All participants, please stand by. Your meeting is ready to begin. Please be advised that this conference call is being recorded. Welcome to The North West Company Inc. Third Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Dan McConnell, President and Chief Executive Officer. Mr. McConnell, please go ahead. Thank you. Good afternoon, everybody, and welcome to The North West Company third quarter conference call. I'm joined here today by with John King, our Chief Financial Officer, and Amanda Sutton, our Vice President of Legal and Corporate Secretary. I'm gonna start the meeting by asking Amanda to read our disclosure statement. Amanda. Thank you, Dan. Thank you. 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 Annual Information Form and its MD&A under the heading Risk Factors. Dan? Thanks, Amanda. Let me start by outlining the key highlights of our call today. Consolidated sales in the quarter increased 6%, driven by inflation and the impact of foreign exchange. Similar to what we've noted over the previous quarters, we continue to cycle through the COVID-19 related tailwinds from last year. This has resulted in customers shifting their spending towards food and essentials and away from discretionary and general merchandise items. These factors are the primary reasons for the changes in our same-store sales. Inflation also continues to negatively impact our gross profit rate and expenses as we've been taking a balanced approach and not fully passing through all the cost increases in retail prices, which I will unpack for you in just a minute. The inflationary cost pressures this year, combined with the COVID-19 related factors from last year, resulted in lower earnings for the quarter. That said, our overall sales and earnings trends remain positive compared to the third quarter of 2019. Okay, let me provide some color in terms of the sales for the quarter. Starting with the Canadian operations, sales increased 2.7%, with food mitigating some of the impacts of lower general merchandise sales. As I previously noted, customers have reduced discretionary spending. They are not only shifting away from general merchandise to food, but they also are focusing their purchases on value items within the food categories. Sales on the international side increased 4.1%, led by overall performance in Alaska, which was mitigated with mixed results in the Caribbean and Pacific. Particularly, it's worth highlighting that the tailwinds came from two factors. One, our new stores in Alaska, two, the increase in the Permanent Fund Dividend payment, which was around $3,200 per person this year, which was about $1,100 paid late in Q3 of last year. Although this quarter is typically slower in terms of tourism, the year-to-date pickup in travel has had a positive effect in local economies like the British Virgin Islands. On the flip side, in certain territories in the Pacific and the Caribbean, we continue to cycle through the impact of income support payments from the American Rescue Plan last year, while tourism numbers are still below pre-pandemic levels. What was a common thread across all of our markets is that our customers have been trying to adapt the best they can to lower income support and higher inflation. All right, let me expand on this for just a minute. We are concerned about the impacts of inflation for our customers. This is a global issue that affects all regions where we operate. This is particularly sensitive for our northern customers in Canada and Alaska, as they are impacted by two factors. First, merchandise cost inflation. We buy products from suppliers for resale, so we're dependent on the prices they determine for the products. Although we continue to closely monitor all these increases and work with our vendors to minimize them, the fact is that around the world, these costs are all escalating. Second, more importantly, freight costs are also increasing. When we factor in higher fuel and transportation costs, the impact of inflation on the shelf prices is even greater in the North compared to southern retailers. That's why we need to take a balanced approach in passing through these increases, which are coming through at unprecedented rates. This includes providing promotions on essential items through our price drop and price lock campaigns in order to help mitigate some of the impact of our customers and ensure we're delivering on our value proposition. That said, other factors affected the performance of our gross profit rate, including changes in our sales blend and increases in markdowns as well as the shrink. The shift in sales from general merchandise to food has affected categories like seasonal and apparel, where we've incurred markdowns to clear some of the slower-moving merchandise. We also experienced higher inventory shrink in the quarter as some purchase orders in certain categories were not adjusted fast enough to the changes in customer shopping behaviors. As a result, our gross profit rate was down 84 basis points this quarter. I'll just take a minute to talk about inventory here. The increase in our inventory levels is largely due to the higher inflation in our supplier costs that I just referred to and the impact of foreign exchange, which saw an increase in the quarter compared to last year. Overall, the increase in the inventory levels was largely in center store grocery and categories like motorized products and home furnishings that were impacted by the supply chain disruptions. Expenses have also been negatively impacted by inflation and the foreign exchange rates. We're feeling most of the pressure on utility expenses, given high fuel costs. Our operations teams and all around the company have been practicing and bearing down on some of the energy conservation routines and practices. This is just to help mitigate the impacts. At the end of the day, we're still subject to an inflation of fuel costs. Expenses related to our new stores and operations were also a factor. Okay, I'll give a brief talk about North Star Air. We do continue to see a recovery in the passenger business as travel restrictions have been eliminated. The cargo business also saw increases as third-party freight and charter work bumped up the utilization of Baslers and our ATRs. Increases from fuel surcharges, I apologize, on both cargo and passengers were also a factor on the revenue increases consistent with what other air carriers have been doing throughout this inflationary cycle. I think I'll