Thank you, Matthew. Good morning, everyone, and thank you for joining us today.

Our comments will focus on the financial results of our third quarter which ended July 6, 2019. With me today is Mr.

Eric La FlFche, President and Chief Executive Officer; and Frantois Thibault, Executive VP and Chief Financial Officer. During the call, we will present our third quarter results and comment on its highlights.

We will then be happy to take your questions. Before we begin, I would like to remind you that we will use in today's discussion different statements that could be construed as forward-looking information.

In general, any statement which does not constitute a historical fact may be deemed as a forward-looking statement. Expression such as expect, intend or confident that will and other similar expressions are generally indicative of forward-looking statements.

The forward-looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industry, the general economy and our annual budget as well as our 2018, 2019 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.

Description of these risks, which could have an impact on these statements, could be found under the Risk Management section of our 2018 Annual Report. We believe these statements to be reasonable and pertinent at this time and represent our expectations.

The Company does not intend to update any forward-looking information, except as required by applicable law. I will now turn the call over to Francois.

Thank you, Sharon, and good morning, everyone. To begin with, I would like to point out that in the third quarter last year; our results included Jean Coutu numbers for a little more than eight weeks as opposed to 16 weeks of this year.

So for the quarter, total sales reached $5.2 billion versus $4.6 billion last year, an increase of 12.8%. When you include the Jean Coutu sales, our sales were up 2.3%.

We continue to deliver against our Jean Coutu integration plan as we booked $15.7 million of synergies this quarter, and we have now realized synergies representing an annual run rate of $61 million. Gross margin stood at 19.7% of sales in the third quarter compared to 19.4% for the same period last year.

Operating expenses as a percentage of sales came in at 11.6% versus 12.5% last year, or 11.9% after excluding $25.1 million in expenses related to the Jean Coutu acquisition in Q3 last year. The lower ratio is due in part to the inclusion of Jean Coutu Group for the entire quarter.

Transportation costs remain high. We absorbed over $5 million in higher transportation costs in the quarter versus last year, and we expect to cycle these higher expenses by the end of the first quarter fiscal 2020.

Adjusted EBITDA stood at $423.1 million, up $77.7 million or 22.5% and represented 8.1% of sales versus 7.4% for the same quarter last year. You will recall that in the first quarter this year, we sold our investment in Colo-D, resulting in a $35.4 million pretax gain.

A $1 million selling price adjustment was made during the third quarter, representing a gain on sale of the same amount, and we exclude this gain in determining our adjusted earnings. The income tax expense for the quarter was $81.3 million, representing an effective tax rate of 26.8% versus 22.5% in the prior year.

The reduced tax rate in 2018 was a result of a tax gain realized in connection with the disposal of our investment in Alimentation Couche-Tard. Adjusted net earnings were $230.3 million compared to $183.4 million last year.

That's up 25.6%. And adjusted net earnings per share were $0.90 versus $0.35 last year, an increase of 20%.

Our capital expenditures for the quarter totaled $116 million versus $89 million last year. Our total CapEx for this fiscal year will be lower than the $450 million guidance we provided earlier due mainly to delays in the Ontario warehouse automation project.

I expect CapEx for fiscal 2019 to stand at about $250 million-plus. Under the normal course issuer bid program, the Company may repurchase up to 7 million of its common shares before November 22, 2019 and as at August 2, we have repurchased 2.6 million shares for a total consideration of $127.6 million, representing an average share price of $49.07.

That's it for me. I will now turn it over to Eric.

Thank you, Francois, and good morning, everyone. Building on the momentum we saw in the first half of the year, the Company delivered strong results in the third quarter as all our key performance metrics showed progress.

Food same-store sales were up 3.1% on top of 2% in the same quarter last year for a two-year stack of over 5%. Despite the poor spring weather, we saw increased traffic, basket size and tonnage in the quarter.

Our internal food inflation was 2.5%, the same as into the second quarter. On the pharmacy side, same-store sales grew by 3.4% with front store sales up 4.3%, driven by a strong allergy and cold season and the 50 anniversary promotion at Jean Coutu.

