Good morning, ladies and gentlemen, and welcome to the Loblaw Companies Limited third quarter 2022 results conference call. At this time, all lines are in listen-only mode. Following the presentation, we'll conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on November 16, 2022. I would now like to turn the conference over to Roy MacDonald. Please go ahead.
Great. Thank you very much, Colin, and good morning, everybody. Welcome to our third quarter 2022 conference call. I'm joined in the room this morning by Galen Weston, our chairman and president , and by Richard Dufresne, our chief financial officer . Before we begin the call, I'll remind you that today's discussion will include forward-looking statements, which may include, but are not limited to statements with respect to Loblaw's anticipated future results. These statements are based on assumptions and reflect management's current expectations. As such, are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations. These risks and uncertainties are discussed in the company's materials filed with the Canadian Securities Regulators. Any forward-looking statements speak only as of the date they are made.
The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than what is required by law. Also, certain non-GAAP financial measures may be discussed and referred to today. These. Please refer to our annual report and other financial materials SEDAR-filed with the regulators for a reconciliation of each of these measures to the most directly comparable GAAP financial measure. With that, I will turn the call over to Richard.
Thank you, Roy, and good morning, everyone. In Q3, we delivered another quarter of steady operational and financial performance, reflecting our focus on our core retail businesses. Our strong value offering, best-in-class loyalty program, and leading food and drug retail businesses continue to position us well in a challenging marketplace. On a consolidated basis, revenue grew by 8.3%, adjusted EBITDA increased by 10.3%, and adjusted earnings per share grew by 26.4% to CAD 2.01 a share. In drug retail, absolute sales increased 10.3%, and same-store sales grew 7.7%, lapping an increase of 4.4% last year. Front-store same-store sales grew by 10.7%. We continue to see strong growth in margin-accretive categories like cosmetics and OTC, which are both showing double-digit growth.
Again, this quarter, front-store sales drove Loblaw's gross margin improvement. Pharmacy same-store sales grew 4.7%. Acute and chronic prescription volumes are continuing to show steady growth and are approaching pre-pandemic levels. Pharmacy services have seen demand for COVID vaccines and testing slow versus last year, while core pharmacy services like med reviews have rebounded. All in all, services are on track to deliver similar performance to last year's record sales. In food retail, absolute sales increased 7.4% and same-store sales grew 6.9%, led by the strength of our discount banners. In fact, we are pleased with our performance across all our banners and our market share improved over the quarter. Performance in our discount banners continued to strengthen as market share and traffic improved year-over-year. We continue to see a larger share of wallet spent in our discount banners.
Although not included in our same-store sales numbers, we are very excited about the performance of the seven stores that have been converted from market to discount in Quebec. Four more are opening over the next few weeks. Having the right customer offer in each trading area remains a key priority. The macro environment is favoring our discount banners, but our market banners are also delivering strong results and outperforming their conventional peer group. This is evidence that our value proposition is resonating. In food retail, our right-hand side had a negative impact on same-store sales of 120 basis points. Having said that, our inventory levels in those categories remain healthy. Online sales in the quarter increased 3%, lapping flat growth last year and 175% sales growth in Q3 of 2020.
We are pleased with our online penetration rates, which are trending well above pre-pandemic levels, even as customers return to in-store shopping. Retail gross margin in Q3 was 30.8%, up 10 basis points compared to last year, driven by continued strength in the higher margin mix of cosmetics and OTC categories in our drug retail businesses. Gross margin performance in food retail was flat. A strong private label offering and promotional effectiveness enabled us to balance value and deliver sustainable performance. In light of our strong bottom line result this quarter, I thought it might be helpful if I commented a bit, in a bit more detail, on how inflation has impacted our performance. First and foremost, the pressure on costs is more significant than anything I've seen in my career, and it's translating to increased prices everywhere, particularly in food.
This is a global issue facing all countries in all sectors, and policymakers around the world are doing what they can to bring it under control. When it comes to food prices, we know Canada is doing better than most, with some of the lowest inflation in the G7. That is no comfort for customers who are paying over 10% more for their essentials than they were just 12 months ago. At Loblaw, we're taking active measures to combat the pressure on behalf of our customers, and it's important to keep in mind that the levers available to us are limited. We are a food distributor. We buy goods from suppliers and then sell them to customers. We are largely dependent on what suppliers ask us to pay for their products. Suppliers determine the cost and we determine the retail prices.
