Earnings Call: Q3 2021

Aug 11, 2021

Earnings release

Good morning, ladies and gentlemen, and welcome to the Metro twenty twenty one third quarter results. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call, you require immediate assistance, please press 0 for the operator. Call is being recorded on Wednesday, 08/11/2021. I would now like to turn the conference over to mister Sharon Kadosh. Please go ahead. Thank you, Aneth. Good morning, everyone, and thank you for joining us today. Our comments will focus on the financial results of our third quarter, which ended on July 3. With me today is Mr. Eric LaFleche, President and Chief Executive Officer and Francois Thibault, Executive VP and Chief Financial Officer. During the call, we will present our third 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 will use in 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 as a forward looking statement. Expressions such as expect, intend, or confident that, will, and other similar 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, and our annual budget, as well as our twenty twenty, twenty twenty one 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. A description of these risks, which could have an impact on these statements, could be found under the risk management section of our 2020 annual report. As with the preceding risks, the COVID-nineteen pandemic constitutes a risk that could have an impact on the business, operations, projects, synergies, and performance of the company. We believe these statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward looking information except as required by applicable law. I will now turn the call over to Francois. Thank you, Chavon, and good morning, everyone. This quarter, we cycled very strong sales and earnings last year at the height of the pandemic. And in order to provide a better indication of performance, we're also highlighting sales and earnings growth over the third quarter of twenty nineteen. So for the quarter, total sales were at 5,700,000,000 versus $5,800,000,000 last year, a decrease of 2%, but up 9.4% when compared to the third quarter of twenty nineteen. Food same store sales declined by 3.6% for the quarter, but grew 11.4% on a two year basis for an annual compounded growth rate of 5.6%. Pharma same store sales were up 7.6% versus last year. Our gross margin stood at 19.8% of sales versus 20% for the same quarter last year. Operating expenses represented 10.5% of sales versus 10.7% last year And COVID nineteen related expenses amounted amounted to 38,000,000 for the quarter, and that includes an 8,000,000, amount in gift cards that were given to frontline employees versus a 7,000,000 of COVID expenses in the last quarter last year. Third quarter last year, sorry. The decrease of 69,000,000 in COVID costs was partly offset by an increase in other operating expenses, mainly related to activities and services that have been reinstated after initially being paused at the start of the pandemic, such as MHR, hot foods, advertising and marketing, etcetera. Operating expenses also include nonrecurring costs of approximately $8,000,000 incurred in a transition to our new Fresh DC in Toronto due to early inefficiencies and the duplication of certain tasks as both DCs were operating at the same time for a few weeks. EBITDA for the quarter totaled $533,600,000 a decrease of 1.7% versus last year and represented 9.2% of sales, that's the same margin as last year. On a two year basis, EBITDA was up 26.1%, which represents a solid annual compounded growth rate of 12.3%. Adjusted net earnings were $261,200,000 compared to $272,300,000 last year, a decrease of 4.1%. Our adjusted net earnings per share were $1.06 down 1.9% versus last year's adjusted EPS of $1.08 And again, when we compare this to fiscal twenty nineteen, adjusted EPS grew by 17.8 for an annual growth rate of 8.5%. Our capital expenditures for the third quarter totaled 174,200,000.0 up $38,400,000 versus last year. As expected, CapEx is mainly the result of our ongoing investments in the modernization of our supply chain as well as in store technology. At the retail level, since the beginning of the fiscal year, we opened two MetroPlus stores, one Adonis in the province of Quebec, one Food Basics in Ontario. We also relocated another Food Basics and carried out major renovations in eight stores, representing a net increase of 236,000 square feet or 1.1% of our food retail network. As I mentioned earlier, investments in technology at store level are also ongoing. At the end of the third quarter, we had about 300 stores equipped with self checkouts and 140 stores with electronic shelf labels. Under our current normal course issuer bid program, we have repurchased between November twenty five of last year and July thirty of this year '5 point '8 '7 '5 million shares for a total consideration of 333,600,000.0, representing an average share price of $56.78 That's it for me. I'll now turn it over to Eric. Thank you, Francois, and good morning, everyone. We are pleased with our solid third quarter results as we cycled an exceptionally strong performance last year at the height of the pandemic. Sales and earnings declined slightly versus Q3 twenty twenty, but on a two year basis, we delivered sales growth of 9.4%, EBITDA growth of 26.1% and adjusted earnings per share growth of 17.8%, which we believe is more indicative of our underlying performance. For the quarter, as Francois said, food same store sales were down 3.6%, but up 11.4% when compared to fiscal twenty nineteen. Our internal food basket inflation was 1%, half of what we experienced in q two. With the rollout of the vaccine