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Earnings call: Metro Inc. reports mixed Q2 results, plans for Moi Rewards launch

EditorNatashya Angelica
Published 04/24/2024, 04:33 PM
© Reuters.

Metro Inc. (MRU) has announced its financial results for the second quarter of 2024, revealing a slight increase in total sales but a decrease in adjusted net earnings and earnings per share. The Canadian retailer reported sales of $4.655 billion, marking a 2.2% increase from the previous year.

Adjusted net earnings, however, fell by 8.4% to $206.4 million, and earnings per share dropped by 5.2% to $0.91. The company also highlighted the upcoming launch of its Moi Rewards loyalty program in Ontario and its continued investment in supply chain and digital capabilities.

Key Takeaways

  • Total sales for the quarter stood at $4.655 billion, a 2.2% increase year-over-year.
  • Food same-store sales saw a slight increase, while pharmacy same-store sales grew by 5.9%.
  • Gross margin decreased slightly, primarily due to lower food margins.
  • Operating expenses rose by 6.1%, with EBITDA decreasing by 1.8%.
  • Adjusted net earnings and EPS both saw a decline compared to the previous year.
  • Capital expenditures outlook revised to $650 million for the year.
  • The launch of Moi Rewards in Ontario is expected to enhance customer engagement.

Company Outlook

  • Metro Inc. is confident in its investments aimed at creating long-term shareholder value.
  • The company plans to continue investments in store networks and distribution centers.
  • Inflation is expected to decelerate, with the company planning for 2-3% inflation for the year.
  • The Terrebonne DC transition is largely completed, with productivity improvements expected.

Bearish Highlights

  • Gross margin was slightly down due to a lower food margin.
  • Operating expenses increased by 6.1% from the previous year.
  • Adjusted net earnings and EPS both decreased compared to last year's figures.
  • The company noted consumer behavior of trading down and increased private label participation.

Bullish Highlights

  • Strong front store sales performance attributed to a strong coffee cold season and effective merchandising.
  • The Moi loyalty program is gaining traction and is expected to contribute to increased customer engagement.
  • The company expects e-commerce growth to stabilize and improve profitability as efficiencies are gained.


  • The company's food gross margin faced pressure due to competitive market conditions and a higher discount mix.
  • Some duplicated overhead costs are affecting both operating expenses and gross margin.

Q&A Highlights

  • The company has a hybrid online service model including in-store pickup and delivery, and partnerships with drugstores and third parties.
  • The Canadian food market is viewed as highly competitive, with strong global, regional, and national competitors, as well as discount stores.
  • Metro Inc. is prepared for potential competition from foreign entrants, emphasizing the market's challenging nature.
  • Details on the marketing expenses for the Moi program launch in Ontario will be communicated closer to the event.

Metro Inc. is navigating a competitive landscape with strategic investments and the introduction of its Moi Rewards program, aiming to bolster customer loyalty and enhance value perception. The company's focus on efficiency and strategic spending, despite the pressures of a highly competitive market and shifting consumer behaviors, reflects its commitment to maintaining a strong market presence and delivering long-term shareholder value.

Full transcript - Metro Inc (MTRAF) Q2 2024:

Operator: Good morning, ladies and gentlemen, and welcome to the Metro Inc. 2024 Second Quarter Results Conference Call. Note that all participant lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] Also note that the call is being recorded on Wednesday, April 24, 2024. At this time, I would like to turn the call over to Estelle Riva. Please go ahead.

Estelle Riva: Thank you, Sylvie. Good morning, everyone, and thank you for joining us today. I'm standing in for Sharon Kadoche who is absent today. Our comments will focus on the financial results of our second quarter, which ended on March 16th. During the call, we will present our second quarter results and comment on its highlights. We will then be happy to take your questions. Before we begin, I would like to remind you that we are using 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 a forward-looking statements. While our expressions that have expect, intend, are confident that will and other similar words or 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, our annual budget and our 2024-2025 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. Risk factors that could cause actual results or events to differ materially from our expectations as expressed in, or implied by our forward-looking statements are described under the risk management section in our 2023 annual report. We believe these forward-looking statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward-looking statements except as required by applicable law. I will now turn the call over to Eric La Flèche.

