The North West Company Stock

Please be advised that this conference call is being recorded. Welcome to The North West Company Inc. Second Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Dan McConnell, President and Chief Executive Officer. Mr. McConnell, please go ahead.

Okay. Thank you, operator, and good morning everyone. Welcome to the North West Company second quarter conference call. I'm joined here by John King, our Chief Financial Officer; and Alexis Cloutier, our VP of Legal and Corporate Secretary. I'm going to start by asking Alexis is going to read our disclosure statement.

Thank you, Dan. Before we begin today, I remind you that certain information presented may constitute forward-looking statements. Such statements reflect The North West's current expectations, estimates, projections, and assumptions. These forward-looking statements are not guarantees of future performance and are subject to certain risks, which could cause actual performance and financial results in the future to vary materially from those contemplated in the forward-looking statements. Any forward-looking statements are current only as of the date they are made and the company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results, or otherwise, other than what's required by law. For additional information on these risks, please see The North West's Annual Information Form and its MD&A under the heading Risk Factors.

Thank you, Alexis. I'm going to begin with our consolidated results for the quarter, followed by some comments on our outlook, and then I'm going to open the call up for some questions. Overall, we delivered solid results for the quarter, driven by same store sales gains across our business that contributed to a 5.4% increase in EBITDA and a 5% increase in adjusted net earnings. These results were delivered within a challenging inflationary cost environment, and it was impacted really by higher fuel prices, which contributed to sales gains but were also a headwind for our gross profit and expenses. We also had a few factors below the gross profit line that largely offset each other, with the exception of a non-comparable withholding tax expense, which reduced the flow through to the net earnings in the quarter.

With that overview, I will provide some more context on the key factors impacting our results in the quarter. Consolidated sales in the quarter were up 5.4%, driven by strong same store sales gains across our business, with Canadian operations store sales up 7.4% and international same store sales up 5.8%. The impact of fuel-related freight costs, inflation, and retail prices contributed to higher sales in both Canadian and the international operations. In Canadian operations, food and general merchandise same store sales gains of 7.4% and 7.5%, respectively, were also impacted by the Government of Canada grocery and essential benefit payment to qualifying individuals, which increased compared to the previous GST credit from wildfire-related community evacuations in Northern Canada in the second quarter last year.

These factors were partially offset by the closure of our store in Fond du Lac, Saskatchewan, in the first quarter. In our international operations, same store sales were up in all of our business units, driven by solid food sales gains and very strong general merchandise sales, driven particularly in big-ticket categories such as motorized. Sales were impacted by local economic conditions in the communities we serve. For example, higher oil prices have had a positive impact on regional corporate dividends in Alaska. Although the second quarter falls within a lower tourism season in the Caribbean, the economic environment does remain strong in most markets. In addition, we have also gained some market share in certain Alaska stores. These factors more than offset the sale of one of our Cost-U-Less stores earlier this year in advance of our new store in Hagåtña, Guam, which opened on August 28th.

With that overview of the key factors that contribute to our sales gains, I am going to briefly comment now on consolidated gross profit and expenses. Consolidated gross profit increased 5.7% and improved by 8 basis points as a rate to sales. This reflects the sustained positive impact from our Next 100 initiatives, including refinements of our merchandise assortment and procurement, expanding our private label offering, as well as some changes in sales blend.

These improvements were largely offset by the impact of higher fuel-related freight costs. Let me just expand on that point. As we discussed on our previous calls, the impact of fuel-related cost increases varies by market. In northern markets, fuel-related cost increases have a greater impact because of the longer, more complex logistics network required to move merchandise to northern communities in Canada and in Alaska.

On the other end of the spectrum, for certain Caribbean and Pacific markets, the impact of higher fuel prices have been less pronounced, allowing for a more direct pass-through of fuel-related cost increases. As a result, we took a balanced approach to pricing. Higher fuel-related freight costs were passed through without an additional markup, and we made targeted price investments on certain food items to help reduce the impact of higher fuel costs for our customers. While this created some near-term gross margin pressure, particularly in our Canadian operations, it is aligned with our customer value proposition as a leading retailer in the communities that we serve. Higher fuel costs was also a factor in expenses. Selling, operating, administrative expenses in the quarter increased 6% and were up 13 basis points as a rate to sales compared to last year. The increase was driven by a few factors.

First, we experienced higher staff costs net of Next 100 productivity gains. The increase in staff costs reflects a combination of wage inflation, resources required to support business growth, and operating requirements across our market, particularly in the northern regions. Staff productivity measures improved from the first quarter, but there continue to be opportunities for improvement, which will be a focus in the back half of the year. In this quarter, we were also impacted by higher depreciation expense, mainly related to store renovations, an increase in fuel-related utility costs, and other inflationary pressures. Really, in summary, even with the headwinds from these cost pressures, we were still able to deliver a 5.4% increase in EBITDA and a 4.7% increase in EBIT, and a 5% increase in adjusted net earnings when excluding the non-comparable withholding tax expense.

Now I'm just going to wrap up with a few comments on the Next 100 program and then open the call up for questions. Looking ahead, there are a few key factors that we need to consider. First, we expect that our Canadian operations -- we do expect that our Canadian operations will continue to be impacted by increased consumer demand arising from the First Nations Child in Care settlement payments. As we noted in our report to shareholders, the issuance of a Child in Care settlement payment to customers in the communities we serve started to increase late in the second quarter compared to the trend over the last two quarters. But the impact was largely offset by a decrease in the First Nations Drinking Water Settlement claim in the quarter compared to last year. The Child in Care Claims Administrator reported that approximately 124,000 claims have been submitted in the Removed Child Class.

Based on the Child in Care settlement payment activity observed to date, individuals in 54 -- I think it's 54 of the 63 impacted communities that we serve have received funds. However, the number of payments distributed remains low in many of the communities. Based on the activity to date, the sales capture and customer spending patterns observed are broadly in line with our expectations. Overall, we expect the distribution of the Child in Care settlement payments to continue to increase in the second half of 2026 compared to the first half trends and extend for a number of years in front. And this is based on the requirements for the individuals in the removed child class to reach the age of majority before payments are issued, combined with the anticipated opening of the application process and distribution of settlement payments for other classes.

In addition, the approval of the agreement on the long-term reform of First Nations Child and Family Services between the Government of Canada, First Nations Chiefs in Ontario, and Nishnawbe Aski Nation will benefit Indigenous peoples and communities that the company serves. These benefits will come directly through programs and indirectly through investment in infrastructure and local employment. However, these benefits are not expected to begin until 2027. The headwinds from the impact of higher oil prices and fuel costs that we experienced in the second quarter are expected to continue in the near term. And as I mentioned earlier, we are managing these pressures through a balanced pricing approach and are focused on finding opportunities to help mitigate the impact of these costs on our customers and shareholders.

As noted in our report to shareholders, we purchased a Basler BT-67 aircraft in the quarter, and we expect to make some additional aircraft purchases as part of our cargo and passenger fleet renewal at North West Star -- North Star Air. The upgrade and renewal of our aircraft will reduce our utilization of lower-margin leased aircraft and are expected to provide lower operating costs and enable efficiencies in maintenance and parts from greater standardization in the fleet, obviously. As the new aircraft are put into service, this will be a big benefit for us for sure. The fleet renewal is also expected to provide additional capacity to support future growth for the business. The purchase of these aircraft has been included in our revised capital expenditure outlook for the year. However, the timing of the purchases is depending on the availability and finding the right deals for the aircraft.

Finally, with respect to Next 100 work, we are pleased with the positive impacts on gross profit, which have helped to reduce the headwinds of higher fuel-related costs -- freight costs I highlighted earlier, and we remain focused on driving further staff productivity gains and expense management to help offset inflationary cost impacts in the business. In summary, we are definitely pleased with the strong sales performance and delivering an increase in earnings within a challenging cost environment. Looking ahead, we remain focused on the factors within our control, serving our customers, managing cost pressures, executing Next 100, underpinned by discipline in capital allocation. With that, I am going to open the call up for some questions.

[Operator Instructions]

And our first question comes from Stephen MacLeod with BMO Capital Markets. Your line is now open.

I just wanted to ask about just the trend you are seeing in higher Child and Care settlement payments coming through late in the quarter. I know you gave a little bit of color on the call, but I am just curious if you can give some color around sort of how you are expecting that to ramp into Q3 and Q4. What sort of spending patterns are you seeing from claim recipients?

Can you repeat the end of your question, sorry? What kind of what?

What kind of spending patterns are you seeing from your claims recipients, and, I guess, capture rate as well?

Yes. Like I said, we're pleased with the capture rate for sure. It's in line with our expectations. As I mentioned some of the ideal items that we typically see moving when people came, and we anticipated when people came into the money are definitely moving. We're getting our fair share for sure, Steve. And yes, it was late July on into August, it started to uptick a little bit. And so definitely pleased, anticipating and hoping that it sustains at this rate or hopefully even better over the next number of quarters. But as you know, we've been trying to predict the trajectory and cadence of these payments over a lot of years and without or a number of quarters, probably better well put, but without much success. But right now, it's definitely the good news is it definitely increased, particularly in August onwards as it was prior.

Okay. That's great. And I noticed you called out increased motorized sales, but I was just curious. Did I understand, is that isolated to international or do you see that in Canada as well?

No, Canada as well. For sure.

Yes. Okay. That is great. Maybe just finally, just on the increased CapEx, sounds like it is mostly related to North Star Air. And you made an interesting comment about it being positive to the margin profile. It reduces your utilization of leased aircraft. I am just curious if you can quantify what that margin profile looks like. Just trying to get a sense of the returns on that incremental CapEx.

Why don't we do this? We will tell you when they are in action and when they get into the flight plan. But as far as giving you any kind of quantification at this point, we would stay away from that. But we will let you know when they are in action.

Our next question comes from the line of Cheryl Zhang with TD Cowen. Your line is now open.

My first one is on the SG&A. I think SG&A excluding share-based comps is up, and you pointed to labor cost and fuel cost inflation. I am wondering if you could help us get a sense of the magnitude of those cost inflation and which one do you think was a bigger contributor?

Depreciation was up there. Labor is definitely something that we want to get a handle on. Utilities were up. When we look around, but I'd say some of the factors that we're going to be paying close attention to, the ones we can control, are certainly labor is an opportunity for us to get back in line. There's a lot of events that occurred. We had some major renovations that we needed to make sure we were ready for, and so we had to increase our labor there. I would say labor is the one that we want to make sure we get our arms around in the future quarters. Like I indicated, it was something we've been focused on prior quarters. It's better than the previous quarter, but we still know that there's opportunities for improvement there.

Okay. Understood. How much pricing did you pass through in Q2, and how much more do you expect to do in Q3? Was the fuel cost entirely passed on, or what's the consumer reaction thus far?

That's a great question. The consumer reaction is negative. The people are certainly not pleased, as any of the Canadians are not pleased with the inflation that we've experienced recently. I would say we passed on a lot of the inflation, excluding some of the key categories, essential items that our customers obviously need and want. Particularly in Canada, I would say a lot of it has been passed on, except for some of those key categories. I guess I wouldn't quantify it. In the international division, I would say, yes, I'd probably say at the same rate with the same philosophy, same strategy in place.

Okay. I'll be in queue.

[Operator Instructions]

Our next question comes from the line of Ty Collin with CIBC. Your line is now open.

Maybe just to circle back on your comments around the settlement payments and the acceleration that you have seen since August. We know that these payments have tended to be kind of lumpy in the past. So I just want maybe a little more clarification on what gives you confidence that there has actually been sort of an inflection in the rate of those payments, rather than maybe just seeing a bit of lumpiness over the last month or so.

Are you talking about in the future or what gives us confidence that we have seen more payments over the last -- like I indicated, the last couple of months? Sorry, just to be clear.

We are very comfortable that the cadence of payments have increased, as I indicated, late July and into August. Is that your question? Or we planned do we think it is going to be at that rate onward into the future? Sorry, Ty. Is that your question?

That is the gist of the question. It seemed like based on your outlook commentary that you expect a higher rate of payments to persist. So I am just wondering where that confidence comes from.

Optimism. I think -- now just thinking about your question. I think it is because of the large number of applications that have been in versus the few number of applications that we feel have been processed as we have experienced. I gave you the numbers. As I indicated, there has been few that have been a lot of the markets have been touched, not all of them, maybe, what is it, 75% if you did the math. But in a lot of the communities, we have only seen -- distribution is small number of checks come in. So now that we -- we know there has been a lot of submissions. So I am just using logic, and I would say, okay, so we have seen a few.

We know that there has been a lot of them processed, but now maybe the program and the system is getting into an efficient state, and we expect there to be, hopefully, and again, it is not busting the doors, but it has been a reasonable increase from previous quarters. So I am just saying that I would hope that there is going to be -- this is the new kind of baseline moving forward. But again, if you ask a question, I do not know. I cannot say for certain that there is not going to be some more troughs in there, but I would think that they are learning. The applications have been made, and I do not know what would hold them up. But that is probably as good an answer as I can give you.

Okay, great. No, that's very helpful color. Thanks for that, Dan. Just looking at the same store sales growth numbers this quarter, obviously quite strong. I'm just wondering, at a high level, how much of that would you attribute to the fuel surcharges that you passed through versus tonnage or some of the other growth drivers that you talked about?

No, I mean not bad. It's still a healthy sales increase, excluding the pass-through of the fuel. I would say, yeah, and it's higher than normal.

Okay, great. Just my final question, circling back to the CapEx piece. Is any of this increase, any of this $40 million increase in planned spend, would you sort of characterize any of that as a pull forward from future years? Or is this more of a recent decision sort of buy versus lease your airline fleet?

It's opportunistic driven. It's a finance discussion, really. It's better returns on some of the, we're very patient, just like we are with all of our capital investment, our acquisitions, you could say. So if the right deal is there, and it hits our hurdles, and it has a financial accretion to buy these particular aircraft, which it does, because we get, again, more productivity, more reliability, less maintenance costs. The OCO, the overall cost of ownership and the cost of operating these planes is accretive, so this is where we have the capital, obviously. So this is what leads to the decision to purchase the aircraft. It's opportunistic, and we have some expensive leases with some aircraft that it's less desirable, and so we're constantly on the hunt for value deals, good value, and we've found them, and that's where we -- that's why-- that's what led to the capital expenditure.

Our next question is a follow-up from Cheryl Zhang with TD Cowen. Your line is now open.

Just wanted to follow up on the cost side and your Next 100 initiatives. I am curious on how much do you think the fuel price and labor inflation pressures could be offset by Next 100?

