North West Company Inc. (The)

All participants, please stand by. Your meeting is ready to begin. Please be advised that this conference call is being recorded. Welcome to the Northwest Company First Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Edward Kennedy, President and Chief Executive Officer. Mr. Kennedy, please go ahead.

Thanks very much. Good afternoon, everyone, and welcome to our First Quarter Conference Call. Joining me today are Amanda Sutton, our VP Legal Counsel and Secretary, John King, our Executive Vice President, Chief Financial Officer, Alex Yeo, our President of Canadian Retail, and Dan McConnell, President of International Retail. Before I begin with my comments, I'm going to ask Amanda to read our disclosure statement.

Thank you, Edward. Before we begin today, I remind you that certain information presented may constitute forward-looking statements. Such statements reflect Northwest's current expectations, estimates, projections, and assumptions. These forward-looking statements are not guaranteed the future performance and are subject to certain risks which could cause actual performance and financial results in the future to vary materially from those contemplated in the forward-looking statements. For additional information on these risks, please see Northwest's annual information form and its MD&A under the heading Risk Factors. Edward?

Thanks, Amanda. I'm going to provide some initial comments, then I'm going to ask Alex and Dan to provide more color on the performance drivers and outlook in their own divisions on the retail side. Overall, as we started the quarter, we thought some pretty big things on our plate with respect to the announced Giant Tiger transaction, our admin restructuring in Canada, our pricing investment in Canada. The opening of our largest store in the company, the reopening of it, pardon me, in St. Thomas late in the year was just hitting its stride, as well as our new store in a very important market, Barrow Alaska. So we had a lot going on in the business, and I think we had some very good momentum and had set ourselves up structurally for a pretty good year and a very busy year in the right areas. Of course, as we all know, a lot of things changed mid-March with the outbreak of COVID-19. We continue to work on foundational parts of our business, but we've had to adapt like every other individual and organization because of COVID. And we'll certainly talk about that today. As we got through the quarter and we saw the impact of changing consumer demands, The one common part that I'd say across all of our business, international, Canada, retail, and our air cargo business is the essential of the services we provide. And it really does come forward when you're in a situation like this and people depend. We depend on each other as associates at Northwest to be dialed in to the jobs that we have, especially right now. And I'm very pleased and proud to say that Norwesters have risen to that call to action. I mentioned in my AGM remarks that the safety factor has been paramount and we've been effective and to some degree perhaps fortunate that less than 10 individuals in our company of over 8,400 across 17 different territories and countries have contracted COVID. We've also kept our stores open. They've been relied on as essential service providers and unless there's been a quarantine-type shutdown on particular islands. So that's kind of a backdrop to what's turned out to be a very strong quarter sales-wise. Margins have been solid. There's been some shifts in spending that Alex and Dan might touch on. But certainly across all parts of the business, with few exceptions, We have had very, very strong sales that have continued into the second quarter. Just before I turn over to Alex and Dan to comment, I'll just say that on the airline side, we've also had a solid quarter. We've got our third airplane now with us in terms of the ATR fleet. We're very busy moving aircraft. The volumes that are going through our store network, planes are flying, the hours that we expect, and they're efficient. So I just wanted to point that out because that won't be a part that Alex or Dan touches directly on, but it has been a part of the picture in the quarter as well, a positive part. And then just finally on the Giant Tiger transaction, we're scheduled to close that in early July. There's no significant changes. I did mention in my remarks at the AGM that We've added two stores to the sold group. We didn't change the provision. We're taking a cautious approach to that. We'll see as we go through the subleasing and assigning of leases whether we can mitigate that. But right now, we think that is a very prudent amount, the $9.4 million. And then finally, before I turn over to Alex and then Dan, a comment on our admin restructuring. We're still on target for the $17 million in annualized savings. If you think about that, how that would affect the first six weeks, which is really the impact it would have on Q1, it wasn't significant. We had a few positions that are staying on longer because of a change in work activities tied to COVID and the general pickup in our business in areas that we didn't anticipate, as well as the timing of the structure and the position eliminations. There was one tranche or group in March, a second at the end of May, and a third at the end of July, and actually another group at the end of January. So the run rate on this will pick up as we get through the year. And as I also commented, we had, I guess you call it offsetting reduction in expenses tied to reduced travel as one example of just general admin costs are lower given the COVID environment. The one offset, again, this is across the whole company, is $4.8 million in safety PPE type expenses tied to COVID as well as the frontline wage increases we implemented in early in March or mid-March, pardon me, backdated to the beginning of March. So with that, you've seen the numbers. The comps are high at 15.5 and as I said, they're spread across all banners. The food is up strongly as well and that includes all banners including Giant Tiger. What I'd like to do now is first turn to Alex Yeo to give just a highlight of what were some of the performance drivers that have brought these results in Northern Canada, as well as Giant Tiger, and to comment a little bit on the outlook that we see as best as we can right now. Alex.

