Good morning, ladies and gentlemen, and welcome to the Loblaw Companies Limited Third Quarter 2021 earnings conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on November 17th, 2021. I would now like to turn the conference call over to Mr. Roy MacDonald. Please go ahead, sir. Great. Thank you very much, Kelsey, and good morning, everybody. Welcome to the Loblaw Companies Limited Third Quarter 2021 results conference call. I'm joined this morning, as usual, by Galen Weston, our Chairman and President, and Richard Dufresne, our Chief Financial Officer. Before we begin, I wanna remind you that today's discussion will include forward-looking statements, which may include, but are not limited to, statements with respect to Loblaw's anticipated future results and the impact of the ongoing COVID-19 pandemic. These statements are based on assumptions and reflect management's current expectations. As such, are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations. These risks and uncertainties are discussed in the company's materials filed with the Canadian securities regulators. Any forward-looking statements speak only as of the date they're made. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, other than what's required by law. Also, certain non-GAAP financial measures may be discussed or referred to today. Please refer to our annual report and other materials filed with the Canadian securities regulators for a reconciliation of each of these measures to the most directly comparable GAAP financial measure. With that, I will turn the call over to Richard. Thank you, Roy, and good morning, everyone. The performance of our third quarter continued the trends of the last quarter, characterized by a steady improvement across our businesses. Year-over-year comparable numbers do not tell the entire story given the volatility caused by the pandemic. For that reason, using some 2-year average data points help provide further insight into our operating performance. On a consolidated basis, revenue for the third quarter grew by 2.4% to over CAD 16 billion. EBITDA increased by 10.3% to CAD 1.67 billion, and earnings per share grew by 24% to CAD 1.59 a share. On a 2-year basis, we saw average annualized growth in revenue of 4.7%, adjusted EBITDA growth of 6.2%, and adjusted earnings per share growth of 14.1%. These results exceeded our financial framework despite the more moderate sales growth. Our drug retail business delivered most of our sales growth in the quarter. Absolute sales increased 4.7%, reflecting strong Rx and growth in all major front store categories led by cosmetics and OTC. Same-store sales in drug retail increased by 4.4% in the third quarter, lapping strong third quarter growth of 6.1% last year. Front store same-store sales were better by 4.1%, while pharmacy same-store sales grew 4.8% benefiting from a 270% growth in pharmacy services, which includes COVID vaccines, testing, and medication reviews. On a 2-year average, drug same-store sales have grown 5.3%, with front store at 3.3% and Rx at 7.6%. In food retail, same-store sales improved as the quarter progressed up 0.2%. Lapping a strong quarter, same-store sales benefited from continuing eat-at-home trends. Our pricing position remains strong, and we are pleased with our market share performance. Eat-at-home trends remain elevated despite the easing of restrictions. Compared to last year's results that were driven by extended lockdowns and few social events or celebrations, this year saw strong sales in the back-to-school season and for Thanksgiving. Halloween was also strong. More generally, entertaining at home is helping drive sales in food retail. On a 2-year average, food same-store sales reflected average growth of 3.6%. Traffic continued to improve in Q3 and is showing signs of beginning to normalize to pre-pandemic levels. We are paying a lot of attention to cost inflation. In mid-summer, inflation materialized in both fresh and grocery. In produce, prices have remained more or less flat to down as we've been sourcing locally and in the U.S. Meat prices have gone up but have stabilized recently. Grocery remains the area with the most activity. The number and size of cost increases requested by vendors has been elevated since the summer. Our team uses a thorough process to vet pricing requests. We work hard to negotiate those increases down so that we offer our customers the best value. Our internal measures of inflation are trending slightly higher than CPI. Our online business continued to operate at penetration levels well above pre-COVID rates, albeit lower than the peak of last spring. In Q3, online sales were flat to last year, but we know that last year was up 175% compared to 2019. Online grocery sales in the quarter were down slightly to last year. Online pharmacy continued to grow nicely and covered the slight gap generated by food. Within grocery, we have a strong and loyal base of online customers, but as lockdowns eased, some customers shifted back to in-store shopping. Online is here to stay. Although penetration in grocery has eased since the peak driven by lockdowns, customers expect us to offer a seamless experience, whether in store or online. We are confident that online will play an important part in the future of our business. Speed and convenience are the way to win, and I'm confident that over time, we'll be able to improve the profitability gap as technology and new way of doing things will reduce the cost structure of this channel. Retail gross margin in Q3 was 30.7%, up 140 basis points compared to last year. Improved merchandising initiatives and traction using our data are key drivers of our margin improvement in food retail. Drug retail margins benefited from improved mix, higher pharmacy services, and a slow return of acute prescription volumes. Pharmacy service growth is driving both margin and SG&A. This category has a high labor component that increases