We have seen unprecedented cost increases from our suppliers this year, and we continue to receive new cost increases. Part of our job is to re-evaluate these and push back where they do not make sense. We have done that vigorously over the last two years and will continue to do so going forward. Our objective is to make sure that our price on the shelf do not rise faster than supplier costs. Gross margin is an important measure we track to ensure we are delivering on that goal. We watch it very closely. In every quarter since inflation took off last summer, gross margins in food have been essentially flat. This gives us the confidence to say categorically that retail prices are not growing faster than costs and the company is not taking advantage of inflation to drive profit.
In fact, we remain focused on finding ways to provide the best value to Canadians and continue to make investments in lower prices. We measure our success every day at the checkout counter, and our strong sales and market share performance this quarter are a clear indication that our efforts are resonating with customers. Retail SG&A as a percentage of sales was 20.3%, an improvement of 20 basis points compared to last year. Adjusted retail EBITDA increased by CAD 175 million or 10.8% in the quarter, yielding a margin of 10.5%. We were pleased with PC's financial performance. Revenue was up CAD 53 million, driven by higher interchange and interest income that resulted from a broad-based increase in customer spending. Contribution to adjusted EBITDA from the bank was flat.
In addition to operating costs increasing on an improvement in consumer activity, we continue to see credit losses normalize to our pre-pandemic levels, and we increased our credit loss provision to reflect the macroeconomic outlook. On a consolidated basis, adjusted EBITDA margin was 10.6% in the quarter, up 20 basis points compared to last year. In Q3, we repurchased CAD 403 million worth of common shares, representing 3.4 million shares. This brings year-to-date purchases to CAD 1.2 billion. We are confirming our full-year outlook at the higher end of the range we provided last quarter. I'm pleased with our performance again this quarter. With our focus on retail excellence, we continue to deliver consistent operational and financial performance. I will now turn the call over to Galen.
Thank you, Richard, and good morning. I'm pleased with the results of the quarter as well. The company delivered strong financial performance in both sales and earnings. All our businesses performed well as we continue to execute against our three strategic pillars of retail excellence, driving growth and investing in the future, while delivering on our purpose to help Canadians live life well. This has positioned us well as the economy and the industry have faced unusual pressures. As the summer ended and Canadians returned both to the office and to school, we saw a marked acceleration of sales in our beauty aisles. As a high-margin category, this significantly benefited our results. As the weather cooled and people stayed indoors, all that extra social contact contributed to more respiratory illnesses than would be typical.
The combination of COVID, RSV, and flu brought more customers to our pharmacies, leading to all-time highs in the sale of cough and cold meds and sustained growth in prescriptions. In addition to the traditional strength of Shoppers, our health services businesses have also done well. As you know, we're passionate about the vital role pharmacists can play in improving access to health care for Canadians. That opportunity is being well demonstrated in our first pharmacist-led health clinic in Lethbridge, Alberta. Based on the strong patient response, we will open four more clinics in that province before the end of the year. We continue to work with other jurisdictions to expand the scope of practice for pharmacists to complement and enhance existing care models. In the quarter, we also saw sustained food inflation.
Richard did a good job of explaining how we're approaching this at Loblaw by taking thoughtful and decisive action in the areas that we control. This includes strong pricing programs across our business and great value in our flyers every week. As you know, we took the unprecedented step of freezing prices on Canada's second-largest brand, no name, locking down 1,500 items. The response has been overwhelmingly positive, leading to even stronger controlled brand sales outperformance since the announcement. We also added an incremental Points Days event in the quarter, offering exceptional points-based discounts across our entire business. This event is now one of our most impactful sales drivers of the year, and I'm pleased to say that Canadians are on track to save more than CAD 1 billion in points this year, the highest ever.
