Thank you. 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 12. With me today is Mr.

Eric LaFlèche, President and CEO, and François Thibault, Executive VP and CFO. 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 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 2021-2022 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.

A description of these risks which could have an impact on these statements can be found under the Risk Management section of our 2021 annual report. As with the preceding risks, 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 François.

Thank you Sharon and good morning everyone. For the quarter, our total sales were $4.274 billion, an increase of 1.9% over last year.

Food same store sales increased by 0.8% for the quarter while pharma same store sales were up 9.4%. Our gross margin stood at 20.1% of sales versus 20.2% for the same quarter last year.

Operating expenses were down $5.5 million year-over-year and represented 10.4% of sales versus 10.7% of sales last year. The lower level of operating expenses is mainly due to a reduction in pandemic-related expenses, which stood at $29 million in the second quarter of last year.

Our EBITDA for the quarter totaled $414 million or up 4.5% when compared to last year’s EBITDA. As a percentage of sales, EBITDA was 9.7% versus 9.4% last year.

The adjusted net earnings were $204.7 million compared to $194.7 million last year - that’s an increase of 5.1%, and our adjusted net earnings per share were $0.84, that’s up 7.7% versus last year’s adjusted EPS of $0.78. For the first half of our fiscal year, capital expenditures amounted to $286 million, an increase of a little more than $76 million versus last year, and the higher level of capital expenditures is mainly the result of our ongoing investments in the modernization of our supply chain in both provinces and in our retail store network, including in-store technology.

At the end of the second quarter, we had 380 stores equipped with self checkout and 218 stores with electronic shelf labels. We plan on adding another 54 stores equipped with the self checkout technology and 26 stores equipped with electronic shelf labels by our fiscal year end.

We also started rolling out self checkout in select pharmacies and we now have 27 pharmacies equipped with that technology. Halfway through our current fiscal year, we have opened four new food stores, we have relocated another Metro store and carried out major renovations in six stores, representing a net increase of 150,000 square feet or 0.5% of our food retail network.

Turning to our current normal course issuer bid program, we have repurchased between November 25, 2021 and April 1 of this year 2.35 million shares for total consideration of $156.3 million, and that represents an average share price of $66.51. As a result of the seven-day labor conflict with our full time distribution center employees in Toronto, our third quarter results will be impacted by the direct costs of the strike and the impact of a new 4.5 year collective agreement, which are estimated at about $10 million pre-tax.

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

Thank you François and good morning everyone. We are pleased with our results in the second quarter as we grew sales by 1.9%, EBITDA by 4.5%, and earnings per share by 7.7% - that’s on top of a strong quarter last year and despite a challenging operating environment marked by the omicron variant and labor shortages throughout the supply chain.

Food same store sales were up 0.8% in the quarter, and the two-year stack for the first eight weeks of the quarter, that is the pre-COVID comparable period, was at plus-11.5%. With most government measures lifted and customers gradually returning to pre-pandemic behavior, we continued to see an increase in traffic and a decline in the average basket in our food stores.

Our discount banners are growing faster than our conventional banners, and online sales are stabilizing. The supply chain continues to be challenging mostly because of product shortages from our vendors.

For the quarter, our internal food basket inflation accelerated to about 5%, up from 3.5% in the prior quarter as the industry continues to experience higher than normal inflationary pressures in cost of goods sold, transportation, and labor. The main categories driving inflation at retail are meat and grocery.

Promotional penetration is back to pre-pandemic levels as consumers are more value oriented. Our teams remain focused on delivering value to consumers by providing quality products at competitive prices in all of our banners.

Turning to pharmacy, comparable sales were up 9.4% with a 7.7% increase in prescription drugs, helped by COVID-related activities such as the distribution of rapid tests. Commercial sales were up a strong 13.3% supported by growth in the over-the-counter medication, particularly cough and cold products, as well as lower sales last year due to the six-week ban on the sale of non-essential products.

Our online grocery sales were up 6% versus the same quarter last year and up 250% versus two years ago. We are seeing demand stabilize as a portion of consumers return to pre-pandemic behavior and opt to shop in-store more often.

