Loblaw Cos (TSX:L) held its first-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.

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Summary

Loblaw Cos reported strong financial performance in Q1 2026 with a 4.5% revenue increase, normalized for business exits, and a 6% rise in adjusted EBITDA to $1.7 billion.

The company opened 13 new stores, enhancing its presence in underserved communities, and recorded significant growth in both food and drug retail segments.

Management highlighted the strategic focus on value offerings and loyalty programs, contributing to lower internal inflation rates compared to national averages.

Operational advancements include ongoing development of automated distribution centers and expanded partnerships in financial services with the anticipated sale of PC Financial.

Future outlook remains positive with expectations of continuing strong performance, driven by new store openings and strategic investments, despite some near-term impacts from distribution center ramp-ups.

Full Transcript

OPERATOR

Good morning ladies and gentlemen, and welcome to the Loblaw Company's Limited 2026 First Quarter Results Conference call. This call is being recorded on Wednesday, May 6, 2026. After the Speaker's remarks, we will conduct a question and answer session. Please ask that you limit yourself to one question and one follow up if needed. Thank you. If you'd like to ask a question at that time, please press Star then the number one on your telephone keypad to raise your hand and enter the queue. If you would like to withdraw your question at any time, you can simply press star one again. I would now like to turn the conference over to Roy McDonald, Vice President, Investor Relations.

Roy McDonald (Vice President, Investor Relations)

Great. Thanks very much, Colby. And good morning everybody. Welcome to The Loblaw Companies Limited First Quarter 2026 Results Conference Call. As usual, I'm joined this morning by Galen Weston, our President and CEO, and by Richard Dufresne, our CFO. And before we begin, I want to remind you that today's discussion will include forward looking statements which may include, but are not limited to statements with respect to Loblaw's anticipated future results. These statements are based on assumptions and reflect management's current expectations as such are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from expectations. These risks and uncertainties are discussed in the Company's materials filed with the Canadian securities regulators. Any forward looking statements speak only 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 events or otherwise other than what's required by law. Also, certain non GAAP financial measures may be discussed or referred as to referred to today. So please refer to our annual report and other materials filed with the Canadian securities regulators for a reconciliation of each of these measures to the most directly comparable GAAP financial measure. And also note, following the announced sale of PC Financial to EQ bank and our ongoing partnership, PC Financial results are presented under discontinued operations. And it's important to note that we are not getting out of the financial services business as such. Unless otherwise indicated, our remarks today will focus on the comparable total adjusted consolidated results. And with that, I'll hand the call over to Richard.

Richard Dufresne (Chief Financial Officer)

