Good morning, ladies and gentlemen, welcome to the Loblaw Companies Limited Second Quarter 2023 Results Conference Call. At this time, all lines are in a 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 Wednesday, July 26th, 2023. I would now like to turn the conference over to Roy MacDonald. Please go ahead. Thank you, Michelle. Good morning, everybody. Welcome to the Loblaw Companies Limited Second Quarter 2023 results call. As always, I'm joined in this morning in the room with Galen Weston, our Chairman and President; and with Richard Dufresne, our Chief Financial Officer. Before we begin the call, I want to remind you that today's discussion will include forward-looking statements, which may include, but are not limited to, statements with respect to Loblaw's anticipated future results. These statements are based on assumptions and reflect management's current expectations, and 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 material filed with the Canadian Securities Regulators this morning. 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 results, or otherwise, other than what's required by law. Certain non-GAAP financial measures may be discussed or referred to today, so 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. I'm pleased to report that we continued to deliver consistent operational and financial results with solid top-line performance and strong earnings growth. We remain focused on delivering value to consumers and carefully managing our expenses, all parts of retail excellence. On a consolidated basis, revenue grew by 6.9%, and EBITDA increased by 9.4%. Adjusted earnings per share grew by 14.8% to CAD 1.94 a share. On a GAAP basis, our earnings per share reflected a 36% increase. This was unusually high as we lapped a CAD 100 million one-time charge last year, specifically related to PC Bank. In drug retail, absolute sales increased 7.4% and same-store sales grew 5.7%. Front store same-store sales grew by 5% on continued strength in cosmetics and health and beauty. OTC performance remains strong, off its peak levels. Similarly, growth in our drug business has moderated as it lapsed last year's post-pandemic reopening. Pharmacy same-store sales grew 6.3%, driven by growth in acute and chronic scripts, partially offset by lower COVID vaccines and testing. At the same time, we're pleased with the growth of services related to expanded scope of practice. In food retail, absolute sales increased 6.4%, same-store sales grew 6.1%. In Q2, our internal food inflation number was generally in line with the CPI. Shoppers in our grocery stores actually beat inflation by taking advantage of our pricing, private brands, and hard discount stores. That means that our Loblaw shoppers experience a lower rate of inflation than CPI. As we battle inflation, we remain highly concerned about ongoing cost increases, and I wanted to offer some facts. This year, suppliers have raised the price we pay for products by more than CAD 1 billion. This is double what we would expect normally. We have received double-digit increases from the same suppliers who gave us double-digit increases last year. That's why you see products that are noticeably more expensive than they were just a couple of years ago. While cost increases are coming in from all tiers of our supplier base, the largest global brands stand out. Let me give you an example. Since inflation began, one of our largest vendors has submitted price increases totaling 50% or a quarter billion dollars. That's just one supplier. Here's another good illustration. In Q2, the average price for meat, fruit, and vegetable purchased in our stores were up in the mid-single digits, but the average purchase in the center of store, where you find the biggest brands, was up in the double digits. At the same time, our food profit margins have declined as our costs have grown faster than our prices. The math is very simple. Cost increases from big brands were well above Canada's food inflation and our food margin decline. Suggestions of grocer profiteering just don't add up. Food inflation is a global problem. The causes range from climate change to war. We know that some cost increases are justified, but many are not. The price of transportation, wheat, flour, paper, and plastic are all well off 2022 highs. Our teams are actively reaching out to our largest suppliers, pressing for cost decreases based on these facts. With lowered costs, we will lower prices. Returning to our performance, our ability to deliver value was reflected across our food business. Our hard discount banners continued to outperform the overall discount channel, delivering strong traffic and item count growth as customers continue to focus on value offerings. In Quebec, our discount position continues to grow. We converted 10 Provigo stores to Maxi in the quarter, and we will convert another 10 stores in Q3. We continue to be very pleased with the sales growth being generated from these converted stores. Our market banners remain healthy despite the ongoing shift to discount stores. Having the right customer offer in all our stores remains a key focus. Right-Hand Side posted a solid quarter, with all major categories delivering positive same-store sales and apparel outpacing food same-store