We are pleased with our dedicated facility in Montreal with key metrics progressing in the right direction. On the click-and-collect side, we continue to deliver against our plan with some 210 Metro stores now offering click-and-collect across the provinces of Quebec and Ontario.

This allows us to reach close to 90% of the population of Quebec and 75% in Ontario. Jean Coutu also offers the click-and-collect service now in more than 290 pharmacies.

We’re confident in our prudent investment approach, our flexible ecomm model, and in the team we’re built over the last seven years to continue meeting consumer demand as it evolves. Turning to our supply chain investments, this quarter we reached a key milestone with the start-up of our fully automated frozen DC in Toronto.

All stores are now serviced from this new facility, which is ahead of our schedule. Productivity in the new produce facility which we opened last year continues to improve.

As you know, the full time employees in our Toronto distribution centers were on strike for one week at the beginning of the month. We reached a satisfactory agreement which will allow us to remain competitive, although the first year salary increases are higher than usual mainly because of the current high inflation environment.

Looking ahead, we expect food sales in the short term to remain relatively stable versus last year. In pharmacy, we expect positive sales trends, although moderating versus the first half of the year given last year’s deconfinement, which started taking effect in Q3 and positively impacted both prescription and front end sales.

In closing, I am proud to mention that the Jean Coutu banner ranked number one in the recent Leger Reputation Survey. This marked the second time in the last three years that consumers designated Jean Coutu as the most admired company in Quebec, which is a reflection of the strength of the brand, the trust of consumers, and the quality of the services provided by the pharmacist owners.

As well, the Metro banner in Quebec ranked number one for grocery in the Leger Customer Experience Index for the fifth year in a row. With that, thank you and we’ll now take your questions.

Thanks and good morning everyone. Eric, I was wondering if you could just give us a little bit more color around what you’re seeing with consumer behavior, private label, promotional penetration, those sorts of things.

Good morning Irene. Same story as we said at the end of January - clearly, the inflationary picture is accelerating, so that’s having an impact on consumers.

Our discount banners are growing nicely, much faster than our conventional banners, so there’s a search for value, there’s a shift to discount happening for sure, customers trading down. There’s high inflation in certain categories - I can think of certain meat cuts, beef in particular, so that’s having an impact on consumer behavior, they’re trading down for cheaper cuts.

On the grocery side, private label is doing really well because it’s great value at a lower price point in general. Promotional penetration, as I said in my opening statement, is back to pre-pandemic levels.

Whenever there is a spike in inflation like this, promotional penetration increases, we’ve seen that before. We see strong, I would say, sales whenever we feature a key item that has experienced inflation.

Let’s talk about beef - whenever ground beef is on ad, the volumes are very, very high because people will focus on those items. So there is a search for value happening, accelerating.

That said, I think we’re very well positioned with Super C, Food Basics, our Metro stores with their merchandising program with good value all the time. It’s dicey, it’s a tougher environment, but I think we’re performing well in that environment.

That’s great, thank you. Eric, how would you qualify or describe the competitive environment right now, given that everybody is facing the same challenges that you are, both in terms of rising costs but also the availability issue?

I think the competitive environment is the same it was a few months ago. It’s always very competitive, but everybody has issues with supply chain, everybody is experiencing cost increases - that’s industry wide, and that’s why you’re seeing inflation at retail.

Those cost increases with the rest of the increases that we are all experiencing are reflected in sales at retail, and that’s why you’re seeing accelerated inflation. But I would describe the competitive environment as rational, highly competitive but stable.

That’s great, thank you Eric.

Hi, good morning. The general expectation heading into this year was that inflation would be pretty high in the first half and then moderate some in the second half.

But with all that’s going on, how has that changed Metro’s view in terms of what the inflation might look like for the balance of this year?

Hard to say, Michael. What we’re seeing or hearing from our suppliers is that we have experienced cost increases over the last several months and we’re hearing noises that there will be more coming, so we don’t have that definite but it looks like inflation will be here for a little while longer.