Thanks, Edward. This is Alex. First, I'll open with a commentary on Northern Canada. You know, we had a very strong quarter, as you can see, with significant growth in both food and general merchandise across most of our categories. There are a number of performance drivers that we saw. The first one I'll comment on is on the pricing investment. We start with a temporary price reduction in 10-plus road stores in response to the travel restrictions that we saw in a number of these communities. And the feedback and response from our customers is extremely strong. We saw significant lifts in sales and unit movement versus comparable road stores and strong community and customer feedback. And that gives us a lot of optimism going into the momentum for Q2. So pricing investment was the first driver of what we saw in the business in northern Canada. The second and third drivers were related to travel restrictions and increased government support for these communities. As mentioned by Edward in the AGM, we've seen additional assistance announced for northern communities As an example, the government announced an initial $305 million investment in northern communities, and this showed up in a number of ways, whether it be contract sales for PPE, additional support for communities to maintain travel restrictions, all of which, because of the essential nature of our stores in these communities, meant that we're able to support these communities and also capture it in terms of food and general merchandise sales. At the same time, because of these travel restrictions, which, by the way, occurred across all of our communities, whether it be road stores or air stores, we not only saw a wave of initial stock-up shopping, but also increased spend in our stores as customers started to take this support and spend it on items that they would use at home, so big-ticket items, for example, electronics, motorized home furnishings. This money would otherwise have normally gone to the local shopping hub, but it stayed in our communities. And because of our strong operations in stock as well as logistics, we're able to service this demand and capture the sales in our stores. In this quarter, Edward alluded to the investments we made in expenses and safety and sanitation. The additional color I want to add here is that we also invested in hiring additional staff that were in our community that we moved into our stores to help with the sales, with the sanitation requirements, but also as backup support for our staff in event of a COVID outbreak so that we could keep these stores open and running in the event that it was a COVID outbreak in our communities. So that was part of the expense investment that we put into the Northern Canadian business as well. The outlook is positive going to Q2. because there's a number of headwinds and tailwinds. In terms of the positive factors, we're still seeing positive momentum from the pricing investments that I talked about. And we extended that pricing investment into 20 more stores. This is a chance for us to really change the directory of these 30 plus road stores, because at this point, the customers are shopping the whole of the store. It's really a chance through this pricing investment to change the customer behavior and really capture share and keep share from the out shopping. to change price perceptions and to really change the tone and tenor of our relationships with the communities. At the same time, the government has announced some additional support. Nutrition North was expanded as of May 1st. The government has invested in expanding Nutrition North by $25 million, and we operate stores in a number of these communities where the investments are going to. On the flip side, though, we are seeing that travel restrictions are starting to lift, and so that means that more of our customers will start to leave our communities. that will be a bit of a drag in the sales. And the COVID-19 situation remains uncertain. There is potential for continued outbreaks beyond Q2. And so while Q2 remains positive, the outlook beyond that will still continue to be uncertain, albeit with positive momentum. It is also uncertain in terms of how long the government programs will continue. But otherwise, the overall underlying momentum continues to be positive. So that's on the northern Canadian side. I won't comment too much on Giant Tiger. I'd like to say that we didn't see a significant change in trend versus what was commented on in previous releases. What I will say is that food sales did increase due to the stock upshot, but this was offset by softer general merchandise sales as people pulled back in discretionary spending in the quarter. Going to Q2 before we close the transaction, outlook is fairly positive. We've seen food sales trends return to normalize a little bit, but still above where we were last year. But as restrictions have slowly lifted, we've seen a resurgence of spending on basic general merchandise items like home decor, garden, some of these items where GTSL has traditionally been very strong in. So that's my commentary in terms of the North Canadian giant tiger businesses.

Okay, great, Alex. We'll hold for questions until maybe I'll let Dan McConnell, President of International Retail Group, provide the same review that Alex did for his store units, and then we'll open for questions. Dan?

