Thank you [Indiscernible]. 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 of 3rd.

With me today is Mr. Eric La Fleche, President and Chief Executive Officer; and Francois 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.

Expressions such as expect, intend are 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 industries, the general economy and our annual budget as well as our 2020-2021 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 can cause the outcome to differ materially. A description of these risks, which could have an impact on these statements, could be found under the risk management section of our 2020 annual report.

As with the preceding risk, the COVID-19 pandemic constitutes a risk that could have an impact on the business, operations, projects, synergies and performance of the company. 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. This quarter we cycled very strong sales and earnings last year at the height of the pandemic.

And in order to provide a better indication of performance, we're also highlighting sales and earnings growth over the third quarter of 2019. So for the quarter, total sales were at $5.7 billion versus $5.8 billion last year, a decrease of 2%, but up 9.4% when compared to third quarter of 2019.

Food same-store sales decline by 3.6% for the quarter, but grew 11.4% on a two-year basis for an annual compounding growth rate of 5.6%, pharma same-store sales were up 7.6% versus last year. Our gross margins stood at 19.8% of sales versus 20% for the same quarter last year.

Operating expenses represented 10.5% of sales versus 10.7% last year and COVID-19 related expenses amounted to $38 million for the quarter and that includes an $8 million of amount in gift cards that were given frontline employees versus $107 million of COVID expenses in last quarter last year -- and third quarter last year, sorry. The decrease of $69 million in COVID costs was partly offset by an increase in other operating expenses mainly related to activities and services that have been reinstated after initially being pause at the start of the pandemic such as MHR [ph], Hart Foods, Advertising and Marketing et cetera.

Operating expense also include non-recurring cost of approximately $8 million incurred in a transition to our new Fresh DC in Toronto due to early inefficiencies and duplication of certain tasks as both DCs were operating at the same for a few weeks. EBITDA for the quarter totaled $533.6 million, a decrease of 1.7% versus last year and represented 9.3% of sales, that's the same margin as last year.

On a two-year basis, EBITDA was up 26.1%, which represents a solid annual compounding growth rate of 12.3%. Adjusted net earnings were $261.2 million compared to $272.3 million last year, a decrease of 4.1%.

Our adjusted net earnings per share were $1.06, down 1.9% versus last year's adjusted EPS of $1.08 and again when we compare this to fiscal 2019, adjusted EPS grew by 17.8% for an annual growth rate of 8.5%. Our capital expenditures for the third quarter total $174.2 million, up $38.4 million versus last year.

As expected higher CapEx is mainly the result of our ongoing investment in the modernization of our supply chain, as well as in-store technology. At the retail level since the beginning of the fiscal year, we opened two Metro Plus stores, one Adonis in providence of Quebec, one Food Basics in Ontario.

We also relocated another Food Basics and carried out major renovations in eight stores representing a net increase of 236.8 square feet, 1000 square feet or 1.1% of our food retail network. As I mentioned earlier, investments in technology at store level are also outgoing.

At the end of the third quarter, we had about 300 stores equipped with self checkouts and 140 stores with electronic shelf labels. Under a current normal course, issuer bid program, we have repurchased between November 25 of last year and July 30th of this year 5.875 million shares for a total consideration of 333.6 million representing an average share price of $56.78.

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

Thank you, Francois, and good morning everyone. We are pleased with our solid third quarter results as we cycled an exceptionally strong performance last year at the height of the pandemic.

Sales and earnings declined slightly versus Q3, 2020, but on a two-year basis we delivered sales growth of 9.4%, EBITDA growth of 26.1% and adjusted earnings per share growth of 17.8%, which we believe is more indicative of our underlying performance. For the quarter, as Francois said, food same-store sales were down 3.6%, but up 11.4% when compared to fiscal 2019.

Our internal food basket inflation was 1%, half of what we experienced in Q2. With the roll out of the vaccine and the gradual lifting of restrictions we saw traffic improve year-over-year for the first time since the beginning of the pandemic.

Basket size however was down as customers increased their store visits. Promotional penetration continues to increase quarter-over-quarter and we are getting close to pre-pandemic levels.

