Earnings Call: Q1 2021

Jan 26, 2021

Earnings release

Ladies and gentlemen, thank you for standing by, and welcome to the METRO Inc. Twenty twenty one First Quarter Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sharon Kadoche. Please go ahead. Good afternoon, everyone, and thank you for joining us today. Our comments will focus on the financial results of our first quarter, which ended 12/19/2020. With me today is Mr. Eric LaFlesche, President and Chief Executive Officer and Francois Thibault, Executive VP and Chief Financial Officer. During the call, we will present our first 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 Tibaud. Thank you, Sharon, and good afternoon to all. My best wishes for 2021, and I hope everybody on the line is in good health. Our first quarter sales totaled $4,300,000,000 versus $4,000,000,000 last year, that's an increase of 6.2%. Food same store sales grew by 10% versus the first quarter of last year. And pharma same store sales grew by 1.3%. As we indicated on our previous call, our pharmacy results were negatively impacted by the labor conflict at our Jean Coutu distribution center, which ended on November 12, with operations resuming on November 15. The conflict impacted our results through a combination of lower warehouse sales to pharmacies with the related margin impact and higher operating costs, mostly transportation. We have not adjusted our earnings to the labor conflict. Our gross margin stood at 19.7% of sales versus 19.6% for the same quarter last year. Our Food business continued to post good margin performance, but the total margin was dampened by the impact of the labor conflict in our Pharma business. Operating expenses as a percentage of sales came in at 10.4% versus last year's 10.6%, or 10.4% when adjusting for the $7,500,000 loss incurred from the disposal of our subsidiary Ms. Fresh. There was overall good cost containment considering the additional expenses incurred as part of the labor conflict at Jean Coutu, as well as the COVID-nineteen related expenses. During the quarter, there were 28,000,000 of pandemic expenses, including about $8,000,000 related to the distribution of Thank You gift cards to our store and distribution center employees in December. Our adjusted EBITDA for the quarter stood at $399,200,000 that's up $28,600,000 or 7.7%. And the adjusted EBITDA as a percent of sales was 9.3% versus 9.2% last year. Adjusted net earnings were $197,700,000 compared to $180,900,000 last year, an increase of 9.3%. Our adjusted net earnings per share were $0.79 up 11.3% versus last year's adjusted EPS of $0.71 We estimate that the labor conflict at our Jean Coutu distribution center accounted for a negative impact of $05 per share. Our capital expenditures for the first quarter totaled close to $90,000,000 with the bulk of the investments going to our distribution center projects. At retail level, we relocated one store and carried out major renovations in four stores, representing a net increase of 18,000 square feet or 0.1% of our food retail network. Also, following the end of the quarter, we opened a new Adonis store in the city of Quebec, and that happened on January 21. This opening brings the total of Adonis stores now to 15, with 11 in Quebec and four in Ontario. We are also progressing well with our in store technology rollout. We currently have two twenty eight stores with self checkout technology and 101 stores with electronic shelf tags. And we plan to have more than three thirty stores with self checkout and more than 200 with electronic shelf tags by the end of this fiscal year. Under our current normal course issuer bid program, we have repurchased between November 25 and January fifteen of this year '1 point '7 million shares for a total consideration of $102,200,000 representing an average share price of $58.39 Finally, the Board of Directors yesterday approved a quarterly dividend of $0.25 a share, representing an increase of 11.1% versus last year's quarterly dividend. This represents a payout ratio of 30%, in line with our dividend policy of distributing between 30% to 40% of the previous year's adjusted net earnings. That's it for me. I will now turn it over to Eric. Thank you, Francois, and good afternoon, everyone. We are pleased with our first quarter results, delivering continued double digit crude sales growth with good operating leverage while working through an eight week labor conflict at our Jean Coutu distribution center. Overall, top line grew by 6.2%, adjusted EBITDA by 7.7 and adjusted EPS by 11.3%. Our teams have worked tirelessly and have shown great resilience since the beginning of the pandemic to serve our communities safely, and I want to again recognize their hard work. Food same store sales were up 10% in the quarter despite some sales shifting to the second quarter given our December 2019 quarter end date this