North West TSE: NWC reported higher first-quarter earnings despite lower consolidated sales, as margin improvements tied to its Next 100 program, an asset sale gain and lower share-based compensation helped offset weaker Canadian sales and inflation-related cost pressures.
President and Chief Executive Officer Dan McConnell said the quarter reflected “the resilience of our business and our ability to adapt and deliver performance within a challenging and shifting economic environment.” Consolidated sales decreased 1.5% in the quarter, as same-store sales gains in the company’s international operations were more than offset by foreign exchange impacts and lower sales in Canada.
Net earnings increased 5.4% in the quarter. Gross profit rose 0.6%, supported by a 72-basis-point increase in gross profit rate, which McConnell attributed to merchandising assortment refinements, procurement improvements and an expanded private label offering under the company’s Next 100 program.
International Gains Offset by Softer Canadian Demand
North West’s international operations posted a 4.3% increase in same-store sales, building on a 2.8% gain in the prior-year quarter. General merchandise same-store sales in the international segment rose 8.7%, following a 5.2% increase a year earlier.
McConnell said the international gains were supported by “a solid tourism season in the Caribbean” and market share gains in Alaska, including the opening of a second store in Utqiagvik at the end of October last year.
Those gains were partially offset by the sale of the Cost-U-Less Chalan Pago store earlier in the quarter. McConnell said the sale came ahead of the expected opening of a new Cost-U-Less store in Agana, Guam, scheduled for the third quarter. In response to an analyst question, he said the company is consolidating two stores into one 55,000-square-foot location and expects “a nice sales jump” in the fourth quarter from the new operation.
In Canada, sales decreased 2.2%, while same-store sales fell 0.9% after a 4% increase in the first quarter last year. McConnell said the Canadian business was affected by “less money in market” as the company lapped the elimination of the Inuit Child First Initiative food voucher program, reduced funding for Jordan’s Principle and lower water settlement payments compared with last year.
Canadian general merchandise same-store sales decreased 7.5%, as consumers shifted spending toward food and away from discretionary purchases. McConnell said increased demand from child and care settlement payments provided some offset, but the pace of payment distribution has been slower than the company expected.
Margins Improve as Expenses Decline
McConnell said gross profit rate improvements reflected the impact of Next 100 initiatives, including assortment changes, procurement work and private label expansion. He said those initiatives are delivering value to customers, particularly in an environment of rising fuel and inflationary costs.
Changes in sales mix, including lower wholesale food costs, also supported gross profit. However, the company faced higher markdowns and inventory shrink compared with last year due to challenging weather conditions in northern markets that contributed to transportation delays.
Expenses decreased 1% in the quarter. McConnell said the decline was driven by a CAD 3.8 million gain on the sale of the Cost-U-Less Chalan Pago store and lower share-based compensation costs. Those items were partially offset by higher staff costs, inflation-related increases and higher utility costs tied to unseasonably cold weather in the company’s Canadian operations.
During the question-and-answer portion of the call, CIBC analyst Ty Collin asked about higher labor costs. McConnell said colder weather and record snow in northern Canada and Alaska required more effort to operate the business, while the company also had some internal execution issues related to labor tools and algorithms. He said North West expects to bring labor costs “back in line for the remainder of the year.”
Settlement Payments Remain a Key Uncertainty
North West continues to expect its Canadian operations to benefit from increased consumer demand linked to First Nations Child and Family Services settlement payments. However, McConnell said the ramp-up has been slower than anticipated.
He said the claims administrator has reported approximately 110,000 claims submitted in the removed child class. Based on activity observed by the company, individuals in 50 of the 63 impacted communities North West serves have received funds, but the number of payments distributed remains “very low.”
McConnell said customer spending patterns and the company’s sales capture from the payments so far are broadly consistent with expectations. He added that the distribution of child and care settlement payments is expected to continue into 2026 and extend for several years, but the timing remains uncertain.
Asked by BMO Capital Markets analyst Stephen MacLeod whether payment distribution changed during the quarter, McConnell said May was “really slow,” followed by some acceleration. He said the company believes payments may be processed monthly but has not determined the exact pattern.
McConnell also discussed the approved agreement on long-term reform of First Nations Child and Family Services between the Government of Canada, First Nation chiefs in Ontario and Nishnawbe Aski Nation. He said the agreement should benefit Indigenous peoples and communities served by North West through direct programs and indirect investments in infrastructure and local employment, though timing is uncertain.
Fuel Costs Pressure Remote Markets
North West is monitoring macroeconomic conditions, particularly higher oil prices and fuel costs. McConnell said fuel increases are expected to raise freight costs to deliver merchandise to stores and fuel-related utility costs. The company began seeing fuel surcharges from freight carriers later in the quarter.
Because North West operates in remote northern communities with longer and more complex logistics networks, McConnell said fuel increases have a more significant impact than they would for urban retailers. He said the company has begun passing through some cost inflation and expects to do so strategically.
“It’s going to have to get passed through strategically on to the customers, unfortunately,” McConnell said.
He said higher fuel costs affect northern households not only through distribution costs but also through heating, utilities and transportation. McConnell said the company hopes governments recognize the larger impact on northern communities.
In response to TD Cowen analyst Cheryl Zhang, McConnell said fuel costs have also risen in international markets, including the Caribbean, but the company has been able to pass those costs on so far. He added that volume and market share gains in international markets mean sales growth is not solely inflation-driven.
Next 100 Program Remains Central to Outlook
McConnell said the company remains focused on executing its Next 100 program and finding cost efficiencies. The program includes ongoing merchandise assortment and procurement refinements, expansion of private label products, store-based inventory forecasting, replenishment technology and a new warehouse management system.
The company expects these initiatives to improve on-shelf availability, streamline ordering for store and warehouse teams and reduce shrink and markdowns. McConnell said Next 100 should help mitigate external headwinds while building capabilities that deliver value to customers and support sustainable financial performance for shareholders.
Looking ahead, McConnell said North West expects stronger Canadian sales comparisons for the rest of the year as it laps prior-year benefit programs, although the timing of new settlement payments remains uncertain. He also said international trends, including tourism and other demand drivers, are expected to continue based on what the company sees today.
About North West TSE: NWC
The North West Co Inc is a Canada-based company that is principally engaged in retail business in underserved rural communities and urban neighborhoods. The company provides food, family apparel, housewares, appliances, and outdoor products, with food products accounting for the majority of the company's revenue. The company also offers services, including post offices, income tax return preparation, money transfers, commercial business sales, and others. Its geographical segment includes Canada and International.
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