North West Company Inc. (The)

Good day, ladies and gentlemen, and welcome to the Northwest Company Inc. Third 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.

Thank you. Good afternoon, everyone. Welcome to our Q3 Conference Call. I'd like to introduce on our call from Northwest this afternoon Amanda Sutton, our VT Legal and Corporate Secretary, John King. our Chief Financial Officer, Alex Yeo, who is the President of our Canadian Retail Group, and Dan McConnell, who is the President of our International Retail Group. Before I start with my remarks, I'd like Amanda to read our disclosure statement.

Thank you, Edward. Before we begin, I remind you that certain information presented today may constitute forward-looking statements. Such statements reflect Northwest's current expectations, estimates, projections, and assumptions. These forward-looking statements are not guarantees of future performance and are subject to certain risks which could cause actual performance and financial results in the future to vary maturely 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. Like the last quarter, I'm going to allocate time to both Alex and Dan to talk about their respective businesses. And I'll do that very shortly. I'll provide a general overview right now. I'll talk about the airline. Then after Alex and Dan have spoken, I'll wrap up with some comments about the outlook and our priorities that they didn't cover. In general, you've seen the press release and the our disclosure for the quarter. This is a continuation that's really started in March with the dramatic shifts in consumer behavior and everything else in our society tied to COVID-19 and the pandemic. Our business has been, in general, on a net basis, favorably impacted to the extent that we're an everyday needs retailer. People are staying close to home. we're very strong in working and operating effectively in some difficult circumstances. That's kind of the nature of what we do. So now we've layered on the realities of the pandemic. So some of this, I don't want to say it comes natural to us, but it plays to inherent strengths of Northwest and putting safety first, reliability right up there with it in terms of in-stock supply and being reliably safe. I'm very pleased to say that amongst our associates, the contraction rate is less than 1%. Stores have not had to close unless required by a community order. We've been able to keep our stores staffed and fully operational and I believe exceeded expectations, at least compared to other retailers in the space when we look at our market share. So I have huge amount of pride and acknowledgement that I want to start by talking about. When things are busy as they are for us and we have to find more product to sell and we have to operate stores with much higher volumes than we had planned or expected, it's very, very demanding. When individuals cannot take time away from work in the normal way they would through vacations and travel geographically, that adds to stress and strain as well. We're not at a breaking point by any means. We realize that the pandemic is going to continue for many more months in different shapes and forms as we get to broad dissemination of the vaccine. But we're very, very attendant and aware of stresses and strains, fatigue factors, et cetera. And I think we're doing as good a job as we all can to re-energize and stay focused on meeting customer needs firsthand, as we also pivot towards what post-pandemic looks like through the second half of next year and beyond. Again, trend-wise, there's no great surprise in the quarter. And as far as a little bit about the outlook, we see it continuing not just through Q4, but into Q1 and Q2. Obviously, there's big numbers to to compare to in terms of 2020, but there's a lot of other drivers in the market, in the communities that we serve that suggest that we're going to continue to be riding a higher level of sales and ultimately margin profit performance well into next year and we think beyond. I'll say one thing before I turn. I'm going to turn first to Alex and then to Dan. Regarding the airline, we don't have our airline president on the call, but So North Star Air had another very good quarter in terms of cargo. Passenger business started to turn down with lockdowns, and that had an effect on revenue there. But the cargo side was running at a very high efficiency, tied directly to the cargo volumes that connect to our sales and our Northern Canada group. And it really gave us a... high confidence level and a good learning on how we can turn our planes fast, safely, and efficiently, get the load factors to where they need to be. And I think this is one example where there's great learnings during these busy times or quarters of our business that we can take that and build on it. And suffice to say, North Star Air exceeded plan again this quarter and was a positive contributor to our bottom line. With that, I'm going to stop now for a bit, and I'm going to turn the conference call over to Alex and any questions you might have for him on Northern Canada, and then we'll do the same for Dan McConnell talking about our international business. Alex, over to you.