sales. That said, net-net, it remains a drag on our same-store sales performance to the tune of 60 basis points in the quarter. We remain comfortable with our inventory levels. Online sales in the quarter increased 13.9%, reflecting the strength of our digital businesses as we lap our first post-COVID quarter. Growth was led by PCX Delivery and online pharmacy. We continue to enhance our customer experience and differentiate ourselves by offering more choice and flexibility. Retail gross margin was 31.1%, down 30 basis points compared to last year. The driving factor was higher shrink in drug, where we also saw pressure from lower services revenue. In food, we controlled costs well, investing our savings into lower prices. Across our retail segment, another quarter of careful cost management resulted in an improvement of 60 basis points in our SG&A rate as a% of sales. Adjusted retail EBITDA increased by CAD 142 million, or 9.8% in the quarter, yielding a margin of 11.8%, up 40 basis points compared to last year. PC Financial adjusted earnings before tax declined by CAD 22 million, largely a function of increased net credit losses and loss provisions and higher interest rates this year. The top-line business performance remains in line with our expectations, with revenue up CAD 51 million, driven by higher interest income and an increase in consumer spending. On a consolidated basis, Adjusted EBITDA margin was 11.9% in the quarter, up 20 basis points compared to last year. Our retail free cash flow was CAD 600 million in Q2, reflecting higher CapEx spend and lapping one-time tax recoveries from last year. In the quarter, we repurchased CAD 500 million worth of common shares. Looking ahead, our second half same-store sales will reflect comparisons against our very strong sales performance last year in both food and drug. At the bank, we expect continued revenue growth from the growth in our portfolio, we expect to see ongoing pressure on credit loss provisions given current economic forecasts. However, we remain confident in our ability to deliver our full-year outlook. I will now turn the call over to Galen. Thank you, Richard. Good morning. I was pleased with another quarter of consistent performance. The business charted strong core results, providing continued confidence that we are delivering retail excellence and serving our customers well. In our drug business, we returned to a more normal growth rate, and our front-store elevated sales of cough and cold meds subsided, while beauty remained brisk. Although COVID services have declined nationwide, we are increasing our range of patient care. In fact, it feels like every month, another province moves to expand and fund services that pharmacists can provide to plug growing gaps in primary care systems. Just this morning, New Brunswick announced its first six pharmacy primary care clinics, following an innovative recent rollout of 26 in Nova Scotia. Yesterday in Ontario, we unveiled two pharmacy sites redesigned to provide more clinical services and a better patient experience. We'll invest in a total of 72 of these clinics this year, another step towards the pharmacy of the future and our journey to improving Canadians' access to primary care. In our food business, market stores continued to perform well, lifted in part by the customer response to our President's Choice summer product lineup, including new customer favorites like frozen mochi and Ube boba pie. The ongoing shift to discount continued to pick up steam, driving high growth in our stores. Our hard discount locations have never been busier, with our highest-ever customer counts, double-digit growth, and No Frills was recently named the most trusted store for low prices. We'll add 25 more to the network this year. As customers focus on value, sales in our private brands continue to outpace national brands, delivering an average savings as high as 25%. More Canadians are turning to PC Optimum points to fill their carts, with redemption rates climbing. We were delighted to see a recent survey that said Canadians are paying more attention to loyalty programs and that PC Optimum is by far their favorite, used an incredible nine out of 10x. As has been the case since this period of inflation began climbing, our food gross margins declined. The business was highly efficient in the quarter, and we invested those savings in promotions. Once again, our product costs increased more than our prices. Despite Canada having one of the lowest food inflation rates in the world, we continue to face historic cost increases. As our business moves forward, so do our efforts to manage our impact on the environment. It was a busy quarter in this regard. Shortly after our first electric truck hit the road, we announced that five hydrogen fuel cell electric trucks will join the fleet, allowing zero-emission deliveries. We announced that electricity purchased for our Alberta supermarkets, drugstores, offices, and distribution centers will soon come entirely from wind, sun, and water. The impact will be the equivalent of taking all the homes in a city the size of Lethbridge off the grid, and will cut our national carbon footprint by 17%. We continue to execute well against our business plans and our purpose of helping