Operator: Good morning, ladies and gentlemen, and welcome to the Loblaws Inc. Second Quarter 2025 Results. [Operator Instructions] This call is being recorded on Thursday, July 24, 2025. I would now like to turn the conference over to Roy MacDonald, Vice President, Investor Relations. Please go ahead.

Roy MacDonald: Great. Thank you very much, Sal, and good morning, everybody. Welcome to the Loblaw Companies Limited Second Quarter 2025 Results Call. As usual, I'm joined here this morning by Per Bank, our President and Chief Executive Officer; and by Richard Dufresne, our Chief Financial Officer. And before I begin the call, I'll 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 our expectations. These risks and uncertainties are discussed in the company's materials filed with the Canadian securities regulator. Any forward-looking statements speak only as of the date they're made. 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 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 measures. And with that, I'll turn the call over to Richard.

Richard Dufresne: Thank you, Roy, and good morning, everyone. I'm pleased to report that we continue to deliver consistent financial and operational performance in the second quarter with strong revenue growth fueling solid performance against our plan. Our ongoing focus on delivering value, quality, service and convenience to Canadians continues to resonate with customers and has resulted in strong market share performance across our businesses. Top line growth is a theme this quarter and is becoming the norm as we open new stores. On a consolidated basis, revenue growth was 5.2% and reaching $14.5 billion, an increase of $725 million over last year. If we exclude the divestiture of our worldwide stores last quarter, revenue growth would have been even higher at 5.4%. Our new stores are performing well and are reaffirming our strategy. Adjusted EBITDA increased by 7.4% to $1.8 billion. Adjusted diluted earnings per share grew by 11.6% to $2.40. And on a GAAP basis, our net earnings per share increased by 60%. You will notice that we have now completed the bulk of the amortization related to our 2014 acquisition of Shoppers Drug Mart. Completing the amortization was a significant driver of $106 million benefit to GAAP earnings in Q2. Going forward, GAAP earnings growth will be positively impacted by these lower charges through Q1 of next year. In Food Retail, we did deliver higher sales tonnage and basket growth, driving significant tonnage market share gains. Absolute sales outpaced same-store sales by 230 basis points at 5.8%, reflecting our new store growth while our food same-store sales momentum continues, increasing 3.5%. Our Q2 internal CPI like food inflation was lower than Canada's grocery CPI of 3.3%. Looking at our average article price data, which reflects the full basket mix bought by our customers across our network, our internal inflation rate continues to be much lower than CPI. Opening more discount stores is helping to maintain low prices for Canadians. Higher-than-normal cost increase requests from larger global vendors continue to be a concern. Only 1/3 of the supplier cost submission we have received over the last months have been tariff related. In response, we are pushing back harder than ever to ensure that any increases we accept are fair and reasonable and are partnering with our vendor community to mitigate price increases. Our hard discount banner sales continued to deliver strong growth based on the ongoing consumer focus on value. We are seeing strong momentum across the higher discount stores we added to our network through conversions and new builds last year, and our recent openings in 2025 are continuing this trend. Many more are coming over the coming months. We're also pleased with the momentum and strong performance in our conventional stores, which also grew tonnage market share within their sector. South of the border, our Seattle TNT store remains strong with sales volume that have significantly outpaced our expectations. Our next store opens in November. We now have a total of six confirmed location in the U.S. and more are planned. In drug retail, absolute sales increased 4.8%, excluding the impact of the sale of Worldwide while same-store sales grew 4.1%. The Pharmacy and Healthcare services grew same-store sales by 6.2% this quarter, driven by broad strength in prescription and new health care services. Our specialty prescription growth continued to lead our pharmacy numbers. Patients continue to respond very positively to the convenience and expanded level of primary care we offer to our 1,800 pharmacies across the country, including our 174 in-store clinics. Our front store same-store sales continued to improve, growing 1.7% and reflecting the ongoing strength of our beauty category. This was partially offset by the previous exit of certain items in the