its SG&A, but its contribution is in line with the overall EBITDA pharmacy margin. Gross margin in our front store business also improved with a steady recovery in higher margin categories, such as beauty and OTC, that were negatively affected by COVID lockdowns. Anchoring to 2019, we have recovered from the challenges of last year. Gross margins have improved by 80 basis points, with similar improvements in both our food and drug business. This is an improvement over Q2, where our drug business dragged down our gross margin versus in Q3, where it lifted it. We remain confident about our gross margin performance going forward. Retail SG&A as a percentage of sales was 20.5%, with the rate higher by 70 basis points compared to last year. The increase was primarily due to a return to normal levels of spend after much lower levels last year because of COVID. For example, returning pharmacies to their pre-pandemic operating hours and supporting the growth in Rx services. COVID costs came in at CAD 90 million in the quarter in line with our expectations. Anchoring to 2019, our Q3 retail SG&A rate increased by 60 basis points, driven by higher labor costs to support the growth in Rx services, e-commerce fulfillment labor associated with higher digital penetration and COVID costs. Retail EBITDA improved by CAD 149 million in the quarter. At PC Financial, revenue was up CAD 90 million in the quarter, driven by higher interchange income as we are benefiting from increased spending on PC Mastercard. EBITDA at the bank increased CAD 7 million year over year, primarily driven by favorability in interchange income and lower credit losses, partially offset by higher point costs for redemption and increased marketing spend compared to low spend in the prior year. On a consolidated basis, adjusted EBITDA margin was 10.4% in the quarter, up 70 basis points compared to last year. In the quarter, IFRS net earnings available to common shareholders were CAD 500 million, up 17.6%, and fully diluted earnings per share were CAD 1.59. Consolidated free cash flow was CAD 455 million in the quarter, but retail free cash flow was CAD 498 million in the quarter. In Q3, we repurchased CAD 300 million worth of common shares for a total of CAD 1 billion year-to-date. So far, we have repurchased 13.6 million common shares. Today, we announce some details regarding our store network optimization initiative. We have reviewed our network of stores and have finalized plans to address approximately 20 of our most unprofitable stores. In almost all cases, this involves reformatting the store to better serve the local market. Most of these stores will convert to our discount banners, some will be downsized, but only three will be closed. We expect to record a charge of CAD 25 million-CAD 35 million, most of which in Q4. These projects should substantially be completed by the end of next year. We expect to realize approximately CAD 25 million in annualized EBITDA run rate once these projects are completed. We are pleased with our financial performance in the third quarter and year to date. As we approach year-end, we have updated our outlook for 2021. We expect EPS for the full year to be up in the low to mid-30% range, excluding the impact of the 53rd week of 2020 and charges associated with our new network optimization initiative. Finally, in the first 4 weeks of the fourth quarter, COVID-related costs are estimated at CAD 4 million. Q3 demonstrated steady, consistent performance. As we continue our focus on retail execution and maintain our attention on a fewer number of strategic initiatives, we feel our business is well positioned for the long term. I will now turn the call over to Galen. Thanks, Richard, and good morning. I'm also pleased with Loblaw's performance in the third quarter. Sales remained strong while we delivered continued gross margin improvement in both our food and drug businesses. As we look through the volatility of COVID and consider our results on a 2-year basis, the company exceeded its financial framework. With each of our key metrics pointing in the right direction, it's clear that the underlying health of the business, combined with our focus on retail excellence, have positioned us well as the country emerges from the pandemic. This steady return to a new normal is showing up in many ways. At Shoppers Drug Mart, both acute and chronic prescription volumes are returning to our pharmacies as Canadians increasingly access the primary care which they had deferred during the pandemic. At the same time, we are all gathering in larger settings and beginning to return to the workplace, driving helpful tailwinds in beauty and cough and cold. This was accompanied by pent-up enthusiasm for celebrating the holidays, such as Thanksgiving, with customers shifting back towards larger turkeys and other entertaining staples. As they did so, our market division focused on retaining the large number of new customers that it had attracted over the last 18 months by continuing to offer exceptional products and service. At the same time, our discount business welcomed many of its loyal value-seeking customers back through its doors, a trend which we expect to continue as inflation is increasingly showing up in many aspects of our lives. As these shifts signal return to many of our customers' pre-pandemic shopping habits, other areas, such as online, suggest a more sustained change in behavior. As Richard mentioned, e-commerce revenue remained flat in the quarter over last year as we held on to the significant gains from 2020. Today, customers are looking for a seamless experience when they shop, and PC Express is meeting that expectation by tapping into the best of multiple fulfillment options. We continue to improve the efficiency and accuracy of our in-store picking processes and are also adding new manual micro-fulfillment centers where it makes sense. This flexible approach has allowed us