The paragraph describes the commencement of Loblaws Incorporated's fourth-quarter 2024 results conference call, which took place on February 20, 2025. Roy McDonald welcomes participants and notes the presence of the company's President and CEO, Perbank, and CFO, Richard Dufrin. The discussion will include forward-looking statements, which are based on current expectations and assumptions but are subject to risks and uncertainties that could lead to different outcomes. The company will not necessarily update these statements unless required by law. Non-GAAP financial measures might also be discussed, with further details available in the company's filings with Canadian securities regulators.

In the paragraph, Richard Dufrin discusses the year's strong financial performance, highlighting consistent revenue and earnings, expanding sales momentum, and stable gross margins. Key achievements include $61 billion in revenue, over $2.6 billion in adjusted earnings, $1.8 billion in share repurchases, and a 13.9% dividend increase. The company also expanded its retail footprint by adding food and drug stores, as well as pharmacy clinics, which boosted sales. Plans include investing $10 billion into the Canadian economy, opening more stores, and creating jobs. For the quarter, revenue grew by 2.9% to $14.9 billion, and adjusted EBITDA increased by 4%. Same-store sales were positively affected by the timing shift of Thanksgiving, with food sales improving despite this. Adjusted net earnings per share rose by 10%, while GAAP net earnings fell by 14.6% due to a $129 million non-cash charge related to the revaluation of their PC Optimum program liability.

The paragraph discusses the company's financial performance, highlighting increased customer engagement with the PC Optimum program, leading to higher redemption rates and increased liabilities. It notes growth in food retail with higher traffic and tonnage, resulting in a 3.7% increase in absolute sales and a 2.5% increase in reported same-store sales. Adjusted same-store sales grew 2%, despite challenges like the Thanksgiving shift and elimination of multibuys. The company's internal food inflation rate was lower than Canada's gross retail CPI. However, they face challenges due to rising costs from global vendors and a declining Canadian dollar, which adds inflationary pressure, especially with reliance on US imports for fresh produce. Consumers are shifting towards discount offerings, with double-digit sales growth in the discount network and TNT Canada, the company's fastest-growing banner.

The paragraph discusses the growth and expansion of hard discount stores, which have outpaced conventional ones, with plans to add around 50 new stores in Canada by 2025. The company has 187 hard discount Maxi stores in Quebec, boosting market share there. Pharmacy and healthcare services performed well, with significant growth in same-store sales. Patients appreciate the convenience and care offered by over 1,800 pharmacies and 152 new in-store clinics. However, front store sales declined due to a Canada Post strike and exiting the electronics category, with pressure in convenience categories, though prestige beauty remains strong. Cough and cold sales were weaker due to a mild fall.

The company expects a 1% impact on front store sales in 2025 due to exiting low-margin electronics categories, but remains confident in the strength and profitability of Shoppers Drug Mart's front store business. Online sales saw an 18.4% increase, bolstering momentum, especially in grocery delivery. Full-year sales grew 16.9% to $3.9 billion, with a slight rise in food penetration. Retail gross margins dipped slightly to 30.9%, affected by sales mix and external factors like the Canada Post strike, but benefited from improved shrink rates in food. SG&A expenses as a percentage of sales improved by 20 basis points due to reduced labor costs. Fourth-quarter retail EBITDA rose by $47 million, while PC Financial saw a 2.3% revenue decrease due to lower growth in mobile services, though credit card portfolio growth partly offset this.

The bank reported a $20 million increase in adjusted earnings before tax, supported by higher fee income, reduced costs, and favorable ECL provisions, despite diminished benefits from a Mastercard agreement renewal. The bank maintains a conservative risk profile with a strong balance sheet. Adjusted EBITDA grew by 4% to $1.7 billion, retail free cash flow hit $828 million, and they repurchased $352 million in shares. Annually, retail free cash flow reached $1.5 billion, with a 13.9% dividend increase and $1.8 billion in share repurchases. Return on equity is 23.6%, and return on capital is 11.8%. Looking to 2025, the bank plans to open new stores and enhance supply chain efficiency with a new distribution center. The additional week in 2025 is expected to boost EPS by around 2%.

