Operator: Good morning, ladies and gentlemen, and welcome to Loblaw Companies Limited First Quarter 2024 Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, May 1, 2024. I would now like to turn the conference over to Mr. Roy MacDonald. Please go ahead, sir.

Roy MacDonald: Thank you, Laura, and good morning, everybody. Welcome to Loblaw Companies Limited first quarter 2024 results call. I'm joined this morning by Per Bank, our President and Chief Executive Officer; and by Richard Dufresne, our Chief Financial Officer. As always, 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 filed materials with the Canadian securities regulators. Any forward-looking statements speak only as of the date they're made, and 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's required by law. Also, certain non-GAAP financial measures may be discussed or referred to today, so please refer to our annual report and other materials filed with the Canadian securities regulators for a reconciliation of each of these measures to the most directly comparable GAAP financial measures. And with that, I'll turn the call over to Richard.

Richard Dufresne: Thank you, Roy, and good morning, everyone. Our first quarter results demonstrate continued delivery of steady operational and financial performance. Our top line performance was strong, with earnings growth in line with our framework. On a consolidated basis, revenue grew by 4.5% to $13.6 billion, and EBITDA increased by 6.6%. Adjusted diluted net earnings per share grew by 11% to $1.72.

On a GAAP basis, our net earnings per share grew by 14%. Drug retail delivered another strong quarter. Our absolute sales increased 4.2% and same-store sales grew 4%. Front store same-store sales grew by 0.7%, lapping growth of 10.3% last year. Cosmetics and health and beauty continued to deliver very strong results, supported by elevated cough and cold sales.

Overall, we are very pleased with the ongoing strength of our front store business. We have made the decision to exit most of our electronics category. As such, it will negatively affect our front store sales for all of '24 as we cycle out of it. Pharmacy and healthcare services grew same-store sales by 7.3%, driven by broad strength in prescription services. Our specialty and acute prescription growth led our pharmacy numbers.

Additionally, customers continue to respond very positively to the convenience and level of care we offer through our more than 2,100 pharmacies across the country. In food retail, we recorded strong top line growth with absolute sales up 4.4% and same-store sales growth of 3.4%. Our internal inflation rate was lower than food CPI again this quarter. This helped bring CPI grocery inflation below the headline total inflation rate in Canada for the first time in over two years. Our strong same-store sales combined with a lower internal inflation rate clearly highlights the strength of our discount banners, private label brands and PC Optimum offers.

Tonnage, traffic and market share performance were all strong. We saw market share gains in both our markets and hard discount banners with solid tonnage growth in each. As expected, the consumer shift to discount continues, with our hard discount banners outperforming our conventional stores. Right-hand side had a negative impact on Food same-store sales of 66 basis points. These categories remain accretive to our gross margin, and we continue to carefully manage inventory levels.

Online sales in the quarter increased 16.1%, and delivery continues to outperform as a channel. Across food retail, our strong sales, market share and tonnage performance are a clear indication that our efforts resonate with customers. More and more Canadians choose our stores for value, quality and service. Total retail gross margin was 31.6%, growing 30 basis points. Higher drug retail margin, mainly due to sales mix and continued progress in reducing shrink, drove our improvement this quarter.

We have executed on a number of initiatives to improve shrink in our stores and are pleased with the positive momentum. We remain focused on delivering stable gross margin this year in line with our financial framework. Turning to SG&A. Our spend rate as a percentage of sales increased 40 basis points, driven by year-over-year impact of certain real estate activities and labor cost and costs related to network optimization partially offset by operating leverage. Adjusted retail EBITDA increased by $62 million, yielding a margin of 10.9%, in line with last year.

The quarter saw a strong performance at the bank. PC Financial's revenues increased 10.7%, driven by growth in the credit card portfolio and strong services growth at our Mobile Shop. We were excited to launch No Name Mobile in the quarter, providing Canadians with a great opportunity to save on their mobile plans and even more PC Optimum points to put towards free groceries faster. One mobile expert called it the best deal in the country, and I agree with them. The bank's adjusted earnings before tax increased by $32 million with higher interest income and lower operating costs offsetting higher credit losses and loss provisions.