Canadians live life well. I'll now open the call for questions. Thank you, Galen. Michelle, if you'd please 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 hear a three-tone prompt acknowledging your request. Should you wish to remove yourself from the queue, please press 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 comes from George Doumet, Scotiabank. Please go ahead. Yeah, good morning. Thanks for taking my questions. Richard, I believe last call you mentioned a 6% Q1 exit in food same store sales. Just wondering if you can talk to the trends that happened kind of intra-quarter in Q2. Was it stable? How was the exit? Any general comments you can have on the market share for the on market banners? Yeah, you're right, that's that was that's what we sort of guided towards. I think the key perspective to take into consideration is, you look at our sales trajectory in dollars, that has continued, okay? That's what generated a 6% same store performance in Q2. You need to take into consideration then, that last year, Q3, in food was 7% same store sale, and Q4 was 8%, okay? We're going to be cycling that versus, like, this quarter, we cycled 1%. While sales trajectory will continue, we're going to be cycling against those figures. You're gonna see same store sales drop because of that, but that doesn't mean our sales are dropping. You're gonna see the same for drug. Drug has been 6% this quarter. It was 6% last year. If you look at Q3 and Q4 of last year, Q3 was 8% same store sale, and Q4 was 9%. We're gonna be phasing into that as we go forward. Like, that, this is part of our plan, and we still remain very, very good regarding our outlook. Okay, just market share comments you have maybe for the market banners? Yeah, market share, like, a positive trajectory in the quarter, and, that's what I'd say. Okay. Can you talk a little bit to shrink? What areas of the business is the most prevalent in, what impact that had on gross margins? Yeah. Doing to fix it. Yeah. Just how confident you are in kind of maintaining the gross margins flat, I guess, for the year? Very good question. I think that's everybody's question this morning. Yes, our growth margin is down 30 basis points, okay. In food, it's a combination of shrink, but also of what we call trading margins, okay, being the fact that our costs have gone up a little bit more than our price. In Shoppers, it's essentially all shrink, okay. We've been talking about shrink for a few quarters now. I think the key point on shrink is that we've been investing capital and labor in store for close to a year now, and our view right now, it's early, though, is we see it peaking. We've got indicators that are telling us that it is peaking and in certain instances, getting a little bit better. We will comment on that in the next quarter because we're gonna be recounting a significant number of stores in this quarter, we'll be able to affirm this with confidence when we release Q3, and it's important for us as we plan for 2024. I don't know if that's helpful. Okay. Other than that, we feel good about our gross margin performance going forward. Okay, well, thanks for that. Just one last one, if I may. One of your competitors observed that promotional penetration's exceeding pre-pandemic levels. Just wondering how do you guys see that? Perhaps any commentary you can share to that. Thanks. Yeah, we have commented on pre-pandemic promotional penetration. What we realize also in our own approach to our business, is we took out a lot of inefficient promotions, as you'll remember, in 2020. We're pretty much at what we'd call a normalized level of promotional penetration at the moment. We're not gonna comment too much on that in the future. Just think about us being back there now. Okay, thanks for your comments. Thank you. The next question comes from Irene Nattel of RBC Capital Markets. Please go ahead. Thanks, and good morning, everyone. I guess what we're all struggling with is the interplay between, you know, the tougher comps year ago, slowing same store sales, but also your ability to get some margin catch up, which was so challenging when we were facing that almost double-digit inflation. Can you talk through a little bit some of the puts and takes there, and how we should be thinking about that? Irene, good question. I think for us, like, we've been focused on stability of gross margin, and we still feel we're stable, like down 30 basis points. For us, we're in the zone. What we spend most time focused on is the growth rate of our SG&A, okay? If we can manage our SG&A growth rate as a percentage versus the year before, that's what will allow us to land on our financial framework. If you look at the performance we've had so far this year, and if I look ahead for the second half, I feel good about my SG&A cost curve, therefore, that gives us confidence in our ability to deliver on our plan. That's really helpful. Thank you. How should we be thinking also about the interplay between the consumer trade down activity, promotional intensity? Like, where does that all kind of shake out in terms of gross margin? Is it a tailwind? Is it a headwind? How does all that come together? It's noise at the margin, obviously, because we have two large businesses on the side, like