The paragraph discusses the company's financial performance and future plans. The retail business is expected to grow earnings faster than sales, with high single-digit growth in adjusted earnings per share. The company plans to invest $2.2 billion in capital expenditures and return most of its free cash flow to shareholders through dividends and share buybacks. The company is optimistic about its early results in Q1, with strong same-store sales growth in food and drug retail. The focus on retail excellence and strategic initiatives aims to deliver value to customers and strong shareholder performance. Looking back on 2024, the company achieved revenue growth of 2.5%, surpassing $60 billion, and adjusted EPS growth of 10.3%, enabling reinvestment in future growth. In 2025, another $2.2 billion will be invested into the Canadian economy, enhancing store and distribution networks and improving accessibility to affordable food and healthcare.

The company is addressing customer concerns about affordability and economic uncertainty by implementing various initiatives to offset global food inflation impacts. These initiatives include new programs like Heat of the Month, Marvel, and Collect and Save, and have led to significant food market share growth. The company is also focusing on cost management by exiting low-margin categories such as electronics, joining a European buying group to reduce purchasing costs, and enhancing digital engagement with personalized offers and gamification. While these efforts may challenge short-term front store sales growth, they are aimed at improving efficiency and positioning the company for future success.

The paragraph discusses various enhancements and initiatives by a company to improve its digital and in-store offerings. Key features include the "Swap and Save" tool for grocery savings and a new "Swap and Shop Canadian" feature to promote Canadian products, which has led to increased sales. Free delivery has been introduced in No Fill stores, and the company has improved online navigation and expanded product ranges. There are three pilot stores testing these upgrades, with plans to roll them out more widely. The company's Pharma Pre and Service Rockmart pharmacies are noted for their distinctiveness and customer value, with investments aimed at expanding the pharmacy network and services. This includes new cosmetics offerings targeted at younger customers, process improvements, and enhanced pharmacy appointment scheduling. The company plans to have over 250 in-store clinics by 2025, following a year when pharmacists provided 3.1 million prescribing services, with expected growth due to an expanded scope of care for pharmacists.

The company has experienced significant growth in its food and pharmacy retail sector, exceeding Canadian population growth, with plans to expand further in 2024 by adding around 80 new stores, emphasizing hard discount groceries and pharmacies. They successfully launched their first TNT stores in the US, beginning with Seattle, and opened another in Toronto. Their new distribution center will enhance capacity and efficiency while being environmentally conscious, featuring Canada's largest rooftop solar array. The company remains committed to its ESG principles and has provided an early release of its 2024 ESG disclosures.

The paragraph discusses the organization's achievements in advancing social equity and combating climate change, highlighting their fundraising efforts and collaborations. They raised over $35 million, with significant contributions toward feeding local school children and improving women's access to healthcare in Canada. The Shoa Foundation for Women's Health recently donated $10 million to Manitoba's new healing and empowerment funds. The organization focuses on retail excellence and customer service, supporting business growth and quality offerings for Canadians. Roy McDonald thanks colleagues for their dedication. The operator then opens the floor for a question and answer session.

In the paragraph, Irene Nattel inquires about the factors driving the company's momentum going into 2025, despite lower sales in electronics and front store shoppers. Richard Dufrin responds by highlighting the strong market share at the end of 2024, driven by the opening of many new stores which began contributing significantly as the new year commenced. Additionally, mild fall weather previously resulted in weak cough and cold sales, but current colder conditions have led to increased sales in this category, adding to overall momentum. Perbank adds that the company finished the year with the strongest market share gain in a decade and expects another record year for market share.