We remain very comfortable with the risk profile of the bank's portfolio. We have a strong and well-capitalized balance sheet, and we continue to take a conservative position in our provisioning. On a consolidated basis, adjusted EBITDA increased by 6.6% to $1.54 billion. Our retail free cash flow used in operating activities was $359 million as we typically see a seasonal outflow in Q1. In the quarter, we repurchased $470 million worth of common shares and announced a 15% dividend increase, our 13th consecutive annual increase.

Our balance sheet remains strong, and we continue to improve our key return metrics. Our return on equity sits at 22.6%, and our return on capital at 11.6%. Looking ahead, we continue to be pleased with our market share performance in Food. That said, in the second quarter, we will be lapping 6.1% Food and comps in the comparative quarter versus 3% in Q1 of 2023. So we expect Q2 Food same-store sales to be lower than Q1.

In drug, cough and cold sales are slowly returning to normal. As discussed on the last call, we expect to continue to deliver on our financial framework. I will now turn the call over to Per.

Per Bank: Thank you, Richard, and good morning, everyone. I'm pleased to be here to discuss our first quarter results with you.

We ended the quarter where we started the year, with confidence, strength and momentum across our businesses. Last quarter, I talked about the tremendous commitment, diversity and experience of our team from coast to coast. Together, we continue to execute well across our businesses. keeping costs low and providing superior value, quality and service to Canadians. That focus contributed to another quarter of consistent operational and financial performance.

This was especially evident in the strength of our Food business, Richard highlighted the financial results, the key metrics around volume and our numbers for both traffic and items sold in our Food stores this quarter were very strong and positive in both our discount and conventional banners. Canadians are recognizing that we are providing the combination of value, quality and service that they want, and they're rewarding us with their business. They are voting with their feet. I'm not sure you have all seen our new Hit of the Month promotion, which is really working well for us. Hit of the Month offers a great price on a few selected items, and it's available at the same price in all our Food and Drug stores across the country, but it is not the only value driver.

Across our banners, we're giving Canadians better value for money by giving them relevant promotions, both through our Strong Flyer program and personal offers from our leading digital PC Optimum program. Canadians remain very focused on value, and our Maxi and [NoFood] banners continue to outperform. We are building on last year's momentum with a plan for more conversions plus net new stores to add more than 50 additional hard discount stores. I talk a lot about the strength of our hard discount banners, but I'm also excited about our opportunities in our supermarket division. To give you an example, we have brought together all our superstores nationally under the leadership of Frank Gambioli.

We will now operate 180 large-format stores across the entire country from coast-to-coast, leveraging the success of our Weston Real Canadian Superstores stores with better scale, better support and more consistent customer offers while also working on improvements to our right-hand side of merchandising. This is just the beginning. We will have a few test stores ready in the fall, and depending on the results, we'll evaluate how to bring these learnings to the rest of the stores. This will help us to offer even more value and selection to consumers to drive more traffic and sales to these great stores. Across the board, we continue to build on the strength of our assets and opportunities to drive our business forward.

and we will be bringing even more excitement to all our stores. I look forward to sharing more details of these new programs as the year progresses. I'm pleased with the performance of our digital business in the quarter. As Richard mentioned, our online sales increased by 16%. That's the highest level in two years.

We continue to enhance our customer experience and differentiate ourselves by offering more choice and flexibility. Turning to pharmacy. We delivered another strong quarter in Shoppers and Pharmaprix stores, primarily led by strength in front store, where we were able to deliver same-store sales growth on top of double-digit growth last year. That continued strength was again led by our beauty business and the strong cough and cold season. Our prestige beauty categories again delivered high single-digit growth.