a big, a big conventional business, a big discount business, okay? Obviously, discount is a lower gross margin rate than market, but the growth in discount is markedly higher. Same-store sale and discount is markedly higher than market. You're seeing that at play, but more sales gets more Canadian dollars. It's for us, we're managing on a consolidated basis, and when we look at it on a consolidated, what we lose from one, we get from the other. That's what we've experienced so far, and that's what we expect going forward also. Richard, what I'm hearing you say is that we should be slightly less focused on the gross margin sort of change, 30 basis points up, 20 basis points down, whatever it is, and focus on the growth and the gross margin dollars relative to the top line, or the EBITDA dollars? Yes. Both. Yes. Relative to the top line. Yes, Irene, we also look at both. We also look at both. Like, there's been a significant effort on shrink that started a year ago because we were starting to see it creep up, okay? It was not much noticeable. Now it's noticeable, so we talk about it, but we've taken actions a year ago, and we're starting to see the benefits from that. We're not done in our actions, but so with that plateauing and with what we see ahead, together, that allows us to feel decent about our performance for the second half. By the way, we're thinking about that as we're planning for 2024. We're already well advanced in our planning cycle for 2024, and all of these factors are in play as we prepare for next year. That's great. Thank you. Finally, just one last question. You bought Loblaw fair amount of stock in Q2. How should we be thinking about the aggregate NCIB as in 2023? Yeah, Irene, if you look at it and you compare it to last year, we're more or less at the same place. I think we're ahead by, I don't know, maybe CAD 50 million. For us, like, we're on plan. That's great. Thank you. Thank you. The next question comes from Mark Petrie of CIBC. Please go ahead. Yeah, thanks. Good morning. I wanted to just follow up on a couple topics. First, at Shoppers, I know you spoke about shrink. You're no longer calling it out, Shoppers overall, as a margin tailwind. How much of that would you say is its own performance, and how much is just that the growth rate is now normalizing and no longer materially exceeding the food growth? If you were to exclude shrink, gross margin in Shoppers would have been up in the quarter. It was a factor. That's an area where we spent a lot of efforts. Like, like, if you go in stores, you'll see what we refer to as fragrance lockups. That's where the professional thieves have been focused on. We've locked up many of these fragrances, and you're gonna see more of those over the coming months. Those are high-priced items, which, when they go, it hurts the bottom line. As we put that behind, it'll definitely help shrink. Interestingly, we're not losing sales. That was a big fear as we were locking up fragrances, that we'd be losing sales, but we're not losing sales. That's gonna start to yield benefits over the coming months. Yeah. Okay, helpful. On the pharmacy services, Galen, I know you talked about it in your comments, but I'm just sort of curious, you know, you're lapping some of the big COVID-driven services, but also expanding these clinics. You know, where are we at in terms of the progression of that in terms of headwind versus tailwind? Obviously, it's a headwind right now, but is it more of a headwind now than it was a couple of quarters ago, or when does that sort of normalize, do you think? It is a headwind entirely because we're cycling those extraordinary COVID vaccination and COVID test numbers. We really focus on what's happening with the underlying growth rate of, you know, the other expanded scope of practice services. We see very encouraging, you know, growth trajectories underneath it all. It'll take until we've cycled through the last of, you know, that COVID period, you know, before we see, call it, you know, meaningful growth, you know, in the business and on an absolute basis. Remember, the way to think about our expanded scope of practice initiative, which includes, you know, the pharmacy-led clinics and the expanded scope of practice across, you know, all these provinces. Think about it as a fast-growing, accretive, you know, contributor to the business that will drive, or will help us, you know, drive our financial framework. It's not gonna deliver a step change in growth, in sales, or in profitability, but it will give us that long-term tailwind that will allow us to continue to perform as we have for the last number of years in that business. Yep, understood. Just maybe just to follow up on that, are these pharmacy care clinics, like how do the economics on these sort of stack up versus other investment opportunities in the store network? I'm sort of thinking of just, you know, regular store renovations or new stores. What do the paybacks look like for those care clinics? It depends. You know, there's a pharmacist-led clinic inside a pharmacy, and, you know, that has a very high payback relative to, you know, what you would consider, say, a new store. Think about it as an incremental renovation, you know, with meaningful sales upside. That would be