to evolve with the customer, continuing to serve the strong demand for click and collect, while at the same time addressing the growing interest in delivery. With online penetration now stabilizing higher than pre-pandemic levels, it's clear that e-commerce is here to stay. We remain absolutely committed to its success over the long term, leveraging our existing reach and scale to improve its profitability as we deliver the convenience and flexibility that have proven to be key differentiators with customers. Whether online or in store, the market will continue to evolve as we emerge from the pandemic. With remote work becoming more prevalent and hybrid models gaining traction, more meals will take place at home. This requires us to think carefully about how we serve Canadians as they spend more time juggling work and family life. As we do so, our conviction around offering choice, convenience, and immediacy is as strong as ever. Whether through in-store, pickup, or delivery, we need to be there for each specific occasion. We'll do this for our customers while thoughtfully managing through the current global supply chain pressure and the resulting inflation with minimal disruption to stores and customers in the fourth quarter. It is this discipline and commitment to serving our customers that will continue to drive long-term value for shareholders. Our strategy remains the right one, and we are accelerating our progress against it thanks to the hard work of our colleagues. Thank you, and we'll now welcome any questions. Great. Thanks, Galen. Kelsey, if you don't mind, could you introduce the Q&A process? Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch tone phone. You will then hear a three-tone prompt acknowledging your request, and your questions will be polled in the order that they are received. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question does come from Michael Van Aelst from TD. Please go ahead. Hi, good morning. Galen, I think I missed your comment on discount versus conventional. Could you start off by just providing a bit more color as to what you saw during the quarter on discount versus conventional, and then how it might be changing as the price increase or the price inflation has been ramping up? Yeah, absolutely. So, a return of strength to the discount business. You know, we haven't returned all the way to the pre-pandemic normal in terms of mix. As I mentioned in my remarks, our market division has done a terrific job holding on to a substantial portion of those sales gains that it picked up, you know, during COVID. What we expect is with the continued inflationary pressures, with the continued kind of journey to that normal pre-pandemic behavior, we expect the discount business to continue, you know, to build volume and that mix between market and discount to improve in favor of discount. In the quarter, discount did outperform conventional? Not quite, but that's getting close. Okay. You're seeing that start, I guess, as the inflation picks up by the sounds of it. Yeah, it's basically a trend that's been continuing since the opening up of the country really in the midsummer. Okay. Now, is there any reason for you to believe that, you know, we might not go back fully to the pre-pandemic ways or the pre-pandemic mix of discount versus conventional? If so, does it make you rethink already your, you know, the optimization, you know, converting 20 stores or up to 20 stores from conventional to discount? Well, I think they're two separate questions. First of all, yeah, I think there's reason to believe that the return to that discount versus conventional mix might take longer than we initially anticipated. You know, our market division invested in price, you know, as you know, during COVID, narrowing that price gap differentiation between discount and market. You know, we are hoping to hang on to as much of that business as we can. It's a good channel for us. You know, park that and sort of question, yes, you know, we'll try and hold on to as much market business as we can. The 20 stores that we're converting are very specific markets, locations, you know, with very specific business cases that are completely disconnected from that macro trend. No, we will not rethink those conversions. Okay. You also mentioned that you're pleased with your market share, but does that mean that it was flat, up, you know, down less or up? It was good. All right. Would you say that your market share is similar to where it was pre-pandemic? Yes. Okay. All right, I'll leave it at that for now. Thank you. Thank you. Your next question comes from Irene Nattel from RBC Capital Markets. Please go ahead. Thanks, and good morning, everyone. I'm very happy to hear that good is good. If we could just for a moment talk about inflation, I think you mentioned in the remarks that you saw your internal inflation a little bit higher than CPI. Is that a reflection of mix, or could you just expand on that a little bit and also, you know, the trends that you're seeing now and what your anticipation is? Good morning, Irene. Inflation is quite volatile right now, as you are probably noticing. It's very tough to draw like very precise inference about what is going on. Like the key point from our perspective is that we feel our pricing position is very strong. That's what we're focused on, and we're managing our business to maintain that pricing position so that we can best serve our customers. That's helpful. Thank you. I think, you know, one of the topics that we discussed is the degree to which consumers, who a year ago were not shopping multiple banners, were aware of just how strong your price position might be. As you do your surveys or as you look at consumer behavior now, do you think that you're getting more credit for that strong pricing position? Yeah. I think there's two things going on. As we've talked about, we made a series of ambitious price investments