Loblaw Companies Limited

Good morning, ladies and gentlemen, and welcome to the Loblaw Company's Limited 2026 Second Quarter 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 you would like to ask a question at that time, please press star, the number one on your telephone keypad, to raise your hand and enter the queue. If at any time you need assistance during this call, please press star, then number zero on your telephone keypad. Please note this call is being recorded on Thursday, July 30th, 2026. I would now like to turn the conference over to Roy McDonald, Vice President, Investor Relations. Please go ahead.

Thanks very much Colby and I will also officially welcome you to the Love Law Companies Limited second quarter 2026 results conference call. and joining me this morning is Per Bank, our President and Chief Executive Officer, and Richard Dufresne, our Chief Financial Officer. Before we begin, I want to 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 that are filed with the Canadian securities regulators. And any forward-looking statements speak only as 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 or other materials filed with the Canadian securities regulators for a reconciliation of each of these measures to the most directly comparable GAAP financial measure. And with that, I will turn the call over to Richard.

Thank you, Roy, and good morning, everyone. Before I begin with my remarks, I just want to acknowledge that today is the last day for Michael Van Elst before he retires. So I want to thank Michael for his longstanding support. And so while he's not officially on this call, I hear that he is listening. So enjoy your retirement, Michael. Okay, so we delivered another strong quarter of consistent operational and financial performance. The quarter was characterized by solid revenue growth, stable gross margin, a flat SG&E rate, and strong adjusted EPS growth. We delivered this performance while we continued to invest in new stores, pharmacies, and optimizing our distribution network. All of our businesses have momentum. We feel good about the rest of the year, and our 2027 plans are beginning to take shape. In the second quarter, revenue, including PC Financial, was $15.3 billion, up 4.1%. Total company adjusted EBITDA increased 5.1% to $1.9 billion, and adjusted EBITDA margin improved by 10 basis points. Adjusted diluted net earnings per common share grew 11.9% to 66 cents. On a GAAP basis, revenue was $15 billion, up 4.1%, and diluted net earnings per common share were $0.64, up 8.5%. In food retail, absolute sales grew 3.3%, supported by new store growth, while same-store sales grew 1.6%, which includes a 20 basis point drag from the right-hand side. Our hard discount banners continued to perform well in the quarter, with comparable sales close to 4%. Maxi and No Frills remain well positioned for customers focused on value, supported by strong execution in both existing and new stores. As recent openings mature and enter the comparable store base, they are delivering strong double digit same store sales growth. This performance reflects the strength of our expansion strategy. Food retail, traffic and baskets were both positive on the same store basis and we remain pleased with our market share. We continue to gain share and hard discount and we are outperforming our peers in conventional. Our internal CPI like food inflation metric remains lower than Canada's grocery CPI. Our actual quarterly in-store average article price has now been consistently lower than CPI inflation for more than four years. This reflects the relevance of our promotions, our effectiveness at pushing back on unjustified supplier cost increases, and trade downs by consumers. During the quarter, we opened 11 food stores, including 7 maxi and no-frills stores, 1 TNT store in Canada, and 1 TNT store in the U.S. We also opened 3 new shoppers drug mart locations. These new stores contributed to a net positive impact on our grocery square footage, of approximately 1.5% and 2.6% in pharmacy. Our new stores continue to perform very well, and we are currently on track to open about 75 stores this year. Our conventional banners also perform well, delivering positive same-store sales growth. For TNOs and TNT remains strong, helping our conventional banners continue to outperform their peers. In drug