Operator: Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Loblaw Companies Limited Fourth Quarter Results Conference Call. [Operator Instructions] Thank you. Mr.

Roy MacDonald, Vice President, Investor Relations. You may begin your conference.

Roy MacDonald: Good morning, everybody, and thank you Chris. Welcome to the Loblaw Companies Limited fourth quarter 2018 results conference call. I’m joined in the room this morning by Galen Weston, our Executive Chairman; Sarah Davis, our President; and Darren Myers, our Chief Financial Officer.

Before we begin today’s call, I want to remind you that today’s discussion will include forward-looking statements such as the company’s beliefs and expectations regarding certain aspects of its financial performance in 2019 and in future years. These statements are based on assumptions and reflect management’s current expectations and are subject to a number of risks and uncertainties that could cause actual results or events that differ materially from our expectations. These risks and uncertainties are disclosed in the company’s materials filed with the Canadian regulators. Any forward-looking statements speak only as of the date they are made. The company disclaims any intention or obligation to update or otherwise revise any forward-looking statements whether as a result of new information, future events, or otherwise other than what is required by law.

Also, certain non-GAAP financial measures may be discussed or referred to today. 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 comparable GAAP financial measures. And with that, I will turn the call over to Darren.

Darren Myers: Thank you, Roy, and good morning, everybody. We’re pleased to end the year with another quarter of strong operational and financial results.

On November 1, we completed the spin-out of Choice Properties to GWL. As such just less than four weeks of Choices’ financials are reflected and recorded as discontinued ops in our fourth quarter results. Looking at continuing operations on an adjusted consolidated basis revenue grew by 2.1%, EBITDA increased by 1.5% and fully diluted earnings per share grew by 1% to $1.03 in the quarter, including discontinued operations we came in at $1.70 per share. On an IFRS basis, net earnings available to shareholders from continuing ops increased by $252 million year-over-year. The increase was mainly due to charges recorded in the fourth quarter of 2017.

We continued to deliver on our financial plan in the quarter. Our same-store sales grew 0.8% in Food retail and 1.9% in Drug retail. We're pleased with the underlying performance of our Food business as we delivered same-store sales growth while driving margin expansion in the quarter. Our year-over-year Food retail sales were negatively impacted by approximately 100 basis points in the quarter primarily due to softer sales in general merchandizing and from healthcare reform impact to our in-store pharmacies. Excluding this, our Food retail same-store sales grew at 1.8%.

Food retail benefited from mix in the quarter. We brought more traffic into our stores and drove an increase in the basket. Similar to last quarter our CPI equivalent internal inflation metric came in moderately below CPI. However, when you look at the various indicators such as mix and average item price, we see inflation is generally in line with CPI. In Drug retail, front store same-store sales were higher by 2.8% with growth in all major categories.

Positive Pharmacy same-store sales growth of 0.6% was attributable to a strong prescription growth of 3.1%, which more than offset the negative impact of drug reform. Total retail gross margin was 29.6%, an improvement of 20 basis points from the same quarter last year. Excluding the consolidation of franchises, retail gross margin declined by 30 basis points, driven by the negative impact of healthcare reform. Food retail gross margin improved in the quarter as we continue to make progress with our focus on promotional effectiveness and shrink improvements. Retail SG&A as a percentage of sales of 21.9% are 20 basis points higher than the prior year.

Excluding the impact of franchise consolidations, Retail SG&A improved by 30 basis points. We were pleased with our progress delivering savings from process and efficiency initiatives, effectively offsetting cost headwinds while enabling investments in the business. At PC Financial, revenue grew by 22.6%, supported by continued growth in our credit card portfolio and a very strong holiday season at our mobile shops. Adjusted EBITDA declined CAD 13 million compared to Q4 last year, as revenue growth was offset by the termination of our daily banking services and increased investments in the business. Free cash flow from continuing operations was negative CAD 162 million in this quarter, and positive CAD 670 million for the year.

The fourth quarter and full year were negatively impacted by timing, as a result of advancing certain first quarter payables to the year end, as we transitioned our shoppers back office to SAP. This impacted our cash flow by almost $300 million. In the quarter, we repurchased 3.9 million common shares for cancellation for a full year total of 16.6 million shares or 4.5% of our outstanding shares at a total cost of almost $1.1 billion. Turning to the full year, our financial plan was set to deliver essentially flat adjusted net earnings growth in a year where we faced into more than $440 million in expected incremental cost headwinds. This required the underlying business to deliver strong double-digit earnings growth.