The paragraph discusses the successful initiatives and expansions undertaken by a retail company. They have combined Canadian superstores, which has resulted in increased synergy and momentum. They're seeing positive outcomes from small store openings and promotional campaigns, such as a cookware promotion that generated significant sales. Additionally, their TNT format was the fastest growing last year. The company believes that its diverse store portfolio is well-positioned to meet various customer needs. The conversation then shifts to concerns from investors about potential negative impacts on gross margins and performance due to the accelerated opening of new stores and a frozen distribution center. The respondent, Richard Dufrin, acknowledges these concerns but suggests they have strategies in place to manage them.

The paragraph discusses the company's strategic plans and expectations for store expansion and performance. It highlights that new stores are expected to contribute significantly to earnings and cost leverage over time, with impressive growth potential in their second year of operation. The company opened two new stores since January and plans to add 80 more in 2025, including 50 hard discount stores. The focus is on growing sales while maintaining low costs, providing optimism for short-, medium-, and long-term success. In response to a question, the company clarifies that store expansion isn't solely based on population growth.

The paragraph discusses a company's strategy to expand its sales by opening new stores in areas with low current sales, noting that new hard discount stores increase foot traffic to both them and existing conventional stores. Although the company plans to grow by 1.1% in square footage in Canada, this equates to only 80 stores due to the country's size. The company also aims to boost its top-line growth with these new stores. Furthermore, they address potential tariffs on imports from the US, which comprise less than 10% of their cost of goods sold, primarily affecting fresh produce. The company is exploring ways to mitigate these impacts, recognizing the potential burden on consumers.

The paragraph discusses the impact of tariffs on products sourced from the US, specifically focusing on household and cleaning goods. It suggests that if tariffs are applied, US products will become less competitive, and sales may shift to control brands produced in Canada, which is beneficial for Canada, customers, and the company. Despite detailed plans to mitigate tariff impacts, the affected products account for less than 10% of the company's interest. Additionally, in a conversation about real estate expansion, it is mentioned that plans for 2025 have been approved, with no changes to the company's return on invested capital parameters for future store expansions.

In the discussion, Perbank and Richard Dufrin address concerns about the impact of opening 80 new stores, noting that most are small-format, hard discount stores, which require less capital expenditure and occupy smaller spaces of 8,000 to 10,000 square feet. Despite a modest increase in square footage (under 2%), they emphasize that store placement decisions are based on existing population data rather than future growth projections. While competitors are similarly expanding, Dufrin notes that their strategic planning accounts for competitor locations through detailed market analysis. Perbank adds that in a broader, international context, this number of new stores is not excessive, especially in Canada.

In this paragraph, Michael Van Elst and Richard Dufrin discuss the impact of inflation and market competition on their business's gross margins and market share gains. Despite recording lower inflation compared to the Consumer Price Index (CPI), their gross margins remained flat, with some influence from timing differences. Dufrin notes that the market remains rational and stable, with expectations for slightly increased gross margins in the upcoming year. He attributes a decline in Q4 gross margins partly to unexpected issues with Canada Post during a busy season, affecting over 800 outlets in Shoppers Drug Mart. However, he expresses confidence moving forward, noting that the situation has improved in Q1.

The paragraph discusses the outlook and strategies for food inflation, contrasting this year with last year. Perbank mentions that inflation has normalized over the past nine months and stresses efforts to keep prices low for consumers, despite challenges like potential currency fluctuations and tariffs. Strategies include negotiating with suppliers and promoting discount options. Richard Dufrin adds that the Consumer Price Index (CPI) for the quarter was 2.4%, while their internal inflation measure, the LPI, was slightly lower.

The paragraph discusses the impact of currency fluctuations on average article prices and same-store sales, noting that recent inflationary trends have affected these figures. Tammy Chen asks about the anticipated sales growth and performance of two store formats—small No Frills and additional Maxis—particularly in downtown and rural locations. Perbank responds, explaining that retail stores typically take three to four years to normalize sales and that the new store openings are performing well, sometimes exceeding expectations. The conversation briefly touches on the location strategies and confidence in expanding to suburban and rural areas before the operator moves to the next question.