Thanks, Edward. This is Alex. So in Northern Canada, as Edward mentioned, you will continue to see market share gains across the banner. And this is reflected in our food and general merchandise sales. There are a number of factors here, which continue onwards from Q2. The biggest factor in the quarter was really the increased travel restrictions due to the increasing number of COVID-19 cases. So similar to Q2, we're able to capture greater in-community spending because of our everyday offering around food and general merchandise. But I would also call, just as importantly, I think our procurement and logistics and store teams did an excellent job this quarter We're able to get food and general merchandise products into our stores, and we're able to meet the increased demand from our customers and keep the spending in market. The other thing I want to call is to echo what Edward said. I think we saw a very strong execution and collaboration between the Northern Canadian store teams and logistics teams, and that's NSA. And so this kind of smooth flow of freight was really a strong competitive advantage in allowing us to really capture the greater in-community spending in Q3. The other factor was really the continuous support from governments. that really helped to maintain above-average customer incomes. We saw a significant number of customers transition from CERC to two new COVID-19 programs, the Recovery Caregiving Benefit as well as the Canadian Recovery Benefit. So those were the factors that we saw drive our sales in Q3. While we'll continue to see positive customer response with our ongoing pricing investment, COVID-19 has made it very challenging to get a full read of the results and payback period of this pricing investment. We won't have a clear picture on the payback and results of pricing investment until COVID situation starts to stabilize, most likely second half of 2021. And so what we are doing is slowing down the role of the pricing investment until the second half of 2021 when we have a clear read on payback results and customer response. What this means is that I had mentioned on the last investor call a total pricing investment of about $8 to $10 million for 2021. And because of this slowdown, we now anticipate only investing about $3 to $4 million in 2021 as a result. On the expense side, we saw improved expense trends, primarily coming from better management of our COVID-19 related expenses, such as PPE and supplies. And as mentioned last quarter, another factor was the fact that we transitioned from a broad, across-the-banner premium pay program to two different programs. one that was more targeted premium pay for when a store experiences a COVID-19 outbreak in the community, and a special year-end frontline bonus program. So those are the factors around expenses. As we look to next year, as Edward mentioned, our sales outlook remains largely positive versus historical trends. With the current vaccination plan that's been announced by the government, we anticipate that travel restrictions will remain in place into the second quarter of next year, and this will help to increase in-community spending In addition, customer incomes will continue to remain above average. One factor there is the COVID-19 programs, the Caregiver Program Benefit as well as the Canada Recovery Benefit. These will continue to go on into the early part of the second quarter of 2021. The other factor is really the payments from the day school settlement. The day school settlement is a compensation payment to all Indigenous Canadians across Canada who are forced to attend Indian day schools. And each customer, each addition of Canadian will get a check of $10,000 or more as part of the settlement. And to date, they've already been close to about 90 plus thousand claims made, and 40,000 of these claims have already been paid out. And we expect more of these claims to be made and settled going into next year. A fair amount of these payments will flow to customers in our communities well into 2021, and that's another factor that will help to sustain our customers' incomes. The other thing that I think is a positive factor in 2021 is our buying relationship with GT. It's off to a good start, and we expect this to provide momentum to our business in two ways. Firstly, we anticipate that our joint procurement exercise in food will allow us to get cost savings as a result of combining our volumes, and I'll have more details in the next one to two quarters as we finish up this joint procurement work. The second factor and benefit from the GT relationship is that we expect to source more general merchandise from GT, which will also provide new, more relevant assortment at the same or lower prices to our customers, and will really be a key factor in allowing us to hold onto the market share that we've captured this year during COVID-19. On the expense front, we anticipate expenses to be roughly flat going into next year. While COVID-19-related expenses will decrease once a vaccine is in place, These lower COVID-19 expenses will be offset by a catch-up of maintenance, repairs, and other operating expenses that we've deferred this year due to COVID-19 travel restrictions. The last comment I want to make is around COVID-19. We do foresee this continuing to be an operational risk into 2021. In the event of a significant outbreak that could require a store staff to isolate, we anticipate that we would need to run a store with different kinds of staffing models that could either affect sales or drive expenses. As Edward said, though, we've managed to maintain service so far, and we're actively working to mitigate this risk, and I'm confident we can continue to mitigate this risk. We've developed backup operational plans for all of our stores. We're working with community leaders and provincial public health officials to ensure that, you know, in these scenarios, we have access to rapid testing and flexible quarantine requirements to enable us to keep store service up across our network. So those are my comments around the enter Northern Canadian business and our outlook for next year. I'll pause there. Thank you.

Thanks, Alex. I think before we do questions, we'll get through the whole business overview, and we'll go next to Dan.