through COVID. There were a whole lot of them, you know, which were probably not well, you know, not quite right. You know, overinvesting, let's say, in certain areas where we weren't getting the credit, you know, and where perhaps it wasn't gonna translate into, you know, sales growth as we emerged from the pandemic. That focus on retail excellence, you know, has included looking with a lot of detail and precision into those investments and making adjustments, you know, where appropriate. In other words, you know, raising prices on certain items, where we felt we're not getting credit. That's part of what's been going on, you know, when you look at our, you know, performance relative to CPI inflation. It's partly that set of adjustments. Richard's point is a really critical one, which is when we look at that on a macro basis, we're really pleased with our continued price position relative to our competitors, and also very pleased with the market share performance that we've seen, you know, really over the last 6 months. That's really helpful. Thank you. Just continuing on the subject of retail excellence, you know, certainly the gross margin gains, impressive. You know, you're doing a good job on the cost side. You know, if we look at it sort of from zero to 100 or innings or however you wanna think about it, where do you think we are on this journey and how much more do you think is in the tank? We're beginning. Okay. We've just been back, the three of us for 6 months. We're working hard to get this going more and stay tuned. Okay. Just one final one, if I might, on Shoppers. If we look at both, Rx and, front of store, how close are we to where we would have been pre-pandemic? What are you seeing the trends look like in Q4, particularly early vaccination and, you know, and the rest? Yeah, we're recovering, but we're not fully recovered yet. I think we've got a ways to go, and it's tough to predict, like we're seeing it happen at the same time as you. But we still have ways to go, but we like the trajectory we're on right now. Obviously, all pharmacy services have grown significantly, especially since the summer. That's helping. We're awaiting what else is gonna come out over the coming months on that front also. That's great. Thank you. Thank you. Your next question comes from Mark Petrie from CIBC Capital Markets. Please go ahead. Good morning. Just with regards to your renewed efforts on discipline and execution, you know, I appreciate that this cuts across most aspects of the operations, be it sort of supply chain, procurement, shrink, etc. Can you just discuss where you think you've made the most progress so far? What areas present the greatest opportunity for next year? Yeah. Maybe start with a more disciplined approach to pricing and promotion. Feeling really confident about that. As Richard touched on, you know, you've heard we've done a full network review in terms of the performance of our assets, and we've made a series of decisive choices around banner conversions, and you're seeing, we call it the first wave of that. It's worth noting that, you know, in that entire review, you know, we're only closing three stores, which, you know, I think is a vote of confidence in the robustness of our network. Procurement is always, you know, an important area of opportunity for us. You know, we're gonna continue to work hard on that, especially in the context of this inflationary pressure. You know, really trying to make sure that we are that we're taking the cost increases that are justified. You know, but that we're not doing it if they're unjustified or in a way that is detrimental to the customer experience. Yeah. Mark, I would add one more thing, like, we're getting better at using data. Like, it's starting to make a difference. It's translating into more effective promotional strategy that are driving both sales and margins. That's probably something that we've noticed that have made a difference over the last 6 months. Okay, helpful. Galen, you mentioned this is sort of, you know, phase one of a network review. What would further reviews potentially entail? Is that mostly additional conversions or sort of adjusting footprint? Or what would that look like? Yeah, I mean, it's nothing super fancy. It's the usual stuff, making sure that we have the right format in the right location, making sure that we're understanding areas to add new square footage. I think we mentioned in the last quarter that we are looking at opportunities to put new stores in markets where we have low penetration and they have strong population growth. It's that. You know, a lot more attention to be paid to the physical fleet, you know, as part of the way that we allocate capital across the business. Think about it all as, you know, enhancements and optimizations as opposed to, you know, a substantial shift in strategy. Understood. And when it comes to the earnings growth framework, obviously, you've outperformed materially this year, lapping a weaker 2020. But even on a 2-year basis, it's still, you know, well above the sort of 8%-10% range you've discussed previously. I guess first question, do you attribute that more to sort of your retail excellence efforts or to the higher consumer demand that sort of stemmed from the pandemic? And then second, assuming that consumers continue to sort of slowly shift back to sort of pre-pandemic levels of demand, do you think you can exceed that range again in 2022, driven by your optimization efforts? Let me start, and then I'll ask Richard just to comment on our outlook, and I'm sure you know what he's gonna say. You know, I think we've been fairly transparent about what we felt was underperformance, you know, particularly in the earnings range in the business in 2020. What are we doing in 2021? You know, we're sort of bringing that sort of performance level back into balance. With sales growth rates, you know, well above normal, we should expect