Eric La Flèche: Merci Estelle. Good morning, everyone. Today François and I are joined by Marc Giroux, CEO of all our food banners; and Jean-Michel Coutu, President of our Pharmacy division. You had a chance to meet them at our Investor Day last year and we thought it would be helpful if they participated on the analyst call going forward. François will lead off as usual with the review of our financials and I will follow with the quarter's highlights. The four of us will then answer your questions. So François up to you.

François Thibault: Thank you, Eric and good morning everyone. For the quarter total sales reached $4.655 billion, an increase of 2.2% versus the same period last year. Food same-store sales were up 0.2%. And as we mentioned on our last call, sales in the second quarter were negatively impacted as a weak preceding Christmas fell in the first quarter, whereas, last year it fell in the second quarter. When we adjusted this shift food same-store sales increased by 2.7%. On the year-to-date basis, which neutralizes the Christmas effect food same-store sales stand at 3.1%. On the pharmacy side, same-store sales were up 5.9% for the quarter. Our gross margin stood at 19.9% of sales in the second quarter compared to 20.1% last year due to a slightly lower food margin. Operating expenses amounted to $496.2 million, up 6.1% versus last year. And as a percentage of sales, they were at 10.7% versus 10.3% and in the same quarter last year. The higher ratio is mainly due to the start-up of our new automated distribution center for fresh and frozen products in Terrebonne. We also continue to have higher third-party e-comm fees than last year. We realized a gain on disposal of an investment in an associated company of $7 million in this quarter and we have adjusted our net earnings by removing this gain. EBITDA for the quarter totaled $439.1 million, down 1.8% year-over-year and down 3.5% when we removed the gains on disposal of assets of $7.2 million that we record this year versus a small loss of $300,000 last year. During the second quarter of fiscal 2024, the company recorded $20.8 million of impairment of assets resulting from the decision to have Metro stores in Ontario withdraw from the AIR MILES loyalty program later this year. This impairment represents the entire carrying value of the loyalty program asset and is part of our adjustment to net earnings. Total depreciation and amortization expense for the quarter was $129.5 million, up $8.9 million versus last year and a significant portion of the increase is due to our new Terrebonne DC. Net financial costs for the first quarter were $34.1 million compared with $28.3 million last year. The increase is mainly due to an increase in debt and lower capitalized interest related to our distribution center automation project. Adjusted net earnings were $206.4 million compared to $225.4 million last year, an 8.4% decrease and our adjusted net earnings per share amounted to $0.91, down 5.2% versus last year's EPS of $0.96. After two quarters in fiscal '24, capital expenditures amounted to $224.8 million versus $288.5 million last year and we are revising our CapEx outlook for the year downward to a level of about $650 million, in large part due to some real estate transactions that are either postponed or no longer considered. We are not reducing the investments in our retail network and our supply chain. On the retail side, in the first 24 weeks of fiscal '24, we opened four super C stores, carried out major expansions and renovation of five stores for a net increase of 243,000 square feet or 1.1% of our food retail network. Turning to in-store technology. We ended the quarter with 511 food stores and 109 pharmacies equipped with self-checkout technology and as for electronic shelf labels at the end of Q2, we had 336 food stores and 48 pharmacies equipped with that technology. Under our normal course issuer bid program, as of April 5 of this year, we have repurchased 3.945 million shares for a total consideration of $276.9 million, representing an average share price of $70.18. In closing, our second quarter results are tracking well to the guidance we provided in November for fiscal '24 that is EBITDA to grow by less than 2% versus the level reported in fiscal '23 and adjusted net earnings per share to be flat to down $0.10 versus the level reported in fiscal '23. That's it for me. I'll now turn it over to Eric.

