Loblaw Companies Limited

Good morning, ladies and gentlemen, and welcome. The general boss opened the third 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. I would now like to turn the conference over to Mr. Roy McDonald. Please go ahead.

Thank you, Jenny, and good morning, everybody. Welcome to the Loblaw Companies Limited third quarter 2024 results conference call. I'm joined this morning by Per Bank, our president's 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 include or 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 Canadian securities regulators. Any forward-looking statements speak only as if the dictates are made The company disclaims any intention or obligation to update or revise any forward-looking statements, whether it's 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 gap financial measure. And with that, I will now turn the call over to Richard.

Thank you, Roy, and good morning, everyone. I'm pleased to report that we delivered another quarter of steady operational and financial performance. We continue to provide value to consumers and carefully manage our expenses while delivering earnings performance in line with our financial framework. On a consolidated basis, revenue grew by 1.5% to $18.5 billion, and adjusted EBITDA increased by 7.4%. Both consolidated revenue and same-store sales were negatively affected by the shift in Thanksgiving, which occurred in Q4 this year versus Q3 last year. Compared to Q2, our sales performance improved in both food and drugs. Adjusted diluted net earnings per share grew by 10.6% to $2.50. On a gap basis, our net earnings increased by 25%, reflecting the recovery of $125 million related to a PC bank commodity tax matter. In food retail, we attracted higher customer traffic and drove tonnage growth. The timing of Thanksgiving had a negative impact on a reported same-store sales of approximately 80 basis points. Excluding this impact, same-store sales grew 1.3% in the quarter. Canada's grocery CPI has returned to normal, coming in at 2.3% in the quarter. Our internal CPI-like food inflation measure was slightly higher this quarter. However, when we look at our average article price data, which reflects items actually bought by our customers, our internal inflation rate was much lower than CPI and lower than our adjusted same-store sale figure. We're still seeing higher than normal price increases coming in from our global vendors. The weaker Canadian dollar, which is dropping versus the U.S. dollar, is having an impact on inflation, mostly in fresh categories. Our hard discount banners, same-store sale performance, outperform our conventional stores, illustrating that the consumer shift to discount continues. We're still pleased with the success of our conversions and the ongoing success of our Maxi banner in Quebec, which celebrated the opening of its 175th store in the quarter. Last week, we opened our hot 183rd Maxi, and we have four more to go before year-end. We opened six small-format no-frill stores in Q3, and while it's still early days, we are pleased with customer reactions and overall performance. In Q4, we will be adding another 20 new maxi and no-frills stores, with the majority of these being new builds as we continue to bring more value to communities across the country. For the full year 2024, we expect to have opened 50 new stores and converted an additional 42 stores. Right-hand side had a negative impact on food same-store sales of 53 basis points in Q3. These categories are accretive to our gross margin, and we continue to carefully manage inventory levels. Discount continues to grow tonnage market share, and our conventional stores are performing well. In drug retail, absolute sales increased 3%, and same-store sales grew 2.9%. The timing of Thanksgiving had a nominal impact on drug retail same-store sales growth. Pharmacy and healthcare services grew same-store sales by 6.3%, driven by broad strength in prescription and new healthcare services. Our specialty acute and chronic prescription growth led our pharmacy numbers. Patients continue to respond very positively to the convenience and expanded level of primary care we offer through our more than 1,800 pharmacies across the country, including our 120 new in-store clinics. As expected, our front store same-store sales improved over Q2 but declined by 0.5% year-over-year. Beauty continued to deliver strong growth, in particular the prestige category. Headwinds continued from our decision to exit certain low-margin electronics categories and from lower consumer spending on food and household convenience. Our decision to exit these electronic categories including laptops, computers, TVs and cameras is having a 1% impact on front store sales in 2024. We recently decided to also exit game consoles and games altogether which will affect Q4 this year and add 1% more pressure on front store sales next year. These sales come at extremely low margin and do not drive basket building. We remain pleased by the underlying strength, profitability and sales momentum of our front store. Overall, drug retail sales growth continue to outperform food and have a positive impact on our margin mix. Online sales in the quarter reflected our highest growth rate in two and a half years, increasing 18.5%. Within grocery, delivery continues to outperform as a channel. We remain pleased with our online sales penetration in both food and pharmacy. Across our grocery and pharmacy banners, we're proud to see Canadians increasingly choosing our stores for value, quality, and service. Total retail gross margin was 30.9%, growing 30 basis points. Trading margin in our grocery business was flat. I'm pleased with the strong shrink improvements in both food and drug, which drove our retail gross margin improvement this quarter. That said, improving shrink remains a major focus and opportunity for us. Our teams continue to do a great job managing costs. Our SG&E spend rate as a percentage of sales decreased 30 basis points, driven by year-over-year benefits of certain real estate activities and some operating leverage. This was partially offset by incremental costs related to the ramp-up of stores and conversions. Third quarter retail EBITDA increased by $130 million, yielding a margin of 10.9%. PC Financial's revenue increased 0.8% driven by growth in the credit card portfolio and partially offset by lower service growth in our mobile shop. The bank's adjusted earnings before tax increased by $14 million with higher interchange and credit card fee income and lower operating costs offsetting higher credit losses. We remain very comfortable with the risk profile of the bank's portfolio. We continue to take a conservative position in our provisioning with a strong and well-capitalized balance sheet. On a consolidated basis, adjusted EBITDA increased by 7.4% to $2.1 billion. Our retail free cash flow was $562 million and we repurchased $523 million worth of common shares. Our balance sheet remains strong and we continue to improve our key return metrics. Our return on equity sits at 23.3% and our return on capital at 11.8%. Our tax rate is returning to normal versus last year. As we approach the end of our fiscal year, we remain confident in our ability to deliver our financial framework and we now expect EPS growth for the year to be slightly higher than our original outlook. Additionally, as a result of the accelerated pace in store openings, we now expect to invest approximately $2.3 billion in gross capital expenditures or $1.9 billion net of proceeds from property disposal. The fourth quarter is off to a good start. Food same-store sale growth is improving over the previous quarter, but we expect incremental top-line pressure on front-store and shoppers as we lap our biggest quarter of electronic sales. Also, gross margin is expected to continue to benefit from incremental shrink improvements. Customers continue to respond well to our focus on delivering the value, quality, and service they are looking for. Our assets are well positioned, we are executing well, and we are investing for the future, all while delivering steady operational and financial performance. I will now turn the call over to Dave.