Prescription sales were up 2.9% as we lapped the generic price reductions of 2018 on April 1. Prescription count grew by 2.7%.

So the combination with Jean Coutu is on plan, and as Francois mentioned, we have now reached synergies representing a $61 million annual run rate. During the third quarter, we successfully transferred the supply of our Ontario pharmacies as well as the supply of Health & Beauty products to our Ontario food stores from McMahon to the Coutu DC in Varennes.

Our teams have also begun the integration of the Jean Coutu retail systems into the Brunet pharmacies. After a successful pilot this summer, deployment will start in the fall and will take about one-year to complete.

We remain confident in achieving our target of $75 million in cost synergies at the end of three years. On May 7, we announced the launch of our online grocery shopping service in the Greater Toronto Area.

Orders are picked and prepared at two Metro stores by a dedicated online grocery team, and the home delivery service is available to 1.9 million households, although still very early days and with a lot of work ahead as we ramp up, we are pleased with the customer response so far. In Quebec, online food sales are growing as planned, and we are pleased with our customer satisfaction scores.

After three quarters, CapEx totaled $224 million as we opened or relocated six stores and remodeled or expanded 17 stores. Six stores were closed for a net square footage decrease of 60,000 square feet or 0.3% of our food retail network.

We are accelerating investments in technology at retail to improve productivity and customer satisfaction. We expect to have self-checkout in 100 stores by the end of fiscal 2019 with 100 more stores planned in 2020.

Electronic shelf labels will be installed in 32 stores this year with another 67 stores coming next year. We are unfortunately behind schedule on our Ontario warehouse CapEx plan due to delays in getting city approvals and permits.

We expect to obtain the necessary permits very, very shortly, and we are ready to start construction right after. So to conclude, we performed well so far in 2019 in a very competitive environment.

We are focused on keeping our sales momentum and delivering our business plan for the rest of the year while finalizing our plans for fiscal 2020. We are confident in our ability to reach our long-term growth objectives as we serve the everyday needs of consumers in food, health and pharmacy across our markets with our leading brands and multiple store formats.

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

Thanks and good morning. Just wondering if we could start with a little bit of color around what you're seeing in terms of consumer spending trends, competitive intensity, depth of promotions and whether you're seeing any differential in conventional versus discount.

So as I said, Irene, the competitive environment remains always intense. It's as promotional as ever.

I would call prices as rational, but it's very promotional and very competitive. The consumer spending habits, no big change.

Both of our formats on the food side, conventional and discounts are doing well. We're happy with that in both markets.

The long-term growth shift a bit to discount is still happening as part of the CapEx plan that we talked about, we're converting a few stores from Metro to discount in Ontario as we speak. So our store count is now in favor of discount in Ontario, so there's a bit of a shift that way.

But the underlying trend is that both vendors are fine and the consumer spending habits are pretty much stable.

That's very helpful. Thank you, Eric.

And just moving on if I may to the investment in self-checkouts and the likes of the heightened investment technology, can you talk about what kind of efficiency gains, to what degree is this a reflection of rising labor costs and really what we should be expecting on that front as we go through the next two to three years?

So as I said, we're accelerating for a bunch of reasons. Number one, the technology has improved, the costs have come down, so they're more affordable and we can justify the investment with the returns that we expect.

The self-checkouts are a good example to accelerate speed of checkout at our store level. A lot of customers prefer to – especially those with small baskets, preferred to use self-checkouts.

So in busy stores, urban stores with small baskets, they've been there for a while. We are accelerating because the financial returns are better.

It allows for better productivity. So we do end up reducing some hours and that helps us address some labor challenges in certain areas where it's hard to find the labor.

So the combination of factors that are motivating us to speed it up because they're addressing business needs, customer needs, and they're providing decent returns. That's the reason.

That's great. Thank you.

Hi. Yes, thanks.

So your inflation was below CPI in Ontario and Quebec. And I'm wondering is this just a different basket like trading down or are you a little bit more promotional to keep that same-store sales growth at your targeted levels?