Against our 2018 full your outlook, we delivered full year same-store sales growth in Food retail of 1.1% and 2.4% in Drug retail and adjusted retail gross margin was flat compared to last year. Adjusted net earnings grew by 0.2% and adjusted earnings per share grew by 5%. We are very pleased to have delivered on our financial target while maybe making meaningful investments in the business. Looking ahead to 2019, on a full year comparative basis, excluding the impact of the spin-out, we expect to deliver positive same-store sales and stable gross margin in the Retail segment, deliver positive adjusted net earnings growth, invest approximately $1.1 billion in capital expenditures and return capital to shareholders by allocating a significant portion of free cash flow to share repurchases. Related to the spin-out of Choice Properties, the company now expects to record a prospective incremental non-cash annual depreciation and amortization expense of approximately $85 million as a result of the change in estimated useful life of certain building components owned by Loblaw.

We expect to see continued cost pressures in 2019 including the previously announced healthcare reform which we will not last until the second quarter. Our focus continues to be on driving process and efficiencies throughout the business, while we accelerate our investments. Finally, let me provide a few comments regarding IFRS 16. As required, we will implement 16 in the first quarter of 2019. On a go-forward basis, there will be a decrease in rent expense and an increase in depreciation and amortization and net interest expense and other financing charges, although we continue to work through our analysis.

At this time, we do not expect the new standard to materially impact the company’s net earnings. In conclusion, we are very pleased with our strategic progress and operational performance again this quarter. We are delivering process and efficiency gains, supported by a culture of operational excellence. These savings are helping offset cost pressure and are enabling our vestments and our strategic growth areas. We'll now call - turn the call over to Sara to provide additional color.

Sarah Davis: Thank you, Darren and good morning everyone. Q4 brought a fitting close to 2018, a year in which we set thoughtful but ambitious financial targets and then follow through on them. We saw strength in the underlying Food and Drug results, delivered through strong sales, core growth margin expansion based on data-driven margin decisions and SG&A disciplines with new process and efficiency wins. In turn, we intensified investments in the right strategic areas. Our strategy is designed to rapidly accelerate growth in three important areas that matter to our customers.

Everyday digital retail payments and rewards and connected healthcare. We’ve made significant progress in each of these areas. It was just over a year ago that we launched PC Optimum and we now have more than 18 million members. The launch was followed by a strategic partnership with SL and the continued rollout and enhancement of our PC insider’s subscription service. Together, these products and services have created a loyalty loop that rewards customers personally, while encouraging them to return to our stores and services more frequently.

Similarly last spring we pledged to blanket Canada with digital conveniences, and looking back we did just that. Today PC Express pickup is only 10 minutes away from 75% of Canadians and 85% in the GTA, and home delivery is available to 65% of Canadian households. We have 670 PC Express pickup locations and grocery stores shoppers drug mart locations and go transit stations with more locations on the way. We've shortened timeframe so customers can order groceries online for pickup in as little as one hour delivering greater convenience and flexibility to our shoppers. In many regions more than half of our online food orders are for same day with less than four hours from order to fulfillment.

Our tendency to speak most about our digital food business, often overshadows our broader digital initiatives across beauty, pharmacy and apparel. The grocery leads our omni-channel offers each of the others has become a meaningful business growing adding categories and brands driving online sales. In 2018 our e-commerce sales surpassed CAD 0.5 billion. At a 2018 was about scaling our digital services 2019 is about execution making further investments in technology, driving customer adoption and improving customer satisfaction. In other words we will strengthen the ties that bind our customers, services and offers.

Our key performance indicators show that we're on track. So we will continue to invest with confidence. In 2019 it is equally important that we deliver significant progress and efficiency savings. This too is on track. I'll give you a few example.

We are adding self-checkouts at pace with plans to be in over 1,000 grocery and drugstores by year end, with over one-third of customers choosing self-scan does not only increases efficiency but has notably driven up customer satisfaction scores. We are rolling out an app-based service called Flash Foods. It connects customers with our stores. It shows them food items that are nearing their expiration date and allows them to buy these items online at significant discounts. This not only pleases customers, delivers value and draws traffic, it moderates our shrink costs and food waste, two major focal points for 2019.