year. Both conventional and discount performed well in Quebec and Ontario as we continue to gain market share. Our internal food basket inflation was 2.5%, slightly below than the previous quarter. Traffic trends improved but remained significantly below a year ago. The larger basket size again more than offset the decrease in transactions. Strong sales have continued in the second quarter and for the first four weeks, our comp sales are up a strong 12%. We were also pleased with our sales during the holiday period. Pharmacy comparable sales were up 1.3% for the quarter with prescription drugs up 4% and front end sales down 3.8% due mainly to lower traffic, a much milder cold and flu season, and the reduced promotional activity because of the labor conflict. Warehouse sales to our franchisees were also down and operating costs increased versus last year because of the labor conflict. In the middle of the pandemic, our management team did a great job to operate the DC with about one quarter of the normal staff and to implement our contingency plan to secure the supply of drugs to more than 400 pharmacies, which was the priority. We are now back to normal operating conditions after a few weeks to gradually ramp up inventories and promotional activity. However, new government restrictions on the sale of nonessential goods have been in place since December 25 in Quebec, and this is having a negative impact on our pharmacy front end sales, which are down 11.7% for the first four weeks of the second quarter, while our prescription sales were up 5.7 for the same period. On the e commerce front, online grocery sales grew by 170% in the first quarter. Our hub stores continue to perform well and have adapted to the increased volume. The accelerated deployment of our click and collect service has begun with 19 additional metro stores now offering the service. Our plan now calls for more than 170 Metro stores to offer click and collect by the end of the fiscal year, serving about 75% of the Quebec population and half of the population of Ontario. Construction of the Montreal dedicated e comm store is underway, and we expect it to begin operations early next summer. Phase one of our new automated Toronto Fresh DC is completed and operations are set to start next month. Construction of the new automated frozen DC is progressing well and should open in one year. In Quebec, construction of our new automated fresh and frozen DC in Turbine has started, and we expect to open in 2023. Looking ahead, we will be cycling very high comp sales in the last couple of weeks of our second quarter when the pandemic was declared last year. We are focused on maintaining our strong momentum in food with continued investments in our network and innovative merchandising. For example, we recently launched a new program called My Health, My Choices to help consumers shop and find products based on customers' lifestyles, values, and health needs. Nearly 9,000 SKUs found in store will display up to three program attributes at shelf, and more than 50 different attributes can be found online or via the Metro app. With the new labor agreement in place, the integration of our pharmacy distribution operations has resumed, and the transfer of the Brunet pharmacies to the Jean Coutu DC will take place over the spring and summer, generating synergies of about EUR 10,000,000 next year. The rollout of the Jean Coutu lab and POS systems to the Brunet network is also back on track and will be completed this year. Finally, in December, we distributed over $8,000,000 in Metro gift cards to our frontline store and warehouse employees as recognition for their hard work and dedication. Two weeks ago, following the new lockdown restrictions announced in Quebec and Ontario, we decided to offer a second similar recognition program to our frontline workers, which will be paid in February. So our priority remains the safety of our employees and our customers as we continue to serve our communities during this challenging confinement period. Thank you, and we'll now be happy to take your questions. Your first question will come from the line of Karen Short with Barclays. Please go ahead. Hi. Good afternoon. This is actually Renato Basanza on for Karen. Thanks for taking the questions. So so my first question is on the ecommerce growth rate. You know, it looks like it's remained, you know, somewhat steady at 170% versus at one hundred sixty in in 4Q. But just wondering if you can speak to the exit growth rate, what that was as you as you ended the quarter. And then also if if ecommerce sales accelerated further from there, given some of the additional restrictions we've seen so far in in 2Q. I would say the the e com pace was pretty steady throughout the fall. We saw a bit of a surge or not a peak, but it surged up again when the curfew was announced in Quebec. And when further