Metro Inc Stock

Good morning, ladies and gentlemen, and welcome to the Metro Inc. 2026 Third Quarter Results Conference Call. [Operator Instructions] Also, note that this call is being recorded on August 12, 2026. 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 thanks for joining us today. Our comments will focus on the financial results of our third quarter, which ended on July 4. 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 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 Eric.

Good morning, everyone. I will start with an update on the labor conflict in our Quebec operations, followed by comments on our quarterly results. Marc Giroux will then discuss the network optimization initiatives announced today, and Nicolas will address their financial impact as well as our financial performance for the quarter. As you will recall, on June 25, we provided an update on the ongoing strike at our produce distribution center in Laval, which has significantly impacted our operations and results in the quarter.

Our adjusted EPS for Q3 of $1.24 is within the guidance provided at the time of the update. Our third quarter was certainly challenging. The contingency plan we put in place is working and steadily improving, and our stores are generally well stocked and in good condition. Our focus is on restoring full assortment, strengthening store execution and driving back traffic to our stores. That said, it remains a contingency measure, and it does not replicate the effectiveness of our own network.

Moreover, the labor disruption required significant attention and resources from our teams, which affected our operating focus in Quebec and to a lesser extent, in Ontario as our Toronto Fresh DC supported a portion of our Quebec stores. I want to be clear, we remain committed to reaching a negotiated agreement with the union. The global offer presented by Metro provides competitive wage and working conditions that compare very favorably with the market in addition to offering quality long-term jobs here in Quebec.

While the strike is having a significant temporary impact, we must preserve the long-term competitiveness of our operations and our ability to continue serving our customers effectively in a competitive market. We will not compromise on this objective. I want to thank our teams for their resilience and our customers for their understanding as we continue working to provide the best possible shopping experience.

After 4 weeks in our fourth quarter, food same-store sales remained negative at minus 1.5%. Based on current operating conditions and the absence of clear resolution time line for the conflict, we expect that our fourth quarter results will continue to be significantly impacted, while our teams actively manage operations, service levels and customer recovery. Going back to our third quarter results, the quarter reflected continued strength in pharmacy, sustained online growth and progress on our retail investment plan. Sales grew by 1.4%, adjusted EBITDA was down 11.3% and adjusted earnings per share were down 18.4%.

These figures are not adjusted for an estimated strike impact of approximately $0.32 per share. Total food sales were up 0.5%, while same-store sales were down 1.5%. In pharmacy, total sales were up 5% with same-store sales growth of 4.8% on top of 5.5% last year. Our internal food basket inflation was in line with the reported food CPI of 3.9%. We continue to manage supplier cost increases through ongoing negotiations and a rigorous validation process with the objective of limiting the impact on our customers. During the quarter, comparable store customer traffic was down, partly offset by growth in the average basket. Promotional activity remains elevated as the competitive environment remains intense but rational.

Online sales grew by 16.3% in the quarter, driven by third-party marketplaces, the ramp-up of click and collect services and delivery within our discount banners. This growth, together with the customers' increasing demand for same-day delivery, supports the evolution of our e-commerce model, which Marc will discuss in more detail shortly. Turning to pharmacy. The business continued to perform well this quarter with prescription sales up 6.4%, driven by continued organic growth, specialty medications and GLP-1 therapies.

Commercial sales grew by 1.4%, led by cosmetics, beauty and seasonal categories and supported by a strong promotional mix. These results build on strong underlying momentum with prescription sales delivering a 2-year stacked growth rate of 13% and commercial sales delivering a 2-year stacked growth rate of 5.5%. During the quarter, generic semaglutide entered the market, causing some price deflation within the category. However, demand fundamentals remain strong with early evidence of increased patient adoption and higher prescription volumes.

