Loblaw Companies Limited

Good morning, ladies and gentlemen, and welcome to the Loblaws Inc. First Quarter 2025 Results Conference Call. At this time, all lines are in 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, April 30, 2025. I would now like to turn the conference over to Mr. Roy McDonald, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you very much and good morning, everybody. Welcome to the Loblaw Companies Limited first quarter 2025 results conference call. And as usual, I'm joined this morning by Per Bank, our President and Chief Executive Officer, and by Richard Dufresne, our Chief Financial Officer. Before we begin the call, I'll remind you that today's discussion will include forward-looking statements which may include or are not limited to statements with respect to 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. And 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 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'll turn the call over to Richard.

Thank you, Roy, and good morning, everyone. I'm pleased to report we delivered strong financial and operational performance in the first quarter, carrying on the momentum from 2024 and setting up 2025 on strong footings. Our businesses continue to perform well, reflecting our ongoing focus on providing Canadians with value, quality, service, and convenience, all part of retail excellence. Our retail segment delivered strong revenue growth at 4.1% and adjusted retail EBITDA growth of 4.1%. Evidence that our offering continues to resonate very well with customers, especially in light of the strong Q1 performance of last year. On a consolidated basis, revenue growth was also 4.1%, reaching $14.1 billion, and adjusted EBITDA increased by 3%. Adjusted diluted net earnings per share grew by 9.3% to $1.88, and on a gap basis, our net earnings per share increased by 12.9%. In food retail, we drove higher tonnage and basket growth while lapping our strongest quarter of last year. Absolute sales grew 4%, reflecting our new store growth, while our food same-store sales momentum continues, as same-store sales increased 2.2%. Our right-hand side had a negligible impact on same-store sales. Canada's growth-suite CPI was 2.6% in Q1, in line with our internal CPI-like food inflation measure. Looking at our average article price data, which reflects the full basket mix bought by our customers across our network, our internal inflation rate was much lower than CPI. Looking ahead, we're still seeing higher-than-normal cost increases coming in from our larger global vendors, including many in the double digits. We continue to push back to ensure that any increases we accept are fair and reasonable. In Q1, this was compounded by the incremental pressure we experienced from higher commodity prices and a lower Canadian dollar. As an example, Statistics Canada data shows that coffee prices rose 11% in March. That said, the recently introduced tariffs and counter-tariffs did not impact food inflation in Q1. Tariff-related impacts are now only showing up in shelf prices, and we continue to work with vendors to attempt to mitigate those impacts. Our hard discount banner, same-source health performance, continues to outperform our conventional stores, demonstrating the ongoing consumer focus on value. While the gap between hard discount and conventional has stabilized, the growth in hard discount continues to be significantly higher than conventional. As we mentioned last quarter, in 2024, we added 58 hard discount stores to our network through conversions and new builds. These stores continue to resonate very well with Canadians, driving double-digit growth in absolute sales and tonnage growth in the quarter. We are also pleased with the performance in our conventional stores and see same-store sales strengthening. T&T delivered strong sales growth in Q1. In drug retail, absolute sales increased 4.4% and same-store sales grew 3.8%. Pharmacy and healthcare services grew same-store sales by 6.4% this quarter, 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 163 in-store clinics. Our front store same-store sales grew 0.9%, reflecting the strength of our beauty category and the extended cold and flu season. This was partially offset by the exit of certain items in the electronics category. We remain pleased by the underlying strength, profitability, and sales momentum of Shoppers Drug Mart front store business. Online sales in the quarter increased by 17.4% across our retail businesses. Delivery continues to lead growth in the online grocery channel, and we remain pleased with our online sales penetration in both food and pharmacy. Our retail gross margin was stable at 31.5%. A slight decline was driven by sales mix and had many small puts and takes. Our SG&E rate as a percentage of sales improved by 10 basis points, primarily due to the operating leverage from either sales, partially offset by incremental costs related to the opening of new stores and the opening of our new automated distribution facility in East Gwilimbri. Speaking of our new DC, we began migrating operations in Q1. Although still in early days of our transition, we are off to a strong start and are ahead of plan and remain very confident. We expect to run at about 40% capacity by year-end. Retail adjusted EBITDA increased by $59 million, yielding a margin of 10.9%. BC Financial's revenue increased 3.3%, driven by higher sales in our mobile shop and higher interchange income. The bank's adjusted earnings before tax decreased by $14 million, or 31.8%. lapping the benefits associated with the renewal of a long-term agreement with MasterCard and partially offset by higher revenue and positive year-over-year impact to the ECL provisions. 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 very well-capitalized balance sheet. On a consolidated basis, adjusted EBITDA increased by 3% to $1.6 billion. Free cash flow used in the retail segment was $264 million, reflecting the typical seasonal outflow in Q1. In the quarter, we repurchased $457 million worth of common shares and announced a 10% dividend increase, our 14th consecutive annual increase. Our balance sheet remains strong and we continue to improve our key return metrics. Our return on equity sits at 24.4% and our return on capital at 11.8%. Looking ahead to Q2, we continue to build on the strength and momentum from our first quarter. Same-store sales in both food and drug retail are off to a strong start, as well as absolute sales growth. New stores are driving our top line. Our focus on retail excellence and on the execution of our strategic initiatives will allow us to keep delivering value to our customers and strong performance to our shareholders. I will now turn the call over to Perry.