Metro Inc Aktie

Good morning, ladies and gentlemen, and welcome to the Metro Inc. 2026 Second Quarter Results Conference Call. [Operator Instructions] Also note that this call is being recorded on April 22, 2026.

And I would like to turn the conference over to Sharon Kadoche, Director, Investor Relations and Corporate Finance. Please go ahead.

[Foreign Language] Good morning, everyone, and thank you for joining us today. Our comments will focus on the financial results of our second quarter, which ended on March 14. With me today is Mr. Eric La Fleche, President and CEO; Nicolas Amyot, Executive VP and CFO; Marc Giroux, Chief Operating Officer; and Jean-Michel Coutu, President of the Pharmacy division. During the call, we will present our second quarter results and comment on its highlights. We will then be happy to take your questions.

Before we begin, I would like to remind you that we will use in today's discussion different statements that could be construed as forward-looking information. In general, any statement which does not constitute a historical fact may be deemed a forward-looking statement. Words or expressions such as expect, intend, are confident that, will and other similar words or expressions are generally indicative of forward-looking statements.

The forward-looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy, our annual budget and our 2026 action plan. These forward-looking statements do not provide any guarantees as to the future performance of the company and are subject to potential risks, known and unknown as well as uncertainties that could cause the outcome to differ materially. Risk factors that could cause actual results or events to differ materially from our expectations as expressed in or implied by our forward-looking statements are described under the Risk Management section in our 2025 annual report. We believe these forward-looking statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward-looking statements, except as required by applicable law.

I will now turn the call over to Nicolas.

All right. Thank you, Sharon, and good morning, everyone. I will go directly to our Q2 results as Eric will comment on the status of the current strike in our Quebec operations. Q2 sales reached $5.1 billion, an increase of 4.1% versus the second quarter last year. Sales were positively impacted by new store openings, same-store sales growth as well as the transfer of one significant pre-Christmas shopping day to the second quarter this year. Front store sales -- or food same-store sales grew by 1.8% in the quarter, up 1.5% when adjusting for the Christmas shift.

On the pharmacy side, same-store sales grew by 5.1%, supported by a 6.1% growth in prescription sales and a 2.8% growth in front store sales. Similar to food, when adjusting for the Christmas shift, front store sales were up 2.3%. Our gross margin reached $1.03 billion or 20.1% of sales in the quarter. This compares to 20% in Q2 last year. Part of the increase is attributable to productivity gains recorded in our distribution centers.

As mentioned on the last call, our operations are back to normal in our Toronto distribution center. Operating expenses were $538.9 million in the quarter, up 3.4% year-over-year. As a percentage of sales, operating expenses were 10.5% versus 10.6% in the second quarter last year, reflected continued cost discipline.

The asset disposals recognized in the second quarter of 2026 generated net gains of $20.4 million, of which $20.1 million was attributable to the disposal of out-of-service warehouses. EBITDA for the quarter amounted to $508.6 million. That's up 10.3% year-over-year and represented 9.9% of sales. Excluding the gain on sale from the disposal of out-of-service warehouses of $20.1 million, adjusted EBITDA stood at $488.5 million, up 6% year-over-year, reaching 9.6% of sales, an increase of 16 basis points over the second quarter of 2025.

Depreciation and amortization expense for the quarter was $144.3 million, up $8.2 million. The increase in depreciation and amortization is mainly due to the increase in retail network investments, including right-of-use assets as well as ongoing investments in technology. Net financial costs for the quarter were $37.3 million compared to $33.4 million last year. The increase is mainly due to higher interest expense on net debt. On February 25 this quarter, the company tapped the bond market and issued a 5-year $350 million note bearing interest at a rate of 3.469%. We used the proceeds of the offering to repay debt under our revolving credit facility and for general corporate purposes.

Including this financing, our debt-to-EBITDA ratio stands at about 2.2x. Our effective tax rate of 24.6%, which continues to benefit from the Terrebonne DC tax holiday is similar to the effective tax rate of 24.5% in the second quarter last year. Adjusted net earnings were $236.5 million in the quarter compared to $226.6 million last year, an increase of 4.4%, while adjusted fully diluted net earnings per share amounted to $1.11 versus $1.02 last year, up 8.8% year-over-year.

Our capital expenditures in Q2 totaled $85.3 million, consistent with last year. After 24 weeks on the food retail side, we opened or converted 6 stores and carried out 4 major renovation projects for a net increase of 141,000 square feet or 0.6% of our food retail network square footage. Under our normal course issuer bid program, as of April 2, we have repurchased 2.9 million shares for a total consideration of $279.8 million at an average share price of $96.47.

In closing, we delivered solid Q2 results, supported by strong sales growth and good expense control.

On this, I will now turn it over to Eric for additional color on our Q2 results. Thank you.

Thank you, Nicolas, and good morning, everyone. Before turning to the results, I will provide an update on the strike that started on March 30 in our Quebec operations and which is impacting produce distribution to our stores in Quebec. We are obviously disappointed by the strike now in its fourth week. We have been back at the bargaining table since April 8 and remain determined to reach an agreement that takes into account the needs of our employees and those of our customers while ensuring the long-term competitiveness of our company.

As in any situation of this kind, the first days of the labor dispute required adjustments while our contingency plan was being fully implemented. Our contingency plan is now in place and our stores, although not in perfect condition, are generally well stocked. The strike has impacted our sales, especially given that it happened the week before Easter. We will be able to specify the financial impact once the dispute is settled.

Turning to our second quarter results. We delivered solid results driven by strong revenue growth and good expense control as our teams continue to offer the best value possible to our customers in all of our banners. We are very pleased with our discount store expansion plan that is fueling our food sales growth and with the continued strong momentum in our pharmacy business.

In Q2, sales grew by 4.1%, adjusted EBITDA by 6% and adjusted earnings per share by 8.8%. Total food sales were up 3.6% and food same-store sales were up 1.8%. In pharmacy, we had another strong quarter with 5.1% total same-store sales growth on top of 7% last year. Our discount banners continue to perform well with same-store sales growth exceeding that of Metro, together with the continued contribution of new store openings and conversions. Our internal food basket inflation was in line with the reported food CPI of 4.3%. We continue to see inflationary pressures on certain commodity prices, namely in the meat category, in addition to higher-than-usual CPG vendor cost increases. Our teams remain highly focused on cost mitigation initiatives through supplier negotiations and pricing discipline with the objective of offering the best value possible to our customers.

During the quarter, comparable store customer traffic was slightly lower, offset by growth in the average basket. Absolute traffic across the network increased, supported by new store openings. Promotional activity remains elevated and private label sales continued to outperform national brand, contributing to our gross margin performance. Competitive environment remains intense but rational.

Online sales grew by 19.8% in the quarter. Growth is being driven by third-party marketplaces, the ramp-up of click and collect services and delivery within our discount banners. We are pleased with the sales performance of our own services and third-party marketplaces, which are recording similar growth rates compared to last year.

Turning to pharmacy. Prescription sales were up 6.1%, driven by continued organic growth, specialty medications and GLP-1s. Commercial sales grew by 2.8%, led by cosmetics and health and beauty categories, partly offset by a softer performance in OTC. The cough and cold season was compressed this year. It peaked earlier and was shorter in duration.

Our retail CapEx plan is on track as we successfully opened 3 new stores in Q2, including 2 discount stores. Halfway through F '26, our food retail network square footage growth increased by 0.6%. And over the last 12 months, it increased by 1.9% as we execute our new store opening plan, mostly in discount and mostly in Ontario.

On the pharmacy side, after 2 quarters, we have completed 15 out of the 35 renovation projects planned for F '26, including 7 pharmacies with our new concept. So to conclude, we're confident that our effective merchandising programs, strong private label offering, our Moi program, consistent execution at store level as well as our ongoing collaboration with our supply chain partners will allow us to continue to grow and deliver long-term shareholder value.

Thank you, and we'll now be happy to take your questions.

[Operator Instructions] And your first question will be from Mark Carden at UBS.

So to start, your food inflation was essentially in line with the 4% plus purchase from store CPI. Just as inflationary pressures persist, have you seen any sequential changes in customer behavior? Are they leaning even more heavily into discount? You called out the strength there in your release. Are you seeing any incremental uptick on trade down within your stores? Just any changes on that front?

No real changes, very consistent customer behavior as we've been reporting over the last several quarters that I tried to outline in my opening remarks. Yes, discount is growing faster. People are searching for value in all of our banners, not just discount. Private label is up, penetration remains elevated. So it's very consistent. Food inflation is driven a lot by the meat category. And as I said, CPG cost increases. I would sum it up that way.

Great. That's helpful. And then as a follow-up, just given where fuel prices are today, historically, have you guys seen any demand destruction or consumers taking units out of their baskets when prices at the pump cross a certain threshold or any broader shifts in food shopping behavior at your stores?

We don't have a specific number to report to you, but energy prices pressures, fuel price pressures contribute to affordability crisis and contributes to customers searching for value in everything that they buy, including food. So it's just one more element that puts pressure on the customer, and we're well positioned with our multiple store formats and growing discount formats to address those customer needs.

The next question will be from Michael Van Aelst at TD Cowen.

I just wanted to start by following up on the competitive question. So last quarter, you pointed to competitive -- the competitive nature of the industry has seemed to spook the stock a little bit. But you suggested that it's intense but rational. So that doesn't seem like anything different than what you've said in the past. But do you feel that the moderating trend of normalized same-store sales growth from Q1 to Q2 reflects an increasing competition or a consumer that's under more pressure and therefore, trending down more or cutting back on tonnage?

Tonnage in the whole market is flat to down. So clearly, there's pressure on the consumer side. So I think it's a general market dynamic of lower low consumption and people being careful. The competitive environment, as I said, it's intense. We are competing with large players. Everybody is looking for market share, and it's competitive out there, the way it's always been. Last quarter, I was perhaps referring more to the square footage growth and people opening stores. That creates some noise in the market, but nothing abnormal and nothing that we've not seen before. And we're, like I said, well positioned to compete.

Okay. And then just on the fuel cost increases. I know you mentioned your comments relative to the consumer impact. But as far as your cost impact, I know you have a lot of third-party distribution. So are you seeing fuel cost surcharges already? And if so, are you able to pass those on? Or should we expect that to have some pressure on margins?

Yes. Maybe I'll take this one, Michael. I would say that from a fuel cost increase perspective, two sides to the story. On the products that we buy from the supply chain, so far, we have not received that many price increase requests, only a few actually. And we're negotiating the conditions and trying to delay the impact that this might have on food pricing. Obviously, the situation, as everybody knows, is very volatile, and we don't know how long it's going to last and how it's going to unfold. So -- but at this point, nothing to say per se on cost of product.