We have also introduced electronic shelf labels in five stores with plans to expand to 50 stores this year. They look just like our paper labels but are digitally and centrally controlled. They give us greater pricing accuracy and reduce the time that goes into manually changing shelf labels over and over again for promotions and corrections. Changing price labels is one of our colleagues’ least favorite tasks and a change to electronic shelf labels has allowed us to reassign hours and people from old analog time consuming roles to new highly productive roles such as picking for PC Express. And on the topic of colleagues, in Q4 we gave our corporate store colleagues access to digital schedules assessable on their mobile devices, providing the ability to view their schedules or request a shift change.

This not only allows us to have more efficient interactions with colleagues, it's representative of our efforts to improve the colleague experience with the expectation that in turn will improve our customers’ experience. Our strategy is gaining momentum and we continue to make significant investments with confidence. Investments in our people, our cultural, operational excellence and delivering more for our customers and in continuing to deliver shareholder value. I will now turn the call over to Galen.

Galen Weston: Thank you, Sarah.

I don't have too much more to add other than to say that during a year of more or less flat earnings performance when it came to delivering against our long-term strategic priorities, 2018 was an extraordinary success. We launched three key products as part of our payments and reward strategy with the new digital credit card platform, PC Insiders and of course PC Optimum. We achieved scale on rapid growth across three of our major everyday digital retail platforms, grocery, beauty and pharmacy significantly improving customer satisfaction along the way, and we continue to cement the technology foundation for connected healthcare. Equally important is the remarkable traction we see from our data insights initiative, and our process and efficiency work, fundamentally improving our core business for both our customer and our colleague. Successfully achieving these kinds of strategic objectives, while at the same time delivering our financial plan is our job.

What is particularly exciting about 2018 is how well they're actually working and the potential incremental opportunities that are emerging as a result. As we look ahead the market environment continues to be challenging. We remain focused on executing our strategy and on accelerating our investments where our confidence is high that they will deliver long-term growth. I’ll now open the call for questions.

Roy MacDonald: Thanks Galan.

And before Chris open for line I just like to remind you to please limit your question to a single subject area and then you can always jump back into the queue. Thanks. Thanks Chris.

Operator: [Operator Instructions] Your first question comes from Irene Nattel of RBC Capital Markets. Your line is open.

Irene Nattel: My single subject is same-store sales and revenues, and they were a lot of numbers that you kind of walked through earlier on, but can you really please just walk us through what was going on in Food, in general merchandize, and sort of tonnage pricing, all of that sort of stuff?

Sarah Davis: So I'll start with the software side of the business because that one's a little bit cleaner. So the drug front store sales was 2.8% comp in the quarter, so we feel good about that. Pharmacy comps were 0.6% as a result of drug reform and the script growth was around 3.1%, so strong growth in sales on the shopper side. On the food side of our business, as reported same store-sales were 0.8%, but when you actually look at just the core food, so you exclude the GM side of our business, we had growth of 1.8%. So what happened in the quarter was a decline in some of the GM side.

So in particular the pharmacy in-store inside the grocery stores would have declined as a result of drug reform and the other piece was our general merchandize business was down as well, which the two of those basically accounted for 100 basis points of a reduction. So we're happy with our core food. We're not happy with our GM performance but it was by design. We changed our promo strategy to go from high low to everyday low price. We're pleased with the margin performance that actually improved the margin percentage, but we would have liked to have seen more sales.

Having said that, their profitable sales that we've got coming in so along our strategy of looking for more profitable sales. If you want to go into tonnage in some of those areas I could go there too.

Irene Nattel: Yes please. Thank you.

Sarah Davis: So in terms of tonnage, remember that our goal is to maintain tonnage share and not chase bad tonnage share in any one quarter and we've given ourselves a little bit of margin in each quarter.

And in Q4 when you look at the pure street math, it would show that we gain tonnage share. But when you look at the mix the basket that we have it would be closer to flat tonnage. And so in terms of tonnage we're satisfied with that that it falls within our stable trading and what we're looking for in having more profitable tonnage share.

Darren Myers: And part of that Irene is as we demonstrated just the increase in our gross margin and food. So you know strategy certainly worked in the quarter.

So we were quite happy if we ended up on the food side.