Eric La Flèche: Thank you, François and good morning everyone. Our second quarter was a very busy one with the bulk of the transition completed to our new automated fresh and frozen distribution center in Terrebonne. In that context, as we were cycling a strong quarter last year and with declining inflation, we are pleased with our sales performance and our results met our expectations. When adjusted for the Christmas shift, Food same-store sales were up 2.7%. Our discount banners continue to fuel this growth on top of the high comps in discount recorded last year. Our internal food basket inflation decelerated to about 3%, down sequentially from 4% and 5.5% recorded in the previous two quarters. Our food tonnage was flat in the quarter with higher transaction counts in all banners, while the average basket declined, facing cost of living pressures all around customers continue to shop carefully and search for value. Similar to previous quarters, promotional penetration remains elevated. We see trading down in some categories and private label sales continue to outpace national brands. Our online food sales grew by 51% versus last year, while the market was stable. Growth continued to be fueled by third-party partnerships for same-day delivery and the expansion of our click-and-collect service to our discount banners. The service is now deployed at Super C and in progress at Food Basics. We are now lapping the start of these initiatives, so we expect the year-over-year growth of online sales to moderate in the coming quarters. On the pharmacy side, we delivered a very strong performance with comp sales of 5.9% on top of 7.3% recorded in the same quarter last year. Commercial sales were up 5.8% on top of 12.2% in Q2 last year, driven by a strong cough and cold season, effective merchandising, as well as continued growth in HABA and cosmetics. Prescription sales were up 6%, driven by organic growth, specialty medications and professional services. We continue to record significant growth in pharmacy services. And in the first 24 weeks of this fiscal year, we documented more than 1.9 million clinical acts and services performed through our network, a level in line with our leading position in Quebec. We are well positioned to deliver on the expanded role of pharmacists with our dedicated pharmacist owners and our leading footprint across Quebec. We continue to be pleased with our Moi loyalty program in Quebec, which now reaches close to 70% of Quebec households as members become more digitally engaged with our channels and offers engagement metrics increase while providing more value to our customers. Most recently the 2024 Leger WOW survey recognized Moi as the most widely used loyalty program in Quebec with 79% of Metro customers actively engaging with the program. Building on the successful launch of Moi Loyalty program in Quebec, we are pleased to announce today the launch of Moi Rewards in Ontario at all 275 Metro and Food Basics stores later this year. Moi Rewards will allow members to realize greater savings by accumulating points in our two Ontario banners. More details will be communicated in due course. Turning to our Terrebonne automated DC. As I said earlier, our second quarter was very busy for our teams with the transfer of the fresh meat deli and ice cream volumes to our new facility. We also closed two older distribution centers in Montreal. We have now completed the bulk of the transition to our new Terrebonne DC with only dairy products left to be transferred. We are on track with the planned expenses and we are pleased with the service level to our stores. Going forward our teams are focused on ramping up productivity and we are now also gearing up for the launch of the final phase of our Toronto automated fresh facility next summer. So, to conclude fiscal 2024 is a transition year with the start-up of two large new automated distribution centers, but we are confident that our sustained investments in our supply chain, our retail networks, and our digital capabilities will position us well for the future and create long-term value for shareholders. Thank you and now we'll be happy to take your questions.

Operator: Thank you. [Operator Instructions] And your first question will be from George Doumet at Scotiabank. Please go ahead.

George Doumet: Hi, good morning. Eric I thought you were a little bit cautious on the front store performance for this quarter, but it was very strong. Can you talk a little bit about I guess what you called out effective marketing strategies and what really happened there? Thanks.

Eric La Flèche: Well, the number one driver is a strong coffee cold season which really started in mid-December. So, Q2 benefited from that and the increased traffic that that brings to our stores. So, combined to effective merchandising we were able to record really strong front store sales on top of a really strong last year which was the trifecta with COVID and all those symptoms. So, I think the teams did a great job. Maybe Jean-Michel if you want to add some color?

Jean-Michel Coutu: Yes, I won't get into all the different tactical initiatives, but we reviewed completely our merchant banking strategy. We adjust it for the market as it's evolving. And the team did a great job anticipating the customer demand. And that shows in the results.

George Doumet: Okay. And how much was if you look at pricing for the HABA category how much was it up this quarter?

Eric La Flèche: You're talking about inflation and HABA?

George Doumet: Correct. Yes.

Eric La Flèche: Lower single-digits.

Jean-Michel Coutu: That's our internal reporting and based on the way we calculate it.

George Doumet: Okay. Thanks for that. And François can you give us a little bit more color on the lower CapEx? I think you mentioned CapEx is expected to come down next year. But as you look beyond can we see perhaps some more investments in automated dry goods and would that have a similar return overall than fresh and frozen?

François Thibault: Well we -- as I said, we're revising our outlook down to $650 million because of some real estate transaction which for competitive reasons I won't go into -- and as I said we're not reducing any investments in our store network or DCs. So, nothing to announce on any other automation projects. if we do we'll do it in due course, but I think to announce right now.

George Doumet: Okay. And I got one last question. Maybe a bit of a crystal ball question, but we've seen inflation come in below 2% for March. Is your view that maybe this inflation continues towards 1% or zero? Or do you think we stabilize at these levels given kind of the weather geopolitical factors et cetera?

