Loblaw Companies Limited

Good day and thank you for standing by. Welcome to Loblaw Company Limited First Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today. Roy McDonald, please go ahead, sir.

Great. Thank you very much, Jacqueline. Good morning and welcome to Loblaw Company's limited first quarter 2021 results call. I'm joined in the room this morning by Galen Weston, our executive chairman, Sarah Davis, our president, and Darren Myers, our chief financial officer. And as always, before we begin the call, I want to remind you that today's discussion will include forward-looking statements. which may include but are not limited to statements with respect to LABLA's anticipated future results and the impact of the COVID-19 pandemic. These statements are based on assumptions and reflect management's current expectations. As such, they are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations. These risks and uncertainties are discussed in the company's materials filed with the Canadian securities regulators. Any forward-looking statements speak only as of the date they are made. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future 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 Regulator for a reconciliation of each of these measures to the most directly comparable GAAP financial measure. And with that, I will now turn the call over to Darren.

Thank you, Roy, and good morning, everyone. First quarter generated strong financial results that reflected continued improvement in our business. As we report on our second year of the pandemic, comparable numbers do not tell the entire story. As such, I will include commentary on two-year average growth rate as applicable to provide further context on our operating performance. On an adjusted, consolidated basis, our reported revenue for the first quarter grew 0.6%, EBITDA increased 4.5%, Net earnings increased 12.3%, and earnings per share grew by 16.5%. Looking at Q1, on a two-year basis, we saw average growth in revenue of 5.5%, adjusted EBITDA up 8.2%, and adjusted earnings per share growth of 20.4%. Our food and drug businesses continue to perform well in a challenging and dynamic environment. As a reminder, retail revenue in Q1 last year included an estimated $750 million in in incremental retail sales related to stockpiling. Additionally, because of the inclusion of a 53rd week in 2020, our 12-week same-store sales period in Q1 lapsed an extra week of elevated sales from last year. This resulted in a negative impact on our reported Q1 2021 same-store sales of approximately 100 basis points in food and 170 basis points in drug. Food retail same-store sales were relatively flat, up 0.1% in the quarter. Same-store sales continued at strong momentum from the fourth quarter before lapping the COVID-related pantry stocking from 2020, which drove same-store sales last year of 9.6%, including 44% in the final two weeks of the quarter. Our average article price was 3.9% for the quarter and unchanged from Q4. The increase in average article price compared to last year was driven by sales mix, and we continue to see outsized basket growth and traffic declines in the quarter. On a two-year rate, food same-store sales reflected average growth of 4.9%. Same-store sales in drug retail declined 1.7% in the first quarter. Front-store same-store sales were lowered by 6.4%, while pharmacy same-store sales grew 3.5%. Front-store same-sales continue to be impacted by sales makers. Front store sales lapped strong sales of 10.7% last year, including 42% growth in the final two weeks of the quarter. Pharmacy performance was strong. However, against last year's COVID-related surge, we recorded a prescription count decline of 0.8% and an average prescription value increase of 2.4%. On a two-year average rate, drug sales, same-store sales have grown 4.5%, with front store plus 2.2%. 2.2%, and RX at 7.1%. Retail gross margin was 30.3%, an improvement of 50 basis points compared to the first quarter of 2020. Gross margin improved in both food and drug as a result of underlying improvements we have been driving throughout the business. Compared to Q1 2019, gross margin has improved by 20 basis points. Retail SG&A has a percentage of sales of 20.5%, with the rate increasing 70 basis points compared to the first quarter of 2020. The increase was primarily due to lapping cost leverage from stockpiling in 2020, incremental COVID-19-related costs, and higher e-commerce labor costs from increased sales penetration, which more than offset P&E improvements. COVID costs came in at $48 million in the quarter, in line with our expectations. Our online business continued to generate strong top-line growth, and we demonstrated progress in driving sequential improvements in our operational metrics and profitability. Compared to Q1 2019, our retail SG&A rate was flat despite heightened COVID costs and headwinds from our online growth. Retail adjusted appetite declined by $12 million in the quarter. This compares to last year when we recorded year-over-year growth of $176 million, which was elevated, primarily a result of stockpiling the final two weeks of the quarter. At PC Financial, revenue was down $13 million in a quarter, driven by lower interchange income and credit card-related fees due to lower customer spending. Adjusted EBITDA at the bank increased $65 million year-over-year, primarily driven by changes in the expected credit loss provision. In Q1 last year, at the beginning of the pandemic, we recorded a $50 million ECL provision. Based on improving economic factors, we released $20 million of the provision in Q1 this year. On a consolidated basis, adjusted EBITDA margin was 10.3% in the quarter, up 40 basis points compared to last year. In the quarter, IFRS net earnings available to common shareholders was $392 million, up 12.3% and fully diluted earnings per share were $0.90, an increase of 36.4%. Free cash flow was $288 million in the quarter, and we repurchased 5.4 million common shares at a cost of $350 million. As we look ahead, there remains a great deal of uncertainty as the course of the pandemic-related lockdowns and the resulting impact on consumer behavior remains dynamic. We are pleased with the strong financial performance of our first quarter, which exceeded our internal plans. We have seen that momentum continue into the second quarter, putting us in a position to exceed our full-year EPS outlook. Given the ongoing uncertainty and volatility related to the pandemic, we are not updating our outlook this early in the year. Our COVID-related costs remain elevated, and we expect costs in the second quarter to be in the $65 to $75 million range. This being my last quarter end, I'd like to say thank you to our investment community. I've enjoyed working with you and getting to know you over my time at Loblaw, and I wish you all continued success. I will now turn the call over to Sarah.