Loblaw Companies Limited

Good morning, ladies and gentlemen, and welcome to the Lop North Company Limited fourth quarter 2023 results conference call. At this time, all lines are in isn't only mode. Following the presentation, we will 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 Thursday, February 22nd, 2024. I would now like to turn the conference over to Mr. Roy McDonald. Please go ahead, sir.

Thank you, Sintu, and good morning, everybody. Welcome to the Loblaw Companies Limited fourth quarter and full year 2023 results conference call. I'm happy to be joined here this morning by Per Bank, our president and chief executive officer, and by Richard Dufresne, our chief financial officer. So before we begin the call, I want to remind you that today's discussion will include forward-looking statements, which may but are not limited to statements with respect to Loblaw's anticipated future results, and 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 Canadian securities regulators. Any forward-looking statements speak only as of the day 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 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 regulators for a reconciliation of each of these measures to the most directly comparable GAAP financial measure. And with that, I'll turn the call over to Richard.

Thank you, Roy, and good morning, everyone. We are very pleased to deliver another year of consistent operational and financial results. Our businesses continue to perform well, reflecting our focus on retail excellence. On the full year, revenue came in at just under $60 billion, and we generated earnings in excess of $2 billion. We plan to reinvest over $2 billion back into the Canadian economy and in jobs through our 2024 capital program. Turning to the quarter, I'm especially pleased with our performance, given that we are lapping an extremely strong Q4 last year, when sales grew almost 10%, EBITDA increased by double digits, and EPS grew 16%. We accomplished this by remaining focused on delivering value to consumers, carefully managing our expenses, and continuing to invest for the future. On a consolidated basis, revenue grew by 3.7% and EBITDA increased by 9.4%. Adjusted diluted net earnings per share grew by 13.6% to $2 a share. On a gap basis, our net earnings available to common shareholders grew by 2.3%. In drug retail, absolute sales increased 4.9% and same-store sales grew 4.6%. Front-store performance exceeded our own expectations this quarter, given our strong performance in Q4 last year. Front-store same-store sales grew by 1.7% while lapping growth of 11.5% last year. Cosmetics and health and beauty continue to deliver very strong results. OTC sales remain strong. Overall, we are very pleased with the ongoing strength of our front store business. Pharmacy and healthcare services same-store sale grew by 8%, driven by growth in acute and chronic prescriptions, including continued strength in specialty drugs. At the same time, we're pleased with the growth of services related to expanded scope of practice. These services doubled in the quarter compared to last year. In food retail, absolute sales increased 2.7% and same-store sale grew 2%, against last year's same-store sale growth of 8.4%. Our offers are resonating well with customers, demonstrated by higher traffic and continued market share momentum. Our leading hard-discount grocery banners outperform in Q4 and lead our performance, bringing value to Canadians at a time of heightened cost-of-living pressure. Our internal food inflation was significantly lower than CPI again this quarter. This clearly demonstrates the role we are playing to help stabilize food prices for our consumers. In Q4, our average item price increase was the lowest it has been in more than two years. Loblaw continued to leverage its strength to bring value to our customers. The strength of our discount offering across the country is evident as consumers continue to migrate their shop to hard discount stores. In Quebec, we have converted 24 ProVigo stores to Maxi and plan to convert another 30 stores this year. We believe the outperformance of our hard discount stores will continue as Canadians seek value to help manage through the challenges of this extended period of economic uncertainty. Although discount continues to outperform conventional grocery, our market banners remain very healthy and we are pleased with our performance. Having the right customer offer in all our stores remains a key focus. Right-hand side had a negative impact on same-store sales of 80 basis points again this quarter. These categories remain accretive to our gross margin as we continue to carefully manage inventory levels. Online sales in the quarter increased 14.6% and exceeded $3.3 billion on a full-year basis. We continue to enhance our customer experience and differentiate ourselves by offering more choice and flexibility. Delivery continues to outperform as a channel. Total retail gross margin was 31.1%, in line with our full-year rate of 31%. In Q4, our margin was up 50 basis points as we lacked a decline of 30 basis points last year. This reflects sequential shrink momentum and initiatives such as our freight business, which allow us to invest in value while delivering stable margin performance. Turning to SG&E, our spend rate as a percentage of sales increased 10 basis points and included a number of one-time costs this quarter that offset our operating leverage. We finalized two important labor agreements in the quarter, which will benefit over 24,000 colleagues and bring certainty to our costs and operation. With these agreements in place, we do not have another major labor contract up for negotiation until the second half of 2026. Adjusted retail EBITDA increased by $114 million, yielding a margin of 10.8%, up 40 basis points compared to last year. This quarter saw strong performance at the bank. PC Financial's revenues increased 16.8%, driven by growth in the credit card portfolio, supported by an increase in customer spending and higher mobile shop sales. Adjusted earnings before tax increased 45.5%, with higher interest income and lower operating costs, partly offset by higher credit losses and loss provisions. We remain very comfortable with the risk profile of our portfolio. We have a strong and well-capitalized balance sheet and we continue to take a conservative position in our provisioning. On a consolidated basis, adjusted EBITDA margin was 11.2% in the quarter, up 50 basis points compared to last year. Our retail free cash flow was $512 million and we repurchased $494 million worth of common shares in the quarter. On a full year basis, our retail free cash flow was $1.7 billion, and we purchased $1.8 billion worth of common shares. We invested approximately $2.1 billion in CapEx, and our free cash flow generation continues to be very strong, as demonstrated again in 2023. Our balance sheet remains strong, and we continue to improve our key return metrics. Our return on equity sits at 22.2% and our return on capital at 11.5%. Looking ahead to 2024, we have a solid plan in place to continue to deliver consistent financial and operational performance while advancing our growth initiatives. This will allow us to continue to deliver value to our customers and to our shareholders. Specifically, we are accelerating our opening of new stores. We plan to open over 40 new stores in 2024 and convert another 30 stores to discount. Our real estate strategy is working. For the full year 2024, we expect our retail business to grow earnings faster than sales and adjusted earnings per share growth in the high single digits. We plan to invest approximately $2.2 billion in capital expenditures or $1.1 billion net of proceeds from planned property disposals. Again, we plan to return most of our strong retail free cash flow to shareholders through dividends and share buybacks. We begin the new year confidently as we are carrying our Q4 momentum into Q1. I will now turn the call over to Per.