Yes. There's definitely an offset factor there. So further ahead than we would've been if we weren't in the Next 100 program. But, it also gives us the tools to be able to offset some of these fuel-related pressures. So, there's definitely a connection there. As far as the net differential, it's not something that we would disclose, but I can tell you is we're very pleased that we have this -- that we're in the program, if you will.

Then, just one more on CapEx. Should we be expecting additional fleet upgrades and purchases in the upcoming years, or is this year an exception?

This year, I think we would follow the same discipline that I mentioned. I don't-- it's not going to be excessive. This is definitely a -- like it's a high watermark, and it's opportunity driven. But no, I would say this is definitely not the new norm level of CapEx moving forward.

Okay, understood. Maybe just one more from me. Your international segment, the tourism stream is still pretty strong this quarter. Curious if you are seeing any changes going to Q3 on the demand trajectory.

Not currently. In fact, we are optimistic because we are coming into the holiday season. Maybe more for some of the Western climate in Winnipeg and the like, but no, we are definitely coming into the holiday season going into Q3, so no, we remain optimistic.

I am currently showing no further questions at this time. I would now like to hand the call back over to Mr. McConnell for closing remarks.

Thanks, operator, and appreciate the comments and questions. We will look forward to chatting with everybody in December.

This concludes today's conference. Thank you for your participation. You may now disconnect.

Good morning. I would like to welcome you to this Annual General and Special Meeting of Shareholders of The North West Company Inc. My name is Brock Bulbuck. I am a Director of North West and Chair of its Board. We are pleased to host today's meeting virtually via a live video webcast through the Lumi platform, which enables registered shareholders and duly appointed proxy holders the same experience regardless of geographic location to participate, submit questions and vote. I will act as Chair of today's meeting. I will now call this meeting to order.

I would like to begin by acknowledging that the North West Company's head office is located on Treaty 1 territory, the traditional lands of the Anishinaabe, Cree, Anishininew, Dakota, and Dene Peoples and the homeland of the Red River Metis. We also acknowledge that Winnipeg's water comes from Shoal Lake First Nation.

The North West operates in many First Nations Inuit and Metis territories across Canada, and we hold deep respect for the unique heritage, cultures, and languages represented across these traditional lands. We acknowledge the history of colonialism within Canada, the resulting harms done, and we reaffirm our commitment to reconciliation as outlined in Our Promise to Indigenous Peoples.

Despite a difficult retail economic environment for North West, 2025 was another year of solid results. Sales increased 0.8% to $2.6 billion and net earnings increased 1.9% to $146 million. The company made capital investments of $138 million and increased the dividends paid to shareholders to $77 million. A key factor underpinning these results is the Next 100 strategy, which is in its second full year of execution. The Next 100 is focused on building a stronger, more robust company to create value for our customers and our shareholders into the future.

The Next 100 initiatives have driven reductions in expenses through labor productivity gains and other cost savings initiatives and have delivered enhanced value for our customers through better assortments, including our private label program and the introduction of President's Choice and no name products in Northern Canada and the British Virgin Islands and our Oh so Good private label brand in our international markets. As previously mentioned, the retail environment for North West overall in 2025 was difficult, but the breadth and diversity of North West operations helped navigate through the challenging conditions, which included in our Canadian operations, government funding changes led to a reduction in support payments for Northern residents, such as the elimination of the Inuit Child First Initiative food voucher program and reduced support through Jordan's Principal.

In our international operations, the benefits from improved economic conditions in certain Caribbean and Alaskan markets were partially offset by a decrease in the Alaska permanent fund dividend and weaker economic conditions in the South Pacific. We also felt the significant impact of climate change in 2025 as wildfires forced an unprecedented number of emergency evacuations impacting many communities in which we operate. On behalf of the Board, I want to thank all Nor/Westers for their commitment to navigating through these challenging conditions and for their dedication to our mission of making people's lives better in the communities we are privileged to serve. Since our last shareholders' meeting, we added 2 new directors to the Board, who bring significant depth and breadth of experience.

In August 2025, we appointed Gregg Saretsky to our Board. Gregg is a seasoned airline executive and Corporate Director with experience in global aviation, having served as the CEO of WestJet Airlines Ltd. and as a Board Director of publicly traded airline companies. In April 2026, we appointed Paul Soubry to our Board. Paul served as CEO of NFI Group Inc. from 2009 to January 2026. NFI is a leading global provider of sustainable bus and motor coach solutions. Paul has a sales, marketing, business development and operations background with substantial experience in business transformations and lean operational practices. We are excited to have added these 2 highly qualified and experienced individuals to our Board.

I wish to thank our shareholders for their continued support in our pursuit of our mission as well as the communities we serve for the privilege of allowing us to serve them. I would now like to introduce the people joining me at the head table. To my left is Dan McConnell, President and Chief Executive Officer and a Director. Next to Dan is Alexis Cloutier, Vice President, Legal and Corporate Secretary. Also attending today is John King, our Executive Vice President and Chief Financial Officer, who is available to answer any financial questions. Kristine Calesso and Jennifer Villareal of TSX Trust Company are attending today's meeting virtually and will act as scrutineers for the meeting. I appoint Alexis Cloutier to act as Secretary for this meeting. I will now ask her to read a notice regarding forward-looking statements and non-GAAP financial measures.

Thank you, Mr. Chair. Certain information presented today may constitute forward-looking statements. Such statements reflect North West's current expectations, estimates, projections and assumptions. These forward-looking statements are not guarantees of future performance and are subject to certain risks, which could cause actual performance and financial results in the future to vary materially from those contemplated in the forward-looking statements.

Any forward-looking statements are current only as of the date they're made, and the company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results or otherwise, other than what's required by law. For additional information on these risks, please see North West's annual information form under the heading Risk Factors.

This presentation may also refer to EBITDA, adjusted EBITDA and adjusted net earnings, which are not recognized financial measures under International Financial Reporting Standards. North West's method of calculating these measures may differ from other companies and may not be comparable to measures used by other companies. For further information, please see North West's annual report under the heading non-GAAP Financial Measures.

I would now ask the Secretary to report on attendance.

Mr. Chair, the scrutineers have provided me with their report on attendance. The attendance report confirms that a sufficient number of shareholders holding a sufficient number of shares of North West that are entitled to vote are represented in person or by proxy at this meeting to constitute a quorum. As there is a quorum present, this meeting is regularly called and properly constituted for the transaction of business.

A notice calling the meeting, together with a form of proxy, Management Information Circular and proxy statement and annual report containing the financial statements of The North West Company Inc. for the year ended January 31, 2026, and the related auditor's report were provided to each intermediary and registered shareholder of record on the record date for the meeting. We have received an affidavit of mailing from TSX Trust Company, North West's transfer agent, confirming the mailing of notice. Voting on the items of business to come before today's meeting will be through the Lumi platform only.

As described in the management information circular, only registered shareholders and duly appointed proxy holders who received a control number from our transfer agent, TSX Trust Company, are able to vote or ask questions during the meeting. If you have already voted in advance of the meeting and do not wish to change your vote, you do not need to vote again during the meeting.

Starting now, you can register your vote on all items of business for today's meeting. To vote, click on the voting tab on the left or bottom of your screen. You will see the meeting resolutions displayed on your screen. To vote, select one of the voting options available. Your vote will automatically be submitted to our transfer agent after you make your selection. Votes may be changed up to the time voting is closed. The poll will remain open until I declare voting on all matters closed right after the motion to approve the advisory resolution on executive compensation is made.

Shareholders were encouraged to ask questions ahead of the meeting by contacting the Corporate Secretary by e-mail, phone or mail. During the meeting, questions can only be submitted through the Lumi platform. If you are a registered shareholder or proxy holder and wish to ask a question, select the messaging tab on the left or bottom of your screen and in the Ask a Question box, type your question or your phone number and then click the send button. If your question relates to a specific matter of business to be voted on, please also identify the specific matter in the box.

If you type your question in the box, the secretary will read it out at the appropriate time. If you type your phone number in the box, a Lumi representative will phone the number provided. When you answer the call, you will be on mute and you will hear the meeting through your phone. Please mute your computer and listen to the live feed on your phone only. You will be unmuted at the appropriate time for you to ask your question live.

Questions can be submitted by registered shareholders or proxy holders at any time during the meeting until I close the question period. We recommend that questions are submitted as soon as possible during the meeting so that they can be addressed at the appropriate time. We will respond to questions relating to matters of business to be voted on at the time such matter is being discussed before a vote is held on each matter. All other questions will be addressed during the general question-and-answer session at the end of the presentations following the formal portion of the meeting.

Questions on the same topic or otherwise related may be grouped, summarized and addressed at the same time. Questions should be of interest to all shareholders and not personal in nature. We will endeavor to address all general questions. However, please note that due to time constraints, we may not be able to do so. If you duly submit a question that is not answered during the meeting, including a question relating to a personal matter, we will communicate with you after the meeting if you have provided your contact information.

A bit about the format of today's meeting. We will first receive the consolidated financial statements of The North West Company Inc. for the year ended January 31, 2026, and the related auditor's report. We will then vote on the election of the directors, the appointment of our auditors, the amendment of the director deferred share unit plan and an advisory resolution on executive compensation and announce the results of our votes. Dan will then address the meeting before we conclude with a question-and-answer session.

I would now like to introduce all of the members of the Board of Directors who will be standing for election this year. Stewart Glendinning is from Ocean Ridge, Florida, and is Chief Financial Officer of Dollar Tree Inc. Stewart is the Chair of our Governance and Nominating Committee. Rachel Huckle is from Toronto and is the Chief Executive Officer of Staples Inc. Annalisa King is from Madeira Beach, Florida and is a past Senior Vice President and Chief Financial Officer of Best Buy Canada. Annalisa is the Chair of our Audit Committee. Violet Konkle is from Fenwick, Ontario and is a past President and Chief Executive Officer of The Brick. Violet is the Chair of our Human Resources, Compensation and Pension Committee.

Steven Kroft is from Winnipeg and is the past Chief Executive Officer and Executive Chair of the CEL Group of Companies. Jennefer Nepinak is from Winnipeg and is the Vice President of Strategic Partnerships and Reconciliation at TIPI Group of Companies. Gregg Saretsky is from Bellevue, Washington and is the past President and Chief Executive Officer of WestJet Airlines Ltd. Paul Soubry is from Winnipeg and is the past President and Chief Executive Officer of NFI Group Inc. Victor Tootoo is from Iqaluit, Nunavut and is the President and Chief Executive Officer of Northern Allied Nunavut Travel Inc. And of course, there is our President and Chief Executive Officer, Dan McConnell; and myself, Brock Bulbuck. We are recommending that you reelect the aforementioned directors to our Board.

So with those comments, I would now like to move to the formal part of the meeting. The first item of business is the presentation of the consolidated financial statements of The North West Company Inc. for the year ended January 31, 2026, and the related auditor's report. A copy of the financial statements was made available to all shareholders with the notice of meeting. Shareholders are not asked to take any action regarding the financial statements. But if any shareholder has questions related to the financial statements, I would request that they be asked later in the meeting after Dan completes his presentation. I remind you that the poll for all items submitted to a vote at this meeting is open.

The next item of business is the election of directors of The North West Company for the ensuing year. Apart from the directors listed in the management information circular and proxy statement for this meeting, no additional individuals have been nominated for election. We will now turn to questions related to this item of business. Alexis, are there any questions related to this item of business?

No, Mr. Chair. There are no questions on this item of business.

Having received no questions, I will now entertain a motion with respect to the election of directors. Abby Klippenstein, Canadian Operations Controller and a shareholder of the company, has been asked to place before the meeting the names of those persons proposed to be nominated for direction as -- for election as directors. Pam Pronyk, International Operations Controller and a shareholder of the company, has been asked to second the motion.

I move that each of the persons whose names are listed under the heading Election of Directors in the Management Information Circular, who are Brock Bulbuck, Stewart Glendinning, Rachel Huckle, Annalisa King, Violet Konkle, Steven Kroft, Dan McConnell, Jennefer Nepinak, Gregg Saretsky, Paul Soubry and Victor Tootoo, be elected as directors of the North West Company Inc. for the ensuing year or until the successors are appointed.

Thank you, Abby.

I second the motion.

Thank you, Pam. Please cast your votes before we move on to the next item.

[Voting]

We will now proceed with the appointment of auditors and the authorization of the Board of Directors to fix their remuneration. Alexis, are there any questions related to this item of business?

There are no questions on this item of business, Mr. Chair.

Having received no questions, Abby, may I have a motion to appoint the auditors of The North West Company? And Pam, please second the motion.

I move that PricewaterhouseCoopers LLP be appointed as the auditors of The North West Company Inc. to hold office until the next Annual Meeting of Shareholders or until their successor is duly appointed and that the Board of Directors be authorized to fix their remuneration.

Thank you, Abby.

I second the motion.

Thank you, Pam. Please cast your votes before we move on to the next item.

[Voting]

We will now consider an ordinary resolution amending North West's amended and restated director deferred share unit plan, which was outlined in the 2026 Management Information Circular that was previously sent to all shareholders. Alexis, are there any questions related to this item of business?

There are no questions on this item, Mr. Chair.

Having received no questions, Abby, may I have a motion regarding the amendment of the director deferred share unit plan, please? And Pam, please second the motion.

I move that the ordinary resolution amending North West's amended and restated director deferred share unit plan as disclosed in the management information circular dated April 8, 2026, be approved.

Thank you, Abby.

I second the motion.

Thank you, Pam. Please cast your votes before we move on to the next item.

[Voting]

We will now consider a nonbinding advisory vote on the approach to executive compensation, which was outlined in the 2026 Management Information Circular that was previously sent to all shareholders. Alexis, are there any questions related to this item of business?

There are no questions on this item of business, Mr. Chair.

Having received no questions, Abby, may I have a motion regarding the compensation of North West executives, please? And Pam, please second the motion.

I move that on an advisory basis and not to diminish the roles and responsibilities of the Board that the shareholders accept the approach to executive compensation disclosed in the North West Company's 2026 Management Information Circular delivered in advance of this 2026 Annual General Meeting of Shareholders.

Thank you, Abby.

I second the motion.

Thank you, Pam. Please cast your votes. I will close the polls in 30 seconds.

[Voting]

The polls are now closed. I have now received the preliminary results of the scrutineers' tabulation of today's votes. The scrutineers confirm the following preliminary vote results. All director nominees received at least 95.96% votes for. Approximately 89.54% of votes are in favor of the appointment of PricewaterhouseCoopers LLP as auditors. Approximately 97.42% of votes are in favor of the ordinary resolution amending North West's amended and restated director deferred share unit plan as disclosed in the Management Information Circular dated April 8, 2026, and approximately 94.65% of votes in favor of the advisory resolution on executive compensation received. The final results will be available shortly after this meeting on our website and SEDAR+.