In pharmacy, our associate owners and their teams are playing an increasingly important role in serving the health needs of Canadians, and we continue to be a preferred destination for Canadians looking for help in managing their complex needs. I wanted to share a powerful example of how skill and scale come together to highlight our value to consumers and help to grow our business. At Shoppers, our beauty customers are already well represented amongst our most loyal PC Optimum customers. So two months ago, our beauty specialist launched a campaign to highlight the power of PC Optimum and our PC MasterCard to the rest of their clients. This measures resonated really well, generated thousands of applications for a new PC Optimum Mastercard and higher-than-average conversion rate.

Speaking of PC Finance, the bank also had a strong start to the year. Richard highlighted our double-digit sales growth, but our mobile services business actually grew faster than our credit card business in the quarter. The launch of no name mobile is just another example of us using our scale and scope to provide everyday value to Canadians. Looking ahead, our focus remains on our strategic pillars of retail excellence, driving growth and investing in the future, while at the same time, embedding ESG into everything we do. This year, you'll see our investment build - with our investment, you'll see us building even more new stores, including over 20 Shoppers Drug Marts.

Behind the scenes, we're also investing in focused initiatives to drive positive environmental and social change. I would like to share a couple of examples that I'm particularly proud of. As of year-end 2023, we achieved an 11% adoption in Scope 1 and 2 carbon emissions towards our net zero targets. As part of our carbon plan, we have entered into a renewable energy plan to eliminate carbon emissions from electricity purchases and the like, and we rolled out our first 14 heavy-duty fully electrical transport trucks. And I recently had the opportunity to drive in one of these vehicles, and they're very impressive, and I must admit I had a bit of fun there.

On food waste, we diverted more than 78,000 metric tons of food waste, up 20% from last year. Our distribution centers and each of our Food and Drug Retail stores now have an individual partnership with a food recovery program to make sure good food goes to people in need, and we reduce the waste center landfill. Today, we publish our 17th Annual ESG Report. I hope that you'll take the time to review the details of these and the many other segment and important initiatives that we have underway. We'll now open it for questions.

Thank you.

Roy MacDonald: Thanks very much, Per.

Richard Dufresne: Laura, could I ask you to introduce the Q&A process?

Roy MacDonald: Sorry, we can't hear you, Laura.

Operator: All right, everyone, ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] Our first question comes from the line of Irene Nattel from RBC Capital Markets.

Go ahead, please.

Irene Nattel: Thanks, and good morning, everyone. I was wondering if you could please give us a little bit more detail on what you're seeing in terms of consumer spending patterns, trade-down, promotional penetration, and also discretionary, more discretionary versus less discretionary items, what you're seeing there, please?

Per Bank: Yes. Thank you, Irene. I think we are seeing more of what we have seen over the past half year.

So customers, they continue to look for value. And what we have offered them in the course of extra promotions, whether it's our great and no-name promotion at the beginning or some of the other initiatives that we are doing, customers, they're turning into buying more into our promotions. So we're getting more value. And that's actually across the piece. It's both in our shoppers, in our super, and in our market division, plus in our no-sales.

So customers, they are acting kind of the same everywhere. But when this is said, we are seeing that customers, they are voting with their feet, and they're going even more into our hard discount stores. So I think that's more of the same as we have seen before.

Irene Nattel: That's great. Thank you.

And presumably, private label continues to grow more rapidly than national brands?

Per Bank: I think what we will see this year is that I expect that both the national brand and the control brand will grow with the same pace, because we have started some new initiatives where the brands are getting a little bit more focused. But when customers, they want to mitigate their own inflation, that's when we are seeing that they are buying into our control brands. They are buying more on promotions and they are shifting to discounts. But overall, I think this year we will probably see that they are moving at the same pace, because we are happy with the level that we are seeing.

Operator: Nattel?

Irene Nattel: Sorry, I was on mute.

Just switching gears for a moment. Code of conduct, a lot of discussion recently still. Wondering if you could please just update us on where you stand at this point, and how we should expect it to proceed?