Thank you, and good afternoon, everyone. Happy to share the details of our successful third quarter. International continues to experience strong sales momentum. The pandemic has been challenging for everyone, but I'm proud and grateful that our teams have stepped up resilience to keep fulfilling our role as an essential service provider. Our approach continues to be based on the same three pillars mentioned on previous calls. First, protecting the health and safety of our customers and employees. Next, maintaining a dependable assortment through our focus on supply chain. And lastly, an unwavering commitment to social responsibility in our communities. We continue to have a solid in stock levels of relevant assortment in spite of current industry wide disruptions in some parts of the supply chain. This speaks volumes not only about the tremendous job our teams have been doing in this front, but also our strong relationships with suppliers. Similarly, our logistics and store teams have shown leadership and managing increases in volume and our merchandising pricing and marketing approaches. have been tailored to seize current opportunities, such as shifts in consumer spending, particularly one-stop shopping, and more in-home dining and entertainment. Also, less out-of-market travel has allowed customers to shop more at our stores. And of course, although not as high as in previous quarters, the availability of additional government income support, particularly in U.S. markets. Here, unemployment benefit top-ups and additional emergency allotments of SNAP funds, commonly known as food stamps, continue to fuel sales growth. All of these factors, coupled with better service and safety standards, have allowed us to gain market share in specific territories, even islands with no or little income support like Barbados and Cayman. As many food retailers have experienced, customer counts have generally declined, while basket sizes have increased given mobility restrictions during the pandemic. However, we operate in very diverse markets, and this is not the case for all of our markets. For example, in Pacific Cost You Less, we saw a 5% increase in customer counts, as well as a 23% increase in basket size. This was partially offset by the Caribbean CUL markets, which is experiencing different macroeconomic realities. Therefore, our total CUL banner customer count decreased by 1% and our basket size increased 15 on a same store basis. Alaska has followed a similar trend as other retailers with lower same store customer counts and higher basket sizes as an increase of 23%. This might be a good time to transition and talk about some of the economic headwinds our markets have been facing and how we have been managing them. Some Caribbean markets have been impacted by the slowdown of tourism. The British Virgin Islands have been shut down for travel since late March, and its GDP in 2020 is forecasted to shrink between 13% and 17%. A brief increase in COVID-19 cases, particularly in September, was met with government-imposed restrictions and curfews that included closure of our stores. This represented the equivalent of 72 less trading days for the quarter. BVI reopened borders December 1st with certain restrictions. We will closely monitor the situation and continue to focus on expense control, assortment, in-stock position, and safety protocols. The former Dutch territories of St. Martin and Curaçao are also experiencing headwinds, given its limited government financial support. Our guiding principles and approach are all similar here. On the other hand, performance has been hampered by travel and mobility restrictions for a handful of stores in Alaska's southeast region, where communities depend on tourism and commercial fishing. Thousands of workers come to work temporary jobs on fisheries during the summer, and although the season peaks in July, some of the employment and income effects will potentially linger on until year-end. Now that the stage has been set, we can go ahead and talk about our results. Sales growth for the third quarter continues to be robust as seen throughout the year. An increase in sales of 17.2% compared to Q3 last year was led by same-store sales increase of 10.8, and the continued solid performance of our reopening of St. Thomas USVI. Food sales increase of 17.4% in total were up 9.6 on total comp stores. As a part of our deep community relations commitment, we continue to execute the contract we were awarded with the USDA Food Box Program delivered to several hard-to-reach communities throughout rural Alaska. Overall for international produce, grocery, food, and meat led category performance in the back of strong in stock positions, as well as our signature category programming programming cost you less general merchandise sales increased 20.9% in total and 21% comp. In spite of the fact that we were comping against the permanent fund dividend, the PFD in Alaska, which was released early this July, instead of its regular issuance in October. It's also worth noting that obviously we picked up sales from those funds last quarter instead of this one, that the PFD was $992 this year versus $1,600 last year. General merchandise had strong performance of big-ticket motorized sales, particularly in Alaska. For international as a whole, categories such as entertainment media, housewares, and sport notes are living at a robust quarter. Here we look to play to our strengths, particularly in CUL. where the warehouse format allows not only to be competitive in pricing and assortment, but also for a safer, more socially distanced shopping experience. Again, our merchandising, pricing, and marketing approach allows us to capitalize on the one-stop shopping behaviors, additional income from government support in certain markets, and other travel restrictions. In terms of gross profit, Q3 has increased 14.1% to last year, driven fundamentally by sales and offset by a lower gross profit rate given the slow performance of BVI and the resulting higher blend of cost-less sales, which of course are lower margin consistent with its format. Looking ahead, recent news that deployment of a COVID-19 vaccine is encouraging for markets that are currently experiencing low tourism. We outlook that somewhere around mid-2021, these markets will start to see positive impacts of the vaccine in terms of mobility and its resulting economic pickups. At the same time, we expect tailwinds to continue in Alaska, the Pacific and U.S. territories and the Caribbean as the stimulus package discussions on the U.S. Congress have restarted and a potential deal seems closer to being approved. We also expect to keep our market share gains based on the execution of our three pillars across the international banners. Being reliably in stock combined with current customer shopping behaviors will continue to tip scales in our favor. In Alaska, our e-commerce business from stores was launched in April 2020, complementing our existing Span Elite Start Store e-commerce service. Growth during 2020 has been strong, and we will definitely focus on this in the up and coming year. We also expect to continue expanding our Alaskan footprint in the up and coming years, with new store openings averaging between three and four new stores a year. Coming full circle, our focus will remain on supply chain and merchandising efforts to continue to capture these market opportunities, especially in the near year coming into Christmas holiday season, as well as the continued development of our B2B channels. Of course, we don't expect to be 2020 performance, but our 2021 CAGR to 2019 will definitely be further ahead of what it would be otherwise. Thank you.