Our promotional weights are about the same. It's the mix between departments and our merchandising strategies that's affecting our installation or our measured inflation rate.

We report what we sell with the distribution or the ratios of sales by departments that we have motion versus regular. And our merchandising strategies, we came out with an inflation rate that was slightly below CPI in Ontario especially, in Quebec, it's closer.

So everybody has their own merchandising strategies and we have our own plan and it's delivering good results. The number is what we measure at till for what customer pays on the mix we sell.

Okay. And I guess you've stopped providing EBITDA split between Jean Coutu and Metro.

Are you willing to give us any color on that front?

What you just said is right.

Okay. All right.

Michael, we said, after a year, we would no longer split the profitability. We'll give the sales metrics as you've seen in the release.

That's the course we're taking.

Okay. For Jean Coutu, the same-store sales in the front store were the strongest, I think, in the past two years.

So you mentioned the 50-year anniversary and the strong cough, cold and flu season. But are there any other changes that are worth mentioning that you've adopted at Jean Coutu to help accelerate the pace of growth there?

No, there was no change in strategy. I think it was just strong merchandising, good execution.

And clearly, traffic in drugstores is helped by a strong allergy and cold season. People need medication, come more to the store, and that helps front end.

So there's a clear correlation between the cold season and allergies with front end. So clearly, that got some help.

And the 50th anniversary promotion was well executed, well received by customers without killing the margin or it wasn't a crazy promotion. It was just celebrating the 50th anniversary, quite an achievement for the company.

Okay. Great.

And just finally, I guess, you're – it seems like you're going to be lapping your – the big transportation increases in the beginning of fiscal 2020. And we don't have major wage inflation, but I assume there's still some decent wage pressures because of the tightness in the labor force.

But as you lap some of this transportation costs and you continue to get some good same-store sales trends and inflation numbers and you get more of your synergies, is this a period where you think you might be able to exceed your typical 8% to 10% EPS growth targets?

We don't give guidance, Michael, as you know. So those targets are long-term, so it's not an annual target per se.

It's something that we strive to achieve over a medium- to long-term perspective, and that hasn't changed.

Thank you.

Hi, thank you for taking my questions. Do you have any comments on potential impacts associated with the government's amendments to the patented medicine price review board regulations which will cause certain drug prices to drop?

No. So we saw the news release.

We don't have any more color or more details yet, so nothing to say on that. I don't have that information, and we haven't been made aware of what that will consist of.

Okay. If drug prices do come down in the future, potentially through a variety of mechanisms, what avenues does Metro have to explore to offset it?

Like at some point, I imagine it gets tougher and tougher to implement offsets.

Yes, it would. So we are mainly a distributor, and we receive royalties on sales, which include the price of medical products and drugs.

So if prices come down, that would have an impact on our royalty. So we would have to see exactly how we would confront that.

So – but you have to remember that the province of Quebec has its own, I won't call it pharma care, but drug insurance programs which is a hybrid model of public and private, and we don't expect that to change.

Okay. And I know Metro doesn't get the same kind of torque with its business model on the franchisee relationship, but some of your colleagues in the past, and it's still small dollars, have been discussing expansions of pharmacy adjacent services.

Is that an avenue that Metro aims to explore and increase penetration in, like flu shots and stuff like that?

Like I am sorry, flu shots.

Flu shots…

Yes, the Jean Coutu and the Brunet pharmacies do provide those services, not in every location, but in several. So I think the government signaled that they want pharmacists to assume a larger role, so pharmacists are dealing with the government for compensation for those services.

Some are already done and negotiated. More is expected to come.

So yes, we do expect the pharmacists and the pharmacies to play a larger role in providing first-line health care, and we believe that is a positive to bring traffic to our stores.

Okay. And just changing topics here.

On – obviously, Metro has been increasing its online activities over the last little while. As management increases this and as all other retailers talk about this, do you have a good sense of where Metro is versus its competitive set to know if it's behind or ahead or where it is in the investment curve such that you don't fall behind if that's a threat at all?

Just trying to gauge your sense on how you know how to invest and the speed at which you need to invest.