Thank you, Roy. And good morning everyone. I'm pleased to report another quarter of consistent financial and operational performance. Carrying on the momentum from last year. 2026 is off to a strong start. Our business continues to perform well, reflecting our ongoing focus on retail excellence and our commitment to deliver value, quality, service and convenience to Canadians in the first quarter. Revenue growth was strong at 4.5% when normalized for the exit of our optical business and the divestiture of wellwise. Our top line growth was supplemented by the opening of 13 stores in the first quarter, eight shoppers and five hard discount in underserved communities. Total company adjusted EBITDA increased by 6% to $1.7 billion and margin improved by 20 basis points to 11.5%. Adjusted diluted net earnings per share grew by 10.6% on a GAAP basis. Revenue grew $600 million or 4.2% and diluted EPS was $1.50 up 19% in the quarter. In food retail we delivered traffic and basket growth on a same store basis. Absolute sales grew 3.9% and our food same store sales grew 2.4%. Our investments in the right-hand side of our stores are seeing positive results in apparel and most general merchandise categories. However, we see ongoing pressure in liquor and tobacco normalized for this right-hand side impact. Our food same store sale grew 2.7%. Our internal CPI-like food inflation metric continues to be significantly lower than Canada's grocery CPI rate of 4.4%. Customers are seeking value and are finding it in our our stores. This is a function of the effectiveness of our loyalty program, promotional offers and value on the shelf. Our efforts to push back on unjustified cost increases from global suppliers has delivered results helping to reduce the inflationary pressures on Canadians. This shows up in our inflation measures at the cash register which was more or less aligned with our same store sales growth. As consumers continue to focus on value, our hard discount banners have remained a key driver of absolute sales growth. We opened five new hard discount stores in the quarter and plan to open about 30 stores in total this year. We are pleased with the performance of our new stores. Included in this quarter's food comparable sales growth results are 28 hard discount stores that have opened since 2023. These stores are averaging double digit same store sales growth. We are looking forward to bringing more no Frills and Maxi stores into more communities across Canada. We're also pleased with the momentum and performance of our conventional stores. This growth continues to be led by our Fortinos, Zehrs, and TNT banners. In drug retail, absolute sales increased 4.8% while same store sales grew 4.1%. Pharmacy and health care services grew same store sales by 6.7%. Our specialty prescription growth continued to lead our pharmacy performance in this category. Our GLP1 sales growth continues to outperform and has further accelerated in the quarter across our pharmacy network, patients continue to respond positively to the convenience and expanded level of primary care services we offer through our more than 1800 pharmacies across the country. We opened eight new drugstores in the quarter and remain on on target to open more than 30 new locations in 2026. Front Source Same store sales were up 1%. Beauty remained strong while OTC was affected by the timing of the cough and cold season and inclement weather. Online sales continued to perform well, growing by 20.3% in the quarter. E Commerce sales were driven by growth in PC Express delivery along with the successful integration of third party delivery options. Retail gross margin of 31.4% was stable while our food margins were flat. Our drug retail gross margins were down. This was driven by changes in sales mix in drug retail categories. Timing of the cough and cold season partially offset by continued improvements in reducing shrinkage retail SG&A was better by 40 basis points, primarily driven by operating leverage from higher sales and timing benefits on certain costs. I'm very pleased with our ability to reduce this rate despite the additional costs associated with opening new stores and ramping up our automated DC's retail adjusted EBITDA has grown 6.5% and retail EBITDA margin increased by 20 basis points to 11.1%. The ramp up of our first automated DC in East Gillimbury continues to progress well. Both cost and operational improvements have been better than planned. We remain pleased with our progress and expect to be fully ramped up later this year. Construction on our second automated DC in South Caledon is progressing very well. The project remains on plan with automation installation beginning at the end of this year. PC Financial's revenue increased 3.9% driven by higher insurance commission and higher interest income. The bank's adjusted net earnings increased by $$9 million or 40.9% increase. This was primarily driven by higher revenue and favorable impact from lower expected credit loss provisions. The previously announced sale of PC Financial to EQ Bank has obtained all required regulatory approvals and we now expect the deal to close in the third quarter. We are very excited about this transaction as it will expand the benefits of our PC Optimum loyalty program program and offer more ways for Canadians to earn rewards. As previously stated, Loblaw will unlock approximately $600 million in cash related to this transaction. We expect to deploy a portion of these proceeds to increase our share buybacks in 2026 and the balance to purchase EQ Bank shares in the market. Free cash flow from the retail segment from the retail segment was strong at $432 million for the quarter. We repurchased $648 million worth of common shares and announced a 10% dividend increase, our 15th consecutive annual increase. Our balance sheet is strong and we continue to improve our key return metrics as shown by a recent credit rating upgrade by DBRS to a low A rating. Our return on Equity sits at 26.8% and our return on capital at 12.4%, reflecting our strong capital allocation discipline, focused on cost management and proven strategy looking ahead to the balance of the year, performance should closely resemble what we're seeing in Q1. As mentioned earlier, 2026 is a year where the ramp up of our East Gwillimbury D.C. and our investments in T&T in the US have the greatest negative impact on our earnings growth.. Despite that, we feel confident in our ability to deliver on our outlook for the year. As we've shown in Q1, our focus on retail excellence and on the execution of our strategic initiatives will allow us to continue keep delivering value to our customers while continuing to reward our shareholders. I will now turn the call over to Per.

Per

Thanks Richard and good morning everyone. We are very pleased to report a strong first quarter for 2026 making a robust and successful start to the year. We delivered solid financial results including strong revenue and adjusted EPS growth and I'm delighted that we are able to achieve this while making sure significant investments to grow our pharmacy and discount presence, expand our T&T banner into the US and advance two new technology enabled distribution centers.