Okay, thanks, Alex, and thanks, Dan. Just to fill in a few things that weren't mentioned, actually Dan ended on one of the points I was going to bring up, and that is in terms of our capex bin and outlook for growth, in our disclosure we mentioned $75 million, and with growth upside, I do expect that to go higher, and it's all good news as far as we're concerned because this would be a creative investment, pure growth, Today we signed off on four new stores, two acquisitions, and two new stores, all in new markets, two in Alaska and two in northern Canada. We continue to look for other creative investments of a cost-saving nature, specifically in refrigeration and even some own-versus-lease scenarios where the cap rates in northern Canada are way in excess of our WAC. So And then on top of that, as we look situationally at what's going on around us, we have a couple of situations that may result in a larger growth opportunity through acquisition. But the bread and butter is along the lines of what Dan and Alex have mentioned. The pricing investment in northern Canada, we want to come back to that when we have more visibility of the actual impact. We are doing it now, but in a little more controlled way than we expected. and then in Alaska, a much stronger growth mandate and ambition than we've had before. A lot of this has been delayed. You can say it's a good problem, but I can't overstate the intensity of the reactive nature of our business today when we're getting the sales we are and serving the customers as we are and keeping our stores safe. We're also very cognizant of the fact that the next three months could be the most challenging in terms of operating conditions in our stores and the safety considerations that I've mentioned. Many of you have probably noted some of the recent upsurges, not just broadly speaking around the world, but in northern Canada specifically and in First Nations where there's been some very, very difficult community situations with very high contraction community spread rates. So our contingency plans are first and foremost built on safety, but also redundancy planning that will allow us to keep numerous stores open through backup teams that can be mobilized to be in community if required. These were all scenario plans that we had in place since last spring. If they will be put to the test at all, and we all hope not with all the efforts to flatten the curve and then vaccine distribution, it's going to happen in the next three months. At the same time, these heightened lockdown measures mean that there'll be more in community spending. So either way you look at it, we're going to continue to be extremely busy. But we also are pivoting, as Alex and Dan mentioned, to these post-pandemic realities and opportunities. And we do believe we have a solid market position. It won't be like 2020. We're not pretending that it's going to be 2020 levels. But beginning the second half of 2021, we think our format strength and what we've proven to our customers is And in terms of behavior changes of shopping local, our resiliency and reliability, whether it's the format strength of Cull or the brand of our Northern and North Mart stores and AC, will result in some market share retention. And as Dan mentioned, our CAGR expectations off of 29 actuals are quite far ahead of where they otherwise would have been based on having connected with our customers the way we have in the last year and still six more months or so to come. With that, I'm going to open for questions. Before I do, I'm going to check with John King, our CFO, to see if, John, listening to all three of us, we've missed anything that we should comment on before questions.

No, I don't think so, Edward. I think we should go to questions.

Okay. Operator, we'll do that. We'll open the call for questions, please.

Thank you, Mr. Kennedy. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please lift your hands up before making your selection. If you have a question, please press star one on your device's keypad. If at any time you wish to cancel your question, please press the pound sign. So please press star one at this time. If you have a question, there will be a brief pause while the participants register. We thank you for your patience. We have a first question from Michael Van Elft from TD Securities. Please go ahead. Your line is open.

Great. Thanks very much. Tried to keep up with all those comments. There was some good detail, but came out pretty fast. So let me just, I guess, go over a few things. As far as NSA is concerned, are you able to give us any more financial metrics around its performance this quarter in terms of revenues and where you stand relative to its the original EBITDA targets?

We're in line with the EBIT targets, given that most of the DA goes back to the engines. And I don't think I can give you more specific guidance. At one point, we talked about the investment and the RONA on our cumulative investment, which is close to $100 million. And we see that being accretive to our business based on the way the year has turned out and our future projections. I think I would leave it there and just say that each quarter has been more solid and although it seems frantic and maybe we spoke too fast, if we convey the sense that we're really busy, we are, but the airline actually has been slowing down in terms of stability and predictability in their operations. We're getting a better and better handle on So I know I'm not directly answering the question, but I'll just say that it is meeting our financial expectations, with the exception of the passenger business, which we know will come back post-pandemic.

So the passenger revenues are down, but your cargo business is up. Would that mean your external revenues from NSA are actually down, just from an accounting perspective?

They would be, that's correct. Okay.

You talked about annual incentive plan costs being higher. Is that because it was a strong year or because there are new plans that will keep these costs higher in future years as well?

No, 90% of it is because of the year itself against, yeah, There was an enhancement in northern Canada, but it's not material to your question. So next year will be a significantly lower compensation. And lastly, of course, we were to be so far ahead like we are this year, but that's not realistic.

And are you able to give us any idea what that range of annual incentive fine costs were?

John, what's your thought on that?

We typically wouldn't get down to that level of information, Mike, in here. We did break out the share-based compensation costs, which I know you look at.

Having said that, though, I'll say we take it under advisement in terms of disclosure because the swings can be quite large when you come out of a year. We just look like we're headed to finish and go into next year.

In the press release or the MD&A, you talked about some new growth areas that you're seeing. What exactly are you referring to on that front?

First of all, on the individual store scale, it's tuck-in acquisitions. I don't think it's COVID-triggered. I think we're more focused now and intentional on that. We freed up a bit of our time from the reaction to COVID-19. independent store owners, community-owned stores. As I mentioned, the four stores we just signed off on today are two built and two acquisitions. Dan mentioned trying to get at least four of those done a year in Alaska. The other growth we're talking about right now we're looking at is telehealth. We've put some investment into that. There seems to be a good confluence of circumstance where we can now do remote diagnostics with our physician business. We've got a industry-leading telepharmacy platform. And we're now putting the code together to put this in place for a full medical suite. I'll be very happy to give you more detail on that in upcoming quarters. But that's more of a, it's a greenfield or ground up, but it leverages our existing position in health right now with pharmacy and our small physician service business. And it's been indirectly COVID-enabled. The larger potential acquisition type investments, I can't give you specifics, except to say that we're talking and discussing and analyzing who's in our retail space that we might be interested in working with further, partnership acquisition. And I'd say that's probably where the waterfront is covered on growth. The rest of our growth is back into the core business and some of the CapEx I mentioned on in terms of expense saving initiatives that we, we think are, are, are there for us.

