Good morning, ladies and gentlemen, and welcome to Metro Inc. 2022 Third Quarter Results Conference Call. At this time, all participant 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. Also note that the call is being recorded on August 10, 2022. I would like to turn the conference over to Sharon Kadoche. Please go ahead. Thank you, Sylvie. Good morning, everyone, and thank you for joining us today. Our comments will focus on the financial results of our third quarter, which ended on July 2nd. With me today is Mr. Eric La Flèche, President and Chief Executive Officer, and François Thibault, Executive VP and Chief Financial Officer. During the call, we will present our third quarter results and comment on its highlights. We'll then be happy to take your questions. Before we begin, I would like to remind you that we will use in today's discussion different statements that could be construed as forward-looking information. In general, any statement which does not constitute a historical fact may be deemed as a forward-looking statement. Expressions such as expect, intend, are confident that, will, and other similar expressions are generally indicative of forward-looking statements. The forward-looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy, and our annual budget, as well as our 2021- 2022 action plan. These forward-looking statements do not provide any guarantees as to the future performance of the company and are subject to potential risks, known and unknown, as well as uncertainties that could cause the outcome to differ materially. A description of these risks, which could have an impact on these statements, could be found under the Risk Management section of our 2021 annual report. As with the preceding risk, the COVID-19 pandemic constitutes a risk that could have an impact on the business, operations, projects, synergies, and performance of the company. We believe these statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward-looking information except as required by applicable law. I will now turn the call over to François. Thank you, Sharon, and good morning, everyone. For the quarter, our total sales were CAD 5.9 billion, an increase of 2.5% over last year. Food same-store sales increased by 1.1% for the quarter, while pharma same-store sales were up a strong 7.2%. Included in the third quarter are two non-recurring items. There are CAD 7.7 million of direct costs related to the one-week strike in our distribution center in Toronto, and that was offset by a gain on sale of assets of CAD 8.7 million. The strike costs have been revised downward from the CAD 10 million estimate we had disclosed in the previous quarter. We're talking here strictly direct costs such as security, additional transport, waste of perishables, net of savings on salaries, and we're not talking about lost sales or lost margins. Our gross margin stood at 19.8% of sales, stable versus the same quarter last year. Food gross margin came down a bit, but were compensated by stronger margins in our pharmacy division. Gross margin included CAD 5.3 million of the total CAD 7.7 million of direct strike costs. For the operating expenses, they were down 1% or CAD 5.7 million year-over-year and represented 10.1% of sales versus 10.5% of sales last year. The lower level of operating expenses is mainly due to a reduction in pandemic-related expenses. Operating expenses were impacted by CAD 2.4 million of the direct strike costs, offset by the CAD 8.7 million gain on sale of assets that I referred to earlier. In the third quarter last year, operating expenses included a CAD 5.1 million gain on sale. EBITDA for the quarter totaled CAD 565.1 million or up 5.9% year-over-year. As a percentage of sales, EBITDA was 9.6% versus 9.3% last year. The adjusted net earnings were CAD 283.8 million compared to CAD 261.2 million last year. That's an increase of 8.7%. Our adjusted net earnings per share were CAD 1.18, up 11.2% versus last year's adjusted EPS of CAD 1.06. 40 weeks into our fiscal year, capital expenditures amounted to CAD 446 million, an increase of a little more than CAD 62 million versus last year. The higher level of capital expenditures is mainly the result of our ongoing investments in the modernization of our supply chain in both provinces, as well as in our retail store network, including in-store technology. The rollout of in-store technology across our food network is almost complete. During the third quarter, we added another 41 stores equipped with self-checkout technology, another 21 stores equipped with electronic shelf tags, bringing the total to 421 stores and 239 stores, respectively. After three quarters, we have opened four new food stores and converted another from Metro to Super C in Mont-Joli. We are very pleased with the sales levels since the opening. Also, we relocated another Metro store and carried out major renovations in 11 stores, representing a net increase of 141,000 sq ft or 0.7% of our food retail network. Turning to our current normal course issuer bid program, we have repurchased between November 25 of last year and July 29 of this year, 3.8 million shares for a total consideration of CAD 256 million, representing an average share price