Eric La Flèche: Well, this is a crystal ball question. Yes, inflation is decelerating quickly in March. We'll see going forward. As we told you before, we planned for 3% inflation for the year. It might – it was slightly above that in the first portion of the year. It looks like it may be a little below that for going forward. But again, we don't have a crystal ball. There's still some CPG cost inflation, it's back to more normal levels but it's not zero. So 2% to 3% sounds like a crystal ball number that I would go with. But again, it's all speculation.

George Doumet: Okay. Thanks for the answers. I’ll pass the line.

Operator: Thank you. Next question will be from Irene Nattel at RBC Capital Markets. Please go ahead.

Irene Nattel: Thanks and good morning, everyone. Just sticking with the front of store, wondering what perhaps the beneficial impact of the Moi program and PJC might have been and was that a contributing factor to the front of store print.

Eric La Flèche: Definitely, yes. Moi is gaining traction in our pharmacy network every month. So more people sign up, more people get engaged, so still work in progress. It's not at the same level as Metro which had Metro&Moi, as you know Irene for a long time, but we're pleased with the engagement and there's a lot of cross shopping going on between our banners. So yes, for sure that was a contributing factor to pinpoint the exact percentage of the lift, which was caused by Moi is really hard to do but it's a contributing factor no doubt.

Irene Nattel: And just following up on that Eric. Thank you. Is it also safe to assume that it's contributing factors better from the store demand at the Brunet stores?

Eric La Flèche: Yes. Yes, it's a less – it's less of a percentage of sales front store and Brunet versus Coutu but it's significant and Moi is gaining traction there as well. There was no loyalty program at Brunet before. Coutu had another program they switched to Moi, Brunet didn't have one. So it was a plus for customers and they're engaging with it.

Irene Nattel: That's great. Thank you. And then just I guess my usual question you provided a little bit of commentary or a little color during your commentary. But in terms of consumer behavior, competitive intensity, you noted that private label growing faster than national brands but can you talk a little bit about maybe incremental penetration of promotional items some of the trade down behavior and again competitive intensity. Thank you.

Eric La Flèche: Maybe I'll let Marc, you want to comment on that?

Marc Giroux: I think you've said it well in your introduction. The market continues to be competitive. While food inflation is stabilizing overall, the economic context is putting lots of pressure on Canadian consumers. So consumers are continuing to trade down in some categories, meat in particular. They're participating to private label. The growth of our private label is twice the growth of our national brand. And promo penetration is back to pre-pandemic level, and are elevated and the discount growth in our discount channel is greater than conventional. So a similar trend as the previous quarter but we're well positioned to – with our commercial strategy and our store network to capture customer demand.

Irene Nattel: That's great. And just in terms of the sort of the depth of the competitive activity are you seeing any step-up in the magnitude? Or I guess how deep the promotions or that's pretty stable?

Marc Giroux: I'd say that's pretty stable. It's a competitive market but stable to previous quarter.

Irene Nattel: That’s great. Thank you.

Operator: Thank you. Next question will be from Emily Foo at BMO Capital Markets. Please go ahead.

Emily Foo: Thanks and good morning. So as far as the Terrebonne DC, now that most of the categories are completed except for dairy, have you – is all the volume up to full production? Like is there any execution risk in the ramp-up now to full productivity? Or is this already in we just wanted to know if there's – as these categories are delisted.

Eric La Flèche: Well, the execution risk is largely behind us because we have completed most of the transition and it's going well like I said in my opening statement, a huge, heavy lifting by our teams and coordinating with our stores and our merchandising to be seamless at store level. So very pleased with the transition so far. Some who work ahead of us for dairy but the focus is now on productivity. So the execution risk is – there's always an execution risk but the teams are executing really well. Service levels to our stores are good. And now it's a question of adapting and adjusting and ramping up productivity. So as planned. So we're ahead of our plan on duplication and efficiencies. Yes, there are some, but it's slightly better than we expected and we're confident that we're going to get through this and be in great shape coming out for next year.

Emily Foo: Okay. Great. Can you also remind us how and when the duplicative costs will roll off? And when should we see these efficiency gains?

Eric La Flèche: Well, you'll see efficiency gains going forward. So every month we improve our productivity or we aim to improve our productivity. So next year will be a better year with less duplication and efficiencies. So we're going to see lower expenses next year for sure. We will plan accordingly. But it's a big investment with depreciation less capitalized interest. So that's staying with us. That's going to be around next year. We're going to be more efficient in our logistics. So confident that we're going to be meeting our objectives for these large projects.