a retail grocery business to deliver earnings results that are well above normal. That's, I think, a reflection of what you're seeing, and the 2-year numbers, I think, are indicative of us, you know, starting to perform at a level that's commensurate with what is appropriate for the business. In terms of, you know, the long-term trajectory for business performance, we have affirmed our commitment to our financial framework, and that I think is the right way to think about it. Richard, I don't know if you wanna comment on 2023. No, I'm not gonna comment on 2022. We'll give you some perspective on that next time we meet. We gave you an update on Q4, and so we feel good about that outlook. Okay. Appreciate all the comments and all the best. Thank you. Your next question comes from Patricia Baker from Scotiabank. Please go ahead. Oh, thank you very much, and good morning, everyone. I have a couple of questions. First of all, Richard, Galen, what have you been seeing in terms of any supply chain disruption, any issues with availability in certain categories? Let me speak to that in two parts, Patricia. I mean, first, there's the domestic and North American supply. Think about it as the bulk of the center of store, and, you know, the key items on the perimeter in fresh. There is meaningful commodity price pressure, as you know, you're reading about, you've heard about, you know, from us and others. Then there's labor supply pressure. Those two things are creating substantial challenges for our manufacturing base, you know, for our vendors. That is putting pressure on availability, particularly around what we would call the peripheral SKUs, you know, kind of secondary sizes, secondary flavors. What you see is the manufacturers consolidating their production into their highest volume SKUs and putting those secondary SKUs on allocation. What customers, this is an industry-wide, you know, thing, what customers- Mm-hmm. ... will be frustrated, you know, to see is something's in stock, you know, for a week, and then it's out of stock, you know, for 4 or 5 weeks, then it comes in stock again, and then it goes out. That's really the consequence of this allocation approach that is being undertaken by many of the vendors. We need to work hard to make sure that we're getting our share of the allocation, and we think that we are. Mm-hmm. We expect to see that, you know, level of, call it instability, continue for a few more quarters, you know, and then we'll have to see. The second, you know, is the global, supply chain pressure. For us, think about that as disproportionately impacting, our general merchandise business, our apparel, and any, you know, food products that we might be importing, you know, from offshore. There's, you know, an impact, you know, that we're managing very, very carefully there. It's not easy, but the teams have been managing through it extremely well. It's important to distinguish that, you know, between the northwestern ports, in North America versus the southwestern ports. Those northwestern ports have, over the last number of months, been performing substantially better than the southwestern ports. The Canadian you know offshore supply chain has not been as disrupted as a result of that as it has perhaps in the U.S. You know, we'll have to see you know given what's happened in British Columbia with weather over the last couple of days whether you know that has any kind of incremental disruption. We suspect it will, but only for a limited time. The net net of it is, as we head into Christmas, when it comes to all of our seasonal programs, you know, we feel very well-positioned. We feel the stores are in terrific shape and ready for the fourth quarter surge. Okay. That's great to hear. Then secondly, I'd like to ask Richard about the gross margin. Thank you for giving us. I think you gave four or five drivers of the year-on-year 140 basis points strong improvements in the gross margin. You noted that the gross margin was up a nice 80 basis points versus 2019. Just two things there. Is it the same factors, you know, driving that 80 basis point improvement, and could you rank order them? Well, the way to think about it, Patricia, is essentially the Shoppers business margin has improved in this quarter because- Mm-hmm. ... the higher growing categories, the higher margin categories have sold more like OTC and pharmacy, so therefore gross margin of Shoppers has improved, and that's why our overall gross margin has improved. It's as simple as that. That would be the biggest driver. Okay, excellent. Then my third question is on the network optimization that you referred to, and perhaps this is more color than you'd choose to share. The 20 stores that are subject to this first phase of the optimization, is there any banner or regional concentration with respect to the stores that have been subject to these shifts? No. It's all across the country, Patricia. My final and last question, and it's a question and it's a comment. You indicated that your basket inflation was slightly ahead of CPI, and you know, some quarters you'll tease us with a number and some quarters you won't. Just curious why we're back to the nuanced verbiage as opposed to actually giving us the inflation number. No. I think, when we were looking at all these, the inflation metrics we track, like, it was very hard to draw anything from it because it's been so volatile. Mm-hmm. We thought it'd be a more accurate description of what's going on to just talk to it. Okay. Okay. Which CPI number are you talking about then, Richard? Are you talking about CPI food at home, or are you talking about a broader CPI number? Yeah, we look at CPI food, but we have our own internal metrics. We look at Nielsen, we look at a bunch of metrics, and so those are the ones we focus on. Okay. Thank you. Thank you. Your next question comes from Kenric Tyghe from ATB Capital Markets. Please go ahead. Thank you and good