14 new Maxi and No Fill stores in the quarter, introducing exciting new programs aligned with our commitment to providing everyday low prices. We introduced and expanded programs like throwback pricing, more aggressive flyers and more everyday low prices. Also in the quarter, we eliminated multi bikes in all our Maxi and NoFur stores. This change means that our customers can now get great value from purchasing only one item instead of having to purchase several items to get the same savings. This was an issue for many discount customers. Speaker 200:13:48It is regular feedback that I receive as I talk to customers in our stores. We replace this program with everyday low prices on individual items. This decision is absolutely the right decision for our hard discount customers, but it will be a slight headwind on our sales growth this year. Where counter most customer traffic and tonnage were both up as we continue to gain market share in the quarter. Across our super and market banners, we continue to provide a very strong full service grocery offering. Speaker 200:14:22Retail excellence played an important role in our operational and financial success and differentiate our conventional grocery business. The team has been busy improving our offering and providing more value for full service customers. We have lowered prices and enhanced our assortment in key areas like multicultural, prepared meals, fresh and natural foods. I talked before about our plans to reenergize the merchandise of our right hand side of our stores. We have started to try out some of our new initiatives to create more excitement in this area. Speaker 200:14:56In a few of our stores, we now offer new apparel brands like Puma, Hurley and Fortnite. We're still very early in this journey, but are pleased with the initial results. I'm pleased to report that our traffic was up in the quarter in both our hard discount and market division. This is a testament to the positive customer response to all the things we are doing to deliver great value to Canadians. As expected, our grocery our sales and grocery were a little soft, mostly based on last year's strong performance of 6.1% growth. Speaker 200:15:28Aside from this, it's hard to isolate one specific factors for the softness. As you begin quarter 3 with a stronger start, I want to highlight our new promotion. Last quarter, I talked about the success of our hit of the month program. That success continues in quarter 2 with unbeatable offers on 9 popular grocery items. Today, I'm super excited to announce our new Marvel program coming to all stores in August. Speaker 200:15:55So if you're not a big Marvel fan, be prepared that someone behind you at the checkout will be tapping you on your shoulder asking if they can bring your trading cards home to their kids, of course, only if you don't want them. So who says it shouldn't you shouldn't have fun shopping? Turning now to our drug retail business. As Richard highlighted, we were having a very strong quarter last year. The growth also reflects long term trends that continue to position us very well for the future. Speaker 200:16:27This is why our plan includes opening 20 new pharmacies this year and continuing to expand our pharmacy led clinics across the country. In Frontstorm, our perceived beauty is still delivering very good numbers. However, I expect to see our sales growth normalizing this year as we will be impacted by lower sales of electronics and household products. Pharmacy and Healthcare Services continued its momentum from last quarter and with specialty drops and new primary care services leading our top line growth. There seems to be a steady stream of announcement across the country showcasing the impact of pharmacies providing care for patients. Speaker 200:17:06The Nova Scotia government reported that pharmacy clinics have contributed to a nearly 10% decline in emergency room visits for non urgent or less urgent cases. Quebec Table Bill 67 giving pharmacists more power to serve as one stop shop for people with minor health problems or common illness, including prescribing certain drugs and extending prescriptions. And yesterday, Ontario announced that it's looking to expand the ability of pharmacy to provide patient care by treating additional common ailments, administering more vaccines and performing more point of care testing. This quarter, we are proud to announce that the signed based target initiative or SBTI has approved log loss emission targets around the reduction of scope 1 and 2 emissions 50% by 2,030 and our commitment that suppliers representing 70% of our total spend will have signed based targets by 2027. This is important as you recognize that our plans and ambitions are the highest global gold standards. Speaker 200:18:13Looking ahead, our focus remains on our strategic pillars of retail excellence, driving growth and investing in the future, while at the same time embedding ESG into every 2 medium. Our success allows us to make important investment into growth areas, operational efficiencies and in protecting our planet. These in turn allows us to offer Canadians the best value and service. We do remain confident in the strength of our assets and are encouraged by the customer momentum we're seeing into the Q3. We now open the call for questions. Speaker 200:18:48Thank Speaker 400:18:51you. Operator00:18:53Thank