North West Q2 Earnings Call Highlights

Key Points

• North West delivered solid Q2 growth: Consolidated sales rose 5.4%, with Canadian and international same-store sales increasing 7.4% and 5.8%, respectively. EBITDA grew 5.4%, EBIT 4.7% and adjusted net earnings 5%.
• Higher costs pressured margins: Fuel-related freight, labor, utilities and renovation-related depreciation increased expenses. The company passed through much of the inflation while limiting markups on key essentials, creating near-term gross-margin pressure.
• Management expects additional demand and productivity support: First Nations settlement payments are expected to boost Canadian sales in the second half of 2026 and for several years. The Next 100 program and selective aircraft purchases are intended to improve efficiency, reduce leased-aircraft costs and support future growth.

North West TSE: NWC reported second-quarter sales and earnings growth as same-store sales increased across its Canadian and international operations, helping offset higher fuel-related freight, labor and other inflationary costs.

President and Chief Executive Officer Dan McConnell said consolidated sales rose 5.4% during the quarter. Canadian same-store sales increased 7.4%, while international same-store sales grew 5.8%.

The company’s EBITDA increased 5.4%, EBIT rose 4.7%, and adjusted net earnings increased 5%, excluding a non-comparable withholding tax expense. Consolidated gross profit rose 5.7% and improved by eight basis points as a percentage of sales, while selling, operating and administrative expenses increased 6%, or 13 basis points relative to sales.

Sales Growth Across Canadian and International Operations

McConnell said sales growth reflected inflation, higher retail prices and fuel-related freight costs, as well as stronger same-store performance. In Canada, food and general merchandise same-store sales increased 7.4% and 7.5%, respectively.

Canadian results were also affected by a higher Government of Canada grocery and essential benefit payment to qualifying individuals compared with the previous year’s GST credit, as well as wildfire-related community evacuations in Northern Canada in the prior-year period. Those factors were partly offset by the closure of the company’s Fond-du-Lac, Saskatchewan store during the first quarter.

International same-store sales increased in all business units. McConnell cited food-sales gains and particularly strong general merchandise demand, including in motorized big-ticket categories. He said higher oil prices benefited regional corporate dividends in Alaska, while economic conditions remained strong in most Caribbean markets despite the quarter falling in a lower-tourism season.

The company also gained market share at certain Alaska stores, McConnell said. Those factors more than offset the sale earlier this year of a Cost-U-Less store ahead of the opening of a new store in Hagåtña, Guam, on Aug. 28.

During the question-and-answer session, McConnell confirmed that stronger motorized sales were seen in Canada as well as international operations.

Fuel and Labor Costs Pressure Margins and Expenses

Higher fuel-related freight costs remained a headwind for gross profit and operating expenses. McConnell said the impact is more pronounced in northern markets because of the longer and more complex logistics networks required to serve communities in Northern Canada and Alaska.

In certain Caribbean and Pacific markets, fuel-price effects have been less pronounced, enabling a more direct pass-through of cost increases, he said.

North West adopted what McConnell described as a balanced pricing approach, passing through higher fuel-related freight costs without an additional markup while making targeted price investments in certain food items. The strategy created near-term gross-margin pressure, particularly in Canadian operations, but was intended to support the company’s customer value proposition.

In response to an analyst question about pricing, McConnell said the company passed through much of the inflation, except in certain key essential categories. He acknowledged that customers have reacted negatively to inflationary pressures.

Expenses were affected by higher staff costs, depreciation related mainly to store renovations, fuel-related utility costs and other inflationary pressures. McConnell identified labor as a key area for further improvement, noting that wage inflation, business-growth requirements, operating needs in northern markets and staffing for major renovations contributed to the increase.

“Staff productivity measures improved from the first quarter,” McConnell said, though he added that additional opportunities remain and will be a focus in the second half of the year.

Settlement Payments Expected to Support Canadian Demand

McConnell said the company expects Canadian operations to continue benefiting from increased customer demand associated with First Nations Child and Family Services settlement payments.

Payment activity increased late in the second quarter after being largely offset earlier by lower First Nations drinking water settlement claims relative to the previous year. The Child and Care Claims Administrator has reported approximately 124,000 submitted claims in the removed child class, McConnell said.

North West has observed payments in 54 of the 63 affected communities it serves, although distribution remains limited in many communities. McConnell said sales capture and customer spending patterns have been broadly consistent with the company’s expectations, with settlement recipients purchasing categories the company had anticipated would benefit.

He said the company expects payment distribution to increase in the second half of 2026 compared with first-half trends and to continue for a number of years. That outlook reflects the timing of payments to individuals reaching the age of majority, as well as expected future application and distribution activity for other settlement classes.

McConnell cautioned that the timing of payments has been difficult to predict, but said the increase in activity beginning in late July and continuing through August was encouraging. He attributed optimism about a sustained higher payment level to the number of submitted applications relative to the payments received so far.

Next 100 Program and Aircraft Fleet Renewal

The company said its Next 100 initiatives supported gross-profit improvement through merchandise assortment refinements, procurement work, expanded private-label offerings and changes in sales mix. McConnell said the program has helped mitigate fuel-related cost pressures and will remain focused on productivity and expense management.

North West also purchased a Basler BT-67 aircraft during the quarter and expects to make further aircraft purchases as part of North Star Air’s cargo and passenger fleet renewal. The purchases are included in the company’s revised capital expenditure outlook, though timing will depend on aircraft availability and pricing.

McConnell said replacing leased aircraft with owned aircraft is expected to lower operating costs, reduce dependence on lower-margin leased aircraft, improve maintenance and parts efficiencies through fleet standardization, and add capacity for future growth.

He characterized the elevated capital spending as opportunity-driven rather than a new normal. The company is pursuing purchases selectively when they meet its financial return thresholds, he said, and does not expect the current spending level to become a recurring annual level of capital expenditures.

About North West (TSE:NWC)

The North West Company Inc, through its subsidiaries, is a leading retailer of food and everyday products and services to rural communities and urban neighbourhoods in Canada, Alaska, the South Pacific and the Caribbean. North West operates 230 stores under the trading names Northern, NorthMart, Giant Tiger, Alaska Commercial Company, Cost-U-Less and RiteWay Food Markets and has annualized sales of approximately CDN$2.6 billion.

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