All participants, thank you for standing by. The conference is ready to begin. Please be advised that this conference call is being recorded. Welcome to the The North West Company Inc s econd quarter results conference call. I would now like to turn the meeting over to Mr. Daniel McConnell, President and Chief Executive Officer. Mr. McConnell, please go ahead. Thank you very much, and good morning and welcome to the The North West Company second quarter conference call, where I'd like to start off by introducing John King, our Chief Financial Officer, and Amanda Sutton, our VP of Legal and Corporate Secretary. Actually, we're residing today over in Sitka, Alaska, where we just concluded our board meeting. It's been a delight. I'm gonna start off by asking Amanda to read our disclosure statement. Thank you, Dan. Before we begin, I remind you that certain information presented today may constitute forward-looking statements. Such statements reflect North West's current expectations, estimates, projections, and assumptions. These forward-looking statements are not guarantees of future performance and are subject to certain risks, which could cause actual performance and financial results in the future to vary materially from those contemplated in the forward-looking statements. For additional information on these risks, please see North West's annual information form and its MD&A under the heading Risk Factors. Dan? Second quarter results. We continue to hold our ground in overall top-line sales. These are rapidly changing economic times for our customers and our business. The conditions of the current quarter are different from the same quarter in 2021 and 2020. Increased discretionary spending over the past two years was fueled largely by COVID-19 related income support gains, which have been substantially eliminated, as well as by travel restrictions that are no longer in place. This translated into softer same-store sales as we continue to cycle through the past two years of exceptional pandemic-related growth. Trends at our bottom line continues to be impacted by inflationary cost pressures, particularly with freight and general merchandise cost increases, but we have also seen some of our expense lines, such as utility costs, trend higher. That said, our results continue to be strong, especially when compared to the pre-pandemic levels in both sales and earnings gains compared to 2019. I'll start by providing some color around our consolidated results before diving into our results by division, including the airline. Okay, in terms of sales, second quarter consolidated sales increased 2.4% to CAD 579 million, with the international operations mitigating softer sales in Canada. On a same-store basis, sales were down 4.1% as we continue to cycle through COVID-19 related factors that resulted in significant sales gains over the past two years. However, it's worth noting that compared to 2019 pre-pandemic levels, same-store sales are up 16.3%, with food up 16.2% and general merchandise up 17.1% for the quarter. In general, the trends from the previous quarter continued into the second quarter as our customers are trying to adapt the best they can to a new reality of lower income support and higher inflation. Our gross profit rate was down 177 basis points in the quarter, mainly due to the impact of a higher fuel-related freight and merchandise cost inflation that was not only passed through on retail prices, and when combined with a change in our sales blend. Like many other retailers, we have also had some higher markdowns on seasonal and general merchandise mix. As highlighted in previous quarters, our focus has remained on maintaining a balance between passing through these cost increases, keeping earnings in line with sales, and closely monitoring competitive pricing levels. The speed at which some of these cost increases are coming through, particularly, some, like the fuel prices and surcharges on freight, are challenging to manage, especially as we maintain a balanced approach, as I just described. Our teams are diligently monitoring costs, maintaining disciplines around purchasing and pricing, and engaging in conversations with our vendors and freight carriers to help mitigate pressures on our margins. Now, in terms of inventory levels, we have highlighted over the past couple of quarters the importance of maintaining our in-stock position on key items that our customers need. This is particularly important for select and winter road stores in Canada in order to maximize efficiencies on our supply chain costs, as well as getting ahead of some product shortages that still persist. As we noted in our report, a large portion of the increase in inventory is due to Center Store Grocery and hard categories such as transportation, home furnishings, and appliances. We do have some pockets of inventory in apparel and other seasonal categories that we're watching closely as we approach this holiday season. Below the gross profit line, our operating expenses increased by 0.1%, and of course, this is largely due to inflationary cost pressures and the impact of the new stores in Alaska. The combination of all these factors resulted in a decrease in net earnings in the quarter of CAD 32.4 million, compared to CAD 42.4 million last year. However, after adjusting for share-based compensation and interest gained last year, adjusted net earnings were up CAD 13.2 million or 63.9% compared to pre-pandemic earnings in the second quarter of 2019. That's an overview of the consolidated results for the quarter. Let me just take a moment now to provide some additional color around our Canadian and international operations. Canadian operations came in at CAD 323 million and were flat to last year as airline and fuel revenues mitigated softer performance in retail sales. Within the current high inflation environment, spending shifted away from discretionary general merchandise and over to food. Again, I think it is important that I point out that all of our sales are down compared to. Despite that all of our sales are down compared to the strong COVID-related sales over the last couple of years. Our same store sales are up 17% compared to pre-pandemic sales in the second quarter of 2019. In terms of the airline performance, North Star Air's revenue increased on the back of higher passenger volumes as travel restrictions get lifted, coupled with increases from fuel surcharge on