Okay, thanks, Edward. So, Ben, very strong sales increase over in international retail. Some of the triggers and the reasons for this definitely came down to the restructuring that we did just within the last 12 months. It really allowed us to be a lot more nimble and agile to take advantage of some of the changing in the markets that we were experiencing. Our in-stock for both banners was around 90%. We also have to give a large call-out to our committed staff at the front line. There was really a great expectation from the community and then delivered by all of our staff really taking it seriously and going above and beyond in all of their missions as far as extended hours. When some of the stores would shut down, they converted quickly and were agile enough to be able to go into a full e-commerce platform in some of the markets, particularly within the Caribbean, when they went to a full curfew or a full shutdown in some of the operations. And some of the other reasons is in the CUL, obviously the club concept suits very well for this type of environment. Higher quantities, lower prices is definitely switching people away from traditional grocers within their stock-up shop. The foot plates within cost you less also make it a lot easier to do social distancing. The eating, the shopping patterns or some of the eating habits that people were not able to shop at or were not able to eat at some of the restaurants, given the fact that most of them are closed or going to take-out only. This definitely swayed a lot of the shopping habits over into our stores, both in Alaska and in CUO. Much like Alex had indicated in rural Alaska, there was a lot less travel out of markets, this keeping people inside the markets and then shopping over at our AC stores. Talk a little bit about the economy. Excuse me. Alaska definitely has some positive aspects, especially within Q2. The PFD has changed from July and is now going to be distributed out in – sorry, from October typically, and it's now going to be distributed out in July. Typically, it's $1,600 over the last couple of years. Now it's going to be reduced to $1,000, but it's going to be accompanied by CVRF as well as some of the trickle-on of the stimulus that was distributed in Q1 is still coming into the markets. So that is definitely a positive. The fishing industry that we thought was going to be scaled back, as for some of the discussions that were had in Q1, it has now been announced that it will be open. So the fishing season will definitely be advantageous to the Alaskan economy. However, tourism in both Alaska and the Caribbean, which I'll speak to in just a minute, is going to be a lot lighter and going to have a negative impact on the outlook of the Alaskan economy. However, we do feel that Q2 is going to be strong. stronger than we anticipated given the incremental dollars that are going to be in market, followed by what we think is going to be a weaker Q3 in Alaska and probably in an average Q4. So when we look over the Caribbean, we're a little less optimistic. Tourism plays a much bigger role. Unemployment numbers continue to creep up, albeit that a lot of the industry in the Caribbean is either directly involved in tourism or a ripple effect as to what the tourism market does. So we're looking fairly, I'd say, cautiously at these markets, especially the non-U.S.-affiliated markets. Edward mentioned this in his remarks earlier about BVI and some of the other, Curacel, Barbados, definitely facing some headwinds. Just to kind of give you an impression on BVI, some of the factors that have a pretty positive impact on the markets in prior years, the cruise ship industry, which is unknown at this point. In fact, Cayman Islands has indicated that they are not going to permit cruise ships to dock in Cayman this year. And that could be, last year, Cayman Islands saw about 2 million tourists come in as a result of the cruise ship business. BVI would be approximately a million, and it would be in those neighbourhoods for some of the other islands that we're servicing over in the international sector. So, saying that, we're a lot more cautious as far as what our outlook is for the Caribbean, optimistic for Alaska, and we are still experiencing some strong sales increases in the Caribbean, but we're definitely keeping our eye on the ball and looking for that change to ensure that we're not in a difficult position with our stock levels if that demand does start to fall off as we anticipate it will later in Q2. I think that's really all I have for that right now.

Okay, thanks, Dan. I don't know, John, if we missed anything that we should talk about right now. If not, then operator, we'll open the call for questions.

Thank you. We will now take questions from the telephone lines. If you have a question and using a speakerphone, please hit your handset before making your selection. If you have a question, please press star 1 on your telephone keypad. If at any time you wish to cancel your question, please press the pound sign. Please press star 1 at this time if you have a question. There will be a brief pause while the participants register. Thank you for your patience. And the first question is from Michael Van Alst from TD Securities. Please go ahead.

Thank you, and good afternoon. First question is on the $17 million of annual cost reductions that you have planned. I didn't quite understand the commentary. Can you tell us how much was recognized in Q1?

It would be... and a range of $1 million. Because it started, it's only six weeks, and most of the reductions are spread over the year.