We will answer any questions registered shareholders or proxy holders may have after Dan's presentation has concluded. Please submit your questions any time during his presentation through the Lumi platform. If you are a registered shareholder or proxy holder and wish to ask a question, select the messaging tab on the left or bottom of your screen and in the Ask a Question box, type your question or your phone number and then click the send button. The rules of procedure outlined at the beginning of the meeting will continue to apply for this question-and-answer session.

I will now invite Dan to say a few words about the company's strategy and key initiatives that drive our business performance and potential.

Thank you, Brock, and good morning, everyone. It's a real privilege to be here with you today as we reflect on the past year and look ahead. This AGM represents another important milestone as we continue executing the Next 100, our strategy designed to strengthen operational excellence, expand our capabilities and create enduring value for our customers, communities and our shareholders. 2025 was a year of disciplined execution and resilient performance within a challenging operating environment. The company achieved year-over-year increases in key financial measures with sales of $2.6 billion, earnings before interest, taxes, depreciation and amortization or EBITDA of $333 million, earnings from operations of $212 million and net earnings of $146 million.

These results were delivered against the backdrop of reduced government support programs in Canada, prolonged wildfires related with evacuations and inflationary pressures and continued supply chain and transportation challenges inherent in the remote communities and regions that we serve. They speak to the strength of our core business, the resilience of our operating model and the impact of the foundational work underway through the Next 100. Affordability remains a front and center priority for our customers and for us. Prices on everyday essentials in The North continue to reflect the reality of complex supply chains, higher transportation costs and inflationary pressures.

We also recognize that the impact of reduced income supports for many families. Our responsibility is to focus on the areas we can control, such as an improved in-stock availability, expanding access to affordable private label products and managing our costs as well as continue to invest in the systems and infrastructure that help deliver better value. The Next 100 continues to guide how we do that work. In 2025, we made tangible progress across our strategic priorities. Within our Canadian store network, our teams implemented more than 1,400 new planograms, transitioned to electronic shelf labels in 65 stores and rolled out an automated replenishment system.

These tools are expected to improve on-shelf availability of essential items and reduce stock-outs, which will lower inventory shrinks and markdowns. This work also supports more efficient logistics planning, which is a critical benefit considering the scale and the complexity of our supply chain. Together, these initiatives continue to enhance the in-store experience for our customers while providing efficiencies in our store -- for our store associates. Our assortment and value, we expanded Loblaws private label products across all Canadian operations and stores, providing customers with broader access to trusted, high-quality and affordable essentials.

In our international operations, we expanded the assortment of our Oh so Good brand, strengthening both value and consistency while reflecting local customer preferences. We continue to invest in our store network, infrastructure and logistics capabilities. In Canada, we completed the first phase of the significant renovation of our flagship NorthMart store in Iqaluit. NorthMart's new fresh departments, including a bakery, deli, made-to-order pizza and fresh meat selection are improving access to the items our customers want with a convenient and easy-to-shop layout.

We also made a significant investment in our pharmacy in Iqaluit NorthMart store. We invested in expanding access essential medications and health care services for residents across Iqaluit and the Baffin Island region. Across our international markets, construction is nearing completion at our new flagship Cost.U.Less store in Guam, thoughtfully designed to reflect customer feedback and deliver an even better shopping experience. With expanded assortment, greater convenience and the value customers count on, this new store presents our continued investment on the island and a commitment to putting people first.

We expect to open our doors and welcome customers into this new space later this fall. In the Caribbean, the completion and expansion of our new store in Virgin Gorda has marked a really important milestone for supporting growing demand in the British Virgin Islands. After a 14th-month revitalization project, the new store stands as a modern, customer-focused shopping destination designed to enhance convenience, comfort and accessibility for all residents.

The sales floor has doubled in size, creating a more modern, comfortable and navigable layout, complemented by 5 additional checkout lanes, expanded parking and a new shaded picnic area. We upgraded the store's fresh food offering, including direct bi-weekly shipments that ensure higher quality produce, improved cold chain logistics and a broader assortment of chilled and frozen food. In Alaska, we opened the second Alaska Commercial store in Utqiagvik, providing a wider selection of food and household items and improved service to the community. This store provides improved food security in America's most northern community and builds upon AC's 45-year history in Utqiagvik.

AC also renovated our Nome store, including a large expansion in our produce and meat departments. The addition of self-checkouts, increased capacity for storing products shipped on the summer barge and a better store flow for customers to shop to get what they need. Our logistic capabilities remain a key strength of our business. North Star Air added aircraft capacity and opened a new 37,000 square foot hangar in Thunder Bay last summer, improving reliability, resilience and service across Northern Canada. These investments are essential to ensuring consistent access to food and essential items in some of the most remote communities that we serve.

We also continue to advance our data and technology road map. Investments in pricing, analytics, merchandising tools and supply chain systems are enabling better, faster decisions that we can make across the business. In international operations, implementation work is underway on a new warehouse management system, which will further improve product flow and efficiency as it comes online. Investing in our operations and technology is essential to ensure we remain competitive, but our people remain at the very heart of everything we do.

Last fall, we launched North West's new internal indigenous development program, welcoming 9 new recruits and employees and recognize them for their strong work and all the contributions that they've made to our company. The program is designed to deepen operational knowledge and strengthen leadership capability through tailored training and hands-on experience, ensuring participants are well prepared to step into future opportunities as they arise within North West.

Compass, our learning and development platform continues to support operational consistency, leadership, capability and career development across the organization. Adoption among employees continues to grow, reinforcing clear processes, expectations and accountability at every level. During times of crisis, our employees are at the forefront of how we support the communities we serve. This was evident in our response to natural disasters, including wildfire evacuations in Northern Canada and other severe weather events across our markets.

Throughout the network, store team stepped up in a way that is, I would say, unprecedented, but very precedented. They kept our shelves stocked under challenging conditions, supporting first respondents and emergency personnel and ensuring families and evacuees had access to food, water, infant supplies, medications, financial services and other everyday essentials when they were needed the most. Behind the scenes, our logistics and supply chain teams worked around the clock to safely move critical products into impacted communities, navigating disrupted transportation routes, rapidly changing conditions and complex operational challenges to maintain reliable access to essential goods.

At the same time, support teams partnered closely with vendors and supplier partners to coordinate product donations and emergency shipments, helping ensure evacuees and affected residents receive the items they needed most. These efforts reflected the dedication, resilience and collaboration of teams across the organization and reinforce the important role we play in helping Northern and remote communities stay supported during times of crisis.

Sustainability and responsible business practices remain essential to how we operate. Our ESG framework is focused on people, planet and partnership and continue to guide our priorities. In 2025, we expanded our indigenous supplier partnerships, advanced indigenous cultural safety training across leadership levels and continued supporting community health, nutrition and educational initiatives through our Healthy Horizons Foundation. Through HHF's partnership with BRP, we introduced the second Northy Club after-school program, La Loche, Saskatchewan. The program has been in place since the start of the new year, and it's already having a significant positive impact on the youth participants, and we look forward to launching that program more so in other communities across the north.

Throughout all this work, our core principles, customer-driven, passion, trust, enterprise, accountability and personal balance remain constant. They guide how we make decisions, how we lead and how we serve the communities that rely on us. Earlier today, we released our Q1 results. Our international operations led the way with a 4.3% same-store sales gain, which more than offset the impact of closing our Chalan Pago Cost.U.Less store in Guam in advance of the opening of our new flagship store in Agana that I highlighted earlier.

In our Canadian operations, our first quarter results were negatively impacted by the elimination of the Inuit Child First initiative food voucher program in Canada last year, which was a key factor that contributed to a 0.9% decrease in same-store sales. On a positive note, earnings in the quarter were impacted by gross profit rate improvements driven by our Next 100 work and lower expenses from a gain on the sale of our Chalan Pago Guam store, which contributed to a 7.5% increase in EBIT and a 5.4% increase in net earnings. More information on our first quarter results is provided in our report to shareholders, which is available on our website.

Looking ahead, our priorities continue to focus on executing the Next 100 by strengthening our operational resilience, investing in our people, stores and systems and delivering sustainable long-term value for our customers and shareholders. While the environment remains uncertain in the near term, we are confident in the fundamentals of our business and the strength of our strategy. To our shareholders, thank you for your continued trust and confidence. To our customers and community partners, thank you for allowing us to serve your communities. And to all Nor/Westers, thank you for the dedication and care you bring to your work every day. The work ahead is important and challenging, but it also is filled with opportunity. Together, we are building a stronger North West company. Thank you.

Thank you, Dan. We will now watch a video highlighting the past year.

[Presentation]

We will now take questions and comments from our shareholders. Alexis, have we received any questions?

There are no questions, Mr. Chair.

There being no questions, I now declare the question and comment session closed. On behalf of management and the Board of Directors, I would like to thank you all for attending today.

Please be advised that this conference call is being recorded. Welcome to the North West Company Inc. First Quarter Results Conference Call.

I would now like to turn the meeting over to Mr. Dan McConnell, President and Chief Executive Officer. Mr. McConnell, please go ahead.

Good morning, everyone, and thank you for that, operator. We are experiencing a bit of -- some headwinds, you could argue today in head office given the major storms that were in the area last night. I'm not sure if you guys kept up with it, but there were numerous tornadoes and pretty significant winds and rainfall. And as a result, our head office is out of power, so we're -- on the day of the AGM and the conference call. But nonetheless, the resilient crew is definitely all kicking into action. And we're in the dark right now. But with technology, we don't expect any further glitches.

So with that, I would like to welcome you for the first quarter conference call. And joining me today of course are John King our Chief Financial Officer and Alexis Cloutier, our VP of Legal and Corporate Secretary. And Alexis is going to start with our disclosure statement.

Thank you Dan. Before we begin today, I remind you that certain information presented may constitute forward-looking statements. Such statements reflect North West's current expectations, estimates, projections and assumptions. These forward-looking statements are not guarantees of future performance and are subject to certain risks, which could cause actual performance and financial results in the future to vary materially from those contemplated in the forward-looking statements. Any forward-looking statements are current only as of the date they are made, and the company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results or otherwise, other than what's required by law. For additional information on these risks, please see North West's annual information form and its MD&A under the heading Risk Factors.

Okay. Thank you, Alexis. I will start with an overview of our results for the quarter, and then I'm going to wrap things up with some comments on our outlook in the Next 100 program before I then open it up for some questions.

Overall, I would say our results for this quarter definitely reflect the resilience of our business and our ability to adapt and deliver performance within a challenging and shifting economic environment. Consolidated sales decreased 1.5% in the quarter as solid same-store sales gains in our international operations were more than offset by the impact of foreign exchange and lower sales in our Canadian operations from reduced money in market. Our Next 100 work continues to drive gross profit rate improvement through refinements in merchandising assortments, including expanding our private label offering that are delivering value to customers within a rising fuel cost environment. Expenses decreased 1% due to a $3.8 million asset disposition gain and lower share-based compensation expenses, partially offset by higher staff costs and other inflation-related increases in the expenses. The combined effect of these factors resulted in a 5.4% increase in net earnings in the quarter.

Let me expand on key factors that impacted our performance in the quarter beginning with the sales. We are pleased with the sales performance in our international operations, which delivered a 4.3% increase in same-store sales on top of a 2.8% increase in the first quarter last year. General merchandise same-store sales led the way with an 8.7% increase on top of a 5.2% increase last year. These sales gains were supported by a solid tourism season in the Caribbean and market share gains in Alaska, including the opening of a second store in Utqiagvik at the end of October last year. These sales gains were partially offset by the sale of our CUL Chalan Pago store earlier in the quarter, ahead of the expected opening of a new CUL store in Agana, Guam, scheduled for the third quarter of this year.

In our Canadian operations, sales decreased 2.2% with same-store sales down 0.9% compared to a solid 4% increase in Q1 last year. A couple of factors that explain this. First, we discussed in previous quarters there was less money in market this quarter as we lapped the elimination of the Inuit Child First Initiative food voucher program, reduced funding for Jordan's principal programs and lower water settlement payments compared to last year.

General merchandise same-store sales decreased 7.5% as consumers shifted more of their spending on food and reduced discretionary spending amid lower money in market. These factors were partially offset by increased consumer demand from child and care settlement payments which were noncomp to Q1 last year.

That said, the pace of child and care settlement payments distribution has been slower than we anticipated. I'll provide some further comments on settlement payments when I discuss the outlook. But first, I will briefly comment on consolidated gross profit and expenses. Gross profit increased 0.6% for the quarter due to a 72% basis point increase in rate. The increase in gross profit rate reflects the positive impact from our Next 100 initiatives, including merchandise assortment assignments refinements, procurement improvements and the expansion of private label products. These changes are providing value to customers, particularly within this increasing fuel and inflationary cost environment.

Changes in sales mix, including lower wholesale food costs were also a factor. These gains were partially offset by higher markdowns and inventory shrink compared to last year due to challenging weather conditions in Northern markets, which contributed to transportation delays.

Expenses decreased 1% in the quarter due to a $3.8 million gain on the sale of our Cost.U.Less Chalan Pago store and lower share-based compensation costs compared to last year. These factors were partially offset by inflationary cost increases and other factors such as high utility costs due to the unseasonably cold weather in our Canadian operations. The net impact of all these factors resulted in a 5.4% increase in net earnings for the quarter.

With that brief overview of the key drivers of our financial performance in the quarter, I'm now going to transition to talk to you a little bit about our outlook and provide a few comments on the Next 100 program. We continue to expect our Canadian operations to be impacted by an increased consumer demand arising from the First Nations Child in Care benefit settlement payments. But as I mentioned earlier, the ramp-up in the distribution of these settlement payments has been slower than anticipated.

The claims administrator reported that approximately 110,000 claims have been submitted in the Removed Child Class. Based on the payment distribution activity observed to date, individuals in 50 of the 63 impacted communities that we serve have received funds. However, the number of payments distributed is very low. Based on the activity that we have observed, the sales capture and customer spending patterns are broadly consistent with our expectations. Overall, we expect the distribution of the Child in Care Settlement payments to continue to 2026 and extend for a number of years based on the requirements for individuals in the Removed Child Class to reach the majority age before payments are issued, combined with the anticipated opening of the application process and distribution of settlement payments for the other 8 classes. However, the timing of these settlement payments is uncertain.

