Loblaw Companies Limited

Good morning, ladies and gentlemen, and welcome to the Loblaws Companies Limited 2025 Fourth Quarter and Full Year 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, then the number zero on your telephone keypad, and an operator will come to the line to assist you. This call is being recorded on Wednesday, February 25th, 2026. I would now like to turn the conference over to Roy McDonald, Vice President, Investor Relations. Please go ahead.

Thank you very much and good morning, everybody. Welcome to the Loblaw Company's limited fourth quarter and full year 2025 results conference call. As usual, I'm joined here this morning by Per Bank, our President and Chief Executive Officer, and by Richard Dufresne, our Chief Financial Officer. So before we begin today, I'll remind you that today's discussions 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. And these risks and uncertainties are discussed in the company's financial materials filed with the Canadian securities regulators. Any forward-looking statements speak only of the date they are 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 the other materials filed with the Canadian securities regulators for reconciliation of each of these measures to the most directly comparable GAAP financial measure. And I will add that following the announcement of the sale of our PC financial business to EQ Bank and that ongoing partnership, our PC financial results are presented under discontinuing ops. It's important to note that we are not getting out of the financial services. As such, unless otherwise indicated today, our remarks will focus on the comparable adjusted consolidated results excluding the impact of the extra week this quarter. And with that, I will hand the call over to Richard.

Thank you, Roy, and good morning, everyone. I'm pleased to report on 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. As Roy mentioned, with the announced sale of PC Financial to EQB, The results of the bank are now presented in discontinued operation. It's important to highlight that we're not getting out of financial services by virtue of our interest in EQB, so we will continue to focus on our consolidated results. When the transaction closes, the current discontinued operations business will be replaced by Loblaw's proportional ownership share of EQB profits. In the fourth quarter, on a 12-week basis, revenue growth was 3.5%, reaching $15.5 billion. Our top-line growth was supported by the opening of 30 stores in the final quarter of the year. In the year, we added 1.5% square footage to our food retail stores and 2.1% to our drug retail portfolio. This growth was primarily focused on adding hard discount stores and pharmacies to underserved communities. Adjusted EBITDA increased by 4.8% to $1.8 billion, and margin improved by 10 basis points to 11.5%. Adjusted diluted net earnings per share grew by 10.9%. On a reported basis, revenue grew 11%, and adjusted EPS was 67 cents, up 22% in the quarter. In food retail, we once again delivered traffic and basket growth, resulting in tonnage market share gains. Absolute sales outpaced same-store sales by 160 basis points at 3.1%, reflecting our new store growth. Absolute sales also outpaced our internal inflation, which reflects our market share gains. Our food same-store sales grew 1.5%. It's worth indicating that we are lapping a strong Q4 last year when we increased promotional activity. As we progress through Q4 2025, our same-store sales growth accelerated, and this has continued in the first quarter of 2026. We continue to see positive momentum across key categories in the right-hand side of our stores, with continued accretive growth in toy, apparel, and home and entertainment. That said, with continued pressure in liquor, tobacco, and HABA categories, right-hand side resulted in 20 basis points of pressure on food same-store sales. Our internal CPI-like food inflation metric was significantly lower than Canada's grocery CPI of 4.4%, and that gap widened over the final two months of the quarter. So, customers are seeking value and are finding it in our stores. This reflects our effort to push back on unjustified cost increases from suppliers and the effectiveness of our loyalty and promotional offers. As consumers continue to focus on Voucher, our heart discount banners remain a key driver of absolute sales growth. We opened 15 new heart discount stores in the quarter, bringing our total opened in the year to 48. These stores are meeting expectations and will start rolling into comparable sales throughout 2026. In fact, 20 of the new heart discount stores opened in 2024 are already in our comps and are averaging healthy double-digit same-store sales. We're also pleased with the momentum and performance of our conventional stores. In the quarter, this growth was led by our Fortinos and Yig banners. Across conventional, multicultural, natural value, and prepared foods continue to be growing categories. In drug retail, absolute sales increased 4.4%, while same-store sales grew 3.9%. Pharmacy and healthcare services grew same-store sales by 5.6%, driven by broad strength in prescription and new health care services. Our specialty prescription growth continues to lead our pharmacy performance. Patients continue to respond positively to the convenience and expanded level of primary care we offer to our more than 1,800 pharmacies across the country. I'm happy to confirm that we've achieved our target of opening 250 in-store clinics this year, improving access to health care services for Canadians in underserved communities. Our front store same-store sales continue to improve, growing 2.2%, reflecting the ongoing strength of our beauty category. We saw an increase in our OTC sales as Canada was hit hard by the cold and flu season, with influenza cases reaching a three-year high. Flu season peaked in December, a shift from last year when it peaked in our first quarter. We continue to be pleased with the underlying strength and profitability in our front store business. Online sales continue to demonstrate strong growth, reaching over $4.5 billion last year. In the fourth quarter, our digital sales increased by 19.6%, highest growth in the year. Delivery continues to lead that growth, particularly in discounts. In November, we launched another third-party delivery partnership across our grocery banners, and early results were very positive. Our retail gross margin improved by 10 basis points to 31%, driven by improvements in shrink and drug, while food trading margins remained stable. Our retail SG&E rate was flat, with operating leverage from higher sales offsetting incremental costs related to the opening of new stores and the ramping up of our automated distribution facilities. I'm very pleased with our ability to maintain a flat rate despite the additional costs associated with this growth. Retail adjusted EBITDA grew 4.6%, and retail EBITDA margin increased by 10 basis points to 10.9%. The ramp-up of our first automated distribution center in East Gwillimbury continues to progress well. Both cost and productivity improvements came in better than planned. This allowed us to roll out our ambient sections two months ahead of schedule. We are pleased with our progress and expect to be fully ramped up later this year. Construction on our second automated DC in South Caledon is progressing very well. The project remains on plan, with automation installation beginning by the end of this year. PC Financial's revenue increased 3.1%, driven by higher insurance commission income and higher interest income. The bank's adjusted net earnings increased by $12 million, or 36%. This was primarily driven by higher revenue and the favorable impact from lower expected credit loss provisions. The previously announced sale of PC Financial to EQ Bank will streamline the company's operation. We expect the transaction to close later this year. Free cash flow from the retail segment was $1.9 billion for the year, and in the quarter, we purchased $592 million worth of common share for a full year total of $1.9 billion. Our balance sheet remains strong, and we continue to improve our key return metrics. Our return on equity sits at 26.3%, and our return on capital at 12.4%. On a full-year basis, our consolidated revenue grew 4.4% to $63.7 billion, net earnings of $2.8 billion, and EPS grew 10.7%. Including the impact of the 53rd week, EPS grew an incremental 2.9% to 13.6%. Turning to 2026, we have a solid plan in place allowing us to continue delivering consistent financial and operating performance while advancing our growth initiatives. New store investments will be similar to last year with an increase in shoppers' drug mart stores. We plan to grow our grocery square footage in line with 2025. However, our drug footprint is expected to increase by 3%. In 2026, we expect the timing of the closing of the sale of PC Financial and the lapping of the 53rd week to impact the company's financial results. Excluding these impacts, we expect our retail business to grow earnings faster than sales and adjusted earnings per share growth in the high single digits. We plan to invest approximately $2.4 billion in capital expenditures. Again, we plan to return most of our free cash flow to shareholders through dividends and share buyback. We're more than halfway through the first quarter, and same-store sales are showing continued momentum. Looking ahead, our focus on retail excellence and on the execution of our strategic initiatives will allow us to keep on delivering value to our customers and performance to our shareholders. While early, 2026 is off to a good start. I'll now turn the call over to Per.