Loblaw Companies Limited

Good morning, ladies and gentlemen, and welcome to the Loblaws, Inc. Third 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, November 12, 2025. I would now like to turn the conference over to Roy McDonald, Vice President, Investor Relations. Please go ahead.

Great. Thanks very much, Danny. And good morning, everybody. Welcome to the Loblaw Companies Limited Third Quarter 2025 Conference Call. As usual, I'm joined in the room this morning by Per Bank, our President and Chief Executive Officer, and Richard Dufresne, our Chief Financial Officer. So before we begin the call, I'll remind you that today's discussion will feature forward-looking statements which may include but are not limited to statements with respect to LABLA'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 of the date they were made. The company disclaims any intent 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 reports 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 that we delivered another quarter of consistent financial and operational performance, reflecting our ongoing focus on retail excellence and our commitment to deliver value, quality, service, and convenience to Canadians. Topline growth continues to be very strong, supported by the opening of 76 stores over the past 12 months, an increase in our retail square footage of 2%. On a consolidated basis, revenue grew by 4.6%, reaching $19.4 billion. Our drug retail business grew at 3.8%, and our food retail business grew at 4.8% in the quarter. Adjusted EBITDA increased by 7.2% to $2.2 billion, and margin improved by 20 basis points to 11.4%. Adjusted dilutive net earnings per share grew by 11.3% to 69 cents, and on a gap basis, our net earnings per share increased by 4.8%. In food retail, we delivered higher sales, traffic, and basket growth, once again driving significant tonnage market share gains. Absolute sales outpaced same store sales by 280 basis points at 4.8%, reflecting our new store growth while our food same store sales grew 2%. The impact from the stores we opened so far has been in line with expectations. We continue to see positive momentum across key categories in the right-hand side of our stores, notably in apparel, cosmetics, and H&E. That said, headwinds from liquor specifically and tobacco and our exit from the optical business led to a net 30 basis point negative impact to same-store sale this quarter. Our Q3 internal CPI-like food inflation was lower than Canada's gross free CPI of 3.6%. Our average article price data, or AEP, which reflects our customers' actual basket mix and includes non-food items not included in your CPI basket, was also lower than CPI. Our lower internal inflation metrics demonstrate that Canadians who shop our stores are finding more value. Cost increase requests from large global vendors continue to trend well above historical levels. In response, we're pushing back harder than ever to ensure that any increases we accept are justified. Our hot discount banners continue to deliver strong sales growth based on consumers' ongoing focus on value. Momentum continues to build across the hard discount stores we added to our network through conversions and new builds, proving that our strategy is resonating very well with Canadians. We're also pleased with the momentum and strong performance in our conventional stores, which improve tonnage market share within their conventional sector. This quarter, we announced that Specsavers would be opening 111 locations within Loblaw stores to replace our Theodore and Pringle optical business. Exiting this business resulted in a $30 million adjusted charge this quarter. Going forward, we expect it to negatively impact food-same-store sales by an approximate 20 basis points until we lap this transaction, while the exit from the Theodore and Pringle business, coupled with our new agreement with Specsavers, is expected to generate approximately $10 million in annual run rate earnings accretion. In drug retail, absolute sales increased 4.3%, excluding the impact of the sale of WellWise, while same-store sales grew 4%. Pharmacy and healthcare services grew same-store sales by 5.9%, driven by broad strength in prescription and new healthcare services. Our specialty drug prescription growth continued to lead our pharmacy performance. Patients continued to respond positively to the convenience and expanded level of primary care we offer through our more than 1,800 pharmacies across the country, including our 209 in-store clinics. We're on track to reach our target of 250 in-store clinics opened across Canada by the end of this year. Our front store same-store sales continue to improve, growing 1.9%, reflecting the ongoing strength of our beauty category. This more than offset the impact from the exit of certain electronics category in the prior year, which will no longer be a headwind to same-store sales after the fourth quarter. We continue to be pleased with the underlying strength, profitability, and sales momentum of Shoppers Drug of Mark front store business. Online sales in the quarter increased by 18% across our retail businesses. Delivery continues to lead growth in the online grocery channel, and we continue to be pleased with our online sales penetration in both food and pharmacy. Our retail gross margin improved 20 basis points, led by drug retail, reflecting improvements in shrink in both drug and food. Food trading margins remain stable. Our SG&E rate as a percentage of sales was stable, with operating leverage from higher sales offsetting incremental costs related to the opening of new stores and the successful ramp-up of our new automated distribution facility in East Gwillimbry. This new DC continues to ramp up ahead of plan, costs remain lower than budgeted, and we are on track to ship significantly more cases than planned this year. We have begun fulfilling orders in our ambient section, which is ramping up a full quarter ahead of plan. We're making considerable progress on the construction of our second automated DC in South Caledon, Ontario. The project is on schedule. In the quarter, retail adjusted EBITDA grew 6.8%, and EBITDA margin increased by 20 basis points to 11.1%. PC financials revenue increased 5.5%, driven by higher sales in our mobile shop and higher insurance commission income. Our PC money spending and savings accounts are performing very well. Customer account deposits increased by $174 million in the quarter. This increase in deposit is evidence of strong customer engagement and helps us lower our bank's funding costs. The bank's adjusted earnings before tax increased by $13 million, or 36.1%, primarily driven by higher revenue, lower operating costs, and favorable impact from our ECL provisions. We remain very comfortable with the risk profile of the bank's portfolio. We continue to take a conservative position in our loss provisioning with a strong and very well-capitalized balance sheet. Free cash flow from the retail segment was $325 million in the quarter, and in the quarter, we repurchased $450 million worth of common shares. Our balance sheet remains strong, and we continue to improve our key return metrics. Our return on equity is 24.8%, and our return on capital is 11.9%. Looking ahead to Q4, while it's still early in the quarter, we are confident our results will be in line with our financial framework. Reflecting our strong performance year-to-date, we now expect fully adjusted EPS growth to increase slightly from high single digits into the low double digits, excluding the impact of the 53rd week. Our assets are well positioned, we are executing well, and we are investing for the future, all while delivering consistent operational and financial performance. I'll now turn the call over to Per.