Irene Nattel: You mentioned that you now have a total of around a CAD 1 billion in sales from e-com or from online which kind of suggests that you're around 2%. So are you - is that cannibalizing your bricks-and-mortar are you seeing net gains do you think what's going on there?

Sarah Davis: So just to correct you it’s a CAD 0.5 billion. So CAD 0.5 billion is what we’ve got in what we quarter in 2018 and consider 2018 was a ramp up year, so really ending the year with the 670 locations and over CAD 0.5 billion in sales. We would say that there - it’s a little above some of our sales we would say were incremental certainly the basket, on an online sale is the higher the basket size is higher.

But clearly there would be some cannibalization of our own bricks-and-mortar sales as well.

Darren Myers: And I'd just add to that the overall from those investments were incremental revenue to us even considering the cannibalization and then the basket is also tends to be a higher margin basket as well.

Operator: Your next question comes from Mark Petrie of CIBC. Your line is open.

Mark Petrie: I actually just also wanted to start with a follow-up and just a clarification.

Your comment, Darren, with regards to free cash flow and I think $300 million of Drug inventory build in 2018, could you just clarify exactly what was driving that and then how that impacts expectations for 2019?

Darren Myers: I'm glad you asked the clarification. I know so what we - we successfully transitioned as part of our transition to SAP at Shoppers, we successfully moved the back office over at the start of the New Year. And as a result of that, we had payables that frankly would have gone right at the cut-off and to make sure we kept our suppliers happy and had no issues, we advanced it in a matter of days and in that - for those payables. And so as a result of that we had almost $300 million more cash leave this year that would have gone out at the beginning of Q1.

Mark Petrie: And that normal - so there’s a no impact in 2019 basically?

Darren Myers: No other than it should get the pickup of that in 2019.

It's just purely timing.

Mark Petrie: And then, sir, I just appreciate all the commentary on process and efficiency and understand that this is part of an ongoing discipline. But 2018 obviously had a lot of moving parts on SG&A. So just wondering if you could please give us a sense of the savings generated from your work last year and then just in terms of your expectations for magnitude in 2019 and beyond?

Sarah Davis: So I would say when you think about 2018 and you consider what we did, so basically - and we're not going to - so basically we had CAD 450 million of headwinds coming into the year which we offset through process and efficiencies and other initiatives like the supply chain handling charge, and came with earnings. And also invested in the business.

So that's the sort of the size that we're talking about. When we look forward to 2019, we'll continue with the process and efficiencies, and we'll continue with investing actually at a higher rate. So our plan is to invest more in the new initiatives in 2019 than we did in 2018. And in terms of financial outlook, I mean Darren has put in his words what it’s in our written disclosure, what we think that will result in.

Operator: Your next question comes from Kenric Tyghe of Raymond James.

Your line is open.

Kenric Tyghe: Sir on the digital food initiatives, a very impressive sounding numbers and impressive reach. Could you speak to where the traction has surprised most, and perhaps how that is impacting your plans looking to 2019 and beyond?

Sarah Davis: In terms of where we're seeing the most traction, is that where you are saying?

Kenric Tyghe: Absolutely. Is it delivered to home where you really got very high uptake, is at the PC Express. I'm just trying to understand sort of what's working best with respect to your digital food today, and how that’s…

Sarah Davis: So I would say in terms of what we feel is working well, there's a few things that maybe have surprised us.

We thought it would be maybe more of an urban play, but we've actually seen quite a lot of traction in our West Superstore business. And so, that's been interesting for us. The other piece I would say is we've been surprised by the immediacy that people want in there. So whenever we've opened up a new window particularly for same day and in a couple of areas we've done within four hours. So we're piloting different things, seeing what customers are most attracted to.

It does seem that they really do like the quick turnaround. So that's what we're working on in 2019 to improve that and offer that to more customers. In terms of click-and-collect versus delivery pickup versus delivery, it's still stronger click-and-collect. Pickup would be stronger than delivery, but we have brought the two - the Instacart, the two apps together, so you can now order online in the app and be able to have pickup or delivery and it has powered by Instacart or you can also go onto the Instacart website. So really our whole strategy is about giving our customers options, seeing what they like the most and going from there.

Kenric Tyghe: And just longer a similar sort of line, where did you notice the biggest change in competitive intensity in the market, is it sort of competitive intensity within store and between categories or is it more one of the battle being fought on you know brick and mortar versus e-commerce, is it sort of channel category in terms of the change in competitive intensity or the step up in competitive intensity?