you. Ladies and gentlemen, you will now begin the question and answer session. Our first question comes from the line of Michael Van Aelst from TD Cowen. Go ahead please. Speaker 500:19:31Hi, thank you. I wanted to actually start on the drug side of the business. You commented on some of the front store weakness. Beauty still seems to be growing strong. And I'm wondering is the beauty category still growing holding in strong? Speaker 500:19:48Or is it shoppers just gaining market share or both? Speaker 200:19:53So yes, the front store is down 2 point 4 and we are lapping strong sales from last year over 2024 and we will be normalizing over the year. We have seen it mostly being impacted by electronics and household product, which of course is low margin. And to your question about persistability, we are delivering over and above the market and are seeing some really, really strong numbers there, while at the same time our pharmacy business continues to be very strong. And it's going to be normalizing during next quarter. We probably won't be positive, but it's going to be better than you saw in Q2. Speaker 200:20:31But the high margin categories as the prestige beauty is growing and we are really happy with the numbers we're seeing there. Speaker 300:20:38Yes, Mike, beauty is very, very strong. Like if you were to isolate one category that always surprises us is men's fragrance is the one that's always growing really high. But yes, so that continues. Speaker 500:20:52Okay. And then can you update us on your market share in some of the key beauty categories? Speaker 200:21:01We don't have exactly market share in the key beauty categories, but I think it's important to say that these prestige beauty is growing over and above the food sales growth. So the market in total is actually growing with low double digit growth. That's at least what we are seeing. So it's a good place to be in. We don't have the market, the specific market share for that. Speaker 200:21:25And if we have, I'm sure Roy will come back to you. Speaker 500:21:28Okay. All right. Then on the pharmacy services, obviously, it looks like the services are growing pretty rapidly. How is Loblaw's progressing in the rollout of its clinics? And based on some of the new announcements out of Ontario and other provinces, Speaker 400:21:54clinics as we Speaker 200:21:54were last time we the new clinics as we were last time we spoke. And actually, yesterday, we opened a new superstore, and we opened with clinics and we saw some really, really good traction there even the first day without talking about it. And which you are alluding to like the development on in Ontario is really, really great news for the people of Ontario. And we do believe that it will provide significant benefits in reducing the pressure in the health care system and being better for patients. So we stay confident. Speaker 200:22:29And at the end of next year, we will probably be at around 2 50 clinics. At the Speaker 500:22:36end of next year? Speaker 200:22:38Yes. Speaker 500:22:39Okay, perfect. Thank you. Operator00:22:43Thank you. Our next question comes from the line of Irene Mattel from RBC Capital Markets. Go ahead please. Speaker 600:22:52Thanks and good morning everyone. Now that Mike's covered off the pharmacy piece, can we please drill down on this food same store sales number? I think fair to say it was weaker than most of us expected. I think we understand consumer trade down, inflation. You mentioned multi buy right hand side of the store, but there was also the boycott. Speaker 600:23:13Can you talk about the puts and takes and where you saw the most pressure and I guess maybe where you're seeing some nice gains? Speaker 300:23:21Yes, Irene. So yes, same store sales look softer than they actually are because of the year over year comps. And I think it's worth talking about Q1 and Q2. So Q1, we delivered 3% same store sales, but and the year before was 3%, so it's 6%. So in Q2, we delivered last year 6% and we're 0.2%. Speaker 300:23:41So we're essentially flat. So the trend, the sales trend from Q1 to Q2 is pretty much the same. Having said that, there were a couple of factors that impacted sales like in particular, I would call it like, I don't know, the wet spring or if you remember May. May of last year, which I do remember vividly was extremely hot and our garden center sales were through the roof, sun care, allergies, like we're like beating records. And so this year, we had made was very rainy and cold. Speaker 300:24:18And so those categories suffered significantly. So therefore, that was definitely a factor. And regarding what you just mentioned in last part of your question, we did notice a bit of an impact in certain stores in specific markets. But that said, at the end of the quarter, things have returned to normal. Speaker 200:24:40Yes. And I would add that while the overall financial impact was minor, for us every single customer is important to us and one customer loss is one too many. And I have spent a lot of time speaking to customers and different stakeholders. And I do listen to them because their feedback is really, really helpful and we welcome it. It makes us better. Speaker 200:25:03So multi buyers is just one of the pieces of feedback that I have gotten since I came to Canada. And it's actually because customers told me that they didn't like the