retail, absolute sales increased 6.1%, while same-store sales grew 4.6%. Pharmacy and healthcare services grew same-store sales by 7.5%, driven by continued strength in specialty and chronic prescriptions. On a same-store basis, prescription volumes increased 3.4% and average prescription value increased 5.5%. Specialty prescription growth continues to lead our pharmacy performance. Within this category, we are beginning to see the impact of GLP-1 drugs going generic. It's still very early, but the initial indications are encouraging. Lower generic pricing is being offset by higher volumes and we expect higher revenue, higher gross profit dollars and higher gross margin rate. We will provide a more detailed update at our Investor Day in September. Lifemark delivered double-digit sales growth as it continued to experience strong growth in the number of patient visits to its clinics. Front-source same-source sales grew 1.3%. Prestige Cosmetics, OTC, and Baby were strong, while the timing of the Easter ship was a headwind to sales. The underlying strength and profitability of their front store business remained solid. Online sales increased 19.3% in the quarter, driven by PC Express delivery, PCX Pass, our third-party marketplace partnerships, and the expansion of pick-and-deliver and marketplace locations. Retail gross margins were stable, up 10 basis points. Retail SG&A is a percentage of sales with SLAT at 20%. This reflects operating leverage from higher sales offset by incremental costs related to opening new stores, the ramp-up of our automated distribution facility, and the year-over-year impact of certain real estate activities. The ramp-up of our East Gwillimbury Distribution Centre continues to progress, and we're making progress on the construction of our second new distribution centre in South Caledon. These remain important investments in the long-term capability and efficiency of our supply chain. Turning to financial services, subsequent to the end of the quarter, we completed the sale of PC Financial to EQBank. As of closing, Loblaw owns approximately 19.9% of EQB's issued and outstanding common shares. We expect to increase our ownership to approximately 25% over time. In connection with the transaction, Loblaw received $625 million in cash representing the release of excess capital, cash consideration from EQB, and the collection of certain commodity tax receivables. Starting in the third quarter, we will no longer report PC financial results and will begin to recognize our proportionate shares of EQB's net income within our consolidated financial results as financial services remain important to Loblaw's strategy. As we begin this new partnership, we are excited to continue expanding the benefits of PC Optimum while participating in the future growth of EQB. In the quarter, we repurchased $552 million worth of common shares under our NCIB program for a year-to-date total of $1.2 billion. Our return on equity was 27.2% and our return on capital was 12.5%. Looking ahead, we continue to expect our retail business to grow earnings faster than sales and adjusted net earnings per common share growth in the high single digits. Because the PC financial transaction closed partway through the quarter and our reporting calendars are different, we'll only recognize one month of EQB's earnings in the third quarter. Despite this timing-related headwind, we remain confident in our ability to deliver net earnings per common share growth in the high single digits. We expect to continue to deliver consistent top line sales growth in the third quarter and remain confident in the long-term strength of our retail business and our ability to deliver on our outlook for the year. Consistent growth in free cash flow remains one of the defining strengths of our business. It provides us with the flexibility to simultaneously invest to deliver our long-term growth strategy while maintaining a strong balance sheet and returning capital to shareholders. We believe this balanced approach to capital allocation is a key competitive advantage and an important driver of long-term shareholder value. Given the strength of our balance sheet and growing free cash flow, we now expect to repurchase $2.1 billion of our shares this year, an increase of $200 million to our initial plan. I'll now turn the call over to Per.