Okay. And can you actually give us some color on these two new store builds and two new acquisitions? Um, you know, maybe the size of them and, and where they are.

Um, they'd be smaller stores, uh, ones in, in, uh, they're both, two of them are in Nunavut and, uh, and two are in Alaska. Um, not prepared to announce the actual locations, but, but, uh, They would be medium to smaller stores, which is really what's on the docket for us. It's consolidating into the next level of stores that we don't currently have stores in, particularly in Alaska, where we've identified some 45 locations. Are these like C-store type? No, they're not. They're general stores, so they would have the full range of offer anchored by food. I'm sorry. No, I stand corrected. One of the acquisitions is a C-store that will be a combined convenience store and a motorized repair depot. Quintessentially a northern solution. We do sometimes multiple things under the roof, but the other three are more conventional general northern stores.

All right.

Thank you.

Thank you. Next question is from Sabahat Khan from RBC Capital Markets. Please go ahead. Your line is open.

Great. Thanks, and good afternoon. It's kind of, I guess, at a high level. I think when some of these COVID benefits started earlier in the year, I think the expectation was maybe to start to moderate as we got into later in the year. And obviously, the pandemic's lasted longer as well. Are you finding sort of market share gains or maybe some more semi-permanent change in shopping habits? And how has the year evolved, I guess, compared to what you may have thought a few months ago?

Well, duration has been the difference. No one knew how long. And then the income supports have also been more durable, especially in Canada. I think Dan spoke about this. The format strength and cost you less. And I'd say, for example, in the Guam market, in Cayman, in St. Thomas... We've seen something that tells us that we're suited for this kind of a shopping environment. It's really hard, as you probably agree, to predict what are these green shoots of significant market share gains, because in the algorithm is the income of the shopper and the pandemic overhang. We know there's going to be traveling with a vengeance at some point or revenge travel, as I've heard it described, when things open up. But we're studying a lot what our customers are spending their money on with us and trying to double down on the core essential basket filled that we think we can hold with them, whether that's through promotional activity or just being there reliably and helping to reinforce that habit shift. So it's too hard to tell right now, but I'll say that the duration is surprise and the income support in Canada and then we expect there will be a stimulus or support program coming out shortly in the US and in general there's been just more activity in community not so much because of the restaurant trade that would be more of an urban supermarket thing or the shift to e-com for us it's more about not travelling, staying local shifting your spending to out-on-the-land type activities, hence the sales of our big ticket. And I guess we're all going to see how this turns out in terms of what semi-permanent shifts there are in that kind of behavior.

Okay, and then I guess on the topic of income you mentioned or mentioned earlier around some of the native settlement payments that are coming, which sound like they could be sizable. I guess is that something that could be a multi-quarter benefit? How are you expecting that to sort of flow through?

Yeah, we think that's going to be, Alex, you can jump in, but likely a full year impact and a material one on our Northern Canada business. Alex, you had started a little bit of talk about what had happened so far this year and then going into next year if you want to expand on that.

Yeah, the short answer is that we do expect it to be a multi-quarter benefit throughout all of next year. Again, the numbers I cited, there are about 90,000 claims right now publicly that have been made. 40,000 have been settled, so there's actually still 50,000 outstanding claims to be paid out. In addition, we know that there's more claims to come. We don't have the full number, but there's more claims that will be put in, and those are the more complicated claims that will typically take three to six to nine months to process. For sure, we expect a lot of these incomes to come to our customers and benefit our sales over the next four quarters into 2021.

Okay. And then on the $40,000 that have been settled, have those kind of been paid out or settled just in agreed? I'm just wondering if there's maybe a little bit of benefit of that already starting to flow in.

Yeah. So those 40,000 have been paid out and they would have been part of the income above average incomes that our customers have seen this year. So it's definitely a factor in our results year to date.

Okay. Thanks. And then just last one on the international markets, I guess, is that, you know, stimulus expectation in the U S are expecting that to sort of be, you know, the flow through effect of that to help kind of the Caribbean or how are you thinking about just the, the international markets over the course of the next few quarters?

Yeah, I'll let Dan answer that and explain which exact territories and markets would benefit from the U.S. payments.

Okay. Yes, in fact, we kept pushing it out. We thought we were going to get it third and fourth quarter, with obvious reasons to do with the U.S. politics. It was delayed, but now we're comfortable. We've projected that it's going to come out the first quarter of 2021. The markets that would be impacted that, obviously, are the U.S.-reliant markets such as Guam, the USVI, Alaska, those namely are the ones that would be the benefactors of that payment. And we do anticipate that it will be a nice increase in sales for us throughout probably typically last two or three quarters, depending on the disbursement of money and how quickly it gets to those different regions. Okay, thanks very much for the call.

Thank you. Once again, please press star 1 on your telephone keypad if you have a question. The next question is from Stephen McLeod. Mr. McLeod, please specify your company and proceed with your question. Your line is open.