In terms on our own distribution side, the cost of fuel is impacting our activity to distribute food and drugs to stores and pharmacies, and that's pretty direct. So we've started feeling it, and that the current elevated pricing of fuel you could imagine a $5 million-ish per quarter impact if everything was to hold as the situation is today. So that's obviously, everything else being equal, more pressure that we need to manage.

So in the past, I think you said you typically pass on these higher fuel costs in your distribution system. Is that something you're already working for? Or you're looking for other ways to offset?

Well, it's part of our cost structure, and we have to manage and keep our prices competitive in the market. Over time, we expect that higher costs like that will be reflected, but it hasn't started to happen yet.

Next question will be from Mark Petrie at CIBC.

I know you're not going to give specific numbers, but obviously, the strike impact is on people's minds. So hoping you can give us some qualitative comments just with regards to how Quebec or Ontario might be tracking differently in Q2 so far? And if you can give us some sense of the incremental costs that are incurred as a result of your mitigation strategies?

Like I said in my opening remarks, we're going to keep the impact for a later date in due course when we have the full tally. Like I said, we lost some sales. When you lose sales, you lose the bottom line. So clearly, it has had an impact. There are direct costs to set up a contingency plan. So we will communicate in full transparency when we're in a position to do so, but I don't want to give at this time any color. This is a strike that's affecting our Quebec business, not our Ontario business. So let's be clear on that. But it is having an impact.

The contingency plan is better every day. Stores are looking better every day. And we are, I think, decent -- we're not perfect, like I said. There's maybe some small varieties missing from one store to another or from time to time. But generally, our stores are looking okay, looking good, and we can answer most of the customer needs in our Quebec stores. So hopefully, we'll settle the strike. But like I said, we need to be competitive. The demands at the table are not reasonable and can't be accepted. So we will we are patient, and we will preserve our long-term competitiveness.

Maybe, Mark, just a quick comment. I think in your question, you referred to Q2, but it's really Q3 for us, right? The strike started on March 30. So it's going to be no impact in Q2. It's going to be impacting us in Q2.

In Q3.

Yes. Yes. Understood. totally understand. I guess one other question. I'm just curious if you can share any trends or data with regards to the impact of buy Canadian and how some of the most affected products and categories last year have been performing as you lap sort of the biggest impact last year.

Mark, it's Marc here. We said in the last few quarters that buying Canadian, there was still elevated sales on Canadian product, but it has softened over the last few quarters. So buying Canadian continues to be of interest for consumers, but we have not seen a significant increase of sales year-over-year on Canadian product right now.

Yes. Okay. But as you're lapping the big sort of initial surge last year, are you seeing outright declines in any of those sort of most affected categories?

No, I would say that it's pretty stable, Mark.

Next question will be from John Zamparo at Scotiabank.

I wanted to ask about the pharmacy side of the business and prescriptions in particular, that saw same-store sales accelerate this quarter. I wonder if you could add more color on what you're seeing from your GLP-1 sales. I think you listed that third among the drivers of growth. Is that to say it was less of a driver this quarter against prior quarters? And does Coutu capture a similar level of market share on GLP-1s as it does on the rest of its pharmacy business?

I'm sorry, I missed the last part around market share.

Yes. The second part of it is, is the market share on GLP-1 similar to the rest of the pharmacy business?

Yes. Perfect. You are correct in saying when we listed it as organic specialty and GLP-1s. GLP-1s is a slightly less strong contributor to same-store sales growth as the other 2. Despite that, it is considerable and it's continuing to grow at a very strong pace, especially as new generations of GLP-1s are coming to market, and that's driving a lot of the growth right now in the GLP-1 sector. In terms of share, we are definitely holding our normal share and even for some molecules outperforming, I'd say.

Okay. Understood. And then back to the grocery business, the growth from e-commerce continues to be robust. I wonder if this sustains at or around these levels and if the e-commerce business continues to grow, does that eventually create a drag on gross margins? Or is profitability from these sales roughly in line with the overall consolidated number?

That's a good question. We believe that e-com growth will normalize at some point as the market matures. But as you're pointing out, we continue to see strong growth on both food and pharma. E-com has a lower contribution -- e-com sales has a lower contribution as brick-and-mortar sales. However, we've been able with our e-com model to mitigate those -- that profitability gap with efficiency and multiple efficiency strategies, and we will continue to do so. That's what allowed us to continue to deliver the type of EBIT growth as a business as a total. So we'll continue to leverage our flexible model to meet customers where they are. More and more customers are moving to same-day delivery and our model and fulfillment model allows us to meet that demand from customers, and we'll continue to be focused on, as I say, efficiency, not only in e-com, but in our overall business. Hopefully, I've answered your question.

[Operator Instructions] Next is Chris Li at Desjardins.

I was wondering if you can provide some sort of very high-level colors on how the food gross margin performed during the quarter. I know in the opening remarks, you referenced private label and some DC efficiency as being positive. But just at the overall level, like did the gross margin in food, was it largely stable? Or did it improve slightly?

We don't segregate between food and pharma on the gross margin. But like I said, private label contributes, lower shrink contributes, better forecasting contributes. So I think the teams did a good job to protect and slightly grow gross margin, and we're pleased with that performance.

Okay. That's helpful, Eric. And then maybe a follow-up just on the Moi loyalty program in Ontario. It's been, I think, in the market for 1.5 years now. Just where are you on your journey to leverage the enhanced data analytics to deliver more personalization and effective promotions in Ontario through the new program?

Thanks for your question, Chris. It's Marc here. Moi continues to perform well and sales penetration continues to increase and digital customer engagement continues to increase as well. So we're satisfied with the progress we're making on Moi in Ontario and in Quebec, in food and pharma in Quebec. We've been leveraging data for a number of years even before the launch of Moi in Ontario with our partner, dunnhumby. We use that data in our merchandising team to optimize promotion, to optimize assortment and make sure that we have the right commercial strategy to meet the customers. We've been doing that before Moi and now are continuing to do it with Moi.

On personalization, since our launch, as more and more customers engage digitally, we can have direct digital contact with them and deliver personalization directly to different channel. So as Moi progresses, our reach in terms of personalization increases. As for Quebec, the program has been in market now for a few years in both food and pharma. And with our multiple banners and high penetration of Quebec household, the extent of our reach and personalization is greater in Quebec and the cross-shopping and the impact of cross-shopping in Quebec is greater as well.

While we see cross-shopping and the benefit of cross-shopping in Ontario as well, to give you an example, in Quebec, as consumers shop food and pharma, they spend 100% more with our business as a whole through all of our stores and different channels. So we'll continue to focus on increasing reach, increasing digital reach so we can continue to drive personalization. There's still opportunity for us in both markets, more in Ontario as the program continues to grow.

And at this time, gentlemen, it appears we have no other questions registered. Please proceed.

Thank you all for your interest in Metro, and please mark your calendars for our third quarter results on August 12. Thank you.

Thank you, sir. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Enjoy the rest of your day.

Good afternoon, ladies and gentlemen, and welcome to Metro Inc. 2026 First Quarter Results Conference Call. [Operator Instructions] Also note that this call is being recorded on January 27, 2026. I would now like to turn the conference over to Sharon Kadoche, Director, Investor Relations and Corporate Finance. Please go ahead.

Good afternoon, everyone, and thank you for joining us today. Our comments will focus on the financial results of our first quarter, which ended on December 20.

With me today is Mr. Eric La Fleche, President and CEO; Nicolas Amyot, Executive VP and CFO; Marc Giroux, Chief Operating Officer; and Jean-Michel Coutu, President of the Pharmacy division.

During the call, we will present our first quarter results and comment on the highlights. We will then be happy to take your questions.

Before we begin, I would like to remind you that we will use in today's discussion different statements that could be construed as forward-looking information. In general, any statements which does not constitute a historical fact may be deemed a forward-looking statement. Words or expressions such as expect, intend, are confident that, will and other similar words or expressions are generally indicative of forward-looking statements.

The forward-looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy, our annual budget and our 2026 action plan. These forward-looking statements do not provide any guarantees as to the future performance of the company and are subject to potential risks, known and unknown as well as uncertainties that could cause the outcome to differ materially.

Risk factors that could cause actual results or events to differ materially from our expectations as expressed in or implied by our forward-looking statements are described under the Risk Management section in our 2025 annual report. We believe these forward-looking statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward-looking statements, except as required by applicable law. I will now turn the call over to Nicolas.

All right. Thank you, Sharon, and good afternoon, everyone. First, I will start by mentioning that we are pleased to report that the challenges related to the temporary shutdown of our frozen food distribution center in Toronto are now behind us as operations have fully resumed. Our contingency plan was effective in securing supply across our Ontario food store network. The direct costs associated with our freezer issue and our related contingency plan amounted in the quarter to $21.6 million pretax or $15.9 million post tax and our results are adjusted for these costs only.

Turning to our Q1 results. Total sales reached $5.3 billion, an increase of 3.3% versus the first quarter last year. Sales were negatively impacted by the transfer of one significant pre-Christmas shopping day to the second quarter this year as well as by the temporary shutdown of our frozen food distribution center, as I've just mentioned.

Food same-store sales grew by 1.6% in the quarter, and they were up 1.9% when adjusting for the Christmas shift. On the pharmacy side, same-store sales grew by 3.9%, supported by a 5.1% growth in prescription sales and a 1.3% growth in front store sales.

Similar to food, when adjusting for the Christmas shift, front store sales were up 1.7%. Our gross margin reached $1.04 billion or 19.7% of sales in the quarter, the same percentage as Q1 last year.

Turning to operating expenses. They were $557.6 million in the quarter, up 5.5% year-over-year. As a percentage of sales, operating expenses were 10.5% versus 10.3% in the first quarter last year as they were unfavorably impacted by $20.8 million of direct costs related to the temporary shutdown of our freezer.

Excluding these costs, operating expenses grew by 1.6% year-over-year and represented 10.2% of sales. Note that we also had $0.8 million of direct cost impact related to our freezer issue and our losses on asset disposal.

EBITDA for the quarter amounted to $482.6 million. That's up 0.2% year-over-year and stands at 9.1% of sales. Adjusting for the $21.6 million direct freezer costs, adjusted EBITDA stood at $504.2 million, up 4.7% year-over-year, reaching 9.5% of sales, an increase of 13 basis points over Q1 2025.

Total depreciation and amortization expense for the quarter was $143.6 million, up $10 million. The increase in depreciation and amortization expense is mainly due to the increase in our retail investments including the opening of new stores from last year, right-of-use assets as well as the commissioning of investments in our supply chain, including some automation technology in the pharmacy division.

Net financial costs for the first quarter were $37.3 million compared to $30.7 million last year. The bulk of the increase results from the recording in Q1 2025 of interest receivable of $4.2 million regarding the resolution of an income tax position related to prior years as well as higher interest on net debt.

