North West Company Inc. (The)

Please stand by. Your meeting is about to begin. Please be advised that this conference call is being recorded. Welcome to the Northwest Company Second Quarter Results Conference Call. I would like to turn the meeting over to Mr. Dan McConnell, President and Chief Executive Officer. Mr. McConnell, please go ahead.

Thank you very much and good morning and welcome to the Northwest Company Second Quarter Conference Call. I'm joined here today by John King, our Chief Financial Officer, and Alexis Cloutier, our VP of Legal and Corporate Secretary. I'm going to start the meeting by asking Alexis to read our disclosure statement.

Thank you, Dan. 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 for 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. Any forward-looking statements are current only as of the date they're made, and the company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results, or otherwise, other than what's required by law. For additional information on these risks, please see Northwest's Annual Information Form and its MD&A under the heading Risk Factors.

Thanks, Alexis. I will begin by providing a brief overview of this quarter's results. up for some questions. All right. So let's dive right in. to wildfire. And third, the implementation of the global minimum tax that resulted in a million dollar increase in tax expense for the quarter. The impact of these factors resulted in a 3% decrease in net earnings this year compared to the strong net earnings last year. That said, within this backdrop, we are very pleased with the results of the deliberate increases in adjusted EBITDA of 6.1% and adjusted net earnings of 1.6%. year and into 2025. We also experienced increased consumer demand in certain markets from First Nations child and family services and the Jordan's principle, programs that help provide greater access to nutritious food. The positive impact of these factors was somewhat muted by higher sales in the second quarter last year, resulting from the impact of the government inflation relief payments, including the grocery repay paid to individuals to help mitigate higher cost of living. In contrast, our international operations had a more challenging economic environment, which contributes to a softer performance in the quarter. Sales in our international operations increased by 0.8% and were up 0.9% on a same-store basis as the sales increase from new stores was partially offset by lower wholesale sales. The shift in discretionary spending is evident in our sales mix, with food sales up 1.1%, while general merchandise sales decreased by 2.5% compared to last year. Okay, let me transition here and talk about consolidated gross profit results. Our gross profit rate for this quarter increased by 91 basis points, largely as a result of two key factors. First, a shifted sales blend, which includes a decrease in sales in our lower-margin wholesale business. I will now briefly touch on the key factors that contributed to higher expenses in the quarter. During the quarter, expenses increased by 10.1% and were up 127 basis points as a percentage of sales. As mentioned on previous calls, we have highlighted our efforts to control expenses at the store level through the Next 100 initiatives. This includes reviewing store resources and launching initiatives to optimize labor scheduling to align with customer demand using a data-driven approach. With that overview of our results, I will finalize by speaking briefly about our outlook for this year and provide a few remarks on the Next 100 program. The macroeconomic term really looks uncertain, particularly in our international operations. They'll come up with this work in the next one or two weeks. On that note, let me wrap up by highlighting that we are very proud to have received from the Canadian Grocer an impact award in the diversity, equity, and inclusion category for our Indigenous procurement strategy. Diversity, equity, and inclusion are core principles of who we are as a company, and this award is reflective of our promise to Indigenous peoples. With that, I will now open it up for any questions.

Thank you. We will now take questions from the telephone lines. If you have a question, please press star 1 on your device's keypad. You may answer your question at any time by pressing star 2. Please press star 1 at this time if you have a question. There will be a brief pause so participants register for questions. Thank you for your patience. Once again, please press star 1 at this time if you have a question. We have a question from Michael Van Elst from TD Cowan. Please go ahead.

Hi, thank you. A few questions for you. So just looking at the higher same-store sales in Canada, particularly on the food side, it was quite strong. And you did highlight some areas where they had higher access to nutritional foods. So Is this part of the $48 billion child welfare reform that's supposed to come over the next 10 years? Or is this something separate?

Hey, Michael. It's Dan here, obviously. So, yeah, it is. I believe it is. It's more part of Jordan's principle. But it hasn't been necessarily identified as such. But I think it's just along the whole... emphasis behind providing more healthy living options in Northern Canada. But I can't say particularly if it is part of the settlement, but it is definitely aligned with the Jordan's Principle that has some other buckets that have been reached into.

So I guess it's just hard because they don't describe in detail where that $48 billion is going to be spent. And I don't think they give a lot of detail on how they're going to fund, how they're going to change their approach with Jordan's principle. But do you feel that the spending and the increased access to nutritious foods in certain communities is actually sustainable? Or do you think that this was something that might have been more one time in nature for some reason?