Sarah Davis: I think we still feel that the competitive intensity is stronger in bricks and mortar and in our traditional competitors particularly on foods because there hasn't been a lot of online in the food side.

Operator: Your next question comes from Patricia Baker of Scotiabank. Your line is open.

Patricia Baker: And I have a single topic. And I want to come back to the impact of general merchandise and in-store pharmacies on the comp in the quarter because it's an important part of your business.

And I just want to ask a number of things about that. It sounds like what you did Sarah was change in the merchandising strategy around the whole GM side of the business. So I'll be curious about when you instated that change, did it take place in Q4 of this year? And then, more broadly, in the past, has general merchandise been accretive to comps? Can you speak to what particular categories might have been weak in general merchandise? And when you look at the fact that EDLP is different for the consumer than Hi-Lo, is that something that you believe over time, the consumer will come to accept that or learn to work with that? Or do you think that you just have to assume that you will be definitely getting the better margins giving up a little bit of sales. Just love your thoughts there. And then more broadly, what is your longer-term view on general merchandise? Are you adding more there, doing more there, and is it a core part of your business?

Sarah Davis: All right, I'll try to get them all I can remember them all.

So on in terms of we would have changed the strategy throughout 2019, I mean 2018 in terms of going to EDLP is just the impact was much bigger in Q4, which is why we're highlighting it and it's bigger in Q4 because Q4 would be the quarter where we have the largest GM sale. And so in terms of we still like the strategy, but we might go to a combination when we look forward to 2019 we are planning - we're anticipating growth in GM, so we don't anticipate it to be deteriorating to our business. Our plan would be to grow, but we are rethinking having seen what happened in Q4 we might have gone too fast to the new strategy and we'll look at fine tuning that for 2019. In terms of what types of categories within GM, so this would be apparel not really - not include, not really talking about apparel that wasn't a big factor. It would be a pure GM, and it would be any of the high priced items like TVs any of those types of things that we have been moving out of in terms of our business anyway is the high ticket items.

And then it would be any of the Christmas items as well that didn't perform as well as prior years.

Patricia Baker: Sorry, sorry, keep going, no, go ahead.

Sarah Davis: That's okay. I think I’ve forgotten the other question. So ask me again.

Patricia Baker: Just when you mentioned the bigger ticket item, so it just popped into my head. Does that - you're doing some thinking about them, what you'll do in the spring, summer season with the higher-priced items, like the patio furniture and the barbecues, think that you might need to be more on the Hi-Lo there? Or is it too early to see the traction?

Sarah Davis: Yes, that’s right. So I think - yes I think when we look at the barbecue and all of those, we have been fine tuning over the years to get to very simple, very few, we used our more complicated set. So definitely looking at the category and then we will - we probably will do a combo of everyday and then a little bit of high/low as well in the spring.

Patricia Baker: And then, if we looked at Q4 this year versus Q4 last year, would you say that the average unit price, what you did sell was higher than the prior year because of the EDLP strategy?

Sarah Davis: No about the average unit, but definitely the average margin.

So the margin percentage would have been up in Q4 over Q4.

Operator: Your next question comes from Michael Van Aelst of TD Securities. Your line is open. Michael

Van Aelst: I got two questions a lot shorter but on slightly different topics. But first of all on the financial services there restated lower CAD 7 million, by CAD 7 million last year and I’m wondering is that something that carried forward this year and what that was tie to because it does seem like financial services profitability was weaker than expected in the quarter, and I was wondering what your outlook for 2019 is on that segment?

Darren Myers: I mean on the financial services we're actually quite pleased with the business and its performance very good growth in great key indicators and KPIs within the business.

What you're seeing on the profitability is really getting out of the day-to-day banking with CIBC and investments that we're making in the business I would say they were both right on our plan, so no surprises from our perspective on that. And as we look forward when you think about next year, I think that pressure should continue in Q1 because we will lap the banking till April. And when you think about just in terms of those investments you would have probably noticed that we made a significant upgrade to our platform in the fourth quarter we've rolled that we're quite happy with that and that sets the foundation for future financial programs or platform or certain products that we would be able to roll out. So stay tuned on that. We will give more as the year goes on what other products we're considering there.