Our effective tax rate of 25% is higher than the effective tax rate of 18.2% in the first quarter last year. Largely driven by the resolution of the just mentioned income tax position related to prior years of $20.6 million in Q1 2025 as well as by the Terrebonne DC tax holiday which amounted to $4.9 million this quarter versus $6.1 million in the same quarter last year.

Adjusted net earnings were $248.7 million, compared to $245.4 million last year, an increase of 1.3%, while adjusted fully diluted net earnings per share amounted to $1.16 versus $1.10 last year. up 5.5% year-over-year.

Our capital expenditures in Q1 totaled $61.9 million versus $89.3 million last year. Looking forward, we expect CapEx in F '26 to reach approximately $550 million as we continue to invest in our retail network.

On the food retail side, in Q1 '26, we opened three stores and carried out major expansion and renovation projects at three other stores for a net increase of 88,600 square feet or 0.4% of our food retail network square footage.

Under our normal issuer bid program as of January 16, we have repurchased 1 million shares for a total consideration of $98.7 million representing an average share price of $98.72. The Board of Directors declared yesterday a quarterly dividend of $0.475 a share or $1.63 per share on an annual basis, and that's an increase of 10.1% versus last year. This is the 32nd consecutive year of dividend growth for Metro, and it represents a payout of about 32% of last year's adjusted net earnings, in line with our dividend policy. On this, I will now turn it over to Eric for more color on our results. Thank you.

Thank you, Nicolas, and good afternoon, everyone. We recorded strong sales and delivered adjusted earnings per share growth in a challenging environment marked by the temporary closure of our freezer in Toronto and persistent food inflation.

As Nicolas mentioned, operations at our frozen DC in Toronto have now fully resumed. I'm pleased with the way our teams came together to ensure a steady supply to our food stores for over 3 months.

Turning to the quarter. We grew sales by 3.3%, adjusted EBITDA by 4.7% and adjusted earnings per share by 5.5%. As Nicolas said, food same-store sales were up 1.6%, and 1.9% when adjusted for the Christmas shift. We inevitably lost some sales and margins on the items we were not able to supply as part of the contingency plan, and we estimate that impact to be about 30 basis points on same-store sales for the quarter for which no adjustment was made.

Discount continues to drive same-store sales faster than Metro with the gap between them remaining consistent with the prior quarter. Total food sales growth of 3.1% reflects the strong performance of our new food stores and conversions. Our internal food basket inflation was below the reported food CPI of 4.1%. Recall that the food CPI measure is somewhat inflated due to the GST holiday last year.

We continue to see inflationary pressures on certain commodity prices, namely in the meat category and grocery. Our teams continue to work tirelessly at pushing back on those price increases, requests and offering the best value possible to our customers.

During the quarter, transaction count was slightly down but offset by an increase in the average basket. Promotional penetration remains at elevated levels and private label sales continue to outperform national brands. The competitive environment remains intense, but rational, and we are pleased with our new discount store openings and our growing market share in a very competitive market.

Online sales grew by 25.8% in the quarter. Growth is being driven by third-party marketplaces, the ramp-up of click-and-collect services as well as the launch of delivery in our discount banners.

Turning to pharmacy. The business sustained its momentum with another quarter of strong Rx sales growth and positive front-end performance. Prescription sales were up 5.1%, driven by continued organic growth, specialty medications, GLP-1s and clinical services.

Commercial sales grew by 1.3% and were driven by HABA and seasonal, partly offset by a softer performance in OTC. Although the cough and cold season picked up towards the end of the quarter, this acceleration was not sufficient to offset the slow start. Similar to food, adjusted for the negative impact of the Christmas shift front and same-store sales were up 1.7%.

We are on track with our plan to accelerate the development of our growing discount banners as we successfully opened three new discount stores in Q1. We continue to see more opportunities. And as mentioned in our previous call, our 2026 capital plan calls for a dozen discount stores, including some conversions as well as several major renovations in fiscal 2026.

To conclude, our teams remain committed to providing the best value possible to our customers and we're confident that our diversified business model, sustained investments in our retail network and strong execution will continue to deliver long-term growth for our shareholders. Thank you, and we'll be happy to take your questions.

[Operator Instructions] And your first question, Mark Carden at UBS.

This is Matthew [ Rothway ] on for Mark Carden. So I was hoping to dive into what you're seeing from the consumer a little bit more -- are you noticing any change in shopping behavior, any trade down? Do you think food inflation is beginning to have much of an impact there?

No noticeable change in consumer behavior. As outlined on previous calls, discount is growing faster than conventional. So we're seeing more traffic there. People are buying more on promotion, private label sales are outpacing national brands.

So yes, there's no noticeable change in customer behavior. Inflation -- reported inflation has risen a bit in the quarter. We're not seeing that elevated inflation in our stores. But for sure, inflation pressures put pressures on customers, and it's a concern. So that's why we're focused on value in all of our banners and working really hard to deliver value to our customers every day.

Great. And just a quick follow-up. Anything to call out on comp cadence within the quarter, how did that trend?

We don't -- no comment on other than what we reported for the company on the food and pharma side, cadence pretty consistent. That's all I'd say.

Next question is from Irene Nattel of RBC.

Just sticking with the topic of inflation, obviously, getting a lot of airtime in the media. Can you talk about what you're seeing in terms of supplier requests magnitude, frequency and the types of conversations that you're having because like ultimately, they're the what's asking, right?

That's right. That's where the inflation is coming from. We see it on the fresh side of the store week in, week out, there's commodity price pressures. Beef, poultry, pork, all those categories are trending up. And in the case of beef, it's been for an extended period of time.

So very, very challenging for us to procure meat at reasonable costs so that we can promote and that we can price -- not competitively, but that we can price at prices that consumers are looking for. A big challenge on the procurement side there. But working hard and looking for alternative sources in other countries like Mexico, Australia, whatever, so that we can access some lower prices. But it's for sure challenging.

On the grocery side, the number of requests is consistent with prior years. We're in a normal range. But the quantum of the ask, we're seeing a little more than we saw in past years. So we're pushing back as much as we can. We're negotiating as much as we can. Some of it is justified by aluminum prices, commodity prices, chocolate, coffee, name it, there are inflationary pressures that some of our suppliers are facing and trying to push or transfer to us. We negotiate as best we can and there's going to be inflation going forward. So working hard to control it as much as we can.

That's really helpful. And maybe it might be a little bit early to ask this question because I think a lot of the pricing comes in next week. But in this environment where consumers there's so much value-seeking behavior, when you do pass or when pricing is increased, what are you seeing in terms of consumer response?

Well, the prices, as you say, some of those price increases will start to take effect next week. So we'll see. But as merchandisers, we're trying to minimize the impact on our customers. So where we increase price. We do it surgically, and we try to incorporate it into our merchandising strategies, but there are going to be some price increases as there are -- as there have been in previous years. It's is the reality we're facing. What the consumer reaction will be, we'll have to see over the coming weeks. We will be price competitive and we will compete as best as we can.

Next question is from Chris Li at Desjardins.

I was wondering if I can start off with on the gross margin side. Can you please talk to us a little bit about the positive and negative factors that impacted the gross margin during the quarter?

Well, gross margins vary from quarter-to-quarter as we say, the competitive marketplace, the promotional weight the cost increases we're getting from our suppliers, all of that impact on the gross margin.

So for sure, price -- cost pressures or drag on gross margin for sure. We're trying to be the most efficient that we can in our promotions so that we draw customers into our stores and not kill the bottom line, as they say. For sure, the warehouse investments that we've made over the past years are a plus on the gross margin, they're reducing hours, which reduces the lower the price of the cost of goods sold.

So those efficiencies help. And net-net, we came up flat on gross margin rate this quarter. The freezer situation in Toronto did not help, of course, we're not getting efficiencies from that. We're getting the contrary. That was a drag for sure on our gross margin this quarter. So going forward, that's all behind us, and we're looking forward to getting back on track on gross margin.

Okay. That's helpful. And maybe if I can just double click on that. So in terms of going forward, now that you are fully behind all these free of disruption, do you expect margin to increase for the rest of the year. I know it's still a very dynamic environment, as you pointed out, but just generally, is it fair to assume margin should increase the rest of the year?

No, you can't make that call. We don't give guidance. We don't -- we won't give you a number ahead of time. We will -- like I said, we're competing in a competitive market. It's our job to have effective merchandising to deliver a gross margin that's acceptable for our returns and our bottom line. So that's what we do every day. I think we have an experienced team, and we're confident in our ability to deliver a decent gross margins. But I'm not going to give you color on up or down.

Okay. That's fair. And then my other question just on same-store sales. Thanks for quantifying the impact in Q1 from the previous disruption. Are you seeing more impact? Or do you expect more impact in Q2? Or is that fully now?

Like I said, we are back to normal. So there is no lost sales anymore. The contingency plan was good. It was effective. We supplied our stores "appropriately" but there were some missing items. If you look at the bakery department, some frozen categories in meat or grocery was not the complete assortment so that we lost sales and we lost margin on those frozen categories, which going forward is behind us. So we're looking forward to more normal sales and margins on those frozen products out of Toronto.

Next question will be from Michael Van Aelst, TD Cowen.

Just on the refrigeration issue. Can you explain how it was resolved? Did you fix it? Did you change suppliers and change the equipment? Why was there a charge?

Very big mechanical issue in the refrigeration system, basically, two heat exchangers in place, on defaulted and contaminated the other which was never supposed to happen in the first place, but it did.

All this to say that the faulty heat exchanger has been replaced by another one using a different technology. So we have two, we have the old one and we have the new one using two different technologies. So that's our -- going forward, that's how we're operating. I don't know what else I can tell, Mike.

Well, the other equipment that's on the older technology, is that the risk at that one falls as well? Or is it just a fault in the equipment rather than [indiscernible].

Well, the exact root cause of the failure of the first one, still remains to be determined. There's a lot of expertise in forensic stuff going on. Net-net, the one that's left is never malfunctioned. It's still functioning really well, and it's backed up by another one that is using a different technology. So we think the risk has been managed well, and we're confident that we're not going to suffer any problem going forward.

And then you had a decent increase in your depreciation this quarter, and you talked about -- one of the things you talked about was pharmacy automation starting to be commissioned. So should we start expecting -- to expect to start seeing some margin improvement on that side of the business coming from this automation in the coming quarters?

So this is Nicolas. Mike, I'll take the question. So that investment was commissioned last year. Obviously, when we make investments in equipment, we ensure that we're going to get or plan for the return on investment. So I would say, yes, over time, we should see some margin improvement in the warehouse distribution for the pharmacy business. I'm not going to quantify that today. We're still at the beginning of the investment, if you will. But yes, obviously, we expect productivity improvements and return on investment.