Per Bank: Yes. I think we might have a bit of a new perspective here, because our teams have been working closely with the committee over the past weeks. And I think the code is beginning to get into a place where I am starting to become cautious, optimistic.

Where is it going to land? I am of course not sure, but I am more optimistic now than before that we can land an agreement on the code.

Irene Nattel: That is great. Thank you.

Operator: Thank you. Our next question comes from the line of Mark Petrie from CIBC.

Go ahead, please.

Mark Petrie: Hi, good morning. On the gross margin performance, could you just talk about the relative performance in food? And then when it comes to the favorable mix at shoppers, is that really beauty outperforming and food underperforming?

Richard Dufresne: No. I think what we are seeing is essentially are -- what's happening is our trading margin is more or less flat and shrink is getting better. That's the key thing and that's what you should expect to continue to see in Q2, because Q2 last year was our quarter of peak shrink.

So that's what's driving gross margin mostly.

Mark Petrie: Yes, understood. And it was stable in food, is that fair?

Richard Dufresne: It was better in food. It was better. Gross margin was better in food and shrink improved in food.

Like what we said to the market is we expect shrink to improve by about 20 basis points this year on top of flat trading margin. And if you look at year-over-year though, we are already at 16 basis points in Q1. So we are well on our way to deliver on our shrink improvement for 2024.

Mark Petrie: Okay. Helpful.

Thank you. And Per, I know you have plans for the right-hand side of the store, but could you just give us a sense of the timing on when we should expect to see some of those changes take effect? And what do you think is realistic timing for right-hand side to become a tailwind to the food retail same sort of thing?

Per Bank: I think it is a good question. And while I have high ambitions, I am cautious to promise a lot, and especially in this meeting. But we will see the first three stores no later than end of Q3. At least that is our plans right now, so three test stores.

And before then we will probably do some quick wins and roll some initiatives out at the right-hand side of the stores, but it is still early days and we have some of the quick wins in one or two stores now. So we are starting to see the results that I expected to see. But I think it is good to save a bit to later. So we can continue to improve our numbers.

Mark Petrie: Okay.

And maybe for Richard, can you quantify or help us sort of frame what you expect the impact to be of the exit of electronics in shoppers on bother same store sales growth and margin?

Richard Dufresne: Let me just say it is a few hundred million dollar business. That right now is declining like double digits because we are slowly exiting it.

Mark Petrie: Okay. Perfect. Helpful.

And I'll pass the line. Thanks. All the best.

Operator: Thank you. We have our next question coming from the line of Michael Van Aelst from TD Securities.

Go ahead please. Michael

Van Aelst: Hi, good morning. Strong performance on the food same store sales, but I want to focus to start on just on the front store on drugs. I am just trying to combine everything that you said. But you talked about the cosmetics and the beauty in general being stronger.

Is it just staying strong and kind of moving sideways or is it actually still growing? Was that what you were saying was growing high single digits?

Richard Dufresne: It is staying strong, Mike. That is the best way to characterize it. I mentioned in my remarks that we now start to see cough and cold starting to revert back to normal. We will see over the next few months how that goes, but we started to see that over the last few weeks. Michael

Van Aelst: Okay.

So, Per made a comment that something was growing high single digits. What was that?

Per Bank: Sorry, Mike. I missed the question.

Richard Dufresne: That was the beauty.

Per Bank: That was the beauty, yes.

Richard Dufresne: That was a beauty. So you are right. So, generally, the beauty category is actually growing over and above the food, which it has done in the past and that is also what we predict going forward. And with higher margins in that part of the store, we are very pleased with that. Michael

Van Aelst: Okay.

So, was the offset to the strong performance in beauty, the two offsets were cough and flu and electronics and were there others?

Per Bank: Food and also, there is a bit negative too, Mike. Michael

Van Aelst: Okay. On the e-commerce, the 16% growth was staying pretty strong. One of your peers said that they thought the food industry growth was flat in e-commerce, but the three of you are all delivering some decent growth. So, what are you seeing on e-commerce in food? And is it more in your discount banners versus your conventional banners?

