Loblaw Companies Limited

Good morning, ladies and gentlemen, and welcome to the Loblaws, Inc. Second Quarter 2025 results. 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 Thursday, July 24, 2025. I would now like to turn the conference over to Roy McDonald, Vice President, Investor Relations. Please go ahead.

Great. Thank you very much, Joelle. And good morning, everybody. Welcome to the Loblaw Company's limited second quarter of 2025 results call. As usual, I'm joined here this morning by Per Bank, our president and chief executive officer, and by Richard Duprin, our chief financial officer. And before I 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 materials filed with the Canadian 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 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 cash financial measure. And with that, I'll turn it all over to Richard.

Thank you, Roy, and good morning, everyone. I'm pleased to report that we continue to deliver consistent financial and operational performance in the second quarter, with strong revenue growth fueling solid performance against our plan. Our ongoing focus on delivering value, quality, service, and convenience to Canadians continues to resonate with customers, and has resulted in strong market share performance across our businesses. Top-line growth is a theme this quarter and is becoming the norm as we open new stores. On a consolidated basis, revenue growth was 5.2%, reaching $14.5 billion, an increase of $725 million over last year. If we exclude the divestiture of our well-wise stores last quarter, Revenue growth would have been even higher at 5.4%. Our new stores are performing well and are reaffirming our strategy. Adjusted EBITDA increased by 7.4% to $1.8 billion. Adjusted diluted net earnings per share grew by 11.6% to $2.40, and on a gap basis, our net earnings per share increased by 60%. You will notice that we have now completed the bulk of the amortization related to our 2014 acquisition of Shoppers Drug Mart. Completing the amortization was a significant driver of a $106 million benefit to GAAP earnings in Q2. Going forward, GAAP earnings growth will be positively impacted by these lower charges through Q1 of next year. In food retail, we delivered higher sales, tonnage, and basket growth, driving significant tonnage market share gains. Absolute sales outpaced same-store sales by 230 basis points at 5.8%, reflecting our new store growth while our food same-store sales momentum continues, increasing 3.5%. Our Q2 internal CPI-like food inflation was lower than Canada's grocery CPI of 3.3%. Looking at our average article price data, which reflects the full basket mix bought by our customers across our network, Our internal inflation rate continues to be much lower than CPI. Opening more discount stores is helping to maintain low prices for Canadians. Higher-than-normal cost increase requests from larger global vendors continue to be a concern. Only a third of the supplier cost submission we have received over the last months have been tariff-related. In response... We are pushing back harder than ever to ensure that any increases we accept are fair and reasonable and are partnering with our vendor community to mitigate price increases. Our hard discount banner sales continue to deliver strong growth based on the ongoing consumer focus on value. We are seeing strong momentum across the hard discount stores we added previously. to our network through conversions and new builds last year, and our recent openings in 2025 are continuing this trend. Many more are coming over the coming months. We're also pleased with the momentum and strong performance in our conventional stores, which also grew tonnage market share within their sector. South of the border, our Seattle T&T store remains strong with sales volume that have significantly outpaced our expectations. Our next store opened in November. We now have a total of six confirmed locations in the U.S., and more are planned. In drug retail, absolute sales increased 4.8%, excluding the impact of the sale of Wellwise, while same-store sales grew 4.1%. Pharmacy and health care services grew same-store sales by 6.2% this quarter, driven by broad strength in prescription and new health care services. Our specialty prescription growth continued to lead our pharmacy numbers. Patients continue to respond very positively to the convenience and expanded level of primary care we offer to our 1,800 pharmacies across the country, including our 174 in-store clinics. Our front-store same-store sales continue to improve, growing 1.7% and reflecting the ongoing strength of our beauty category. This was partially offset by the previous exit of certain items in the electronics category. We remain pleased by the underlying strength, profitability, and sales momentum of Shoppers Drug Mart's front store business. Online sales in the quarter increased by 17.5% 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 32%, primarily driven by improvements in shrink offset by changes in sales mix. I'm particularly pleased with the shrink improvement at Shoppers Drug Mart. Our SG&E rate as a percentage of sales improved by 10 basis points, with operating leverage from higher sales partially offset by incremental costs related to the opening of new stores and the ramp-up of our new automated distribution facility in East Guilombo. The transition to our new DC is progressing very well and is ahead of plan. We have completed the deployment of frozen categories and the first phase of fresh. Our ramp-up of this new DC is proceeding better than planned. We will ship significantly more cases than planned this year, and our costs are actually running lower than budgeted. Because of this faster ramp-up, we have made the decision to bring our ambient section online a full quarter ahead of plan, which will allow us to realize benefits earlier than expected. Speaking of supply chain logistics, I would like to share an example of the significant progress we've achieved in integrating AI solutions into our everyday supply chain operations. AI driven initiatives are already yielding tangible improvements across key areas of our business. We are streamlining our supply chain operations using AI enabled tools that help us proactively manage inventory replenishment with vendors, optimize load building, and manage our transport scheduling and communication. Another AI initiative that I'm really excited about is currently being rolled out across our store network. Nicknamed Robin, we are leveraging agentic AI in a custom-built tool to save time and enhance decision-making in our stores using conversational action-focused insights based on real-time data. Robin provides a dashboard of KPIs, presents AI-generated insights and recommends solutions, then tracks and executes to-do lists. Managers will spend less time on back-end logistics and more time with their customers and staff while improving store-level profitability. The success of this initiative has spawned a second version of the app that is now being tested with district managers to help them better manage their store networks. By the way, the speed at which we are developing and launching these new initiatives is impressive. These developments are actively driving efficiencies which will translate directly into cost savings today and the open opportunities for future applications. In the quarter, retail adjusted EBITDA grew 6.7% and EBITDA margin increased by 10 basis points to 12.2%. PC financials revenue increased 2.7% driven by higher sales in our mobile shop and higher insurance commission income. Our PC money spending and savings accounts are performing very well Deposits are ahead of plan and now exceed $700 million, enhancing customer engagement and lowering our bank's funding costs. The bank's adjusted earnings before tax increased by $14 million, or 87.5%, primarily driven by higher revenue, lower operating costs, and lower credit card receivable charge-offs. 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 very well-capitalized balance sheets. On a consolidated basis, adjusted EBITDA increased by 7.4% to $1.8 billion. Free cash flow from the retail segment increased by $165 million to $640 million. And in the quarter, we repurchased $445 million worth of common share. Our balance sheet remains strong, and we continue to improve key return metrics. Our return on equity sits at 24.7%, and our return on capital at 11.9%. Both metrics continue to improve. Looking ahead to the second half of the year, we remain confident in our ability to deliver our outlook. Our third quarter is off to a good start, carrying on the momentum from the first half of the year. New stores will continue to drive top-line growth, and the second half of the year will see the bulk of our new store activity. Our relentless 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. Today, we announced a 4-for-1 stock split effective at market close on August 18, 2025, with shareholders of record at close of business on August 14, 2025, receiving three additional shares for each common share held. Essentially, our number of shares will be multiplied by four post-split. I will now turn the call over to Per.