Online grocery sales increased by 19% versus last year and more than five times over 2019 as we added capacity by expanding the service to new regions deploying click-and-collect and with our partnership with Cornershop. In June, we opened our first dedicated online store to serve customers in Montreal replacing three of our hub stores.

This centralized facility will offer more delivery windows to customers and improved operating efficiencies while delivering the same quality assortment and freshness that customers expect when shopping in-store. We are on track with our deployment plan for the click-and-collect service with 119 metro stores now offering the service out of the 170 planned by the end of this fiscal year.

This along with the recent expansion of home delivery and click-and-collect in the Ottawa region will expand our reach to more than 75% of Quebec and half of the Ontario population. We remain confident in our strategy which allows us to add capacity with reasonable investments to meet the pace of demand growth.

Turning to pharmacy. Comparable sales were up 7.6% in the quarter and 8.6% versus 2019, with prescription drugs up a strong 9.3% driven by higher prescription counts as medical consultations resume.

Commercial sales were up 3.8% with most pharmacies gradually returning to regular opening hours. Our pharma performance was also positively impacted by the administration of vaccines and the new medical services now offered by pharmacists.

We proudly contributed to the vaccination effort through our network of pharmacies and four central vaccination sites we sponsored with other corporate partners, which all together administered over 500,000 doses. The month of June marked the completion of two other important milestones with the integration of our pharmacy distribution activities and the deployment of Jean Coutu retail systems to our Brunet pharmacies.

As mentioned on our last call in April, we anticipate annual recurring savings of about $10 million starting next year in distribution and warehousing costs as we will service our pharma network as well as the Metro and Super C stores in Quebec for health and beauty products from one facility. Turning to the modernization of our supply chain.

Our new semi-automated Produce DC in Toronto is now fully operational as we completed the transfer of all of our stores from the old Produce warehouse. The transition and ramp up of the new facility generated additional costs in the quarter, which we expect will partially remain in Q4 and hopefully be behind us by the end of the fiscal year.

The new fully automated Frozen DC is almost complete and we will soon start the commissioning of the new automation systems in time for a January 2022 opening. Looking ahead, while we can't predict exactly how the pandemic will evolve.

We expect our food sales to decline in Q4 versus last year -- last year's high levels, but to compare favorably to fiscal 2019. In our pharmacy division, we expect continued growth from prescriptions and the easing of restrictions should have a positive impact on certain categories that were negatively affected by the pandemic such as beauty cosmetics and cold and flu products.

We'll now take your questions. Thank you.

Thanks and good morning everyone. If we could just start very quickly with turbo.

The last thing you said Eric on pharmacy. We're hearing from others that acute RX is still down about 10% to 15%.

Is that the case at PJC or are we starting to see a better recovery there?

acute RX, I'm sorry.

Well, just -- so the prescription count for as opposed to the chronic conditions. But that basically overall RX volumes per pharmacy are still below pre-pandemic levels, but recovering.

Is that what you guys are seeing? In other words, are we -- should we see an acceleration performance of PJC as we move through the next couple of quarters?

Well, we're very happy with the performance of PJC, Irene in the quarter, a nice comeback, especially in prescription drugs versus last year. You have to remember last year, pharmacy doctors offices, there was a lot of closures and restricted opening hours, restricted access.

So prescription counts were except for the loading upfront in the quarter prescriptions counts were softer. I think we're back to pretty normal, more -- much more normal levels.

I don't have a split between acute and chronic to be honest, Irene, but we're very pleased with the 9.3% RX growth. And we expect to have good growth going forward.

That's great. Thank you.

And then just moving on to the bigger business. Inflation you noted was basically half of prior quarters levels.

What kind of discussions are you having at this point with the supplier community? And recognizing this challenging to anticipate, what's your general expectation around inflation as you move through Q4 and into 2022?

So the inflation number is down this quarter mostly on the driven by Produce deflation. It's aggressive out there in Produce.

And there are market conditions that support that aggressiveness in the general market. That's the main driver.

Discussions with our suppliers, we're hearing for demands for increases in packaged goods. There were some cost increases in the meat department this past quarter.