Thank you. Good morning. It's Stephen McLeod from BMO Capital Markets. I just had a couple of questions here. Just as it relates to the Canadian business, it sounds like, and this is a continuation from last quarter, but certainly some of the tailwinds are going to extend into 2021. And Alex, it sounds like you are sort of optimistic that it might extend even beyond that based on the market share gains that you've gotten. Is there any way to quantify what you view as a sustainable sales growth level or profitability level, you know, exiting the normalization of the pandemic impact?

Sorry, go ahead. No, go ahead, Alex. I was going to say take it from there.

I'll start first, and Edward, you can jump in. As Edward mentioned, there's a lot of different factors affecting our business right now, so I can't really give you a definitive answer. What I can tell you is that there are a number of factors and plans we have in place to try to hold on to the market share gains, even post-pandemic. I've mentioned GT, for example, and some of the assortment changes that we're going to make there. And the other thing that the teams are doing that I didn't reference is we're looking very hard at, you know, how customer behaviors have changed this quarter and what does it mean for the assortment we carry, both in food and general merchandise. So, you know, I would say we've got plans to put in place to really hold on to market share gains. We have seen market share gain increases. We have plans to hold on to them post-pandemic. But it's hard to give you a quantitative read right now because there's so much noise and factors in each quarter. Edward, anything else you want to add?

Well, I'd say that as the dust settles and we see where consumer mobility is, and that would tie directly to the COVID vaccine distribution, our price investment is certainly going to be part of the play as we get into this year. And some of the learnings that Alex's team has got, they've got some pretty serious price investment tests underway. They're just by all the other noise that's going on. So that'll be a factor in the second half as well as far as the share retention. When it comes to our planning, I mean, I think like a lot of other retailers, we're planning off of our 2020 original budgets. And, you know, without giving you the exact numbers, the numbers that we're looking at are higher than we otherwise would have. And, you know, it's, we don't see us giving up every dollar of sales, in other words, that we got. We study where this is coming from. We look at like-type stores and say, okay, if we've got penetration of big-ticket consumables or durables in this market, why didn't we get it there? What's our per capita spend going on in terms of mattresses, TVs, motorized? Are there categories and subcategories where we can be either more promotional or just more intentional by being in stock to really drive that business? And It's a nice confidence boost. When you think about Northwest, you think about growth through income and population and not so much share capture. But this has changed that dynamic. And I think it's because we've been there with the right product. Now there's new categories. You've used the one, Alex, of water coolers. But it's a bit about a mind shift that we should be geared to grow faster as a company in our same stores through buying products into growth areas. And although that can be, of course, income dependent, it also comes to the psychology of the way we go to work every day. And again, time will tell, but our mentality is to keep share, not just by selling more of what we sold in 2020, but through new categories and items, key items that we've learned now that our customers have a real demand for that were probably being shopped out of town. And we didn't have maybe the ambition to confidence on a risk-return basis to go after those sales. We do now. And again, I probably said a couple times, it's not speculative, but we really have to see how this turns out. But we're placing a lot of bets there, working capital-wise, that we can continue to drive sales above our normal run rates.

Okay, that's great. Thank you. When you turn to Alaska, is on balance the outlook tilted towards positive or tilted towards negative or uncertain? I just want to make sure I understand the different nuances.

Go ahead, Dan. Yeah, it's definitely positive. As far as our outlook, we see a lot of opportunities and we do have some areas of growth that we're looking seriously at. And as I indicated with our four-story year outlook, we think there's some good growth that we still realize in that region.

Okay, great. And then maybe just finally, you know, has e-commerce as a competitive threat, you know, elevated at all through the pandemic, or is it still something that, or is that maybe competitive landscape hasn't really changed much?

I think uniquely for us, it hasn't changed much. It's It's got a fairly high penetration rate in Alaska compared to northern Canada. Exicali, where Amazon Prime plays, one market in Canada. That's important to us. But in Alaska, it's a highly developed out-shopping market. Dan mentioned that our dark store e-com platform has had exponential growth off a middly low base, like a lot of supermarket e-com businesses. And we also sell out of our stores on a hub-and-spoke e-com model. And the go-forward that we're going to really lean into is to try to get more share in e-com. So out of both platforms or channels, out of our stores as a hub to sell to smaller villages and then a direct B2C from the dark store in Anchorage. So I know you're asking whether we're losing share to e-com. I'm saying no, it's not. It's not exploding. It's highly developed to the extent that it is developed already in Alaska and in Canada, and it hasn't shifted dramatically. And we see that through our WeVisa loads. I might have mentioned this last quarter where the money is being spent, not by individual, of course, but in terms of which merchants the money is going to. And our share has increased. So, again, the local spend seems to be the way people are going right now, and they haven't They haven't shifted to digital like they have in some urban markets. Unless the store has to close. Then if the store closes, then it's all a click and curbside pickup.

Just to add one piece of color to what Edward said for Northern Canada, what we found is that if we're able to get the product there quickly, and we have this quarter, they tend to pivot towards the convenience and familiarity of being able to shop with our store managers and stores. And so that has been a factor in terms of that's also protected any loss of potential market share of e-commerce. It's not been a threat, and I think our ability to get in stock has further watered off any threats in this quarter.

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

Thank you. Next question, Matt Bank from CIBC. Please go ahead. Your line is open.

Thanks.