of CAD 67.38. On June 6, given the high volatility in interest rates and uncertain future market conditions, and given our high level of cash on hand, we proceeded with the early redemption of our Series F notes maturing December 5, 2022 for the entire CAD 300 million principal amount outstanding. The early redemption allows us to choose the timing of our refinancing when market conditions are favorable. Our financial position remains solid, and we have an untouched credit facility of CAD 600 million. That's it for me. I'll turn it over to Eric. Thank you, François. Good morning, everyone. We delivered a strong performance in both our food and pharmacy businesses in the third quarter, growing sales by 2.5%, EBITDA by 5.9% and adjusted earnings per share by 11.3%. This was achieved in a challenging operating environment marked by accelerating inflation, as well as the ongoing labor shortages that are impacting the supply chain. Food same-store sales were up 1.1% in the quarter compared to elevated sales last year. Transactions were up again while the average basket declined, albeit remaining significantly above pre-COVID levels. Our internal food basket inflation increased to 8.5%, up from about 5% in the prior quarter, as the industry continues to experience higher than normal inflationary pressures in cost of goods sold. Inflation affects all departments and categories right now. Consistent with the industry, our food tonnage in the third quarter was down year-over-year because people are eating out and traveling a lot more compared to last year when pandemic restrictions were in place. Promotional penetration increased as customers are managing their budgets in the current high inflation environment. We saw the shift from conventional to discount accelerate when compared to the previous quarter. We are well positioned to meet the changes in consumer behavior and deliver the best value possible to consumers in these inflationary times with our multiple formats, effective promotional strategies and strong private label offering. Pharmacy comparable sales were up 7.2% with a 5.6% increase in prescription drugs, helped by COVID-related activities such as the distribution of rapid tests. Front store sales were up 10.5%, supported by strong growth in over-the-counter medications despite significant supply issues, and also in cosmetics as people socialize and return to offices. Turning to online, demand has softened as trips to stores increased. However, our sales remained essentially flat versus last year as we continue to add capacity selectively. We remain focused on improving our customer value proposition with our recently launched express delivery on metro.ca offering delivery in under two hours. In addition, in May, we signed a partnership with Instacart and we now have about 180 Metro stores offering the service. That's on top of our Cornershop partnership. Over the next few weeks, we will be launching click and collect in the Super C discount banner. The deployment will be gradual and we plan to roll out the service to the majority of our discount stores. We are confident in our online model, which provides several shopping options and enables us to meet customer demand as it evolves. We are on track with our supply chain modernization program as the transition to our fully automated frozen distribution center in Toronto is now done and the productivity of the new center is meeting our expectations. Construction of our fully automated fresh and frozen facility north of Montreal is progressing as planned, and we are still aligned for a 2023 opening. These long-term investments in our supply chain will enable us to add capacity, increase productivity, and improve service to stores while benefiting from lower operating expenses. Looking ahead, we continue to face higher than normal inflationary pressures and labor shortages, and it is difficult to predict how long this situation will last. As we will be cycling the start of higher levels of inflation last year over the next few months, one could expect that the inflationary pressures will start to moderate. As I said before, we don't have a crystal ball. In the short term, we are seeing our food tonnage improving and we expect food same-store sales to grow at a higher rate than in previous quarters because we are now cycling periods where at this time last year, there were no significant pandemic restrictions in place as we are experiencing now. On the pharmacy side, we expect growth in prescriptions to moderate year-over-year levels, sorry, t o moderate versus year-over-year to-date levels, given the high number of visits to physicians in the fourth quarter last year. We also expect front store revenues to remain strong, driven by over-the-counter sales. With that, thank you. We'll now take your questions. Thank you. Ladies and gentlemen, if you would like to ask a question at this time, please press star followed by one on your touch-tone phone. You will then hear a three-tone prompt acknowledging your request. If you would like to withdraw from the question queue, simply press star followed by two. If you're using a speakerphone, please lift the handset before pressing any keys. Please go ahead and slowly