electronics category. We remain pleased by the underlying strength, profitability and sales momentum of Shoppers Drug Marts front store business. Online sales in the quarter increased by 17.5% across our retail businesses. Delivery continues to lead growth in the online grocery channel, and we remain pleased with our online sales penetration in both food and pharmacy. Our retail gross margin was stable at 32%, primarily driven by improvements in shrink offset by changes in sales mix. I'm particularly pleased with the shrink improvement at Shoppers Drug Mart. Our SG&A rate as a percentage of sales improved by 10 basis points, with operating leverage from higher sales, partially offset by incremental costs related to the opening of new stores and the ramp-up of our new automated distribution facility in East Wallenberg. The transition to our new DC is progressing very well and is ahead of plan. We have completed the deployment of frozen categories and the first phase of Fresh. Our ramp-up of this new DC is proceeding better than planned. We will ship significantly more cases than planned this year, and our costs are actually running lower than budgeted. Because of this faster ramp up, we have made the decision to bring our ambient section online a full quarter ahead of plan, which will allow us to realize benefits earlier than expected. Speaking of supply chain logistics, I would like to share an example of the significant progress we've achieved in integrating AI solutions into our everyday supply chain operations. AI-driven initiatives are already yielding tangible improvements across key areas of our business. We are streamlining our supply chain operations using AI-enabled tools that help us proactively manage inventory replenishment with vendors, optimize load building and manage our transport scheduling and communication. Another AI initiative that I'm really excited about is currently being rolled out across our store network. Nicknamed Robin, we are leveraging agenetic AI in a custom-built tool to save time and enhance decision-making in our stores, using conversational action- focused insights based on real-time data. Robin provides a dashboard of KPIs, presents AI-generated insights and recommend solutions then tracks and execute to do list. Managers will spend less time on back-end logistics and more time with their customers and staff while improving store level profitability. The success of this initiative has spawned a second version of the app that is now being tested with district managers to help them better manage their store networks. By the way, the speed at which we are developing and launching these new initiatives is impressive. These developments are actively driving efficiencies, which will translate directly into cost savings to date and the open opportunities for future applications. In the quarter, retail adjusted EBITDA grew 6.7% and EBITDA margin increased by 10 basis points to 12.2%. PC Financial's revenue increased 2.7%, driven by higher sales in our mobile shop and higher insurance commission income. Our PC money spending and savings accounts are performing very well. Deposits are ahead of plan and now exceeds $700 million, enhancing customer engagement and lowering our bank's funding costs. The bank's adjusted earnings before tax increased by $14 million or [ 87.5%, ] primarily driven by higher revenue, lower operating costs and lower credit card receivable charge-offs. We remain very comfortable with the risk profile of the bank's portfolio. We continue to take a conservative position in our provisioning with a strong and well, very well-capitalized balance sheet. On a consolidated basis, adjusted EBITDA increased by 7.4% to $1.8 billion. Free cash flow from the retail segment increased by $165 million to $640 million. And in the quarter, we repurchased $445 million worth of common share. Our balance sheet remains strong, and we continue to improve key return metrics. Our return on equity sits at 24.7% and our return on capital at 11.9%. Both metrics continue to improve. Looking ahead to the second half of the year, we remain confident in our ability to deliver our outlook. Our third quarter is off to a good start, carrying on the momentum from the first half of the year. New stores will continue to drive top line growth, and the second half of the year will see the bulk of our new store activity. Our relentless focus on retail excellence and on the execution of our strategic initiatives will allow us to keep delivering value to our customers and strong performance to our shareholders. Today, we announced a 4-for-1 stock split effective at market close on August 18, 2025, and with shareholders of record at close of business on August 14, 2025, receiving three additional shares for each common share held. Essentially, our number of shares will be multiplied by 4 post-split. I will now turn the call over to Darren.