How long? I don’t know.

The shorter the better, but it’s hard to see much further than that with all the global impacts of the war, fuel, energy prices. There’s so many variants to the inflationary picture that it’s really hard to say.

Interest rates are going up. How long, how fast, we’ll see what impact it has on the inflation over the next several months, so we will have to adjust accordingly.

Right, and increases that are still to come, are they in particular categories?

Well, grocery, CPG, we hear there’s going to be continued pressure there because everybody is facing additional cost pressures, so we expect that to continue. Again, we will sit down with our suppliers, we will see exactly what’s justified and how fast and what can be done.

It’s a difficult environment, but at the end of the day everybody wants to protect their volumes, protect their sales, so we have to manage the inflationary pressures. Right now for sure, the acceleration of inflation is not something we like at all - too fast, too high is not good, so we have to manage the cost increases as best we can to protect value for the customers and protect volumes at retail.

Right, and you alluded to that in your outlook statement, where you highlighted the risk of prolonged inflation and labor shortages on margins. How long can this go on before you start to see increased pressure on the gross margins, do you think?

We have some pressure, a bit of pressure on our gross margin in food right now. Again, I think we have experienced merchandisers and we are striving to continue to provide value and adjust on what’s available, what can deliver good values at good prices without--with as little inflation as possible.

The margin rate may be under some pressure a bit. Hopefully we’ll protect the margin dollars.

Okay, and then just last question, the drug same store sales were really strong and you benefited a lot from some of the increased services in the last year or so, at least in particular with the drug kits this quarter. Longer term, though, what kind of pharmacy services do you think could replace some of these higher level of volumes in test kits and vaccines and that, that we’ve been seeing over the last year?

Well, there are medical procedures that are now allowed for pharmacists to perform, and so those can qualify as services and added revenue on the prescription, quote-unquote, front for our pharmacies, renewal of prescriptions. Vaccines, I think are here to stay, and I think the pharmacy channel will be very important for the distribution of vaccines going forward, even more than before.

I think pharmacy services are in a good position to continue to grow, and I can’t give you guidance on exactly how and how much, but we see that for sure as a growth opportunity going forward.

Great, thank you.

Thank you and good morning. Eric, with respect to the labor shortages, can you speak to how those exited the quarter and, perhaps more importantly as you’re moving into the summer, how you’re managing those labor shortages?

Have the pressures eased, are things sort of standing still, or have you perhaps seen improvements in certain markets with respect to your labor requirements, both in store and in your distribution network?

Yes, we continue to experience labor shortages. The absenteeism caused by COVID is under control.

We saw a spike in cases in January. In the last few weeks, actually, we saw again more infections, so some absenteeism, but the return to work is much more rapid than it was.

The COVID issue, I think is manageable in terms of impact on our labor in stores and in DCs, but there is a structural shortage of labor that we are managing with and trying to improve, so recruiting programs, retention programs, salary increases, all of the above to improve the labor picture, but it is a reality of the industry that there are some shortages. So manageable, we have good teams, and we think we have good HR programs to do as best we can, but I’d be lying to you to say that--

Thank you Eric, I think I caught the--yes? I think I caught the majority of that answer, Eric, and I appreciate the granularity there.

If I could just stay on the topic of the labor discussion and perhaps one for François - François, did I hear you correctly, you called out a $10 million pre-tax impact on the new agreement effective the third quarter, and could you just remind us if there are any other collective or material agreements over the next--you know, through the balance of either this year or next? I’m a little out of sync on that.

Yes, hi Kenric. The $10 million amount that we flagged for Q3, the bulk of that amount is direct cost of the strike, so transportation, security, etc., and waste of perishables.

The biggest portion of those direct costs are waste of perishable items that we faced. There’s a smaller portion that is related to a retroactive adjustment for wages and benefits as per the new labor agreement, but as I said, the majority of that $10 million is direct costs due to the strike.

Great, thank you for that.

