Loblaw Companies Limited

Good morning, ladies and gentlemen, and welcome to Loblaw Companies Limited first quarter 2024 results conference call. At this time, all lines are in a listen-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 Wednesday, May 1st, 2024. I would now like to turn the conference over to Mr. Roy McDonald, Please go ahead, sir.

Thank you, Lara, and good morning, everybody. Welcome to Loblaw Company's limited first quarter 2024 results call. I'm joined this morning by Per Bank, our president and chief executive officer, and by Richard Dufresne, our chief financial officer. As always, before we begin the call, I'll 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 filed materials with the Canadian securities regulators. Any forward-looking statements speak only as of the date they're made, and 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 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 measures. And with that, I'll turn the call over to Richard.

Thank you, Rory, and good morning, everyone. Our first quarter results demonstrate continued delivery of steady operational and financial performance. Our top-line performance was strong, with earnings growth in line with our framework. On a consolidated basis, revenue grew by 4.5% to $13.6 billion, and EBITDA increased by 6.6%. Adjusted diluted net earnings per share grew by 11% to $1.72. On a gap basis, our net earnings per share grew by 14%. Drug retail delivered another strong quarter. Our absolute sales increased 4.2%, and same-source sales grew 4%. Front store same-store sales grew by 0.7%, lapping growth of 10.3% last year. Cosmetics and health and beauty continue to deliver very strong results, supported by elevated cough and cold sales. Overall, we are very pleased with the ongoing strength of our front store business. We have made the decision to exit most of our electronics category. As such, it will negatively affect our front store sales for all of 24 as we cycle out of it. Pharmacy and healthcare services grew same-store sales by 7.3%, driven by broad strength in prescription services. Our specialty and acute prescription growth led our pharmacy numbers. Additionally, customers continue to respond very positively to the convenience and level of care we offer through our more than 2,100 pharmacies across the country. In food retail, we recorded strong top-line growth, with absolute sales up 4.4%, and same-store sales growth of 3.4%. Our internal inflation rate was lower than food CPI again this quarter. This helped bring CPI grocery inflation below the headline total inflation rate in Canada for the first time in over two years. Our strong same-store sales combined with a lower internal inflation rate clearly highlights the strength of our discount banners, private label brands, and PC Optimum offers. Tonnage, traffic, and market share performance were all strong. We saw market share gains in both our market and hard discount banners, with solid tonnage growth in each. As expected, the consumer shift to discount continued, with our hard discount banners outperforming our conventional stores. Right-hand side had a negative impact on food same-store sales of 66 basis points. These categories remain accretive to our gross margin, and we continue to carefully manage inventory levels. Online sales in the quarter increased 16.1%, and delivery continues to outperform as a channel. Across food retail, our strong sales, market share, and tonnage performance are a clear indication that our efforts resonate with customers. More and more Canadians choose our stores for value, quality, and service. Total retail gross margin was 31.6%, growing 30 basis points. Higher drug retail margin mainly due to sales mix and continued progress in reducing shrink drove our improvement this quarter. We have executed on a number of initiatives to improve shrink in our stores and are pleased with the positive momentum. We remain focused on delivering stable gross margin this year in line with our financial framework. Turning to SG&E, our spend rate as a percentage of sale increased 40 basis points driven by year-over-year impact of certain real estate activities and labor costs related to network optimization, partially offset by operating leverage. Adjusted retail EBITDA increased by $62 million, yielding a margin of 10.9% in line with last year. The quarter saw strong performance at the bank. BC Financial's revenues increased 10.7%, driven by growth in the credit card portfolio and strong services growth at our mobile shop. We were excited to launch No Name Mobile in the quarter, Providing Canadians with a great opportunity to save on their mobile plans and even more PC optimum points to put towards free groceries faster. One mobile expert called it the best deal in the country, and I agree with them. The bank's adjusted earnings before tax increased by $32 million, with higher interest income and lower operating costs, offsetting higher credit losses and loss provisions. We remain very comfortable with the risk profile of the bank's 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 increased by 6.6% to $1.54 billion. Our retail free cash flow used in operating activities was $359 million, as we typically see a seasonal outflow in Q1. In the quarter, we repurchased $470 million worth of common shares and announced a 15% dividend increase, our 13th consecutive annual increase. Our balance sheet remains strong and we continue to improve our key return metrics. Our return on equity sits at 22.6% and our return on capital at 11.6%. Looking ahead, we continue to be pleased with our market share performance in food. That said, in the second quarter, we will be lapping 6.1% food incomes in the comparative quarter versus 3% in Q1 of 2023. So we expect Q2 food, same-store sales to be lower than Q1. In drug, Cough and cold sales are slowly returning to normal. As discussed on the last call, we expect to continue to deliver on our financial framework. I will now turn the call over to Per.