Unidentified Company Representative: Thanks, Richard, and good morning, everyone. So I'm really pleased with our second quarter performance. Our very strong revenue growth reflects both our continued momentum in same-store sales performance and the absolute growth, and that's driven by our strategic investments in new stores and banner conversions. This top line growth will help accelerate future same-store sales and support our long-term earnings growth. And our adjusted EPS growth of 11.6% was accomplished while we supported the opening and ramp-up of 61 new stores since quarter 2 last year, plus the ongoing transition to our new 1 million square foot DC in East Grittinbury. Most importantly, our offers are resonating so well with more Canadians every single day. We remain focused on helping Canadians get the most of their budgets in a challenging economic environment. Our responsibility is to deliver value, quality, service and convenience and course every corner of our business. Whether that's through competitive pricing, meaningful promotions or personalized rewards to our PC Optimum program. By being responsive to customer needs and innovating across our banners, we are reinforcing our position as a trusted partner for households across the country. As a result, more Canadians are shopping in our stores, Actually, traffic is up, unit sales are up and basket growth was positive in the quarter. This drove tonnage market share gains overall. And both our hard discount and supermarket banners grew market shares within their market segments. This success reflects not only on the strength of our strategy, but also the incredible work of our teams from coast to coast. Another highlight this quarter is continued success of our new stores. This quarter, we opened another 10 new stores. That was nine new Maxi and No Frills stores and one Shoppers drug mart store. We have now opened 20 out of our planned 80 new stores for the year, and we are really pleased with the performance out of the gate, and we are excited about our continued sales growth momentum. The global shift towards discount retail is a long-term trend, and we are leading it here in Canada. In May, we celebrated the opening of our 500th hard discount store with the community of Pincher Creek in Alberta. By expanding our reach into communities where affordability matters most, we are meeting customers where they are and delivering exactly what they need. Our supermarket banners also had a strong quarter. Fortinos and TNT continued to perform very well, but our real Canadian superstores led with very strong comps growth in quarter 2. We rolled out our right-hand side refresh in three more superstores, and we remain pleased with customer reactions and our ability to transfer these earnings to our general merchandise offers in our smaller stores as well. We continued our leadership in supporting Canadian products and vendors. We have doubled down on our efforts and have onboard another 100 new Canadian vendors, adding 130 new Canadian vendors into our ecosystem, this year do strengthen our local supply chain and brings even more choice to ourselves, further strengthening our base of Canadian suppliers, that remains so important to us. There's some misconception that the tariffs are no longer a factor in grocery. Nothing could actually be further from the truth. The retail is -- sorry, the reality is that the tariff countermeasures remain in place and about 1/3 of all supplier cost submissions have been tariff related. We continue to do our best to help customers navigate the impact of tariffs, including our T symbol program. This initiative unique to us, identifies the important items that are directly subject to retaliatory tariffs with a T symbol on shelf. It has been successful on several levels as intended, it has helped our customers by clearly identifying tariff items supporting Canada and saving money. Behind the scenes, it has also incentive suppliers to mitigate the tariff impact to avoid the T label designations. Sales volume on T items declined in the quarter. The trend is accelerating, we are now seeing weeks with a declining by more than 15%. Our data shows that Canadians are responding positively to these initiatives. Shifting gears. So in our drug business, we delivered continued positive momentum in our front store. Our prestige cosmetics continue to be very strong, supported by fragrance and derm categories. In pharmacy and health care services, our specialty drop and new prescribing services categories are delivering strong double-digit growth, showing continued strength in acute and chronic scripts. We have opened 23 new pharmacy electronics this year, and we remain on track to have 250 clinics providing expanded scope of care services to Canadians by year end. Our digital business continued to generate double-digit growth, driven by continued strength in our PCX delivery channel. And I'm happy to see our weekly engaged user growth continue to be strong and customers are spending more time in the app. In digital, our focus remains on enhancing optionality and convenience across our business. In the quarter, we strengthened our collaboration with DoorDash allowing customers to now earn PCO points. Innovation remains core to how we improve operations. We reduce costs and enhance the customer experience at Loblaws. Our enhanced MyShop functions within the PC Express is just another great example. Improving our customer experience means personalization is increasingly important. We're using advanced AI models to analyze each customer's behavior and preferences and deliver the right products, content and promotions at the right time on an individual level. For example, our PCO app and websites are increasingly being powered by algorithms that present customized deals product recommendations and contain unique to each service need. We have even now like meal suggestion based on customers' dietary profile and purchase history. With relevant ingredients also added to the card. We're excited about the opportunities ahead. These innovations represent an exciting step forward in how technology can transform how we work and how efficiently and effectively we serve Canadians. In closing, I would like to thank all members of the Loblaw team for their tremendous effort during this quarter. your passion, hard work is what allows us to consistently deliver the value quality and service at the Canadian they rely on every day. So as Richard mentioned, our third quarter is off to a good start. And we entered the second half of the year with confidence in our strategy and in our ability to deliver our -- on our full year plan. With that said, I will now open the floor for your questions. Thank you so much.