leave it at that in terms of the recap of key factors that impacted our results for the quarter. Now looking ahead, I'll just briefly, we do expect the last COVID-19 related impacts by the end of the fourth quarter this year. Keeping in mind that there were still some travel restriction income support payments present in our markets last year in the fourth quarter. I also want to point out as a reminder that we had a CAD 6.2 million after-tax insurance related gain in the fourth quarter last year as well. In terms of the fourth quarter this year, the outlook continues to be uncertain as we expect inflationary pressures to continue in the short- term. Considering all these factors, our net earnings in the fourth quarter are expected to be lower than last year, but above pre-pandemic levels. Beyond Q4, macroeconomic circumstances are also difficult to forecast. There are some analysts that expect a recession next year, especially after the measures taken by the central bank to reduce inflation. The impact of a recession is difficult to forecast. However, our focus on food and everyday products and services provides us downside protection. As noted in our report to shareholders, the medium and longer-term outlook for the company is positive, and it's based on the expected impact of government transfer payments and higher infrastructure spending in the indigenous communities. In all, we're excited for the future of our business. We continue to open new stores. In Canada, we opened two new stores this quarter, one in Little Grand Rapids, another in Sheshatshiu, Labrador. In Alaska, we also opened two stores, and we now expect to open another one before the end of the fiscal year. Overall, we've been getting great feedback from new communities where we're operating in, and they are all very excited to have The North West Company store. We're also getting great reception from new communities we're currently working with to potentially expand to, which signals that we're doing the right thing and filling a need within the markets. We continue to focus across all banners on providing the best value to our customers within this high inflation environment, striving to deliver on our purpose of making people's lives better in the communities that we serve. Now with that, let me open it up if there's any questions. Thank you. Thank you. We will now take questions from the telephone lines. If you have a question and you are 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 also 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. We thank you for your patience. The first question is from Michael Van Aelst from TD Securities. Please go ahead. Your line is open. Hi. Good afternoon. Thank you. First question is on Canada. Looking at your same-store sales down 1.8, but then your revenues are up 2.7%, you said. How much of that is tied to the new stores, and how much of that is tied to NSA with the increased passenger business and the increased freight business, third-party freight? All right. Hi, Mike. It's, it's John. Yeah, both of those were factors. We're not gonna break out the individual components there, but they were both factors. Okay. Can you say which one was more important? Uh. Okay. At this point. It would have been North Star Air. Yeah, I think that the airline would have been the key, the bigger factor out of the two. Okay. last one- I pulled them over, Mike. Last quarter, you talked about, you know, increasing competition, not allowing you to pass through some of the costs a little, in fully at least at this point. Can you talk about how that competition has changed, if at all from Q2 into Q3 and what you're seeing now? Yes. As we're still taking a balanced approach, Mike, as I indicated, that said, the competitors are definitely increasing their pricing, just with the environment as we're all kind of living and experiencing. As I indicated, the significance of it in the North, if they, if they weren't passing it on, I'm afraid they'd be out of business. Definitely there's more movement, and that's allowing obviously us to follow suit. Would you say that, you know, they're passing on a higher percentage of it now, or is it like It seems like your costs have increased, your cost inflation seems to have increased from Q2 - Q3, particularly on the OpEx side. Are you seeing more Yeah. Are you seeing like a similar amount of costs being absorbed, let's call it, from Q2 - Q3? Did that decrease or increase? I would say it's decreases. There's been probably more pass-through, you know, what you are seeing, obviously utilities were a major factor. That's probably what you're seeing in some of that bump. Okay. All right. The utility increases and the other OpEx increases that we saw that propped up the OpEx expense this quarter, is there anything in there that is short-term in nature, or do you see all of this basically as the new, the new norm and you've got to cycle through that? I'd say it's probably the new norm that we'd have to cycle through. Mm-hmm. I don't know if you're not in Winnipeg, but it's minus 26 today. Heat is required. All right, I'll leave it there. Thank you. Thanks, Michael. Thank you. Once again, please press star one on the devices keypad if you have a question. The next question is from Mark Petrie from CIBC. Please go ahead. Your line is open. Yeah, thanks. Good afternoon. just following up on that whole topic of, you know, cost versus being able to pass on price. Just to be clear, this is still an issue, but it's not as significant as an issue as it was in Q2 or earlier in the year. Is that the right way to characterize it? Yes. Okay. I guess sort of, with regards to the sort of shifts in consumer behavior that you're seeing, and it sounds like that's accelerated based on your comments. I guess just confirm that that's true and then curious if that's different in sort of the different markets, that you operate in. I guess, you know, that being sort of, you know, north and south and kind of, you know, remote versus just, you know, rural. I'd say it'd be pretty consistent amongst all our markets. Everybody is looking for, less, less expensive solutions in order to, you know, to feed their families or to sustain their well-being. Yeah, I would say it's pretty, it's widespread. It's across all the stores. Okay. We're continuing to look at, you know, obviously solutions there, and the solutions would be lower cost product, whether it be some other branded items that we can pass on to sustain