As far as material agreements going forward, we have agreements that are negotiated every year at stores, warehouses. The Montreal meat and frozen DC contract is up this year and will be renegotiated over the course of the summer, so normal course of business.

Thank you Eric. Just a quick final one for me.

Front of store, you called out was driven by OTC and obviously the easier comp on the non-essential in the year prior. Have you subsequent to the quarter end seen any further changes in consumer behavior and in the categories that are perhaps driving growth as we head into summer and as the pandemic headwinds and restrictions are further behind us than they were?

No, no real noticeable changes. I think our front end program in our pharmacies is strong, our seasonal programs are strong.

There are some supply issues there on seasonal coming from China, but we think we’re in good shape generally. Cough and cold, good.

As we had into the summer, it’s less of a contributor, that’s seasonal. Allergies will come in, solar and all those cosmetic products as the economy has is opened up and people get out, I think we should be pretty much back to normal over there.

Great, thank you. I’ll get back in queue.

Yes, thanks for taking my questions. Just on your ecommerce initiatives, online food sales were up 6%, if I got that number right.

How should we think about it through the balance of the year as economies keep on reopening, but at the same time you’re adding more capacity and getting more efficient there? Any factors for us to consider?

Yes, so the 6% is total ecomm, so all models, so that’s our dark store, our hub stores, our partners, our click-and-collect. Everything is in there, so there’s quite a bit of added capacity to get to that number.

On a comparable basis, some stores are actually down, which is in line with the market in general. As we head into the summer season, there’s always a softening in ecomm sales as we go into the summer, so we’re expecting that.

As I said in my opening statement, people revert to old habits and behavior, so yes, there is going to be a portion of the market on ecomms for sure, but we expect demand to stabilize, let’s call it that.

Great, and between the various offers that you have - click-and-collect, delivery, you have your corner shop offer, do you see consumer gravitating more towards one or another or is it relatively stable since you last updated?

Well, click-and-collect as we add capacity is growing, but from a zero base so it’s still a minority. Our model over the years was developed with hub stores and delivery, so that’s still the lion’s share.

The partnership is progressing well also, so for competitive reasons we’ll try to keep it at that, but there’s a trend in general in ecomm for delivery, immediacy, short windows, two-hours, 30 minutes, next day, so I think our offer is well suited to that. It’s flexible, it’s agile, and with our own models plus the corner shop partnership, we think we can meet that customer demand for more immediate, short-term deliveries.

Okay. You talked about services being a bigger part--I’m just switching gears here to PJC, services being potentially a bigger part of PCJ’s offer in the future.

One of your peers completed an acquisition to expand their medical offer with Lifemark. I’m wondering if Metro is also considering pursuing acquisitions to expand the [indiscernible] pharmacy.

Yes, like we said, we’re always open to expansion ideas in food and pharmacy in Canada, so technology or tools that help our food and pharma offer, professional services or front end in pharmacy is something that we can look at, but it has to be in line with our model and with the regulatory environment in Quebec, which is different. Yes, we look at different opportunities.

If it’s a good fit strategically and adds value to our patients and customers, clearly we’re interested. I’ll leave it at that.

Thanks for the color.

Good morning. Earlier in the call, you described all the trade-down effects you’re seeing which seem to be accelerating with this tough inflation we’re seeing.

Is that going to present itself in terms of your financial metrics in terms of same store sales, margin, profitability? Are the numbers going to fall out differently and we should be alerted to that?

I don’t think so. Like I said, we have a mix of banners, a mix of geography, strong in the cities, strong throughout the provinces of Quebec--

Eric, are you still there? I think I lost you.

Hello?

Eric, are you back?

We are back. We don’t know what’s going on.

Yes, okay. Bad karma today on the telecommunications.

So just following up on that, when you have a sale that goes from a Metro to a Food Basics, do you care about that in terms of returns and profitability, are you indifferent?

It’s a good question. Net-net, we have comparable profitability, bottom line on EBITDA and contribution line, so it’s pretty similar.

But it depends - it can vary by geography or by store, but overall big picture, that’s what we like about our mix, to have discount and conventional. The transfer of sales from one to the other can impact gross margins and same store sales, but at the bottom line we think it protects as well.