and the gradual lifting of restrictions, we saw traffic improve year over year for the first time since the beginning of the pandemic. Basket size, however, was down as customers increased their store visits. Promotional penetration continues to increase quarter over quarter, and we are getting close to pre pandemic levels. Online grocery sales increased by 19% versus last year and more than five times over 2019 as we added capacity by expanding the service to new regions, deploying click and collect, and with our partnership with Corner Shop. In June, we opened our first dedicated online store to serve customers in Montreal, replacing three of our hub stores. This centralized facility will offer more delivery windows to customers and improved operating efficiencies while delivering the same quality assortment and freshness that customers expect when shopping in store. We are on track with our deployment plan for the click and collect service with 119 metro stores now offering the service out of the 170 planned by the end of this fiscal year. This, along with the recent expansion of home delivery and click and collect in the Ottawa region, will expand our reach to more than 75% of Quebec and half of the Ontario population. We remain confident in our strategy, which allows us to add capacity with reasonable investments to meet the pace of demand growth. Turning to pharmacy, comparable sales were up 7.6% in the quarter and 8.6% versus 2019, with prescription drugs up a strong 9.3% driven by higher prescription counts as medical consultations resume. Commercial sales were up 3.8 with most pharmacies gradually returning to regular opening hours. Our pharma performance was also positively impacted by the administration of vaccines and the new medical services now offered by pharmacists. We proudly contributed to the vaccination effort through our network of pharmacies and four central vaccination sites we sponsored with other corporate partners, which altogether administered over 500,000 doses. The month of June marked the completion of two other important milestones with the integration of our pharmacy distribution activities and the deployment of Jean Coutu retail systems to our Briney pharmacies. As mentioned on our last call in April, we anticipate annual recurring savings of about EUR 10,000,000 starting next year in distribution and warehousing costs as we will service our pharma network as well as the Metro and Super C stores in Quebec for health and beauty products from one facility. Turning to the modernization of our supply chain, our new semi automated produce DC in Toronto is now fully operational as we completed the transfer of all of our stores from the old produce warehouse. The transition and ramp up of the new facility generated additional costs in the quarter, which we expect will partially remain in Q4 and hopefully be behind us by the end of the fiscal year. The new fully automated frozen DC is almost complete, and we will soon start the commissioning of the new automation systems in time for a January 2022 opening. Looking ahead, while we can't predict exactly how the pandemic will evolve, we expect our food sales to decline in Q4 versus last year's high levels, but to compare favorably to fiscal twenty nineteen. In our pharmacy division, we expect continued growth from prescriptions and the easing of restrictions to have a positive impact on certain categories that were negatively affected by the pandemic, such as beauty cosmetics and cold and flu products. We'll now take your questions. Thank you. Thank you. Ladies and gentlemen, we now begin the question and answer session. Should you have any questions, please press star followed by 1 on your directional phone. You will hear three tone prompt acknowledging your request, and your request will be pulled in the order that you have received. Should you wish to decline from the polling process, please press star followed by 2. If you're using a speakerphone, please lift your hands up before pressing any keys. One moment for your first question. Your first question comes from Irene Nattel with RBC. Please go ahead. Thanks, and good morning, everyone. If we could just start very quickly with sort of the last thing you said, Eric, on on pharmacy. We're hearing from others that acute Rx is still down about ten to fifteen percent. Is that the case at PJC, or or are we starting to see a better recovery there? Acute Rx? I'm sorry. Well, just so so the prescription count for, you know, sort of as opposed to the the chronic conditions. But that basically, overall, Rx volumes per pharmacy are still below pre pandemic levels but recovering. Is that what you guys are seeing? In other words, are we should we see an acceleration performance of TJC as we move through the next couple of quarters? Well, we're very happy with the performance of PJC and Brunet in the quarter. They're they're not a nice comeback, especially in prescription drugs versus last year. You have to remember last year at pharmacy, doctor's offices, there was a lot of closures and and restricted opening hours, restricted restricted access. So prescription counts were, except for the loading up front in the in the quarter, prescriptions counts were were were softer. I think we're back to pretty normal, more much more normal levels. I don't have a split between acute and chronic, to be honest, Irene, but we're very pleased with the 9.3% Rx growth, and we expect it to to have good growth going forward. That's great. Thank you. And then just moving on to the bigger business. Inflation, you noted, was basically half of prior quarter's level. What kind of discussions are you having at