As generic supply continues to build, we expect ongoing expansion of the GLP-1 category to drive low teens volume and contribution growth. In addition, following the agreement in principle between the Pharmacist Association, AQPP, and the Quebec government, we expect professional services to gain renewed momentum beginning in the second quarter of fiscal '27. Our retail CapEx plan remains on track. We opened 5 new discount stores in the quarter, including 1 conversion and 1 relocation, and we will achieve our plan to open a dozen discount stores by fiscal year-end.

We are very satisfied with the performance of our new and converted discount stores. On the pharmacy side, our renovation program is also progressing well with 30 projects planned for the year, including 7 pharmacies under our new concept. Newly renovated pharmacies continue to outperform average network sales growth, supported by enhanced layouts and expanded consultation areas.

To conclude, we are focused on restoring momentum and strengthening our market execution. We are confident that our merchandising programs, strong private label offering, Moi loyalty program and consistent store level execution will continue to provide value to customers and support long-term shareholder value. With that, I will now turn the call over to Marc, who will discuss the network optimization initiatives we announced today.

Thank you, Eric, and good morning, everyone. Today, we announced network optimization initiatives that are aligned with Metro's long-term strategy and our disciplined approach to network investments. Together, they are intended to better position our network in the markets we serve and to respond to evolving customer needs. First, we announced the conversion of 10 Metro stores to Food Basics in Ontario.

This initiative should allow us to grow market share, strengthen our competitiveness in key markets and generate returns above our typical investment threshold. These conversions are expected to improve store contribution beginning in fiscal '27 with benefits ramping up over the next 2 years. This builds on the strong performance of our discount banners.

Over the last 3 years, we've expanded our discount presence through new and converted stores in Ontario and Quebec, adding 31 locations, bringing the Food Basics banner to 155 stores and the Super C banner to 121 stores. This is a disciplined market-by-market optimization of our network with the objective of having the right banner in the right market. Customers are responding well to our discount store format, and we are encouraged by the sales results and overall returns of our new and converted stores.

Second, we are evolving our e-commerce fulfillment model in Quebec. We will be closing our dark store in Montreal and transitioning to a store-based pick pack model and delivery through third parties. Customer expectations in online grocery continue to evolve with growing demand for same-day delivery. By transitioning to a store-based fulfillment model, we will position ourselves closer to the customer and pick orders from our store network, allowing us to increase same-day delivery capacity while continuing to deliver the freshness, service and broader assortment customers expect from our stores.

We expect to improve customer satisfaction while at the same time, reducing our fixed cost structure. We are confident that this evolution will enable us to support more profitable and sustainable online grocery over time. In addition to these network initiatives, we recently announced a strategic partnership with FGF Brands for the commercial bakery manufacturing operations of the Première Moisson. As part of the transaction, FGF will acquire the group's production facility located in Baie-D'Urfé for a total consideration of $90 million. This facility manufactures Première Moisson products sold in food stores.

By partnering with a company recognized for its manufacturing expertise, we will continue to offer customers the Première Moisson products sold in our food stores while benefiting from enhanced innovation, product development capabilities and operational scale. The transaction reflects our ongoing commitment to focus our investments and resources on our core food and pharmaceutical retail and distribution operations while simplifying our operating model. The Première Moisson Group will remain a subsidiary of Metro and will retain ownership of the Première Moisson brand and its network of 25 artisanal retail bakeries across Quebec.

Taken together, these actions are intended to improve the quality and performance of our network while reinforcing our disciplined approach to capital allocation. Before turning the call to Nicolas, I would like to take a moment to thank Eric for his outstanding leadership as President and Chief Executive Officer of Metro for 18 years. Under his leadership, the company consistently delivered strong results, strengthened its market position, made the transformational acquisition of the Jean Coutu Group and created substantial long-term value for our customers, our employees and our shareholders.

On a more personal note, I'm grateful for his guidance and support over the last 17 years, and I look forward to continuing working with him as he becomes Chairman of the Board in September. With that, I will now turn the call to Nicolas to discuss our financial results and the financial impact of these initiatives. Thank you.