superior to the sort of regular return rate. Then you have the standalones, which are far less, you know, in number than the in-stores, and they have slight, what I'd describe as slightly pressured, you know, core, returns, until you add the pharmacy, prescription, you know, on top of it, which has always been, you know, a major amplifier, you know, for any investment that we've made in medical clinics. Then it delivers a very healthy return that would be in line with or above, you know, return rates we get for Shoppers Drug Mart. Yeah, Mark, just to give you some order, like, we've built two of these, though, and it's our first two, so, we didn't spend much time focused on the return, though. Like we're talking a few hundred thousand. This is not, this is not millions, though. I can tell you the first two, I'm sure they won't look amazing because they want to make it look good for us, though. The, the next ones that are coming, once we know that the concept is working, we're gonna tighten the screws on the cost. It's not, it's not a big cost, so it's not something that you should worry about from a big CapEx, standpoint. Yeah, understood. Appreciate the comments. All the best. Thank you. The next question comes from Tamy Chen of BMO Capital Markets. Please go ahead. Yeah, thanks for the question. First, wanted to go back to the SG&A. Richard, could you maybe elaborate a little bit more on this quarter in particular, you were able to get pretty good leverage. What were some of the areas that this came from? How should we think about that going forward when it seems like right on the gross margin side, whether it's Shoppers or also the food side, there's limitations to which you can pass through your costs? Yes. Obviously, when your top line goes up 7%, it's definitely helping your SG&A rate, okay? That's not typical of the growth we get normally in our business. We don't look at it as a% of sale, we look at it as a% growth versus the year before. If you want to drive operating leverage, you need to have your SG&A grow at a lower rate than your top line. That's what we're focused on, and we've laid out plans that allow us to deliver on that. Our plans for 23 are quite robust. Based on what we see coming ahead, that gives us confidence that we should be able to deliver on our framework. As I was mentioning earlier, right now, we're working on 2024, and we're adopting the same approach. We need to make sure that the growth in our SG&A in dollars doesn't grow too fast because then we won't be able to deliver on 2024. We're taking actions now to make sure that this happens, and that's how again, in 2024, we should be able to continue to deliver on our framework. The plan is laid out. It's not like we're gonna take more initiatives now. Like, we have our plan laid out, and if we just deliver on our plan, we should deliver on our framework. Okay. Within that, I'm curious specifically on the whole labor and wage environment. I think last quarter, you had said the number of ratified agreements over the last few months were at the higher end of the normal range. I'm just wanting to understand if you think at this point there might be still some incremental catch-up for you and your labor costs in, with respect to broader market wage inflation that we've seen over the last two or so years, or are you largely through that? We know always what's coming, okay? Like, we know when negotiations happen, and so we budget that in our plan, as like everything else, and so we've budgeted what's to come. As we've answered that question, Galen has answered that question a few times recently, and we talk about like, we've been at a higher end of the range, but it's at the higher end of a range that we're planning for. That's how we're thinking about it. Right now, based on what we see, we should be within our plans on what we see ahead. To your question about catch-up, no, we don't have any substantial catch-up issues that we're facing. Think about them more as normal course negotiations. The thing that we try and be careful of is locking in, you know, growth rates that would not be in line with a long-term inflation rate. That's where we try and land these agreements. Okay, thank you. Thank you. The next question comes from Michael Van Aelst of TD Securities. Please go ahead. Thank you. You mentioned about the, some of the costs coming down or vendor costs coming down, but not necessarily showing up in the cost goods sold yet. Can you talk about what, you know, give us some insight as to, you know, what some of the pushback is from vendors as to why they aren't pushing it down or why they're still trying to push through price increases? Yeah. I mean, a couple of things. First of all, you know, we're seeing meaningful shifts in a whole line of commodities, you know, that are core ingredients in these products. That's why we expect products that are heavy in these ingredients, you know, to start to slow and ultimately turn, you know, the other way. You'll have to ask the, you know, the packaged goods manufacturers, you know, what their perspective is on why they're not bringing retail prices down. You know, they have a litany of explanations, you know, for us. The fundamentals are that, you know, if the cost of the inputs are starting to