restrictions were announced in January in Ontario, we saw a bit of a of a step up in e comm again. But throughout the q one, I would say volume was pretty steady. Okay. That's helpful. And then just on the 12%, I guess, food comps in the first four weeks of 2Q, can you actually tell us what the comps were in the first four weeks of 2Q twenty? I know you talked about comps ex COVID, you know, are close to five percent in 2Q last year, but just trying to get a better sense of the most recent two year trends as you start approaching those harder comparisons at the end of the quarter? So I won't give you the exact four weeks last year. I can tell you Q2 last year, we had good strong comp sales for sure. The 12%, as I said in my opening remarks, there was a bit of a shift here between Q1 and Q2 because of the December 2019 quarter end date. So 12% is a strong number. Happy with that. Happy with the holiday sales. We continue to gain share in both markets in Quebec and Ontario. Okay. And then just just one more. Just on SG and A. If you if you adjust for COVID costs in the quarter and then and then also the most fresh charge last year, SG and A was actually down about 1% in the quarter. So can you just speak to what's what's driving the decline? And then how we should expect SG and A to trend going forward when you sort of normalize out the change in COVID related expenses year over year? Thank you. Yes. No, you're right. When you take out the loss on Ms. Fresh, you're comparing about $444,000,000 to $420,000,000 So the COVID expenses that we indicated, 28,000,000, that's the total specific expenses related to COVID, but it doesn't mean that we just absorb those costs and don't adjust elsewhere. So we do make sure that we apply good cost containment across all divisions, all departments, whether it's publicity, marketing, labor in different departments. And if you look at the split on node two, we're actually helped a little bit on the rent and occupancy charge in terms of mostly utilities and energy. So these are all things that we these are all costs that we contain. And overall, you're right, we were pretty much flattish year over year when you take out the COVID expenses. Similar by the way, similar to what we had last quarter, exactly the same situation we were in last quarter, plus a minus a few million. Okay. And and going forward, should we expect similar rates? I think so. Yeah. There'll be I I expect you will see a similar similar COVID expenses that we next quarter versus this quarter. It should be pretty much along the same ballpark. There will be another gift card that we've announced that we will book. And so and then the rest will be similar to what you see today. And it's as I said, it's our job. You know, obviously, we have high sales, on the food side, and we are able to absorb these costs, more than absorb these these costs, given the sale environment. Okay. Great. Thanks for the call. Thank you. Your next question will come from the line of Irene Nattel of RBC Capital Markets. Please go ahead. Sorry. Thanks and good afternoon, guys. Would you just be able to spend a couple of talking about what we're seeing in terms of consumer behavior as you went, you know, through q one and into early q two in terms of conventional versus discount, but also just in terms of the composition of basket? You know, did you see any pickup because people weren't able to eat out? Kind of what you saw and what you're continuing to see? Thanks, Irene. So we saw continued similar behavior over the last few months. Clearly, with the food out of home opportunities very restricted, it's benefiting our channel, has been since the beginning of the pandemic. It was strong throughout the fall. We experienced good tonnage and good sales in meat and seafood. So proteins were were up strongly for us, contributing a bit to our higher inflation rate than what you saw reported in CPI. So, you know, I think the teams did did a great job. I think our merchandising has been effective both in store and online. Our our protocols, our in store conditions are are pretty pretty strong. Very pleased with the work that's been done in in our stores. I think consumers are feeling safe in our stores. So we're seeing a slight improvement in consumer traffic, although it's still, as I said, down year over year. Basket more than offsets it. Conventional and discount, we're seeing strong growth in both, to be honest. It's still a bit higher in conventional, but we're very pleased with our discount performance in both of our markets. So for competitive reasons, I'll just leave it at that. Understood. Thank you. And just finishing up on that promotional intensity, any changes there? Always always pretty intense, very competitive. Promotional, you know, activity is strong. Promotional penetration in the overall larger basket remains below a little bit last