Michael

Van Aelst: And just a small one on the flash food app that you discussed how available is this across the country, is it going to be available in all stores or eventually and how many stores is available now?

Sarah Davis: It’s only available in a few stores right now, but we are growing as we speak. We're rolling it out to Québec. So starting in Max, it'll go across all the Max and then we'll take it from there. So right now it's pretty interesting because it's something that has come from some of the work we have, so understanding the actual item level in inventory in our stores, understanding the code date on each item is something that we now have the ability to use an app like this that can really save our customers some money and save us some shrink at the same time, so we're pretty pleased with that. But right now only in a few stores and we'll be rolling out in Québec as we speak.

I think it’s back to you in a few Maxie’s now, but yes our attention would be - our intention would be that there's not a reason why we wouldn't want to have it across the country. Michael

Van Aelst: Have you tested it enough to find out whether the added labor to pull all these products aside and that is more than offset the shrink?

Sarah Davis: We're comfortable with the model, its items that would have been thrown out, so there would be labor going to throw it out, as opposed to being able to sell it, so we actually are pretty happy with it. Less food is going to the landfill too.

Operator: Your next question is from Jim Durran of Barclays. Your line is open.

Jim Durran: I just want to go back to comp-store sales and inflation, so just listening to the adjusted number. Would you say that you feel that the inflation you're achieving is competitive to the marketplaces rate of inflation as we've seen you know cost gets sold in the past year?

Darren Myers: Yes, we would say, yes.

Jim Durran: And you were indicating that on a tonnage basis you're comfortable that you're holding market share of tonnage at this point?

Sarah Davis: Yes.

Jim Durran: So as we look at 2019 and obviously a good thing to be deemphasizing low or no profit promotion activity. How much longer should we see this as having a material drain to the comp store sales number but in enhancement to margin like it’s magnitude.

I mean obviously, it’s an ongoing initiative, but I assume that right now, there's - there's maybe some low-hanging fruit that may having - been having an outsized benefit on margin and maybe some drain to call?

Sarah Davis: I mean I wouldn't say, we’re trying not to have it - have a drain on our comp store sales. Certainly, I wouldn’t like to give us that not that excuse. And so we should expect to perform at the same as our competitors on comp store sales. But it is about we are looking for a bit of a margin improvement. I think, we have - we have room in 2019.

We really only got started in the back half of 2018 in this - in any meaningful way. So we’ve got a little bit of lapping to do in the first part of the year, and then we can continue and you can always find to your point, you can always fine tune your margin algorithms as well.

Jim Durran: And on e-commerce, how do you feel from a market share standpoint, you’re performing like are you, gaining penetration of e-commerce in Canada in groceries as you roll or do you feel that the competitive framework is sort of keeping pace with you?

Sarah Davis: We feel like we’re gaining share on that in digital field in - in Canada.

Jim Durran: And on Instacart, there has been a couple of retailers in the U.S. that have opted to not charge a premium to the retail price to embed the incremental charge into shipping and handling fees.

What’s your experience been so far in terms of consumer feedback on Instacart and would you contemplate a change in that strategy, if you’ve felt that you weren’t keeping pace with home delivery as a competitive option?

Sarah Davis: So our feedback, we haven’t had a lot of negative feedback on additional charge, I think the people who are choosing it are willing to pay that. But yes, definitely. We would consider doing something with the charge if it became a competitive barrier.

Operator: Your next question comes from Vishal Shreedhar of National Bank. Your line is open.

Vishal Shreedhar: I'm just intrigued by the shift to EDLP, like others. Will this thinking of EDLP, will that migrate to Shoppers as well? Or do you think it's a Loblaw thing for now?

Sarah Davis: It's only a Loblaw thing and it was only in GM and so I wouldn't take it as a theme across the business.

Vishal Shreedhar: And what inspired it, just for that category just given that it's - you have such a long history of that Hi-Lo?

Sarah Davis: I think our thought was that we could more profitably - it would be more profitable to go to an EDLP strategy and not have the ups and downs, it would be easier in the store as we look for efficiencies across the business. It would be easier across the whole end-to-end supply chain. And so in the effort of looking for process and efficiencies we thought it was a simpler model.

And we thought it would end up with a higher margin which it did in terms of rate but we underestimated the impact on sales.

Vishal Shreedhar: And was increased, I guess, price visibility on behalf of the consumer, was that also something that you thought about as you implemented this EDLP in the general merchandise section of Loblaw?

