Please be advised that this conference call is being recorded. Welcome to The North West Company Amanda E. Sutton Fourth Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Daniel G. McConnell, President and Chief Executive Officer. Mr. McConnell, please go ahead. Okay. Thank you very much, and good afternoon, and welcome everybody to The North West Company fourth quarter conference call. John King, our financial officer, joins me here today, so I'm going to start the meeting by asking you, John, to read our disclosure statement. Thank you, Dan. Before we begin today, I remind you that certain information presented 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 performance and actual financial results in the future to vary materially from those contemplated in the forward-looking statements. Any forward-looking statements are current only as of the date they are made, and 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. For additional information on these risks, please see North West's annual information form, and it's in MD&A under the heading Risk Factors. All right. Thanks, John. Okay. Let's dive right into it. For the quarter, consolidated sales were up 1.3%, and net earnings increased by 2.5%. As mentioned in our Q3 investor call, softer growth was expected as we were coming off very strong results from the previous quarter and also last year. Canadian operations continue to drive results in the fourth quarter with same-store sales gains and another solid quarter by North Star Air. These results offset softer performance in our international divisions, which through 2023 faced less favorable macroeconomic conditions compared to last year, particularly related to lower SNAP support and a lower permanent fund dividend benefit in Alaska. These factors, combined with lingering inflationary cost pressures, affected demand, with customers prioritizing their spending on food, leaving less income for discretionary general merchandise spending. In spite of these mixed top-line results, we are happy with the overall torque we are getting when translating sales into gross profit, which increased 6.7% in the fourth quarter and 171 basis points as a rate to sales. The increase in gross profit rate results from several factors. First, a greater pass-through of cost inflation in retail prices compared to last year. It's important to note that our retail pricing philosophy has remained consistent, and we continue to monitor and adjust prices using a balanced approach. With our customers top of mind and striving to maintain margins and sales volumes, competition in our markets has started to react, and we are actively optimizing our key value items to ensure we have the most compelling offering in terms of value and availability on everyday products and services. Second, an improvement in execution with a decrease in both markdowns and shrink. And third, a shift in sales blend, including higher airline revenue and lower warehouse club, Cost-U-Less sales as a result of a store closure earlier in the year. On the other hand, selling, operating, and administrative expenses increased 6.3% with inflationary headwinds in areas such as labor costs and the impact of new stores. As a whole, the company delivered strong results. Earnings from operations increased by 8.1% for the quarter and 8.6% for the year, and net earnings increased 2.5% for the quarter and 6.7% for the year. All right. So let me unpack these, starting with the Canadian operations. Sales in Canada were up 4% in total and 3.7% on the same-store basis. These results are mainly attributed to three factors. First, our improving in-stock position on our key items in our assortment, which has enabled us to capture additional sales. We have been relentless in our focus on operational efficiency with an active focus on maximizing output across our supply chain. This includes transport mix optimization, which leverages lower sealift transportation costs and ensures our stores always carry stock of essential products to meet our customers' needs. Second, income support payments were also a factor in the quarter as our customers benefited from payments to individuals through Indigenous Services Canada to help mitigate higher costs of living in the north. As a note, these payments flowed at a slower rate, especially when compared to Q3 of 2023. And third, food inflation continued to be a factor, but to a lesser degree than previous quarters. In addition to the results in our retail business, North Star Air has benefited from greater third-party cargo and passenger charter demand, which contributed to another solid quarter of top and bottom-line results. These factors, combined with an increase in gross profit rate, contributed to the strong results in Canadian operations in the quarter. On the flip side, headwinds in our international operations dampened results for the quarter and year. However, our teams did a good job at mitigating the impacts of these headwinds through well-managed expenses. International sales in the fourth quarter decreased 2.6% and were down 2% on a same-store basis. As I mentioned earlier, lower overall SNAP in U.S. territories and lower PFD in Alaska resulted in a shrinking wallet for our customers who found themselves having to make some tough decisions on how to spend their cash. This is evident in our sales results, with same-store food sales declining by 0.9% and general merchandise down 11.2%. We expected stronger performance on SNAP sales as we lapped COVID, we expected, sorry, stronger performance on SNAP sales as we lapped COVID-19 pop-ups this quarter. Although SNAP sales performance did improve somewhat, the momentum was mixed across the different U.S. territories where we operate. As