press star one if you have a question. Your first question will be from Irene Nattel at RBC Capital Markets. Thanks, and good morning, everyone. Eric, you talked about consumer behavior and rising promotional penetration. Can you tell us, you know, what you're seeing in terms of, you know, other color around shifts, you know, private- How much are you seeing private label grow? Are you seeing the sort of fresh to frozen transition? Anything that you can help us with would be great. Thank you, Irene. As I said, inflation increased, accelerated. What we described in the last quarter, the discount, the shift to discount also accelerated. You know what you just said, you know, shift to private label, trading down proteins, all of the above is happening in our stores. Consumers are feeling it. A lot of consumers are on budgets and fixed income, and we work extremely hard in all of our banners to provide great value. I think our promotion strategies are very effective. We have a strong private label offering. All of these elements, we're able to provide good value to the customers and work with the shift. We're well positioned with all of our banners. Clearly, our discount banners are growing faster, as is the whole market, and we're capturing some of that. Happy with our performance, happy with what our teams are doing to navigate in this tough environment, to provide value to consumers. Clearly, a lot of consumers are feeling it and we're working really hard to meet that challenge. Understood. Thank you. Is it safe to say that now promotional penetration is above pre-pandemic levels? It's there or slightly higher. So it increased a bit quarter-over-quarter. Again, to be expected. When inflation rises like that, when price points go up, our costs have gone up significantly. We are absorbing some of those costs and not passing on all of our cost increases. So the consumer's reacting and adjusting their behavior. A lot of consumers are on budgets. Overall, I'd say the consumers are healthy. Unemployment levels are at record lows. People are working. But these are high inflation numbers at the pump, in the stores. So there's a shift for sure to value, and it's our job to provide the best value we can. Understood. Thank you. Just finally, Eric, any shifts in the competitive intensity, competitive environment? Not really. Always intense. It's a very competitive market, but we haven't seen irrational behavior or anything very different. It remains very competitive. Understood. Thank you. Thank you. Thank you. Next question will be from Mark Petrie at CIBC. Please go ahead. Yeah, good morning. I know you called it out in your outlook, but hoping you can go into a bit more detail about the various pressures you're experiencing in your operating costs and how, I guess, relative to a more typical environment, you're managing that pressure. I guess most specifically interested in comments on the labor market, but also more broadly. We've always managed our costs as best we can, and teams are very focused on that. To provide value to the customers we have to have competitive costs. There are pressures, transportation, fuel, labor, the labor contracts we are renewing are at higher rates increases than we're used to. That's the market we're in. I think we're doing a good job of managing that, keeping costs under control in the circumstances. Not much more I can say. You know, labor shortages are causing pressures too, because that increases over time to supply our stores, so we have higher overtime percentages than we're used to. That's something we have to manage through. I think we're doing an effective job. Supplies are up. Again, that's industry-wide, market-based increases, and it's just part of our cost that we have to manage. A lot of focus on it. I think the numbers we've presented today, our expense rates, are good and teams are doing a good job. On the labor market, would you say it's improving from past quarters or recent quarters or still stable or worsening? Wouldn't say it's worsening, but it has not improved, so pretty stable. The demographics are what they are. The general economy is what it is. There's a lot of open positions out there, and there's not enough workers to fill them. Yeah. Okay. Those pressures remain. Understood. I guess just last on that topic, I mean, how should we be thinking about the level of SG&A increases in the coming sort of, you know, 12 months, either on a rate or dollar basis? I think I heard in your commentary, you expected the level of increases to moderate, but just wondering if that's correct and what's the driver of that? Is it really just sort of transportation costs or other? I'll let François answer the SG&A. My comment on the moderation we expected. I said one could expect inflation year- over- year to start to moderate over high levels last year. Our SG&A, you know, we'll manage through that. François? Yeah, no. That's right. It's, you know, we stopped disclosing specific COVID expenses. They were CAD 38 million last year, including gift cards. As I said on earlier calls, we're no longer segregating COVID expenses as the line is getting pretty blurred. We do have more of these type of expenses than pre-pandemic. More