Okay. I was under the impression that you were going to get like $10 million to start, and then the other 17 would come in halfway through. Is this delayed?

No, that map would still hold water. It's not going to be $10 million a month.

No, $10 million... Annualized, okay, so a million six weeks that it was in.

Okay, all right. And then the price investments that you're making, I think on the Q4 call, you talked about $10 million of price investments, and today you mentioned $12 million. Is this just, you know, the $10 million is kind of up front and $12 million is maybe... once you increase it next year, or have you changed the plan?

The plan has changed somewhat. The message, I'd say, is based on the change, and we've got this unprecedented opportunity because of consumer behavior shifting involuntarily that we're trying to get to be voluntary. And the price investment was geared towards behavior change. We wanted to get capture more local market share and out shopping spend. Now we're capturing the share and we're doubling down on the price investment. Alex talked about some of the upside we saw to the gates. We're accelerating that spend. Whether it's 10 or 12, I mean this is on an annualized basis, there's a lot of puts and takes in this. I guess I should say that we should put a tolerance around this because if, for example, We see more travel, less COVID support income, related income. And as our analytics show that we're not getting as much traction with the price investment, we would adjust. So our best estimate as we looked at this and we talked about in the context of funding it through cost streamlining was in that 10 million, but it could be 12. It really depends on what we see. And the challenge to all this right now, Michael, and I hope you appreciate, is that there's so much going on because of the fundamentally strong demand for what we sell, and that's not going to go away right away. So we need to kind of clear the deck of these other drivers of reduced travel mobility, again, income support, And then when the dust settles, sometime maybe in Q3 for northern Canada, we'll start to see where the pricing is. It stands alone. With the Nutrition North investment as well, which is quite significant, as Alice pointed out, at $25 million, about $11 million of that will flow through our stores. So unfortunately, if anything, there's more uncertainty. $12 million is our best estimate, but we really don't know until we get into probably Q3 and can start to separate. factors that aren't COVID related, which today are subsuming what we're doing.

Right. So that was actually going to be my next question because clearly you've had really very, very strong sales. Is there any way that you can, that you're able to monitor or pull a survey or your customers or anything like that to determine how these price investments are being received and then whether that's driving it or is it just that they can't shop anywhere else?

Yeah, so as I mentioned before, there's a number of ways that we're trying to triangulate the impact of price investment. The first main way is that the initial price investment was in about 10 plus stores. We have about 20 plus other stores, road stores during the quarter, which didn't receive the price investment, which we now are getting it. That allows us to almost do a bit of a control test comparison between the two groups of stores. And what we did, all stores got the COVID support. and the travel restrictions. And what we saw in the stores where we had that temporary price reduction was significant lift in sales and tonnage that helped offset the price investment. That's how we know that there is traction. Now, obviously, there's still factors within the coordinates of the level of support, travel restrictions, but that's the best way we can kind of triangulate whether there was traction with our customers.

Okay, and so should we just assume that since 10 stores got it, that into one in 20 stores are going to get it, add to it, in Q2 that you only had about a third of that $12 million investment going in the quarter?

It was actually less. I mean, we still have our other stores as well. So the investment was less than that.

Yeah. Okay. And... I guess just finally, and then I'll hand it off to others. You've talked about a $4.8 million COVID costs or COVID related costs. Any sense as to how long those are going to stay in the numbers? Have you started, have any of them started to fall off yet?

Yeah, they're going to fall off significantly beginning in Q2. The wage increases will be... focused on areas that have high COVID transmission rates. And today that would be a couple of stores in Northern Canada. They're not in place any longer in the international group of stores. So on an annualized or quarterly basis, the Thorade looks like the high watermark and will be significantly under that in Q2 and Q3. I don't know, we haven't separated out the PPE part, but the We probably should. We'll have to get back on that so you understand. The PPE will still be there as far as we know, but the lion's share of that is the frontline wage increases.

Thank you.

Thank you. And the next question is from Stephen McLeod from BMO Capital Markets. Please go ahead.

Thank you. Good afternoon. I just wanted to follow up on the outlook for Q2, which sounds like it is still quite positive. Can you just provide a little bit of context around maybe quantification, like how you're trending relative to the strength in Q1? I mean, are you still expecting, like would you still expect to put up a comp that's in the double digits, or is it strong on a relative basis but maybe down a bit from where you were in Q1?