year, but certainly more in line with usual patterns that we saw before. So it's it's the promo the promo rate's increasing. It's still it's still slightly down versus year ago, but very slightly. That's very helpful. Thank you. And just one final question, I might. Switching gears to to what's going on in front of store, in your pharmacy banners. Can you just provide us a little bit more color in terms of what you're seeing, traffic wise, but also what you're seeing in the essential versus nonessential categories. So so this is the law right now in Quebec that you Yeah. We can't sell nonessential goods. So it's a government regulation and law. We we abide, and we have to abide. And it is what it is, and it's enforced until February 8, at which time we hope that it will be lifted or or partially lifted or or or whatnot. So we just we just have to live with that. It affects categories, general merchandise that we sell and mostly cosmetics, which is a significant part of our front end sales in Jean Coutu and in Brunet, as you know. So we're not allowed to sell them. So that's an issue. On the traffic side, that's also impeded by the very mild cold and flu season versus a year ago. As you know, when you have a cold or a flu, you tend to go to the drugstore to pick up either a prescription and or some OTC. And while you're at it, why not some gum and whatever. So clearly, when when there's less people coming through the door, it has an impact on sales. So we're mitigating that as much as we can with good promotional activity in the categories that we can sell. The categories that we cannot sell in store, we try to sell online and via click and collect much as we can, but that's, you know, much smaller than in store as you can imagine being a a community proximity convenience type shopping experience. So, you know, we're doing our best in a tough environment, and we hope again that on on in early February, restrictions will will be lifted. We'll just have to wait and see. Thanks, Eric. As both a consumer and an analyst, hope you're right about February. Yep. Your next question will come from the line of Vishal Shreedhar of National Bank. Please go ahead. Hi. Thanks for taking my questions. I'm just wondering if you're able to provide additional color on the impact associated with the warehouse labor disruption. How much of that $05 was due to lost sales and how much were due to other costs? So just give you a ballpark here, about two thirds of the the miss was lost sales and margins on those sales, and one third was the extra cost. So I think those are the numbers we're willing to to disclose. Francois? No. That's good. That's about right. You can that's a ballpark figure. That's that's about the display, Vishal. Okay. Thank you. And so just just to be Vishal, just to be clear on the on the lost sales and margin, as part of the contingency plan to service our pharmacies and prioritize prescriptions and and medical products, we had to make some choices with limited it's only management staff that's locally in Bahrain that could work in the warehouse, so we had very limited staff. We were able to operate, and the guys did a fantastic job to service our our our pharmacies, but we had to outsource some volume to another distributor. We had to do more direct to store deliveries, so therefore, the warehouse shipments, were lower, and, therefore, the margins were lower. So it's it's it's ripple. It's behind us, and that's it. Okay. I appreciate that color. And just staying on the same topic of of making choices within pharmacy, with respect to the COVID nineteen vaccine that's rolling out, has there been any discussion with the Quebec government on how Metro and PJC may be able to help deploy that? And if so, would p g PJC require any facility retrofits or investment to facilitate the distribution like freezers or something like that. Yes. So, yes, there have been some discussions with the Ministry of Health. Clearly, with the limited supply of vaccines, the priority for them is to vaccinate people in the health system and the long term care homes in the priority list. As far as we know, community pharmacies will be asked to get involved and contribute to the vaccination effort for the general population when the quantities and the supply is better. So I guess sometime this spring, the sooner the better. We all wanna get vaccinated. And our pharmacies at both Crete Coutu and Brinet have a good experience. This fall, we did the flu vaccine, over 300,000 doses. It went well. And the pharmacist will be ready and willing and able when the government gives us the green light. So we'll just have to wait for for for their for their direction. But it's there are discussions, and and as I said, we will be ready when they are. Okay. And should we assume at this point the economics would be similar for PJC as a as a as a flu shot and and