noted last quarter, there was also a 60% reduction in the Alaska Permanent Fund Dividend payment this year from around $3,300-$1,300 per resident. There were some lingering impacts in Q4 from that reduced payment, and our customers pulled back the discretionary spending, which was reflected in our general merchandise sales performance. Gross profit increased 0.7% compared to last year, and expenses were well-managed, increasing only 0.6%, which ultimately resulted in a modest increase in earnings from operations in the quarter. This is a good moment to transition and expand on our consolidated gross profit results. As previously noted, gross profit rate increased by 171 basis points in the quarter. Across both Canadian and international operations, inflationary cost pressures on both retail supplier and freight carrier costs have started to moderate when compared to the rapid inflationary increase in 2021 and 2022. This change in trend, combined with competitive pricing actions, has enabled a greater pass-through of inflationary costs compared to last year while keeping a balanced approach in line with our values of being customer-driven. Changes in sales mix driven by higher third-party cargo and passenger sales at North Star Air, coupled with improved aircraft utilization rates, also contributed to an increase in gross profit rate during the quarter. To optimize and control our margins, it is instrumental that we have sound inventory management, so let me speak briefly about that. Product availability is a top priority for our organization. We have intentionally increased seal ift inventory in Canadian operations to leverage lower freight costs as we refine our transport mix and find better ways to make our logistics costs more productive while improving our in-stock levels on most relevant assortments for our customers. We have also increased inventory on key items in anticipation of increased consumer demand from water settlement payments. During Q4, a small portion of these settlement payments were received by customers, although the volume was low. As we anticipate water settlement monies to continue to trickle in over 2024, we have stocked up on relevant general merchandise inventory, mainly concentrated in motorsports inventory such as snow machines, ATVs, boats, and motors. Given the durability of these items, the relevance they have in the communities we serve, we expect good sell-through of this inventory throughout 2024. All right. Now let's talk about expenses for a minute. Throughout 2023, cost control has been a top priority in order to help mitigate inflationary pressures on expenses. Our teams continue to focus on controllables as much as possible without compromising customer and employee experience. During the quarter, in spite of inflationary headwinds and labor costs, expenses increased by 6.3%, which is lower compared to the 6.7% growth rate in gross profit dollars. Interest and income taxes were also headwinds in the quarter as we lapped lower interest and tax expense from last year. The net impact of these factors was a 2.5% increase in net earnings for the quarter and a 6.7% increase for the year. Okay. I'll wrap up my remarks right now by providing a brief commentary on our strategic initiatives and our outlooks. Our goal is to drive productivity and efficiency gains for cost savings, optimize margins, and reinvest for faster and more sustainable growth, all while delivering meaningful ESG outcomes. Our teams continue to uncover untapped opportunities across different areas of the business, including merchandising, pricing, store labor planning, and throughout our supply chain network, all through a customer-driven lens. As we wrap up the fiscal year, there are tailwinds and headwinds that underpin our 2024 outlook. We expect that merchandise and freight inflation will continue to moderate and that our operational excellence efforts will mitigate some of the impacts of escalating selling, operating, administrative costs. Having said that, we already experienced moderation of cost increases in the back half of 2023, which somewhat limits opportunities to improve the gross profit and expenses rate trends observed this past year. Our strong in-stock position will help us meet the expected increase in consumer demand arising from the First Nations Drinking Water Settlement payments in Canada. However, it is very important to note that there have been a minimal number of settlement payments received by claimants, and there is uncertainty regarding the timing and amount of these payments as the period for filing claims was extended to March 2024. Additionally, inflation relief payments received by customers in 2023 in Canada are not expected to replicate given the moderating inflationary trends mentioned previously. On the other hand, our international operations in 2024, we expect to lap the decline of the pandemic air stimulus in U.S. territories observed in 2023 and have normalized SNAP and PFD payments, which effectively will reset our comparison baseline. To finalize, I'm excited about the opportunities and journey ahead in 2024 and beyond as we work to take our business to the next level and live up to our true value creation potential. Thank you very much, and I will now open it up for any questions. Thank you. We will now take questions over the telephone line. If you have a question, please press star one on your device keypad. If at any time you wish to cancel a question, please press star two. The first question is from Michael Van Aelst from TD Securities. Please go ahead. Hey, guys. It's Evan in for Mike. I just had a few questions. In Canada, you'd called out changes in sales blend as one of the factors driving a higher gross profit