this point with, the supplier community? And, you know, recognizing this challenging to to anticipate, what's your general expectation around inflation as you move through q four and into 2022? So the inflation number is down this quarter, mostly on the driven by produce deflation. It's aggressive out there in produce, and and there are market conditions that that support that aggressiveness in the general market. That's the main driver. Discussions with our suppliers, we're we're hearing for for demands for increases in packaged goods. There there were there were some cost increases in the meat department this past quarter. It's a it's a tight market. It's volatile. So some weeks, supply supply can be tightened, and there are some cost increases that we that we have to live with and try try to to pass on. I would say, generally, the expectation is that, given all the cost increases that on labor and other aspects of of supplies and transportation, I think we can expect generally this fall that there should be some more inflation at retail. But again, we we will have to wait and see. We fully intend to remain competitive. It's a competitive market out there. I don't expect inflation in our fourth quarter to be that much different from our third quarter. Bookings are are are in place and merchandising plans are in place. But I would expect some inflation to be reflected at retail in a more pronounced way this fall. That's great. Thank you. Thank you. Your next question comes from Mark Petrie with CIBC. Please go ahead. Yes. Good morning. Obviously, there's been, you know, significant shift in consumer behavior and sort of pre pandemic. You touched on traffic and basket, but I'm wondering about stuff like, you know, promo penetration, private label, as well as category mix. Yes. We are seeing a gradual shift to more normal pre pandemic behavior. I think the discount channel in general is is benefit benefiting from that versus conventional, whereas conventional, had a big uplift during the pandemic as as as you all know. Promotional levels are are are back to, almost pre pandemic levels. We're very close to that, as I said in my my opening remarks. So, I think you can you can, going forward, expect that to be to be back to normal levels. Our private label penetrations are up. Think private label penetration increased throughout the pandemic and is and is continuing to continuing to stay at a higher level, which is a good thing. So we're we're pleased with that. So I would say, yeah, the the consumers are shopping around a little more with the easing of restrictions. We're seeing that in in the number of visits. We're seeing that in the lower basket year over year. Traffic is not back to where it was two years ago, and the basket is higher than it was two years ago, but we're seeing a shift for sure. And and discount is still below what it would have been pre pandemic, but is growing faster than conventional today. Is that is that fair to say? In general terms, yes. Okay. And and then just with with regards to gross margin, you know, it's up modestly from, you know, two years ago. Can you just share some commentary on the moving parts behind that? I mean, I know you don't segment between between food and pharmacy, but obviously, there's a lot of variables between the segment mix as well as category mix. So any commentary would be helpful just with regards to the drivers and then the sustainability or outlook for gross margin. Well, the gross margin is down slightly, 20 basis points over versus last year in the quarter. Food is Food gross margin was down. We said clearly last year that a large basket with lower promotional ratios was favorable to gross margin. So as we cycle that with a smaller basket and more promotions, you do the you can do the math, it's it has an impact on gross margin. The good news is that pharmacy was strong in the quarter helped on the gross margin. So net net, we're pleased with our performance. And the diversification of our business model is a benefit, and we're pleased with that. Going forward, I'm not going to give you guidance on gross margin, but we will be competitive, and we will balance the top line and the bottom line as best we can. Sorry. Just to follow-up, just to clarify, with regards to the food gross margin, I understand sort of down versus the elevated levels of last year. But is it fair to say it's still elevated from sort of pre pandemic levels and the main driver of that would be the higher sales level? Or is there something else to consider? It's it's getting comparable to pre pandemic levels. Yeah. The basket's basket's higher than pre pandemic levels, but the margin is in the same ballpark. So again, I don't wanna give you too much precise details like that. I I think the comment I made is is the answer I have. Understood. Appreciate all the comments, and all the best. Thanks, Mark. Thank you. Your next question comes from Vishal Shreedhar with National Bank. Please go ahead. Hi. Thanks for taking my questions. Just wanted to get your comments on, you know, the acquisition opportunity that you see in the market, if any. I know some firms competitors are seeing opportunity in in consulting, independents in in more rural areas. Wondering if if that's something that would appeal to Metro or if or if you have, other sites and other types of deals. I'm sorry, Michel. I could not hear your question. Oh, can you can you hear me better now? Yeah. That's a little better. You said acquisitions and then what? Sorry. Yeah. So sorry about that. So I was just referring to the acquisition market and what Metro sees. I know there's promising peers that are consolidating rural