So the return on investment method that we've communicated before, double-digit cash on cash after tax is still on. We're going to get -- we're very confident we're going to get those returns from those supply chain investments at the pharmacy warehouse in Varennes. But like Nicolas said, these are long-term investments, and it will ramp up gradually over time. .

Next question will be from Mark Petrie at CIBC.

I just had a couple of follow-ups actually. On the topic of gross margin and the impact from the disruptions at the frozen DC. Is there any way to sort of just help shape that? I know I don't think you've quantified it specifically, but like above or below sort of, I don't know, 5, 10 basis points?

We -- I gave you some color on the lost same-store sales impact of 30 bps. You can put some dollars on that. What we -- I think the key message here is that we suffered in this quarter because of this freezer on a year-over-year basis. A few million dollars of lost margin for sure on that freezer. We lost the day of Christmas sales that shifted to Q2. So if you compare to Q1 last year, there's some sales and margin loss to last year, too. We have some asset disposals that are on our financial statements that is a reversal versus last year. So you put all that together, there's about $0.03 a share of negative impact that are putting a damper on our results this quarter, but we're confident going forward.

Yes. Understood. Okay. And I guess, just you called out the sort of challenging operating environment. And I know you specifically referenced the DC disruption and food inflation. But just to be clear, any shifts related to sort of promo intensity or the pressure from industry square footage growth that has sort of compounded those challenges relative to, I guess, either last quarter or last year?

So the DC we just talked about versus last year and that's behind us. Food inflation or "rising food inflation" puts pressure on consumers, puts pressure on consumers looking for value, and that puts pressure on promotions. So it's just a more challenge that we have to face. We've been facing. We're in this environment where cost of living is hard. Price of food is key on people's mind. People are making choices, making some trade downs, they're changing stores, they're buying on promotions. So all that has been happening, continues to happen and we adapt.

That's why we're opening discount stores, and that's why I think our merchandising teams and all of our banners are offering good value. You have no choice. If you don't offer value, you don't attract customers. So that's what we do.

The promotional intensity, I think, is pretty consistent. It's intense, but it's rational. The fact is there are more stores opening. We're opening some stores. Some of our competitors opening stores. So that's the added square footage puts more pressure in the sense of more competition out there with the same promotional intensity.

So these are challenges that we face, that we are, I think, experienced at and in a good position to face. I think like I said, in our diversified business model, we're well balanced between food and pharmacy and within food I think we're well balanced between discount, conventional and specialty. And I think going forward, with all the investments we've made in our supply chain over the past few years, our consistent investments in our retail networks we're, I think, well positioned to continue to grow.

Yes. Excellent. Eric. And maybe just another quick one, if I could, probably for Nicolas. Excluding the DC costs, cost control was pretty strong. Anything to call out there? And what sort of dynamics should we be thinking about for the balance of '26?

Yes. As you point out, good cost control. I think 1.6% increase is perhaps on the low end of what we could expect in the future. So I think what you can expect is perhaps a notch more than that, but continued good cost control and yes, focus on execution and delivering the margin above these costs.

Next question will be from Vishal Shreedhar at National Bank.

Eric, you've been asked this question many times, but I just want to get your view more formally reflecting on the past. We're in a period of higher inflation, accelerating square footage growth and consumer stress. And you're saying the consumer backdrop is stable, and we appreciate that you see that. But as you look forward and these pressures continue to accrue, do you feel like the grocery environment is normal and accommodative? Or do you think that some of the worries that some investors are articulating are merited.

Well, you can always worry the situation you described is factual. I think the industry square footage number Yes, it has accelerated, but that's after several years of low industry and low company, in our case, industry, we've added square footage, but one or below percent whereas population growth has grown, as you know, quite a bit more than that over the past 5 years. So there's a bit of catching up on the square footage factor.

And the square footage we're adding is on the discount side, for the most part, a big portion of it in Ontario, where we have lower penetration, lower share and where we see more opportunity for us. So I think that's -- I don't think it should be cause for concern as much as seen as an opportunity for Metro and for our shareholders. So I see that as a positive.

Inflation and consumer pressures are a fact. And we're dealing with this have been for a while, like I said, so it's up to us to deliver that value. I think we have good programs in all of our banners, good pricing, good promo, a good loyalty program, effective merchandising that can deliver value to customers. We know it's hard on customers. Cost of living is -- it's tough out there, no question about that. But I think we are offering a good value at the end of the day.

Okay. And with respect to your new stores, can you comment on if they're hitting plan?

Maybe I'll let Marc Giroux give you some color on the new stores.

So yes, we are satisfied with the -- with our store opening. They're not all equal, but overall, we're very satisfied with their performance in their respective market. As Eric mentioned, we have a plan for a dozen more in 2026. So that will continue to contribute to the total sales.

Yes. So we're hitting our sales forecast in general -- more than in general. The large majority of the store openings, like I said, we're very happy with. We're exceeding expectations in most of them, meet expectations elsewhere and confident that the stores are going to be good contributors short term.

Okay. Wonderful. And maybe I just want to get your thoughts on the pharmacy side. And with respect to the generics that are coming on the GLP-1s, do we have any Pro Doc plans? And when should we expect the Pro Doc generic equivalent to come out.

Let me pass it to Jean-Michel.

Yes. Thank you for that question. So obviously, there's a lot in the news right now about the genericization of Ozempic. It's -- right now, we know there's been some delays. There's been some noncompliance notices. So we know it's being pushed forward a little bit. We're expecting something earlier in 2026.

Now we -- there's a lot of discussions around GLP-1s. We see it a lot as a category of one right now. Everyone talks about Ozempic, but it's a very dynamic category. There's some new innovations coming out around [ Zepklom ], then we saw some news in early in December about the oral GLP-1s. So the way we see it is we think it will increase demand. But at the same time, it's going to -- the margin is also going to be protected by the fact that there are new therapies coming out. So other categories can continue to grow.

And on the product front, obviously, we're always looking to increase the portfolio of Pro Doc, but that's not something that we could disclose right now. We need to see how the market shapes up. See how Novo Nordisk also reacts to the genericization of Ozempic in Canada to see if there is space for additional generic companies that product could then market in Quebec where we're prevalent.

So I hope that answers the question, but it's -- as a category, it's growing and there's a lot of new innovation coming in. So you have to take that into account when you look at Ozempic.

[Operator Instructions] Next, we will hear from John Zamparo at Scotiabank.

I wanted to revisit the topic on competition levels. and a question I think is for you, Eric. Against whatever base time line you choose, do you consider the market to be more competitive pretty equally across your network? Or is the comment about a very competitive market more specific to certain regions or certain pockets where you are seeing greater store growth from the industry?

Well, in our plan for this year, there's more impact from competition in the Quebec market versus Ontario, but there's impact over there from new competition, be it our own cannibalization or competitor square footage. So but there's a little more in Quebec that's happened over the last year and continues to happen this year. That cycles throughout this year. So yes, that's a wave that's going to pass, but there's still -- there's a competitive impact a little more in Quebec this year.

Okay. And then one perhaps for Nicolas. In the past, you've contemplated at times about looking at slightly higher leverage to facilitate more buybacks. And I wonder where Metro currently stands on that subject.

I would say that we're still contemplating the same. We still have a view that we could progressively increase the leverage over time and then use part of that to buy back shares. So I think we're at the same position, and we would do that very gradually and prudently over time.

Next question from Michael Van Aelst at TD Cowen.

So just a follow-up. So overall, the sales are pretty good, particularly when you adjust for the temporary items and the timing. And at the AGM, it sounded like you're going to increase your focus on cost controls this year. Do you think this combination can allow you to get back into your growth algorithm despite the slower start to the year?

We remain committed to our financial framework objectives, which, as you know, are mid- to long-term averages. We're working really hard to make those numbers every quarter, every year. Yes, the number for Q1 is slightly below on EPS growth than that framework, but we will do everything we can to meet our objectives. So no change to our objective but we're not going to give you guidance for next week or next month or next quarter.

At this time, we have no questions registered. Please proceed.

Thank you all for your interest in METRO, and please mark your calendars for our second quarter results on April 22. Thank you.

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.

Good morning, ladies and gentlemen, and welcome to the Metro Inc. 2025 Fourth Quarter Results Conference Call. [Operator Instructions]

Also note that the call is being recorded on Wednesday, November 19, 2025. I would now like to turn the conference over to Sharon Kadoche, Director, Investor Relations and Corporate Finance. Please go ahead.

Good morning, everyone, and thank you for joining us today. Our comments will focus on the financial results of our fourth quarter, which ended on September 27.

With me today is Mr. Eric La Fleche, President and CEO; Nicolas Amyot, Executive VP and CFO; Marc Giroux, Chief Operating Officer; and Jean-Michel Coutu, President of the Pharmacy Division.

During the call, we will present our fourth quarter results and comment on its highlights. We will then be happy to take your questions.

Before we begin, I would like to remind you that we will use in today's discussion different statements that could be construed as forward-looking information. In general, any statement which does not constitute a historical fact may be deemed a forward-looking statement. Words or expressions such as expect, intend, are confident that, will and other similar words or expressions are generally indicative of forward-looking statements.

The forward-looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy, our annual budget and our 2025 action plan. These forward-looking statements do not provide any guarantees as to the future performance of the company and are subject to potential risks, known and unknown as well as uncertainties that could cause the outcome to differ materially.

Risk factors that could cause actual results or events to differ materially from our expectations as expressed in or implied by our forward-looking statements are described under the Risk Management section in our 2024 annual report. We believe these forward-looking statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward-looking statements, except as required by applicable law.

I will now turn the call over to Nicolas.

Okay. Thank you, Sharon, and good morning, everyone. I will now go over our Q4 results, starting with a comment on our Toronto freezer situation. As you are all aware, operations at our frozen distribution center in Toronto have stopped on Friday, September 12, as a result of a mechanical issue with the refrigeration system. Since then, our teams have been working hard on securing supply for our Ontario food retail network. Our contingency plan is ongoing and working well, and Eric will be sharing more color on the state of the DC in a minute.

On my end, I will be focusing on the financial impact of this situation in Q4, as well as the expected spillover in our first quarter of F '26. The after-tax financial impact of this situation on our fourth quarter was $22.5 million or $30.6 million before taxes, which includes $24.5 million for inventory losses as well as $6.1 million for other direct costs related to temporary equipment rental to keep the temperature down in our freezer as well as incremental transportation and third-party logistics costs for the execution of our contingency plan.

Looking forward to Q1 of F '26, we estimate that the direct costs associated with the rental of temporary chilling equipment and with the execution of our contingency plan will impact our net earnings by approximately $15 million to $20 million. The impact on sales and margin is expected to be modest, given the contingency plan in place, and we expect being essentially back to normal by the end of December.