multi buy. That's why we have removed them. It was the biggest irritant to customers. And also therefore, we continue to work hard every day to win the trust and loyalty of our customers. Speaker 200:25:25And I would say that our stores, they are in a great shape. Our promotions are better than ever. And our prices are really, really competitive at the moment. So I'm pleased that the customers are recognizing that more and more week by week. And as we said before, both traffic and tonnage is off quarter over quarter. Speaker 300:25:44Yes, Irene, just to give a little bit of clarification, us removing multi buys is actually hurting us on sale at first. And so but we expect that over time we're going to recover that as customers buy more stuff other than what they were buying. Speaker 200:26:00Yes. Think about if you have to buy 2 ketchup and then there will be a time where you have used these 2 bottles of ketchup and then when that's over then you go and buy one again. So that will just be a time before that sales will come back. But what is important here is that when you are on a tight budget, we don't force you to buy 2 bottle ketchup, then you can actually afford to buy the mustard because we are seeing a trend that more and more customers, they only have $30, dollars 40, dollars 50 to spend, and we want them to be able to spend it on the products that they want to buy. So I think that's why it seems like a little thing, but it's actually a really, really good thing for our customers at this current division. Operator00:26:47Thank you. Our next question comes from the line of Mark Petrie from CIBC Capital Markets. Go ahead please. Speaker 700:26:56Yes, thanks. Good morning. Just following up on that topic, appreciate the comment about the stronger trends in Q3 to date for both food and front store. I'm just curious what you would attribute that to, I guess, most specifically on the food side. Is it just a matter of maybe lapping some easier numbers? Speaker 700:27:17Or do you think there's something different in how you're presenting to the customer, shifting competitive environment, that type Speaker 400:27:24of thing? Speaker 300:27:28I think to me, it's our strategies are working. You look at hits of the month, which we started in February, like we're starting to get better at it. We're still learning the ropes, but that's definitely resonating with customers. But obviously, last year's performance will also be a factor. If I remember correctly, I think our same store sales in Q3 was 4.5, So lower than 6. Speaker 300:27:53So that's definitely a factor that's going to drive same store sales in Q3. Speaker 200:27:57And I agree with you that it is a competitive market in Canada. It is really competitive. It has been for the last year and it still is. I just believe that the initiative that we are deploying have deployed with Hitters a month so far, but also our Marvel program. I'm sure that will excite customers. Speaker 200:28:15So we are trying more and more to utilize the skill and scale of the entire group also by doing some enterprise promotions. We haven't done that in the past. So Marvel, remember that's across all our stores, including shoppers. And when we do something with our entire store portfolio, we can make something that's better for customers because just promoting like banner by banner instead of doing it all together, we get more value for our money. So I stay really confident in our strategy going forward and the initiatives that we have. Speaker 200:28:54So I believe we have a strong trade plan for the second half of twenty twenty four And stay really, really confident in our strategy. And as we have discussed before, it is about growing with our our hard discount business. It's growing with shoppers, 20 new stores and it's keeping our absolute market share with our market and total stores. And we are deploying a lot of initiatives in each single part of our business. So growing and keeping cost low and thereby also being confident in delivering financial framework. Speaker 200:29:29So I'm quite excited about the things that we have in the pipeline. Speaker 700:29:33Yes, understood. Okay, thank you. And then if I could just follow-up, I wanted to ask about sort of the competitive dynamics specifically in Quebec. Obviously, it's a market where your asset mix in food has been shifting to discount very materially. And curious if you're seeing the market dynamics adjust at all and if there are any different in Quebec versus other parts of the country? Speaker 200:29:58I think on specific on Quebec, I think I'll be guessing too much if I try to answer question. So let's come back to you on that one. Speaker 700:30:06All right, fair enough. Thanks and all the best. Operator00:30:12Thank you. Our next question comes from the line of Vishal Shreedhar from National Bank. Go ahead please. Hi, Speaker 800:30:21thanks for taking my questions. Per, I just I want to ask you just to get your perspective now that you've been at Loblaw for some time. Obviously, you've made a lot of changes at the grocery side of the business, some of them fairly significant. On the Shopper side, not as much. Shopper's is a little bit of a unique Canadian business with the high low proposition and the strong beauty. Speaker 800:30:49Wondering if that's something that it just takes more time for you to familiarize yourself