Per Bank: So, we are seeing that the overall on online is up 16%.

The beauty is up a bit more and food is up a bit less. So, food is up still double digits. And if I look at the contribution of our food online, it's almost 15% to 20% of our total growth in the food sector. So, its a good contribution that we have. But no, it's not more hard discount.

It's as much from the normal channels that we have and as you know that we are both offering food online from our hard discount or from our conventional and from our super stores. And we are still seeing the same mix that most of the shops are being picked up in our stores. So, it is still clear and correct that matters the most, which of course we are really happy with. So, it's a meaningful contribution.

Richard Dufresne: Yes, pickup is flat, Mike.

Pickup is flat. PCX is up a lot. And what we call marketplace, Lenskart and DoorDash are up double digits. But the big, big growth, like big, is PCX delivery. That's where we are getting like triple digit growth.

Michael

Van Aelst: Okay. So, triple digit growth in PCX, I think I cut you off at one point. And then you said some growth in the third parties as well now, not as much?

Per Bank: Yes. Not to the same extent, but yes. Michael

Van Aelst: Okay.

So, why aren't we seeing better growth in discount e-commerce versus conventional e-commerce given the health of the consumer?

Richard Dufresne: Because I think we are not focused much on e-commerce and discount. Discount is a discount. There's no frills, and its primarily in the bigger stores where we can cope with picking in stores. So, for me, its more a play in the market and in the super stores. And you also see that around the world.

There's not a lot of discounters doing it. But we are picking up and we are doing better. But it is still relatively small in the discount part. Michael

Van Aelst: Very great. Thank you very much.

I will pass it on.

Operator: Thank you. Our next question comes from the line of Tamy Chen from BMO. Go ahead, please.

Tamy Chen: Hi.

Good morning. Thanks for the question. I wanted to ask, how are you driving this percentage improvement? What would you call out as the biggest game changers? Because it does not appear to be at the expense of food margin, as you said, your trading margin is flat. But you mentioned there is more uptake of your promotion. So, I would still think that would translate to some impact on your trading margin.

So, I am just trying to understand how it seems you are striking a balance, a good balance between both good tonnage, but it is not coming at the expense of your food margin?

Per Bank: I think that we can congratulate our great buyers for achieving some good promotions with still some decent margins. Because you are absolutely right. Some of our promotions are driving a lot of growth. But still remember, in the beginning of the year, we had a great no-name campaign. And customers, they loved our no-name campaign and buying more into those, even though that was not driven by promotion.

So, again, I think I said it before, I would love to get more support for our CPGs, our suppliers, because they do have money to invest. And many of them, they are also looking for volume. So, we have some good strategic partnerships with them that does help both us and them.

Tamy Chen: Okay, got it. And with respect to the trade-down by the consumer, would you say at this point the degree that they have shifted into discount has stabilized? Or are you still seeing right now every period as we go through, just still more and more are going into discount?

Per Bank: Yes, let's see.

It's difficult to predict the future. But actually, I would probably see that it's going to continue, but continue with a slower pace than before. But I think the shift to discount will continue over the next many years, like it has done in probably any other country where discount is a dominant factor.

Tamy Chen: Got it. Thank you.

Operator: Thank you. Our next question comes from the line of Vishal Shreedhar from National Bank. Go ahead, please.

Vishal Shreedhar: Hi, Richard. In the past, you've segmented shoppers EBITDA for us on the calls from time-to-time.

That's very useful. Wondering if you could help us understand the healthcare services piece within drug retail revenues. How large is that portion of the drug retail sales?

Richard Dufresne: Hi, good morning, Vishal. We don't want to share that for obvious reasons, but we're very happy with the growth in services. And so that continues to be a growth vector for us.

Vishal Shreedhar: Okay. A higher margin growth vector, correct?

Richard Dufresne: Yes.