Now turning to our Q4 results. Total sales reached $5.1 billion, an increase of 3.4% versus the fourth quarter last year, driven by higher sales in our discount and pharmacy retail networks. Food same-store sales grew by 1.6% in the quarter, while pharmacy same-store sales grew by 4.8%, supported by 5.5% growth in prescription sales and a 2.9% growth in front-end sales.

Our gross margin reached $1.022 billion, 20% of sales versus 19.7% in the same quarter last year. The year-over-year increase is partly attributable to shrink improvement in food retail activities as well as productivity gains at our food distribution centers. Note that the direct costs related to the freezer were recorded under operating expenses.

Turning to operating expenses. They were $535 million in the quarter, up 4% year-over-year. As a percentage of sales, operating expenses were 10.5% versus 10.4% in the fourth quarter last year as they were unfavorably impacted by $6.1 million of direct costs related to the temporary shutdown of our freezer. Excluding these costs, operating expenses grew by 2.8% year-over-year and represented 10.4% of sales, the same percentage as Q4 last year.

EBITDA for the quarter amounted to $485 million, that's up 5.5% year-over-year and stands at 9.5% of sales. Adjusting for the $6.1 million direct costs incurred for the Toronto DC, adjusted EBITDA stood at $491 million, up 6.8% year-over-year, reaching 9.6% of sales, an increase of 30 basis points over Q4 2024.

Total depreciation and amortization expense for the quarter was $140 million, up $4.1 million. Net financial costs for the fourth quarter were $34.4 million compared to $32.6 million last year due to higher interest on net debt. Our effective tax rate of 24.1% is lower than the effective tax rate of 24.5% in the fourth quarter last year, largely driven by the Terrebonne tax holiday.

Adjusted net earnings were $246 million compared to $227 million last year, an increase of 8.6%, while adjusted fully diluted net earnings per share amounted to $1.13 versus $1.02 last year, this is up 10.8% year-over-year. These results are adjusted for the $22.5 million after-tax impact of the freezer situation.

Our capital expenditures in fiscal '25 totaled $511 million, down $69 million versus last year. The lower year-over-year CapEx level is mainly the result of the completion of our automated distribution centers in the summer of '24. Looking forward, we expect CapEx in F '26 to reach approximately $550 million as we continue to invest in our retail network.

On the food retail side, in fiscal '25, we opened 14 stores, including 5 conversions and carried out major expansions and renovations at 17 stores for a net increase of 294,000 square feet or 1.4% of our food retail network square footage.

Under our normal issuer bid program as of November 7, we have repurchased 8.7 million shares for a total consideration of $848 million, representing an average share price of $97.51.

Closing in on fiscal '25, we are very pleased with our financial performance and the fact that we delivered against our financial framework.

I will now turn it over to Eric for more color on our DC situation as well as on our overall performance. Thank you.

Thank you, Nicolas, and good morning, everyone. We delivered another solid quarter to finish a very good year, meeting or exceeding our financial framework metrics. In fiscal '25, we grew sales by 3.7%, adjusted EBITDA by 5.5% and adjusted earnings per share by 10.9%.

Before turning to the quarterly results, let me share some color on the state of our frozen DC in Toronto. I'm pleased to report that operations resumed on November 10, and that we started shipping to our stores yesterday. We expect to essentially be back to normal by the end of December. The mechanical issue responsible for the shutdown affected several components of the refrigeration system and the repairs were complex. The setback was not related to the automation system.

Our automated freezer DC in Quebec assumed a substantial portion of the Ontario volume together with 3 Ontario-based third-party logistics providers and also increased direct-to-store deliveries from several suppliers.

I want to thank all our teams and partners who have worked nonstop on our contingency plan to minimize the impact on our customers. We have insurance coverage and are currently working with our insurers to confirm the amounts that we will be entitled to recover.

Turning to the fourth quarter. We recorded sales growth of 3.4%. Food same-store sales were up 1.6% and 3.8% over 2 years. Discount continues to drive same-store sales faster than Metro with the gap between them remaining consistent with the prior quarter.

Food same-store sales were negatively impacted by about 30 basis points due to the shutdown of the freezer over the last couple of weeks of the quarter and also by the lift we had during the LCBO strike that occurred in the fourth quarter last year.

Total food sales growth of 3.2% reflects the performance of our new stores and conversions, which we are very pleased with. Our internal food basket inflation was below the reported food CPI of 3.4%. We continue to see inflationary pressures on certain commodity prices, namely in the meat category. We are presently in our price freeze period. However, we continue to receive price increase requests from our vendor partners at levels higher than a typical 2% to 3%. We continue to negotiate hard to minimize the impact on consumers going forward.

During the quarter, our Metro stores saw an increase in average basket, partly offset by a slight decrease in transactions. On the discount side, both basket and foot traffic were up as customers continue to search for value. Promotional penetration remains at elevated levels and consistent with prior quarters. Private label sales continue to outperform national brands by a healthy margin. The competitive environment remains intense but rational, and our market share was flat for the quarter.

Online sales grew by 19.8% in the quarter, driven by the ramp-up of click-and-collect and the launch of home delivery at both Super C and Food Basics as well as third-party marketplaces.

Last month, we celebrated the first anniversary of the Moi loyalty program in Ontario. Although still early in the program, we continue to see encouraging metrics with a growing member base and improved penetration rates.

Turning to pharmacy. The business sustained its momentum with another quarter of strong Rx sales growth and positive front-end performance. Prescription sales were up 5.5% driven by continued organic growth, specialty medications, GLP-1s and clinical services. In fiscal '25, we recorded 5.4 million clinical services in our network of pharmacies, a number that is well aligned with our leading market position in the province of Quebec. Commercial sales were up 2.9%. The strong performance was driven mainly by growth in beauty and cosmetics and partly offset by a slow start to the cough and cold season.

As Nicolas mentioned, we are on track with our plan to accelerate the development of our growing discount banners as we successfully opened 9 new stores and converted 5 stores in fiscal '25. We continue to see more opportunities in the coming years, and our plan calls for a dozen new discount stores in fiscal '26 including a few conversions.

Looking forward, halfway through our first quarter, we are seeing similar trends to Q4 in food same-store sales. On the pharmacy side, prescription sales continue to be strong, but sales of OTC products are softer due to the slow start of the cough and cold season.

To conclude, in addition to the ramp-up of the freezer, our focus remains on realizing efficiency gains throughout our supply chain and store network while we continue to execute on our plan to accelerate the development of our growing discount banners. We remain steadfast in our efforts to deliver the best value possible to our customers through our effective merchandising programs, strong private labels, the Moi program and consistent execution at store level.

Thank you, and we will be happy to take your questions.

[Operator Instructions] First, we will hear from Chris Li at Desjardins.

Thanks first for quantifying the impact on the same-store sales with the DC shutdown. Eric, I was wondering, are you still seeing some impact in Q1 when you said the trends are in Q1 and similar to Q4, or is that 30 basis points pretty much now behind you in Q1?

The answer is we continue to see an impact from the freezer situation. It is impacting our same-store sales a bit. So that's continuing. I said the 30 basis points was 2 events, the freezer for 2.5 weeks and the LCBO last year. So the freezer situation is having an impact. We're losing a bit of sales and margins. It doesn't show too much to the consumer, but we don't have a full assortment in certain categories, and frozen bakery is an example.

So when I say similar trends in Q1 to Q4, we're in the same -- very much in the same ballpark. And we continue to be affected by the freezer situation. It is a bit of a drag included in that number.

Okay. And presumably, once it's fully back online by end of this calendar year, I mean, that shouldn't really be a headwind anymore?

That's correct.

Okay, okay. That's helpful. And then just maybe a quick one on gross margin. It continued to benefit nicely from the productivity gains at the food DCs. Is it fair to assume we'll continue to see the benefits manifested in fiscal '26?

Chris, so I would say, yes. However, I guess, as you know, we are in a very competitive industry. So we're always looking at preserving, gaining market share. So not to say that some of these benefits would not be "reinvested" in promotional activities. But the -- I would say that, yes, the benefits that we've been able to capture are there to stay.

Okay. That's helpful. And maybe last question on the pharmacy business. We had another very strong year both in terms of prescription and commercial sales growth. I guess my question is, do you expect kind of similar drivers for this year that have supported the strong growth in the previous fiscal year? And then what are some of the things that you guys are watching closely?

Yes. We expect the same fundamental trends. The Rx growth has been very strong the last couple of years. We're seeing still good growth. The expanded scope of practice going forward is going to be a tailwind on Rx eventually when Bill 67 kicks in.

On the front-end, it's a competitive market. We're well positioned. We have a great network, good merchandising, good programs, and we're confident in our ability to continue to see decent growth in our front-end sales. The fundamental drivers are still there. Aging population, health trends, clinical services, expanded scope of practice, these are all good tailwinds, structural tailwinds for pharmacy for us in Quebec.

Next question will be from Mark Carden at UBS.

So just to start, just wanted to see your latest thinking on the health of the consumer. Has purchasing behavior changed much from last quarter? And then just related, are you still seeing much of a Buy Canadian push?

So consumer behavior is very similar to what we've been reporting for several quarters, as I outlined in my opening remarks, so not much to add there. Buy Canada, it has softened up. There's still more growth in Buy Canadian product sales than non-Canadian product sales, but that growth has somewhat narrowed versus what we saw in spring and summer. So it's declining a bit. And since counter tariffs were lifted in -- on September 1, some of these products, U.S. products prices have gone down, so that's maybe contributed to the narrowing of that gap.

Okay. Great. And then just on prescription drugs, you guys continue to do well there, slight deceleration from the last few quarters, though. Just curious what the primary drivers you're seeing in the growth of prescription drugs are from a category standpoint. What you're seeing from the GLP-1 angle? And then any update on your outlook for health care services?

I'll let Jean-Michel have a crack at that.

Yes. So I think Eric highlighted the drivers very well. So GLP-1s continue to be a tailwind. There's been some changes in that category as new products have come into market in Canada, and that's also continuing to boost growth in that category overall.

In terms of professional services, we're continuing to see growth on professional services. Although since there's no new services, we're starting to see that it's moderating a little bit, but with Bill 67, we do expect that to pick up. We don't have any news on the Bill 67 front. Right now, we're probably looking at a January time line depending on the negotiations between the government and AQPP. But on that is the same underlying drivers that are going to continue to maintain that momentum in F 2026 for us.

Next question will be from Irene Nattel at RBC Capital Markets.

I think we're all kind of hyper focused on any marginal changes in the environment, kind of competitive intensity consumer behavior. But based on your comments, Eric, like are there really any or is it fairly stable to, let's say, earlier in the year?

I think it's fairly stable, like very consistent environment, I would say, and consumer behavior. The accelerating square footage growth is not new for this quarter, but it's been something that we've opened stores, others have opened stores. So there's industry square footage growth out there that's having an effect. It's making the market certainly more competitive. So the level of same-store sales we're reporting, I think, reflects some of that new competition, new square footage in the market. So that's the only comment I would add.

