Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please make sure to lift your handset before pressing any keys. Your first question comes from the line of Irene Nattel from RBC Capital Markets. Please go ahead.

Thanks, and good morning, everyone. From everything that you just said, it sounds as though you exited 2024 with accelerating momentum across the platform, putting aside the issue of the lower sales in electronics and front store shoppers. Can you talk to us a little bit about what is driving that momentum? You know, what is your PC Optimum and PC bank data telling you about sort of your share of customer wallet? Is it really mostly you said conventional is up, but, you know, what is it doing more discounts? And how we should think about that unfolding in 2025? Thank you.

If I could start, Irene, I think we finished the year quite strongly from a share perspective, as Per mentioned, and that momentum is carrying through. And as we discussed, we've opened many, many stores last year, and typically, those stores open more later than at the beginning of the year, and so on as we start 2025, we're benefiting from the full momentum of all of these stores. So that is definitely a factor. On front store specific, you probably remember that in the fall, we had a pretty mild fall. So we did mention that cough and cold sales were pretty weak in the fall compared to peak periods we've experienced. But if you look outside now, here in Toronto, I can tell you it's all white everywhere, and it's minus ten degrees. So cough and cold sales since the beginning of January have been very, very strong, and they continue beyond what is typically the normal season. So we're getting a benefit in front store. That's what essentially was a delay. So those factors along with new stores are what's giving us momentum as we start the year.

Thanks, Vincent. And if I can add, we ended the year very strong on a market share again, and we also, as I said, had the best market share gain in a decade. And we also do expect to have another record year on market share this year. But I also do believe that a lot of the initiatives that we put in place last year, the longer we go, the more they are embedded in our stores, and the more they are working in our favor. Just think about, you know, removing the multiples and also something that we not talk about that often is that we have combined the real Canadian superstores with the Atlantic superstores. So now we have 180 superstores from coast to coast, allowing us to harmonize and get the synergies from that. So there's a lot of things that's going on. Not least our hard discount, creating even more momentum. The small stores that we have put in place, so about 14 of them last year, are doing really, really well. And just as one example of the things that we're doing, just the coupon promotion that the customers, they can get savings on pots and pans. We sold four years of cookware in the duration of that campaign. And some of that stuff is really, really exciting our customers. And we'll do more of these things this year. So there's a lot of good things and just the TNT that I know that you have visited many times, I mean, it was the fastest growing of our formats last year, and it's continuing to outperform. So I think with our superstores, our convenience stores, our hard discounts, our TNT, and not least our shoppers, we have a good store portfolio that caters for all of our customers' needs.

That's great. Thank you. And just one follow-up note, we're talking about new stores. I've been getting a lot of questions from investors about the drag, the drag on gross margins and performance. As you both accelerate the new store opening and also as you open the frozen DC. Can you talk about how we should expect to see this in your financial results? And the degree of confidence you have in delivering to your financial framework notwithstanding, those headwinds. Thank you.

Good question, Irene. So these two specific events are quantified. And that has been incorporated in our plan and form part of the guidance that we are providing to you this morning. I.e., we know what the impact of earnings drag that these new stores are going to have. We know the impact of the ramp-up of East Guillain Barre. And all of this is in. And I can tell you, like, we're sort of like two months in. East Guillain Barre started operation in January, and we're on plan. We're on plan. So we definitely feel good on that. And we're just starting new stores that we have two new stores that have opened since January now.

And I think also you should see the new stores as a guarantee for the future because adding 50 last year, 80 this year, and don't know how many next year. That's too early to tell because just talking about, like, the second year, a new store is performing. It's growing maybe three, four, five, six times the normal same-store growth than a normalized store. So then we will start to see a lot of tailwind after a few years. So our strategy is really to grow our sales, but also get leverage on cost and thereby keep the cost low. And that's all in our plans. So I believe with our strategy, which I very strongly believe in, we can both deliver the short term, the medium term, and the long term.