Emily Foo: Okay. Thank you very much.

Operator: Thank you. Next question will be from Chris Li at Desjardins. Please go ahead.

Chris Li: Hi. Good morning, everyone. Eric, you mentioned that transaction counts were up across all banners which obviously would include conventional. Just curious, is that partly because the inflation is moderating? And more specifically, did the increase in transaction count at conventional stores kind of pick up in the latter part of the quarter as inflation continued to moderate? Thanks.

Eric La Flèche: I don't think it's linked to inflation. I think it's people shopping around and searching for value. So the traffic has been up for the whole year in all of our banners conventional also. So the basket decline is a bit steeper in conventional, but I think it's just people being very careful shopping around. So we have to be really competitive week in week out and we are. And our conventional stores are holding up well relative to their peers. So pleased with that.

Chris Li: Okay. So no really big improvement in terms of the consumer I guess this is the -- like everything you just said the trade down and all that is still very relevant right now.

Eric La Flèche: Yes, sir.

Chris Li: Okay. That's helpful. And then another question I have is I think this is maybe the first time in a while where your food basket inflation was slightly ahead of food CPI where as before I think it was averaging around 1% below. Is there any reason for that? Or am I just reading too much into this?

Eric La Flèche: Don't read too much into it. 3% 2.5% we're -- it's within a pretty narrow band. This is what we sell in our stores. It's our mix. It's a function of promotions year-over-year. So let's say the dollar rather the $0.99 ad in discount is pushed by a week it has an impact on inflation and the order. So I would say it's pretty much in line with CPI.

Chris Li: Okay. That's helpful. And François maybe one for you. I know I asked you this last quarter. Just curious what your SG&A expense rate be largely stable versus last year, if you exclude these duplicative costs in learning core efficiencies from the new DCs?

François Thibault: Yeah. So since our -- as what I said in Q1 Chris is that when you remove these duplicated costs and extra expenses the SG&A as a percent of sales will be quite similar to last year. So we're pleased overall with a 6.1% increase given all this in the context we're in. So similar conclusion to what I said in Q1.

Chris Li: Okay. That's helpful. And maybe last one for me as well François. Just on CapEx. Now that you have revised down your outlook for the year. I know in the past you've mentioned that for fiscal 2025 and beyond you go back to that $500 million level. For next year should we expect that to be up higher than $500 million because you kind of push back some of these real estate transactions? So to make sure...

François Thibault: I'm not ready to give an update for next year, but a run rate would be sort of the high -- mid-500 and around mid-500 level normal run rate.

Chris Li: Okay. Thanks very much.

Eric La Flèche: Thank you.

Operator: Thank you. Next question will be from Vishal Shreedhar at National Bank. Please go ahead.

Vishal Shreedhar: Hi. Thanks for taking my questions. Back turning to Jean Coutu the front store performance very strong as has been noted. Was the performance strong across the board? Or was it OTC that lifted that comp to above what probably most expected?

Eric La Flèche: Jean-Michel?

Jean-Michel Coutu: Yeah. As Eric mentioned in his opening notes performance is strong across the board. So OTC, obviously, due to the cough and cold season. HABA cosmetics are performing also all our core categories are growing very well.

Vishal Shreedhar: Okay. And the consumer weakness, which is causing the shift towards promo and the shift towards discount. Are we seeing similar trends in Jean Coutu or some of the categories like Beauty a bit more resilient?

Jean-Michel Coutu: We like to think there's a bit more resilience, but we are seeing consumers shopping for value. We are in an advantageous position. Value perception is very strong with the Jean Coutu brand particularly. But we are seeing some a lot of conversion to private label and promotional.

Vishal Shreedhar: Okay. Thank you. Moving on to the Moi program. For the Ontario launch, should we expect that to be somewhat of the duplicate of the Quebec program in terms of capability and in terms of the offer what's going to be presented to the consumer?

Eric La Flèche: It will be similar. The details of the program will be communicated as we get closer to launch for competitive reasons. But yeah it's our platform proprietary program in Quebec, which we launched and we're happy with and we control and we own. So we thought it was the best for us to go forward in Ontario to provide a strong program to our customers so they can generate even more savings in all of our banners. So, yeah, so we're pleased to extend it. It's a good program. I think consumers will like it and we will communicate the details as we get closer.