That's really helpful. And then just coming back to a comment that you made about requests for price increases being in excess of the historical 2% to 3%. I think you called out meat, but what about other categories? And what would be your expectation for where things actually settle out versus the request?

So price request of over 2%, 3% is not unusual. We've seen that before, mid-single digits, high single digits, sometimes more, it depends on the category, the ingredients, particular situations. So this is, I would say, normal situation. The quantity remains elevated of price increase request, but we deal with it as best we can. We negotiate in good faith with our vendors. We pushback when we can. And when it's justified, it will be a market increase and we will have to take it.

As I said in the opening remarks, we're in the freeze right now. So there were some price increases before November 15, and the next wave will not come before February. So consumers -- we're trying to protect consumers as much as we can and give value as much as we can. What the outcome of those negotiations are, we expect to be normal and we expect it to be manageable and we expect to stay in a range of inflation in the 2%, 3%. But the jury is out, and I don't have the famous crystal ball. We'll see where it lands.

That's great. And just one final one for me, please. You mentioned the accelerating square footage growth, yours and the others notably in discount. What kind of returns are you seeing as you open these real estate projects? And are they any different from historically?

In general, we're pleased with our returns. We analyze investments very carefully. We have our internal thresholds. We're meeting our investment thresholds. So market by market, investment by investment, we're careful to make the decisions that will contribute to long-term shareholder growth and capture the market share that we think is out there to capture for us in a responsible and disciplined way. So short answer is we're meeting our financial targets.

Next question will be from Michael Van Aelst at TD Cowen.

I just wanted to go back on your answer to one of the earlier questions about the industry's square footage growth. And I mean, I think it makes sense that it's moderating the levels of same-store sales growth. But you also said that it's making the industry more competitive.

Now I guess I'm wondering, is it just making it more competitive in terms of lowering that same-store sales growth? Or is it also impacting your gross margins? Because your gross margin up 23 basis points was actually quite solid. And so I'm kind of curious as to whether you're seeing pressure on the gross margin.

The comment was more of the same. When there's a new store opening across the street, it makes it more competitive for your existing networks. So I said, square footage makes it more competitive because it adds competition in certain markets and it impacts same-store sales for that market. So for me, it's one and the same.

The gross margin, we're pleased with our results this quarter. So we're able to manage through this competitive environment and pleased with our performance. I think we have experienced merchandisers, and we're doing what we can to meet our targets. But we're in a competitive environment and we always have been.

Okay, so okay. And then Nicolas mentioned that the DC efficiencies that you're getting are helping to drive that gross margin higher. I mean that was the case, obviously, in this quarter in the face of some of these competitive pressures. So what might change? What do you think might change over the next -- over fiscal '26 that might require you to reinvest some of that margin improvement back into promo activity like you suggested might be necessary?

I don't want to speculate. We are competitive. We always will be competitive in the market to protect our share, protect our sales and deliver decent margins to our shareholders for the business. What might change? It's hard to give you a straight answer or clear answer to that. We're in a competitive market and we're confident in our position and our ability to compete. We're well positioned with our network of stores, both Metro and discounts in both provinces with a very good market share. I think we're well positioned to continue to do well.

Okay. So maybe just I'll ask it a little bit clearer. Is there anything that you're seeing now that's causing you to reinvest some of that gross margin gain that you got in Q4? Or is that just a possibility in future quarters?

Well, it's always a possibility, but we don't give guidance like that, and I think we should. That's all I'm going to say.

Okay. Just to be clear on the DC impact. When you talked about the direct impact of $6 million, all of that was in OpEx, I believe you said. So when you say you got -- you had -- I don't know, you said 30 basis point impact from 2 factors. So let's call it 20 basis points from the freezer. Was that adjusted for in the EPS? Or is that not? Or was that left to flow through?

No. So what I said, as you've mentioned, is that all the direct costs associated with the freezer were recorded under OpEx. When the freezer situation happened, we completely stopped operating the freezer, shipping products out of the freezer. So the gross margin benefit that we've seen was realized, if you will, prior to that situation and is "not adjusted for." It just does not include any impact for the freezer. All the direct cost, incremental costs are in OpEx.

Just to pick up on that, we did not adjust for the lost sales and the margins on those lost sales. We adjusted for the loss of inventory in the warehouse and the direct cost.

Was that clear, Mike?

Yes, that's clear.

Next question will be from Mark Petrie at CIBC.

Thanks for all the comments on the consumer and the competitive environment. That's very helpful. Hoping you can elaborate on the steps you took with regards to the frozen DC just to get it back on track to full operations. Was it repair, replace? And how have you sort of addressed the risks of recurrence?

Thank you for that question. So I'm not an engineer, and I don't want to say things that are way out of my league. But there was a complex repair and set up. So it involved compressors that were repaired, heat exchanger that is being replaced. So we are changing some components of the heat exchanger system to a different system, and we will be adding some redundancy so that we will avoid the situation. We will do eventually or in the not-too-distant future. We don't face the same risk in Terrebonne, our other frozen automated frozen facility in Quebec. That one is a fresh and frozen building on a different refrigeration system. We made sure that we have enough capacity and redundancy there. We will add even more, but we are in a good position there. And I think the risk is well managed.

I think the good news in this catastrophe is what Terrebonne, our Quebec DC was able to pick up from Ontario. So very pleased that we were able to increase capacity in Terrebonne in short order quite substantially. So that proves that we have good networks, good facilities with good systems that can operate. Again, the breakdown in Toronto was really mechanical, refrigeration related, not IT or automation related at all. I hope this answers your question.

Yes, it does. And I'm not an engineer either, so that's more than enough for me. But I guess maybe just to follow up, the cost for whatever you did have to do with Terrebonne, that's included in the $15 million to $20 million for Q1 or that's just included in your overall CapEx budget? Or where do those costs fall?

So the $15 million, $20 million that we flagged out for Q1, a lot of that is transportation costs, and that includes Terrebonne. So we're shipping from Terrebonne to Ontario stores all over the province. So that has a substantial cost, transportation costs, and that's in that number.

Yes. Okay. Sorry, I just meant the cost of the equipment, but I think it was probably relatively small. And then my only other follow-up question, just on the same-store sales and, I guess, specifically to inflation. It seemed like the gap to CPI was wider this quarter than it has been in the last number of quarters. Would that be a fair interpretation? And if so, when you look at your internal data, what would account for that?

I wouldn't say the gap to CPI increased. We're in the same ballpark. CPI for our markets was 3.4% We're in the 3% range. So it was about a similar gap in the previous quarter, if I recall. And we don't see a huge gap, but there's a gap.

Next question will be from Vishal Shreedhar at National Bank.

I just wanted to circle back to the GLP-1s that will go generic and have an impact on Metro's drugstore business. Is it fair to suggest that there'll be an impact on same-store sales growth and gross margin dollars? Or do you anticipate some of that being completely or more than offset by volume?

Yes. So I could take this one. So it's a good question. Right now, the challenge is we don't have a crystal ball, so we can't really tell you when Ozempics could be genericized. There's been some delays. We know that the first submission did receive a notice of noncompliance. So clearly, it's going to be pushed further into F 2026 for us. Some people are saying spring.

And then the question becomes, will they have enough supply to meet the demand. That also is going to change the dynamic and the impact of GLP-1s for us. But when you look at it right now, the submission is for Ozempic, which is primarily for diabetes. Are they going to be prescribing also for weight loss? Chances are, yes. But there are other alternatives, as I mentioned earlier, on market right now that have also continued to bring a little bit more dynamics to that category.

But yes, it will -- a generic, if the demand doesn't pick up because of the lower cost, will create some deflation in our same-store sales. Right now, when we look at latent demand, we do expect some pickup because of the accessibility of the new price point. And then in terms of margin, in our model, it can create some margin decrease as we make margin as a percentage from wholesale. So that's, I mean, that's the dynamic right now in the market, but there's still a lot of unknowns for F 2026.

Okay. That was helpful. With respect to the Jean Coutu network, is that sufficiently outfitted to capture the growing demand for professional services? And how can I think about the size of that business for Metro?

Yes. So right now, it's more of a same-store sale business, and we get royalties on those fees. But when we look at our network, we are very well positioned. We've invested for a long time in making sure that our stores have sufficient consulting rooms on average 2 per store. And now we're looking at stores with 3 and 4 as we're renovating and continuing to expand our stores. So we are in a very strong position to continue to offer these professional services across our network. It's something we've always invested in, and we see it right now, we're capturing our fair share of professional services and it's continuing to grow.

The next question will be from John Zamparo at Scotiabank.

I wanted to follow up on the gross margin gain topic. The year-over-year gain this quarter was significantly more than what Metro had posted over the last 3 quarters. I know you called out shrink improvements and productivity gains from the DC. But is there any color you can add on why this made a more meaningful improvement this quarter versus the past 3?

Not really. Maybe Marc can add color, but not really.

Maybe a comment on the 2 questions regarding margin. Gross margin is a very dynamic and fluid concept of results. Our focus is winning on customer value and driving tonnage and maintaining share and delivering, as Eric said, the bottom line and shareholder value. So the rate itself for us is a guiding post but not an objective in itself. So depending on the quarter, depending on the dynamic, depending of the tonnage available, our merchandising team will invest and deploy strategy to win in the marketplace.

As you've seen in the past, our gross margins have been quite stable for multiple quarters. Some -- to Nicolas' point earlier, some of the productivity gain and shrink gain sometimes are reinvested to drive tonnage and sometimes they're flowing to the bottom line. I don't know if that helps and provides additional color.

Yes. And just a follow-up on that, the fact that shrink is listed as the first factor, should we interpret that as that was the larger of the 2 drivers between that and productivity?

Not necessarily, John. I would say it's a combination of shrink, DC productivity, including DC within the DC as well as all of our logistics around transportation. So I would say that they are similar contributors.

Got it. Okay. And then in the outlook, you talked about 12 new or converted stores in F '26. Apologies if I missed it, but can you say what you expect for net square footage growth for this year?

It's a little -- for fiscal '26, we're seeing above 1%, 1% to 1.4% where we land.

[Operator Instructions] Next is a follow-up from Michael Van Aelst.

Just a quick one on the insurance claim. I know you said you're still negotiating it. But is your expectation that it's going to cover most or all of the direct and indirect inventory hit or just one of them? And then do you have any idea of the timing?

Michael, I would have liked to report that exactly that we're going to get it all back. These are complex policies with several insurers. So what I read is -- what I'm told, I should say, we're making our claims. We're going to get as much as we can. We think we're well covered with good coverage, and hope -- we will keep you posted, and we hope to get most, if not all of it back, but we'll see. We'll see where it ends up.

Yes. Can you comment at all on the timing?