I would be remiss if I didn't call out the recent launch of our Holiday Insiders Report. It's my favorite since we re-introduced the report two years ago with a focus on holiday entertaining, innovation, and value. The PC Everything Pan is the blowaway item for the season at just CAD 59.99. I expect this Insiders to be the most successful ever. This comes as we continue to invest in value while keeping a firm grip on margins, and customers and consumers are responding well to our efforts. We're winning market share overall, led by our discount division, as customers looking for value increasingly choose to shop with us.
At the same time, our market division is holding its own against its peers, and Shoppers Drug Mart remains the destination of choice for Canadians looking after their health. Finally, we continue to execute against our ESG commitments as we published a new human rights statement and our inaugural TCFD report. On the ground, our support for food banks and recovery agencies remain industry-leading, and our partnership with Flashfood has kept 40 million pounds of food from landfill and saved customers more than CAD 100 million. As we look forward, Loblaw is well-positioned to meet the challenges ahead. We are executing our strategy and actively supporting Canadians as they seek more value in food and improved access to health care. I'll now turn the call over for questions.
Thank you, Galen. Colin, could I ask you to please introduce the Q&A process?
Absolutely. Thank you, ladies and gentlemen. We'll now conduct a question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you'd like to withdraw your question, please press star followed by two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment for your first question. Okay, your first question comes from Mark Petrie from CIBC. Mark, please go ahead.
Hi, this is Kunaal filling in for Mark. Thanks for taking our questions, and congrats on a great quarter. First, I wanted to know if you could talk about how consumers have been responding to your various loyalty program offers and how that might have evolved through the year as inflation has increasingly shifted consumer priorities and behavior. You alluded a little bit on the call to the incremental points day, but any color there would be helpful. Can you kind of talk about how this is different in food versus drug, if at all?
Yeah, absolutely. The points program continues to build momentum, and has done so through all of 2022. The incremental Points Days made a significant impact on increasing the number of engaged customers actively using the program. Across the board, we're seeing customers actively changing their behavior to earn more points, and we're seeing more redemptions in the program than we would see typically. All of this is an indication to us that customers quite rightly see points, you know, as a strong equivalent to value. You know, as customers are more value-focused, they're more focused on earning their PC Optimum points.
Okay, that's great. Thank you. My second question is on the mounting pressures on SG&A, given labor contracts above normal rates of increase and broad inflation across the business. I understand that you proactively manage your costs, but it would be helpful to hear more about that and specifically any thoughts you can provide around 2023 and your expectation for expense leverage or deleverage after a pretty strong performance so far in 2022.
Yeah, we always do our best to manage our costs. The labor cost pressure that you allude to are very prevalent in our business. We're planning for them for 2023, but we need to go and find other opportunity elsewhere so that we can deliver on our financial plan. That's our daily job. That's what we need to do every day. We feel confident about the plans we have in place for 2023.
Okay, great. My last question is just on the incremental business opportunity, specifically, developing your transportation assets. I'm hoping you can provide a little bit of an update there and ideally on the sense of the materiality of the contribution of that portion of the business and timing.
Yeah. Look, we continue to invest in that business. It's small today, you know, but certainly something that we see has material potential for the enterprise. There's really two things standing in the way of accelerated growth at the moment. One is, you know, we need to acquire incremental trucks. You know, that takes a little bit of time. Second, we need to make sure that we have sufficient drivers in our trucks to run those extra routes, and we're actively working to recruit those drivers as we speak. You know, the business is profitable as it stands today, and it is growing very much, you know, relative on a quarter-over-quarter basis, and we expect that to continue as we move into 2023.
Okay, perfect. I'll pass it on. Thank you very much.
Your next question comes from Michael Van Aelst from TD Securities. Michael, please go ahead.
Thank you, and on good quarter. I wanted to ask a bit more about the discount versus conventional trends and whether you are seeing tonnage growth overall. You know, is the industry still seeing tonnage growth and we're just not really seeing it in the simple math?
Michael, we're clearly seeing tonnage growth in our hard discount banners, clearly. Our view is that the industry is still running tonnage negative, albeit much, much, closer to flat than what we experienced last year. We're happy to see that in hard discount we've turned positive.
Okay. You believe that you gained market share, where it comes to tonnage?