In addition to the Child in Care Settlement payments, we also noted in our report to shareholders that the approval of the agreement on the long-term reform of First Nations Child and Family Services between the government of Canada,, First Nation Chiefs in Ontario, and Nishnawbe Aski Nation will benefit indigenous peoples and communities that the company serves. These benefits will continue -- come directly through programs and indirectly through investments in the infrastructure and local employment. However, the timing of these benefits is again uncertain.

We also continue to monitor macroeconomic conditions, particularly the impacts of higher oil prices and fuel costs, which will result in higher freight costs to deliver merchandise to the stores and increases in fuel-related utility costs. Later in the quarter, we started to experience fuel surcharges from freight carriers. Due to a longer, more complicated logistic network, the impacts of these fuel increases are more significant when operating in remote northern communities when compared to urban retail. Higher oil prices are also expected to have a downstream impact on inflation and the cost of products from suppliers. The pressures from high oil prices and fuel-related costs are expected to continue in the near term, although the duration and magnitude remain uncertain.

Regarding the Next 100 program, we remain focused on execution and finding cost efficiencies. This includes the ongoing refinement of our merchandise assortments and procurement strategy with a focus on the expansion of our private label offering. Additionally, the continued implementation of store-based inventory forecasting, replenishment technology and implementation of a new warehouse management system are expected to improve on-shelf availability, streamline ordering processes for store and warehouse teams, and reduce shrink and markdowns. The Next 100 program is expected to continue to help mitigate some of the external headwinds affecting the business while building capabilities that deliver value to our customers and support a sustainable financial performance for our shareholders.

With that, I'm going to open up the call for any questions.

[Operator Instructions] And our first question comes from Ty Collin of CIBC.

Hope you guys get your power up and running soon over there. Maybe just to start off, wondering if you could provide a little more detail on the increase in labor costs that you called out in the quarter. Obviously labor utilization has been an area of focus for you guys with your Next 100 initiatives. So just want to get a bit of an understanding of what was driving that labor inflation in the quarter and to what extent you think you can offset that as we move through the year.

Yes we -- good question, Ty. The good news is we do intend to offset it. There was definitely the colder weather. Not only was it colder in Northern Canada and with the records amounts of snow, but it was also a record breaker in Alaska as far as the amount of effort that takes just to be able to operate the business in some of the extreme weather conditions. But there's also some thumb pointing with some of the inflation and just the algorithms that we use and the new tools that we have, we've had some significant savings in our labor efficiency and productivity. And so the gaps that we had and some of the downfalls was our fault, but there was definitely some weather elements that were contributing to it as well. But the point that you should take away from it is that we expect to get it back in line for the remainder of the year.

Okay. Great. That's helpful. And then just touching on fuel prices, which you alluded to. Can you maybe just help us understand the magnitude of the fuel surcharges that you guys have seen so far? And then kind of just help us frame the impact so far to your cost structure and margins. And then I'm also wondering if you've started to pass along any price in response to that as of today.

Yes, we have started to pass on the -- pass through some of the cost inflation for sure. I would say that obviously coming into the summer season, there won't be as severe impact given the -- from the heating perspective. Obviously, most of our communities are heated through heating oil and diesel-generated power. So that is definitely not going to be as heavy as it would have been in some of the winter months. But it's definitely something that we're going to pass through. And it's a TBD as to how long this thing is going to go on for, but that is the plan. It's going to have to get passed through strategically on to the customers, unfortunately.

So we're hoping with some of the support that's been given, I know, onto urban Canada, it obviously is extended into some of the northern communities, but we hope that there'll be some consideration for the significant ripple effect or impact in some of the northern households given the fuel surcharge, as I indicated, has a considerable compounding factor because it doesn't only hit you on the distribution, but it hits you on the everyday living through heating utilities and just the mode of which product gets there, the fuel, jet fuel and the like. So it has a lot more impact on northern customers than it would on the urban. So we hope the government recognizes that and steps up as they have for urban Canada.

Okay. So just following up on those comments. What are you sort of seeing in terms of consumer behavior across your markets, I guess, throughout Q1 and so far into Q2? And have you seen any change in response to those kind of higher fuel and oil and heating costs?

Yes, we have. And we've seen the shift in consumer spend away from general merchandise in Canada and over to food, where in the international markets, that's not the case. So there seems to be more spending capacity in the international markets for the reason that I mentioned. New stores, market share gains, and also typically the higher fuel, as I've talked about, higher fuel costs are typically favorable to Alaska per se, not as much in the Caribbean. But we are seeing some sales tailwinds in the international division. But in the Canadian division, especially overlapping the tough quarter last year, there were some headwinds there. But we anticipate now rounding the bend and lapping the strong quarter we had last year and the Inuit Child First Initiative, we expect for our sales to start to -- on somewhat of a different trajectory for the next number of quarters.

However, in saying that, some of our plans were also, we anticipated that we would have more benefit payments in market. And as I indicated earlier, it has been slower than we anticipated. Even the number of markets -- we haven't hit all of our markets with checks as of yet, and the markets that did receive checks, on the most part, it's been very few of them. So very few of the individuals within the markets to get those checks, like very few.

So we're optimistic. We think that there's some tailwinds. And when they're going to hit, obviously -- we always think we're conservative in these estimates, but we thought that there would have been a lot more money in market at this point. But nonetheless, it is what it is. But the good news is we're set up for it. And as I also mentioned, as far as sales drivers, some of the work with the Next 100 and with the Ontario settlement First Nation Chiefs of Ontario -- sorry, and the government of Canada settlement, we expect that there's going to be more activity in the Ontario markets in the near future.

We don't know when. Obviously, we're keeping a close ear to understand what that infrastructure spend is going to be. But we know that when the -- prior to the stop, if you recall, there was some reasonable momentum in markets with spending and improving infrastructure. And so we expect that, that will continue now that there's a green light for them to commence in Ontario. And then we hope not too long after that, the rest of the regions will also get on track and follow suit.

So short term, yes, definitely, we would have liked to see more sales momentum in the Canadian markets. We have got some good sales momentum in the Alaska markets. We realized that there was a few challenges with some of the expense controls. We're comfortable that we're going to get that under control for the next number of quarters, especially for the rest of the year. And we're expecting that we're going to have stronger sales comps in Canada over the next -- for the rest of the year as well. Does that...

And our next question comes from Stephen MacLeod of BMO Capital Markets.

Similarly, hope you get your power back soon and hopefully not too much damage for you guys. I just wanted to follow up on a couple of things. Just with respect to the settlement payments, I mean, obviously you gave a lot of color around sort of how that it was the payments or timing of payments were less than expected in the quarter. Did you see any change as you worked through the quarter? Did it accelerate or decelerate or pretty stable?

May was really slow, and I think there was some acceleration after May. But what we're summarizing, we think that they're processing these checks once a month is what -- you try to triangulate as much information just like you guys do to see when we can expect more money. And we haven't really figured out the algorithm yet, but we think that they process them once a month. And as I said there's been 110,000 in it submitted. And we think -- yes, we don't know when they're going to come, but we think that's probably how they're processing them. And no, we haven't seen a ramp-up. We did see definitely a drop in May and then a pickup after that. But yes, that's really -- yes, so May had been the down spot, but why that is? Steve, I have no idea.

Yes, yes. Understood. Okay, okay. Great. And then just on the approved agreement between the -- in Ontario, can you give a sense about how many communities of yours that might impact?

Well, we're going to get back to you on that. We did -- I just wanted to make sure I'm accurate on it just because I know last time I mentioned the number of communities impacted with the benefit, I was off by a few. So let me make sure that I'm on it. I'll respond to you. I'll get that number to you.

Yes. That's great. And then maybe just finally, you talked a little bit about the outlook in both the Canadian business and international to a degree as well. Is your view that the positive trends we've seen in international will continue through the balance of the year? Is there anything on the horizon that makes you think that, that may -- that trajectory might change? And then I guess along those lines, the new store that you're opening in Guam and the one you closed, is there any material top line impact that we should be thinking about for the model?

Well, we've closed a smaller, we called it an express store, and we're opening up, and then we're going to be closing another. So it's a consolidation of 2 into 1. We're going to be opening up a 55,000 square foot store. So the anticipation in the fourth quarter, we expect to have a nice sales jump at that point. Yes, I mean, I guess that's probably what I would take it away. Yes, we expect to see a sales increase in the fourth quarter as a result of the opening of this operation.

Okay. And then just in terms of the underlying momentum you're seeing in international, all those trends continue to remain intact with respect to tourism and some of the other positive demand drivers?

Yes, I don't anticipate them not staying into the spot. For everything we know today, as much as the world changes pretty quick, but for what we know today, I would expect that it would continue on for the remainder of the year.

[Operator Instructions] And our next question comes from Cheryl Zhang of TD Cowen.

This is Cheryl from TD Cowen. I hope you get your power back soon. So just to follow up on previous questions, one on the settlement payment. I'm curious if you could help us maybe quantify the impact on sales in Q1, understand that it might not be a lot. And wonder if you have any insights as to why the payments have been ramping up slower than everyone has anticipated.

I'll answer your second question. So with this idea -- you know what, I really don't know. Like we've been down this road obviously a lot of time and some of the programs are come quite reasonable in time as far as expected and some are considerably delayed. This is falling into the latter. We would have thought -- we realistically thought this was going to come fourth quarter last year. I thought that might have been conservative. I think we indicated to the market maybe a little later, but I really don't know.

I mean, I know that this, as I indicated, 110,000 submissions. I don't think they're as complex as the drinking water settlement applications because there was a pretty significant drag on those as well. But I can't comment really as to why this is extended longer than what we originally anticipated. But I know it's not a matter of if -- the good news is it's not a matter of if it's coming. It's just a matter of when. And I don't anticipate -- too long, but it just hasn't -- we haven't seen the traction or the -- we haven't seen the amounts come in that we would like, obviously.

Okay. Understood. And on the fuel cost, I'm wondering if you're seeing any impact on your international markets in terms of the operating costs and maybe in the Caribbean market as well.

Yes, yes, we definitely have. We have said the same token we've been able to pass those on. But some of the sales gains, just to let you know, our volumes are up like our market shares are up. And so it's not all inflation, but we have been able to pass on the escalated cost to some of the -- to the customers in the international market. So yes, costs have been up, and we've been able to pass them on so far.

Okay, that's great to hear. And just one more before I re-queue. Is there any noticeable change in the consumer behavior because of the higher fuel costs in terms of more people shopping in community versus going out?

Well, the switchover in Canada, particularly, it's moved away from general merchandise purchases and into food. So that would be -- yes, there was an extended winter road season this year in Canada. So that typically has people out of market longer than usual. So that would have had an impact looking backwards. But looking forwards, no, we don't see -- I mean, our value offer is competitive, so we don't see money shifting from in-market purchases to out-of-market purchases, if I understood your question correctly.

I'm showing no further questions at this time. I'd like to turn it back to Daniel McConnell for closing remarks.

Okay. Well, thank you operator, and I appreciate the questions, and we'll look forward to speaking to you over in September.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Please be advised that this conference call is being recorded. Welcome to The North West Company Inc. Fourth Quarter Results Conference Call.

I would now like to turn the meeting over to Mr. Daniel McConnell, President and Chief Executive Officer. Mr. McConnell, please go ahead.

Thank you, operator. Good afternoon, and welcome to The North West Company's Fourth Quarter Conference Call. Joining me here today are John King, our Chief Financial Officer; and Alexis Cloutier, our VP of Legal and Corporate Secretary. Alexis will please read the disclosure.

Thank you, Dan. Before we begin today, I remind you that certain information presented may constitute forward-looking statements. Such statements reflect North West's current expectations, estimates, projections and assumptions. These forward-looking statements are not guarantees of future performance and are subject to certain risks, which could cause actual performance and financial results in the future to vary materially from those contemplated in the forward-looking statements. Any forward-looking statements are current only as of the date they are made, and the company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results or otherwise, other than what's required by law.

For additional information on these risks, please see North West's annual information form and its MD&A under the heading Risk Factors.

All right. Thank you, Alexis. I will start with an overview of our results for the quarter and then comment on our outlook and the Next 100 program before opening the call for some questions.

Overall, the quarter was challenging, particularly when compared to the strong results we delivered in Q4 last year. Headwinds in our Canadian Operations negatively affected our overall results, which were particularly offset by a solid performance in our International Operations.

Consolidated sales for the quarter were up slightly year-over-year, following a 4.9% increase in Q4 of 2024. Sales and earnings in Canada were negatively impacted by reduced money in market, including the elimination of the Inuit Child First Initiative food voucher program and lower Water Settlement payments, which contributed to a very strong result in Q4 of last year.

In contrast, International Operations delivered strong results with sales up 5.4% and EBIT up 9%, supported by a solid tourist season in the Caribbean and market share gains in certain stores through Alaska. The net impact of these factors resulted in a 7.7% decrease in net earnings this year compared to an exceptionally strong 18.9% increase in net earnings in Q4 of last year.

All right. Let's unpack this starting with some sales. Consolidated same-store sales increased by 0.5% this quarter compared to 5.4% increase last year. This is primarily reflecting headwinds in Canadian Operations and the challenge of matching strong sales comps from Q4 of last year. Canadian same-store sales were down 2.8% compared to a strong 6.7% increase in Q4 of last year. And this is all due to the lower money in market with the elimination of the Inuit Child First Initiative food voucher program and the reduced funding for Jordan's Principle programs compared to last year.

The expected decrease in Drinking Water Settlement payments compared to the fourth quarter of last year was also a factor, but to a lesser degree. Both food and general merchandise same-store sales were down compared to very strong sales in the fourth quarter of last year. And again, that's due to the lower money -- the less money in market, and also a shift in consumer spending from general merchandise over to food. These factors were partially offset again by increased consumer demand for First Nations Child in Care Settlement payments.

Turning now to International Operations. International sales increased 5.4% for the quarter, with same-store sales increased 5.2% in food and 9.5% in general merchandise, which is on top of a solid same-store sales gains in the fourth quarter of last year. The tourist season in the Caribbean was positive compared to last year, and we were pleased with the overall results in the region. In Alaska, we opened a new store in Utqiagvik at the end of October, which contributed to market share gains. These factors more than offset continuing softer economic conditions in some South Pacific markets.

With those key drivers of sales in the quarter, I'll briefly comment on consolidated gross profit and our expenses. Gross profit decreased 2% for the quarter and the gross profit rate decreased 74 basis points. These results are comparing against a solid Q4 last year, gross profit increased 9.4% and was up 141 basis points as a rate to sales. The decrease in gross profit rate in the quarter is primarily due to changes in sales mix, including changes in aircraft utilization and higher aircraft maintenance costs over North Star Air.