Hard to say, too. We're going to get some advances. It looks like they're going to -- they recognize liability. So we're going to get some money pretty early. For the rest, I don't know how long it will take. So we'll keep you posted.

Next question is a follow-up from Chris Li.

Sorry. I'm sorry if you talked about this already, but just a question on your SG&A expenses for the quarter. If we exclude the $6 million of nonrecurring costs, it was fairly normal. I think it was up just under 3%. And I know you don't give any sort of guidance for this year, but I'm just wondering like is there anything over the horizon that would cause you perhaps to deviate from that 3% growth for this year if you exclude the onetime costs that are still coming in Q1?

Yes. So as you've mentioned, I think adjusted for the direct cost of the freezer, the year-over-year growth of SG&A was 2.8%. Nothing specific to highlight, multiple categories contributed "normally" to the increase. Nothing that we see on the horizon that should have a material impact. We have always ongoing union labor negotiations that could come and have an impact. But as you've mentioned, we don't give specific guidance. And I would say nothing specific to highlight.

Okay. That's helpful. And then on the share buyback. You bought back, I think, $800 million of shares in fiscal '25. Do you expect a similar amount in fiscal '26? And then maybe related to that, you do have still a very strong balance sheet. I think your leverage is only 2.2x, which is below your target. Do you anticipate there's more room maybe to use that to accelerate the buybacks if you think it's appropriate?

Yes. I think at this point, as I've mentioned, we've -- as of November 7, we have repurchased 8.7 million shares. The total approved program was 10 million shares. We're obviously not going to get to that by November 26. I would say that next year, at this point, I would expect a similar program and similar kind of operating conditions, meaning we're not necessarily going to totally fill it. And I think leverage wise, we've been saying that we are in a good position balance sheet wise. We might increase leverage in the future depending on conditions and I would say, for the moment, message is the same.

Thank you. And at this time, we have no other questions registered. Please proceed.

Thank you all for your interest in Metro, and please mark your calendars for our first quarter results on January 27. Thank you.

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you disconnect your lines. Have yourselves a good day.

Good morning, ladies and gentlemen, and welcome to the Metro Inc. 2025 Third Quarter Results Conference Call. [Operator Instructions]. Also note that this call is being recorded on Wednesday, August 13, 2025.

And I would like to turn the conference over to Sharon Kadoche, Director, Investor Relations and Corporate Finance. Please go ahead.

Good morning, everyone, and thank you for joining us today. Our comments will focus on the financial results of our third quarter, which ended on July 5. With me today is Mr. Eric La Fleche, President and CEO; Nicolas Amyot, Executive VP and CFO; Marc Giroux, Chief Operating Officer; and Jean-Michel Coutu, President of the Pharmacy division.

During the call, we will present our third quarter results and comment on its highlights. We'll then be happy to take your questions.

Before we begin, I would like to remind you that we will use in today's discussion different statements that could be construed as forward-looking information. In general, any statement, which does not constitute a historical fact may be deemed a forward-looking statement. Words or expressions such as expect, intend, are confident that, will and other similar words or expressions are generally indicative of forward-looking statements. The forward-looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy, our annual budget and our 2025 action plan.

These forward-looking statements do not provide any guarantees as to the future performance of the company and are subject to potential risks, known and unknown as well as uncertainties that could cause the outcome to differ materially. Risk factors that could cause actual results or events to differ materially from our expectations as expressed in or implied by our forward-looking statements are described under the Risk Management section in our 2024 annual report.

We believe these forward-looking statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward-looking statements, except as required by applicable law.

I will now turn the call over to Nicolas.

Okay. Thank you, Sharon, and good morning, everyone. I will now go over our Q3 results. Total sales reached $6.9 billion, an increase of 3.3% versus the third quarter last year. Food same-store sales grew by 1.9% in the quarter, while pharmacy same-store sales grew by 5.5%, supported by a 6.2% growth in prescription sales and a 4% growth in front-end sales.

Our gross margin stood at 19.8% of sales versus 19.6% in the same quarter last year. The year-over-year increase is partly attributable to productivity gains in our food distribution centers as well as shrink improvement in food retail activities.

Operating expenses were $702 million, representing 10.2% of sales, a similar level to our third quarter last year. We benefited from the fact that we cycled transition duplicate costs last year related to our Terrebonne automated distribution center, but these benefits were offset by inflationary pressures, operational expenses related to our Fresh Phase 2 DC in Toronto as well as an increase in fees related to the growth of our online partnership sales.

EBITDA for the quarter totaled $656 million, up 5.7% year-over-year, while EBITDA as a percentage of sales stood at 9.5% this quarter, an increase of 20 basis points over Q3 2024. Total depreciation and amortization expense for the quarter was $185 million, up $11 million. The increase in depreciation and amortization expense is mainly driven by retail investments as well as by the commissioning of investments in our supply chain, including the final phase of our fresh distribution center in Toronto last summer and some automation technology in the Pharmacy division.

Net financial costs for the third quarter were $45 million compared to $47 million last year. The decrease is mainly attributable to a lower interest expense on net debt, partly offset by lower capitalized interest. Our effective tax rate of 24.1% is lower than the effective tax rate of 25.9% in the third quarter last year, largely driven by the Terrebonne tax holiday, consistent with what we have reported in our first 2 quarters this year.

Adjusted net earnings were $332 million compared to $305 million last year, an increase of 8.8%, while adjusted net earnings per share amounted to $1.52 versus $1.35 last year, and that's up 12.6% year-over-year. Our capital expenditures for the third quarter totaled $146 million, down $41 million versus last year. As expected, the lower CapEx level is mainly the result of the completion of our automated distribution centers.

On the food retail side, after 40 weeks, we opened 8 new stores, including 3 conversions and carried out major expansions and renovations at 12 stores for a net increase of 194,000 square feet or 0.9% of our food retail network square footage. Under our normal course issuer bid program, as of August 1, we have repurchased 5.7 million shares for a total consideration of $562 million, representing an average share price of $98.55.

To conclude, we have delivered solid Q3 results, and I will now turn it over to Eric for more color on our performance. Thank you.

Thank you, Nicolas, and good morning, everyone. We are pleased with our results in the third quarter as our teams continue to deliver on our customer promises, in particular, good value with competitive everyday prices, effective promotional strategies, our full range of private label products and our loyalty program.

For the quarter, total sales grew by 3.3%, EBITDA by 5.7% and adjusted EPS by 12.6%. Starting with food, same-store sales were up 1.9% and 4.4% over 2 years. Discount continues to drive same-store sales growth faster than Metro with the gap between both remaining stable. Our internal food inflation basket inflation was in line with the reported food CPI of 3.1%.

We continue to see inflationary pressures on certain commodity prices, namely in the meat category. The introduced tariffs and counter tariffs are also a contributing factor to food inflation as we continue to receive price increase requests from our vendor partners.

Teams continue to negotiate to minimize the impact on consumers and for now, the effect remains manageable. During the quarter, transaction count was slightly down, but offset by an increase in the average basket. Promotional penetration remains at elevated levels and private label sales continue to outperform national brands. The competitive environment intensified somewhat in the quarter, and we held our own in terms of market share and tonnage.

The Buy Canada movement is also persisting with sales of Canadian products outpacing total sales, albeit at a slower pace. Online sales grew by 14% for the quarter. Growth is being driven by the ramp-up of click-and-collect services and also the launch of home delivery at Super C and Food Basics as well as third-party marketplaces.

Also, we announced in mid-July, the expansion of third-party delivery services to include DoorDash in Quebec and Ontario. This is in addition to Instacart and Uber with whom we've been operating for a few years now.

Turning to pharmacy. The business sustained its positive momentum and delivered another strong quarter with comp sales of 5.5% for a 2-year stack of 11%. Prescription sales were up 6.2%, driven by continued organic growth, specialty medications, GLP-1s and clinical services. Commercial sales were up 4%. The strong performance was driven by growth in OTC, HABA and cosmetics.

As Nicolas mentioned, we are on track with our plan to accelerate the development of our growing discount banners as we successfully opened 5 new stores in the quarter. In our fourth quarter, we plan on opening another 6 stores, including 2 conversions, bringing the total to 14 in fiscal 2025.

The new Adonis store will open in London tomorrow, our fifth Adonis in Ontario. As we begin our fourth quarter, we continue to see similar market trends and our teams continue to focus on delivering the best value possible to our customers in this uncertain economic environment.

Finally, we are confident that our sustained investments in our retail networks and supply chain, combined with strong execution, will continue to fuel our growth and create long-term shareholder value.

Thank you, and we'll now be happy to take your questions.

[Operator Instructions]. And your first question will be from Mark Carden at UBS.

So strong performance, but a notable step down from last quarter. I was wondering if you could detail your comp performance within the quarter, how that trended? And then any early read on how 4Q is looking?

Well, I think we had a strong quarter, and I don't agree that we've had a notable step down, certainly not in our sales top line and bottom line and EPS growth, and we're pleased with our performance.

If you're referring to the slightly lower same-store sales growth on the food side, I think you have to look at it over 2 years. I think comp sales are a function of what you're comping. We've had steady and strong comps for many, many quarters. We had good comps this quarter. Yes, it was a bit softer than the previous quarter. But if you look at it on a 3-year basis, we're pleased with our performance.

Great. And just as a follow-up, I'm curious what your view is on the consumer. Has anything changed in their shopping habits over the last quarter? Any more trade down happening within categories?

I wouldn't say there's more trading down. The search for value has been ongoing for over a couple of years now or more. So it's the same trend. I referred to it in my opening comments. People are searching for value. Promotional levels are high, private label sales are high. So we're seeing pretty much the same picture on the consumer side.

Some meat prices have -- there's a strong inflation in the meat category. So we're seeing some adjustments. So call it maybe some trading down or higher promotional penetration in the meat category because our costs have gone up substantially on the meat side and some retail prices are reflecting that. So that's what I would say.

Next question will be from Tamy Chen at BMO Capital Markets.

Eric, could you elaborate a bit more on your comment that you saw the competitive environment intensify somewhat in the quarter? Is this both your region provinces in the country? Is it coming from a certain few competitors or pretty broad? And I assume you're talking about like not just promo penetration, but specifically like promotional intensity? And is this a fairly meaningful step-up in that?

I don't want to spook anybody. We are operating in a competitive environment. It's always competitive. We noticed a bit of an uptick in promotional activity, openings of new stores, conversion. So there's been quite a bit of activity in the market out there in Q3. So that intensifies competition. So I think it's normal or it's expected, I should say.

We operate in a competitive environment. I think prices are rational, but it did intensify a bit in Q3. That's what I'd like to say. Is that clear, Tamy? I don't know if that answers your question. We're not identifying anybody. It's just that at large, we noticed an uptick in the competitive intensity, promotional pricing due to market conditions. So it was -- it intensified somewhat a little bit in Q3.