Thanks, Richard, and good morning, everyone. We are very pleased to report a strong second quarter for 2026. What stands out to me is the quality of execution across the entire business. We're staying focused on the fundamentals. It's strong stores, it's disciplined growth and delivering our customers relevant value and offers in the way they want to shop. The consumer environment remains consistent with what we have seen over the past several quarters. Customers are looking for value using promotions, engaging with PC Optimum offers, and making choices across the basket to manage their budgets. That puts a premium on execution. We recognize that customers can choose where they make their purchases and spend their hard-earned dollars, and they are responding to retailers that understand and anticipate their needs. Consumers are rewarding retailers Great value, meaningful service, compelling offers, and an unbeatable selection. We believe we are delivering on all these parameters, and customers continue to reward us for meeting their needs. Every day, our merchants, sourcing teams, and suppliers work together to balance delivering affordable products for Canadians while growing our domestic supply chain network. We continue to onboard new Canadian suppliers, invest in local production and help smaller businesses scale alongside us. I'm incredibly proud that more than 70% of the food we buy is sourced from or prepared in Canada and we're always looking for opportunities to increase that number where it benefits our customers. Supporting Canadian suppliers and delivering value to customers are not competing priorities. They do go hand in hand. It's about making thoughtful choices that strengthen our economy while continuing to deliver the quality, selection, and value our customers need and expect. We continue to see suppliers come to cost increases, and our approach remains disciplined. We carefully assess every proposal and only accept increases that are supported by the underlying cost. As a result, We have identified excessively pushed back more than ever on unjustified cost increases requests, saving hundreds of millions of dollars for our customers. In food retail, our discount banners remain very well positioned. Match and no-fills continue to help customers stretch their budgets, and we continue to see strong customer response as we add capacity in underserved markets. Four no-fills and three maxi stores in the last quarter. As an example, we are proud to bring the first ever hot discount store to the community of Lloyds Minster in Alberta. We also opened our second maxi in New Brunswick, where we converted no-fills and baths and saw sales more than double under the new maxi banner. A bit better than we expected. And this morning we opened a new no-fill store in Dutton, Ontario. which will be the first hard discount store in that community, providing customers with more choice and the option to save significantly on their groceries. As Richard mentioned, our conventional banners are also performing well, after lapping a very strong performance in Q2 last year. T&T remains one of the most exciting growth opportunities that we have in the company. and customers response continues to be strong both in Canada and in the U.S. In June, we opened our first T&T location in California and it has been a huge success. The San Jose store generated the highest first week sales of any store opening in the history of Loblaw. Hundreds of customers were lined up for hours on the opening day and the mayor was there to help cut the ceremonial ribbon. We plan to open two more California stores in 26 We are and stay excited to bring TNT experience to new communities. In drug retail, Sherbert's Rock Mart and Pharmaprix continue to grow. It's great to see the role our pharmacy teams are playing in improving healthcare delivery in Canada. Customers want convenient access to care closer to home, and our pharmacists and healthcare professionals are increasingly part of that solution. In the quarter, we brought that convenience to three new communities, including a new smaller format pharmacy and care clinic in a new residential development in the west end of Toronto. In front store, we continue to focus on making the offer more relevant for customers. One example is the food refresh we are testing in select server stores, with more SKUs at cheaper prices. Early results are encouraging, and we plan to expand the test this year. It is practical retail work, listen to customers, test the offer, learn quickly, and scale if it works. Our pharmacy healthcare services business continues to perform very well. Our chronic prescription volume continues to grow in the mid-single digits, while speciality and healthcare services deliver strong double-digit growth. As the speciality segment begins to evolve with the introduction of generic alternatives in the DLP1 space, we have an opportunity to play a meaningful role in helping Canadians better understand their treatment options, and in partnership with healthcare providers, help them benefit from safe and appropriate use of these treatments. E-commerce growth remains very strong at 19.3%. Our click and collect sales remain stable, while PCX delivery increased more than 40%, led by our PCX press delivery and third-party options. We're seeing improving efficiencies and profitability as our growth accelerates in both third-party pick and delivery. As shoppers, we recently rolled out our buy online, pick up in stores to 500 stores, offering customers additional convenience in the front door shop while driving an incremental in-store purchase. Looking ahead, we're confident that consumer preference for discount is a long-term shift. Our momentum on investing in this area and the differentiation of Max and No-Fill banners position us very well for continual growth. We believe the diversity of our banner portfolio combined with our scale, loyalty program, control brand, and execution puts us in a very strong position. As an example, customers have really embraced our Summers Insiders program. and this is the best and most successful program so far and it's also bringing us a lot of new customers. I'm proud to add that one of our top selling insider products this season is our PCE Cherry Tomatoes and these delicious online wine cherry tomatoes are greenhouse grown right here in Canada. And on tomatoes, that actually reminds me that our president of Hard Disc Gown, Melanie Sink, Whenever she's asked about what she does, she answers, I'm just here to sell tomatoes. And trust me, we are selling tons of tomatoes in hard discount. On a more serious note, our performance this quarter reinforces our confidence in the year. We are serving our customers well, investing with discipline and delivering consistent performance across the business.