standard medication, or is that a different story there? No. The economics are not confirmed yet. There should be a fee for the pharmacist. It becomes a sale for the pharmacy and on which we make a royalty. But, again, those those are are not the priority of the financials. The financials is to get the vaccine out as fast as we can. We'll we'll just have to wait for the health department. Yeah. Absolutely. Okay. Makes sense. And, just switching gears here to some other topics. On the ecommerce offer, obviously, much demand for it and Metro making investments and, and accommodating the customer. Can you comment on your the the customer satisfaction scores in any way possible and and if you're satisfied with what the customer is telling you about your offer? So we track consumer satisfaction, customer satisfaction throughout our business, but we certainly do it for our ecom. Yes, we're pleased and we're making progress. We're not perfect. It's a challenge, you know, the delivery availabilities, the substitution rate. So there are lots of metrics we're monitoring. I can tell you that we're getting better. Volume is strong, our consumer satisfaction metrics are improving. But we have work to do and the teams are very focused on that. We expect the dedicated store that we will open in Montreal next summer will help us with some of those metrics in addition to adding capacity. So it's it's really a part of our omnichannel strategy. So, you know, we have satisfaction in store. We have satisfaction online. It's it's the Metro brand, and I think overall, we're doing pretty well. Okay. And lastly, just with respect to all the customer changes, preference changes you're seeing happening so rapidly, and presumably some of them will be for a short period of time, how does Metro management know, or is there any tools Metro management's using to to figure out what customer behaviors are short term and and no need to change your formats to adapt to such transient short term behavior, and what is more long term and sticky? Is there some analytics that you can use from Dunhumby, or is it more of a little bit art and science? Well, for sure, we have a lot of insights, and we have a lot a lot of analytics in house and with with our partner, Dunhumby. So the teams, you know, I think are combining data with experience and adapting quickly to consumer demand and consumer trends. So for obvious competitive reasons, we're not going to give you every little recipe and secret here, but it's very dynamic. The pandemic clearly has has changed some habits. We we all know that. We're all working from home. We're all eating at home a lot more. So, you know, we we need to be there. We need to make it easier. We need to have the right variety. We need to be on on on trend for health programs. That's why we just launched this My Health, My Choices. It's it's what consumers are asking for, local products. So it's a lot of moving parts, but our team teams with an s are doing a great job to to respond to that. Thank you very much. Thank you. Your next question will come from the line of Michael Van Nelst of TD Securities. Please go ahead. Hi. Good afternoon. Wanted to follow-up on a few of the things you mentioned. First, if we if we look at the, at the impact of the RIN strike, you you told us it was two thirds from lost sales or margin. Are you willing to give us a dollar amount that you think you missed in in sales? And whether and on top of that, you know, you when you look out to the current quarter, are these sales that you'll get back as as the cuss as your franchisees have to restock and build up inventories again? Or were they fully replaced by, the other distributors you use? So on the on the sale, I'll start I'll start with the the sales. And, obviously, you know, we don't break down farm and food. But if you just do a rule of three, given that food is about 75% of our business, and you assume it grows at the same 10% in the same store, it implies that pharma was down by a mid single digit year over year. And that's the reality of reality of what happened during the conflict. So these lost warehouse sales to franchisees, the impact on margins as we said is about two thirds of that amount impacted margins. So we would have had a higher margin gross margin percentage of sales than what we posted. And the rest of that impact is in OpEx, mostly higher transportation costs given that we shipped from DC that was farther away. So that's the impact of that lost sales, higher OpEx on our results. As far as the recoup of those lost sales, over time, gradually, I think it'll all even out. But short term, pharmacies have restocked elsewhere for some of these products, there's a lag. Okay. So but if they've restocked from else other sources, then they don't necessarily have to make up for the lost mid single digit sales that you had in the quarter. Is that