That's great. Thank you.

Your next question comes from the line of Mark Carden from UBS. Please go ahead.

Good morning. Thanks so much for taking the questions. So to start, you're planning on adding another 80 stores in 2025, including 50 hard discount stores. Did you guys look out over the course of the next few years how do you think about the longer-term opportunity for unit growth? Could this pace be sustained beyond 2025? Even if population growth slows? Just your general thoughts there.

I think it's sure to say how many stores we will build in 2026, but we don't build stores on behalf of population growth. We find white spots in the cities where we don't have a lot of sales and a lot of mention that already. So we don't see a lot of on our existing store portfolio by building these new stores. It's like 90 to 95% extra sales for us. So even where we have another closed store, next to, like, when we build a new hard discount, actually creating more footfall to both stores, both our conventional stores, and our hard discount stores. So for us, it's a very, very good way for us to continue to grow our offer. And, again, we're not growing more than 1.1% square footage growth in Canada. It sounds like a lot of stores, maybe because we haven't opened a lot of stores in the past. But also if I compare to other countries and the size of Canada, 80 stores is not a lot. And we also have ambitions to continue to grow our top line. And, again, that tailwind that we will give over time from our new stores will be important for us to sustain the growth going forward.

Great. That's helpful. Thanks. And then with respect to potential tariffs, how much exposure do you have to imports from the US? You talked about fresh produce. How do you think about exposure on the packaged goods front? And then how we pivot your sourcing?

Thanks. No. Yeah. No. Thanks. That's a really good question. And first of all, it's less than 10% of our COGS that we buy from the US. And it's mostly in produce if tariffs are applied on produce. That's where we would be mostly impacted. And we're looking at it, and we have some really, really good friends how we can mitigate. So on product, it's probably the most difficult. I think we can probably mitigate half of our suppliers. And we are seeing these tariffs as a kind of a tax on product that will hurt consumers on both sides of the board and the force. We really understand your affordability challenges that many Canadians continue to face. But we also believe that on products, for example, if tariffs are applied, they will buy less of that produce that comes from the US with a tax on. So, of course, it's how they opt to work hard with suppliers and try to mitigate as much of the impact as possible. So that's produce. I think that's the obvious one. But if we just take one example, you mentioned, like, kind of the center of store. So household and cleaning, that's one area where we have more than 30 vendors coming from the US. But we also have a very, very strong control brand portfolio in household and cleaning. We have our no name and our PC. And if the tariffs, it will be applied on household and cleaning, then, of course, those products will not be competitive anymore. And all the sales will go to our control brands, and they're all produced in Canada. So that's good for Canada, good for customers, and it's good for us. But of course, we have a very, very detailed plan on how to mitigate it, but overall, it's again, it's less than 10% of our

It's really good context. So much, and good luck, guys.

Your next question comes from the line of Michael Van Elst from TD Cowen. Please go ahead.

Hi. Good morning. I just want to finish off on the square footage side of it and I understood your the response to your earlier questions, but I'm also wondering if as you plan out your real estate expansion, have you changed your return on invested capital parameters and hurdle rates you know, as you look as you add increasing amount of store new stores?

No. Like, Mike, if you look at our plans for 2025, are all approved. Like, right now, when we're meeting, we're approving stores for 2026 now. So all our plans were approved, and we benefited from the dozen of small format stores we've opened last year to fine-tune our model. And so that became the basis for what the site we chose for 2025. And so but, no, we are not lowering down our returns.

And, Mike, I know you know that, but still, 80 sounds like a lot, but a lot of those stores are small stores. And it's not it's not 80 superstore buildings. There's a lot of shoppers and a lot of small hard discount stores. And first of all, they don't cost as much. So they don't take as much CapEx to, you know, and the square footage is down to eight to ten thousand square feet. So also putting that in perspective, I think because we're changing the way that we build new stores, it sounds like a lot, but actually on the square footage, it's less.