I want to thank...

our colleagues across stores, distribution centers, pharmacies, clinics, and store support offices. Their hard work and dedication are what allows us to deliver for our customers everything. With that, we will open the floor for questions. Thanks a lot.

Thank you, Per. Colby, if you don't mind introducing the Q&A process again, please.

Of course. If you'd like to ask a question, please press star then the number one on your telephone keypad to raise your hand and enter the queue. If you would like to withdraw your question at any time, please press star 1 again. We'll pause just for a moment to compile the roster. Your first question comes from the line of Mark Carden with UBS. Your line is open.

Good morning. Thanks so much for taking the questions. So to start, can you guys walk through any shifts you're seeing with respect to the health of the consumer? You called out Some continued challenges on this front. Any shifts in spend by income cohort? How about with respect to trade between banners or from branded to private label? Thanks.

Thank you for the questions. And our customers, it's more or less in line with what we have seen so far this year. There are a few examples that customers, they are are looking more and more for value, more for discount. That's also why, in the way that we work, we apply more value both to our discount stores but also to our conventional banners. And to reach a point before, having close to a 4% discount comp growth, I think that's a proof to that. But we are still seeing the customers, they're going for the promotions, and we have seen an increase in our private labels. and also we're seeing some shift in patterns. A new insight that we just revealed a few weeks ago was that customers are buying more and more into the frozen veg area. So it's more than 500 basic points and many more. So I would say customers stay conscious, stay focused on value It's more or less the same as last quarter with a little bit of more comp to the discount. But that's also because we had a very strong comp last year of three and a half also on our conventional banner.

Gotcha. That's great, Keller. Thanks. And then at this stage, how are you thinking about fuel costs for the balance of the year? How much of an impact could higher diesel costs have on your P&L, just given the unsettled situation in the Middle East?

It's very hard. Prices went up and then they started to go down again, and now they're going back up. So it's very hard to predict, but when you look at inflation year to date, it's still pretty stable. But as we said in the previous quarter, if this lasts longer than expected, you're going to see an impact. But right now, we're still seeing our inflation below 3%.

Yeah, and I would add to that that we have only seen a few of our suppliers coming with cost increases because of fuel, but of course, as Richard said, if it's continuing, then we will expect a few more of those cost increases that of course we will push back on, but we will expect that. But we don't expect that inflation will increase compared to where it is now.

Makes sense. Thanks so much. Good luck, guys.

Thanks.

Your next question comes from the line of Irene Tell with RBC Capital Markets. Your line is open.

Irene Tell Thanks and good morning. Just following up on the last question. So you said comps and hard discount were up 4% which implies that conventional was pretty solidly sort of negative. You just called out the 3.5% comp last year on the promo. How should we be thinking about conventional and whether we're moderately positive or moderately negative and what are the key initiatives to drive value in that channel? Thank you.

Hi, Irene. So yeah, Per hinted, I think our conventional business continues to be quite strong. I think when you look at comparing it to the comp last year, like Per mentioned that the total comp was 3.5. Our comp in conventional in Q2 of last year was actually higher than our comp in discount. And I won't go back as to why. Everybody knows why. So that is cuing a bit what's happening now. So from a comp perspective, you'll see. And that effect that we saw in conventional started in Q2 of 25 and lasted for also Q3 and a bit in Q4. So you'll see that affecting the reported comp. but like you look at our top line performance and you look at our market share performance, it sort of signals that our business continues to be quite healthy.

We do continue to manage our business to deliver against our financial framework with the comp sales that we are achieving and rest assured that the comp sales will remain as a really key metric for us. And in the quarter there were several moving parts that influenced our performance but on market share as Richard said that we gained market shares with our discount banners, we were better than our peers in our conventional business and overall we We did gain share in the quarter. And then there was a few factors as mentioned in one of the scripts that we had a negative impact from the Easter shift. We had some headwinds from lower tobacco and liquor sales. And then we're also right now seeing a headwind from tariffs impact from last year. Remember, we increased prices on on American products directly imported because of the tariffs. So they were increased by 25% last year. It disappeared again in October. So there's a short impact swing of about 40 bps right now. It has no profit impact and that will disappear again in October. So we actually feel really strong about outcome sales as well.