markets. I'm wondering if that's appeal to Metro or if there's other types of deals that are appealing to Metro. So, you know, we're always on the lookout for acquisition opportunities in food and pharma in Canada, so there there's no change there. No announcements to make. Yes. We're we're aware of a new, quote, unquote, player consolidating small rural pharmacies in Ontario. We're we we we are interested in making acquisitions that make sense for us, and and we'll be we'll be we continue to be on the lookout, but there's there's nothing, no change and nothing imminent. Okay. Thank you for that color. And, with respect to Adonis, I know during the height of the pandemic, it had a a little bit of challenge with respect to the prepared food categories and, perhaps labor availability. Wondering how that, banner is performing now and if it's back to pre pandemic levels or or or above. Yeah. Adonis, with a mix of stores, is largely in in urban areas, Montreal and Toronto, mostly Montreal. It's not it's it's it's been a it's been a challenge throughout the pandemic and remains a bit of a challenge today because of all of our, some of our urban stores are are seeing lower lower traffic these days with the summer and restaurants opening up and vacations and whatnot. So, Banner's still doing well, but, we're we're not quite back to to pre pandemic levels. And we're confident that, we're gonna get there we're gonna get there soon as as COVID restrictions ease more and more and people are getting their shots. So I will leave it to you. Okay. Thanks for that color. Thank you. You. Your next question comes from Peter Sklar with BMO. Please go ahead. Thank you. I noticed that you mentioned that your online sales were up 19% year over year. As we emerge from COVID, do you expect that, that sales like that that sales growth is going to slow and we're going to see some negative growth rates in online because you're up against some big quarters? And I'm just wondering if you're seeing any evidence of that kind of trend. Yes. Yes, we are, Peter. Thank you for the question. So yes, you can expect online sales growth to slow down. Again, the growth this quarter came from additional capacity. As we as we cycle that capacity quarter over quarter, we expect sales to decline, so versus the peaks of the pandemic. Still, sales remain elevated pre pandemic, so we clearly skipped a few years of ecom growth. And but you can expect that the ecom sales should come down a bit. That said, I think we're very confident in our model. Hub stores for for, the large urban areas excuse me, the dark store for the larger urban areas, the hub stores for the for the medium density areas where we can have delivery and click and collect in the rest of our stores. So I think we're well positioned, with our model to capture the demand that's out there, and we expect that demand to level off a bit from the from the peak of the pandemic. And lastly, Eric, on the the dark store that I I believe you said you started ramping it in June, are I mean, is it too early to make any comments? Or are there any learnings? Or is there anything you can tell us about how, you know, how that model is performing versus the hub stores? So, you know, it opened in June in Montreal. It's a ramp up there too, but we're pleased with the progress. We're using the same technology as we did in our hub stores. It's a more efficient picking environment. It's a more efficient delivery environment. So so we're confident that we're gonna gain the efficiencies that we we are planning for. We're not we're not there yet after a few weeks, but we we we are very confident that we will get there. They're always learning. So every week, at least if something changes and we try to improve, the test and learn is is is the norm in ecom, as you know, and we're continuing to test and learn and fine tune to improve, the economics and improve the customer experience. The customer satisfaction scores that we're getting are are are pretty encouraging. So, you know, the in stock position, the orders with missing items, so all those metrics are improving in the dark store versus the hub stores as we expected and as we hoped for. So we're looking for more of that going forward. Okay. Thank you. Thank you. The next question comes from Kenric Chai with HEB Capital. Please go ahead. Thank you, and good morning. Eric, I wonder if you could help us just understand perhaps on the cosmetic and beauty journey, you know, where are those businesses today versus where they were pre pandemic? Know, other words, how much room do you have to go to get back to prior levels? And how material, even just directionally from a margin perspective, could a recovery or, let's call it, normalized cosmetic sales potentially be as we look through to 2022? So cosmetics in our pharmacies grew nicely in the quarter versus the same quarter last year. We expect that to continue going forward as more more people, I guess, return to work and return to the office. So I won't give you a number, but I think it's it's upside for sure in the front end sales of our pharmacies going forward. We expect that category to to do better as it did this past quarter. You have to remember that in our in our front end, at this time last year, in pharmacies, we were selling a lot of COVID items like masks and gels at full prices. So, selling less of that. So that that has that's a bit of a headwind headwind for our front end in in pharmacy right now. But, cosmetics and confectionery and other departments, we're confident are are gonna see some some benefits. Those are that's my that's my answer. Thank you, Eric. And then just one other quick follow-up