You have less SG&A, and so it all catches up at the contribution, net.

Okay, got it. Switching topics, so back on this inflation but not just the food inflation but just a question on overall food inflation, but it’s just not food, it’s energy, rent, interest rates are going up - everything.

Have you see any evidence that consumers are actually spending--like, their monthly or weekly spend is less on grocery than it has been, just because they’re just being overwhelmed by this inflationary headwind that they have to budget?

No. Our baskets are still very healthy.

They’re down year-over-year because of the--you know, there’s more traffic, a bit of a softer basket versus a year ago, but the basket size versus pre-COVID is still very healthy. We think food dollars at home, for consumption at home are still in good shape.

Okay, good to hear. Then just lastly, a question on the Toronto DC strike, François.

Is that going to be an adjustment or it’s going to be in your--it’s going to be in the earnings and you’re just calling it out so we know?

I’m just calling it out as part of business, but it doesn’t happen very often so I want to flag it, but we’re not going to adjust earnings officially.

Okay, and as you know, during that one-week strike, there were some big holes on the shelves in the stores in Ontario. I don’t know if you have a way of measuring this or maybe just anecdotally, how did the consumer behave when they came into a Metro store, they saw a big hole in the shelf?

Did they leave and go to competitors, and if that was the case, have they come back to their normal shopping habits and come back to Metro? Do you think there was any of that shifting around during the one-week strike?

A strike is not good. Being short of product is not good, so clearly we lost some sales during a big week, which was the Easter week, so it had an impact.

Stores were open and we did get customers in and they still bought from us, but they couldn’t maybe get it all so we lost some tonnage for sure during that week. The good news is that it was only one week.

We’re back, stores are filling up this week as much as possible, and we’re not exactly where we want to be, we’re not 100% back to normal but we will be shortly. Given the general stock issues and supply chain issues that we’ve experienced for months, I think a lot of customers are, quote-unquote, understandable and are not penalizing us too much, so I think we’ll be okay.

But clearly we weren’t servicing customers the way we would have liked to that week in Toronto for sure.

Okay, and was the impact significant enough that we should curtail our same store sales assumptions for the third quarter, or was it just not that meaningful?

Hopefully it won’t be that meaningful. It’s a four-period quarter, Q3 for us, we’ll do everything to get it back with good merchandising and goo store conditions.

I think our teams did a great job under a lot of pressure, and I think our customers appreciated that. We got a lot of good comments from customers even during the strike, so we have a good, loyal customer base and I think we can manage over the next few months.

Okay, thank you.

Yes, thanks. Good morning.

Eric, you highlighted that promo penetration is back to pre-pandemic levels. I just want to clarify that this is up from last quarter.

Then my question is how much of a constraint are the uncertainties and challenges in the supply chain just with regards to how you’re promoting and the sort of programs you’d like to have in place in this environment in particular?

To the first part of your question, yes, promo rates are up slightly versus the previous quarter, and like I said, we expected that with the inflationary picture that we’ve been talking about. The constraints on supply chain, it’s up to work with our vendors to manage our promotions, manage how we go to market so that we have availability as much as we can to not disappoint customers.

It’s a lot of coordination and collaboration with vendors to have effective programs to deliver on that, so it’s day-to-day work to do that. There are constraints, there are issues, so they need to be managed, and we’ve been at it for several months, years now, over two years of this.

But it’s not going away, unfortunately. It’s going to be with us for a while, it seems.

Yes, and I guess that was sort of my follow-up, is just sort of your sense on how that has trended over the last quarter or two, and then your expectations over the next quarter or two. It doesn’t sound like you expect that to change, though.

Yes, so again we, I think, have made some improvements, but service levels to our stores from our warehouses are not where they were pre-pandemic and it’s mostly caused by vendor shortages. We do have some issues sometimes within our own shop, but it’s mostly because we’re not getting the product or we’re not getting enough product, so.

I think that’s an industry-wide issue, so we have to work with our vendors and manage as best we can. Like you just said, we expect that to continue over the next little while.