Sarah Davis: No, I don't think that that was really a factor. What we did see is that some of our most loyal customers were those that stayed with us, what we lost was a few non-profitable cherry pickers who came in for the deal. So we're not overly disappointed, we just would have liked to have had more sales.

Vishal Shreedhar: And just shifting gears here, and it's an easy one.

Can you just help me describe - help me understand what is meant by connected health care, maybe give us an example of that and how that will help drive value for shareholders and how large is that opportunity?

Sarah Davis: So connected healthcare would be a piece of our strategy that maybe not as developed as the other pieces being digital, retail, and payments and rewards. But we've made some pretty good traction in terms of setting up all of the infrastructure. So, it is in the pharmacy part of our business, the digital health part of our business. And when you look at what we did in 2018, we're now in - we've got the new health system in over 740 of our shopper stores. We have 13,000 providers now on the EMR which is the Electronic Medical Record, through QHR.

And we're looking at different things to basically digitize the pharmacy. So we're looking - it would consider things like central cell as well as C-PAC, all of which are gaining traction in the shopper stores. But the ultimate goal, so this is all what I would consider some of the infrastructure or the plumbing to set us up to be able to have a connected network that connects the consumer to the pharmacist to the doctor to the payer. And that is what we're working to build. In terms of size or the price, we think it's a large part of - there's a lot of money there in terms of our share.

We haven't really given out what we think it would be, but right now we're still working on doing the infrastructure which will help our stores run more efficiently as well. And we then will have the added benefit of being able to have perhaps a revenue opportunity as well.

Vishal Shreedhar: I'm looking for to more details as you release on that particular opportunity. Thanks.

Operator: Your next question comes from Peter Sklar of BMO Capital Markets.

Your line is open.

Peter Sklar: Darren, you've mentioned before that Loblaw could have an interest in becoming a retailer of cannabis in the recreational channel. As you know, Ontario has really tightened up retail distribution where they had a lottery system where they only allowed 25 retail licenses to begin. So I'm just wondering if how unfolded - how Ontario has unfolded? If that's tempered your enthusiasm for retailing cannabis? And what Loblaw's plans are in terms of retailing cannabis to the extent you can talk about it?

Darren Myers: From our perspective, the medicinal or medical side, it certainly been the area that were being mostly focused and on the wreck side, it’s being a little bit more experimentation and seeing where the market goes. So we have launched the Newfoundland and we’re seeing a lot of success in there.

But every province is quite different than and they have to work through you know a number of things to figure out, if it’s going to work. And Ontario as you know, there are a lot of moving parts to that. So at this point, we’re just staying close to it. But we’re going to keep checking the market and seeing if there is an opportunity and we got a lot of focus on the medical side, while that all plays out.

Peter Sklar: So could you describe what you have been in Newfoundland right now and then on the medical side, describe.

I believe, your website is up and running and how it’s performing and are you able to secure product from your supplier.

Sarah Davis: So I can sort of add in, in Newfoundland, we have about 10 stores and it’s basically offered in the smoke shop. So where we would have had the tobacco shop. And so it’s a separate door. It’s separate point of sale and separate - so separate entrance from the grocery store.

We actually quite like that model because the infrastructure is there and the building is there the door is there and it’s not - and it’s not disruptive to the grocery shopper, but is obviously attached to the store. So we like that model, but so far new Pennlive is the only province who has allowed that to happen in that way. So as Darren said, we are interested in it, but it would have every province has a different set of rules, so it would have to meet our criteria as well. In terms of the medical side, we do have it up on our website where at the moment we only have the ability to sell in Ontario and only through delivery and so on the website and then delivery to the home. We would like to expand it to the rest of Canada, but at this point we don't have the license to do so.

Peter Sklar: And Sarah, - your store, these kind of isolated stores within the store in Newfoundland, how are they bannered?

Sarah Davis: They would be Dominion stores in New Finland. But the actual - it doesn't actually, there is no banner on the - is that's what you're getting at the marijuana actually bannered, it's not, it's just in the smoke shop adjacent to the Dominion grocery store.

Peter Sklar: So there's no retail ban or identification you’re trying to do?

Sarah Davis: No. There isn’t. We don’t know, we don’t.

Operator: Your next question comes from Keith Howlett of Desjardin. Your line is open.