Good afternoon. First, on the plan to ramp up store growth in Alaska, is the biggest change there just your own aggressiveness, or are there also just more opportunities to add stores coming up?

I'm going to let Dan answer, but first I'm going to give one overlay. We talked about, and we've acted on this, splitting the business up when Dan took on the international role. He's based in Boca. but we've created an autonomous executive team in Alaska that we took the buyers that were together for both banners out of Seattle and relocated them to either Anchorage or Boca. In general, Northwest is headed towards, we have a very strong managing director in the BBI, more and more decentralized with more authority, and I think the lens we're seeing on the Alaska business reflects that. Maybe, Dan, I'll let you pick it up from there.

Okay, yeah, that's a big portion of it. That was the first part of your question with the focus. And the second part being that there is a lot of potential, and it's really come to light now where we're able to partner with some of our native corps in Alaska because we have shown what we can do throughout this crisis. Our in-stock levels have been extremely strong, and the benefits, therefore, for the communities are that much more magnified. So it's both. But now we're putting the core focus to it, and again, we've had some success so far, and we're pretty excited about what's going to come down over the next two or three years.

Yeah, so that's it. I think just to add a bit to that, like ICS right now is the only retailer of consequence in the state that's actually based there, like the decision-making authorities and accountabilities are in the state. We have to do a little bit better on GR and our government relations, but that'll come with time. But the insights that we're gathering on, whether it's stronger e-comm play or lean-in or new store growth, I think is entirely tied to that. And the last time we did this, we had more decentralized management. You might ask, why decentralized? I mean, I guess I fell into an efficiency trap. But certainly right now, it's the right structure for the times. And what Dan has unearthed with his team, I think, is a real compelling growth opportunity for AC. And there'll be more to come. This is going a little bit deeper in our retail vertical in terms of more new locations, e-com meet another channel. But we also see potentially down the road that it could play horizontally like it has in northern Canada for us. And whether it's an airline or in health products and services, those are just examples of Once you're in the space and you're fully entrenched in the communities again, you find different places that you can invest and be part of their everyday needs.

Okay, great. And then on the, you know, you're sort of planning for 21 and just the general comment that, you know, you're expecting a higher CAGR than you would have, you know, previously. How much of that is driven by an expectation of, you know, permanently less out-of-market shopping? Can you share what percent of customer wallet, as far as you can understand, is out-shopped in normal years and then anything around how that is changing and how much of that could be permanent?

It's too hard to do. Having just done a deeper dive in Alaska, Dan and his team have looked at shares. Our shares tend to be high, but there's still... They're not 80%, they're not 90%, they're not 70% cumulatively. So there's, you know, we might have picked up 10% or 1,000, whatever that is, basis points. But there's still a lot of room to grow. And we haven't actually, I don't think we can even with confidence get down to that granularity right now. I'll say, I guess for the fourth time, because it's just on our minds all the time that we're, we're extremely reactive in a positive way to meet existing needs. So we're still assessing, and I think as the year unfolds, I mean, 21 won't look like 20, obviously, but it's going to have a lot of uncertainties attached to it. We think with upside potential, you know, again, not trying to hold us to beating 2020. That's not the point, I know, of your question. But that visibility that you're looking for and people are desperately seeking, I think it has to get in line with... with just the natural, you know, as time passes and we get more proof of what's actually happening here. And obviously it's a very big disclosure point for us in terms of letting investors know how we see the world and the next two quarters are going to be really important. But I don't think we can go much further right now, at least to be responsible. It would be so speculative beyond what we've said already, it wouldn't be useful to you.

Thank you.

Thank you. The next question from Michael Van Elst from TD Securities. Please go ahead. Your line is open.

Thank you. Along the same lines, and it might be difficult, but I know that you're seeing good market share gains and you think you can hold on to a good chunk of them, but are you able to determine how much of the sales gains you're seeing this year is due to some of the temporary government income support?

Versus limitations on travel? Or do you consider the two the same? I'm just trying to, like when you, like, you know, look, if we were in a non-COVID environment, we'd be looking for mid-single digit comps. We'd be pretty happy with that off of maintenance capex and other initiatives like key role pricing investment, we hoped would drive a little bit more than that. And I could almost go back to the investor presentations that I did March right after the GT transaction in min downsizing. And then I remember I had one slide and a couple of bullet points on COVID. Well, now it's, you know, COVID would take up all the slides. So if you took the Delta slide, of that mid-single digits to where we are now, all of that delta belongs to something induced or related to, correlated to the pandemic. I think that's the math. I think the math is 20 minus 5 is 15, 15%, or whatever the quarterly comps are. Keeping that core 5, accelerating it because we think we've got a stronger market position or having a higher absolute EBITDA as a base year are the kind of things that I know you're thinking about and we are too. But it started out with we looked at the pricing investment and reducing prices in the road stores and that's helped and we've reduced prices and we'll keep trying to invest in price But it's just so hard to tell now. And that's why we pulled back, because we thought we're not learning enough about this in the current environment. And I would allocate all that example I just gave, I would allocate the entire 15% to the pandemic and say that five of that came from what we were going to do anyways.