correct? Yeah. Maybe not all of that. Right. Okay. Alright. Thank you. And then on the the Christmas shift for food, is 1% a a good estimate as to what that might have been? Yeah. Yeah. It's it's hard to put we didn't give you a precise number because of COVID, there's it's hard to give you a precise number like we used to do before when the shift was an important part of our story at this time of year. So there was clearly a bit of a shift between 0.51% in that range. Okay. And then inflation really slowed down, at least the CPI did in December, and was hardly up year over year. But I think early in January, we started to see produce prices going up and poultry prices going up. Are you expecting to see a reacceleration of inflation in the first half of calendar twenty one? Hard to say, Michael. Hard to say. I think, you know, our mix is showing a bit of a higher rate than CPI, mostly driven by protein, like I said. Produce inflation is is hard to predict. It it can be fickle. It's it's weather. It's currency. It's a lot of stuff. It's fruit you know, it's it's I I would say, you know, our our 2% two two to 3% inflation number is that's what we're kinda seeing, but no crystal ball, my favorite favorite expression. Alright. And then when you look at that drop in the first four weeks of the front store pharmacy, down 11.7%, are you able to quantify or at least kinda give us a rough estimate of how much of that you think is nonessentials? I don't have a a breakdown for you. Clearly, there's actually, the the nonessential is is restricted since December 25, so it's part of that story. The the cold and flu is part of that story, so hard to give you a precise number. It's a it is a substantial part of it, the the nonessential. But but, you know, sorry. I don't I don't have a more precise number for you. Alright. And are you seeing any progress in in in moderating that erosion with your online sales push? Pretty pretty modest. No. It's, you know, we're in week six right now. We gave you the first four, so it's it's pretty similar. It's not I guess it it seems to be tougher on front store pharmacy to gain traction than it is on grocery. Is that fair? Well, because of the restrictions, you mean, or the restriction So there's that legal restriction, and there's the traffic decline due to the mild cold and flu season. There you know? And I guess on the grocery channel, we're getting a bit of those haba sales in our stores as people do want some one stop shop. So several moving parts, but the big the big reason is the legal restriction on nonessentials and the lower traffic because of the of the flu season. Okay. And then just finally, so you've talked about really rolling out the click and collect throughout this year to a lot more stores. You've had good cost controls on your SG and A during this last little bit. How do you see that changing though as you start to add labor and to satisfy the click and collect demand? We don't think that the click and collect demand that will that will be serviced out of those click and collect stores will have an impact on that SG and A. It will be absorbed by those stores with their current labor. We're not talking huge volumes here by store. It's a service. It's an added service for consumers who want that online experience and click the time they want in in their local store. So, yeah, there there will be demand for that, but it it shouldn't affect the the labor line. Perfect. Thank you. Yeah. The depreciation the CapEx investment is also quite measured for these for these these that rollout. Great. Thank you, guys. Thank you. Your next question will come from the line of Mark Petrie of CIBC. Please go ahead. Yeah. Good afternoon. You touched on a lot of things I wanted to ask about. But I guess just a one follow-up. I'm just curious if you're seeing any changes, you know, as as e commerce kind of steadies out here to some extent. If you're seeing any changes in in terms of consumer behavior with regards to, you know, basket size or, you know, promotional weight within the online basket or product mix. No, I think I answered that in a previous question. We're not pandemic and the online surge or acceleration is the big change in behavior. The basket of the online customer is pretty similar than than it's been since the the beginning of the pandemic. So the promotional rates, I've I've already answered that. So it's it's it's promotional. It's intense. But because of the large basket, the total promo rate may be slightly slightly down versus last year, but nothing material. We're getting really close to to normal promo levels. And then with regards to the to the costs specific to the pandemic, you know, obviously, the the sort of gift card incentive is you know, you play it by year depending on the conditions. But but the balance of that, do you think that that sticks with you through