Additionally, an increase in markdowns and shrink in both Canadian and International Operations were also factors. The increased shrink was particularly due to weather and other delays which impacted timely delivery of merchandise to stores in Canada and Alaska and the impact of lower sales in certain stores in the South Pacific resulted in higher shrink and markdowns.

On the upside, we continue to see the positive impact of our Next 100 work, including refinements of our merchandise assortments and our procurement. Expenses decreased 1.1% for the quarter and were down 30 basis points as a rate to sales, largely due to lower annual incentive costs, particularly offset by higher depreciation and share-based compensation costs.

In the quarter, we also incurred $1.3 million of onetime expenses related to executing the Next 100 program compared to $1 million in the prior year. These onetime expenses were more than offset by the benefits from our Next 100 initiatives, including store labor productivity gains, which are driving lower store staff costs as a percentage of sales other cost savings initiatives and the positive impacts on gross profit I just mentioned.

Excluding the share-based compensation cost and onetime costs, the net impact of all these factors resulted in a 1.3% increase in adjusted EBITDA in the quarter.

In summary, the good results in our International Operations this quarter were more than offset by the sales headwinds in Canada, which resulted in a decrease in net earnings compared to very strong net earnings gain in Q4 of last year.

All right. Now I'll briefly talk about our outlook and provide a few comments on the Next 100 program.

First, I want to comment on the money in market outlook for 2026. The elimination of the ICFI food voucher program and a reduction in Jordan's funding -- in funding sorry, for the Jordan's Principle programs are expected to continue to impact Canadian sales in Q1. We expect these impacts in the first quarter to be partially offset from an increase in consumer demand from First Nations Child in Care Settlement payments, which have started to increase modestly compared to the fourth quarter. Although it is still early, based on the settlement payments that have been issued in the communities we serve, our sales capture rate is meeting our expectations.

Additionally, we expect the distribution of Child in Care Settlement payments to ramp up in 2026 and extend for a number of years based on the requirement for individuals in the removed child class to reach the majority age before payments are issued, combined with the anticipated opening of the application process and distribution of settlement payments for the other 8 classes.

We also continue to monitor macroeconomic conditions, including the ongoing war in Iran and the impacts of higher oil prices, which will affect fuel-related freight and utility costs and have downstream implications on inflation. We are starting to see some fuel surcharges impact freight costs, and we anticipate these pressures will continue in the near term. However, the duration of the magnitude of these fuel cost pressures still remains uncertain. But I do want to stress that keeping in mind that the impacts of these fuel increases is a compound factor in the north as it compared to in Southern retail.

But as part -- regarding the Next 100 program, we remain focused on execution and driving cost efficiencies. The refinement of our merchandise assortments and procurement strategies with a focus on expanding our private label offering is ongoing. Throughout 2025, we ramped up the rollout of new assortments and expanded private label offerings in both our Canadian and International Operations. Private label penetration trends remain positive and have sustained as the rollout has progressed. Additionally, the implementation of store-based inventory forecasting and replenishment technology and a new warehouse management system is also underway.

These initiatives are expected to improve on-shelf availability, streamline ordering processes for store warehouse teams and reduce inventory shrink and markdowns. The Next 100 operational excellence focus has helped mitigate some of the external headwinds that impacted our 2025 results, and the foundation we are building is expected to continue to deliver value to our customers, shareholders and our employees moving forward.

With that, I will now open the call for any questions.

[Operator Instructions] And our first question will be coming from the line of Ty Collin of CIBC.

Maybe just for starters, wondering if you could just provide maybe a little bit more color on how you're seeing the settlement payments playing out in your markets? What sort of impact that's had in Q1 so far? And how are you seeing your customers who've received those payments shop within your stores?

Sure, Ty. Yes, definitely. So we identified that -- we saw a slight increase in Q4. And I say slight, it was modest. And I'd say we're on that same trajectory onward into Q1. So the good news is, from our look, it's still a trickle. It's not coming in at the rate that we anticipate it to come in later on in the year.

From the perspective of our capture, we are capturing the sales that we anticipated, as far as our capture rate, we put a lot of planning into this to make sure that we're ready in stock at the time when the money hits. And the money that we know that is coming to market, it's hit our expectations as far as our sales capture rate on those particular stores.

But again, I would even take it a step further, Ty, and say, probably only half the stores that we anticipate have even seen a check. So that's a little bit more insight for you. So out of the -- probably, what is it, 63 stores that we anticipate, only half of those have received checks at this point. And it's not been a lot of checks. So does that -- that probably provides you -- I think that should provide you some more context.

Yes. Yes. That's really helpful color. I appreciate that, Dan. And I guess on a related note, I noticed that your inventory levels look basically flat on a year-over-year basis, closing out Q4. I know previously, you've talked about building some inventory ahead of some of this money coming into your markets. Certainly sounds like you're anticipating that to ramp up throughout the year. So just wondering if you could comment on your inventory position at year-end and what your expectations are as we move through 2026?

No, you wrote the script. That's right. We're ready for business, and we have the inventory that we feel is the right inventory to capture the amount of sales when the money hits. So it's same program. And yes, we're comfortable with both the level of inventory that we're carrying right now and the relationships and the, call it, the network that we've got engaged when we need to call on them. So yes, we're in a good position.

Okay. Great. And if I could just sneak one more in. You mentioned some of the impacts of the Iran war and that you're starting to see some higher freight costs. I'm wondering if you could just discuss any sort of ways that you might be able to mitigate those costs, what you expect the impact might be if this continues? And maybe you could touch on whether you're seeing any impacts to consumer demand as well at this point?

It's pretty early. We actually -- we held our -- we didn't pass on that before Easter, in fairness, to our customers. So we haven't seen the reduction in demand at the store levels as of yet. As you appreciate, yes, our carriers have come forward with some freight increases. We're obviously going to take a balanced approach as we have in the past, but we do have to pass on those costs. It's just a matter of trying to be as strategic as possible to make sure that we optimize value for both our customers and our shareholders. But there's no avoiding it. These are costs that are going to have to be passed on to our customers.

And yes, so that's unfortunate, but that's -- and obviously, we're not going to do it in full, but we're going to do it strategically and in order to optimize the situation on both sides.

And our next question will be coming from the line of Michael Van Aelst of TD Securities.

It's Evan in for Mike. So I guess just to start off, getting back to the settlement payments. So for the markets that you've seen, the checks come in, how are you seeing those being spent? Are people spending on big ticket items? Or are they trading up in food? Or any color you can give around that?

Yes, definitely. I mean there's -- they're getting both, they're sizable checks. So you can appreciate that we're definitely seeing the uptick in motorized and some of the big ticket items, but there also is some trickle over into the food for sure.

Okay. Great. And then secondly, with respect to your Next 100 initiatives, where are you relative to getting all the benefits? Like are you halfway? And how has that changed versus last quarter?

Yes, I'd say we're continuing to progress. I think about the number, I'd say we're 50% to 60% of our weight into it and through it, but there's some -- I mean, it's not exactly linear because we do have some of the more difficult tasks, our supply chain optimization, which we're undergoing right now. We've worked through, and we've been doing a lot of testing on our forecast and replenishment this past year. And it's not fully mature in the fact that we definitely had some headwinds and some -- whenever you start off on a project like this, you jump in and you learn a lot as you go. So there's been some tweaking, but we're really optimistic and positive about what this is going to deliver for us in the future.

But I would say, to answer your question, we're about 50% or 60% of the way through the initiative. But then ongoing, I mean, we're just starting a warehouse management system implementation, and we're going over into Alaska to work -- to try and replicate our forecast replenishment that we've created here in Canada to optimize some of that work for our Alaska division.

Okay. And then just finally on the airline. So you noted changes in aircraft utilization and higher maintenance costs. Could you elaborate a little bit on those?

Not much. I mean it was a tougher quarter for North Star Air, as I mentioned, and it did have a negative impact on our margins. We see a lot of it is -- yes, there was maintenance overall in the year was -- actually, it was fine. But for the quarter, I guess we thought we were outsmarting the maintenance vary, but they caught us in the fourth quarter. And we had higher maintenance than we were -- the trajectory throughout the year.

And also, there were some aircraft utilization. There was some bad weather, severe weather actually, some of the markets saw more snow than they had in the accumulation of the 3 years prior. So it was one of those things that was -- yes, it was a tough one for -- a tough quarter for North Star Air. And the reasons for it were those reasons that I mentioned.

And our next question will be coming from the line of Stephen MacLeod of BMO Capital Markets.

I just wanted to follow up on a couple of things. So one, just with respect to the 63 stores that you called out having exposure to the spending coming through in 2026. I seem to recall it was 50 when we spoke last or maybe it was more of a ballpark number. But I'm just curious, have you been able to get more insight into where these payments are going? Is that how you've been able to refine the store count? Just trying to get a sense of how that's evolved.

50 might have been a ballpark. I think 63 is more precision for you. So yes. And do we have more? No, we don't have any more indication as to where they're going. We know, again, where we've received them and where we're anticipating that they will be. But I'd say a pretty good degree of certainty.

Yes. Okay. No, that's great. And then just on the Next 100 initiatives, just to follow up. If you're 50% to 60% of it -- 50% to 60% through it now, do you still expect to be sort of 75% by the end of 2026 and then full run rate 2027? Or has that trajectory changed at all?

Yes. No, I'd say 2027 for sure. As far as the 75% at the end of '26, I mean, it's a logical progression, but I have to check back on that. If I was going to give you any kind of direction there. I'd say '27, fully mature, yes. But for the duration of '26, I can't verify that at this point, but it's going to be 75%.

Yes. No. That's fair. That's fair. And then maybe just finally, on the International business, obviously, very strong same-store sales growth in the quarter. You cited the Caribbean tourism markets as well as some gains in Alaska from the new store. Have you seen any slowdown in activity in some of the tourism-dependent markets in maybe more recent periods just with the geopolitical issues that we've seen in Iran and more broadly with the consumer.

Since Iran -- I mean, Iran is -- fairly soon, people already book their travel. No, I'd say it's been pretty strong. Like I mean, with the shutdown of Cuba, with some of the redirecting of Europeans and Canadians going into the Caribbean as opposed to maybe to the U.S. It's -- the tourism in the Caribbean has been relatively stable.

Keep that in mind too, on that international front. I'd like to add that with the high price of oil, that's other than other places and territories within the world, Alaska, that is a benefit. And so it's something that -- yes, that is something just to keep in mind, I guess.

And our next question will be coming from the line of Ryland Conrad of RBC Capital Markets.

I guess just to start off on the higher oil prices, I guess, when you've had to pass on the higher fuel or jet fuel prices in the past, do you typically see a reduction in out shopping from your northern markets?

That's the question?

Yes.

If it's a statement, it would probably be accurate because like depending on the winter roads, but yes, jet fuel, I mean, the cost of departing and leaving the communities is going to go up. So I would say, aside from the prolonged winter road, which is what we're experiencing right now, yes, I would say that's an accurate comment.

Okay. Perfect. And then just on the Child and Family Services reform that was approved, I think, last week by the Human Rights Tribunal the Ontario carve-out. I'm curious if you have any sense of maybe how much program spending is expected to increase under that new agreement or at the very least, if it's expected to be a tailwind in your stores in that province after Q1?

We definitely anticipate it's going to be a tailwind for us, but the only unknown is when. You know how like some of this, let's say, just government bureaucracy operates, we're anxiously waiting, and I can tell you we're on guard as far as monitoring when we think we're -- when we -- what those infrastructure projects are going to be and where that money will go. And we'll obviously do our best to make sure that we can service appropriately in those areas. But as of right now, given the short time ago that it was actually released, we don't have any other insights for you at this time, but definitely be monitoring it.

Okay. Got it. And then just last for me. On the SNAP benefits in Alaska, I guess from my understanding, there was a bit of a grace period after the new eligibility rules went into effect, if they didn't meet the work requirements. So I'm curious if you could just give maybe an update on what you're seeing in Alaska so far in Q1, and just whether there's been any kind of noticeable impact to same-store sales there as maybe some of these benefits roll off?

No. I would say at this point, there's been no noticeable impact in Q1.

Thank you. That does conclude our Q&A session. I would now like to turn the call back over to Dan for closing remarks. Please go ahead.

Thank you, operator, and no further remarks from us other than thanks for those who attended, and we look forward to speaking with you in June for our Q1 and AGM.

This does conclude today's program. Thank you all for joining, and you may now disconnect.

Good day, and thank you for standing by. Please be advised that this conference call is being recorded. Welcome to The North West Company Inc. Third Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Dan McConnell, President and Chief Executive Officer. Mr. McConnell, please go ahead. .

Hello. Good morning, and welcome to The North West Company Third Quarter Conference Call. So joining me here today is John King, our Chief Financial Officer; and Alexis Cloutier, our VP, Legal and Corporate Secretary. Alexis will begin with our disclosure statement. .

Thank you, Dan. Before we begin today, I remind you that certain information presented may constitute forward-looking statements. Such statements reflect North West's current expectations, estimates, projections and assumptions. .

These forward-looking statements are not guarantees of future performance and are subject to certain risks, which could cause actual performance and financial results in the future to vary materially from those contemplated in the forward-looking statements. Any forward-looking statements are current only as of the date they're made, and the company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results or otherwise other than what's required by law. For additional information on these risks, please see North West's annual information form and its MD&A under the heading Risk Factors. .

Okay. Thanks, Alexis. I'm going to start with an overview of our results for the quarter and then move on to comment on our outlook and the Next 100 program, and then I'll be opening up for questions.

All right. Let me begin by summarizing the story of this quarter. Overall, we delivered solid net earnings gains with a very challenging quarter from a top line perspective. Sales in the quarter decreased 0.5% compared to last year. That's primarily due to less money in market resulting from reduced Child and Family services funding in Canada and a lower permanent fund dividend in Alaska.

Despite these headwinds, we delivered a 12.9% increase in net earnings compared to last year, driven by improved gross profit rates from our Next 100 work and lower expenses. All right. Let's unpack that starting with sales. Consolidated same-store sales decreased by 1.7% this quarter compared to a 4% increase last year, and that's primarily due to the headwinds in our Canadian operations and the challenge of matching strong sales comps from Q3 last year.

Canadian operations sales decreased 2%, with same-store sales down 2.8% compared to a strong 4.9% increase in Q3 of last year. The lower sales in Canada was primarily due to a decrease in money and market from the elimination of funding for the Inuit Child First food voucher program and a reduction in funding for Jordan's Principle programs compared to last year.