with the offer? Or is that more of an endorsement of the model and you think that shoppers as it is and the drivers that it has? Speaker 200:31:00No, that's a very good question because when I came to Canada a year ago, I was really looking deeply into the shoppers model and I was a little bit suspicious in the beginning because how good was the model. And the more and more I dig into the shovels model, the more excited I became and the less I wanted really to change. So we have a strong plan. We have a strong strategy in shoppers. And that's also really, really important for me, why change a winning model. Speaker 200:31:31So I don't want to change just for the change the sake of the change. So that's why we stay true to the model that we have. But Richard and I, we did do one change. So I think we discussed with Jeff from Sherwood that we want to do more clinics. So I think on the last call that we said, okay, go ahead, fill as many clinics as we can cope with because we are seeing that, that does help Canadians. Speaker 200:31:56So that's one of the changes that we have made. And then also, ShopUp, they're now engaging in our enterprise different promotions. So yes, we have not changed as lot, but that's more a testament to that the model that we have is working. And I would say the same that yes, we made a lot of changes to the business. But the business I took over was in a very good shape. Speaker 200:32:22So there was lots of places where we are world class just to talk about our control brands, our supply chain, the way we run our stores, the financial rigor we have around controlling our inventory. So lots of things that works better. I have more been focused on what can we do even more to give customers value and that's where I will focus going forward. Speaker 800:32:45Okay. Thank you for that perspective. And just another Richard, once upon a time, there's a perception that shoppers the shopper side of the business was had an ability to hit its targets more consistently, perhaps because of more consistency across the store formats and other reasons. As these businesses, Loblaw and Shoppers get more integrated, have you noticed the performance gap, call it, if that's a fair word term to use, Has that tightened up or are the businesses still performing? It's a Speaker 300:33:21good question, Mike. I'd say our ability to forecast and manage has overall gotten better throughout the organization. So that's benefiting both shoppers and blah, blah. But each business has different dynamics. Those dynamics remain. Speaker 300:33:38So the dynamics that are sort of linked to shoppers remain like when we talk about, I don't know, expanded scope of care or specialty drugs and the growing population that's getting older. Those are sort of tailwinds that shoppers have that's not the same in the food side. So those things continue. Okay. Speaker 800:34:02And maybe if you can give us an update on the smaller NoFo stores and how those are performing versus expectation? Speaker 200:34:09Yes, they are. They're doing really, really well. It's early days, but the 2 stores that we have downtown Toronto, we visited those with our Board this week and they're doing so well. And I spoke to a few customers in the stores. So one customer I spoke to, she told me that she was really, really worried that this store will be congested. Speaker 200:34:30I said, why? Yes, because I'm speaking to everyone I know about how great this store is. We needed a small hard discount in this part of the town because we want access to lower prices. And this is exactly why we're doing it. We are giving more Canadians access to lower prices. Speaker 200:34:47And we're doing it by getting into sites that we wouldn't have considered before because we're going down to even down to 8,000 square feet. And even going down to 8,000 to 10,000, 12,000 square feet, we managed to get 5,000, 6, 7,000 of product into those stores so customers can do a full shopping trip. And if we compare this because what is 5, 6, 7000 products, if you compare that to the German retailer, they would have about 3,000 products in their stores. So it's a great offer to customers. And this is exactly what we want to hone down on and double down on and do more of over the next years. Speaker 200:35:25And in the next quarter, as Richard is talking about this quarter, we're opening almost 20 new node flows and in the Q4 another 17. Speaker 800:35:37Thank you. Operator00:35:42Thank you. Our next question comes from the line of Speaker 600:35:55I guess I'm just surprised that weather was material enough for you to call out. I don't know if you call last Q2, the very hot May was talked about. So the tonnage performance here, the bit of softness, I mean, there was, I guess, you would call it no other factor. It was really just the weather dynamic. And if I think about your true tonnage in this quarter, Q2 versus Q1 of this year, Sorry, Per, I think I heard you say it was up sequentially, but it seems at least on our end, it might have been a bit down sequentially. Speaker 600:36:28So can you just confirm that? Speaker 200:36:30No, yes, that was quarter on quarter like last year. So quarter 2 last year, I was talking about. We were not I didn't compare it to quarter 1 this year. And it is really hard to single out one factor. So yes, Richard mentioned that the season started later than