basically through the rest of this year, or or how are you thinking about those costs in the business? Well, yeah, I think it would be fair to say that we expect most of these costs for greeters at the door, cleaning, extra sanitation and cleaning, masks. Yeah. I think it's fair to say that we should expect those to, to be with us for, for the rest of this fiscal year, you know, if you wanna be conservative. Yeah. Okay. And then just my last question. I wanted to ask about the relative price spec spread between conventional and discount. I'm just curious, you know, how that has evolved as consumer preferences have shifted over the last year and how you think it could evolve as taste potentially, you know, you know, revert maybe back to, the more historical balance, you know, as the vaccine rollout continues, pandemic impact subside, and consumer behavior reverts to some extent? I don't think there's been any change in the relative price positions of discount versus conventional. It's pretty consistent. There's nothing really to to report there. Okay. Appreciate it. Thank you. Thank you. Your next question will come from the line of Peter Sklar of BMO. Please go ahead. Good afternoon. Eric, you've talked a couple of times on the call that in terms of promotional penetration and promotional intensity, it's pretty high, really. Hasn't eased off at all. And I just wanted to ask you from a very high level, given, you know, this huge COVID tailwind that the Canadian grocery industry has experienced, you know, these strong comps. Like, you had a 10% comp, and everybody's comping so well with the channel shift of the consumer into grocery. Are you surprised a little bit that competitive intensity hasn't eased a little bit? Because everybody's getting their sales. So just wondering how you see that. Well, I'm not surprised. We have strong competitors and everybody wants to keep and grow share. So it's competitive out there. Consumers have a lot of choice. So we're focused on our own program, our own banners, safety first for our employees and our customers with a good innovative merchandising and good store conditions, draws the customers and keeps the customer. We had our online experience to have more of an omnichannel strategy and gain even more loyalty. So it's it's part and parcel of of our strategy, which has served us well so far in this pandemic. You're right to say that everybody's sales are up, no bragging, but on a relative basis, we gained share over the course of the pandemic in Quebec and Ontario. Not huge amount, but we've gained share, so we're pleased with that. The promo intensity, you know, we we are competitive. We check prices and and are very diligent on our being competitive at shelf and with our promo. So far, we're pleased with our results. Okay. And then just on another topic, I believe you said that the Ontario new Fresh DC, it's it's opening soon. I I can't remember if you said next week or next month. It's very soon. So operations have begun to to receive a bit, and and they're in the they're in the building now. It's construction's over. It will start in the next couple of weeks to ship to to our stores gradually, so we'll do some waves. It's gonna be about a three month rollout here to to transfer all the stores to this new DC. It's partially automated, so new ways, change management, all all of that stuff. But we're a lot of good work has been done. We're we're ready, and we're looking for for good results from the new fresh phase one box, which is in Toronto on on Dundas and the 427. Right. So so I I assume that your cost structure will be much better in the DC. But from the perspective of the consumer, do you think the consumer will be able to perceive some change in the in the quality of the of the produce that they're seeing in in the store? Like, is this a little bit like the fresh program? I think it will help. The current produce facility is old and dated. We have a lot of turnover in there. I think our product is fresh and it's all good generally. But in a new state of the art facility, we will have better conditions, better operating conditions, and I think product quality will only improve. We saw that in Montreal when we built the new produce warehouse. We we had we had better better execution and and better quality, which reflected at at store level and was was felt by the customer. I think our quality is is fine in Ontario. I expect it to be just a tad better with the new facility. Okay. Thanks very much. Thank you. Your next question will come from the line of Chris Lee of Desjardins. Please go ahead. Good afternoon. Eric, you mentioned earlier you extended Click and Collect to 19 stores during the quarter. Are you able to see if most of the sales are coming from new customers rather than transfer from existing in store sales to online? So for competitive reasons, we're not gonna give