Yeah. It sounds like I think earlier you said you know, not quite 2% square footage growth. Although it seems like most of your peers are also adding one to two one to one and a half percent at a time when there's no population growth expected over the next few years. So I just wonder you might be moving into other white space but you've got your competitors that might be moving into your territories, and I'm just wondering how you're planning modeling that in your guidance.

So we're modeling that. Like, we know exactly where everybody's going. Like, because you're in the real estate world, like, you see where people are doing workload, and so we take that into consideration as to where we put stores, and it's a market-by-market analysis. As Per mentioned, we're not basing our store decision based on population to come. We're making store decisions based on the population that is here today. So this is always how we make our decisions. And so therefore, based on what we've seen with the dozen small format we did, our other stores, that's how we decided where we're planting the fifty-ish food stores and thirty-ish shoppers during market next year.

And again, in an international perspective, it's not a lot of stores that I know it's not it's a lot compared to the past, but it's not that many new stores into Canada. And of course, there would be, you know, other formats will be impacted, but there's also a lot of other stores that are not, you know, among the big four that will be impacted.

Okay. Alright. And then just on, you know, the competitive environment, and your gross margin performance, you clearly had some good market share gains in the quarter or at least tonnage gains in the quarter. But when I look at your implied inflation rates, it sounds like you're maybe closer to one on inflation when the, you know, the CPI was, was over 2%. It was closer to two and a half. So and of course, your gross margins were down, and maybe let maybe we call it flat if we some of these timing differences in that. But, yeah, with flat gross margins, and, you know, tonnage gains, flat gross margins increasing, so you're seeing a little bit more a competitive market out there, or is that lower inflation that you're recording more related to trade down into private label and other factors.

So, Mike, the market continues to be rational. Like, as it's been for a long time in Canada. And so and what you're seeing is, like, more and more stability, I think that's how to think about it. Like, gross margin as we start this year, like, we're gonna be back to normal. Okay? Like, our outlook for this year is to have slightly increased gross margin, like we did last year. And but, like, in Q4, was a bit of a blip for the factors we mentioned. The Canada Post thing was a bit of a surprise for us because we were essentially caught in the busiest season of Canada Post, and we have over 800 Canada Post outlets in Shoppers Drug Mart. And so both traffic and the sales performance of those outlets were essentially shut. And so that affected the that really affected gross margin in Q4. But going forward, when we look at where we are now, we're like, three-quarters two-thirds of Q1 done and we sort of feel that that's behind us.

K. Great. Thank you very much.

Your next question is from the line of Tammy Chen from BMO Capital Market. Please go ahead.

Thanks. Good morning. I want to wrap up the discussion on inflation food inflation. How are you thinking about that this year versus last year? You talked a bit about the exchange rate, but it looks like you know, you said 10% really of your buys from the US. And you've also mentioned the vendor price at. So I just wanted to start there and get a sense of how you're expecting food inflation to trend through this year versus last year.

Yeah. If I start, then I'm pleased to say that we have seen normalized inflation for almost nine months now and also continued into January. So we are pleased, especially because customers, they are still having a tough time. And we will do of course, our utmost to continue to keep prices low, whether that's pulling pushing back on increases on for suppliers. That's at least some of the things that we can do and, of course, give customers the opportunity to go to our discount, to buy into our known names, give them great promotions. But, of course, the effect has an impact. And, if the Canadian dollar continues to weaken, that will be a further impact on inflation. But if it's strengthened, then it will be positive for the consumers. And on tariffs, it is still too early to say. And, again, if tariffs are put on specific products, customers have the opportunity to mitigate that by buying Canadian products or buying products with no tariffs on. And we are doing a lot to help them navigate and make that even clearer to them how they can do that.