morning. Galen, you touched on the trade down in response to inflation from market to discount, which is typical in the first wave response by consumers. Could you speak to just in the context of your loyalty journey on the potential sort of substitution in that second wave within stores and within each specific channel, and how well-positioned you think you are and will be should the spike in inflation prove both protracted and as pronounced as it's looking, you know, relative to where you've been in the past? Yeah. I mean, it is a tricky time, and Richard has, you know, touched on it as well. You've got two things happening. You have this end of COVID, which is, you know, we're coming out of it, let's just say, more slowly than we anticipated, a couple of quarters ago. That means that customers are spending more money in stores. They're returning to discount at a slightly slower pace, you know, than we expected. All of that, you know, we've tried to talk to. You layer on, you know, this very recent, you know, acceleration in inflation rates and the lack of predictability in what inflation is gonna look like in the coming months and quarters, and it gets very, very difficult, you know, to call it navigate or to identify any, you know, sustained trends at this point. There's just too much, you know, all converging at the same time. Having said that, you know, we have seen a return to promotional sensitivity of fairly significant. We are seeing a change in customers shopping more often in our discount businesses. We are seeing the one-to-one marketing tools, promotional tools that are being deployed across the business performing much better today than they were in an environment there when there was very little price sensitivity, okay? In other words, COVID. You know, our strategy would indicate that we are more able to deploy promotions against specific price-sensitive customers with specific price-sensitive items than we would have been the last time, you know, we had this kind of inflation, so it bodes well. But we don't have any meaningful underlying data, you know, at this point that we can build that case on. Great color. Thanks, Galen. Just one more for me quickly. On your beauty business, you know, how much of that was a natural lift on a return to normal versus, you know, promotional driven? In other words, was there perhaps, you know, margin that you had to invest in beauty to drive that change? And then any color insight you're willing to give with respect to, you know, where beauty is today versus where it was, and if we can't get into anything there, perhaps even just some perspective on where your share in mass and prestige are today versus where they were, and how to think about the continued potential evolution or ramp of that business or recovery, sorry. Yeah. No, I think it's fairly simple. This is a natural return, you know, to beauty that is coming as our customers spend more time going out. That I think is the first thing. Second, if you look at beauty, it was a contracted market during COVID because people weren't going out and because many of our competitors in beauty were closed during lockdowns. That accrued substantial market share gain, you know, to us because we had the good fortune of being open, but there was a lot less sales. Our objective is to try and hang on to as much of that share as we can as those retail competitors open. You know, we've been very pleased, I would say, with the results so far, but it is early. Thank you. I'll leave it there. Thank you. Your next question comes from Karen Short from Barclays Capital. Please go ahead. Hi. Thanks very much. Just a couple questions on the competitive landscape. Your bigger box competitor commented several times yesterday on strength in Canada. I'm wondering what you're seeing in terms of the competitive landscape in the context of their comments, you know, in conjunction with your comments on return of strength and discount. The other thing I wanted to ask is just what your perspective is on the health of the Canadian consumer going into 2022 as we lap or as they lap stimulus general benefits. I have one other question. Yeah. I think probably the best way to answer the question about competitiveness, it's very competitive here. You know, as Richard mentioned, we feel good about our price position. We feel good about our market share performance. You know, that was an issue for us, you know, last year. We're not giving you the numbers, but when we say we feel good about it's because we feel good about it. You know, but we have been, I don't wanna say surprised, but I think we would have expected our discount business, you know, to drive stronger sales performance at this point in time, you know, than perhaps it is. That's been offset by, you know, us expecting to have seen less strong performance in our market division over that period, and we've been very, you know, happy with that. We watch those other big box retailers. We read their results very carefully as well, and are, you know, focused on them and, you know, are gonna make sure that, you know, there's nothing that they are doing, that would see them pull away from us, in that sector. You know, we lead the discount market in this country, and it's our intent, you know, to continue to do so. In terms of the health of the consumer, you know, lots being written about that. I think I can provide a tiny bit of color based on, our credit card. We are seeing our you know a return to spending on the credit card that's nearing pre-pandemic levels. What we're not seeing is a return to balances at anywhere near the same rate. That I think suggests it's just one data point of many that you could pick up across the economy, that the consumer balance sheet is in pretty good state. Okay, that's helpful. Just in terms of the Ontario minimum wage announcement, obviously the last time this happened, it was a big problem for all retailers, and