Okay. Thank you, Marc, and good morning, everyone. From a financial perspective, the initiatives described by Marc, resulted in pretax nonrecurring restructuring expenses of $25.7 million as well as impairment of assets of $32.1 million in the quarter. The results include a $42.6 million after-tax adjustment for these charges or $0.20 per share. These network optimization initiatives are expected to be completed by the end of fiscal 2027 and generate estimated recurring annual after-tax earnings of $15 million by the end of fiscal 2028, with about half of the benefits expected to be realized by the end of fiscal 2027.

The benefits will primarily come from improved store contribution as well as from a lower cost e-commerce fulfillment model. The capital required to execute these initiatives is expected to fit within our total CapEx envelope of $500 million to $550 million per year. Separately, the sale of the Première Moisson Group's bakery manufacturing operation is expected to generate proceeds of $90 million upon closing.

The proceeds will be deployed in line with our capital allocation priorities and the transaction is expected to close in the fourth quarter. Turning to the third quarter results. Sales reached $6.97 billion, an increase of 1.4% versus the third quarter last year. Sales were positively impacted by new store openings, but were unfavorably impacted by the ongoing labor conflict at our produce distribution center in Laval and its consequences on our food retail network. Food same-store sales were down 1.5% in the quarter.

On the pharmacy side, same-store sales grew by 4.8%, supported by a 6.4% growth in prescription sales and a 1.4% growth in front store sales. Gross profit stood at $1.3 billion for the quarter or 18.8% of sales, which compares with 19.8% of sales in the corresponding period last year. The decrease versus last year is mainly driven by $87 million of estimated lost profit and incremental direct costs related to the ongoing labor conflict. Operating expenses were $725.1 million, up 3.2% year-over-year. As a percentage of sales, operating expenses were 10.4% compared with 10.2% last year. The operating expenses in the quarter included $3 million of incremental direct costs related to the labor conflict.

EBITDA for the quarter amounted to $555.7 million or 8% of sales, a decrease of 15.3% year-over-year. Excluding the nonrecurring restructuring charges of $25.7 million I mentioned before, adjusted EBITDA stood at $581.4 million, down 11.3% year-over-year and represented 8.3% of sales versus 9.5% recorded in Q3 last year. The third quarter of 2026 was unfavorably impacted by an estimated $90 million in lost profit and incremental direct costs related to the strike. Depreciation and amortization expense for the quarter was $193.6 million versus $184.9 million last year.

The increase in depreciation and amortization is mainly due to the increase in retail network investments, including right-of-use assets and technology investments. Net financial costs for the third quarter were $50.5 million compared to $45.3 million in the corresponding quarter of 2025. The increase in net financial costs is mainly due to the higher interest expense on net debt. Our effective tax rate in the quarter was 24.4%, while the effective tax rate in the third quarter last year was 24.1%, both supported by the continued tax benefit associated with our investment in our Terrebonne DC.

Adjusted net earnings in the third quarter totaled $262.6 million compared with $331.8 million for the same quarter last year, down 20.9% year-over-year. Adjusted fully diluted net earnings per share amounted to $1.24 versus $1.52 last year, down 18.4% year-over-year. As mentioned before, these figures are adjusted for a $42.6 million after-tax impact associated with the network optimization initiatives or $0.20 per share, but they were not adjusted for an estimated unfavorable after-tax impact from the labor conflict of $66 million or $0.32 per share. Our capital expenditures in Q3 totaled $167.3 million versus $145.5 million last year.