Yeah. Just add some specificity around numbers. No? Then probably touch both Mike's question and your question, Tammy, like, CPI in the quarter was 2.4%, our own internal measure of CPI, which is called LPI, which is a carbon copy of CPI using our stuff, our products. That was slightly lower than 2.4%. Our average article price, which is what customers are buying, was significantly lower, and Mike was in the zone. In terms of what that number is. And that is the number that really is part of same-store sales. And so we've seen stability in those figures for most of 2024. But because FX started to turn, because the peak was around end of September, and it touched as low as 68 cents a few weeks ago. So that is inflationary, and we've started to feel it quite seriously over the last few weeks. So it's definitely starting to show. But, like, can't predict the future as to where it's gonna go from here.

Okay. Thank you for that. And then my follow-up question this year. I understand, I think, most of them will be your small format No Frills and some additional Maxis. Can you remind us for those two formats how quickly you expect the sales to ramp to maturity based on what you've seen in the existing stores of those formats? And, also, specifically on the small No Frills, I'm just curious. I think most of the stores you've opened right now are in more downtown urban locations. And so what has been the learning there and what provides you the confidence that this format will also resonate in, say, places like the suburbs and rural regions. Thank you.

Thank you. First of all, it will probably, you know, depend on by, you know, store by store, but the normal rule of thumb is that a retail store will take it, like, three to four years to normalize sales. Which is also positive because then you will have over and above same-store sales for about three years after the first opening year. So it would take some time. But still, we are off to a very good start and see that we're getting to the sales numbers that we expected. Some of them even much better. And what was there was no another question. Right?

No. I think that's it. Okay.

Oh, sorry. We're moving on to the next question, sir.

Do you wanna jump back in, Tammy? And we'll catch the second half of your question?

Your next question comes from the line of Mark Petrie from CIBC. Please go ahead.

Hey. Good morning. Thanks. I wanted to ask about shoppers. You know, you've made some important shifts to the offering, and I guess, obviously, you know, thinking of the exit of electronics, but also and even more so the adjustments you've made to price and promo and sort of the go-to-market approach, especially in food and consumables. So just curious and to hear your thoughts about you know, sort of what you learned about the business and learned about the customer from those adjustments.

First of all, we are seeing some very positive impact from our customers. So we have we lowered prices of hundred food items in Java. So in every aisle, that you walk, you will see the below our products. And, of course, it's important because customers, they are seeking more and more value also in shoppers. Exiting electronics is good for us because customers, they can now use the points on some of the products that they love the most. Some of the beauty products, which is good for both us and for customers. Because having electronics in the shop was not really great adjacent product categories, and it was not in line with what we sell overall in shoppers. So we're seeing some good momentum coming out of last year and as Richard alluded to into the first quarter. So we feel good about Shoppers also on the pharmacy side, not only the front store. On the pharmacy, we're seeing some really good growth. And also the GLP p one is still growing very, very nicely.

And does that sort of does that response and I guess specifically in food, does that sort of set the stage for other adjustments that you might make, or are you kind of satisfied with what you've done so far and now it's more status quo?

No. I think in retail, it's never status quo. I think we always follow and watch if we need to do some corrections, but for now, we're good. We're not coming up with a lot of new changes tomorrow. And also a lot of the initiatives that we started last year, we need to see them work. Because it takes some time really to resonate with our customers. But for sure, we'll continue to make adjustments if needed.

Okay. Thanks. And then following up on the tariff question, I'm just curious if sort of, in the conversations that you're having with your suppliers, if all of the trade and supply chain affects how they have approached the market at all. With regards to their promotion or product innovation pipelines.

Not so far. So far, everything is as Houston, but, of course, going forward, if you have 25% tax tariffs on Kellogg's if that should come so far. Then, of course, we will probably promote our control brands instead of Kellogg's because nobody will buy it if it's 25% more. So I think, yes, it will have some impact, but for now, no impact.

Yeah. Understood. And if I could just squeeze in one more. I know you're very pleased with the early results from the TNT in Seattle. Just hoping you could talk a bit more about your plans for growth in the US specifically and the total size of the opportunity as you see it.