slow and reverse, ultimately we should see some component of that, you know, show up in cost increases. Look, we operate, as you know, we source a lot of control brand product, and so we have pretty good visibility into, you know, how this should evolve. Having said that, I don't think it's reasonable to expect an aggressive reversion or, you know, a shift into a deflationary environment. The reductions that we're seeing in commodities, you know, are moderate. They're notable, meaningful, but it's not at this point, headed towards a cost reversal. All right. On your private label sourcing, is that cost plus? It's negotiated, you know, differently depending on the vendor. Does that mean you're not necessarily getting cost reductions on your private label either? All I'm saying is that we negotiate them on a case-by-case basis, and, you know, we are seeing reductions in some cases, with a couple of national brands and with control brand vendors as well. Because I'm trying to see how the cost environment is influencing your private label penetration. It seems like it's still growing. I'm wondering how close you think we are to peak levels in private label, and then, you know, I know in the past you've talked about CPG companies are eventually gonna try to push back and get some volume back, but it seems like it's tough for them to do if they're still taking double-digit increases. Where do you see private label penetration peaking out, I guess, or how soon, and what are you expecting over the next, you know, over the next year, let's call it? Yeah, you're right. We have talked about this a few times, you know, that we would expect, again, the larger brands to start investing to drive volume. We're seeing some signs of it, you know, but it's emerging more slowly than probably we expected, you know, earlier in the year. That's benefiting our control brands. Today, our control brands are still growing faster than national brands. We do think that that will rebalance itself at some point in the relatively near future. You know, that really is up to the big brands to determine when and how. Okay. Can you just comment whether you're being, you know, holding on to your margins in private label, or are you seeing any erosion there? No, we're holding on to our margins. Yeah, we are. I think on control brand, I think Galen made the point, like, we're still growing faster than national brand. Because of the environment we're in, if you actually go one level down and you look at no name versus PC, no name is still growing, like, high double digits. In today's environment, we expect that to continue just because of the nature of what we're in right now. Okay. All right, just on the tonnage, I know people like to try and infer tonnage out of your inflation and your same store sales. What are you seeing in your tonnage numbers? You know, what do you believe is happening with your market share? I can take tonnage, though. Like, give you a sense of tonnage, though. It's clearly positive in discount. It's somewhat negative in conventional. Net, net, though, it's about flat. Okay? That's where we are right now, which is a significant improvement from where we were at this time last year. You're now clearly seeing discount being positive territory, and it's been the case for a few quarters now. That should help you figure out how we're doing on share. We feel we're progressing on share, that's where we stand right now. All right. Thank you. Thank you. The next question comes from Vishal Shreedhar of National Bank. Please go ahead. Hi, I was hoping you could update us on some of your adjacent value drivers, like Freight as a Service and media. I know you've installed some screens in your stores, and maybe where those businesses are and how much you think they can grow in the near term? Yep. They're all progressing nicely. We don't have a new, you know, frame for you, Vishal. Third-party transport, you know, it's a meaningful contributor now in terms of its size and scale. We're investing a little bit of capital in it to, you know, to continue that growth trajectory, and, you know, remain optimistic about its potential. Media is much smaller. As we mentioned last quarter, we completed a big infrastructure, a technical infrastructure project, which we call RMP, which is essentially the tool that allows, you know, advertisers, easier access to our customer audiences and to advertise with us. We're getting really terrific responses, you know, back from the industry, in regards to that tool. You know, we're delivering on all our financial targets in relation to media now, but it remains small. You know, it's yet to sort of ramp up, you know, at a level, you know, where we would, you know, where it'd be relevant to comment to you on its size and scope. With both of these, you know, just keep in mind that our goal is to use these adjacencies to drive that long-term financial framework. In the same way that pharmacy services are gonna do that's what transport helps us do, that's what media helps us do. You know, you need to look at it as all enablers of us delivering, you know, that long-term growth rate rather than any of them, you know, contributing to an outsize, you know, or step up in terms of earnings growth. Does that make sense? Thank