rates on both cargo and the passengers. To provide some perspective on this, Jet A fuel cost increase was around 60% when compared to Q2 last year. This increase drove top line sales as we have been taking steps to pass through these cost increases the same way other air carriers in the industry have been doing this through this inflationary cycle. Having said that, this fuel-related increase in sales is a pass-through cost, so had a deflationary impact on our gross profit rate. The increase in Jet A fuel cost is also an example of the impact that higher freight costs have had on our retail gross profit rates. On the international side, sales increased 1% to CAD 199 million, led by the impact of the new Alaska stores and improved tourism compared to last year in territories like the BVI, which mitigated softer sales performance as we cycle through the impact of income support payments from the American Rescue Plan last year. While the impact of an increase in tourism was a positive factor in the BVI and specifically in Alaska, we did see the impact of lower travel in other Caribbean markets. I will also point out that we do not have sales with USDA Farmers to Families Food Box program that we had last year in Alaska. In addition to these top-line factors, the earnings in Canadian and international operations were impacted by the gross profit and expense factors I previously mentioned. All right, so wrap up. Let me just say that looking forward to the second half of the year, we are still up against some COVID-19 related impact last year, which we expect to cycle through by the end of this year. Having said that, we do expect earnings in the second half of this year to be lower than last year, but meaningful above pre-pandemic levels. In international operations, the PFD payment will be $3,200 compared to $1,100 last year, which will help offset the impact of the increase in SNAP benefits that occurred in the third quarter last year. In the short term, we will double down our focus around supply chain management, including controls on cost, inventory, and pricing across the entire organization. Our customers and communities are continuing to adapt to lower income support and high inflation, and we are focused on ensuring our essential products and services offerings meet the customer's needs. With that, let me open it up for any questions that you might have. Thank you. Thank you. We'll now take questions from online. If you have a question and you're using a speakerphone, please mute your handset before making your selection. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time if you have a question. There will be a brief pause while the participants register for questions. Thank you for your patience. First question is from Michael Van Aelst from TD Securities. Please go ahead. Great. Thanks very much. I'm wondering if you could help us understand where out-of-community spending is, roughly in Q2 relative to pre-pandemic levels and, you know, if you see that changing much more going forward. You know, do you see it getting back to 2019 levels or still somewhere in between? Okay, Michael, you know what? Could you just repeat the beginning of your question, please? Yeah. I'm trying to understand where the out-of-community spending is relative to pre-pandemic levels. Okay, well okay so pre-pandemic levels as you can see, our sales are still considerably higher than they were at pre-pandemic levels. I expect that for the remainder of this year, I think we're gonna be meaningfully above 2019, but obviously less than the last two years. People, I think, because of now the increases in fuel will prevent people from probably leaving the market as they might have done in 2019. I think it will be meaningfully above 2019, but obviously considerably down from the last two years. Kind of cycling through this for the remainder of this year, I expect that income levels will be considerably higher in call it Q1, Q2 of 2023 because of some of the things that we've talked about in the previous calls with some of the income that will be filtered into the market through some of the settlement payments. Okay. Can you remind us the magnitude of those settlement payments, and how much of an impact it can have on the income? Well, I would say there's a couple out there. I think you probably wanna. I mean, 'cause one of them, they're in the billions. Depending on which one. There was a water settlement you might wanna take a look at. Then also the home care. I'm sorry, I can't remember what it was. How's the term, John? Child care payment that's gonna be issued again in, I think about Q2 of 2023 is what we're predicting currently. Then also to do it on a consolidated basis, as I indicated, there is gonna be some, you know, incremental income, particularly in Alaska through that PFD, which is more than almost triple from what it's been in the historical levels. Okay. You said that would be offset by lower SNAP benefits? You got it. What's the magnitude of the offset? Michael, SNAP benefits were increased last year, and I don't have the quantum in terms of the direct offset from the PFD, but when you look at the payments in total, we would expect the PFD this year to, you know, comp the benefits that were paid out last year. There were a number of them, whether it was SNAP, there was some school payments to school children in the U.S. Certainly in Canada, there was other. We saw the tail end, I would say, of the COVID income support payments in Canada continued certainly into Q3. By Q4, they were largely, you know, being phased out. Just to clarify, the comp that we're talking about was in the international operations, obviously of the PFD to the SNAP. You know, in addition to that, we also had the COVID payments from last year that were up against in Q3. You talked, you mentioned that you still expect the second half of 2022 to be below the second half of 2021. The first half, if we look at the EBITDA excluding stock-based comp, you're down kind of low double digits. Are you expecting that pace of decline to moderate meaningfully? I would say it's a no. I think it's gonna be around the same. I would expect it's gonna be around the same or somewhat better. Sorry, somewhat better? Yeah. Maybe I'll jump in, Michael. In terms of the quarters, if you look at that gap to last year will continue certainly through Q3. We had a very strong Q3 last year. We talked about the payments that