Vishal Shreedhar: Okay. You delivered 0.3% square footage growth in the quarter. Wondering how you see the mix of square footage growth between drug retail and food as that number accelerates, looking forward?

Richard Dufresne: Yes, this year, think about in terms of new stores, we're talking 40 plus new stores, 20-ish shoppers and the balanced food.

And on top of that, we've got conversion, which we refer to as network optimization. So that was what I was referring to in our RSG&E, because 2024 is more or less the last year that we'll have a large network optimization program. So that's why you see some noise in RSG&E in the quarter.

Vishal Shreedhar: Okay. So we should think of square footage growth being more biased towards food in 2024.

That's correct?

Per Bank: Yes, because food stores are bigger than shoppers, so yes.

Vishal Shreedhar: Okay. And going forward as well?

Per Bank: We'll talk about that next year when we're there.

Vishal Shreedhar: Okay. Can you isolate for us the impact on SG&A associated with these optimization initiatives?

Per Bank: No, but it's not insignificant.

Like, it's more than $10 million.

Vishal Shreedhar: Okay. And did you highlight for us the impact of right-hand side on the comp?

Per Bank: Yes, 66 basis points. Hopefully over time we can switch that around.

Richard Dufresne: That's the plan.

Per Bank: Absolutely.

Vishal Shreedhar: Okay. Thank you.

Operator: We have our next question coming from the line of George Doumet from Scotiabank. Go ahead, please.

George Doumet: Good morning, Per and Richard. Just a follow-up to the SG&A discussion. It was 6% inflation. I think you mentioned some one-time timers there. Maybe if you can help us, Richard, unpack that just to get a good sense of maybe what the run rate could be for the rest of the upcoming quarters?

Richard Dufresne: Thank you for asking that question.

Because we said at the beginning of the year we expect our SG&A rate to be flat. And that is still the plan. The reason I feel confident about that is we've got some tailwind in the second half of the year which will allow us to offset what we're going to be facing in the first half. So that's how I would characterize SG&A for the year.

George Doumet: Okay, understood.

And Richard, we put up 11% EPS growth for Q1. Your annual guidance calls for high single digits. So early in the year, I get it. But maybe any areas that you have pointed that perhaps could see a deceleration as the year progresses?

Richard Dufresne: What we continue to say, George, is that we feel confident that we're going to be hitting EPS within our framework, 8% to 10%. And that continues to be the plan.

George Doumet: Okay. Just a final one for me. On the capital gains changes recently announced, should we think of any changes at all to maybe land sales or George Weston activity as a result of all that?

Richard Dufresne: Not really. Like it's pretty minimal, the impact on this.

George Doumet: Okay.

Thanks for your answers. I'll pass the line.

Per Bank: Thank you.

Operator: Thank you. We have our next question coming from the line of Chris Li from Desjardins.

Please go ahead.

Chris Li: Hi, good morning, everyone. My first question is, I think on the last earnings call, you had mentioned that your food growth margin is still well below the pre-pandemic level. Is that mostly because of the mix towards discount and investment in pricing and how to shrink? And then I guess a follow-up question to that would be as conditions normalize over the longer term, do you think there's a potential for food margin to return to the pre-pandemic level? Or do you expect it to be structurally lower going forward? Thanks.

Per Bank: Maybe I can start to answer the last question and Richard can take it from there.

I think that for us, we are going for a stable growth margin. And then we want to grow the business, because we want to take whatever we can negotiate on better terms and reinvest back into prices to give our customers more value because that's what they need and thereby growing the business. I think that's kind of the strategy of it, not to start to harvest a lot more margin just because we can.

Richard Dufresne: So Chris, if we go back in history, we don't want to go back to pre-pandemic levels. If you remember, we got back in bla-bla, I guess, in the spring of 2021.

And the result of our action was a significant improvement in the gross margin trend of the business. And so, stability in gross margin continues to be our objective. Having said that, even in Q1, we have not reached the peak level of gross margin that we've hit and I think it was in Q2 of '21. So we're still below that high mark.