it resulted in significant margin erosion. Maybe just a little context on how you're viewing the most recent announcement on minimum wage. Yeah, when we look at minimum wage for 2022, we think we're gonna be able to absorb it within our budget for next year. You would not raise prices to offset the cost increase? Like, it's definitely not as significant as what we felt a few years back. Therefore, we think we're gonna be able to just absorb it and be able to focus on delivering our financial framework. Okay, thank you. Thank you. Your next question comes from Peter Sklar from BMO Capital. Please go ahead. Good morning. I have a couple of questions about online. The first one is, when you talk about your year-over-year improvement in your overall results, you haven't mentioned online. As I recall, you know, during last year, during the COVID bubble, you know, when the online demand was just skyrocketing, you really had to throw resources on it, at it in a very inefficient way. I think you've articulated that online cost you CAD 200 million last year. I would have thought it would be quite a bit better this year as things moderated, and you could take a, you know, a more structured approach to it and not just throwing labor at the problem. Can you talk a little bit about the performance of your online this year versus last year from a financial perspective? Yeah. I mean, look, I mean, from a starting point, I think we both mentioned that e-commerce volume was essentially flat, or was flat really in the quarter versus last year. There has been a slight pullback on grocery e-commerce and, you know, both that and the fact that we were lapping, you know, that significant ramping up and acceleration of costs has e-commerce, you know, call it being a positive contributor to our financial performance in the quarter. A little bit of a tailwind as opposed to a meaningful headwind at this time last year. That's not the way to look at e-commerce and its impact on our P&L over the long term. You know, we expect it to be a headwind, as we return to normal growth rates in e-commerce. Of course, you know, our objective is to offset those headwinds, you know, within the e-commerce strategy itself, and through other, you know, undertakings, you know, in the business. You know what those are. We don't need to improve pick efficiency, you know, primarily. You know, we see opportunity to offset, you know, those, the cost of fulfillment through our, the growth in our media business as well. Galen, when you say it was a positive contributor this quarter year-over-year, I assume that means less loss. It's not like the e-commerce business is anywhere near approaching profitability. Is that the way to think about your comment? Yes. I think the key point I would add to that, Peter, is essentially with the lower penetration rate, the big driver of cost is labor. The labor component of those sales has gone down because we don't need as many pickers as we had in the rest of the quarter. That's in that context, that's what's happening. Okay. The other question I had on your e-commerce business, as you know, your home delivery is mostly focused around Instacart. Instacart, I think can be an expensive proposition for the consumer. Is that going to be your long-term solution for home delivery? Or do you anticipate that Loblaw will develop its own, you know, in-house proprietary home delivery option for consumers? Yeah. We have our own PC Express delivery channel, and it has full coverage in the city of Toronto now, and you should expect to see increased and increasing amount of coverage for what we call PCXD in the key urban centers across the country where we see you know the largest opportunity for for demand in delivery. Okay. That's all I have. Thank you. Thanks. Thank you. Your next question comes from Vishal Shreedhar from National Bank. Please go ahead. Hi, thanks for taking my questions. In light of your announcements on network optimization and commentary on future network optimization, wondering if you can give us perspective on real estate growth for the year ahead, if that's going to turn, if that's gonna go positive or should we expect a flat to negative year? Well, as we've said, Vishal, essentially, the way to think about this is we focused on our 20 most unprofitable stores. As we deal with those stores, we're gonna deal with this unprofitability and actually turn it into a profitable initiative. Once it's all said and done, we expect a CAD 25 million EBITDA improvement to our business. Sure. Is there any way that we should think about real estate growth and your aspirations to expand your network and grow stores, particularly in light of strong demand? Yes. As we said last quarter, opening new stores is going to be part of our strategy, but to build a pipeline of new stores takes time. That's probably, you're probably gonna see more, I guess, traction of that initiative 18-24 months down the road. Okay. I just wanna switch gears back to e-commerce, if that's okay. Obviously, e-commerce and grocery, it's relatively nascent at this point. Wondering if you can comment on customer satisfaction associated with e-commerce. Is it trending favorably, and is it at a level of performance which you deem to be appropriate? Yes and yes. You know, our focus in 2021 has been really improving the fundamental value proposition of our existing e-commerce offer. We've seen substantial improvements in the key areas that we've been targeting, you know, over the last 6 months. That includes reducing wait time, it includes, you know, pick accuracy, pick efficiency, making sure that people are getting everything that they ordered, all of which has been trending substantially in the right direction. You know, we're very happy with our NPS and customer SAT scores for our e-commerce business at this moment. We always want it to be better. You know, we continue to see opportunities, and we are continuing