Decrease in drinking water settlement payments and climate action incentive payments compared to the third quarter last year were also factors, but to a lesser degree. The decrease in money and market combined with consumers shifting their spending from general merchandise to food were the primary reasons for the 3.1% decrease in general merchandise and other sales in Canadian operations.

As higher airline revenue from third-party cargo and passenger business and an increase in pharmacy sales were more than offset by an 11.1% decrease in same-store general merchandise sales. On a positive note, all of our stores in the communities impacted by wildfire evacuations have resumed operations and had a modest decrease in sales for the quarter.

I'm going to switch gears now and just briefly comment on the international sales. Sales in our international operations were flat for the quarter as an increase in same-store food sales of 1% offset a decrease of 9.9% in same-store general merchandise sales.

In Alaska, a lower permanent fund dividend of $1,000 compared to $1,700 last year, combined with consumers shifting more of their spending to food were the key factors contributing to the decrease in general merchandise sales. Softer economic conditions in the South Pacific markets were also a factor.

Okay. With a deeper dive on sales, I'll briefly comment on consolidated gross profit and expenses. Gross profit increased 1.4% for the quarter with the gross profit rate up 64 basis points compared to the third quarter last year. This improvement reflects the positive impact from our Next 100 work particularly the ongoing refinement of our merchandise assortment and expanded private label offering in both our Canadian and international operations. A change in sales blend, including lower wholesale sales and a decrease in general merchandise seasonal markdowns in our international operations compared to last year were also factors.

Expenses decreased by 1% for the quarter and were down 13 basis points as a rate to sales largely due to reduced share-based compensation costs primarily related to the changes in the company's share price and a decrease in vessel repairs in Transport Nanuk.

We also incurred $1.3 million in onetime costs related to the execution of our Next 100 program, which were more than offset by the benefits from our Next 100 initiatives. We continue to see store labor productivity gains, which are resulting in lower store staff costs as a percentage of sales in addition to other cost savings initiatives such as reduced print media.

The net impact of all these factors, combined with a decrease in interest expense and a lower effective tax rate resulted in a 12.9% increase in net earnings for the quarter.

All right. Now let me talk briefly about our outlook and provide a few comments on the Next 100 program. Since we provided commentary on the key factors, we expect to impact our outlook in the report to shareholders, I will just comment on the expected near-term impact of money and market in Canada.

The elimination of ICFI food voucher funding and a reduction in Jordan's Principle program funding are expected to continue to impact sales in Q4. With some offsets anticipated from an increase in consumer demand from First Nation Child and Care settlement payments. As we noted in our outlook, the distribution of first class of Child and Care settlement payments to individuals in the communities we serve began with a very small number of payments at the end of Q3 and there's been a modest increase in the volume of payments so far in the fourth quarter.

We expect the distribution of Child and Care settlement payments to ramp up in 2026 and extend for a number of years beyond 2026 based on the requirements for individuals in the removed child class to reach the age of maturity before payments are issued, combined with the anticipated opening of the application process and distribution of settlement payments for the other 8 classes.

Regarding the Next 100 program, we remain focused on driving operational excellence and cost efficiencies. From a category manage perspective -- category management, sorry perspective, we continue to refine our merchandise assortments and procurement strategy with a focus on the expansion of our private label offering. Throughout 2025 we have ramped up the rollout of new merchandise assortments and expanded the private label offering in both our Canadian and international operations.

Although it is still early in the process, feedback from customers has been positive, and the trends of private label penetration are encouraging. The implementation of store-based inventory forecasting replenishment technology and a new warehouse management system are also underway. With these new processes and tools, we expect to improve on shelf availability for our customers and streamline the merchandise ordering processes for our store and warehouse teams.

We are pleased with the progress and results to date, but also recognize that there's still a lot of work to do as we continue to learn and refine this new operating model. Let me wrap up by saying that the Next 100 operational excellence focus has helped mitigate some of the external headwinds that impacted our results this quarter and the foundation we're building is expected to continue to deliver value for our customers, shareholders and employees going forward. With that, operator, I will now open up the call for any questions.

[Operator Instructions] Our first question will be coming from Ty Collin of CIBC.

To start, I guess, can you maybe just help us understand the relative impact of the various factors you called out driving the same-store sales decline in Canada. And with respect to the declines in government funding specifically, is that stable? Or is that kind of worsen compared to last quarter?

You turn if off? It is hard to hear. Can you -- sorry, can you repeat that question? You cut...

Yes, sure thing. I'll go again. So I'm just wondering if you could help us understand the relative impact of the -- you got me. I just want to understand the relative impact of the various factors driving the same-store sales decline in Canada. And then with respect to the declines in government funding for some of those programs, is that stable? Or did that worsen compared to Q2?

Okay. Lots to unpack there. So look, I'll give you the full down. The biggest impact on sales was definitely the money in market. And that's, I think, something that -- I think we've been pretty consistent with that and clear on some of the messaging that we've identified, especially with the ICFI, the Jordan's principle, the pullback in funding and the slower pace, I guess, than some of the market has anticipated, although we've always said that I think Q1 is when we thought we were expecting some of the payments from the child benefit.

But I would say so money in market is the #1 headwind. Big ticket motorized sales reduction. That's also a big one. Obviously, they're higher price point, lower margin, but that's been a pretty big impact as well. Definitely some taste -- some thumb pointing, like we've just gone and we've rolled out. We've engaged with a lot of -- with new vendor our supply chain that we just rolled out this year, where we've moved over to a new system on a push system, and there was some disruption there.

So I would say it's not nearly the degree as some of the others, but there was probably higher out of stock on our shelves than typical, just as a result of some of the turbulence that we experienced, which would be expected, but definitely reacted very quickly and are looking very positive as far as how we're rebounding from that and being a lot stronger as a result of it, I might add.

Some of the -- with reducing prices, I know we're just getting into it, but with the private label program, obviously, lowering prices, increasing gross profit, but lowering prices for our customers had some impact, not a lot, but certainly something to be considered as the private label program is starting to gain a lot of traction in our markets. And don't forget, we're comping some big quarters. I mean, double digit, I think, of this year, certainly Q3, Q4 and then Q1 into next with some of the -- with a lot of the money that was in the market previously.

However, as we indicated, we are expecting to be able to offset that in Q1 with more of the child care benefit money coming in. I'll also say that with respect to payments, I mean, look, there has been some press out there. If you recall, I've been pretty consistent with forecasting in Q1 is when we thought the majority of the money is going to come. The childcare benefit did ramp up from the previous quarter. But again, it's not anywhere near at the level that we're anticipating. So yes, I think that's -- I think I answered your question, sir.

Yes, that's great. Appreciate those comments. And then on Next 100 I appreciate all the commentary there. I guess, can you -- maybe just update us with respect to which initiatives you still see the most low-hanging fruit for at this point? And then maybe just at a higher level, I mean, how far along would you say you are in the overall journey of executing Next 100 as we're exiting 2025 here?

Okay. So as we're exiting 2025, there's a number of different initiatives. So the low-hanging fruit not sure there's any more low-hanging fruit, but it's all -- we're in execution phase. As you know, like we're -- as indicated on the private label, we're starting to get ramped up. I would say we had it executed October, November, but it's with some fixes in place.

So we're on a nice trajectory there. Things are getting better and better as we go on. On the other hand, the supply chain optimization, it was a little rocky. We anticipate the headwinds are behind us. And -- but yet, it's going to be -- it's still a pretty good journey. We're -- we've got the pilots stores are done. We've rolled it out now to the -- to most of the chain in Canada on our forecast and replenishment.

And we anticipate that it would probably be up and operational fully in '27, but we think that -- we know there's going to be some benefits certainly throughout 2026. The CPI work, the category performance improvement plan, I would say we're probably 50% through that approximately. And -- but we expect to see some more benefits into 2026 and probably -- I would say it will probably level off by the end of 2026, and then we'd be comping that into '27.

John, looking at GNFR, I think, is pretty -- we're pretty much into the -- pretty well into it, I'd say 75% through GNFR. Yes, goods not for resale, sorry. So I think that the biggest benefit probably to come is going to be from the supply chain optimization, and that's in our forecast and replenishment, moving away from the poll system that we had in the stores previously and going into a push working through algorithms to just get more controls and be more accurate with our inventory management.

Okay. Great. And if I could just sneak one more in. So you guys renewed your NCIB last month. Do you plan to be active on the NCIB going forward? Or how are you thinking about potential buybacks relative to some of your other priorities?

Well, I mean, our other priorities are in and operating, and we have some healthy investments to make in the business now and into 2026, obviously, with some of the things that we talked about and some of the new store renovations in some of our major markets. So I think it's somewhat TBD, obviously, much like you would look at it depending on what the stock price does, but we're really optimistic about the future of the company. So we have no problem investing more into the NCIB. Yes.

And our next question will be coming from Michael Van Aelst of TD Cowen.

Just to finish up on the NCIB question. So you do have a higher level of spending short-term. Can you comment on what the CapEx rollout looks like the -- this year, next year and maybe '27? And then given that you have a strong balance sheet, would you be willing to supplement any free cash flow with some maybe balance sheet leveraging to also fund the NCIB while the share price is depressed.

Yes, I think we would look at that, absolutely. And it's something that we are looking at just how we would want to position ourselves going forward, pending our next phase strategy, which is work that we're undergoing as we speak. So in other words, much like the same commentary I've made before.

We think the best place for the money, obviously, is investing it in our business and infrastructure in order to generate some strong returns for our shareholders. If there's no opportunities at that point in time, then we certainly -- and we had a buildup of cash, we would certainly look to execute on the NCIB.

And if it was sustainable, if we had sustainable higher cash flows, then obviously, we would look at working with our dividend.

Okay. So what is the CapEx look like, the next little while $145 this year still?

$145, yes.

And how about next year?

$160, is I think what we're forecasting currently?

Okay. And so I mean that's above your normal run rates. Is that -- when do we get back to a normal like more normal level.

I would say at the following year '27, we've had some pretty sizable projects that were kind of in the midst of Michael. So as soon as we get over that hump, then it will start to normalize. Both with IT, with some of our IT investments as well as some of our major markets that have had a long drought of capital, I would say. And so we've just undergone a project. It's been a 3-year project, particularly into [ Calgary ] is what I'm talking about. So that's -- that will be coming to an end at the end of '26.

And so what's 2020 -- like what's the normal level of CapEx that we can expect over time.

It's a great question, especially given the inflation and the cost and what it costs to do things in the north. But I would say my expectation would be to be sub $140.

All right. So just getting back then so to the NCIB, would you -- I mean it seems like you're going to be using a lot of your free cash flow on your dividend and CapEx and growth of our excess incremental CapEx. So -- but your balance sheet at just over 1x leverage is very clean relative to other retailers out there. So I'm wondering, like would you -- are you thinking of looking at that now and leverage -- using some leverage to buy back the stock opportunistically given the low price? Or would you -- or are you just waiting until free cash flow comes.

Sure. Currently, we were waiting for free cash flow, Michael, but I can tell you that we're, it is fluid. So we are undergoing some strategy work right now to understand what our future -- our next adventure is. we wanted to make sure that we focus on execution, obviously, with a number of ideas as to where we would like to go from here. But I would say, currently, to be frank, it was more thinking about future incremental cash flows drying down NCIB. We would -- we haven't -- we have not planned to currently flex the balance sheet to buy NCIB current right now. But I'd say it's somewhat fluid, but that's not in the cards right now.

Okay. Just -- and then on the Next 100, that was also mostly covered, but just to summarize on that one. If you're kind of -- if you're looking at $100 in total benefit, let's call it, over the course of it. Where would you have been in '25? And where do you think you'll be in '26 before getting all of it in '27.

I would say, that's a great question. I'd say 50%, I'd say 50%.

50% in '25.

Yes.

Okay. And then I guess, we extrapolate and say 75% or 80% in '26 and then all of it in 100% in '27.

Yes.

Okay. Right. Good enough. Just to get an idea. Okay. So -- and then I just wanted to touch on some of those Jordan Principle claims settlement payments. And so -- it sounds like the [ AFN ] is talking about something like 6,600 payments having been made at this point, which just over $40,000, it's about $40,000 each by the sounds of it, which is a pretty big ramp-up compared to 0 almost a few months ago, but also only 1% of the total payments that are expected over time. So why do you think you're not seeing a bigger ramp up in Q4 in your communities.

Currently, I mean, look, it could be the postal strike. It could be the administrative efficiency of the administrators. This isn't new, though, right? I mean, like we've seen this many times before as far as the disbursement of these different payments. So which is why I would always put a hedge on it on time frame. So I would -- I can't answer why, but I can tell you that it's not unexpected. And so it's something that we're kind of ready for and optimistic, obviously, hopefully, for this season that people have a few more dollars in their pockets to enjoy the season.

But like I said, more so looking to Q1 of '26 is when we think that it's going to start coming in. I mean, look, it's not -- I don't think there's any question on whether it's coming. We know it's coming. It's just about how quickly it can be processed.

And I think we can appreciate that, that -- the history has shown that it doesn't happen as quickly as everybody would like, including some of the leaders that are obviously advocating on behalf of some of their constituents.

Right. Yes, that's clear. Okay. So if I remember correctly, like some of these other other payments that you're -- that are falling off now the water settlement payments and things like that. I mean those were smaller than what this one is going to be. And the only -- the water settlement itself only affected 30 of your communities, I think, if I remember correctly.

So -- just under that. I think yes.

Just under -- so does this Jordan's Principle settlement, is this affecting all 140 of your communities? Is this benefiting all of them?

No, it wouldn't be all of them. A large majority of them, I would say, in Northern Canada, but not all of them. I think the number is about 60%, so just under half.

Okay. So about 60.

Yes.

Okay. And so do you have any sense as to what percentage of that $23 billion of payments that are going to be made are going to end up in your communities?

I think you probably have to do your own math on that, Michael, just because it's -- there's a lot of assumptions that we make. And knowing you, I think you'll probably get pretty close to an assumption that we would. But no, we wouldn't -- it would be -- it's a really highly educated -- it's a very high assumption. That's what we had. So it's not something that we would release. I just, yes. It wouldn't be productive. I don't think for you -- for us to give you a number.

Last question for you. Are you -- could you try to hazard or give us some kind of insight into your capture rates in the past when these types of programs or payments come out in your communities?

No, we don't release that. But we do -- I will tell you that the capture rates that we've seen and the few that we've had have been on our forecast pretty consistent with what we anticipated, with slight improvement. But I would say it's -- so we're pretty -- we've been pretty accurate so far -- we just need more of it.