on consumer behavior. Can you provide any insights on across markets how different the responses may or may not have been in Ontario versus Quebec for consumers and the shift between full service and discount. Have you seen a more marked shift between channels in either market? Or how has the consumer response varied across your two markets and the channel shift varied across your two markets? So I wouldn't call it a huge channel shift and a and a huge shift between the two. I said earlier, we're seeing the the general uptick in in in traffic in the in the discount stores or or sales of the discount stores versus conventional stores. In general, as we see in the general in in the market, in the whole market, you can expect that discount should be advantaged going forward, whereas it was disadvantaged last year. So I would just leave it at that. Thanks, Eric. I'll leave it there. Thank you. Your next question comes from Michael Van Aelst with TD Securities. Please go ahead. Hi. Good morning. Firstly, on the Varennes DC, I know it's been open for a little bit now. What has to be done between now and, I guess, the start of next year to to get the $10,000,000 in in annualized savings? Well, you know, it's operations, and the big decisions, and the big savings are are are made. We're gonna be operating we are operating from one DC as opposed to two. Actually, McMahon had another little DC in Quebec City, so we we we will we will have that savings also. So it's it's occupancy, and it's fixed costs associated with running a DC. And then the the the labor is variable, so, there's not there's, you know, there's a transfer of labor from one to the other. But overall, we expect to save about $10,000,000 a year in distribution. So everything is in place to to achieve that in our plan next year. So can some of it trickle into into q four? No. There there could be some yeah. There could be some benefit in q four. Yeah. Okay. And then COVID costs, definitely down year over year, but they've been, I think, relatively stable lately. So excluding the the gift card bonuses, how much COVID costs do you expect to stick around long term due to the permanent changes in operating practices? Yes, Michael, I'll take that one. Listen, I don't know about long term. It's hard to predict long term. I think looking in the short term, at least, moving into the fourth quarter, the way we see things, we expect COVID expense will probably be, you know, max of 5,000,000 a month, going forward in in short term, excluding gift cards. Okay. And those gift card bonuses are are they pretty much done? For now, they they they're they're done, and we'll have to see again. It depends if, if we were to get back into a situation like we had, this year, but but for now for now, they're they're they're they're behind us. Okay. So, you mean your two year EPS, normalized EPS growth is comfortably within your 8% to 10% EPS growth target. So you you must be happy with that. But can we expect like, the pharmacy DC consolidation savings and the new food DCs to push that to your CAGR a little bit above your your normal targeted range in the coming over the next year or so, or is it just not meaningful enough from these savings? Well, that's the plan. Obviously, to be able to maintain our targets that we give to the Street in terms of profit growth, whether it's sales, EBITDA, EBIT and net earnings, yes, that's a plan that we want to be and make sure that we make the investments to be able to deliver at that eight percent to 10% EPS growth a year. We'll have to see how the productivity levels are improving, how fast, but, that's that's the plan. But I will I will reserve I will reserve comment until we can actually demonstrate it. Okay. So the savings, though, on these programs are to to to help you achieve the eight to 10% rather than increment? Absolutely. Yes. Absolutely. It's a it's a way, yes. In terms of reduction in operating expenses and better in store service, that's that's these are all the investments that we make to make sure that we remain competitive and that we we continue to grow our earnings as we had in the past and meet our financial targets. Yes. Okay. And just finally, your cash flows have been good, and your NCIB has been pretty active. And it looks like, you know, if you continue the pace you've done here so far, you you would run you're you'd hit that $7,000,000 limit or 7,000,000 share limit before November. Are there are you expecting to kinda stop it and renew it to get more room, or or should we just expect it to continue to go to the 7,000,000 and then renew it in November? Well, we'll see. You're right. We're ahead of pace. Almost 6,000,000 done, out of the seven admin program with a with a few months ahead of us. So we'll see. There's options available to us. We haven't made the decision yet, but, that that that could be a possibility. But for now, as as I said before, we will we will, finish the program and we'll see about additional capacity, but we haven't made that decision yet. Great. Thanks very much. Thank you. Your next question comes from Patricia Baker with Scotiabank. Please go ahead. Yes. Good morning, everyone. I just have one small question left. You referenced the fact that relative to last year, we opened some of the services in the store, the hot meals and HMR. What was the experience when you reopened those, you know, from a customer perspective? How quickly, did the customer pick up on on those those categories? Patricia, so, you know, the HMR, the hot foods counters are are back up, but it's not, at levels of 2019. So they they have reopened. The offer is adapted to a to a COVID environment, but sales are