After 40 weeks in fiscal '26, the company opened 10 stores, including 2 conversions. We also relocated 1 store and carried out major expansions and renovations of 7 stores for a net increase of 245,000 square feet or 1.1% of our total food retail network square footage. On the pharmacy side, we are on track to complete 30 major projects this fiscal year. Under our normal course issuer bid program, as of July 31, we have repurchased 4.9 million shares for a total consideration of $463.1 million at an average share price of $94.56. In closing, our third quarter results were significantly impacted by the ongoing strike at our produce distribution center in Laval, a nonrecurring event that affected sales, margins and costs. We remain focused on restoring momentum and continuing to execute with discipline on costs, investments and capital allocation.

With that effect, we are confident that the network optimization initiatives announced today will contribute to improve the position of our network in the markets we serve and to respond to evolving customer needs.

On this, I will turn it back to Eric for closing remarks. Thank you.

Thank you, Nicolas. So as previously announced, I will retire as CEO at the end of this fiscal year and become Chairman of the Board. It has been an honor and a privilege to lead Metro and to work alongside such talented and dedicated teams across our stores, distribution centers and offices. I would obviously have preferred to exit on a more positive note, but I'm proud of what we accomplished over the last 18 years.

Alongside my Board colleagues, I look forward to Metro's continued success under Marc Giroux's leadership, and I'm confident that the company will continue to deliver long-term value to customers, employees and shareholders. Finally, I want to express my appreciation to you, the investment community for your support and interest over the years. I have always valued our discussions, and I will miss engaging with many of you. So thank you, and we will now take your questions.

[Operator Instructions] First, we will hear from Irene Nattel at RBC Capital Markets.

And before I ask my question, a huge thank you to you, Eric, for the past 18 years. It's been an honor and a pleasure and wishing you all the best of luck. And hopefully, you won't be going too far away. And with that, I guess, normally, you don't address difference in performance necessarily between Quebec and Ontario.

But given the impact of the strike this quarter, can you talk a little bit about what you might have seen in Ontario, which presumably was not disrupted or not meaningfully disrupted? And then I guess, where within the stores in Quebec, are you seeing the greatest pressure on same-store sales?

Like you said, Irene, thank you for your kind words, number one. Number two, for competitive reasons, we're not going to disclose by province, by banner. We've said that many times. Clearly, the strike is having an impact in Quebec mostly. Both of our banners are affected by the supply or were affected by the supply of produce to our stores. So yes, clearly, it's had a bigger impact there. Ontario, we're pleased with our business overall. It's a very competitive market. We're holding share in Ontario.

So I will leave it at that, but we did impact our operations a bit in Ontario by serving our Quebec stores. So that created a bit of disruptions that people are working through. So a lot of hard work by our teams to do a good job in both of our markets. So that's what I would say.

Much appreciated. And then -- and maybe it's very hard, but kind of teasing through, we continue to see elevated pricing for consumers. What can you tell us about underlying consumer spending behavior and promotional penetration, trade down, et cetera?

Marc, do you want to take that?

Yes, I can. Irene, I would say that the trends are similar to previous quarter. Consumers are focused on value, disproportionately buying private label, participating in promotion. And we're continuing to see volume -- greater volume in discount than in conventional. We believe this is going to continue. And that's why we've -- we're continuing to invest in our network and investing in the right store in the right market as we announced.

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

For my questions, on the strike, I don't know if you're able to comment, but I think the last update you gave was the union rejected your proposal. Are you able to say if both parties are back negotiating right now?

So we gave you an update on June 25. So there have been some discussions after that date. There have been no formal negotiations for a few weeks now. That said, we remain committed to reaching a negotiated agreement that recognizes the contribution of our employees, enables their return to work. We're prepared to resume discussions with the union, but these discussions have to take place in a realistic framework that reflects the competitive market that we compete in.

So we presented an offer, a global offer to the employees that provides competitive wages, good working conditions that compare very favorably with the market in addition to offering quality long-term jobs here in Quebec. So in our minds, the ball is in the union's court, and we look forward to resuming negotiations.