you those numbers. It's it's starting, so those 19 stores are are are recent. The volume is ramping up. Some of it comes from existing customers. Some of it is an extra trip from an existing customer, so new sales, and some of it comes from new customers. So we're tracking that carefully and monitoring the situation, but for for competitive reasons, we'll just leave it at that for now. Okay. That that's fair. And the the industry the industry will be lapping a fairly weak Canadian dollar in a couple of months. How do you expect a strong Canadian dollar to impact your business? Do you expect it to result in more deflationary pressures when that happens? Hard to I said earlier, there are a lot of factors at play to determine cost and pricing. Typically, when the Canadian dollar strengthens, are able to absorb cost increases and it can result in lower prices at retail. But again, I won't adventure venture to say and make a big prediction here, and we'll see how the currency behaves over the next several months. It's gonna be one factor. It could help reduce prices, but there are other factors at play. Okay. That's helpful. And maybe just on on the gross margin, wondering if you can maybe review for us what are some of the key gross margin drivers this year. I mean, on the one hand, obviously, the industry will start to lap the benefits of bigger baskets and maybe less promotional intensity. But on the other hand, you'll start to get some of the efficiency benefits from the Fresh DC and the Pharmacy DC consolidation. You expect gross margin this year to be sort of roughly stable? Or what are the things are you looking at this year? Well, this year, gross margin, I think, has been healthy. Volumes have been good. So with high volumes, it's good for gross margins. The promo rates, as the pandemic started and evolved, were lower. So I said is that we've caught up there, but it did have an impact on gross margins with very high volumes at store level, there's lower shrink. So that also helps for And the conventional to discount mix skewed a bit more to conventional this year, which also helps. So there's lots of moving parts on the gross margin. You know, looking looking ahead, we think we have good programs. Our our fresh ratios are strong and healthy, which which bodes well for for gross margin. Some, you know, HMR is still hurting. Cut fruit is still hurting in our produce department. Those are higher margin items, but it's offset by by a lot of other factors, and we we've been able to mix it back, and we're satisfied with our margin. How it will evolve? Again, I'm not gonna give you a guidance on gross margin rate, but we feel we're in a good position to to keep them healthy. Okay. That that's helpful. And maybe just one follow-up just on the DC modernization in Ontario. I remember when the announcement was first made, I guess, it's back in four years ago in 02/2017. I think the press release referenced that, you know, roughly about a 80 full time and hundred part time position will be reduced starting in 2021. Just wondering if that is still that's still the case and and how much savings do you expect to, achieve from this, the new DC? So I can get get you get back to you with most whatever we announced four years ago. I don't have it in front of me. Yes. There will be some some efficiencies by going partially automated. There's a ramp up period here where we're gonna be operating basically in two centers. So it's gonna take take a bit of time. I think I'll let Francois get back to you, Chris, on that. Okay? Okay. No. That's fine. Maybe one quick one for Francois. Your your leverage is around two and a half times debt to EBITDA. I think that's within your comfort zone. Do you expect to maintain a similar pace of share buyback this year as you have done in the last quarter? Yes. I think on the leverage side, we're still comfortable with the 2.5 adjusted debt to EBITDAR. That's a again, Chris, that's a pre IFRS level. So it's about close to three times on a post IFRS, just so we're apples to apples because there's more accounting debt that we have to factor in. No change economically, no change in our leverage target. So we're still quite comfortable. And yes, everything else being equal, the pace of buybacks that you saw in Q1, that's a good pace. We know we have authority to do a level of service last year. So we're going to everything else is equal, we will continue at that pace with the excess free cash that we generate. Okay. Thanks very much for your answers. Thank you. Thanks, Chris. We have no further questions at this time. I'll now turn the call back over to the presenters for closing remarks. Thank you all for your interest in Metro, and we will speak again soon to discuss our second quarter results on April 21. Thank you. This concludes today's conference call. Thank you for joining. You may now disconnect.