Well, we're only – look at where we are. We're halfway through Q2, so – I will say that it's strong, and if you think about the stock-up surge was sort of the March story, and then the travel restrictions were kicking in, and then the income supports came in. So child benefit payments were increased in May. The senior payment's going to go out in July. July. The PFDs went out in July. The CERB payments are in place now and will cut in half beginning of July. So the income drivers for Q2 are at least as strong as Q1. And we've got, instead of six weeks, we're going to have three months. I don't want to say anything more because these numbers are unprecedented and they could go a different way in an unprecedented way. But those are the fundamentals when you're thinking about, and you can read in the news as much as we can see it in our stores, like where are the income programs going? Where are the travel restrictions going? And then we start to moderate our sales expectations. We think overall that travel will not be the same as it was, even when it's relaxed. We're getting close to a COVID-free zone here in Manitoba, but travel restrictions are still pretty strict. You quarantine for 14 days coming from anywhere else in the world into Manitoba, including Canada. So... there's a lot of factors here at play. Like we're confident saying that Q2 is robust. When we get to Q3 and four, then with Dan and Alex, you can tell there's a lot of uncertainty.

Okay. Yeah, that makes sense. That's helpful. Thank you. And then I think you sort of alluded to it, but I'm just curious with, you know, just such high levels of demand and, and logistics complications of getting product to remote locations. Have you seen any supply chain issues impacting the stores at all?

Lots. It starts everywhere. You would all shop. You know what the stores look like in March, and then they got a little bit better, but the entire store looks like a Halloween pumpkin. Lots of holes and gaps and teeth in the shelves. People are buying... The bike sales, try to buy free weights, ATV sales. We're selling a lot of ATVs, but so is everyone else, so boats and motors. We're getting our hands on a lot of furniture because we're selling a ton of furniture, but that's not really shooting the lights out in the south. So it's been something we've managed. Like we mentioned, the fill rate at 80%, 90%. I would have a modest concern about getting sales as I'm looking at store comments on replenishment of TVs and that we have to keep working hard and our category managers have been very creative to source product to meet this demand. The food side has settled down. There's lots of substitutions. I guess the point I'd make here is that we still see a robust Q2. to get us through Q2. The PFD, that news was dropped, I think, Dan, with very short notice, and we've had to pivot quickly to get product into our stores for the July sales demand. That's around the corner now with PFD. By the way, the other acronym that Dan mentioned is a relief fund for Alaskan rural villages that is in play. Okay, so I've talked maybe too long on this already, but the answer is it's very... It's hard to keep consistently in stock, but we're filling the consumer demand and we're getting the sales. I don't think we're leaving much on the table that way, but the stores don't look pretty.

Okay. Yeah, that makes sense. And then maybe just finally, you talked about in the outlook, notwithstanding economic uncertainty in the Caribbean, and Alex, you sort of alluded to this as well, but you talked about opportunities to grow market share organically and through acquisitions. Can you talk a little bit about where you would look for those market share gains? Are they in specific niches or are you talking more just broadly?

It's going to be in all the regions we operate. It's interesting that some of our competition depends on other revenue sources that are vulnerable to travel or to fuel sales to airplanes, for example. So they're weakened. Doesn't mean we're going to buy them. But in the Caribbean, we're paying attention. In Alaska, we're looking at some new store opportunities. So it really depends on how the next few months play out. But I'd say that it's across the board. We're early stage on that. What I did mention in my remarks that we were also doing is telemedicine. And it's not, you know, we haven't put $5 billion into it like TELUS. but we are live with pilots on telemedicine and ours are enabled by the relationships we have with First Nations. And I'm going to be really keen on reporting more on this to our investors as we go through this year and onward. This is a big trigger point, I'm sure many are aware, the fact that virtual billing is now allowed. We've waited a long, long time for this to break open. We have a cohort of doctors that work for us and we also have our telepharmacy So that's another one. And then Alex mentioned B2B. I know your question is about acquisitions, but we're also looking at ramping up our business-to-business sales. We've been called on more and more by people to try to find product for them. That $310 million that Alex mentioned, Dan and his group have been supplying governments and school districts with PPE, and we're starting to break into some relationships that we really hadn't anticipated a few months ago. So we're just recalibrating whether we turn that on as a as a growth opportunity or just sort of make hay while the sun shines in terms of the current demand. I think that's all I'll say right now on acquisitions, except that we're, you know, we see ourselves in that group of retailers that's moved forward right now with COVID as opposed to the ones that are struggling. We're definitely not in the struggling camp. And we just have to see what does the whole marketplace look like as the next few months unfold, certainly in the Caribbean. With the economic downturn that's likely in the fall, there's going to be some opportunity if we choose to pursue it.