Yeah. No. For now, we stick to the plan of opening seven stores. As a kind of a test and a trial. That's what we're speaking to, but when that said, we're just overwhelmed with the success that Shenay Lee and the team are having in the US. But for now, we're sticking to the trial of the seven stores, and we are following that closely. But, yes, we are so pleased with what we're seeing right now.

Understood. For all the comments and all the Thank you.

Next question is from the line of Vishal Shreedhar from National Bank. Your line is now open.

Thank you. Switching gears to financial and the ECL release. Is Loblaw expecting a more constructive consumer environment or is that more of a reflection of that the prior provisioning was over conservative and the adjustment reflects more current thinking.

Okay. So the ECL is a black box. It's very much driven by unemployment forecasts prepared by economists. And so specifically what happened is the buildup of the ECL in Q4 this year was less than the buildup of last year. So year over year, it created a benefit. So it's actually impossible to predict. I've tried. And so it's a bit of a volatile number that moves every quarter. But, like, overall, as of Q4, the health of the consumer was getting slightly better in Canada. Yes.

Okay. Thank you. And the PC Optimum, the charge related to higher member participation and redemption rates. How is management interpreting that increasing partnership reflection of the offering or something that Loblaw is doing or is that more reflection of consumers seeking more value?

Yeah. So let me walk you through what specifically happened here. So that rate was set, like, when we PC plus and PC Optimum probably, I don't know, six, seven, eight years ago. And we never touched that redemption rate. And so as the year evolved, we saw like, picking up of redemption. And so after a certain number of years, you need to validate whether or not this is the right assumption. And so, therefore, we made the decision to increase the redemption rate by some one-ish percent more than what it was. And that's what resulted in the one-time liability. We feel that that's gonna give us room for, like, many, many, many years going forward, but you're right. What it reflects is that more and more consumers are liking PC Optimum and are using it. And so from our perspective, it's a nonrecurring, noncash charge, and we're more than happy to do it. Because it reflects what's happening in our stores.

Okay. And are you able to quantify the impact of the postal strike and specifically the electronics exiting category on shoppers?

Yes. We know exactly Vishal, but we won't tell you.

Sorry. Okay.

The postal strike also related to the lack of flyers and

No. Did that you?

Strike was essentially lost traffic, and we could actually measure it. Like, if you look at a store that had a post office in it versus a store that didn't have it, you could markedly see that the store with a post office when the strike happened, like, traffic went down. And so that was overall store front store impact on the whole business. Then there was the profitability associated with running the Canada Post outlet itself. That essentially went to zero at the time of the year where everybody's trying to send Christmas cards to their families. So we didn't sell Christmas cards, and we didn't send any Christmas cards. So it was sort of the worst time for this to happen, and we really felt it. And it was interesting to see that the moment that the strike ended, we saw people come back to our store.

And we could easily verify that because we have 800 with and 500 without. So for us, it's easy measurable.

Okay. And then just one last one here. In terms of the smaller formats, stores. You know, after the trial period and customers go to them, are you finding that they're sticking? Like, is there ability to do a full shop constrained and that creating issues with customer satisfaction, or is that not an issue?

I'm glad that you asked that question because the small stores have a range of 7,000 to 8,000 products. So you are absolutely able to do a full shop. We might have less phasing. So instead of having the same product like three side by side, we might only have one or two. And compared to the German discounters like Aldi, they would probably have a range of two and a half to three thousand, and they still claim that you can do a full job. So our hard discount in Canada is very different from hard discount elsewhere. And you can do a nice full shop in the hotness going to, of course, not with the same range as you can get in some of our conventional stores. So it is a different shopping trip, you can definitely do a full shop. Which is also why it's so successful and why so many customers like it. Also, because it's fast in and out, and a lot of customers, they like time. So if they can do a shopping trip in 15 minutes instead of maybe spending 40 minutes, they're happily, you know, willing to do that. And we look at sales on a weekly basis, and those store sales are not dropped. They're actually going up every week. So people like them and continue to shop them more and more.