It's a tight market. It's volatile.

So some weeks supply can be tightened and there are some cost increases that we have to live with and try to try to pass on. I would say generally the expectation is that given all the cost increases that on labor and other aspects of supplies and transportation, I think we can expect generally this fall that there should be some more inflation at retail.

But again, we will have to wait and see. We fully intend to remain competitive.

It's a competitive market out there. I don't expect inflation in our fourth quarter to be that much different from our third quarter.

Bookings are in place and merchandising plans are in place. But I would expect some inflation to be reflected at retail in a more pronounced way this fall.

That's great. Thank you.

Yes, good morning. Obviously, there's been significant shift in consumer behavior through the course of the pandemic.

I'm just wondering is as restrictions have been lifted over the last number of months, have you seen overall behavior sort of move closer to some semblance of normalcy and sort of pre-pandemic, you touched on traffic and basket, but I'm wondering about stuff like promo penetration, private label as well as category mix?

Yes. We are seeing a gradual shift to more normal pre-pandemic behavior.

I think the discount channel in general is benefiting from that versus conventional. Whereas conventional had a big uplift during the pandemic as you all know.

Promotional levels are back to almost pre-pandemic levels. We're very close to that as I said in my opening remarks.

So, I think you can going forward expect that to be back to normal levels. So our private label penetrations are up.

I think private label penetration increased throughout the pandemic and is continuing to stay at a higher level, which is a good thing. So we're pleased with that.

So, I would say, yes. The consumers are shopping around a little more with the easing of restrictions.

We're seeing that in the number of visits. We're seeing that in the lower basket year-over-year.

Traffic is not back to where it was two years ago and the basket is higher than it was two years ago, but we're seeing a shift for sure.

And discount is still below what it would have been pre-pandemic, but is growing faster than conventional today. Is that fair to say?

In general terms, yes.

Okay. And then just with regards to gross margin, it's up modestly from two years ago.

Can you just share some commentary on the moving parts behind that? I mean, I know you don't segment between food and pharmacy, but obviously there's a lot of variables between the segment mix, as well as category mix.

So, any commentary would be helpful just with regards to the drivers and then this sustainability or outlook for gross margin?

Well, the gross margin is down slightly 20 basis points versus last year in the quarter. Food gross margin was down.

We said clearly last year that large basket with lower promotional ratios was favorable to gross margin. So as we cycle that with a smaller basket and more promotions, you can do the math.

It has an impact on gross margin. The good news is that pharmacy was strong in the quarter and helped on the gross margin.

So net-net we're pleased with our performance and the diversification of our business model is a benefit and we're pleased with that. Going forward I'm not going to give you guidance on gross margin, but we will be competitive and we will balance the top line and the bottom line as best we can.

Sorry, just to follow-up, just to clarify, with regards to the food gross margin, I understand sort of down versus the elevated levels of last year. But is it fair to say, it's still elevated from sort of pre-pandemic levels?

And the main driver of that would be the higher sales level or is there something else to consider?

Well, it's getting comparable to pre-pandemic levels. Yes, the baskets higher than pre-pandemic levels, but the margin is in the same ballpark.

So again, I want to give you too much precise details like that. I think the comment I made is the answer I have.

Understood. Appreciate all the comments and all the best.

Thanks Mark.

Hi. Thanks for taking my questions.

Just want to get your comments on the acquisition opportunity that you see in the market if any. I know some pharmacy competitors are seeing opportunity in consulting independence in more rural areas.

Wondering if that's something that would appeal to Metro or if you have other sites and other types of deals?

I'm sorry, Vishal. I could not hear your question.

Oh. Can you hear me better now?

Yes. That's a little better you said acquisitions and then what?

Sorry.

Yes. So sorry about that.

So I was just referring to the acquisition market and what Metro sees. I know there's pharmacy peers that are consolidating rural markets.

So wondering if that's of appeal to Metro or if there's other types of deals that are appealing to Metro?

So, we're always on the lookout for acquisition opportunities in food and pharma in Canada, so there's no change there, no announcements to make. Yes, we're aware of a new "player consolidating small rural pharmacies in Ontario".