[Operator Instructions] Our next question will come from Stephen MacLeod of BMO Capital Markets. .

Lots of great color so far. So a lot of my questions have been answered, but I just wanted to get see if I could get a better sense of, Dan, you're talking about the fact that you've always said that Q1 is probably when you expect to see some of the more meaningful settlement payments coming through.

And obviously, it's been a bit -- hasn't been very transparent in terms of the timing from the administrator. So I was just curious if -- what kind of visibility you have into the payments beginning in Q1 and kind of how we should think about that actually coming to fruition?

Maybe I wouldn't say I'm an expert, but I would say that it's just based on some of the -- being around the history that we've -- how we've seen payments administered in the past. It's hypothesis, it's a guess. But it's -- I know I get exposed to the same information that everybody else does. So -- and you heard some of the people that are closed, they thought it would have been sooner. And so I was probably putting a contingency on what some of the other people were identifying.

So it's not all that scientific, unfortunately. But it's -- yes, I wish I could give you more assurance, but I can't. It's simply a gas based on putting a hedge or a contingency on what is anticipated or expected with some of the community leaders who are in the -- I'd say, on the front line of negotiations and in constant conversations.

But it gets -- comes down to bureaucracy and bureaucracy is controlled by -- I don't know if you find out, let me know, but it's just -- so the decisions are reached, the decisions are made, so I don't think there's anything in a halted. It's just on the timing of the payments. Yes. So I guess that's it's calming -- it's calming, the fact that you know it's coming, but everybody is anticipating and including obviously the customers that are going to be receiving it. I would think nobody wants it more than them, but it's just that's where we're sitting right now.

Yes. No, understood. And then maybe just looking at the Inuit Child First food voucher program and the reduction in funding from Jordan's Principle programs, which kind of -- which weighed on the Q3 numbers and you kind of -- you highlight as uncertainty in the outlook.

Do you have any insight? Are those -- maybe thinking of each of those ones separately, is there a scenario where the funding for those programs ramps back up? Or are those being phased out, and we just have to deal with it going forward and kind of ramp, we comp the impact next year?

Timing is -- so the Inuit Child First, I don't anticipate that's going to ramp up again. But I know that there's a lot of works in place to try and get that to be the case. Jordan's Principle, that comes down to -- that will ramp up again, I think. When I don't know because it's between a negotiation now with some of the indigenous leaders on how it's going to be administrated. But it's already -- you could say it's already committed to by Canada.

But as you recall, the vote came through with the chiefs in the regions, and they had voted that they weren't going to accept it, and it wasn't based on the quantum or the settlement. It was more based on the -- how is it going to be administered within their communities. So as you know, Ontario actually elected to accept it and the rest of the regions declined it.

And so that was one of the major causes of some of the retraction of the Jordan Principle money. And so I do anticipate that will come back around, but it's stuck in some political dispute right now. So I couldn't venture a guess as far as when that's going to be resolved. But once it is resolved, it will be a positive for sure for the community members in the North.

Okay. That's helpful. And then maybe just turning to the international business because we don't want to leave any stone unturned here. You get a lot in Canada. Just obviously, kind of flattish same-store sales growth. And were you seeing obviously, the permanent fund dividend was a negative impact as well as weaker economic conditions in the South Pacific. So can you talk about what some of the positive offsets were to those 2 headwinds?

Sure. So the positive offsets a little different, a lot of book, not necessarily transacted, but there -- we have started to sell more big ticket in Alaska, although I think the seasons ahead are going to be stronger than prior, but we will see a big increase in particularly schedules in Alaska, but also we had a new store come online, which is a -- which is real positive, which was real positive for AC. So that was a nice offset as well, new store in Barrow, Alaska.

So that was -- that's a really nice community and it's going to be a good asset for Northwest for sure. Otherwise, the team is working hard right now. It's a tough environment in Alaska -- and the Caribbean again, is starting to -- it's doing fine, and it's had some -- it's been stable, but it's really the South Pacific that has been a bit of a drain on -- and just getting back from some of the -- some of the typhoon work and just the economy is -- the competition has increased and the economy has worsened.

So -- it's kind of a tougher situation, but we're optimistic next year that some of the strategies that we're putting in place are going to hold us in a good stead. We're combining some of our operations and building a more impactful, efficient store that's going to take you out and put one in, and we think it's going to make a real positive impact in Guam.

Right. And then maybe just finally, with the maybe not a reduction in SNAP benefits, but the noise around SNAP benefits through the Big Beautiful Bill, -- did any of that sort of work into your numbers? And was that an impact in the quarter?

I think that's more this quarter, Stephen. So that will be -- have a little bit of an impact on this quarter. And it was -- yes, it was a bit of a there.

Our next question will be coming from Ryland Conrad of RBC Capital Markets. .

Just starting off on the $23 billion settlement and the payment volumes being low there today, like have you actually observed any in-market spending from those payments? Or is that what you're expecting to be more of a Q1 event? .

You mean the -- sorry, the individuals that did get payments have we seen an increase in spend of those payments in our stores. Is that what you mean?

Yes. Correct. Yes.

Yes. And yes, we have. And as we said, -- we've seen a good -- we've retained a lot of those -- our expected retention on the money that we've been able to track in markets. .

Okay. Great. And then just on the two open classes within that settlement. I guess can you just talk about your expectations around those, I think -- from my perspective, it seems like more of the renewed child family class compensation would be flowing to individuals on reserve in your markets. So just curious to hear your thoughts about those two.

I don't really have too much thought around it other than the fact that we're excited for the rest of the class to open, but this is just getting going. So I don't know, maybe I'm not understanding your question. Could you go a little deeper as far as how I think about the quantum, is that?

Yes. I guess just with how the money is flowing to the individuals that are eligible under those classes. I guess there would be obviously circumstances where children might have been renewed from their homes under the renewed child class that are no longer on reserve. So maybe directionally, there'd be more money flowing to reserves through the renewed child family class, if that makes sense.

No, I don't know. Sorry, John, do you understand the question. I'm sorry, I'm having a tough time. Do you mean money going to the reserve to the council or the administration on the reserve rather than the individual?

No, two individuals. .

But like we can take it offline as well.

Yes, that would be great. Sorry. And then just on international on the PFD. I mean we've seen a few years of lower dividends now. Next year is an election year in Alaska. So do you think it would be reasonable to assume that we should see a larger PFD next year?

No, I don't think it's -- it's not always rational, it's next year is not an election year. So the election year usually when they ramp up. And if you remember, it's been as high as 3,000 plus, last year 1,000 this year. I don't anticipate it will go down, but I don't think it would get in my kind of experience is just watching the cycles. I don't expect it's going to triple and it's tough to even forecast what it's going to be, but I would not anticipate it would go down. I would say, if anything, marginally up, but it's yes.

Okay. Got it. And then just lastly on private label. I know it's still early days, but I guess, could you just provide an update on how many stores are now stocked with those products? And just whether you've seen any trade down from the national brands?

Yes. Most of the stores are now stocked with the private label. With the exception of a few, like, for example, where we're doing a major renovation in Calgary, for example, which is a substantial store and a couple of others, but most of the stores are up now with the private label offering.

I'm showing no further questions. I would now like to hand the call back to Mr. McConnell for closing remarks.

All right. Well, thank you, operator. Yes, really, I'd just like to -- I wish everybody a very best of the holiday season. And I look forward to speaking to you on our Q4 earnings in April. So thank you.

And this concludes today's conference call. Thank you for participating. You may now disconnect.

Welcome to the North West Company Inc. Second Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Dan McConnell, President and Chief Executive Officer. Mr. McConnell, please go ahead.

Thank you. Thank you, and good morning, everyone. Welcome to the North West Company Second Quarter conference Call. I'm joined here today by John King, our Chief Financial Officer; and Alexis Cloutier, our VP, Legal and Corporate Secretary. I'm going to start off the meeting by asking Alexis to read our disclosure statement.

Thank you, Dan. Before we begin today, I remind you that certain information presented may constitute forward-looking statements. Such statements reflect North West's current expectations, estimates, projections and assumptions. These forward-looking statements are not guarantees of future performance and are subject to certain risks, which could cause actual performance and financial results in the future to vary materially from those contemplated in the forward-looking statements.

Any forward-looking statements are current only as of the date they're made, and the company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results or otherwise other than what's required by law. For additional information on these risks, please see North West's annual information form and its MD&A under the heading Risk Factors.

All right. So thank you, Alexis. I'll begin by providing an overview of our results for the quarter, followed by a brief commentary on North Star Air and wrap up with a few comments on our outlook and the Next 100 program.

All right. So let's begin. Overall, I would summarize the quarter this way. It was a flat quarter at the top line, which was negatively impacted by headwinds from community evacuations due to the wildfires and a decrease in child and family service funding for children in our Canadian operations and a weaker economic environment, particularly in our international operations.

With the flat Sales performance, there was a bit more torque on the bottom line due to some overall expense savings and a lower effective tax rate, which resulted in a 1.9% increase in net earnings in the quarter compared to last period.

Now let me expand on the consolidated results starting with sales. Consolidated sales for the quarter were up slightly compared to last year, but were flat to last year, excluding foreign exchange. Same-store sales were down 1.1% in the quarter compared to a 4.3% increase last year due to the headwinds in our Canadian operations and having to comp very strong sales in the second quarter of last year.

Canadian same-store sales decreased 1.8% compared to exceptionally strong same-store sales last year of 6.8%. There were 2 factors that had a significant impact on same-store sales performance. First, obviously, the wildfires we talked about, and this is affecting certain communities that we serve; and second was the decrease in the distribution of funding to individuals from child and family services, including the Jordan's Principle and Intuit Child First Initiative or ICFI programs.

Let me unpack these starting with the wildfires. There were 16 stores impacted by wildfires during the quarter, with the communities either fully evacuated in which case our stores were closed or partially evacuated due to smoke and poor air quality, which resulted in significantly reduced customer traffic. Our thoughts are with those who are impacted. I want to thank the firefighters, community leaders and all those working tirelessly to protect residents and ensure their safety. I also want to recognize and thank our store managers and teams who remained in the community to keep stores open and ensure food and supplies are available for emergency personnel and others who remain in the communities.

Thankfully, all of our staff are safe and none of our stores or warehouses were significantly impacted. That said, we did feel the impact on our top line as the evacuations negatively impacted same-store sales. When excluding stores impacted by wildfire-related evacuations, adjusted Canadian same-store sales increased 1% compared to last year. As an update, the wildfires in Northern Canada have continued into the third quarter, but the impact has moderated in late August.

At this time, there are 3 communities that remain evacuated due to the destruction of hydro transmission lines, which are not expected to be repaired until later in the third quarter, while partially evacuated communities are starting to return. While the impact of the wildfires has moderated, several wildfires are still active and accordingly, conditions could change. The second factor affecting Canadian sales is a reduction in the distribution of funding to individuals through the Jordan's Principle and Inuit Child First initiative programs when compared to last year.

I touched on this as part of our outlook discussion on our first quarter call. Let me provide you some further context. Funding for certain Jordan's Principle programs in 2025 has decreased to 2024 pending the finalization of an agreement between First Nations, Inuit and the Government of Canada. This change in funding has negatively impacted a number of Jordan's Principle programs. For individuals in the communities, the community services and in particular, the ICFI food voucher program have started to ramp up in the second quarter last year.

The government of Canada announced that the ICFI program would be extended to March 31, 2026, while Canada and Inuit Partners work together on the development of a long-term approach for supporting Intuit children to get greater access to nutritious food. However, starting in late April 2025, the funding under the ICFI program was limited to individual child specific claims, which has significantly reduced the amount distributed compared to the ICFI food voucher program in 2024, which did provide broad access to nutritious foods for Inuit children. Looking ahead, there is uncertainty on how long this change in funding will last, or if and when the ICFI food voucher program that was available in 2024 will resume.

Overall, the wildfire community evacuations and changes in child and family services funding were the key factors contributing to a 1.9% decrease in food sales. On a more positive note, general merchandise and other sales increased 5.6% compared to last year as higher third-party airline cargo and passenger revenue and an increase in pharmacy sales more than offset softer general merchandise same-store sales, which were down 3.5% for the quarter.

All right. Let me switch gears and briefly comment on international sales. During the quarter, sales in our international operations decreased 0.8% as flat same-store sales results were more than offset by lower wholesale sales. Weaker macroeconomic conditions in commercial fishing and tourism-dependent communities in certain Alaskan markets, combined with the reduction in seasonal workers and construction activity were the main factors impacting sales. Softer economic conditions in the South Pacific were also a factor.

As a result, General merchandise sales decreased 11.5% and were down 11.2% on a same-store sales basis compared to last year as consumers reduced spending on discretionary general merchandise and shifted more of their spending on food which contributed to a 0.6% increase in food sales.

Okay. With that deeper dive on sales, I'll briefly comment on consolidated gross profit and expenses. Gross profit dollars were up 0.1% for the quarter, with the gross profit rate flat compared to last year. The positive impacts from our Next 100 work and promotions and category management were offset by changes in sales blend and higher markdowns and inventory shrink.

Expenses were down 0.1% for the quarter or 3 basis points as a rate to sales, largely due to lower share-based compensation costs, primarily related to changes in the company's share price. This decrease was partially offset by investments in higher staff and technology costs to support the Next 100 work, combined with an increase in depreciation and new store expenses. We also incurred $1.7 million in onetime costs related to the execution of our Next 100 program.

These onetime costs were offset by the benefits from our Next 100 initiatives, including more effective promotions, a reduction in print media and other cost-saving initiatives, which I'll touch on later. In addition, similar to last quarter, we continue to see store labor productivity gains, which is resulting in lower store staff costs as a percentage of sales. The net impact of all these factors, combined with a lower effective tax rate resulted in a 1.9% increase in net earnings in the quarter, which is good considering the significant headwinds from wildfires and a decrease in government program funding for children.

Before moving on to the outlook, I wanted to briefly comment on our airline operations. As I highlighted previously, the airline revenues during the quarter were solid in both the cargo and passenger businesses. And consistent with our previous calls, we continue to have high utilization of the cargo and passenger fleet. As noted in our report to shareholders, late in the quarter, we acquired a PC-12 Pilates aircraft to provide some additional capacity in our scheduled and chartered passenger business and to help maintain our service levels during planned maintenance cycles.

I'd also like to take a moment to acknowledge the addition of Gregg Saretsky, a new member of our Board of Directors, which was announced in early August. Gregg brings deep aviation experience and industry knowledge in addition to a C-suite executive and Board experience, and I look forward to his contributions as a Board member.