Absolutely understood. Okay.

Then I guess maybe just related to that a little bit, with regard to the labor situation, how does the tightness in the market affect you tangibly? Is it mostly in your costs or is it more in the store conditions or service levels from the distribution network?

Well, if you have vacant positions in stores, you’re affecting the way you go to your customers, so the in-stock levels, the service levels, the wait times [indiscernible] technology with self check-outs to help speed up the lines going up. It just puts pressure on the general condition of the store when you’re missing labor, and if you’re missing labor in a warehouse, well, you’re not shipping as much product as you’d like, picking or shipping, so it’s all that needs to be managed.

It has an impact on salary rates to attract people when you need people, it’s the offer in demand, so that puts a little bit of pressure especially on start rates to get labor because everybody is looking for labor, not just us, throughout the market. It puts added pressure and it contributes to the inflationary picture.

I don’t want to say it’s unmanageable and I don’t want to sound too alarmist, it’s just an issue that we have to manage every day.

Yes, understood. I think we get that.

Then just for the last follow-up on that, is this having much of an impact, or a similar impact in the pharmacy business as the food, or it’s most acute in the food business and pharmacy is affected, but not as materially? Is that fair?

Well, on the pharmacy side the shortages are more lab technicians. That was an issue pre-pandemic, it’s still an issue today, so that has an impact sometimes on speed for filling prescriptions.

The front of the store is, I would say, less--there’s less pressure there than there is on the food side, there’s just fewer employees in the pharmacy at the front end. We feel it more in the lab in our pharmacies, but again managing through it.

It’s nothing new and we’re just managing it.

That’s all for now. Thanks very much, and all the best.

Good morning everyone. Just want to dig a little deeper, Eric and François, into the vendor product shortages.

Can you talk about how expensive those have been and how--you know, what roughly proportion of the store is impacted? Then as you moved through Q2 and into Q3, has there been any abatement, has there been any improvement or it just continues to be at the same level and continue to be a big issue?

It varies. It varies from week to week or month to month.

We see improvements and then we fall back. Some vendors continue to have issues and are not shipping us on time sometimes for product that we have ordered.

It’s, I would say, generally improving but we’re not where we need to be and where we’d like to be.

Okay, thank you Eric, that’s helpful.

Hi, good morning. Just a few quick questions.

Eric, if inflation and labor challenges are more prolonged than you expect, are there initiatives that you guys can accelerate to try to cut costs and try to mitigate the impact on margins?

Well, we manage as best we can, like we say, with our merchandising, to have the right products, the right price, and provide great value in all our banners, so that’s job one. On the cost side, technology is a big driver, so we’ve rolled out over the last two years-this didn’t start last week, self checkout, electronic shelf labels, we accelerated that rollout knowing we were facing labor issues that are not going away, so we had to do that.

Longer term, automation of our warehouses, technology in the warehouses will alleviate pressure on labor. Those are all cost saving, labor saving initiatives that will help us for the long term.

Everywhere in the business, we try to manage our costs. We’ve done that for as long as I can remember.

We continue to do that. Despite inflationary pressures, we manage as best we can to manage our costs, so not much more I can say.

Okay, that’s helpful. Another question I have is your food same store sales was up around 1% and your inflation was around 5%, so the straight math would imply your tonnage was down roughly about 4% compared to last year.

Is the decline mostly just cycling through the strong COVID demand from last year?

Yes, the economy is more open, restaurants are more open, there are more alternatives out there, so that has an impact on our tonnage, so yes is the short answer.

Okay. My last question is you also mentioned that gross margins for food was down a little bit compared to last year.

I know you won’t disclose the percentage, but just anecdotally or directionally, did the decline accelerate in Q2 versus what it was in Q1?

No. No, it did not accelerate.

It’s pretty much the same picture that we painted in Q1.

Okay, thanks a lot and good luck.

Thank you.

Thank you all for your interest in Metro, and we’ll speak again soon to discuss our third quarter results on August 10. Thank you.