And the costs and the disruption from the strike, like I would have thought maybe in the first few weeks, it'd be most costly as you're sort of scrambling. And now with the contingency plan in place for some time, has the magnitude of the cost from the strike, is it a bit better now than initially? Or is it just -- should we think it's a very similar cost drag that's been consistent throughout this period since the strike began?

So Nicolas gave you the numbers. We said $90 million of lost profit and cost impact. The large, large majority of that is lost profit and margin on lost sales. The direct costs associated with this contingency plan were quantified in the quarter at $3 million. So it's -- those costs are -- some of them are ongoing. Security costs, for example, continue to be incurred. The large majority is related to the sales decline and the associated margins. So as long as we're on strike -- as long as our same-store sales remain negative, that's why it's continuing to have an impact on our results. That said, we're in better shape every week.

The assortment is not 100%, but getting close to that. It wasn't that certainly at first. People couldn't find organic produce, for example, for a while in our stores. So that clearly lost sales and some traffic associated with that. So like I said, we're improving every week. Stores are in good shape, and we can compete, but we have work to do to bring traffic back to our stores, and that's what we're trying to do day in, day out.

And maybe -- it's Nicolas here, adding a bit of clarification. As Eric mentioned, the direct cost of $3 million primarily associated with security services and other very direct costs. But within margin, we also have, in addition to lost margin on lost sales, additional costs for the actual operational -- operating the contingency plan with third-party logistics provider. That is obviously costing more to us than the normal operating conditions of our own infrastructure. So that is also included in margin.

Last one for me is on the network optimization, specifically the rebranding of 10 locations in Ontario to discount. Are you able to talk about -- is that mostly in the Greater Toronto area and why now?

It's mainly -- it's across the province, both in the GTA and the rest of Ontario. Did I answer your question, Tamy?

Yes. I'm just wondering.

Out of respect to our employees, we will announce gradually to our stores and our employees as this plan is deployed. So a few stores have been advised -- will be advised very shortly or have been advised very recently, but not all stores. So that will roll out as per our plan. But there's some in the GTA. There's one in Ottawa that will open by the end of this fiscal year, and there's some in other parts of Ontario. We'll keep you posted on future calls.

I was also wondering the timing, like why now? Is it just from the entry of competitors' discount banners nearby?

No, I think it's a question of the evolution of the market. And like Marc said, we optimize our network on a continual basis, market by market. We plan and we look at the future of every store, what's the best format for it, and we make decisions. So this was a good time to relook at the network as we were preparing the plans for next year. And for those 10 locations, we feel discount is the way to go. And within -- all these stores will be done over the next fiscal year, and we'll ramp up with better contribution, better sales in all of those markets, and we look forward to a higher contribution, which was singled out by Nicolas in the opening remarks.

Next question is from Vishal Shreedhar at National Bank. Please. Go ahead.

With respect to the total impact associated with the strike on Metro's results in order to forecast next year's results more accurately, you highlighted the $0.32, the $0.32 on EPS, and then there's the $3 million and then there's the 3PL costs. So how would I think about the totality of costs so I can forecast next year more accurately?

Well, so Vishal, thank you for your question. As just to clarify again, the $3 million that you've quoted is obviously included within the $90 million. I would say that initially and to an earlier question, initially, as the strike started, we had what I would call a normal level of shrink and lost inventory, which hopefully should not repeat as much.

So I think on an ongoing basis for now, what we see in the fourth quarter is a per period level that perhaps is slightly less than the $90 million we've seen over a period, slightly less, but same ballpark figure. And I would say that about 1/3 of that number would be associated with direct costs operating the contingency plan and 2/3 has to do with lost margin on lost revenues.

Related to the network reorganization and the changing of the stores, is there a sales -- a negative sales impact as you close the stores and you change them to the discount banners? Or is the subsequent growth in the discount banner sales growth going to more than recover that, and we should expect a sales benefit through the totality of the plan?