margin, but then create a more effective solution for our customers. That's work that's ongoing. Yeah. That was sort of my next question, I guess, is just the status of private label within your assortment, the percentage penetration now. I'm sort of obviously specifically to food, the percentage penetration now, versus pre-pandemic and you know, if there's sort of accelerated efforts to continue to grow that. Yes. That is. Well, as far as it is an opportunity that we're exploring, because we do think it's a, you know, it's again, a considerable value prop to our customers. As far as our ratios of penetration now versus prior, intuitively, I would say we got higher penetration now, but as far as the quantum, I couldn't give you that. Okay. The margin within the general merchandise business, do you think that there's, you know, an expectation of a fluctuation within that based on the consumer behavior that you're seeing? Sorry, could you repeat? Yeah, I guess what I'm getting at is if people are shifting spending from discretionary to staples, does that affect your profitability of your general merchandise business, or do you sort of it affects sales and not so much margin? It would affect the margin as well. Yeah. Okay. Okay. Yeah. Sorry. No, go ahead. I was just gonna say, as I indicated, like we have had to take some write downs on some of the inventory, but there's others of which, you know, that, it's planned, as we talked about before, particularly in big ticket. It's opportune time now. We have, we're ready and we're inventory and ready for selling season. Yeah. Understood. Okay. Appreciate the comments. Thanks. All right, Mark. Thanks. Thank you. The next question is from Stephen MacLeod from BMO Capital Markets. Please go ahead. Your line is open. Thank you. Good afternoon, guys. Hello. I just wanted to just with respect to your commentary around acquisitions and new stores and things like that, just curious through the economic weakness that we've been seeing, and you cited as well in response to one of the questions about if people aren't putting through price, they're going out of business. Just curious if any potential acquisition opportunities have come up or accelerated over the last couple of quarters in any of your markets? No macro. Look, no major acquisitions, Stephen. There's definitely a lot of tuck-ins. Let me qualify that. There's definitely been some tuck-ins that I indicated to you earlier that we've taken advantage of, and we see there to be a few more that we'll be looking at over the next number of quarters. Our eyes are open, and we're definitely we've looked at a lot of things, but we'll make sure that it's a, you know, a strong... It aligns with our, kind of, core competencies and our capabilities to ensure that we can add value and, or derive value from whatever acquisition we venture into. I would say that there's no major acquisitions in the immediate future. Yeah. Okay. No, that's right. Just with respect to the PFD in Alaska, do you think you realized the entire benefit from that in the quarter, or is there some that may trickle into the next quarter? We did derive a strong benefit in this quarter. Typically it does trickle on into the next quarter. I would expect that we're gonna still see some benefit from that in the fourth quarter ramping up for some of the holiday season selling events. Okay, that's great. Thank you. Maybe just finally with respect to general merchandise and your assortment, given the consumer spending shifts that you're seeing, you know, I would assume that holiday is a big general merchandise period for you. Just curious on any changes you've made to your assortment planning for Q4. Okay. That's Q4. Yeah. Well, no, Repeat the end of the question. Sorry, Stephen, if you could. Yeah. No, no problem. I was just wondering if you, if you had any changes to your general merchandise assortment planning for the holiday period, given the shifts we're seeing in the consumer spending away from GM towards food. No, I wouldn't say that I've seen any shifts, currently. It's, you know, purchases we did scale down, as you recall. Yeah. We're, you know, we're expecting the same trajectory on our general merchandise sales throughout Q4. It's probably the best way to phrase it. Yeah. Okay. No, that's helpful. Okay, that's, great. Thanks, guys. Appreciate it. All right. Thank you. Thank you. The next question from Michael Van Aelst from TD Securities. Please go ahead. Your line is open. Thank you. Just a follow-up. In the international business, can you tell us what the gross margin change was there? No, I probably wouldn't disclose that, Michael. I'll leave that to for you to kinda take a look and hypothesize. You're usually pretty accurate. The 84 basis points that you told us before, was that Canada or was that overall? That was overall. Yeah, that was overall. Okay. If you look at the change, you know, the drop in the EBITDA margin in Canada versus what we're seeing in the international markets, can you kinda compare and contrast, you know, the main factors behind the margin contraction in each? Well, I've identified kind of globally like what the contraction items are for each, and I would say that the benefits, as I indicated in the international, were related to the PFD, to the Alaska stronger performance. I think it's probably. That's the answer really. I mean, I outlined why we were stronger in our performances in Alaska and why, what the overall drags were on the operations, and I'd say you could attribute all those draws to, not only to some of the international markets that we had suffered in that regard, but also into Canada. The fuel, so fuel surcharges we talked about, obviously that would be a considerable draw. The inflation, some of the higher inflation, some of the expenses. You can appreciate that fuel has this considerable impact, not only from the heating, but from the distribution and freight. I think, does that get you? is fuel, more of an impact in the, in the north or in international? North West. Okay. Great. Thank you very much. The planes are less efficient than the ships. Makes sense. Thank you. Thank you. There are no further questions registered at this time. We'll return the call back to Mr. McConnell. Okay. Well, thank you. I appreciate the questions, and I hope everybody has a great holiday season, and we'll be busy focusing on driving sales. Have a great rest of the day. Thank you. Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.