cleaning, disinfecting, the wipes at the entrance. And there's increases in other expenses that we pointed out, supplies, energy, the travel expenses, et cetera. We manage it according to we know we have sales growth. We have gross margin, and we manage our SG&A as we always do, and trying to keep it in line with the sales increase. You should expect a similar performance going forward to what we've posted this year. Okay, understood. Sorry, just to clarify, when you're talking then about the inflation moderating because you're lapping bigger numbers, you're talking about the, like, CPI, like the top line inflation, not as much the cost inflation. That's right. That's right. Yeah. Okay, understood. Thanks for all the comments, guys. All the best. Thanks, Mark. Your next question will be from Michael Van Aelst at TD. Please go ahead. Good morning. Just wanted to follow up on a few of those cost questions. On the labor side, do you have a number as to like the percentage of jobs that are unfilled right now? In our company? Yeah. Yeah. You know, it varies for stores, DCs, offices, but it's more than it usually is. For competitive reasons, we don't wanna go there and disclose all of our statistics, but we have more open positions than we're used to and than we'd like to have. That's all I'll say. Okay. You also say in the outlook that, you know, if the labor situation stays tough and the inflation stays tough for a prolonged period of time, then that could put more pressure on margins. What do you figure, like, how much longer do you think this really has to be going on before it's difficult for you to offset in your other parts of your business? It's tough to say. I mean, we've been, you know, this year, we've called it every quarter for the last three quarters that we haven't been able to pass on all the cost increases in food. Our food margin's slightly down, compensated by, as we said, by a better performance in pharmacy. We're not talking, you know, it's something we can manage, but it is putting pressure on margin. Our comment is just that if this high inflationary, high price environment continues, it will continue to put pressure on margin. We find ways. We find ways through our procurement, we find ways through our merchandising, we find ways through our cost containment to contain those cost increases. It is putting pressure on margin for sure. The earlier comment wasn't to suggest that you had expected it to increase if it stayed prolonged, just that you had expected to continue to put some pressure. Yeah. Yeah. Okay. All right. On the food side, you know, you talked about same- store sales, or at least tonnage starting to improve as you lap some easier comps on that front. Now that you are lapping those easier periods, do you think tonnage can actually start to be stable year-over-year, or is there still some pressures or headwinds from people traveling a lot more and staying in the airports for 12 hours sometimes? Yeah, that's, we expect the tonnage. As I said, it has started to improve. We don't give guidance too far out, we're just giving you the current landscape as we're comparing apples to apples. The Q3 over last year, there was a lot of noise last year, COVID noise in Ontario. Different markets had different restrictions. Same thing in Quebec for extended periods. The same- store sales numbers are affected by that, and I alluded to tonnage. So as we are now in a period of apples to apples without restrictions, quote-unquote, you know, we feel confident about our same- store sales numbers and our tonnage. I'll just leave it at that. Okay. We could see some tonnage stabilization, and not just lower decreases, but maybe stable finally. Yeah. Yes. Okay. All right, great. You mentioned the strike impact. Are you able to quantify a sales impact from the strike, or were you able to stock your shelves adequately? Clearly there was a sales impact and we lost some sales over a few weeks and lost some margins. I'm not gonna negotiate the short-term incentive of our Ontario division with you on the phone here. We didn't isolate it for our results. Clearly, yeah, there was an impact. Okay, great. Thank you very much. Thanks, Michael. Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please slowly press star followed by one on your touchtone phone. Your next question will be from Vishal Shreedhar at National Bank. Hi. Thanks for taking my questions. Metro, like others, has indicated that discounting continues to gain traction. Just wondering, in the conventional banner, is that responsible for most of the pressure in gross margin, the gross margin rate? If that's true, other than increasing promo, what are the tactics that management can employ to improve performance at conventional? Well, I wouldn't say that the shift to discount, yeah, overall it has an impact on gross margin. You could say that, but our conventional store margins are holding up pretty well, overall. It's a mix, you know. There are some categories in our conventional stores that are growing much faster versus last year and versus even two years ago. Hot food, deli, those departments are doing really well right now in our conventional stores. Those are, as you know, our high gross margin