Operator: [Operator Instructions] Your first question comes from Irene Nattel with RBC Capital Markets.

Irene Ora Nattel: Thank you, and good morning, everyone. It looks as though the momentum is in the top line is continuing to accelerate. And I was wondering if you could talk about what you're seeing across the banners in terms of magnitude. And also to what degree is the step-up both in same-store sales and revenue growth due to the new stores versus the rest of the network?

Unidentified Company Representative: If I can start. So the new stores, we just started to ramp up. So I believe you will see more in the future more and more this year, more next year, more and more the following year. So it's not a significant part, but of course, it's contributing as we are adding more stores. Remember, we added 50 new stores last year. We're adding 80 new stores this year. And the second year comp of new stores are doing a really, really good job for us. But so far, that's not the main. The main part is that we are we are doing well and customers, they like the offer that we're giving them. And that goes, as I mentioned, there's the Canadian Superstore doing really well for us. Our hard discount both on a comp level and on an absolute level is doing well. TNT, as Richard mentioned, the U.S. store, it's just a success story. We are taking so much sales and much more than we expected. So bluntly, basically, it's not just one part of our group in quarter 2. Everything delivered some nice sales momentum for us.

Richard Dufresne: Yes, I agree. Nothing to add there, Irene.

Irene Ora Nattel: And then just as a follow-up. Given the strong momentum that you're having year-to-date, can you walk us through why you chose not to revise upward your guidance for the year?

Richard Dufresne: Yes, Irene, I guess two points, I guess. First, it's early, okay? It's early in the year to upgrade our guidance. And also, there's still a lot of uncertainty out there. So we thought it'd be more prudent to wait. So we'll update guidance when we release Q3.

Operator: Your next question comes from Mark Carden with UBS.

Mark David Carden: I wanted to just start out with the broader health of the consumer, just what you're seeing on that front, any shifts in buying patterns or trade across categories? And then just related to any changes you guys are seeing in the underlying competitive environment just from a pricing standpoint?

Unidentified Company Representative: Thanks for the question, and I think that's more relevant than ever. So we're seeing more of the same compared to the past quarter. Customers, they are increasingly seeking values and value they can get that in many ways. Of course, our hard discount stores, they are doing well, and they're still leading and doing better compared to the rest of the portfolio. So their comp sales is better, and that's also what we are seeing here in the beginning of quarter 3. But also the rest of our portfolio is doing well. So customers, they are increasingly seeking to buy more promotions, buy more in the private label. And then, of course, they're also shifting. I think probably a good way to look at it on our key products. So customers, they probably like a lot of their brands coming from the U.S. But now that we are seeing that in some weeks, more than 15% decline in volume for those products means that price matters to our customers, so they're shifting into other categories. So they're looking out for value more than we have ever seen. So I'm not varied. I think customers they are acting and acting in a good way. They are not trading a lot down, but it's probably much more the same as we have seen before and what we just say, there are some macro uncertainty out there. There are some uncertainty with tariffs, but it's not -- probably we are one of the businesses that are least impacted by that. Do you have anything to add?

Richard Dufresne: Yes. And the only thing I would add is, like if you look at credit card industry data, you would note that the spend -- the growth in spend in Canada slowed quite significantly. And we have our own credit card data that also corroborates that information. So clearly, customers are more as attempt to spend and so that's been reflected in the growth we're seeing in our discount stores.

Mark David Carden: That's great color. And then your superstores contributed nicely to sales in the quarter. Would you say this is a broader reflection on just consumer behavior overall or more specific to some of your assortment changes how are you thinking about the balance of that just essentially the contribution for the balance of the year? And then would you expect it to remain an outsize contributor to your growth rate?