Yes, we gained market share overall in both businesses together, yes.
I asked this question on an earlier call today, but on beauty, when do you start lapping at your tougher comps? Because it's been growing very rapidly over the past year. How sensitive has it been to the economic downturns in the past, when from Shoppers perspective?
Yeah, Michael, I guess the beauty category started to get going when the restrictions ended last June, and they've been going strong ever since. We've lapped that and they continue to go strong. I can't predict the future, but it still looks good. In the context of a recession, we feel those are like small indulgences that people will continue to spend on. When we look at our result historically, this is not very much affected. We think this trend should continue.
That's helpful. Finally, on financial services, you had very good revenue growth. Your EBITDA was down slightly. Can you just give us some details on the level of PCLs that you had this year and the outlook for the, you know, what you're seeing in the health of your credit card holders now?
Yes. The drop in EBIT, EBT is driven essentially by like, the movement in our expected credit losses provisions, okay, which in the banking world is a big deal. This is driven by unemployment rate forecasts driven by big banks. That's something we need to do. Having said that, when you look at the customer, clearly we're starting to see a trend going the other way. Like, the consumer spending is slowing down and we're starting to see delinquencies go up again. But we're still far from the levels we were prior to the pandemic, but there's definitely been a change in trend.
Okay. What was the PCL level this year versus last year?
The PC's what, sorry?
The PCLs for this year versus last year.
Oh, ECL.
ECL. Oh.
I don't have that number in my head, Michael. I've got a number, but I'll check and get back to you.
All right. Thank you very much.
Your next question comes from Kenric Tyghe from ATB Capital Markets. Kenric, please go ahead.
Thank you and good morning. Just a follow-up on the beauty question. Could you give some indication of where we are, you know, peak to trough in terms of how much of a recovery we've seen sort of going looking back, you know, pre-pandemic type levels on beauty and beauty spend? Perhaps also just on the evolution of that beauty spend or call it the derivative impact. You know, you commented, Galen, we saw the big lift in beauty through the summer and fall. You know, the increase of the socializing in part contributed to increased cases.
How are you thinking about the risk of those increased cases now on the other side, perhaps slowing that recovery in beauty as we move through the holiday season and into the sort of first quarter of next year?
On beauty, we're definitely past the pre-pandemic levels. We're essentially back to normal. As I was saying earlier to Michael, I think I expect the trend to continue. As to cases, I think you refer more to like other aspects beyond beauty in front of store, which is cough and cold. Cough and cold, I've had that conversation with a lot of investors over the last year. Typically, cough and cold follows a U-shaped curve, okay. Like, it's high at the beginning of the year, abates during the summer, and then picks up in the fall. What we've experienced this year has been a flat line, okay. It's been flat until about, I don't know, a month and a half.
A month and a half ago, it started to accelerate based on the comments that Galen was talking about, and now we're running at record levels of cough and cold that we've never seen before. Very tough to forecast what's gonna happen next year, but that's what we're experiencing right now.
Thank you.
Kenric, I think as a follow-up, you know, to your question about, I think what you were asking was do we see some kind of behavioral shutdown negatively impacting our beauty sales? I think the answer to that would be it depends entirely on what kind of consumer behavior change takes place. You know, if it's masks, you know, probably not. You know, if it's, you know, if there's some form of lockdown, then, you know, it certainly would. You know, we're not reading anything about, you know, that level of severity at this point. As per Richard Dufresne's point, you know, we think it's gonna continue, you know, at this more normalized level of performance.
That's great. Thank you, gents. Just a thought, switching gears. On the loyalty resets from a number of your competitors, it's obviously been a very headline-heavy couple of months. How are you thinking about your sort of absolute and relative proposition on these resets? Your ability if you need to move quickly, should you see any material changes, with respect to their value propositions? Perhaps also more specifically, how are you thinking about the Quebec most importantly in the short to medium term from a loyalty perspective?