departments. The total margin in our conventional stores, you know, we're pleased with it overall. There are declines in other categories in the store, as the shift happens to discount. Overall, I think, we've done a good job. We're absorbing some cost increases, passing on some for sure, but absorbing some on our own. The gross margin on the food side is down slightly, and there's a lot of factors at play in the discount categories within departments within the specific banners. Again, it's not easy to give you know, broad strokes, being this is it. This is gross margins explained just by that. There's a lot of factors at play. It's not a fair comment to say that conventional is responsible for the bulk of gross margin rate pressure. That's not a fair comment. Conventional. The more you shift a discount at a lower gross margin, that will have an impact. As I said, conventional is pulling its own pretty well, so. Got it. Okay, with respect to the comment that you made about, trends improving as you lap the, year-over-year restrictions, are you seeing that in conventional as well? There was a rush to restaurants kind of on a year-over-year basis, and particularly in the warmer months. Will that help trends called in the winter months, as well as there's a little bit, that pent-up demand fades away from restaurants or to some degree? I'm not sure I understood your question really. With respect to conventional, the improving trends that you commented on the outlook, are those? Yeah. Are those equally applied or is it just one sector getting more benefit? That was part one of it. The second part was, there was a rush to restaurants in kind of the summer months for a variety of reasons. As that kind of pent-up demand in restaurants fades away, does that help one sector more or another? Yeah. First part, yeah, it was equally applied. There's no big difference because of those improving trends, both will benefit. You know, the pent-up demand to restaurants last year, you know, that's what we're cycling and that's what I say that our cycling trends are better and food tonnage trends are improving, and same-store sales will be stronger because of exactly that. We're lapping a period last year where it was pretty much opened up like it is this year. Again, I'm repeating myself, but we expect stronger same-store sales going forward for sure. Okay. Thanks for the comments. Thank you. Your next question will be from Peter Sklar at BMO Capital Markets. Please go ahead. Okay, thanks. Just back on this big, negative tonnage trend that you experienced during the quarter, which, you know, and we agree with that, you know, you've largely attributed to, you know, you're up against very strong pantry stocking, you know, quarters if you look over the last two years 'cause of the COVID restrictions. What about, like, what's your sense of the consumer? Like, how is it gonna play out going forward? 'Cause clearly the consumer is squeezed and, you know, there's that whole issue is, you know, is the consumer actually gonna buy less tonnage, put less items in the basket? Just, you know, just maybe elaborate a little bit about why you're so positive about your tonnage trends, given that, you know, the consumer is under a lot of pressure and maybe the consumer is not gonna put as much in the basket as you're anticipating. Maybe you're seeing trends that make you more positive. You know, again, no crystal ball. Will consumers eat less and put less in their baskets? Personally, I don't think so. I think what you need to focus on is really the year-over-year comparison. I think what we're lapping last year in the current weeks and over the next little while, we're gonna be comparing apples to apples and I think we'll do pretty well. I think the consumer, yes, the shift to discount is there. Yes, there's some trading down in proteins, but number of items and tonnage I think will be there in our stores. That's what we think. Eric, what about this, you know, this trend of return to restaurants? You know, Recipe's banners and Tim Hortons Canada reported booming second quarters as people return to restaurants. Do you think you're feeling that in the grocery space at all? I can tell you the categories in our deli departments and hot foods are up significantly. We're up to pre-pandemic levels overall, and that's with some of our urban stores like Toronto not back to pre-pandemic levels because the traffic downtown is higher than it was in the pandemic, but it's not back to where it was. We're seeing that trend in our hot foods and ready meals departments. Clearly we are, and that's helping our Metro stores for sure. Pizzas, chicken, sandwiches, those sales are up significantly in our Metro stores. I think it's great value for the customer versus a lot of the restaurants. Customers are seeing it, and that's what's helping our sales. We expect that to continue. Okay, got it. Thank you so much. Thank you. Next question will be from Chris Li at Desjardins. Please go ahead. Oh, hi, good morning. First question is, Eric, just based on the market share data that you have access to, are you able to comment whether you managed to maintain or gain market share in your food service and discount formats? Well, we