Per

Our performance reflects the successful execution of our strategic priorities and our unwavering focus on the customer. Our strategic and deliberate investment in opening new stores are clearly resonating with Canadians. We are listening to what Canadians need and investing where it matters. Our everyday focus remains steadfast on providing quality value, service and convenience for customers across our coast to coast network. These efforts are clearly resonating as evidenced by continued strong customer engagement and increased traffic levels across our business. From the strong performance and the continual growth of PC Express delivery to the consistent strength of our pharmacy services, we are demonstrating our commitments to being there where and when our customers need us most. We have momentum in our food retail segment marked by the contribution from our new store investment and our same store sales growth. Increased customer traffic was underpinned by our compelling everyday value offering personalized PC optimum loyalty offers and impactful promotions. The ongoing performance of outperformance of our hard discount banners Max and no No Frills was a key driver of this success reinforcing their vital role in helping Canadians manage affordability. We also very pleased with our conventional performance where our multicultural and preferred food delivered very strong growth. Our conventional stores gained tonnage and share gains against their peers. We also achieved strong E commerce sales growth led by PCX delivery and the successful integration of third party delivery options. This growth was significantly driven by our discount customers as they are increasingly choosing the convenience of delivery, highlighting the broad appeal and accessibility of our digital offering. In drug retail shoppers, Rockmart and Pharmaprix continue to demonstrate resilience and growth. Pharmacy and front store growth reflected positive trends in prescription volumes, specialty drugs and beauty categories, underscoring the vital role of of our pharmacists and healthcare professionals play in Canadian healthcare. This performance proves the strength of our healthcare services and our commitment to meeting the involving needs of Canadians. The strategic investments we have made across retail to expand and enhance our network continue to pay off. During the quarter we expanded Canadians access to both nutritious food and essential healthcare services. We opened five new hard discount stores and eight new drugstores, further solidifying our commitment to being where Canadians need us most. Our commitment to modernization was also evident with the introduction of a new Loop for no Fill banner marked by the opening of a new store in Comoka, Ontario. A modern design delivered at an efficient build cost and for everyone living in the GTA area, I hope you're able to visit our newly opened T&T supermarket in Erin Mills which we celebrated with a wonderful opening ceremony that was really really well attended by many stakeholders. These investments are crucial to strengthen our foundation, expanding our reach in key growth areas and providing the best possible shopping choices for our customers. Last quarter we launched the PC Express integration with OpenAI search, turning previously dead end recipe searches into transactions. Customer adoption is already ahead of plan and we are continuing to advance our leadership with a 2.0 version coming soon. And earlier this week we were proud to announce that we are partnering with Canadian technology firm Secludo, providing our team with a common platform that will enable us to manage and scale AI machine-learning across our data infrastructure.. In addition, we're starting to roll out AI productivity tools across our teams to support them in their day to day work. There's more to come here and we're just getting started as a proud Canadian company with more than 2,800 locations and 220,000 colleagues. We remain deeply committed to supporting the communities we serve and providing life's everyday essential to families from coast to coast. As we look ahead, we remain confident in our outlook for 26. We have a strong portfolio of businesses that are really exceptionally well positioned to meet the evolving needs of Canadians and successfully navigate the macro environment. I want to once again express my sincere gratitude to all our colleagues for their unwavering dedication, commitment and focus on our customers. Their hard work is the cornerstone of our success. With that, I'll now open the floor for questions. Thank you.

Roy McDonald (Vice President, Investor Relations)

Thanks, Perry. Go ahead, Colby.

OPERATOR

Thank you. We will now begin the question and answer session. Again, if you would like to ask a question, please press Star, then the number one on your telephone keypad to raise your hand and enter the queue. If you'd like to withdraw your question at any time, simply press star one. Again, we'll pause just for a moment to compile the roster. And with our first question comes from Irene Natal with RBC Capital Markets. Your line is open.

Irene Natal (Equity Analyst)

Thanks and good morning, everyone. I was wondering if you could talk about what you're seeing in terms of consumer behavior in the store and notably as you went through the quarter and we saw the spike in gas prices, you know, did you see any sort of notable changes in how people are trying to adapt and where are we Q2 today? Thank you.

OPERATOR

Your next question comes from the line of Chris Lee with Deschardens. Your line is open.