Yes, I see what you mean. And are you able to talk a bit about your conventional banners. So I noticed you said discount is still driving the comp. But how is your conventional banners doing in your 2 regions? I think in Quebec, you picked up some share, but I'm curious how it's doing in Ontario because I think there are some competitors that have been fairly aggressive rolling out new discount square footage, particularly in Ontario.

So we're pleased with our conventional stores. Our Metro stores in both provinces are holding their own really well versus their conventional peers as measured by Nielsen GDM conventional. We're pleased with our performance in both markets. So we're holding our own.

Clearly, there's been more growth in discount than in conventional over the past few years, that is continuing, albeit at a slower pace, but it's still continuing. So overall, I'm not saying our conventional stores are gaining market share. But relative to the competitive set of conventional stores, we're holding our own and pleased with our performance.

Next question will be from Irene Nattel at RBC Capital Markets.

Just switching gears a little bit. You noted, Eric, in your commentary that you're starting to -- that you're getting more price increase requests from vendors that are tariff related. Can you just talk a little bit about that, what the magnitude of the price increases are, efforts to offset and the like?

Yes. So the number of price requests is similar. It's -- we're still in the normal environment, but those related to tariffs, they represent about 20% of the increases demand that we're receiving from vendors. There's about 3,000 SKUs right now that are affected by tariffs that we've received increases and accepted increases related to tariffs.

So we negotiate hard, and it has to be with the code number, and it has to be proven and all of that. So we're talking about high single digits percentage or the asks. We don't necessarily finish there, but we negotiate as best we can to minimize the impact on our consumers in this environment where everybody is searching for value and everybody is more price sensitive.

So we're working hard with our vendors to minimize that impact. The counter tariff started in March. Some suppliers waited to impose cost increases on us, but some of those have now started to flow in on the HABA side, one large U.S. CPG company, we started to see some price increases that we've had to take in this month in August. So we're seeing some of that. But like I said in my opening statement, it's manageable. We're still in line with CPI. CPI is around 3%. We'd like it to be 2%, but we're at 3% these days.

And in those categories where you are seeing the price increases, are you seeing an acceleration in, let's say, trade down to private label to the extent that it exists in those categories and increased penetration? Or are you seeing consumers just kind of say, yes, we're just going to switch out of these products, if possible?

I don't have a specific example for you, but I think those increases contribute to the rise or the growth in sales for private label. It's a contributing factor, not the only one, but -- it certainly helps. The tariffs -- the price increases related to tariffs that I just referred to of just on the HABA side are very recent. So I can't really point to a change in consumer behavior there.

On the food side, what we've seen since March, those products that have been affected, like we said before, we search for other suppliers in other countries just to minimize prices and maintain quality. So the consumer, we've been able to navigate and to provide value to our customers despite these tariffs. That's why I say it's been manageable. So hopefully, it will stay that way.

Next question will be from Michael Van Aelst at TD Cowen.

Just to start off, can I clarify on the same-store sales growth, when you're talking about 2-year stack, are you looking at it that way because of your -- you benefited in May of last year when there was a boycott on a competitor and therefore, had a bigger boost last year and you're cycling that now? And if so, did you see your same-store sales growth reaccelerate in June after you cycle the May boycott?

Well, this "boycott" may have helped us a little bit last year, so we had to comp that. That's one of the reasons I referred to the 2-year number to give you a better picture. We're not going to give you details on our sales. We don't give guidance on our sales in June, July or August or whatever. The quarter ended early July. So it's all pretty much behind us now.

All right. And then on the distribution centers that have opened, can you provide some color as to how they performed during Q3 in terms of pick efficiencies and service the stores and how that is different heading into Q4?

Well, our food DCs in Terrabonne and Toronto Fresh Phase 2, we're very pleased with our performance. If I look at cost per case productivity numbers, we're very pleased with the performance. It did contribute to our gross margin improvement of 20 basis points, those productivity gains -- so we're pleased with the performance.

We're on track, pretty much on track with our -- or ahead of our plan related to our DC performance. So that performance of Q3 is continuing into Q4. So I'm not really concerned by that. It's hard work, but ramping up well. I don't know if that answers your question.

Because your outlook statement changed a bit. So you talked about productivity initiatives or efficiencies and then you talked about service to the stores. And it seems like you took out the part of this quarter where you're saying you're looking to improve service to the stores. So I was wondering...

We took it out because the transition is over and our service to our stores is very good. So we're not concerned by that. It's done. So we're focused on productivity, efficiency gains. The service to the stores is satisfactory, and we're pleased with that performance. So we're always focused on service to our stores, but it's not a specific focus going forward.

Okay. And I know there's no kind of finish line, but when do you -- how much longer do you expect it to be before you get a run rate of efficiencies in the DCs that is in line with business plan or at least in line with what you now expect?

Well, I think we're there now. We're in line with our business plans. The freezer -- both freezers in Quebec and Ontario were ahead of plan and very pleased with the performance of productivity.

The automated fresh in Toronto is a bit more of a challenge. The supply chain has to adjust. The packaging from our vendors has to adjust to be automatable. So we'd like a higher percentage of cases to go through the automation system.

We're close to where we want to be, but we're not there yet. So there's room to improve on the fresh side. It may take a little more time as, as I said, the supply chain adjusts. The rest, fresh meat, frozen meat in both provinces, deli, dairy, we're very pleased with our performance.

Next question will be from Yiyang Liu at Scotiabank.

I wanted to ask about GLP-1s, in particular, Ozempic and Wegovy. Can you talk about the state of [ produced ] product business and how you expect the expiry of those weight loss drugs patent is expected to impact your generics business? And how these transitions have played out historically?

I'll let Jean-Michel take this one.

Yes. So can you hear me?

Can you hear him well? Yes?

Yes. So it's -- right now, it's the -- maybe to clarify one thing. The only patent that's being challenged is for Ozempic. Wegovy, which is the one that actually has the indication for weight loss is not going to be challenged in terms of its patent since it's fairly new in Canada. It's too early to tell how it's going to happen with Health Canada in terms of approval.

We know that there are some companies that have submitted to have those patents broken. Obviously, if that's the case, we're going to work with our vendor community and our partners to try to get a product equivalent as we always do with every generic molecule that has sufficient volume.

Usually, the way it works is when a molecule becomes generic, the networks convert as quickly as -- the pharmacies convert as quickly as they can because it is margin accretive for them within their stores. And when we talk about margin here, it's really professional allowances, which they have to reinvest in their stores according to the law in Quebec. So it is margin, but it's margin that needs to be guided towards certain expenses within their stores. So I hope that answers a little bit your question.

And just to complement on that. For the company here as a distributor, if those drugs become generic, we will make a generic fee -- a distribution fee on the generic lower price. So there could be a dilutive impact here for that. But volume usually picks up the slack.

Yes. And then I guess just another follow-up. I wanted to double-click on the performance between your 2 provinces. I'm wondering in particular about the exposure to certain Ontario markets that are perhaps more impacted by the tariff environment. Have you noticed any consumer behavior changes there?

Not that we can point out more specifically what we're describing as the consumer environment, competitive environment is -- concerns both of our markets.

Next question will be from Mark Petrie at CIBC.

I wanted to just ask about the SG&A rate. Maybe if you can give some more specifics about sort of the puts and takes there.

And then, Eric, you've commented about Fresh Phase 2, but hoping you could give some sense of when you would expect that facility to turn to a tailwind when it comes to SG&A.

Mark, maybe I'll start with SG&A. As you -- as I've mentioned, SG&A was at 10.2% of sales this quarter, similar to last quarter. I mentioned we cycled out transition costs. So obviously, that was a tailwind for us. However, there's overall inflation in pretty much all the categories of expenses that flow into SG&A. And we're happy with the cost control performance we've had, but we have seen SG&A inflation pressures there for sure.

Also, the commissioning of our distribution center, Fresh Phase 2 in Toronto last summer is now driving recurring expenses that are now in SG&A and that we are going to be incorporated going forward.

And finally, I would say, as I mentioned, that the ongoing growth of the e-commerce business is driving fees to our partners in SG&A. And I guess, nothing abnormal, but consistent with the growth in e-commerce sales. So overall, I would say, happy with the performance on SG&A.

And more specific to the Fresh Phase 2, we're -- like I said, we're on plan. We're on track with the ramp-up that we expected. I said automation, if we could automate -- if we can put through more products through the automation machine, it would be even better. Again, that takes time because it's a supply chain, it's a vendor adjustment. So it's generally a tailwind. We're pleased with the performance. We're reaching our objectives, and there's going to be room for more as the industry adjusts. So I don't know how I give you a clearer answer.

Okay. Fair enough. With specific to the online growth, is it fair to say that a lot of that is -- the growth is being driven by sort of short time frame delivery, third-party orders? And I guess, what's your latest thinking about your infrastructure and processes? I know that's been sort of a source of sort of constant review, but any view to any alterations in that over the next 12 to 18 months?

Marl, it's Marc here. As you know, we've gone to market with a multi-service model, meaning that we leverage third party, we leverage click-and-collect and our own infrastructure, and we do our own delivery. And to your first question, the growth on our own delivery has been at the same level as third party. So consumers, there's a mix of need in the market.

Consumers are looking for quick delivery, but also planned delivery and click-and-collect. And all of these services have been growing at a steady rate. And as we look at the future of our platform, we will continue to go to market with multiple types of investment or platform through third-party marketplaces, click-and-collect and our own delivery.

And as you noticed in our comments, we just signed a new partnership with DoorDash, giving us a new channel to market through the DoorDash marketplace. So we're continuing in the same line as our strategy of the last few years.

Okay. And one last one. As you look within Q3 and then in Q4 to date, and you think about the buy Canadian trends, would you say that, that trend is stable, accelerating or decelerating?

It's decelerating somewhat. Consumers are still buying more Canadians. So we're seeing more growth on Canadian product and non-Canadian product, but it has decelerated slightly.

[Operator Instructions]. And your next question will be from Vishal Shreedhar at National Bank.

This is Anshul in for Vishal Shreedhar. I wanted to follow up on your duplicate costs related to the new DCs. On the last conference call, was it fair to say that you lapsed the duplicate costs in Q2 and Q3 last year? And is it fair to expect SG&A leverage going forward, notwithstanding heightened third-party partnership fees?

So I would say that -- so as you've mentioned, we lapsed duplicate costs in the third quarter this quarter, Q2 last year. Going forward, we would not have that lapse. So I think SG&A, we're always looking to create leverage and grew SG&A at a lower pace than revenue growth. So I think I would, yes, expect modest leverage in the coming quarters for SG&A.

And at this time, it appears we have no other questions registered. So I will turn the call back over to Sharon Kadoche.

Thank you all for your interest in Metro, and please mark your calendars for our Q4 results on November 19. Thank you.

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Have a good day.