We are interested in making acquisitions that make sense for us. And we'll be -- we continue to be on the lookout.

But there's nothing -- no change and nothing imminent.

Okay. Thank you for that color.

And with respect to Adonis, I know during the height of the pandemic it had a little bit of challenge with respect to the prepared food categories and perhaps labor availability. Wondering how that banner is performing now?

And if it's back to pre-pandemic levels or above?

Yes. Adonis with a mix of stores which is largely in urban areas Montreal and Toronto, mostly Montreal.

It's not -- it's been a challenge throughout the pandemic and remains a bit of a challenge today because of all of our -- some of our urban stores are seeing lower traffic these days with the summer and the restaurants opening up and vacations and whatnot. So banners still doing well, but we're not quite back to the pre-pandemic levels.

And we're confident that we're going to get there soon as COVID restrictions ease more and more and people are getting their shots. So I will leave it.

Okay. Thanks for that color.

Thank you.

Thank you. I noticed that you mentioned that your online sales were up 19% year-over-year.

As we emerge from COVID, do you expect that that sales like that that sales growth is going to slow and we're going to see some negative growth rates in online, because you're up against some big quarters? And I'm just wondering if you're seeing any evidence of that kind of trend?

Yes. Yes we are.

Peter, thank you for the question. So yes, you can expect online sales growth to slow down.

Again, the growth this quarter came from additional capacity as we cycle that capacity, quarter-over-quarter we expect sales to decline. So versus the peaks of the pandemic still sales remain elevated versus pre-pandemic, so we clearly skipped a few years of e-comm growth.

And -- but you can expect that the e-com sales should come down a bit. That said, I think we're very confident in our model.

Hub stores for the large urban areas, excuse me, the dark store for the larger urban areas. The hub stores for the for the medium density areas where we can have delivery and click-and-collect in the rest of our stores.

So I think we're well positioned with our model to capture that demand that's out there. And we expect that demand to level off a bit from the peak of the pandemic.

And lastly, Eric, on the dark store that I believe you said you started ramping it in June. I mean, is it too early to make any comments?

Or are there any learnings or is there anything you can tell us about how that model is performing versus the hub stores?

So, it opened in June in Montreal. It's a ramp up there too.

But we're pleased with the progress. We're using the same technology as we did in our hub stores.

It's a more efficient picking environment. It's a more efficient delivery environment.

So we're confident that we're going to gain the efficiencies that we are planning for. We're not there yet after a few weeks.

But we very confident that we will get there. They're always learning.

So every week we see something changes and we try to improve the test and learn is the norm in e-comm as you know and we're continuing to test and learn and fine-tune to improve the economics and improve the customer experience. The customer satisfaction scores that we're getting are pretty encouraging.

So the in-stock position, the orders with the missing items. So all those metrics are improving in the dark store versus the hub stores, as we expected and as we hoped for.

So we're looking for more of that going forward.

Okay. Thank you.

Thank you and good morning. Eric, I wonder if you could help us just understand perhaps on the cosmetic and beauty journey.

Where are those businesses today versus where they were pre-pandemic? In other words, how much room do you have to go to get back to prior levels?

And how material, even just directionally from a margin perspective could a recovery or let's call it normalized cosmetic sale potentially be as we look through to 2022?

So, cosmetics in our pharmacies grew nicely in the quarter versus the same quarter last year. We expect that to continue going forward as more people I guess return to work and return to the office.

So, I won't give you a number. But I think it's upside for sure in the front-end sales of our pharmacies going forward.

We expect that category to do better as it did this past quarter. You have to remember that in our front-end at this time last year in pharmacies we were selling a lot of COVID items, like masks and gels at full prices.

So selling less of that. So that's a bit of a headwind for our front-end in pharmacy right now.

But cosmetics and confectionary and other departments we're confident are going to see some benefits. So those are -- that's my answer.

Thank you, Eric. And then just one other quick follow-up on consumer behavior.

Can you provide any insight on across markets how different the responses may or may not have been in Ontario versus Quebec for consumers and the shift between full service and discount. Have you seen a more marked shift between channels in either market?