Okay, that's great. Thank you very much.

Thank you. Once again, please press star 1 on your telephone keypad if you have a question. And the next question is from Sabat Khan from RBC Capital Markets. Please go ahead.

Thanks, Ben. Good afternoon. Just, I guess, maybe a longer-term question. Have you noticed any change in sort of the productivity of your stores at all? I know there's historically been a focus on kind of the top markets and so forth. You know, do the recent events – I think you cut off.

I don't –

Yeah, I'm listening. I don't think I heard the end of your question. I'm sorry.

It was more around the recent events and the way consumers have been shopping. Does that change your view on your store network, maybe making your bigger stores even bigger, or is it too early to make those decisions?

It's too early. I'd really like Alex and Dan would have maybe a little bit of perspective depending on their marketplace, but I'll just weigh into one area. So We haven't been, obviously, for those who know us, at the leading edge of e-comm. Our customers don't shop as heavily that way, but we're all very concerned about out-shopping, physical out-shopping, or e-comm, to the extent that it applies. We have a dark store in Alaska. It's called Span Elite. It sales our way up several hundred percent off a small base. All of our stores were turned on to – we use two e-commerce platforms – to curbside pickup. And the demand was initially pretty high in a lot of dance stores, the cost-less stores. We all know that that's very inefficient. And when you get north of 4%, 5%, 6%, 7% of your sales, it's really a drag. That has now calmed down as people are shopping in person. But to get around to your question, if anything, we go the other way right now, longer term. and that is that the store gets leaner. It doesn't have to get smaller, but we do have a longer-term vision of marrying up our physical network with e-commerce, likely enabled by micro-fulfillment centers that are more bought automated than the things that you do when you have to. So we're no different than any of the retailers there on using MCS or MFCs. We just haven't got to the point of where we would make that investment, but we certainly see a vision of our stores longer term post COVID. Not inconsistent with, by the way, we think that's semi-structurally that there will be more attention and desire for services locally. This is why it's so critical that we put our best foot forward today. This is why the price invest is a little bit higher and accelerated because we do see that folks, they don't really want to go to town to shop for toilet paper and diapers. They'd like to go experientially for a trip. And we want to give them reasons not to think about going out to town for the things that we sell. and we're doing that today, where e-com house is on range. If we're going to have extended range in our stores, then e-com can really fill in the gaps and also get our cost structure down in the store to the essentials that people need and not the peripherals that are so expensive to use bricks and mortar for, given our inherent cost structure. So those are some of the thoughts that we have. They're more specific to the Alaska and the northern Canada business, certainly cost you less. stands on its own as a very strong discount, again, warehouse club format that has proven to be quite resilient. Perhaps, Dan, I know if we contrast BVI, where we've had headwind, even though we're the dominant retailer, we reflect the retail economy in BVI as a distributor, a wholesaler, and a retailer. I think the format of Cull, which is in the other islands, not in BVI, has shown to be very, very strong even with more depressed economic conditions. We're going to really test that in the fall. But so far, it's held its own. The comps out of our Costula stores have been right up there with our northern stores.

Thanks for that. And then just to follow up on the e-commerce side, you noticed some benefit as people were shopping more in markets. But how did you find kind of the e-commerce competition? Did you find some of your local customers relying more on e-commerce than in the past? Are there habits there that they're developing that you're keeping an eye on?

There's been no, and we can track this, not obviously by individual for privacy reasons, but just the usage of our Visa card, which is the largest prepaid product of its kind. We have a large penetration here that Shows us where dollars are going. There's been no increase at all. In fact, a slow-haul decrease in some of the usual suspects for e-com. They aren't big numbers to begin with. Ex-EcaloEat, which has a free freight Amazon Prime thing going on, has for a long time. That's a different scenario. So, no, we haven't seen a spike. And I think, Dan, you might want to comment on the islands where the other retailers have struggled to keep their e-com going.