Chris Li: Okay, that's helpful.

Thank you. And then maybe switching gear to the pharmacy clinics. Are you able to share with us how many pharmacy clinics did you open this quarter? And are you on track to open roughly about 140 this year?

Per Bank: I think we opened six so far yesterday. And yes, we are on track to do the 140 that we talked about in the last time.

Richard Dufresne: Yes, Chris, as you know, real estate in the winter, we don't open them anything.

So it starts to accelerate now. So you're going to see that pick up over the coming months.

Chris Li: This might be a bit too early to say, but I think in the past you've mentioned that in Alberta, the clinics that you've opened last year, you did see some notable halo impact on front store sales from those pharmacy clinics. I'm just curious to see, are you continuing to see that impact as you open more pharmacy clinics? And is that mature enough to actually help that we're seeing that in the front store sales?

Per Bank: I think we'll have to get back to you on that exact number. But I haven't heard anything that we're continuing to see these stores trading over and above the others.

But we'll have to come back to you on that one.

Chris Li: Okay, that's great. And my last question, more high level question for you. You guys obviously have a world class loyalty program. A lot of investment has been made over the years to really enhance the personalization with target offerings.

I guess my question is that, my question is, as the stakes in the loyalty game continue to increase with new offerings by competitors, especially in Ontario and Latvia this year, what does the roadmap for PC Optimum look like over the longer term? What can members expect more than what they're getting?

Per Bank: We have taken two new tools, so internal names, we call it CDP and P13N. So Lauren and the team, they are much, much better this year than last year to do some mass personalization to our customers. So our individual customers, they will get targeted offers, which is good for them and good for our business. So we are seeing the numbers that we are having more digital engaged customers, which is driving some of the growth and also incremental growth. So we stay bullish on having one of the best loyalty programs, digital programs in the world right now.

So we're going to do more of that, definitely.

Chris Li: Thanks very much.

Operator: Thank you. [Operator Instructions] We have our next question coming from the line of Mark Petrie from CIDC. Go ahead, please.

Mark Petrie: Thanks. I just wanted to follow up. Obviously, hard discount is a key focus for you and an area of strength and growth. And I know SKU count is one of the key levers within that concept or that channel in terms of driving efficiency. Could you just talk about what you're seeing there, the potential for shifts in efficiency? I know you've sort of had some tests and just curious if you're at the point where you think that's scalable through the rest of the network or how you're sort of thinking about leveraging that?

Per Bank: Yes, I know.

You're absolutely right. I think that some of our hard discounts, if I have to be a little bit critical of ourselves, we are running them a bit like supermarkets. So we can do it better and I think we can take more efficiency gains in our hard discount stores. But for me, it's important to state that we will continue to put proportionally more labor into our produce and into our meat because Canadians, they love the great produce and meat that we are offering in our hard discount. So we will not be copying the German discounters there.

We will do more of what we do already but trying to be more efficient. And yes, I have a list of things that we can do and that we will do and we will improve our efficiency, but I'm not that willing to share those with the world right now.

Mark Petrie: So this is something that still sort of in the test than and refine --

Per Bank: We haven't even started yet, so we're not even seeing it yet because some of the initiatives that we're going to plan, it takes time. And I also need to be careful because we have put in place a lot of new initiatives since I came on board. So we need to phase it in.

So the business and the organization can cope with it and I also need to have some good initiatives next year.

Mark Petrie: Understood. Appreciate that. Thank you.

Operator: Thank you.

There are no further questions at this time. I would now like to turn the call back over to Mr. MacDonald for final closing comments.

Roy MacDonald: Thanks very much. Thanks everybody for your time this morning.

If you have any follow-up questions, call or drop me an email. And I'll ask you to mark your calendars for Thursday, July 25th when we'll be releasing our Q2 results. Have a great day.

Per Bank: Thank you.

Operator: 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 lovely day.