Or how has the consumer response varied across your two markets? And the channels shift varied across your two markets?

So, I wouldn't call it a huge channel shift and a huge shift between the two. I said earlier, we're seeing the general uptick in traffic in the discount stores or sales of the discount stores versus conventional stores in general as we see in the market, in the whole market, you can expect that discount should be advantaged going forward whereas it was disadvantaged last year.

So, I would just leave it at that.

Thanks Eric. I'll leave it there.

Hi, good morning. Firstly on the brand [ph] DC, I know it's been open for a little bit now.

What has to be done between now and I guess the start of next year to get the $10 million in annualized savings?

Well, it's operations and the big decisions and the big savings are made. We're going to be operating -- we are operating from one DC as opposed to two.

Actually McMahon had another little DC in Quebec city. So we will have that savings also.

So it's occupancy and it's fixed costs associated with running a DC. And then the labor is variable, so there's a transfer of labor from one to the other.

But overall we expect to save about $10 million a year in distribution. So everything is in place to achieve that in our plan next year.

So, can some of it trickle into Q4?

Well, there could be some yes, there would be some benefit in Q4, yes.

Okay. And then, COVID costs definitely down year-over-year, but they've been -- I think relatively stable lately.

So, excluding the gift card bonuses how much COVID cost do you expect to stick around long term due to the permanent changes in operating practices?

Yes, Michael. Hi.

I I'll take that one. Listen, I don't know about long term.

It's hard to predict long term. I think looking in the short term at least moving into the fourth quarter, the way we see things, we expect COVID expenses will probably be max of $5 million a month going forward in the short term excluding gift cards.

Okay. And those gift card bonuses are -- are they pretty much done?

For now, they're done and we'll have to see again. It depends if we will get back into a situation like we had this year.

But for now they're behind us.

Okay. So, I mean, your two-year EPS and normal iGPS growth is comfortably within your 8% to 10% EPS growth target.

So you must be happy with that. But could we expect the pharmacy DC, consolidation savings and the new food DCs to push that to your kegger a little bit above your normal targeted range in the coming over the next year or so?

Or is it just not meaningful enough from these savings?

Well, that's the he plan, obviously, to be able to maintain our targets that we give to the street in terms of profit growth whether it's sales EBITDA, EBIT and net earnings. Yes, that's a plan that we want to be.

And make sure that we make the investments to be to be able to deliver at that 8% to 10% EPS growth a year. We'll have to see how the productivity levels are improving how fast, but that's a plan.

But I will reserve -- and we'll reserve comment until we can actually demonstrate it.

Okay. So the savings though on these programs are to help you achieve the 8% to 10% rather than thing permit?

Absolutely, yes absolutely. It's a way -- yes, in terms of reduction in operating expenses and better in-store service that's -- these are all the investments that we make to make sure that we remain competitive and that we continue to grow our earnings as we had in the past and meet our financial targets, yes.

Okay. And just finally your cash flows have been good and your NCIB has been pretty active.

And it looks like if you continue the pace you've done your so far you would run -- you'd hit that $7 million limit -- 7 million share limit before November. Are there -- are you expecting to kind of stop it and renew it to get more room?

Or should we just expect it to continue to go to the 7 million and then renew it in November?

Well, we'll see. You're right.

We're ahead of pace almost $6 million done out of a $7 million program with a few months ahead of us. So we'll see.

There's options available to us. We haven't made a decision yet.

But that that could be a possibility. But for now as I said before, we will we will finish the program and we'll see about additional capacity, but we haven't made that decision yet.

All right. Thanks very much.

Yes. Good morning everyone.

I just have one small question left. You reference the fact that relative to last year we opened some of the services in the store, the hot meals and HMR.

What was the experience when you reopened those from a customer perspective? How quickly did the customer pick up on those categories?

Patricia, so the HMR, the Hart Foods counters are back up, but it's not at levels of 2019. So they have reopened.

The offer is adapted to a COVID environment, but sales are starting to increase. And we're happy about that.

