Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total sales increased by 3.5% year-over-year, reaching $6.65 billion.
- Same-store sales were up 2.4% in food and 5.2% in pharmacy.
- Online sales grew by 35% compared to the same quarter last year.
- The Moi Rewards program saw significant growth, doubling active members to 2.5 million.
- The new automated distribution centers in Terrebonne and Toronto are ramping up productivity as planned.
Negative Points
- Operating expenses increased by 4.8% year-over-year, partly due to higher third-party e-commerce fees.
- Adjusted net earnings decreased by 3.1%, from $314.8 million to $305 million.
- Net financial costs rose to $46.6 million from $37.1 million last year, driven by higher debt levels and interest rates.
- The gross margin remained flat at 19.6%, indicating pressure on profitability.
- Shrink and theft continue to be significant issues, impacting overall margins.
Q & A Highlights
Q: Thinking about consumer behavior, from your commentary, Eric, it sounds as though what you're seeing in store is really a continuation? Or are you seeing any kinds of shifts at all as we continue to hear a narrative around consumers really tightening, tightening, tightening?
A: Very similar consumer behavior across our networks. So as we've been reporting every quarter for over a year, almost two years, I would say, the search for value continues. As I said, people are searching for deals. Promotional penetration is really high, and private label sales are doing really well. So it's really the same environment as we've been describing for several quarters. - Eric La Fleche, President, Chief Executive Officer, Non-Independent Director
Q: Can you talk a little bit about why you mentioned the increased uptake in terms of cross-shopping? Can you talk about what you're seeing more broadly both at food and pharma and how maybe you're using some targeted promotions to continue to drive traffic and basket?
A: We've launched the Moi a year ago. We're able now to use the data and analyze customer behavior across our food banners and across food and pharma. We're happy to see consumer engaging more and more in the Moi program, but also engaging in our banners as they cross-shop between our banners. The teams have started and will continue and accelerate offers to consumers to promote that cross-shopping, promote basket and transaction across our store network in Québec. - Marc Giroux, Executive Vice President, Chief Operating Officer - Food
Q: Can you talk about the Phase 1 in Toronto? Since it's launched, how that's unfolded in terms of the benefits to your results? And specifically, I think for this quarter, just given the strong same-store sales versus the year ago, has any of that been driven by the gains from the Toronto Phase 1, perhaps also some initial gains out of the Terrebonne DC?
A: Toronto Phase 1 was January of '23. So it's been a while, so it's up and running. It's a combo DC, right? Phase 1 was manual and automated. The freezer in Toronto was fully automated. So those two centers have been in operation for a while, have been ramping up well and, I think, supporting our store network really well. Together with that, we have automated replenishment in our stores. Terrebonne is still very early days. We're happy with the performance so far, but it's clearly in the ramp-up period, and it would be a stretch to say that Terrebonne has contributed to higher same-store sales. - Eric La Fleche, President, Chief Executive Officer, Non-Independent Director
Q: Can you remind us how to think about the benefits, just specific line items that they help you in your P&L? And if you could talk in any way about the magnitude, the cadence, I think there's just a lot of questions as to how we and investors should think about, especially now with the Terrebonne and Toronto Phase 2 gradually coming to their finish line, how we should think about the impact that they could have over time to your earnings going forward?
A: DCs are our cost centers. The benefits will be both on the OpEx and on the gross margin as you improve your in-stock position, your store servicing, we also made investments in automatic replenishment. So you should expect the benefits to accrue over a long period of time. As sales increase, as volume increases over time, we also expect to have more benefit just because we are leveraging a fixed-cost operations for all practical purposes. - Francois Thibault, Chief Financial Officer, Executive Vice President, Treasurer
Q: Are you able to share whether the strength in your food comp this quarter is sort of well balanced between both Ontario and Québec?
A: It's driven mostly by discount. That said, we're pleased with our conventional store performance on a relative basis. Conventional is under pressure in both markets, no question about that. But overall, versus other conventionals, we're pleased with our performance. And overall, when we combine discount and conventional, as I said, we're seeing some market share and tonnage gains. - Eric La Fleche, President, Chief Executive Officer, Non-Independent Director
Q: Did you notice any notable benefits from the boycott at one of your competitors during the quarter?
A: No. It's hard to pinpoint to that single event. - Eric La Fleche, President, Chief Executive Officer, Non-Independent Director
Q: Can you share what is the percentage of cross-sell now post-launch of Moi?
A: Post-launch of Moi, we're very satisfied with the sales penetration on the card. We're above target in our food banners. And in pharma, we are also above Air Miles penetration pre-launch. Our goal is to really maximize the overall wallet share of our customer. - Marc Giroux, Executive Vice President, Chief Operating Officer - Food
Q: Are there any more lingering costs related to the DC modernization initiative that we should be thinking about as you kind of gradually ramp up the automation?
A: There will be similar duplication of costs, not the same magnitude, but similar costs in terms of extra labor as you're running two sites at the same time, transferring volumes. So you'll see a similar pattern, not the same magnitude, but similar pattern to what we added in Terrebonne. And that should start to ease as we enter fiscal '25. - Francois Thibault, Chief Financial Officer, Executive Vice President, Treasurer
Q: When you look at the scale and complexity of Toronto Phase 2 transition, is it similar or maybe a little bit easier than Terrebonne was in Q2?
A: Pretty similar. Every time we do, the first one is always harder than the second one. So fresh Phase 2 Toronto will benefit from Terrebonne, and Terrebonne benefited from Toronto Phase 1 and Toronto freezer. So we live and learn, and we improve every time we do these projects. - Eric La Fleche, President, Chief Executive Officer, Non-Independent Director
Q: Can you talk a little bit about some of the main sources of gross margin pressure and some of the initiatives you're undertaking to offset them?
A: The market is competitive. Promotional environment is strong, so that has an impact. We get cost increases still from vendors on the CPG side. Shrink is an issue, theft is an issue. We manage that as best we can, I'm sure we can improve some more. - Eric La Fleche, President, Chief Executive Officer, Non-Independent Director
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