it did last year. Speaker 200:36:54That's one impact. But it is a lot of different reasons why our sales is a little bit softer. But on a 2 year comp base, we are still running strong about 6% like we were in the Q1. And we're also lapping a bit of easier comps in the Q1 on market share. So overall, we are pleased. Speaker 200:37:16Would we have liked a little bit of more and more sales? Yes. But still, we are happy with what we have and even more pleased with a stronger start into quarter 3. Speaker 300:37:28The point that Pierre mentioned is actually relevant. Like our tonnage performance in Q1 was particularly strong, but it benefited from our activities, but also benefited from the fact that Q1 of last year was weak. So we had an easier comp from a tonnage perspective, which we sort of fixed in Q2 of last year. So it made this quarter a little bit tougher to cycle from a tonnage perspective, but we still were able to grow it. So we're pleased with that. Speaker 300:37:57So for us like sales trend is heading in the right direction year to date and that's what we're focused on and that's what we're saying that when we enter Q3, we feel good about hitting our framework. Speaker 600:38:13Okay. Thank you for the clarification there. I'd like to try out Quebec as well is the MAXI, can you talk about clearly, you benefited from share gains there from doing that. Can you talk about the locations you're converting now? What the uplift is like versus the previous ones? Speaker 600:38:36And the first MAXIs that were converted, have they been still trending like they were when you had first done the conversions? And do you see any material competitive responses to all of this? Speaker 300:38:49So yes, the new stores continue to perform really well, still way ahead of sort of prototype expectation for a normal conversion. But yes, also we're getting to the tail end of the conversion. So the lift we're getting is not as strong as the first one, but the first ones we're getting was like a crazy number north of like 100% plus per store. So but the numbers that we're getting are really good. We're gaining significant market share in the province. Speaker 300:39:18It's not we're not talking basis points here. We're talking percentage points. And so we're going to be coming to the end of the conversion program or close to by the end of this year and now we're starting to supplement it with new stores. So we have also new Maxis that are going to be opening this year that's going to further solidify our presence in the province. Speaker 600:39:45Okay. And the last question I've got is on gross margin. It's so strong this quarter. I mean, aren't you haven't you recovered basically the headwinds from shrink just by that magnitude? So I'm trying to Speaker 300:40:06worst, okay. So therefore, it was an easier comp from a shrink perspective, but our teams have been working hard and they've made significant progress on shrink. So that's why we got such a big lift in gross margin in the quarter. Having said that, like that those shrink-led numbers now are running at lower rate than last year. So you're going to still see that in Q3, but albeit not to the same extent. Speaker 300:40:32So gross margin is going to be up in Q3 quite nicely, but not to the same extent as we saw in Q2. That together with our improved same store sales that we talked about and I've also said in the past that our second half from an SG and A perspective is going to be better. So stronger SG and A performance, stronger gross margin and stronger same store sales that will allow us to hit our framework. Operator00:40:58Thank you. Thank you. Our next question comes from the line of Chris Lee from Desjardins. Please go ahead. Speaker 400:41:08Good morning, everyone. Sorry, I think you answered a lot of the question I was going to ask you. Just maybe follow-up on the SG and A rates. I think previously you have said that you expect the rate to be more or less flat for the full year. So based on the first half result so far, I mean this would imply your SG and A rate will likely be down a little bit, maybe 10 to 20 basis points just based on my math. Speaker 400:41:31Is that kind of what directionally you're referring to? Speaker 300:41:36Yes. But like I don't have visibility in Q4 yet to that level of specificity. But I think I can confidently say that at least for Q3, it should be flat. Speaker 400:41:47Okay. And I think you mentioned last time that you do have some levers you can pull in the second half to achieve that. So it sounds like you have okay. And okay, no, that's helpful. And then maybe just, yes, going back to the gross margin again. Speaker 400:42:01So it sounds like Q3 is going to be up, but not as strong as Q2. Is that what you're saying? Speaker 300:42:07That's exactly what I said. Speaker 400:42:09Okay, perfect. And then maybe just on the and just going back for the food same store sales one last time. So yes, you made a good point like on a 2 year stack basis, Q2 was 6% -ish, which is same as Q1. So that's good. You mentioned Q3 today, it's better than Q2. Speaker 400:42:30But if you look at it on a 2 year stack basis, should we are you seeing kind of running about the same rate like 6% -ish in Q3 as you've seen in Q2 and Q1? Speaker 300:42:40Sure. Hope so. Speaker 400:42:42Okay. That's helpful. And then maybe, Per, just again a couple of follow