Okay. Let me now briefly talk about our outlook and provide a few comments on the Next 100 program. Since we have provided commentary on the key factors we expect to impact on our near and long-term outlook in the report to shareholders as well as throughout this call, the only other comment I would add is on tariffs where we continue to see cost increases, but the overall impact to date has not been significant. However, this is a very fluid situation, and there continues to be uncertainty related to the economy and the impact of tariffs on the cost of merchandise and inflation in the countries in which we operate.

With respect to the Next 100 program, we remain fully focused on continuing to drive operational excellence and cost efficiencies across our business while delivering further value for our customers, our employees and our shareholders throughout the program. We continue to refine our product assortment and are rolling out our expanded private label offering in our Canadian and international operations. While it's still early in the rollout, the initial feedback from customers has been positive.

Similarly, the implementation of store-based inventory forecasting and replenishment technology is also underway. This technology is expected to improve on-shelf availability for our customers and streamline merchandise ordering processes for our store teams. Recognizing we still have a lot of work to do, the feedback from our store teams on the process improvements has been positive. We are pleased with the progress and results to date. However, as I said, there's a lot of work to do as we embed operational excellence in every aspect of our business.

To wrap up, we had some external headwinds that impacted our results this quarter. We were focused on what we can control, ensuring that we continue to provide the goods and services that meet our customers' needs and deliver value to our customers, shareholders and employees through the Next 100.

With that, I will now open up the call for any questions.

[Operator Instructions] The first question is from Stephen MacLeod from BMO Capital Markets.

Just a couple of questions here. Just with respect to the outlook and specifically around the lower child and family services payments as it relates to -- or funding as it relates to Jordan's Principle. Just thinking back to the last quarter, I don't recall you calling this one out. So I'm just curious, is this new and/or unexpected? And how do you expect it to sort of unfold as you move through the balance of the year and into fiscal 2026?

Yes. I mean it is new to us as far as seeing how it looks like. It's really uncertain. I mean there's a lot of things still at play, obviously, the budget being one and just some of the negotiations and discussions going on between, I would say, First Nations, Inuit leaders in the Canadian government. So it's -- I would expect there's going to be some resolution, but I -- at this point, Stephen, for me to tell you when or what it's going to be is, I'm not really clear on what it looks like at this point.

Right. Okay. Okay. And I mean is there any way to quantify kind of what the impact of it might be? Just if you thought about, I guess, what kind of growth it gave you up until this point? Just kind of -- is there a way to understand what the impact would be to same-store sales growth or anything like that?

Well, I mean, look, we've kind of outlined some of the puts and takes. And I know it's a tough quarter probably for you guys to forecast, although you guys did pretty well in the sales forecast. But I would say that it's -- at this point, I mean, no, because it's -- there's still things that are going on. Some of the infrastructure has, again, slowed down as a result of the Jordan's Principle dispute with Canada and a majority of the First Nation leaders outside of Ontario and then obviously, as we indicated some of the Inuit Child First program being sailed back as a result of maybe an overcorrection in how they administer the funds. So I think it's pretty fluid right now, Stephen. And I think we're obviously going to learn more as time goes on here. But right now, it's really tough for us to forecast that.

Yes. No, I understand. Okay. And then maybe just turning to the Next 100 program. Did you -- in the quarter, did you more than offset the Next 100 costs? Or was it a pretty even offset? And then maybe the second part of the question is, are you in a position to be able to quantify kind of what you talked about the annualized incremental EBIT ramping up through this year or next year. Are you able to quantify sort of what that impact could look like?

We've, I would say, a little bit more than offset it, Stephen, as far as for your first question. And as far as quantifying the forward-looking EBIT, the program is definitely, as I indicated, it's in its execution mode. There's a lot of puts and takes, and we're obviously, I would say, solving some of the opportunities as they come forward. But when we do solidify the earnings on a sustainable basis, then we'll definitely attribute some of the growth and the portion of growth that we have experienced to the Next 100 and allow you to kind of forecast that or create a trajectory or put that into your algorithm for a moving forward growth item.

The next question is from Ty Collin from CIBC. I'm sorry, his line just dropped. I will go to the next one, which is Michael Van Aeist from TD Cowen.

I'd like to start off with the $23 billion child settlement payments that are in the process, I guess, of being processed and distributed and -- there was an article that quoted, I think it was the AFN that said that -- in mid-August, it said the payments were expected the following week -- to start the following week. And when I tried to line that up with what your outlook statement was, it wasn't -- yours wasn't quite as definitive, let's call it. So have you seen some of these payments start to come in yet?

Not one. No, I mean, there's -- I guess, it's -- there's a bit of a line between their end, I would say, in the administration or the receipt and the approval of some of these and when it gets to market. So right now, Mike, we haven't seen one. But we know they're coming obviously, but it's just a matter of...

Yes. It's just a matter of time. It's just interesting that they said that the payments were starting in several different places it was quoted. So okay, I guess we'll have to wait to see on that. Secondly, the water settlement payments. At one point in your press release, it sounds like it was lower this year. And then another [ spot ] in Canada, you actually say that it was slightly higher. What are you expecting for the back half of the year? I know it's a crystal ball a little bit, but are you expecting flat water settlement payments? Or do you expect it to come down?

Yes, it was slightly higher. I would say for the forward-looking quarter, we're projecting flat.

Okay. And then when we look at the wildfire impact going into Q3, so it sounds like it was still a meaningful issue into mid or late August. But at some point, when you get -- if you're down to 3 communities now or 3 stores that are impacted, and you have people coming back in, and I'd assume there has to be some form of a restocking benefit when they first come back. Do you see the wildfires being a net negative still in Q3.

Yes, I think they will be, Michael. Because I mean, at the same time, we see people are starting to migrate back, but they're -- it's not one big swoop. To your point, I think there will be a stock up shop once people get back to community. But I do believe that the fires will be a net negative or a headwind on sales for Q3.

Yes. And then just finally, on the -- the gross margin was the one area where we were surprised it was a little low. You offset it with better OpEx. But on the gross margin side, you talked about markdowns and shrink. I'm wondering, was that a onetime event? I mean I know some of it's tied to the wildfires I assume that has been taken in Canada, correct me if I'm wrong.

No, that's correct.

Okay. And then and as far as your international markets, where you talk about markdowns because of -- more because of the economic environment in Alaska -- parts of Alaska. Is that something that you think is just due to the season that you're in, and you'll adjust and we won't see those in the coming quarters?

That's our intent, absolutely.

The next question is from Ryland Conrad from RBC Capital Markets.

I guess just to start off, you called out higher third-party airline revenue in the quarter. Is that related in any way to the wildfires? Or is that more so just stronger performance with the expanded facility in Thunder Bay.

Well, the prior for sure. We definitely saw an increase as a result of the wildfires. That's -- I would attribute a lot of it to that.

Okay. Got it. And then just on the private label initiatives, could you just provide a bit of an update there on how the rollout is progressing? And maybe just how the initial uptake has been in the stores where that's now being stocked?

Yes, definitely. We're still quite early, but I was in stores over the last month. And like I said, the customers are receptive. The cost -- and the price differential between the private label and the national brands, I think, is meaningful. So I'm anticipating that customers are going to take advantage of it. There's going to be a trial period, obviously, as a lot of the products are new to some of the consumers. So we have to prove to them that the quality and value is worth it.

But I definitely anticipate that given the economics in some of the communities that we serve that it's going to be a benefit to our consumers, and I think it will get some good traction over the next number of months. We expect to be in strong operation. Like I would say, our plan is to be up and operating with a full complement in late October. So that's our goal and that's our plan right now. And we're on a good track to get to that.

Awesome. That's helpful. And just on inventories, up quite a bit year-over-year and sequentially. Is there anything to call out there? And then related to that, I guess, as this kind of $23 billion settlement, the payments begin to be dispersed, like how are you feeling about your ability to meet that demand just from an inventory perspective?

We're feeling good about our ability to meet that demand for sure. It's something we've put a lot of planning into. We've been kind of down this road before. And it's -- I wouldn't say that we've left any pages unturned as far as just our planning and some of the speculation that we have around when the money is coming and what the built-up demand would be on behalf of our customers. So yes, we're managing and monitoring our inventory levels. We know that they are high, but we definitely feel that when the money comes that we'll be ready.

Okay. Great. And then just the last one for me, I guess, it would be good to get your latest thoughts on the capital allocation with the NCIB utilized this quarter. I guess was that more opportunistic? Or should we kind of expect you to remain active there?

It was opportunistic, yes.

[Operator Instructions] The next question is from Ty Collin from CIBC.

Apologies my line got dropped earlier. So apologies if I missed anything. Let me know if any of my questions have already been asked and answered. But my first one, just on the Canadian communities that are being repatriated. Can you just help us understand maybe from some of your experience so far how long it's taking for those stores to kind of ramp back up to 100% once those communities have had their evacuation orders lifted?

It's -- it can be fairly long, unfortunately and that's what we've experienced so far. It is a bit of a long drive, especially at the time of the year being the summer. There's a -- it just hasn't happened as quickly and I think there's more things to do so maybe some more distractions and some more opportunities for people to catch up on some of their activities within the urban cities that they're currently in. So it hasn't happened as quickly as we would like to put that way, Ty.

Okay. Great. That's helpful. And then in terms of some of the headwinds within Alaska. So I know you guys have called out some of the macro headwinds in previous quarters related to the fisheries. It does sound like tourism might have been a bit of an incremental issue now. I guess I just want to understand what changed this quarter compared to previous quarters to drive the deceleration there? And maybe you could speak to how dependent your stores and your communities are on tourism specifically?

Well, they are on both tourism. The economy overall, they have an impact with fishing, obviously, just given the remoteness and it's really government -- there's government employees, there's tourism, fishing, which are the drivers behind the economics of our communities. So it is substantial. I mean the Alaskan economy, I think even seeing other places within the United States, they're definitely feeling a pinch and it's just trickled on into our operation. So it's even some of the SNAP decline, I know that's happened in the past, but it's -- the people are still feeling it. It's at a lower baseline rate. We're comping it off last year, but it just continues to be an issue.

You see it in our general merchandise sales as they -- people are moving their preferences over to food, and it's definitely going to a, call it, a less expensive food choice in the past. People are making more critical decisions on how they spend their money.

Right. And on tourism, yes, I mean, you alluded to that being an issue sort of throughout the U.S. Do you get the sense that some of the more recent headwinds in Alaska are related to lower tourism from Canada specifically, given some of the noise around tariffs? And if that's the case, would you be inclined to characterize that as a bit more of a transitory issue? Is that sort of moves into the rearview mirror, hopefully.

I mean, look we -- definitely, that's a consideration. And we think -- we don't know how long that's going to last. I think you've probably heard some of the commentary behind some of the Canadians that are moving their travel from the U.S. to other places. But at the same time, I think it's probably just a macroeconomic impact from -- yes, tourism is one of the points but I think it's just an overall pinch. Looking at hopefully some of the dollars that are going to be coming back to the state of Alaska through some of the military spend and some of the other programs that are going to be -- sorry, driving a bit of a catalyst behind that economy, we're optimistic around that. But right now, I think it's a number of factors that are just having a negative impact on the macroeconomics scene in Alaska. But tourism is definitely one. And the reason, what you identified is the Canadians going over to Alaska is definitely a contributor. But I think there's a lot of factors at play right now and the macroeconomic environment that is.

Okay. Got it. And then just last 1 for me. I think you -- in one of your previous answers, you mentioned that SNAP or changes to SNAP has already sort of been a headwind in Alaska. I mean my understanding was that the more recent changes came into effect after this quarter. So are you expecting incremental headwinds from SNAP? Or are some of your consumers sort of prepositioning for those changes and already dialing back before those decreases actually came into effect?

Well, it's -- yes, so I would say probably the latter. I mean, look, people are more nervous about the economy. So the fact that the SNAP -- the changes are coming into play, some of the commentary around -- the President's comments around SNAP, I think that Alaska will be excluded from some of the impacts or changes that are going to be occurring maybe in the lower 48. But, yes, I definitely think it's just the -- some of the pessimistic outlook on the economy is rippling through just to my previous comment, and it all contributes to the macroeconomic picture in Alaska.

Just people are a lot tighter on their pocketbooks, making more frugal decisions, shying away from general merchandise, moving away from some of the, call it, more luxury food and just more into an essential mindset as far as what they're procuring for their homes. Did we lose you, again, Ty?

Sorry, I think I'm having technical difficulties all day. I just said thanks for the questions. I appreciate it.

That's funny, Ty, because we're the ones that are remote right now. We're out in [indiscernible] out in a remote community.

The next question is from Michael Van Aeist from TD Cowen.

Just a couple of quick follow-ups. First of all, on the higher SG&A spending tied to your investment in staff resources and IT to support your Next 100 initiatives. When do we kind of cycle the higher run rate of spending?

Q4, Q1? I was going to -- Michael, I'd say Q4 is probably more conservative, probably Q1, but I'd say Q4.

Okay. So you just -- so in other words, you kept spending at a higher level through the first half -- I guess through the end of last year and then starting into this year?

Correct.

Okay. And then the tax rate, John, it's moved around a little bit. I know you have the global minimum tax, but last year was a -- just over 25%. Where should we expect it for the full year?

Mike, it's really at this point now that we're comp on the global minimum tax and that came in, in Q2 last year. And just a reminder that, that was a year-to-date true-up in Q2 last year. So that's the reason for the tax rate differential in the second quarter. But we should be comp on that now heading into the back half of the year. So it really comes down to the earnings across the various jurisdictions. And so going off of -- you'll come up with your run rate tax rate, but more in line with, I would think, where we ended up last year as overall blended rate, somewhere in that range. But I don't think there is -- should be too much other noise like the global minimum tax rate. It should be more normal course, just blend of operations.

Okay. And then just actually one more question. You mentioned that you purchased another or leased another -- did you lease or purchased the PC-12 aircraft and is this something?

Purchased.

Oh, you purchased it. So I think in the past, you said you wouldn't add more capacity unless you're confident you could fill it. So this doesn't have to do with just a higher demand during the wildfires or anything like that. You're actually seeing a higher level of third-party demand, I suppose.

Yes, that's correct. Yes, this was contemplated obviously and planned and actually executed well before the wildfires.

Okay. So we should expect this to contribute pretty quickly.

Correct.

Thank you. There are no further questions registered at this time. I will turn the call back to Mr. Dan McConnell.

All right. Thank you, operator. And thanks, everybody, for attending, and we look forward to speaking with you for Q3.

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.

Perfect. Thank you.