are starting to are starting to to increase, and we're about that. I'll I'll I'll color that by saying, a lot of our HMR sales are in urban stores, Downtown Toronto, Downtown Montreal, and those stores, traffic is is is down, especially this summer, with restaurants opening up and people leaving for vacation. Those those stores are are quiet. So HMR, which is a big part of their sales, is affected by that. Net net, we see HMR trending up, continuing to trend up, and we expect this fall to to to be at a higher level. Will we will we be back to 2019? Not sure. But, we certainly expect more sales from our HMR departments as as people come back come back to to the city, students, office workers, and everything like that. Okay. Thank you very much, Eric. Thank you. Your next question comes from Chris Lee with Desjardins. Please go ahead. Hi. Good morning. Just a few quick questions. First one is now that the, Fresh DC in in Ontario has been integrated, just wondering, you know, what is the timeline in terms of starting to achieve some of the efficiency and cost benefits? So, we're working very, very hard. The teams are are working extremely hard to ramp up productivity. So we're we're we're in that phase of, learning to work with a new system. It's it's semi automated. It's not a fully automated facility, but it's semi automated, which is new for produce for us. It's new period, but it's it's makes it a little tougher in produce. So we operated it with two warehouses for a while, transferring the stores. So it it it there have been some costs, as we said in in our remarks, of 8,000,000 in the quarter. We expect some some additional costs again in q four, not not at that level, but some costs. And we hope to to be back to to our expected productivity for for the new fiscal year. Again, it's it's execution and and it's making all the adjustments to get there. So we're we're working really hard, like I said, to to be at the expected levels for for the new fiscal year and and improving from there. So we'll see we'll see how we do, and we'll we'll keep you posted. But that's that's the plan. Okay. That that's helpful. Maybe just to follow-up on that, just to help us frame the opportunity from a cost perspective. Would you say the opportunity is similar to the benefits that you're gonna get from from the Jean Coutu and the DC integration of 10,000,000, just sort of ballpark? Well, the 10,000,000 at Jean Coutu was part of an overall synergy target. It was just not just warehousing. It was everything SG and A procurement, warehousing, which was part of the acquisition business case. We take the same approach when we value these big investments, is that we are looking for the same cash on cash return on our investments, whether it's the acquisition or whether it's the new warehouse. So same approach you expect on the long term of that project to be earning that rate of return. So yes, at the end of the day, it's part of trying to achieve that same rate of return and the same achievement on on on our profit growth. Okay. That's helpful. And and just, typically, these type of benefits from the DCs, you will will see them at the gross margin line. Is is that correct? Both. The in store benefits will be in the gross margin, but the the operating expenses will be the the reduction in labor at the warehouse will be in the operating expenses. So it's across the the two the two levers, but but a lot of it will be SG and A. Okay. Got it. And and with respect to the frozen DC that's, sort of come coming online in February 2022, do you expect to incur similar onetime costs as you had with the fresh DC? Yeah. Well, we we there's always a, as I say, a ramp up period. I think it will be a simpler operation, the frozen DC. So we're we're preparing and and doing everything we can to have a to have a successful transfer. Like I said, I I don't expect the same level of cost in the frozen DC next January, but we'll see. We're planning and working to, to minimize the ramp up costs. There will be some, but, I don't think it's gonna be in the same, the same level as what we're seeing in the fresh DC. Okay. Great. And maybe a quick question on pharmacy. Eric, you mentioned in your opening remarks that I think the vax vaccination revenues did have an impact, during the quarter. Did that benefit show up in this prescription drug same store sales number? Yes. And would you be able to just quantify for us? Because I'm guessing that's probably not gonna be recurring at least to the same magnitude next quarter as vaccination slows. We would have to get back to you on that, Chris. The the the contribution of vaccinations to the Rx number is is it's there, but I don't have a precise number. It's it's not that significant. No. No. Not that it's not that true. And and my last question, well, the longer term question, I think, Eric or Francois, you you mentioned last call that you're exploring, maybe launching a advertising platform to to monetize your online business longer term. I was wondering if there's any update you can provide us on on that, initiative or plan. No. I said on the last call that, we're aware of some large retailers doing that or or, planning to to monetize, their platforms for advertising. So it's something our marketing and digital teams are are are working on. No announcements to make. It's it's on our radar screen, but we'll keep you posted. Great. Thanks a lot. Thank you. There are no further questions at this time. Mister Kadosh, you may proceed. Thank you all for your interest in Metro, and we will speak again soon to discuss our fourth quarter results on November 17. Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.