So I guess I'm just trying to... just having a hard time reconciling all the comments made because, you know, definitely there's a lot of good things going on. And, but then, you know, on the one hand, you're saying that you expect to see benefits continue through 2021 and from a number of factors. And then I think, and maybe just on the international side, but probably applies to Canada was that 2021 is not likely going to be as good as 2020. And I'm just trying to understand as like, I don't know if you're willing to go this way, but I mean, are you expecting 2021 to be down from 2020 just because, you know, 2020 is just such a huge year?

Yes, we do.

Okay.

It would be like the comp, well, I don't have to explain, you know, the comp 20%. And I say that, you know, you know, would, could we be up? I mean, if, you know, I don't think, we as a society want us Northwest to be up next year over, you know, the very high, you know, the performance figures this year, because that would be a sign of a continuation of COVID with other costs that, you know, would not be good and haven't been good for society overall. We all know that. So it's our best thinking. Again, we just put a pin in at a mid-year distribution. That could be a bit early looking now at the Canadian market. The distribution information that we've got suggests that might be optimistic that there's going to be a very broad distribution by mid-year. But you're still comping 20% comps, right? And even if you have the same circumstances, which we do expect for a couple more quarters, of mobility, shopping local, income support, you're still comping now off of the prior year. So you could say using, you know, I think where your rationale is coming from, we should at least be, you know, level to the year before on those quarters. And there's some inflation we all know coming in with food. But the back half of the year, if we all agree and believe we're going to see, you know, COVID vaccine distribution, then there's going to be a different set of consumer behaviors. And now we're going to be competing or comping this year's third and fourth quarter against those different consumer behaviors. And as much as we're going to retain some of that, it would be just wrong, flat out wrong to say that we're going to get it all and more, which you'd have to to beat 2020. So, yeah, that's the super long answer. I apologize. The short answer is no. Our earnings would be shocking if 2021 was higher than 2020. But on a multi-year CAGR off a 2019 base, I think either Dan or Alex have both pointed out that we think we'll be significantly ahead of where we'd otherwise be.

Okay, that's helpful. I mean, I don't think anybody's expecting you to be able to match 2020, but some of the comments were quite bullish.

Oh, okay. You know what? I think, yeah, you've got to... Okay, I'm glad now. I thought, boy, are you really asking us to... to beat 2020. No, what we're talking about is growth. You know, if nothing happened, these are the growth things we'd be talking about. I mentioned decentralization, price investment, we lowered our admin structure, you know, the GT divestiture, we de-risked the business there, you know, improved our EBITDA performance and got rid of some of the CapEx that was not really, you know, helping us. So all those things we'd be talking about now, but we're not. And it's hard to do that because it's hard to isolate all the positive impacts of that. But what we've tried to talk about today as well is some other growth areas, in addition to those, namely the new stores in Alaska, the e-com in Alaska, that we'd be pursuing anyways. Opportunistic acquisitions in telehealth would be where we could do more tied to COVID, but we have no detail there to share with you. So yeah, no, we're optimistic about growth because we're looking past into the new normal and we think adding new stores will always give us growth. Getting great refrigeration into our stores with an accretive Rona that meets our threshold is also great too. And we certainly have the financial position to make these investments and still do our NCIB and increase our dividend and so forth. So we want to do that as well. But I don't want to give the impression that... at all to anyone that we're expecting to match 2020 and 2021 in terms of cash flow.

Thank you. And then just one last question. Your non-controlling interest was up 75%, 80% or something like that year over year, which I believe this is tied to the British Virgin Islands assets. But I think you stated that those assets were under some pressure. So why is that up so much?

I'll let John answer that.

Yeah, Mike, it's substantially all of the BVI. There's a little bit of noise in there in the quarter. And I think if you look, you're right, though, that we did see some, we have seen some pressure, certainly on the sales side. Our operations in the BVI have done a very good job on controlling costs. So the sales decrease was significant. has been mitigated somewhat on the bottom line. But that's really what that is, the non-controlling interest piece.

So the profits are up meaningfully then, I guess, in BVI at this point because of that.

Yeah, there's another small non-controlling interest within that international group that came into play as well.

Okay.

All right. Thank you.

Thank you. There are no further questions registered at this time. I will turn the call back to Mr. Kennedy.

Okay. Thanks, Operator. I know we shared a lot of information. I think we had some good discussion here. I think our commitment is, first of all, again, to our customers, our employees, to be safe and reliable. I think our work in that is being strong, and we have a lot of hard work to do, and we'd like to take a longer-term, pardon me, post-pandemic perspective. We try to share that with you, but we really feel right now that on a 30, 60, 90, six-month basis, we've got still some heavy lifting to do to serve our communities, to serve our customers, to stay safe, to get sales, and to keep an eye open for growth. And I think it's going to be very interesting as we get through the next two quarters to to give our investors more clarity and, in fact, ourselves gain more clarity on how this is all going to turn out. With that, on behalf of our management team and all the folks at Northwest, I'd like to wish the investors on the call, those who listen in later, the very best of the holiday season, as best as it can be, in these very trying and unusual circumstances. And we'll look forward to in the new year. We wish you a new year as well, a happy new year. To seeing you on the call again, I believe it's going to be April 7th. with our Q1 results. Thank you very much, everyone, and take care. Stay safe.

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