In the paragraph, Mark Petrie from CIBC asks about the changes made by a retail company, specifically regarding the discontinuation of electronics and alterations in pricing and promotions in food and consumables. Perbank responds by highlighting the positive impact these changes have had on customers, mentioning that lowering prices on food items has enhanced value for shoppers. The company has benefited from exiting electronics, allowing customers to use points on more popular items like beauty products. The adjustments align with the store's overall strategy and have resulted in positive momentum from the previous year into the first quarter. There is also significant growth on the pharmacy side of the business. When asked if further changes are anticipated, Perbank asserts that in retail, there's never a status quo, implying ongoing adjustments and improvements are always likely.

The conversation revolves around evaluating the need for business adjustments, acknowledging that ongoing initiatives require time to resonate with customers. Regarding tariffs, there have been no current impacts on supplier relationships or product promotions, although potential future tariffs, like a 25% increase on Kellogg's, might lead to promoting alternative brands. In terms of U.S. expansion, the current plan involves opening seven test stores in Seattle, with early success being acknowledged but no immediate changes to the strategy. The discussion concludes with the beginning of a question about financial aspects and the ECL release from Vishal Shreedhar.

In the discussion, Richard Dufrin explains that Loblaw's Expected Credit Loss (ECL) was less significant in the recent quarter compared to the previous year, indicating an improvement in consumer health in Canada, though forecasting ECL remains unpredictable. He also addresses the increase in PC Optimum redemption rates, stating that Loblaw updated the redemption assumptions after several years due to higher member participation and satisfaction with the program. The adjustment led to a one-time liability, but it is seen positively as it reflects increased consumer engagement with PC Optimum.

The paragraph discusses the impact of a postal strike on a business, particularly its effect on store traffic and profitability. Richard Dufrin notes that the strike significantly decreased traffic in stores with post offices, especially during the Christmas season, affecting their ability to sell and send Christmas cards. Once the strike ended, traffic returned. The discussion then shifts to the performance of smaller store formats, with Perbank affirming that these stores, offering 7,000 to 8,000 products, can support a full shopping experience, despite having less product phasing (fewer quantities of the same product displayed side by side).

The paragraph discusses the differences between Canadian hard discount stores and German discounters like Aldi, highlighting that Canadian stores offer a full shopping experience with fewer product selections but are still popular due to their convenience and speed. Sales at these stores are growing weekly. In a conversation involving Vishal Shreedhar and John Zamparo from Scotiabank, Zamparo inquires about consumer behavior and sentiment regarding Canadian products amidst tariff talks. Perbank notes that consumers are increasingly interested in buying Canadian products and the company is striving to assist them in doing so.

The paragraph discusses the success of a new feature related to Canadian products, which showed a significant weekly increase in customer engagement. In-store, there was a notable increase in sales of Canadian products, which is expected to grow further with upcoming promotional efforts. Customer behavior remains consistent with previous years, with continued interest in promotions and private labels. Inflation effects are noted as a challenge. Additionally, the retail media business is seeing double-digit growth but is not yet at a scale for detailed reporting. Expectations are that both the retail media and trade as a service businesses will continue to grow significantly in the coming years.

In the conference call, the operator instructs callers on how to decline participation in the polling process, including adjustments for speakerphone users. Chris Lee from Desjardins asks about the company's outlook for the year, particularly concerning gross margin growth. Richard Dufrin responds that the company expects a modest increase in gross margin due to new store openings and a low inflation environment. He also mentions a slight deterioration in SG&A rate and predicts high single-digit EPS growth, considering an additional 2% from a fifty-third week in 2025. Dufrin indicates that EPS growth should be steady across quarters, with little expected volatility. Following the Q&A, Roy McDonald concludes the call, thanking participants.

The paragraph concludes a conference call, inviting participants to ask follow-up questions if needed and reminding Mark to mark his calendar for a Q1 results discussion on Wednesday, April 30th. It ends with well wishes and informs participants that the call has ended.

This summary was generated with AI and may contain some inaccuracies.