you for that color. Just changing topics here on Lifemark. How's the integration progressing, and how should we think about Loblaw's appetite for further acquisitions? What kind of sphere should we think of them being in, if that in fact, is being contemplated? Yeah. Start with primary care delivery, you know, which is, you know, the foundation of our sort of adjacent to pharmacy healthcare strategy. That is, you know, driven by pharmacists in the manner that we've discussed on this call over the last few minutes. Then think about another adjacency, which is other forms of care delivery that would be complementary, you know, to that experience. That's where Lifemark sits, and, you know, that was the driver behind that acquisition. It has good economics in that it's accretive, it has a good, you know, market tailwind, so it should grow on its own at a sales rate that is higher than, you know, the rest of our core business. On a standalone basis, you know, its long-term, you know, capacity to contribute, is, you know, accretive and attractive. The reason that we bought it, you know, was because we thought that we could grow that business faster than others by linking it to our existing healthcare customer, in a more integrated way. That's really the prize. You know, I would say that we are making steady progress, you know, testing that thesis, and the value of that integration. You know, we'll continue to report on progress. We're not gonna make any more material acquisitions in, you know, adjacent healthcare delivery spaces until we are absolutely certain, you know, that we are a good owner, you know, for these kinds of assets, that there's a synergy, you know, within the enterprise, from owning them. We still got work to do to convince ourselves that that is, in fact, the case, and you won't see any incremental M&A until we're certain that it is. Okay. Maybe a last one for me, just on, you know, the population growth and, you know, the disparate levels of growth across the country. Are you seeing the impact of that as you look at your business and saying, "Hey, these regions are benefiting more from population growth, and we're seeing that in our stores, and these some less so," and so, you know, maybe some areas are more competitive or less growth as a result? Oh, yeah. I mean, we see it every day, you know, the changing demographics, you know, in markets all across the country. You see demographic shifts, you see cultural shifts. You know, there are markets where Canadians are moving to small towns, there are small towns, you know, on the periphery of big cities that are growing faster today than they were, you know, at any point in the last 20 years. That constitutes, you know, a new opportunity, you know, perhaps for an incremental store. You've heard us talk about T&T and the extraordinary success, you know, that we continue to experience when we open, you know, new T&T stores almost anywhere in the country. That is a reflection of immigration, and the heavy weighting of Asian, you know, immigrants coming into the country. You know, we've been refining our No Frills business, you know, to better serve the South Asian customer, and we've seen fantastic, you know, results, you know, coming from our work on that front. There's the other tailwind, which is, you know, you wanna add square footage, you know, that's in line with accelerating population growth. As you've heard Richard describe on a number of occasions, you know, we are continuing to, you know, to build our pipeline of new stores, so that we can meet that demand and make sure that, you know, we're getting our fair share of the population growth in the country. It's a big and important driver, and it's one of the reasons, you know, to have long-term optimism, you know, about Loblaw. You know, is that population growth tailwind and knowing that everybody needs to eat. That we have formats that meet effectively just about every demographic, you know, and every culture. Thank you. Thank you. Once again, ladies and gentlemen, if you do have a question, please press star one at this time. The next question comes from Chris Li of Desjardins. Please go ahead. Hi, good morning. May I, maybe I'll just start out with a couple of quick clarification questions. Richard, in the beginning, I think you mentioned that you expect food sales to drop in the second half because of tough comps. I just want to clarify. I think you meant sales growth to maybe moderate and not necessarily decline in the second half. No, I did not say sales are gonna drop. You did. Okay. You meant, yeah, just the growth rate's going to slow. That's what you meant. Going to slow. Yeah, sorry. Yeah. Okay. You're not gonna see the same-store sales because we're gonna be cycling higher comp. Okay, correction made. Thanks, Galen. Okay, sorry. I just want to make sure. Okay, that's great. Just on the shrink, again, just wanted to clarify. The shrink you saw in drug is predominantly because of theft in the beauty category, you put measure in place, that should, you know, correct itself in due time. On the food side, I just want to clarify, what's driving that is because of the new store growth and being more precise with inventory count, is that what's been causing higher shrink on the food