Keith Howlett: Yes. I'd like to ask about the demographics you're seeing of the online shopper. I think you've got some tests at Maxi and No Frills, and you mentioned real Canadian superstore out west is getting quite a bit of interest in online.

So now that you look across the network what are you seeing as to who is attracted to online

Sarah Davis: I wouldn’t say there is a single demographic that seems to be attractive to a whole lot of different people, and it also vary - it also could be people who do both the combination. So we have circumstances where customers shop in our stores most weeks, but on weeks where actually their family is busy, they are ordering online. And in some cases, they're actually doing delivery for in-fill as well. So we have customers who are - it really is an omni-channel experience for them, where they all interact with us in any one of those three ways. In terms of what we're seeing, as I mentioned, we are seeing higher than we expected in the West Superstores, that would be where our highest penetration is actually.

And I mean you can maybe attribute it to the fact that it's a big store and a big shop, and people love the convenience of being able to order online and then just driving in and picking it up. But we also see the traction in the urban centers like Toronto and Vancouver as well. And I would say I don't think from a demographic it's not just young, I think it skews young and older. So, nothing specific to see in that in terms of age that we're noticing.

Keith Howlett: And I noticed the No Frills or Maxi customer, are they going equally interested or…

Sarah Davis: Yes, it's a different model where it's a little bit more - there's less labor and it's a bit more self-serve and it's still fairly new.

So those No Frills and Maxi’s would have been the last one to be rolled out. So we don't have a lot of data, but so far there is interest in the model there as well. And we've chosen to go with a bit of a lower cost model.

Operator: Your next question comes from Irene Nattel of RBC Capital Markets. Your line is open.

Irene Nattel: Just turning to the 2019 outlook and the 2018 theme I guess annual report that says focused on the cover. And in the commentary you talk about a commitment to delivering industry-leading financial results. So I was wondering how you define that, what are the key metrics and how - where you think 2019 fits along that path?

Darren Myers: I mean, I think it's hard to say what industry-leading financials would be one year but I think you’ve got to look at a track record and the long-term value that we're looking to create for shareholders. So we don't have a specific answer for you on that, other than to say we're focused on the stable trade and we're focused on delivering earnings growth but in a smart way. We're not trying to do things in one quarter.

We're trying to do things over the long term. And hopefully as evidenced by the conversation today, we feel we’ve had a ton of traction on our investments and we're going to keep making those while balancing the cost savings and process efficiencies that we need. And when you put all that together long term, we think our metrics should stand as industry leading within the industry. But it's hard to - there's no bright line test of a point, a date or a time on that.

Sarah Davis: I think in terms of that we're focused, it really is about maybe more of an internal message that we're focused on the things.

There's a lot of ideas and there's a lot of different ways you can go. And what we're off we're doing is focusing on the things around our strategy which we've highlighted. It's the process and efficiencies, the data-driven insights and the three investment areas and just continue to focus in those areas and to deliver on the financials as Darren highlighted.

Irene Nattel: And then one final on the subject to the 2019 outlook. When you talk about positive same-store sales, what are you thinking in terms of inflation? And are you referring to positive including inflation or more of the stable tonnage.

So excluding inflation kind of flattish?

Darren Myers: So probably not going to get that specific on that too, but I’d say that we expect normal inflation to call it 1% to 2% range and that’s how we’re thinking about 2019 overall at this time. And our goal would still be to maintain our market share tonnage.

Operator: Your next question comes from Keith Howlett of Desjardins. Your line is open.

Keith Howlett: I just wanted to ask what's your view is on the meal kit segment and also more generally on your prepared meal sections.

What you’re thinking about doing going forward there?

Sarah Davis: So we are thinking of sort of in that, we call it solved meal, so how do you actually solve meals for Canadians, across in a variety of different ways and not necessarily specific to meal kit, but that would be an element of it. So it is in the plan for 2019, and we'll talk to you more about it when we’ve got more to say. But definitely part of the plans.

Operator: There are no further questions at this time. I will now return the call to our presenters.

Galen Weston: Great, thanks everybody. Thanks, Chris for hosting us here. If you have any follow-up questions, please give me a shout. And mark your calendars for May 1, when we’ll see you back online to discuss our Q1 results. Thanks everybody.

Have a great day.

Operator: This concludes today's conference call. You may now disconnect.