Yeah, especially, I mean, right out of the gate, it turned on overnight and people were seeing orders, 60, 70 orders, and to the point where it shut down the e-commerce platforms with most of our competitors throughout the Caribbean. Us trying to moderate it a little bit more and manage expectations from our customers to bring it over a period of time was our saving grace. But to Edward's point, I think it hasn't, because it hasn't been executed as well as probably on mainland U.S., particularly in Canada, it has intrigued the people and the customers to continue to utilize that service, with the exception of maybe in some of our islands. Sorry, go ahead.

Yeah, I'm just going to say that actually that brings up another thought, which is, you know, for people who try to use online, it's pretty tough right now. And I don't think in the north where we do business was getting a great, if they wanted to go that route, it wasn't the way to go, especially with the disruptions in Britain. Yeah, freight disruption as well. Yeah, another point I made in my AGM is not to put a defense of NSA. I mean, we think it's a great strategic fit. We've had some challenges for sure with the two-plane crashes last year. But the fact that today we have lift capacity, if we were dependent on third-party carriers, I mean, they've got government subsidies to keep themselves going with their pasture revenues. having collapsed, but their service would be in peril. We'd be depending on those kind of carriers to get our product to our customers. That's not going to happen again. And thanks to NSA, it's not. So we've got this advantage that we're not fully realizing, but it certainly shows you the strength of it when you get into the situation we're in right now.

Very good. Thank you.

Thank you. The next question is from Michael Van Alst from TD Securities.

Please go ahead. Is NSA receiving any of those government subsidies?

They're receiving it for the passenger side of their business, yes. They're not receiving the ones that you – just let me be very specific. They're receiving the crew. I think the acronym is crew. But they're not receiving anything from Transport Canada like – Calm Air and Canadian North. They're receiving the normal subsidies if your business volume drops by that 30% threshold, which theirs did.

Okay, so how can we measure that? And is it material for that business?

It's not material.

All right. Are all of the Caribbean stores, are all of your Costula stores now Cat 45 and 13 Resilient?

I'm sorry. Can you repeat that again, Michael?

I'm sorry. Are all of the cost-less stores now, do they now have category five hurricane resiliency?

Yes, they do.

Great. And then finally, Giant Tiger, I'd assume you're going to report it, keep it in the results until the day that it's sold. That's true, John?

That's true.

Okay, and then for the quarter, are you able to give us what Giant Tiger's numbers were for revenues at the PA for this quarter versus last year?

No, in the first quarter here, Michael, it's the same number of stores, same business, right?

Right, but were you able to give us the amount that it would be just so we have an idea of what the... You gave it to us I think you said zero EBITDA for 2019, from what I recall. Are you able to give us what the revenue in the EBITDA would have been for Q1?

No, we're not breaking that out. And it was, as Alex said in his remarks, and Edward, I think, also commented on, it was not, like the change in the quarter was not material. It was in line with the previous results. Okay.

All right. Thanks and congratulations on the great results.

I just want to come back. Sorry, I was distracted. John was telling me that the PPE amount is about $1 million for the quarter. That's six weeks. So the math on that extrapolated. That would be of the 4.8 is one. And that PPE would be a run rate we'd see going forward as long as any of us can predict the duration of COVID. $1 million for six weeks. $2 million a quarter.

Yeah. Thank you.

Once again, please press star 1 on your telephone keypad if you have a question. And the next question is from Matt Bank from CIBC. Please go ahead.

Hey, good afternoon. I wanted to follow up a bit on the North Star. So you commented last quarter that you were flat and $1.5 million behind. It sounds like it was a lot healthier in Q1, but can you just share broadly sort of where where you're running versus plan, how you see that playing out for the rest of the year, and how much of an impact does a decline in passenger revenues have? I know it's relatively small, but just curious there.

Yeah, it's not large. It was large enough because it got basically wiped out to qualify for the cruise payment, which basically then covered off the loss of that business volume. So you just park that and say, okay, that's kind of comped to last year, but that's not really where we – we're going to make or lose our way with NSA. So it all comes back to cargo. And it was a strong quarter because we flew the planes. They flew the hours they were supposed to. The maintenance cost per hour was low and controlled. And our plan is to continue that. Now, with the third plane coming on, we will decrease some of our third-party lease costs. That's all in the plan as well. I mean, the short answer to your question is that our plan is to improve our bottom line. in the year, and that's still the goal. Certainly with the volume of business we're doing, it's a big boost to what we expected. So the airline is performing above plan based on volume. I'm not sure what else to say. Where we are concerned, like I'll just give you, you know, there's another area of headwind for us is the ongoing insurance costs at Northwest. We have to really get into this more to find out how we can we can manage insurance costs. So that's on a comp basis, you know, charging that to NSA, that's a negative against their business, but they're still up even with that headwind. We're talking about several million dollars in insurance cost increases.