Vishal Shreedhar: Okay. And in terms of the Moi's interest to even expand further obviously strong traffic at Metro's banners, is there opportunity at some point in the future to entertain or engage in some sort of coalition program bringing in partner retailers? Or is that not on the radar for now?

Jean-Michel Coutu: Not at the present time. No.

Eric La Flèche: No not at the present time, but you never know. We have a good program in high-frequency channels of drug, pharmacy -- food and pharmacy in Quebec and will be food in Ontario. So I don't give you -- we never know there could be partners that join and leverage that but we don't for now.

Vishal Shreedhar: Thank you.

Marc Giroux: First step of our strategy was to bring loyalty under one program across Quebec, Ontario, New Brunswick (NYSE:BC) for all of our pharma and food customers and that's what we'll be completing by the end of the year and we'll see after that.

Vishal Shreedhar: Appreciate the color, Marc. Thanks.

Operator: Thank you. [Operator Instructions] And your next question will be from Michael Van Aelst at TD. Please go ahead.

Unidentified Analyst: Hey guys, it's Evan [ph] in for Michael. Most of my questions have been answered. But I guess, I just wanted to touch briefly on the food gross margin. Where is the pressure coming from? Is it all market factors? Or did the DC ramp up contribute to that? Or was there something else as well?

Eric La Flèche: Well, the pressure on gross margin is 16 basis points year-over-year for the company. Food is causing or driving it. So I wouldn't read too much into it. We were cycling a normal quarter. It's a competitive market, no question about that and we are competitive. Streak [ph] was a bigger a little bigger issue in this quarter, managing it but it did contribute a little more to the decline. The discount mix as we over-perform in discount that's affecting the gross margin line a bit. And like you pointed out to the inefficiencies in Terrebonne that's also a small contributing factor. So a bunch of puts and takes. Overall, it's not a huge concern but we're monitoring very closely the gross margin for sure.

Unidentified Analyst: Great. Thanks. And in terms of the duplicate overhead costs, could you give us maybe like a percentage of how much was in the first half numbers versus how much you're expected to be in the second half numbers? And are all those costs in OpEx or some of them in cost of goods sold as well?

François Thibault: So we're not going to break it down in percentages. What we said was that the first part of the year there will be more pressure than the latter part. And as I said for the first two quarters when you remove those costs the percentage of SG&A on sales is very similar to last year. So we're not going to be providing a breakdown. But what's the last part of your question sorry?

Unidentified Analyst: Were they all in OpEx? Or were there some in...

François Thibault: The bulk of it is in OpEx. There's a slight portion in gross margin as Eric said which explains a bit of the pressure on the gross margin.

Unidentified Analyst: Okay. Great. Thank you. Yes. Thank you.

Operator: Thank you. Next question will be from Mark Petrie at CIBC. Please go ahead.

Mark Petrie: Yes. Thanks. And good morning. Eric I know you called out flat tonnage. I think it was up probably slightly last quarter. I'm guessing it's not a material change in trend but just hoping you can comment on unit growth overall. I know it's been tough for the industry. I'm just wondering if you're seeing trends shift at all.

Eric La Flèche: I'll let Marc take that.

Marc Giroux: Well if you look at tonnage as inflation is stabilizing tonnage will most probably start to increase again. But overall tonnage is growing in discount slightly declining in conventional. So overall our tonnage was flat.

Mark Petrie: Understood. Okay. And I know you've spoken about the consumers continuing to seek out value. I'm just curious if -- and discount in outperforming full service. Just curious if that gap between the two growth rates has changed at all if it's expanding or narrowing or consistent?

Marc Giroux: When we look at industry data the gap between the growth of discount and conventional is stable 24 weeks 12 weeks four weeks. So I think we talked about the consumer looking for value. So that trend has not changed. We're comping significant growth in discount last year. So that's contributing. And we've opened new stores and discount. That's also contributing to discount growth.

Mark Petrie: Yes. Understood. Okay. That's helpful. And then just one I'm not sure if -- how much you can say. But with e-commerce growth normalizing and some of the sort of big shifts in the rearview mirror. Would you expect that that has any impact on your P&L and either of the margin rates?

Marc Giroux: You mean the e-comm stabilizing? Could you clarify your question?

Mark Petrie: Yes. Yes. With e-commerce growth slowing down and you guys sort of having added the partners and expanded to all your banners and all those sorts of shifts do you expect that a more modest growth rate in e-commerce will have any impact on your P&L and your margin rates?