That's great. Thank you. And I just also want to clarify something that was said in the opening remarks about shoppers and the impact of the GLP-1s. You said that you expect total revenue to be positive, notwithstanding the pricing headwind, which implies that you expect volume to more than offset. Is that correct?

Yes. Actually, we started to plan 2027. It's still early days, so we're using just preliminary data, but our data is telling us that next year, GLP-1 sales, despite the price decrease, should grow double digits in dollars, and that you're going to see gross profit dollars and gross profit rate grow way more than that.

Oh, yes. Okay. Thank you.

Your next question comes from the line of Tammy Chin with BMO Capital Markets. Your line is open.

Thanks. Good morning. So, Per and Richard, it sounds like with the food comp this quarter that it was more a function of the year-over-year lapse. It doesn't sound like the consumer changed sequentially as gas prices at the pumps increased. Is that fair to say? I'm also wondering if there's anything to call out in competitive dynamics. I think we've seen on our end Walmart price a little bit more aggressively lately.

I think the market stays very rational and I think you're right. Not a lot has changed to the last quarter and there are some different impacts in this quarter.

Okay, got it. My other question is, where are you in terms of your phase of higher square footage growth? For next year, should we expect that percentage growth to decelerate versus the last two years? And how would you characterize right now the industry's pace of square footage growth? Thanks.

Well, we're still running on food at about one and a half. And pharmacy is growing a little bit faster. Like we said, 75 stores this year. We think our number next year is going to be probably very close to that also. So I think the pace will be stable. We don't see it accelerating nor decelerating.

And remember, it's in our base now. So as we have said several times, that in the beginning, when we're ramping up building those stores, it will be a headwind. But over time, of course, there will be a tailwind because we don't add additional depreciations compared to the base.

Got it, thank you.

Your next question comes from the line of Vishal Sridhar with National Bank. Your line is open.

Hi, thanks for taking my questions. Just a quick clarification, and I think I know what you mean, but I just want to clarify, you said that The GLP sales dollars next year is intended to go double digits and gross profit dollars way more than that. But you're saying within double digits but greater than that level of revenue?

Yeah, like we expect gross margin rate and gross margin dollar will grow more than top line growth. That's what we mean.

Yes, okay. With respect to the cannibalization within your comp associated with the square footage growth, Are you able to calculate that, or do you have an estimate of that internally?

Yeah, we do have erosion estimates in our plan, and so far we're doing better than our internal estimate.

Okay, so are you able to share what the impact is on the comp associated with the square footage growth that you're putting in?

We don't measure it like that, so we don't have that number. We measure it as a percentage of sales. and that's the planning assumption we have and that's what we track.

And we're doing better than our... And it's not a concern of ours at all. Not ours and not competitors. I see.

And with respect to the... When the new cohort of stores enters into your comp, do you have an estimate of how much that will benefit the comp? You said the new stores are comping double-digit. So presumably it will be a nice relief as those start to enter into the base.

Yeah, I guess. But think about it. We're going to finish the year and we'll probably have had open about 200 stores over the last three years. Think about half of those are pharmacies and half of those are food stores. And the bulk of those are discount stores. I think you can go play with your model to figure out the impact of that as on comp but it's definitely the more we open the more we start to get an impact and what we said and we're seeing it is like when these stores get into comp we're getting double-digit comp performance.

Okay and with respect to the e-commerce growth that you're seeing How is that on the impact on your operations and on the store experience? Have you hit those thresholds such that the third-party aggregators are placing pressure within the stores?

No, our operation is absolutely fine. It doesn't impact our operations, so no.

Okay, all right, thank you.

Your next question comes from the line of Brian Morrison with TD Cowan. Your line is open.

