Loblaw Companies Limited

Good morning, ladies and gentlemen, and welcome to the Low Block Companies Limited first quarter 2023 results conference call. At this time, all lines in a lesson-only mode. Following the presentation, we'll conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, May 3rd, 2023. I would now like to turn the conference over to Roy McDonald. Please go ahead.

Thanks very much, Julie, and good morning, everybody. Welcome to the Loblaw Company's limited first quarter 2023 results call. This morning, I'm joined as usual by Galen Weston, our chairman and president, and Richard Dufresne, our chief financial officer. And before we begin this morning, 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 Loblaw's anticipated future results. These 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 community securities regulator. Any forward-looking statements speak only as of the date they're made. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results, or otherwise, other than what's required by law. Also, certain non-GAAP financial measures may be discussed or referred to, so please refer to our annual report and other materials filed with the Canadian securities regulators for a reconciliation of each of these measures. Now I will turn the call over to Richard.

Thank you, Roy, and good morning, everyone. I'm pleased to report that we started 2023 building on the strength of last year. We continue to deliver consistent operational and financial results with solid top-line performance and strong earnings growth. We remain focused on delivering value to consumers and carefully managing our expenses, all part of retail excellence. On a consolidated basis, revenue grew by 6% and EBITDA increased by 7.8%. Adjusted earnings per share grew by 14% to $1.55 a share. As a reminder, we are lapping a very strong Q1 last year where food same-store sale growth outperformed, gross margin grew by 80 basis points, and EPS grew 20.4%. On a gap basis, earnings per share reflected a 0.8% decline as we lapped one-time gains last year. In drug retail, absolute sales increased 10.7%, and same-store sales grew 7.4%, lapping an increase of 5.2% last year. Front-store same-store sales grew by 10.3%, as continued strong demand drove growth in margin-accretive categories like cosmetics and HABA. OTC performance remained strong, but off its peak. Pharmacy same-store sales grew 4.7%, driven by growth in acute and chronic scripts, partially offset by lower COVID vaccines and testing. Overall, we are encouraged by the steady and strong pace of growth in pharmacy services. These services represent an exciting new business for Loblaw, and we continue to expect them to drive long-term growth. Looking ahead, after lapping pandemic headwinds in pharmacy and Q1, we should see a return to more normal front-store growth rates going forward. In food retail, absolute sales increased 3.8% and same-store sales grew 3.1% and reflect a 110 basis point timing impact of Q1 this year starting on January 1st when most of our food stores were closed versus a January 2nd start last year. In Q1, our internal food inflation number was generally in line with CPI. Right-hand side remains a drag on our same-store sale performance to the tune of 60 basis points in the quarter. Omicron last year was a key driver of our same-store sale number. Our hard discount banners continue to outperform the overall discount channel, delivering strong traffic and item count growth as customers continue to focus on value offerings. In Quebec, our discount position continues to grow. We converted one Provigo store to Maxi at the end of the quarter. Two more have opened since, and we will convert eight additional stores in Q2. We continue to deliver outside sales performance in these Maxi conversions, and we are particularly excited by the traction of our Maxi banner in the Quebec market. Our market banners are also performing well and continue to outperform their peer group. Having the right customer offer in all of our stores remains a key focus. As I mentioned, our right-hand side had a negative impact on same-store sales of 60 basis points. This improved from Q4 as apparel sales growth was strong and H&E was only slightly negative this quarter. We remain comfortable with our inventory levels. Our private label brands continue to outperform national brands, growing sales more than twice the rate of national brands. And No Name continues to resonate well with Canadians, delivering strong double-digit sales growth in the quarters. Online sales in the quarter decreased 1.1%, lapping elevated demand last year due to pandemic-related restrictions. We are pleased to see sequential improvement in our online sales penetration over the past three quarters, currently sitting at the highest level since Q1 of last year. Retail gross margin was 31.3%, up 20 basis points compared to last year. Gross margins benefited from growth in high-margin front-store categories in drug retail and our retail excellence-related initiatives, offsetting higher shrink. We recorded a slight decrease in food retail margins as costs continued to rise faster than sales. We are continuing to see elevated cost increase from our food suppliers. This includes small and medium-sized Canadian vendors catching up on costs, and we're doing our best to expedite those. More concerning, we're still seeing outsized cost increases rolling in from large global consumer goods companies, exceeding what we would be expecting at this point. Year-to-date, suppliers have increased our product cost nearly $1 billion, which is down from last year at this time, but more than double the annual historic norm. Another careful quarter of cost management resulted in an improvement of 10 basis points in our SG&A rate as a percentage of sales. Adjusted retail EBITDA increased by $105 million, or 8.2% in the quarter, yielding a margin of 10.9%, up 20 basis points compared to last year. PC Financial's earnings before tax declined by $20 million, largely a function of an increase in the credit loss provision this year compared to a release in the comparative quarter. The core business performance remains in line with our expectations, with revenue up $52 million, driven by higher interest income and an increase in consumer spending. On a consolidated basis, adjusted EBITDA margin was 11.1% in the quarter, up 10 basis points compared to last year. Our retail cash flow was negative $81 million in Q1, reflecting higher capex spend and lapping a one-time tax recovery from last year. In the quarter, we repurchased $383 million worth of common shares. Looking ahead, we remain confident in our plan and our ability to execute in our core businesses while advancing our growth initiative. Our focus over the past two years remains on retail excellence, and it's been evident as we've delivered steady and consistent performance each quarter. This focus will continue to benefit our business going forward. I will now turn the call over to Gail.