don't segregate by formats or by province. I can tell you that overall we pretty much maintain market share, and we're pleased with that because versus last year, like as I said, I keep referring to last year, pandemic restrictions last year, there's a lot of noise year-over-year on market share comparisons. I think the more useful exercise is to compare it to two years ago and three years ago, and we're very pleased with our market share overall in both of our markets. Okay, that's great. Just going back maybe on your food same-store sales. You know, if I look it on a three-year average basis, if my math is right, I think you did sort of 4% in Q3, which is obviously a very good base. Trying to tie that with your comments about you seeing, you know, acceleration in food same-store sales quarter- to- date because you're lapping the COVID, the bump last year. Not asking to give any sort of guidance or anything, but it's sort of 3%-4% a good expectation going forward, given you're lapping these type of benefits from last year? Yeah. I don't wanna give a specific number, Chris. We're trying to give some color on the outlook to say, look, as we are now comping cycling periods last year where there were no restrictions or at least no significant restrictions. We should, you know, same-store sales should be higher than what we've had in recent quarters. You know, we just started a quarter. I don't wanna give a precise number. I'll leave it at that. Yeah. No, that's fair. Maybe just switching gears to your prescription same-store sales growth, obviously was very strong, and you noted, you know, the COVID-related activities were a key driver. Are you able to kind of tease out for us, like how much of that was COVID-related activities? Then maybe related to that is I understand these sales have very good gross margins just in and by nature of the business there. Do you expect a bit of a, maybe a headwind going forward as you start to lap these COVID-related activities going forward? The 5%, the 5.6% increase in prescription drugs is helped by about 1% or so with tests and vaccines and that COVID-related activities. That's a rough number. Are we gonna have more tests, as many or less tests going forward? Is there gonna be an eighth wave? We don't know. Who knows? It's hard to say. Maybe just last one, just also on your OTC and cosmetics and obviously higher margin categories, you're benefiting from the recovery of those sales. I mean, what inning do you think you are at in terms of that recovery? I'm just trying to figure out, like, how many more quarters of tailwind can we expect from a margin recovery perspective as these products continue to recover? Thanks. Again, we don't give specific guidance forward. I know you're trying to do all your models, but. Yeah I think the key message is we had very strong front store sales in our pharmacy business at Jean Coutu and Brunet in the quarter, double-digit. Clearly over- the- counter cough and cold products are flying. COVID symptoms or COVID-like symptoms are out there and people are coming into our store. Those are traffic-building categories, and that's contributing to sales of other front store categories. Very pleased with that. How does that continue? To what level? It's hard to say, but as I said in the outlook, we expect in the short term to have continued strong OTC sales. Cosmetics, you know, we're I think I would think in Québec around Christmas, you know, things were pretty much back to normal on the social front. That's when you can maybe expect things to compare less favorably. Okay. No, that's fair. Maybe just as a last one for François, sorry. Just on your NCIB, is it fair to assume you're likely gonna be on track to completing most of your NCIB this year? Yes. Yes. Okay, perfect. Yep. Thanks, and best of luck. Thank you. Thank you. Next question will be from Mark Petrie at CIBC. Please go ahead. Yeah, thanks. Actually another one for François, just to ask about CapEx. Picked up a bit in Q3, but not overly substantially, and so how should we think about the full year coming in? Also any view on next year, how and levels, and also how the balance may be evolving from infrastructure to customer facing? I still see a forecast that should take us close to the guidance we gave, which is around CAD 700 million for the year. There's always some timing issues sometimes, but pretty much more or less around that number. Next year you can expect a similar level. You know, we have, as Eric said, we're on track with the supply chain investments and the retail network. Expect a similar level next year. Okay. Netting out to similar type of square footage growth? Yeah, it's just gonna be around, you know, it's gonna be around that level. It should be, you know, plus or minus a few basis points, but yeah, it should be around that level. Yeah. Okay. Thanks. Thank you. At this time, we have no further questions, so I would like to turn the call back to Sharon Kadoche. Thank you all for your interest in Metro, and we will speak again soon to discuss our fourth quarter results on November 16th. Thank you. Thank you. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending, and we ask that you please disconnect your lines.