Good morning. Just high level of thinking about your gross margin outlook. You know, we've got many tailwinds next year, generic GLP-1 growth, lower new store and DC ramps and even, and sorry, profit streams. I know it's early days, but I wonder if you plan to accept this margin expansion from these tailwinds or if you plan to reinvest in the product or price in the further drive through market share.

We always want to keep our price competitive and we always invest money in our stores, but you should see a positive tailwind on gross margin, largely on the back of GLP-1 drugs going generic. So that's what you should start to see and that's what we're planning for.

And we have invested back in prices in the past and we'll continue to do that in the future to stay competitive.

And we feel good about gross margin for the next while.

Okay, thank you for that. And then, sorry if I missed this, but do you have an updated timeline to get to your 25% EQB ownership? And I know it's small, but can you just quantify the impact from the timing mismatch of the calendar, only picking up one month of EQB? I assume it's a penny or two, but it'll be offset.

Yeah, like we have a rough estimate, like by November of next year, we should get there. Obviously, that's us buying using the rules. But if if some blocks were to become available and that could help us go faster. But like right now I think it's sort of November 27 is the date.

Thank you.

Your next question comes from the line of John Zamparo with Scotiabank. Your line is open.

Thank you. Good morning. I wanted to come back to the pharmacy side of the business in particular the Rx Comp and it was a meaningful acceleration you saw in the quarter I wonder if there's any color you can add here I think we're all familiar with the long-term structural trends of aging population but it was still a meaningful shift upward in Q2 and is it as simple as GLP-1s or is there more to it than that you can share?

Yeah I think it's mainly driven by GLP-1s and in Q1 It was not generic yet, so that was helped by that, but we're also seeing very strong sales in chronic disease management, so the med reviews and everything else that our pharmacists are doing, but driven by GLP-1 definitely.

Okay, so just to clarify, I think you said last quarter GLP-1s were growing 40% year-to-date. It's fair to say that accelerated in Q2 then?

It's around the same. Yeah.

Okay. And then secondly, at Shoppers, I wonder if you can comment on your shrink reduction initiatives. You've talked about this as an opportunity in the past. It sounds like that's being adequately captured this year. And I wonder if you can quantify or describe the progress so far and what remains in 2016.

I think we still want to reduce shrink even further. We are at a very good level right now. We are back to pre-COVID levels on shrink in shoppers, so we're pleased where we are. But of course, we always strive to reduce it.

We like the slope at which the shrink curve on shoppers is falling, so we want to maintain that.

Okay, I'll pass it on. Thank you very much.

Again, if you'd like to ask a question, please press star, then the number one on your telephone keypad to raise your hand and enter the queue. Your next question comes from Chris Lee with Disjardins. Your line is open.

Good morning, everyone. Sorry if you already touched on this in the beginning. I was wondering, in terms of the gross margin for this quarter, was food gross margin largely stable again?

Yep.

Perfect. Okay. That's helpful. And then Per, you mentioned the food refresher shoppers that you mentioned it's quite encouraging so far. Can you share with us a bit more sort of what you're seeing so far that gives you that encouragement and what's the plan for the rest of the year?

So we have completed 17 stores now and we have 11 more on the way and we're still reviewing and adjusting them and they're giving us some very good numbers. I think we'll share more when we have the investor day coming later in the year to get a little bit more into some of the details in Shopper. But so far we are very pleased and for us it is about continuous to test and since we will be soon more than 30 it's a good indication of that we are getting what we want.

Okay, great. And Richard, just maybe one more for you. Do you still expect the cost related to the East Gwillimbury DC ramp up and the new store openings to start to ease in the second half of the year?

Yep, yes.

Okay, perfect. Thanks, guys.

Since there are no further questions in queue, I would like to turn the call back over to Roy for closing remarks.

Thanks for your time, everybody, this morning. We are around. If you have any questions, call or drop me an email. In terms of Q3, circle November 19th when we'll be releasing our results. And as both Per and Richard alluded, we're looking forward to hosting you all up at our East Gwillimbury, D.C. in September for an Investor Day. Have a great day, everybody. Thanks again.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.