The first question, you know, is about loyalty and relative to the new entrants in the space in our industry. The program PC Optimum is designed with an enormous amount of flexibility in it. You know, I think you can see we're out there marketing today that you can earn up to 10% in savings if you actively engage in all of the sort of components of the program. And you can earn, you know, at various lower degrees, you know, if your level of engagement is less. We can toggle up and down that investment on a per customer basis. Our capacity to be precise, you know, in response, you know, to any competitive activity is almost, you know, unlimited.
Having said that, you know, we feel extremely confident about the value proposition that is already in the market, and we're not seeing any signs at this point, you know, of anybody fundamentally matching it. So, you know, that continues to be good. We see robust performance in the markets with PC Optimum where competitors have launched. In terms of Quebec, you're speaking now of our renovation program, I'm guessing. Is that right, Kenric?
In part the renovation program, but also just sort of closing out the loyalty discussion. I mean, the more material of the resets is Quebec-based. So just trying to understand that, given that that will come to market a lot sooner than the other big reset that we're seeing, which has a much longer time to market.
Yeah. Well, I think it's the same answer that I provided before.
Mm-hmm. Yeah.
You know, our view, we're confident. You know, I think one of the things that makes PC Optimum particularly strong at a time like this is it's available in all of our discount formats. You know, that's not the case with everybody in the market.
Great. Thank you, Galen. I'll get back in queue.
Your next question comes from George Doumet from Scotiabank. George, please go ahead.
Yeah. Good morning, Galen Weston and Richard Dufresne. Just wondering, through your consumer analytics data that you have, are you seeing at all a new cohort, shopping with our discount banners, perhaps higher earners and anything there? What's the ability maybe to retain those guys, in the longer term?
Yes, we are seeing a new cohort. Maybe not a new cohort. There've always been, you know, customers like that shopping in our discount business. Certainly, you know, in the old school, you know, version of analytics, we're seeing a lot more, you know, Mercedes, you know, and Range Rovers in the parking lots in those stores than would have been the case before. You know, look, who knows, you know, how many of those customers will ultimately stay in the discount format? You know, that discount growth has been prevalent across our industry for, you know, a decade and a half, you know, which suggests that, you know, the discount formats are successfully converting, you know, higher income customers.
We see the same thing, you know, through our investment in the quality of our value proposition, the quality of our supermarkets, the quality of our opening price point control brands. All of these things, you know, are very satisfying, I think, when a higher income customer comes into one of our discount stores. If you were to ask me to speculate, I would say that we're better equipped to hang on to those customers today than perhaps, you know, we would have been with the discount formats of, you know, a decade ago.
Okay, thanks. I'm just curious about the pace, maybe the magnitude of the shift towards private label and then maybe how that compares to past periods of economic stress. Is it similar? Is it happening more acutely? Can you maybe talk about dynamics, shifts kind of within our own private label assortment, if any?
It's a long time since we've had this kind of food price inflation pressure. In fact, I think even back in the eighties, it wasn't, you know, anywhere near this high. No name was born out of a high inflation environment, you know, when there was an opportunity to deliver the same quality product at a significantly lower price than what was being offered by the national brands. It took off, you know, in a very similar context to the one that we're facing today. Over the last five or six years, we've made a considerable effort to increase the quality of our no name product. You know, our Simple Check program is a good example of that.
We are seeing an enormous amount of new trial. You know, I don't know what it was like in the 1980s, but I certainly in my time in the business haven't seen, you know, this kind of growth in an opening price point brand, you know, ever. It's pretty significant. One of the bigger reasons for that, we think, is we've got a broad assortment of no name products in produce, you know, which is one of the most acute areas for price inflation in the market right now. Just like your question about discount formats, you know, I'll be optimistic that we'll hang on to a lot of customers in that, in the no name category as well.
I do wanna say, though, that President's Choice is growing, as well, you know, not at the same rate, as no name, but it's also putting up, you know, terrific numbers, and we expect that to continue too. No name also has a value gap to the national brand. When you think of those two being the largest two consumer brands in the industry, both being better priced than national brands, it's a good place to be.
Okay, great. Just one last one, if I may, for Richard. Can you talk a little bit if you exclude the proceeds from property sales, can you maybe talk about CapEx for next year? How should we just generally think about capital intensity of the business over the next little bit? Thanks.