Yes, the impact is positive. There is a decline in sales in the 2 weeks prior to the closing, but then it's compensated by the growth of that new discount store that's growing the first year, but also will be continuing to grow the year after. If we're deciding to convert a store, it's because the store is not the right store for that market, and the store has not been performing as we would want to. So the overall impact on sales is positive first year and ongoing after that.

When we do convert a store, depending on the work required, there could be a closure for 2 months for the conversion. So you see a drop in total sales. We will take those out of comparable sales anyway. So short term, there might be a drop in sales during the work. But as soon as we open, we are expecting higher sales than before and bigger returns and better contribution.

And related to -- did I hear it correctly that notwithstanding for the GLP-1s, notwithstanding the reduction in pricing for the GLP-1s associated with genericization, the contribution dollars are expected to increase. Did I hear that correctly? And if so, does that reflect benefits from PRO in that comment?

Yes. So you did hear correctly. So I think you're right, generic semaglutide is creating some deflation. But when you look at the overall category and the trends that we've been seeing since the generic entered the market, we are seeing an increase in unit volume overall. And then the category trends are being maintained despite the genericization of semaglutide.

So when you take all that into consideration, the category overall is going to continue to grow and it continue to be a net positive for our contribution. And as Nicolas mentioned, in the low teens. And that does not include Pro Doc. Pro Doc, we're still continuing to refine that strategy and determine what's the best go-to-market approach. So this is just really looking at GLP-1 category overall.

And to be clear, that when you said contribution, that's dollars, right?

Yes.

Our next question will be from Chris Li at Desjardins.

Eric, yes, let me first add my congratulations on a stellar career. It's been a pleasure working with you, and you'll definitely be missed. You noted that food same-store sales for Q4 today is also down around 1.5%. I know it's hard to say, but how much of the decline would you say is still the lingering impact from the strike versus the general challenging market conditions?

As weeks go by, it gets tougher to predict, but it's essentially the strike that has caused all of this. If you look at our same-store sales and our total sales and our financial performance, Q2 year-to-date, we're in a very strong position, gaining share and both markets doing really well. So clearly, this has had a significant impact that we're repeating ourselves here. And we've been fighting with our hands tied behind our backs for a while. So we're in better shape today, but it's been a challenging quarter.

So we attribute the drop in our sales and the momentum to the strike for sure. That said, the market is very competitive. Population growth is fairly small or flat, and there's the square footage. So it's a competitive market, but that's what we expected, and we were facing that in the first 2 quarters anyway.

That's helpful. Yes. No, perfect. And I just also want to ask, if you exclude the impact from the strike in the quarter, it looks like your underlying EPS was up, I think, 3% or 4%, which is slightly below your long-term target. Can you provide some color around that? Was there other sort of nonrecurring or onetime impact that would have had impacted your growth?

Yes. I would start by saying, Chris, that the strike number is obviously an estimate. So trying to understand what the reality would have been. So that's the first caveat to the adjustment or normalization. Then as Eric mentioned, being in a limited capacity to promote at some point as we were ramping up the contingency plan, so fighting the fight with the hands behind our backs as well.

But I would say that on top of that, like we haven't mentioned fuel costs, but fuel costs for us were a few cents of impact in the quarter given the increase in fuel. And so that's what I would say for -- to answer your question. But it's not an easy formula to just say normalize at $1.56 and then that's it. So I think there's -- these factors contribute to the lack of clarity, if you will, in the quarter results.

That's great. And Nicolas, maybe my last question, just if you exclude the strike impact, it does look like your gross margin rate actually improved once again. What were some of the underlying drivers that caused the growth?

Yes. So I would say that if we were to normalize for the strike, the gross margin percent would be relatively in line, I would say, Chris. So I think, obviously, it's not a quarter where we can talk about the improvement in distribution center operating conditions. But I would say that normalizing for the strike, the margin would have been very comparable to last year, so equivalent conditions.

Next, we will hear from John Zamparo at Scotiabank.