I'll color that by saying, a lot of our HMR sales are in urban stores, Downtown Toronto, Downtown Montreal and those stores traffic is down especially this summer with restaurants opening up and people leaving for vacation, those stores are quiet. So HMR, which is a big part of their sales is affected by that.

Net-net, we see HMR trending up, continuing to trend up and we expect this fall to be at a higher level. Will we be back to 2019?

I'm not sure. But we certainly expect more sales from our HMR departments as people come back to the city, students office workers and everything like that.

Okay. Thank you very much, Eric.

Hi, good morning. Just a few quick questions.

First one is now that the Fresh DC in Ontario has been integrated. Just wondering what is the time line in terms of starting to achieve some of the efficiency and cost benefits?

So, we're working very, very hard. The teams are working extremely hard to ramp up our productivity.

So we're in that phase of learning to work with a new system. It's semi-automated.

It's not a fully automated facility. But it's semi-automated which is new for Produce for us.

It's new period, but it's it makes it a little tougher in Produce. So we operated it with two warehouses for a while transferring the store.

So it -- there have been some costs as we said in our remarks of $8 million in the quarter. We expect some additional costs again in Q4, not at that level, but some costs.

And we hope to be back to our expected productivity for the new fiscal year. Again, it's execution and it's making all the adjustments to get there.

So we're working really hard like I said to be at the expected levels for the new fiscal year and improving from there. So we'll how we do and we'll keep you posted.

That's the plan.

Okay. That's helpful.

And maybe just to follow-up on that. Just to help us frame the opportunity from a cost perspective.

Would you say the opportunity is similar to the benefits that you're going to get from the Jean Coutu DC integration of $10 million just sort of ballpark?

Well, the $10 million Jean Coutu was part of an overall synergy target. It was just -- not just warehousing, it was everything as G&A procurement warehousing, which was part of the acquisition business case.

It's -- we take the same approach when we value these big investments is that we're looking for the same cash-on-cash return on our investments whether it's the acquisition or whether it's the a new warehouse. So same approach you expect on the long term term of that project to be earning that rate of return.

So yes, at the end of the day it's part of a trying to achieve that same rate of return and the same achievement on our profit growth.

Okay. That's helpful.

And just typically these type of benefits from the DC you will see them at the gross margin line. Is that correct?

Both. The in-store benefits will be in the gross margin, but the operating expenses will be -- the reduction in labor at the warehouse will be in the operating expenses.

So it's across the two levers. But a lot of it will be SG&A.

Okay. Got it.

And respect to the Frozen DC that's sort of coming online in January of 2022. Do you expect to incur similar one-time costs as you had with the Fresh DC?

Yes. Well, we -- there's always a as I say, a ramp up period.

I think it will be a simpler operation, the Frozen DC. So we're preparing and doing everything we can to have a successful transfer.

Like I said, I don't expect the same level of costs in the Frozen DC next January. But we'll see.

We're planning and working to minimize the ramp up costs. There will be some.

But I don't think it's going to be in the same level as what we're seeing in the Fresh DC.

Okay, great. And maybe a quick question on pharmacy.

Eric, you mentioned in your opening remarks that I think the vaccination revenues did have an impact during the quarter. But did that benefit show up in this prescription drug, same sort sales number?

Yes.

And would you be able to just quantify for us, because I'm guessing that's probably not going to be recurring at least to the same magnitude next quarter as vaccination slows?

Well, we would have to get back to you on that, Chris. The contribution of vaccinations to the RX number is -- it's there, but I don't have a precise number.

It's not that significant.

No. It's not that.

May it's not true.

And my last question about the longer term question. I think Eric, you mentioned last call that you're exploring maybe a launching advertising platform to monetize your online business longer term.

I was wondering if there's any update you can provide us on that initiative or plan?

No. I said on the last call that we're aware of some large retailers doing that or planning to monetize their platforms for advertising.

So it's something our marketing and digital teams are working on. No announcements to make.

It's on our radar screen, but we'll keep you posted.

Great. Thanks a lot.

Thank you all for your interest in Metro. And we will speak again soon to discuss our fourth quarter results on November 17th.

Thank you.