Yeah. I can start to give you a glimpse. We're gonna give you more details when we release Q4, but, like, we're gonna increase our growth CapEx starting next year because we're embarking on an automation journey. So we're talking like a few hundred million CAD more. One way which we plan to sort of mitigate the impact on the cash flow of the business is we still have a lot of real estate in Loblaw that was not vended into Choice at the time of the IPO. We intend to use and sell a lot of that real estate over the time of this program to mitigate the impact of this increase in capital.
I will be back to you in Q4 with more details around that.
All right. Thanks, guys. Great quarter.
Your next question comes from Vishal Shreedhar from National Bank. Please go ahead.
Hi, thanks for taking my questions. I think off the top, Richard, you may have said there was 120 basis points of pressure on the comp related to right-hand side. Wondering,
Yeah.
Wondering how management thinks about alleviating that pressure, or is that something we have to live with for the next little bit? Was there an associated gross margin impact as well?
Somewhat, but not that significant because the size of these businesses are not that significant compared to the whole thing. It's tough to predict what's gonna happen going forward, but we're focused very much on managing shrink and our inventory so that we don't need to do as much selldowns at discount prices. That's been very successful for us over the last two years as we've been managing through the pandemic.
Right. The shrink management is on the food side, right?
No, also on the right-hand side, especially in apparel. Like, if you buy too much and you end up with stuff, you're gonna have to sell it at a huge discount. We've become very disciplined in buying the right amount so that we can sell more stuff at full margin, and that's been a key driver of our gross margin improvement in apparel over the last two years.
Okay. Just changing topics here to Rx count growth. It seems to be decelerating, notwithstanding all the trends that you've talked about on cough, cold and flu, and so on. It's about 0.8% this quarter. I'm wondering if there's anything we should read into that decelerating trend over the last few quarters.
No, I think there's nothing to read into it. Like, as we said in our remarks, we're not back to pre-pandemic level on scripts, but we're getting close. We expect to get back to there over the next few quarters. We think that business continues to be very healthy.
Maybe another one, Richard, I'm gonna try to ask you about 2023 and your thoughts. Loblaw, you know, very strong earnings growth over the last couple of years. I know you're pretty committed to this financial framework and delivering that for shareholders. Wondering if you can provide any early thoughts on 2023. You know, previously the expectation was that H2 was gonna slow in 2022, but it's looking to continue to be strong, at least this quarter. Any thoughts on how investors should think about the growth cadence on the EPS line?
Well, for the moment, we feel confident in our ability to deliver on our financial framework for 2023, and we will give you more details on that when we release Q4.
Okay. The financial framework, that's 8%+?
Yeah.
Okay. All right. Thank you.
Your next question comes from Peter Sklar from BMO Capital Markets. Peter, please go ahead.
Yeah, good morning. Richard, in the past, we've talked about since you know you changed the management team at Loblaw, and you and Galen and Robert Sawyer arrived, the various things you've worked on that have had an impact on results. What's kind of top of mind now that you know the group of you are working on? What are the things you're addressing?
Well, we're working on the same things, Peter. Like, we're just focused on running our business every day, the best way we can. All the stuff we've been talking about over the 18 months continues to happen, and we still have lots to do. But we do feel good about where we're positioned and look forward to 2023.
There's no particular items you wanna call out that are warranting your attention?
Well, real estate remains a key area of focus for us. As we've said in the past, like, we've fallen behind from a square footage share in this market, and so we've embarked on a plan to accelerate our new store opening. This takes time, but I'm happy to say that I have now visibility to a significantly higher number of new store next year, but it'll take until 2024 before we reach the cadence that we want to get to. There's still gonna be more renos and more store conversions that you're gonna hear about. Based on what we've experienced so far, we're very pleased with the progress with that. Expect to see more of that.
Okay. Then just lastly, this, I know it's a bit of an awkward question, this, you know, federal government investigation of the grocery industry. I'm just wondering, have you heard from them yet? Is anything happening? Have they asked you for information or what is going on there?