side? No, it's still, it's still organized crime in grocery also, albeit not to the same extent as we witness in Shoppers as a rate. In both instances, it's mainly theft that's causing that higher shrink? Yes. Okay, that's great. Just on e-commerce, are you seeing any notable increase in adoption, either at Loblaw or the industry, or has the adoption remained largely stagnant because of high inflation and the shift to discount? Yeah, so you saw that our numbers, I think, were up 13% in terms of overall e-commerce volume. It's important to note that a disproportionate part of that is the pharmacy business, digital pharmacy prescription, digital prescription filling. I'll just focus on PC Express, you know, as a good proxy for sort of consumer product online adoption. That's in and around flat. It's kinda the way to think about it, maybe a little bit better than that, with substantial growth on the delivery side of the equation, and a little bit of decline on the pickup side, and that's. You blend it out and you get essentially to flat. You know, we are still waiting to see what the normalized post-COVID growth rate is for, you know, for e-commerce, but it's certainly not going backwards, and we expect it to continue, you know, to grow as we look forward. A couple of interesting updates, you know, I can provide. Between last quarter and now, we launched the PC Pass, which is our subscription product for PC Express, for pickup and delivery. We've seen fantastic adoption of that product. It's now up to about 10% of the total sales in PC Express. Of course, you know, we continue to work away on improving the overall value proposition, and I'm delighted to say, you know, we're at all-time highs in terms of our service levels and our fill rates, you know, for our customers. You know, the service just gets better and better, you know, we continue to have high conviction, you know, that is a really valuable service for our best customers, and that it will continue to grow. Okay, that's super helpful because I was gonna ask you know, one of your large discount competitors, you know, recently launched a subscription program for e-commerce, and, you know, you guys obviously have a strong one as well. I was just gonna ask, you know, among the many tools that Loblaw has at your disposal, how effective is the subscription program to retaining customers? I think you just sort of answered my question there. Yeah, it's really, it's really been quite powerful. Probably the most encouraging insight is that we've acquired many more new customers with the subscription service than we expected. We thought, as you would, that it would be primarily a retention tool, and it is serving that function, but it's also been a way for us to acquire new customers that has surprised us on the upside. That's great. Maybe finally, I know I ask this almost every quarter, just any new updates on any potential changes in generic drug prices? No, no updates on that. I think, you know, we've actually got some certainty with the... I can't remember now what the organization is called. I think we have clarity on generics and branded for the next two years. We'll follow up with you to make sure I'm giving you the right insight on that. No, nothing on the horizon that would constitute a meaningful risk. That's great. Thanks very much. Thank you. The next question comes from Irene Nattel of RBC Capital Markets. Please go ahead. Thanks. Just one follow-up question, if I might, on on Shoppers and beauty. What are you seeing now in terms of demand run rates? you know, as consumer wallets are being squeezed, are you seeing any pressure there? you know, how successful are the promotions that you're running using PC Optimum, that, you know, for beauty specifically? Yes, beauty continues to be robust, and I think there's two forces at work. The first one is beauty on the kind of the luxury spectrum of spend on myself, it's actually relatively low priced, you know. You know, the alternative of buying a high-end cosmetic product or fragrance versus buying, you know, an expensive, you know, handbag or a dress. It tends to be a lot more recession-proof, you know, than perhaps other categories. We are certainly seeing that, you know, continue in our business. The second one, you know, which is important to remember, you know, is we've had a big retailer exit the market in Nordstrom in recent months, and that volume, you know, they were a big beauty retailer, and that volume needs to go, you know, back out into the market. you know, we would be a disproportionate beneficiary of that in the local geographies, you know, where we would be competing with them. you know, that's also, you know, helpful for a business like ours. That's great. The lipstick index lives? Yes. Thanks, Galen. Thank you. There are no further questions at this time. Please continue with closing remarks. Great. Well, thank you, everybody, for your time this morning. Please reach out to me if you have any questions, I'll ask you to mark your calendars for Wednesday, November 15th at 10:00 A.M., when we will reconvene to discuss our Q3 results. Thanks, everybody, have a great day. Ladies and gentlemen, this does conclude the conference call for today. 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