Well, two answers. I think our online food sales model is differentiated, effective, well received by customers, and we are meeting the customer demand.

So I think we're in a good position to service the Metro customer and those who are interested in Metro online offer with our model. How do we perform market-wide?

There's very little information on market share – online market share. We're starting to get some color, some detail from Nielsen through their home scan panels, but it's fragmented.

It's something that we don't really rely 100% on. It's a start.

Online food sales remain a fraction of the market. They are growing at a good rate.

But I think our level of investment in our model is the right one for us to meet the consumer demand that we see in our markets. That's what we said two years ago, three years ago when we launched, and we're still on the same page.

Thank you for your comments.

Thank you.

Eric, on your online grocery launch in Ontario, we noticed you're – like for first-time orders, you're providing kind of complimentary basket of items were $50. I'm just wondering, like are the volumes too small or is that costly for you?

And is there any vendor support for that program?

So the answer is, yes. There is vendor support.

So vendors are – some vendors are very happy to have access to our online platform and are funding this. So the marketing plan to launch e-com in Ontario has been progressive.

I would call it soft to progressive. It's mostly digital, mostly online.

And we're happy with the customer response so far. And yes, the $50 basket of goods is an interesting offer that customers are going for.

But as weeks go by, we're getting more and more repeat customers. So we're happy with that performance.

Okay. And just switching topics then lastly, on the synergies related to the Jean Coutu, you talked about the $63 million.

I'm not sure if that's run rate or that's what you've captured so far. But like if you do the math, like the $63 million is not dropping to the bottom line.

Like some of it is, but of it isn't. So where is some of that $63 million going?

Where are you investing?

So its $61 million run rate, okay, $15.7 million in a quarter. And we think it is going online.

I'll let Francois comment.

So Peter, the amount that we booked in the quarter, that's $15.7 million. That's true synergies that are booked in the quarter.

The run rate is to give you a sense of how much we've accomplished because not everything is – what we book in the quarter, it doesn't mean that it all happened for four weeks, and some portions of that's retroactive. Sometimes it's settled in the quarter.

So the run rate is a right number to use, and that is a recurring number that you will expect on an annual basis. So it does go to online.

Okay, thank you.

As we said, it's a mix of procurement. SG&A, those were the two first buckets.

And so we will – but we will soon pretty much plateau on these two buckets, and the next wave of synergies will come later, next fiscal year, once we've done the combination of the distribution and warehousing activities at Varennes. So that will be a third phase.

So in Q4, we should be pretty much done with the first two buckets.

Okay. Thanks, Francois.

Hey, good morning. Just a follow-up on the synergy topic, I know it's not part of your stated target, but could you just sort of talk at a high-level around some of the topline synergies you're seeing and then the benefits from the broader product distribution and sort of how that has contributed thus far maybe relative to the $61 million of run rate synergies?

Not much we can add to the high-level synergy comments. Francois just mentioned its procurement mostly and some SG&A and that will level off at the end of this fiscal year.

We expect to be done with our negotiations with the main suppliers by then. We're almost there.

Then the next bucket, as he explained, was – will be on distribution, which starts in second half of 2020 and into 2021 because the transfer of volume will be done over a period of time. Pro Doc is an opportunity.

It's a revenue synergy, so that's starting. The Brunet franchisee – some Brunet franchisees at their discretion are purchasing Pro Doc generic drugs.

But it's not across the Board full penetration, and that's work in progress. So that's potential upside, but we're not increasing our synergy target because of that.

Is that progressing roughly as expected or…?

Pretty much, I would say pretty much, yes.

Okay. And then just one other question, could you just talk about the impact of HMR on your business today, relative sort of impact to same-store sales and margin?

Is it additive today? And then looking out over the next sort of 12 to 24 months, is this an area where you would expect to accelerate investment further?

Or how do you expect to sort of evolve more broadly?

Thank you for the question. Yes, HMR is a big focus of ours.

It's a Metro banner, a growing business. Quality of products is improving, and our sales are improving nicely.