I think it's sustainable because I think it's aligned with, again, the overall initiative of the Jordan's Principle. I would almost venture to say that it hasn't really come into the overall benefit of the child welfare benefit. I would say that this is just part of the Jordan's Principle. But as far as what bucket of money it's coming out of, Michael, I can't really... I can't give you that information because it's not entirely clear.

Okay, so maybe a better way to ask is, are you seeing the benefits of that continuing into the third quarter?

Yes. The direct answer to that would be yes. Excellent.

As far as your one-time charges are concerned, how large should we expect these to be And will you be backing these out of adjusted argues?

Like I said, they're going to come in. As they come in, we'll be very directive as far as what they are. So that'll give you an indication on the size. I mean, really, it's too early. We don't want to disclose that at this point, Michael, but we will give a lot more information once they come in. And like I said in the call earlier, We expect some to start coming in later half of this year, which I think will create a sequence, if you will, as to how we report it and how we expect you to interpret it.

Okay. At this stage, do you expect to remove it from adjusted earnings? Yeah. Perfect. And then on the vessel repairs at TNI... You mentioned that it delayed the start to the sea lift shipping season. Yeah. I guess the question I have is, I know how important it is in getting your inventories up into the north at the lower cost. I was wondering, did it shorten the shipping season for you? And did you get the inventory into the north that you wanted to?

Yes, we did. We got the inventory into the north that we wanted to.

So we shouldn't expect any additional impact from that event in the coming quarters.

Correct.

I think that's it. Other than, you know, it sounds quite positive in Canada, given that sales are starting to pick up already, even though we're not really seeing meaningful growth. payments being made yet another water or child reform welfare reform and i guess the first question is does that before i get on to national is that uh would you agree with those statements yeah yeah we're optimistic about the uh about the outlook in our in our canadian business for sure And then on the international side, obviously more has been given the macro economic conditions. And are you seeing that deteriorate further? Because you're still able to grow their sales modestly, which is a positive given this environment. So are you still expecting to be able to grow or is there some bigger headwinds coming that you're seeing?

No, our anticipation and our intent is to definitely is to grow.

Yeah, and that's on the international side, right?

Correct.

Okay, perfect. All right, I think that's it for now. Thanks very much. All right, thanks, Michael.

Thank you. Once again, please press star 1 at this time if you have a question. And the next question is from Mark Petrie from CIBC. Please go ahead.

Yeah, hi there. Good morning. I just had a couple follow-up questions to Mike's questions. First, just on the inventory question, um, levels, um, like I know it's flat on a dollar basis, sort of year over year at the end of the quarter or flattish. Um, how should we interpret that? Um, uh, is, is some of that affected from the, from the delay into the seal of season, which you've caught up now in Q3 or, or how, how should we think of it?

Well, we've had some, uh, it's flat and it's a flat off some pretty significant sales increases as you, as you know, last year. So I'd say it's optimism and it's realism in the point that we feel and we know we're in stock and ready for business. But it's an optimism for sure, Mark.

Okay, so you would have expected it to be down if it weren't for the optimism and the build in your inventories around some of these sales opportunities. That's correct. Fair enough. And I guess just on that, obviously the food signature sales growth is excellent to see, but the merch lagged a little bit. Could you just talk about some of the dynamics there and how you expect those two to sort of move, relatively speaking, as the payments kind of flow through and accelerate?

Yeah, I think there's definitely a positive correlation between the general merchandise increase in sales and obviously with some of the settlement money coming into market. So the good news is that we're ready for business and we have strong relationships with our vendors to ensure that there's a demand cycle in place where if we don't have it in stock, then we can definitely get it with some of the agreements that we've been putting in place recently with some of our vendors. Fortunately, you know, the rest of our business is is doing well when some of the other customers of some of our major vendors are not having maybe the same increase as we are. So it's afforded us the opportunity to kind of help out some of our vendors in some more creative negotiating or more creative deal structures.

Yeah, okay, understood. And I guess just on my last question, just with regards to the competitive dynamics aspect, that you're observing in the Canadian market. Just given the, you know, flow through of some of these benefits and the expectations, have you observed any changes to how your competitors are approaching the market?

No. I mean, everybody's working with the same vigor and obviously as they always have. And we're obviously to the next 100 really focusing on increasing and improving our capabilities to ensure that we get our share of the business as well. So we're really focused on operational excellence, which would, I'd say, give us our fair percentage of the business that is coming into the markets.

Yeah, understood. Okay. Thanks for all the comments, guys. All the best.

Yeah, thanks, Mark. It was good talking to you.

Thank you. There are no further questions registered at this time. I'd like to... turn the call back over to Mr. McConnell.

Okay. Well, thank you, everybody who's tuned in, and I look forward to speaking with you again in December for quarter three.

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