Chris Lee (Equity Analyst)

Good morning everyone. Maybe a couple of questions on the front store sales performance. I was wondering, in addition to the factors you mentioned, was that also impacted by any pricing adjustment you might have made to further enhance the value proposition to consumers at shoppers? Okay, perfect. And maybe just a follow up here. I know you mentioned before you've been doing some testing on the new food concept at some of the shopper stores. Wondering if you can provide us an update on how those pilots are performing so far. are ready to deploy that to a significant number of stores. And if it goes well it will give us an uplift. Thanks and all the best.

OPERATOR

Your next question comes from the line of Mark Carden with ubs. Your line is open.

Matt Rothway

Hi, this is Matt Rothway on for Marc Card and thank you for taking our questions. So I was hoping you could touch on the drivers of gross margin a little bit. You called out drug retail mix as a headwind. Can you just detail a little bit more about what the driver was there? Great, very helpful. And as a quick follow up on sga, you mentioned the timing of Certain costs as a benefit in the quarter. How should we think about that impacting subsequent quarters? that were not in Q1 so therefore that improved our SGA rate. But the bulk of the benefit came from operating leverage from higher sales. Great, thanks so much.

OPERATOR

Your next question comes from the line of Michael Van Elfst with TD Cowan. Your line is open.

Michael Van Elfst

Hi, good morning. You talked about the ramp up in the new store growth and it's been pretty strong for about the last six quarters and we know that there's always that drag, particularly in the first year on the new stores. But where do you think you are in that cycle and where do you see this effort to increase your square footage growth rate becoming more neutral to earnings and, and maybe even positive? Great. Yeah, that's what I was looking for. Thank you. And then just clearly just to be clear on the DC side, when do you see that becoming turning from a drag to a positive? Perfect, thank you.

OPERATOR

Your next question comes from the line of Vishal streethard with National Bank Airline is open.

Vishal

Pat, thanks for taking my questions. With respect to the buyback, you suggested that some of the 600 million would be used for buyback. So relative to the 1 9, how much of that 600 million do we put in and what should we anticipate the cadence being given that you were stronger than usual in Q1? Okay, thank you for that. And with respect to genericization of GLP1 molecules and the developments that have happened, can you just quantify any updated thinking in terms of the impact to same source sales growth and when that may begin and the impact across the P and L and how you see that unfolding to the extent you're getting better info now. Okay, thank you for that.

OPERATOR

Your next question comes from the line of Mark Petrie with cibc. Your line is open.

Mark Petrie

Yeah, thanks. Good morning. I just wanted to ask about actually just follow up on the line of questioning that Michael had around store investment costs and I know you've been working to get efficiencies on the upfront investments. I think you mentioned that with the new format, no frill store. So just hoping you could potentially quantify any of that. How does that affect the economics and the payback? Yeah, understood. Okay. Appreciate all that. All the best.

OPERATOR

Thank you.

Emily

Your next question comes from the line of H.N. ricard with BMO Capital Markets. Your line is open. Hi, good morning. This is Emily for etn. Thanks for taking our questions. Just wanting to focus back on any differences between discount and conventional. We know that discount growth is really driving sales. So are you seeing any different behaviors within each of them? And are you seeing more or less trade down within discount or conventional? Okay, and just to follow up, how would you compare. Excuse me. How would you compare the competitive dynamics in Quebec versus other provinces? And are you seeing any better or worse contribution from the new stores in Quebec versus the other jurisdictions? Thank you.

OPERATOR

And your next question comes from the line of John Zamparo with Scotiabank. Your line is open.

John Zamparo (Equity Analyst)

Thank you. Good morning. I wanted to come Back to the GLP1 side of the business, and I believe you said you're seeing this accelerate and that shoppers is taking share, and that's even before generics were announced. I wonder what you attribute that to. It's obviously a dominant player nationwide, but anything you can say about why you think share has increased so much and whether that's the result of any intentional efforts or investments from shoppers. yeah, okay, understood. And then back to the state of the consumer and in particular trade down metrics. Appreciate the color on discount versus conventional Is there any other color you can add on promotional intensity and performance of national brands against private label? Thank you very much.

OPERATOR

And with no further questions in queue, I'd like to turn the conference back over to Roy McDonald for closing remarks.

Roy McDonald (Vice President, Investor Relations)

Great. Thanks very much everybody for your time this morning. If you have any follow up questions, drop me an email or give me a call. And then please mark your calendar for Thursday, July 30th and we will be Q2 results. Have a great day.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.