And clearly, it's a contributor to our higher gross margin rate. So good work by the teams on that, and we're looking, yes, to invest more and more.

As we renovate Metro stores, the HMR counter and offer is always improved, and it's always a big focus of the investments we make in our renovations. So yes, over the next 12 to 24 months, we expect more HMR and more contribution from it.

There are challenges to execute, but as our teams are getting better trained with the right product, we think there's more upside for us there, so pleased with that.

And do see opportunity to evolve that into the discount channel in a more significant way? Or is that just sort of ruled out by the model there?

Well, it's clearly can't be the same model. Labor, the equipment, the investment, it's a different game.

But there is – we think there's potential opportunity for some quick moves, improvement in our discount banners. So for competitive reasons, I'll leave it at that, but there's something that can be done there and working on it.

And I guess just last on that topic. What does this part of the business look like in online orders?

And are there further evolutions that you need to or want to make in order to sort of drive that part of the business?

So quick commentary. HMR is not very much part of our e-com sales, very little as a matter of fact.

So for competitive reasons, I'll just leave it at that.

Okay. Thanks a lot.

Just had a question. You mentioned the discount store count in Ontario now exceeds the conventional.

How would that look on a square footage basis at this point?

I don’t have the exact number, Keith, in front of me. The average size of a Basics in Ontario is perhaps – not perhaps, it is a bit smaller than a Metro.

We could get back to you with that. Close, but I would say the square footage still favors Metro.

And on things like Adonis, I think you opened your third store. Can you speak as to what you're seeing in terms of its sales pattern and trending in Ontario?

Yes, we opened a third store in Toronto this summer. It's number two in Mississauga.

For competitive reasons, we won't give you more color, but we're pretty much on plan. Adonis is a growing banner for us.

We just relocated another store in Montreal, in the West Island from a smaller older box to a brand-new store in a more regional mall, and we're doing really well. Very happy with that.

So yes, we're looking for more sales and more stores from Adonis. We will be opening in Ottawa this fall, a fourth store in Ontario.

So yes, we won't give specific – it goes well with our plans, but we're looking to grow that banner in Ontario for sure.

In terms of Premiere Moisson, would there be any plans to bring the store concept into Ontario?

We've looked at that. Nothing to announce.

So again, I don't want to say for competitive reasons. But Premiere Moisson model at retail is a partnership with baker – basically, not a franchisee, but it's kind of a 50-50 partnership with baker specialists.

They produce a lot of bread on site. So it's not a model that's easily exploitable, but it's something that we're looking at.

And then in terms of just formats that you offer, do you see any potential for a smaller urban or I know you've got a lot of urban stores already, but a smaller urban format like 15,000 to 20,000 feet.

There could be some opportunities here and there. We will be opening a Metro – a brand-new Metro store at [Bathurst and Steeles].

That's about 20,000 square feet for the – to be exact, so it clearly will be an urban fresh Metro store. So yes, there are some opportunity to say that this – we're going to open a ton of them.

We'd be pushing it. So we're very much store by store, market by market, we look at all sorts of opportunities for Metro, for Adonis, for Food Basics, for Super C in Quebec, and we have models that are – that can adapt to smaller surfaces.

And if there's the right market and we see a good potential, we go. We are opening a smaller Super C in [Easton], in Montreal in a very urban area that will be quite small at 20,000 feet or so.

So we try to capture the opportunities. We're agile and flexible.

And wherever there's a market, we try to grab it.

And then just finally, can you speak as to how the Selection and Irresistibles products are doing in the Coutu stores and vice versa, the Personnelle in the Metro stores?

So it's basically on plan. The SKUs from Selection and Irresistibles into Coutu are in store.

I can't say that they're driving sales that much, but it's replacing existing SKUs or adding to some variety in some categories. So basically, on plan.

Personnelle in our Metro stores is doing well in both Quebec and Ontario. It's a great brand with great quality products.

So those sales are improving versus the previous offer we had. So positive and, again, pretty much on plan.

Thank you.

Thank you all for your interest in Metro, and we will speak again soon to discuss our fourth quarter results on November 20. Thank you.