came through, particularly in Canada, the last we'll call it tranche and cycle of payments for COVID. We saw some travel restrictions last year. It won't be until Q4 that we really start to, in the latter part of Q4, quite frankly, that we really start to see the cycle through. Even in Q4, as I think about last year, we had you know some more travel restrictions that came on, I think later in the quarter with variants and so on. It really will be to the end of the year that we, you know, takes the cycle through this. Got it. Okay. Then finally, when you talk about gross margin and not passing on, fully passing on the higher cost, you talked about, you know, trying to balance the pass-through with the competitive activity and whatnot. Can you just give us a little bit more color as to what's actually going on there? Is it more competitive pressures that are holding you back, or are you trying to actually invest to improve your relative price positioning or what? There's a little bit of both, but I would say that it's more so it's cost inflation has been happening at such a rapid pace. It's to be frank, it's just really trying to capture all those costs that you can pass on. Obviously, you can't some of the times that when you're going into the scenario, you just have to if it will lead to the discontinuance of different products that you might be offering, or now it's just up to us to adjust to the new times. We're looking at other ways to maintain and our margins, and that's through making substitutions with other lower cost products. You know, but obviously keeping our gross profit dollars and rate and such that we think we're gonna, you know, improve the situation from where we are today. It's both, but I wouldn't say, like, at the end of the day, our competitors are gonna be faced with the same increases. If it takes them a little longer to catch up, it's a pretty eye-opening experience when they get their next invoice of inventory. I don't think that is gonna be a longstanding systemic issue at all. If anything, I think it's gonna allow us to take further ground on our competitors. It is a factor currently, but it's not the biggest factor by any stretch. Why would it be? Sorry. Why would it take a longer time for your competitors to see the cost increases? It's not as much seeing them, but it's maybe reacting to them. Like I said, it's not the biggest factor. It's maybe 25%, 20% of it, but it's a learning that comes quickly. It's just because, I mean, we have others in instances where you've had product increases of, you know, sometimes 60% over, you know, a very short duration of time. It's definitely caused some delays in just being able to react to some of those cost pressures and be able to reflect that in your retail pricing. Again, it's not the leading cause of our margin erosion. Okay. Thank you. Thank you. As a reminder, you may press star one if you have a question. The next question is from Stephen MacLeod from BMO Capital Markets. Please go ahead. Thank you. Good afternoon, guys, or good morning. Good morning. I just wanted to follow up, just to clarify one thing. When you talked about back half earnings being down year-over-year, was that consolidated or are you talking about just the international business? I think I understood it was consolidated, but just wanna clarify that. That's right. No, you're right. It's consolidated. Yeah. Okay. Okay, great. Thank you. And then just when we think about gross margin, lots of good color around some of the price, or sorry, cost increases that are coming through. Sounds like you'll see some pressures on the back half of this year. Do you see any sort of light at the end of the tunnel as you get into fiscal, the next fiscal year, sort of Q1, Q2, when you begin to cycle some of the declines from this year? Absolutely. We're quite optimistic actually for some of the reasons that I've mentioned, you know, previously. We do think that it'll be a delightful experience as opposed to having some of the decreases that we've experienced now. Even though, you know, it was expected. I mean, we had, you know, nearly doubled our business obviously during COVID-19 on an earnings perspective. It was expected, but it's still never easy to take. We're definitely gearing up and we feel we're in a really good place, a lot better than we were coming out of 2019, or going into 2019, I should say. Yes, I would say the horizon is optimistic. Mm-hmm. Okay. Is it fair to say that when you're talking about the earnings weakness in the back half of the year, is it a combination of just those sales headwinds as you comp against some of those income programs as well as gross margin headwinds in the back half of the year? You got it. Yep. Yeah. Okay. Okay, great. Thank you. Just one final one. Thinking about the inventory composition, you gave some color in your prepared remarks. How much of that inventory is sort of seasonal product that you might have to face, you might have to put further markdowns on? We feel like we've actually managed it fairly well. We're coming into a big selling season. We've modified our purchases to adjust to our big selling seasons, our Black Friday events, and some of the bigger selling events we have in Q3. I think that we're sitting well. We anticipated this. Knowing our business, we knew the amount of money that was in the market obviously last year. It's never an exact, I wouldn't say we hit it right on the head, but we definitely were more cautious doing our general merchandise buys for 2022. I don't feel that we're in a tough position going on into the third and fourth quarter this year on our general merchandise. Right. Okay, great. Thanks, Dan. Just one for John. Just curious if you could give a little bit of color or if you have any insight or views into the tax rate for the dollars? Nothing more to add, Stephen, than what we put in our report. I mean, it does fluctuate around based upon the earnings across the different jurisdictions that we're in. Yeah. You know, really that's it. You always have some, you know, non-taxable items and things like that. That, you know, that's all I would comment on that. Yeah. Okay, that's great. Thanks guys, appreciate it. Thanks, Stephen. Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Mr. McConnell. Thank you very much and appreciate the questions and we'll look forward to speaking with you next quarter. Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.