Appreciate the color. Thank you.

Your next question comes from the line of John Zamparo from Scotiabank. Please go ahead.

Thank you. Good morning. I want to come back to the same-store sales and you referenced the strong start to the year. I wonder what you're seeing from consumers over the last few weeks, both on the shift in sentiment from tariff talk and also the theme of buying Canadian either Canadian brands or Canadian retailers. And as always, appreciate your disclosures on LinkedIn, but I wonder if you can add more color on this subject and just overall what you're seeing over the past three weeks or so.

Yeah. I can say that they are really seeking to buy more Canadian products. So again, when I'm out in stores, so every single person I meet they want help and guidance on how they can buy more Canadian products. And we are really trying to do everything we can to help them. One of our features on the swap to Canadian that our digital team has done, like, in a few days, we're seeing an uplift of 75% week on week of how many of our customers who are tapping into that feature and using it. And in-store I don't have last week's number, but I have the week before. And it was approximately about 10% uplift in Canadian products, and that's even before we have done a great, great job in helping them navigate in our stores. So mid next week, we will have the tankers and the flags on all products prepared in Canada. In our stores. So we will probably see a further uplift there when it comes to that. Else, I think customers are behaving more or less the same as last year. So there's not a lot of change. They're still buying a lot into our promotions. They are buying into our private labels, especially our no name is doing very well. And then still we're seeing the shift to discount.

We're seeing good tonnage performance as the year starts. As I said earlier, like, the effects are definitely affecting inflation, and so that's the factor that we're now starting to see every in ourselves.

Okay. That's helpful. Thank you. And then as a follow-up, I wanted to ask about the retail media business. I wonder if you expect this portion of the business to reach sufficient scale where you plan to add more to disclosure on it and how did that business perform to end 2024.

Yeah. We're seeing a good uplift this year. And still not enough to disclose it for you, but it's up double-digit in probably this year and we expect it to continue to be. So hopefully, not that long till we can start to report on it.

Yeah. Both our retail media business and trade as a service. Business will grow double-digit earnings in 2025.

Great. Thank you very much. I'll leave it there.

Ladies and gentlemen, as a reminder, if you'd like to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please make sure to lift your handset before pressing keys. Your next question comes from the line of Chris Lee from Desjardins. Please go ahead.

Hi. Good afternoon. Just maybe a question on the outlook for the year. Richard, you mentioned that you expect gross margin to increase modestly this year. Is that mainly driven by more shrinking improvement in shoppers?

Yes. Like, what we're expecting to see based on what you heard us talk about on this call is you're probably gonna see a little bit more top-line growth because of new stores that we opened last year and more stores this year in a low inflation environment. So that's definitely what we have in our plan. We're gonna see a slight increase in gross margin rate. That's part of our plan. You're gonna see a very slight deterioration in SG&A rate, driven by East Guillain Barre and new stores. And overall, all of this will allow us to deliver the high single-digit growth for EPS. To which you need to add 2% for the fifty-third week that we're gonna be experiencing this year. That's our outlook for 2025.

That okay. That's clear. And my follow-up was, I guess, the cadence of that high single-digit EPS growth, you we should expect pretty steady

Yeah. You should expect the way we budgeted the year, like, each quarter looks a lot like the other. So you should not see much volatility. That's our hope and plan. But that's how we've plotted the year. So yes.

Perfect. Thanks, and all the best.

You. Are no further questions at this time. I'd like to turn the call over to Roy McDonald for closing remarks. Sir, please go ahead.

Great. Thanks for your time and the great questions this morning. Give me a shout if you have any follow-ups, and, Mark, you're your calendar for Wednesday, April 30th, when we will be discussing our Q1 results. Have a great day, everybody.

This concludes today's conference call. Thank you very much for your participation. You may now disconnect.