ups on the pharmacy clinics. I mean, overall, how are they performing relative to your expectation? I'm thinking in terms of both the frequency of patient visits per day and also sales lift that you might be seeing from just incremental traffic to the stores. Speaker 400:43:06How are those metrics trending versus your expectations so far? Speaker 200:43:09No, they are continuing to deliver exactly as expected. So of course, we set out certain criteria as when we improve these new clinics and when we go into our capital meeting and improve them. So they are living up to it and some better than others. But in average, they're actually doing better than our expectation. Also helped by the prescribing is up by 40% to last year. Speaker 200:43:36So they're good. We're pleased. We are going to continue to build new clinics. And of course, what is underway in Ontario is also going to support this. Speaker 400:43:48Okay. And again, yes, my other question is as you continue to get expanded school of practice from the provinces, just from a capacity perspective, like on the ground level for the pharmacist, overall, like do they have pharmacists, overall, like do they have sufficient capacity to take on additional responsibilities? I know you guys have been making some investments in centralization, etcetera. So just, yes, I want to see like from a capacity perspective, are you guys in a good position to take on more responsibility? Speaker 200:44:16Yes. We are in an okay position. But of course, if things change, then we're also going to build up capacity. But at the moment, we don't have a capacity problem and we don't expect to have one going forward. Speaker 400:44:28Okay. And then just a couple of last ones. If I were to switch back to food, just wondering, as inflation continues to moderate a little bit, have you been able to get more promotional support from some of your vendors since I'm sure they're also motivated to drive volume growth? Speaker 200:44:44Yes. It's a really good question what we are seeing that the big CPGs, they're really looking for sales. And that's also why that we are expecting that the tonnage and the growth of our national brands will grow in line with our control brand this year. So even if we are seeing that our non AM is growing a lot, then the national brands will grow a lot because it's going to be supported by some promotional support. That's also why we can do it ahead of the month as we can because we are selling so, so cheap And they just want the volume. Speaker 200:45:24And I think you know that if you're looking at some of the big players out there. Speaker 400:45:29Okay, that's helpful. And Richard, maybe last one for you. If I'm reading your financial statements correctly, it looks like you guys have sold about $59,000,000 of properties with another $33,000,000 held for sale at the end of Q2. I think in your statement, you mentioned you're still on track to dispose about $400,000,000 of property this year. Is that so you do expect a step up in the second half in terms of property sales. Speaker 400:45:52Is that correct? Speaker 300:45:53That's correct. Speaker 400:45:55Okay. Great. Thanks very Speaker 200:45:57much. Thank you. Operator00:46:01Thank you. We have a follow-up question coming from the line of Michael Van Ael from TD Cowen. Go ahead please. Speaker 500:46:22Yes, thank you. So just a question on the financial services side. Can you explain that swing in the financial services revenue growth and margins when you look at Q1 versus Q2? Q1 seemed quite a bit stronger. Speaker 300:46:37Yes, yes, yes. So like we signed a Mastercard contract, Mike. And so we got significant benefits in Q1. Now what we're seeing going forward is the ongoing benefits. So the runway to see now should be the one that continues. Speaker 300:46:53Having said that, Michael, like the key driver of profitability of the bank is the ECL, which is a black box thing. And so we never know how ECL is going to move quarter over quarter. But in a more, I guess, softer economic environment, like it should trend slowly. So if that continues, you should see the same trajectory going forward. I hope that helps. Speaker 300:47:21That's helpful. Speaker 500:47:22Dan, and were the ECLs higher in Q2 than in Q1? Speaker 300:47:30No, it's in line. It's in line. It's growing on plan like we have a plan for HCL and so far it's growing on plan. Speaker 500:47:41Okay. And how about on the top line? Speaker 300:47:44On top line, there's a bit of noise, but like the big picture point I'd like to spend to share with you is like that our growth in spend in the credit card is not growing as fast as we'd like and it's a testament to the economy. People are spending less outside grocery stores. So that's affecting the top line. But other than that, it's just noise between Q1 and Q2. Speaker 500:48:10Thank you, Richard. Operator00:48:14Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. McDonald for final closing comments. Speaker 200:48:23Great. Thank you very much. Speaker 100:48:25So thanks everybody for your time this morning. Any follow-up questions, drop me an email or give me a call. And if you have your calendar out, Mark, Wednesday, November 13, when we'll be releasing our Q3 results. Thanks everybody and have a fantastic day. Operator00:48:44Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.Read morePowered by