Yeah. This is a fairly standard process, you know, the protocols of which, I think, are easy to get from Ottawa. It involves, you know, anybody who's interested in making a submission. As you would expect, you know, we're actively participating in the bureau's study. You know, our objective is to make sure that we share, you know, in a transparent way, all the most relevant information and to make sure that the facts, you know, of what's happening in this inflationary environment are properly understood, you know, by all stakeholders. You know, we clearly feel strongly about, you know, what's going on and the actions that we're taking to help mitigate food price inflation.
From a process point of view, have they started the process and are you working on it and submitting, like, preparing your submissions, et cetera?
Yeah.
Okay, thank you.
Your next question comes from Chris Li from Desjardins. Chris, please go ahead.
Hi. Good morning, everyone. Can you maybe talk a little bit about the shortage of certain over-the-counter medication, when you expect the situation to return to normal, and is the impact on your front store sales from the shortage, meaningful? Thank you.
Yeah. There's two things happening. You know, one is we have, you know, substantial demand, you know, over and above normal rates in this particular category. And the multinationals and the generics who manufacture these products are having trouble keeping up with demand. Everybody in the industry is facing the same challenge. We're all in the retail industry. We're all on allocation, you know, and doing our best in that circumstance, you know, to stay in stock and be there for our customers. You know, our hope is that these manufacturers, you know, as I know they're working hard, continue to improve their production systems, you know, and continue to get more and more product available to us.
At this point, it's too difficult to say exactly when, you know, this shortage will end. You know, as I said, part of it is being driven by, you know, by this unusual demand. You know, it's hard to say when that is also going to abate as well.
Okay. No, thanks for that, Galen Weston. Maybe just sticking with the pharmacy business, have you seen any improvement in the pharmacist availability? Can you also maybe provide us with an update on the deployment of central filling? Thank you.
Yeah. With all forms of labor, you know, at the moment, there are challenges. You know, it's hard to find people to work in stores. It's hard to find, you know, people to work in pharmacies, and it's hard to find people for just about anything. As it relates to pharmacists specifically, you know, we are active out there in the marketplace with the pharmacy colleges. We are active, you know, with new immigrants in the country who are already, you know, trained to be pharmacists. We're supporting them on their, you know, path to get certification in the various provinces.
What I'd say is probably the single biggest attraction, you know, that we're now seeing for new pharmacists to come to Shoppers Drug Mart is the opportunity in expanded scope of practice. You know, young graduates from pharmacy college today are looking, you know, to provide that expanded scope and, you know, our ambition in this area is a real draw for that talent. When we do go to these recruiting events, you know, we certainly get a very positive response as a result of that. We expect it will continue to be a source of pressure for us over the next, you know, six to 12 months.
At this point, we don't see it, you know, being a meaningful constraint on our growth plans as it relates to expanded scope.
Okay. How are you doing with the central filling deployment? Are you sort of halfway through the deployment?
Yeah, we're progressing well. I don't remember the exact percentage, but I think we're in sort of the high 30s% of our volume that's flowing through these central fill centers now. Those are being deployed quite easily without any glitch.
Okay. Thanks, Richard. Maybe just one last quick one for you. You know, your high teens EPS growth guidance for this year implies roughly sort of mid- to single, mid-single digits, you know, percentage growth for Q4 for EPS, which is quite a bit of a slowdown from the 20% in the first nine months. Is lacking strong comps really the main reason for the slowdown, or are you seeing anything in the near-term horizon that will cause that to-
Yeah, that's a good question, Chris. I think you need to look at it like we're getting back into more normal market conditions now. This quarter was really high because there's been some volatility because of what's happening with our non-controlling interest line. Roy will give you some details as to how this thing works, though. Essentially, though, if you take that out of the equation, though, we're gonna be performing, I would say more in line like this quarter in Q4 from an operating perspective. With the information that Roy will provide you should be able to get pretty close to where we'll land.
Okay. That's very helpful. All the best. Thank you.
There are no further questions at this time. I'll turn it back to Roy for closing remarks.
Great. Thanks, Colin. Thank you, everybody, for your time this morning. Feel free to reach out to me with your follow-up questions and circle your calendars for Thursday, February twenty-third, when we will be releasing our Q4 results. Thanks very much and have a great day.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.