rate. Can you explain what that favorable blend was? Was it just lower wholesale sales, or was there something else? Yeah. Lower wholesale sales is overall one of the major impacts of. There's also North Star Air and general merchandise sales. Okay. So I guess staying on the topic of North Star Air, is there still room for it to contribute more, or are you getting close to maxing out your third-party cargo and passenger capacity? It's run pretty efficiently. We don't expect considerable growth out of that banner over the next couple of quarters, no. We think it's yeah. Okay. Great. And so in terms of the drinking water settlement, I know it's difficult for you guys to know, as you mentioned in the outlook statement and on the call. But I think you mentioned on the call that you expect payments to continue to trickle in throughout 2024. But can you give us any sense when the expectation is for those to ramp up or to accelerate? Is it in the second half of this year, or is it in 2025, or? I'd say late 2024 wouldn't surprise me and into 2025, but it's something that we don't have a scientific answer for you, unfortunately, or an exact kind of projection as to when that might be. But I would say later 2024 and even trickling into 2025 is kind of where our heads are at right now. Okay. Thanks. And is there any update that you can give us on the expected timing of the payments from the child settlement? Not at all. We don't have any insights that we could share on that at this point. In fact, it's anybody's guess at this point. We expect probably to hear more as time goes on, but right now, we don't have any more information that we've offered. Okay. And then maybe one for John. As for the potential minimum tax legislation, can you maybe give us a range or a ballpark estimate of the percentage of sales or earnings from operations that account for international from those three areas, so the Cayman, Barbados, and BVI combined? Evan, I think I'm going to hold off on giving you an estimate on that for now. We did put some disclosure in our outlook and in our financial statements, but it's more directional on saying, "Listen, the Global Minimum Tax Pillar Two is out there. There will be an impact. We don't expect it's hard to tell right now when that's going to come into play. As the rules and things get firmed up, then we'll provide some more guidance on the impact." But I guess I would summarize that by saying as well, we've identified the three markets. So they're an important part of our business as all stores are, but in the whole context of North West, it's not. You have to take that in with the materiality of the size of the company, so. Okay. Great. Okay. Thanks very much. Thank you. The next question is from Mr. Stephen MacLeod of BMO Capital Markets. Please go ahead. Thank you. Good afternoon, guys. Good afternoon. Just a couple of follow-up questions here. Just maybe starting with the gross margin. I mean, we saw gross margin kind of come back nicely as expected in the quarter. And it sounds like from your outlook commentary, a lot of those prices have been a lot of that inflation has been passed through. So I was just wondering if you could give a little bit of color around sort of where you think or where you see gross margin kind of settling in as we work through the year. Yeah. So I wouldn't say that we've passed it all on, but definitely, we've passed on more than we had in the past. I would say that I wouldn't expect it to be at the Q4 levels, but more on the annualized more in line with what we have if you were to annualize our margin for the year. Okay. Okay. That's helpful. And then just understanding the uncertainty around the water settlement payments, and you mentioned that volumes are low. We're just curious if you can give a little bit of color of what you're seeing in markets where you have seen the settlement payments coming through. If there's any sort of color you can provide around what impact it's had in some of those markets. I'm not sure if this is going to be much help, but I could tell you that we're pleased with the capture that we've been able to obtain in the markets that has received funding as far as we understand the funding at this point. And hopefully, that helps you. Right. Yeah. I mean, directionally, yeah. No, that's helpful. Not much different than what we would expect, but yeah. No, that's certainly helpful. And then I know with last quarter, with the Q3 results, you kind of gave some directional guidance for Q4. I know that was sort of one-time in nature, and you didn't provide any Q1 commentary. But just wondering if it's something you're able to give a little bit of color around on that one-quarter look-ahead type basis. No. No, I don't. But I did that last quarter only because I was just trying to caution the market that we had such a strong third quarter. And typically, our fourth quarter is stronger than the third quarter, but I just wanted to caution the market that that might not be the case given the strength of the third quarter. So if it was an anomaly, that's why I tried to give a bit of a heads up. But it's not something that we're looking to do on a forward-going basis. Yeah. No. Okay. That makes sense. That's kind of how I figured it. Okay. That's great. Thanks, Dan. Thanks, John. Appreciate it. All right. Thank you. Have a great day. Thank you. So there are no further questions registered at this time. I would now like to turn the meeting back over to Mr. Daniel McConnell. Please go ahead. Okay. Well, thank you, operator. And yeah, thank you for all those that have joined us this afternoon. And we will look forward to speaking with you again for our Q1 call. Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.