I'll just echo my thanks and congratulations to you, Eric. You've been a face of this company and a fixture of this industry, and we'll miss you, and we hope you'll still hang out with us on these earnings calls for a little bit longer. And congratulations to you as well, Marc.

I wanted to follow up on the GLP-1 commentary. That's really helpful. I just want to clarify. So I think you said it's a double-digit volume growth you expect from the category. It's also double-digit dollar growth you expect. And just to be clear, is that sales? And if it is, what do you expect to be the impact on Metro's EBITDA in F27 or F28 from this process of genericization?

So yes, so it's double-digit unit growth. In terms of sales, we're looking at low single digits and then contribution, it was in dollars. Yes, low teens in dollars for the overall category.

Yes. And John, I guess, we don't provide EBITDA figures for any specific categories, and that applies, I would say, to GLP-1. But as Jean-Michel mentioned, with the growth in the category, we do see EBITDA growing low teens, which is obviously positive. But we're not providing dollar figures for that category per se.

That's helpful. Moving to your announcement on network changes. The $15 million in after-tax earnings that you gained from that, is that primarily coming from the e-commerce portion of the network changes?

I would say about half and half. So after the e-commerce fulfillment model adjustment, if you will, and then the other half from the improved contribution from the stores as they are converted and as they grow as a Food Basics store. So it's about half and half.

And then last question for me. There's a lot of noise in the same-store sales number, but I wonder if you can comment on traffic versus basket in the quarter. Is the impact you're seeing primarily from fewer visits? Or is it from spending levels per trip?

So the transactions are down because of the strike mainly. And so half of the sales lost are in produce, considering the strike in our produce warehouse and half of the sales are in transactions. Basket are slightly up.

Question will be from Brian Morrison at TD Cowen.

A couple of follow-up questions. Just on that $0.32, I understand the opportunity costs, but I heard you mention the example of supply of Quebec from Ontario and some additional items. Are these backed out as well or -- just more so referring to Chris' question on the implied 3% growth. I assume that there's still some inefficiencies that remain within your results that are not taken into account in that.

Yes. So that's possible in the sense that we try to come up with our best estimate. With regards to your comment in Ontario, and as Eric mentioned before, the -- our Toronto Fresh DC in Ontario is -- was and is currently supporting our Quebec store network. So that is obviously overall impacting operations to a certain extent. So trying to answer your question here. So the impact of the strike does include a small figure, if you will, in the big picture for the estimated Ontario impact of adding to support. Does that answer your question?

Yes. Yes, it does. I mean just maybe following up on the impact of the strike. I'm curious if you feel you may need to invest in SG&A to regain what appears a dip in your market share from this.

Yes. When we say we're working hard to get our traffic back to our stores, that's -- we're talking, yes, the merchandising has to be sharp, and we'll have to make some investments. So we do it in a disciplined way. We have a plan. But clearly, we have some traffic to recoup, and we will invest appropriately with our shareholders in mind, but we need to attract customers back to our stores. Top line growth in our industry, obviously, is fundamental to the rest. So it starts with that, and we will act accordingly in a disciplined way.

Maybe last question. The pharmacy front store sales at 1.4%, a bit below the sequential rate and consensus. Is this simply prior year strength as you called out the 2-year stack or thoughts on the performance, why it may appear a bit soft?

Yes. So I can comment about that with pleasure. So I think you mentioned it. I think you highlighted well. The 2-year stack was very strong. I think that's a good starting point. We did maintain market share in the quarter also. And last year, we did have a little bit of a tailwind, especially in P7 from the last few weeks of the cough and cold. And this year, the allergy season started a little bit later. But when we look at the fundamentals in the quarter, our cosmetics, our beauty, our seasonal programs continue to perform very well. So I don't think there's anything to be alarmed for -- to be alarmed by in the quarter.

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 fourth quarter results on November 18. 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 do ask that you please disconnect your lines.

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.