Marc Giroux: For sure. And the mix if e-comm is stabilizing it will help for sure. Our online sales has continued to grow as Eric has mentioned it fueled by a third-party partnership and our click-and-collect services that have been deployed in Quebec and is an ongoing deployment in Ontario. We see the growth in discount moving to -- we see the growth in e-comm moving to discount and click-and-collect services. So we're satisfied with that growth as well. But as we are comping these new initiatives we expect that growth to stabilize.

Mark Petrie: Yes. Understood. Appreciate all the color.

Eric La Flèche: Just to touch on that. So the impact on our P&L as we get better at it as we -- as the business stabilizes the P&L picture improves. So it's improving this year-over-year and we suspect that that should continue.

Mark Petrie: Yes. Understood. Okay. Thanks for the comments guys. All the best.

Operator: Thank you. Next is a follow-up from Chris Li at Desjardins. Please go ahead.

Chris Li: Hi. Good morning. Just maybe a follow-up to the last question on discussion on e-commerce. I'm just wondering more of a big picture question like what do you think needs to happen for the industry e-commerce penetration in Canada to get closer to the U.S. or to the U.K.? Or do you believe there are structural reasons that would keep e-commerce adoption low for longer in Canada?

Eric La Flèche: It is a big picture question. So like we've said before we try to stay ahead. We want to serve our customers wherever they want to be served online or in store. The share of e-comm in Canada is lower than some other countries. There is some growth, but it's modest growth. It's the Canadian consumer. So we want to serve our customer as best we can. Those who want to be online we will serve them. But that number is a lower number. Will it grow? Will it vary by geography? We're actively involved and we're trying to meet that demand as it comes. That said, we're pleased with how we went to market. We have a hybrid model. We have our own functions to pick in store and deliver. We have a drug store. We have a third party, we have click-and-collect. So, same day, next day, we try to cover the range of services that customers want and do it in a way that will not be too dilutive to earnings and eventually contribute at a better level. So it's hard to say. The reasons why it's a bit lower in Canada. I think the search for value, the convenience of food shopping, the buying behavior gives the numbers that we have. So we'll see how it evolves and we intend to participate.

Chris Li: Okay. That's great, Eric. And maybe another one for you, just I understand, if you may not be able to comment on this. But as you know, there have been media reports that the government is looking to entice new entrants into Canada to try to foster more competition. For those of us, who are not as familiar with the industry, practically speaking, how easy or how hard do you think it would be for foreigners to come in?

Eric La Flèche: Well, all I can say is that the Canadian food market is very competitive. Any of the affirmation that our industry is not competitive, we disagree with that completely. We compete with large global players. We have strong regional and national competitors. We have strong local independents. We have discount dollar stores, you name it, Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT), Costco (NASDAQ:COST). This is an extremely competitive market. It's a large geography with a growing population, but for the geography a pretty small population. So, we'll see if anybody wants to come. It's an open market. And if someone wants to come in they will do what they have to do, but it's a very competitive market.

Chris Li: Okay. Thanks for that. And maybe last one for me for François. Just more for modeling purposes. As we look out for fiscal '25, I want to just touch on quickly on two things. I guess first, I want to confirm that some of these DC duplicative cost will flow through into fiscal Q1 of next year? And then secondly, I want to just check in with you to see if you can share any comments with respect to the cost related to the launch of the new loyalty program in the fall in Ontario. Thank you.

François Thibault: Well, some of the duplication costs will flow through Q1, but we're expecting it to be lower. We are launching Phase two of our fresh automated DC in Ontario. So that will also have an impact going forward in fiscal '25, but improving, so that we were able to say that we will be back to our normal gross profit increases for fiscal '25, so no change on that. Your second question...

Eric La Flèche: For the cost to launch Moi in Ontario like I said, we'll give you more details as we get closer. Yes, we will have some marketing expenses to launch a program, but we intend to manage that as part of our marketing budgets to a large extent and we'll keep you posted as we get close.

François Thibault: Exactly.

Chris Li: Okay. Thanks, guys and all the best.

Operator: Thank you. And at this time we have no other questions registered. Please proceed.

Estelle Riva: Thank you all for your interest in Metro and please mark your calendars for our third quarter results on August 14. Thank you.

Operator: Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time we ask that you please disconnect your lines.

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