Okay, great. You already touched on this, talking about ATVs, and you talked about category spending shifts in the MD&A as well. Can you just share maybe a bit more, you know, I know there was a stock up in March and things have sort of evolved a lot. Just where sort of the categories that have been more, that you've seen a more recent uptick and sort of how things are trending.

Well, it's really specific to, so at home, big ticket durables, furniture, TVs to the extent they're not disposable these days. And then outside, so like you can't find a bike anywhere in Canada, not very well. So bikes are sold out and trying to find more. ATVs, boats and motors, camping, hunting, fishing supplies, those are the categories that are really standing out. I mean, across the range, there's also, I would say, replenishment of home products, Bath and bedding, for example. Some of that B2B, PPE related, the community investment funds that Alex mentioned. I don't know, Alex or Dan, if you want to jump in on some of the other growth areas.

Yeah, so I'll just jump in on Canada in terms of on the food side. So food side, we kind of mirror a lot of what we see in the southern retailers. So there's a wave of health and wellness bathroom products. paper products, that sort of stuff. And now it's shifted to center store, baking, baking supplies. So I would say, you know, a lot of center store items, similar to the way southern retail is seen, but we're still seeing elevated levels even going to Q2. That's for northern Canada.

Yeah, I mean, much the same in international. The PFD I mentioned, that's coming in with CVRF, the Coastal Village Regional Fund. That's all catered towards big ticket. In the Caribbean... I say unfortunately we're heading into hurricane time, and it's been rumored to be an active season this year. So we've been heavily marketing some of the precautionary materials that are required in order to keep people safe there. So that's a big push. But otherwise, it's pretty much in line with what Alex mentioned.

The other comment I'll add, it's not specific to the categories, but the We serve generally a lower income consumer who in some ways never has enough income to meet all their needs and wants the way a high saving rate household might. So the income that gets transferred gets spent. And this is where having the broad range that we do have in our assortment being in stock on that is incredibly important. with or without travel restrictions. In the past, pre-COVID, for those who follow Northwest, they know, you know, that when we have income, call them surges, whether it's natural resource, royalty checks, land claim settlement funds, the child benefit payment increase when it was annualized that first year, the Nutrition North increase, this is very, very important that the federal government has stepped forward to improve and work with us and other retailers on food security. But that puts money in people's pockets to spend in other necessities for their household. So there's a ripple effect in the local spending that takes place. And if we're the store that has that product, then we're the ones that are going to get the business and the sales.

And just to follow up on that last comment, I mean, how would you assess your sourcing and logistics versus competitors in your markets and how have your in-stock levels stacked up against them?

I think they're superior. I think that, I'll just start with Northern Canada. I think the NSA gives us a huge advantage. The way our stores are laid out, we have a bigger focus on big ticket. We're the largest seller of Honda ATVs in the world, snow machines, skidoos. And this is what we do. It's a very, I could say bifurcated, but it's quite a stretched existence, right? On the one hand, we're trying to sell Tim Hortons. We're trying to get the center store business through our price investment. But when sort of the bells rang on big ticket, we were geared to do that. Our buyers, our logistics, the way we move our freight in the north, we find room for that product to get to the stores. Our sea lift, So we're able to flex ourselves to get those sales. I don't think any retailer in the north, Alaska or Canada, can do what we do when it comes to big ticket and certainly doesn't have the supply chain advantage that we do. In the islands, we have a couple markets where PriceSmart is there. Otherwise, our format is entirely unique in terms of a warehouse club format. So it's more the format uniqueness that stands out, and as Dan said, it really fits the time we're in right now.

Great. Thanks very much.

Thank you. Once again, please press star 1 on your telephone keypad if you have a question. There are no further questions at this time. I would now like to turn the meeting back to Mr. Kennedy.

Okay, thanks, operator. Well, that'll wrap up our call. We appreciate all the questions. We hope that everyone has a safe summer and has time off. We're going to do the same. We're going to be busy based on the way the corridor is going, and Everyone is going to be adapting and adjusting, so we'll look forward to reporting on how we're doing and what's around the corner next when we get back together with you at the end of Q2 in September. Thanks very much.

Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.