to deploy technology enhancements and solutions to drive that NPS up. You know, the second focus, and call it the last few months, and the last quarter and a half of the year, has been on, you know, standing up the delivery channel that pairs very nicely, you know, with PCX, in-store pickup. We've been really happy with the trajectory of that business too. It's running slightly behind from an NPS perspective, but we're comfortable that we'll get that into the right place in short order as well. Okay. I think in the prepared remarks, I heard management comment that they're planning to open new manual pick fulfillment centers. I was surprised at the option for the manual pick. Maybe you can provide some color on that. Why not an automated pick fulfillment center given that labor is the highest cost? I presume one of the highest costs. Can you also give us commentary on if you have line of sight of technologies that will reduce costs in the future? Yeah. I think we have talked a little bit about this in previous quarters. Absolutely, you know, pick efficiency is one of the big drivers to improve economics. There are multiple ways, you know, to improve pick efficiency, and we are pursuing them all. One of them is standing up dedicated, call it, dark store facilities, you know, that can get our pick efficiency items per hour, you know, well up into the kind of the 200 level. Manual facilities are much quicker to build. That's where we're focused at the moment. You know, we have an automated facility. We're in partnership with a company called Takeoff. You know, we're still working, learning, you know, to understand the best ways to optimize that facility. We don't yet think that manual or automated fulfillment in micro-fulfillment centers is quite ready, you know, for prime time. You're not gonna see us announce, you know, a wave of robot facilities, you know, going out in the next, you know, number of months. We are certain that that technology will, you know, come ripe at some point. You know, we are very, very close to that technology, and we'll deploy it when we're confident about its effectiveness. Thanks for the color. Thank you. Your next question comes from Chris Li from Desjardins. Please go ahead. Hi, good morning. First question is, for the CAD 3 billion of e-commerce sales that you're on track to achieve this year, just wondering if you can share with us sort of the breakdown between grocery and non-grocery? We'll share that with you when we finish the year. Okay, that's fair. Another one just on e-commerce, maybe on Loblaw Media. Just wondering, you know, how long would it take before it becomes a more meaningful contributor that will help you start offset some of the online fulfillment costs? Yeah. Think about it as, you know, moving forward on a very satisfactory trajectory. You know, that means growing fast, but still small. An expectation, you know, that it'll be a big contributor, you know, I'm not gonna say exactly when, but, you know, certainly over the next couple of years. Okay, that's helpful. Maybe just a few quick ones on capital allocation. First one, do you expect the level of CapEx for next year to be similar to this year? Yeah. Right now, yes. Okay. In terms of share buyback, I mean, you guys have been very consistent buying back, I think roughly CAD 1 billion worth of shares every year in the last few years. Again, do you expect a similar level for next year? Yes. Just in terms of M&A opportunities, are there any attractive ones that might be appealing to you? Nothing of scale. We're always looking at opportunities if they become available. Right now, nothing on the radar. This last one is. I know you guys publish a return on invested capital number every quarter. Just wondering, I'm sure you have a target internally. Are you willing to kinda share with us what you sort of a long-term sustainable ROIC target would be? Yeah. We'll share that with you when we come back with our outlook for 2022. Okay, great. All the best in the holiday season. Thanks. Thank you. Your last question comes from Patricia Baker from Scotiabank. Please go ahead. Thank you very much for letting me do a follow-up call. In your discussion of operational excellence and retail excellence, you've noticed that you're getting better at using data, and that's pretty obvious given the results that you've shown me this quarter and last quarter. I'm just curious, what can you share with us, what did you do to get better at using the data? Was it hiring different people? Was it different processes? What was the secret sauce there? Yeah. I'd say two things. First and foremost, focus on, you know, just a very short list of, call it tools, that have a very measurable, targeted benefit and impact if deployed correctly. Instead of trying to make 10 tools work, you know, across CAD 1 million of sales each, we wanna make two tools work across hundreds of millions of dollars of sales each. That's, you know, how you start to scale the impact of this analytical capability. The second thing, you know, which we can take less credit for in terms of the change, is that these algorithms are designed, you know, to understand price sensitivity in the minds of individual customers. If you go through a period where there is no price sensitivity, which is what COVID does, then those algorithms don't function all that well. That's changed. Mm-hmm. Okay. That's very helpful, Galen. There are no further questions at this time. You may please proceed. Great. Thank you very much. Thanks everybody for your time this morning. If you have any follow-up questions, drop me an email or give me a call. Circle your calendars for February 24th when we'll be back online to talk about our Q4 and full year 2021 operating results. Thanks. Have a great day. Ladies and gentlemen, this concludes your conference call for today. We thank you very much for participating and ask that you please disconnect your lines.