Unidentified Company Representative: No, I think we are possibly surprised. And remember, the superstore business is 1/4 of our total business at Loblaw. So that's meaningful for us. But what the team under the leadership of Frank Gambioli have done, how they have been more close to the customers, how they are starting to do things on the right-hand side. Actually, that delivered another 35 bps plus to the growth. It's helping. Remember, we are really, really focusing on value. We're making small tweaks to the business. And probably, that's some of it, what we are seeing. I was with the Board yesterday walking our Milton store. And that was the best superstore walk I've ever had. I really, really feel optimistic us after that walk. The store was receiving lots of customers engaging in our deals, we're testing some things like the PCO go where customers can do like the spin and win on certain categories, certain products, which gets them around our entire store. So I think what we do is starting to help in superstore and also elsewhere.

Operator: Your next question comes from Michael Van Aelst with TD Cowen.

Michael Van Aelst: So just looking at your food revenues, they're up 5.8%. And I think your -- and your same-store sales were up 3.5%. So there's a 2.3% delta there. your square footage growth was only up 1.9%. So is the performance of these new stores better than the average?

Unidentified Company Representative: It's difficult to say but it's better than the average, but it is doing at least as well as we expected when we are making the business cases for each of them. And of course, the store in the U.S., the TNT store there is also in the mix and contributing well, which is also something we will see when we open the six stores that Richard talked about, and we have planned to add a few more to the test. So yes, they're doing well. One example would be that it's a small store that we opened at Richmond Street downtown Toronto. It's doing twice as much as we expected, and that's only on 8,000, 9,000 square feet. Just showing how much our customers they love the great offers that they can get at a hard discount and customers are looking to get that cheaper offer. So I think overall, yes, it's doing as expected and some stores even much better.

Richard Dufresne: Yes. We're very happy with our 20 new stores open to date, like I just need to mention one too. We've opened a Maxi in -- last week. The store is already doing 50% higher than our planned sales. So definitely, we see discount resonating with customers, and it's showing up in like not insignificant sales growth.

Michael Van Aelst: Okay. That helps a lot. And you had an improvement in your OpEx rate despite the ramp-up in your in your store count. As you add another 60 stores in the back half of this year and accelerated, do you see or do you see Loblaw being able to maintain the OpEx rate as it is? Or -- and if so, how would you -- where are the other areas? Or what are the other levers you're pulling on?

Richard Dufresne: Yes. The answer to that is yes. Like we've mentioned that our outlook was to have stability in SG&A rate for the year, and that's what we're seeing despite the ramp-up that's coming over the coming months.

Michael Van Aelst: Okay. And what are the some of the offsets, Richard, that -- to help prevent that from going up? With the new strategy.

Richard Dufresne: As we've discussed over the years, like we always put in place plans to be relentless on cost and those plans implemented last year are allowing us to cover the increased costs that we're seeing on new stores and the ramp-up of our new DC.

Unidentified Company Representative: Yes. And so we have plans in place for next year as well. So cost is a part of our strategy. So remember, our strategy is to grow it with hard discount, to grow with services, to grow with TNT and then really be hard focused on costs. So over time, that cost can be diluted. But of course, opening a bit of new stores and the DC adds a little bit of extra costs, and that's why we're deploying those initiatives.

Richard Dufresne: Yes. Our plan, Mike, as we've discussed, is to showcase stability in gross margin, stability in SG&A rate and have our top line be the driver of earnings. And so that's what you saw in Q1. That's what you saw in Q2, and that's what we see for the rest of the year.

Operator: Your next question comes from Tamy Chen with BMO Capital Markets.

Tamy Chen: I guess I just wanted to revisit the broader consumer dynamic and how you're performing in there. I noticed you're saying your conventional banners have been improving. It doesn't seem to be taking anything away from the momentum in your discount banners. So specifically, I'm wondering about the Buy Canadian dynamic there. How would you characterize that trend now versus Q1, both proper local products but also Canadian retailers.

Unidentified Company Representative: So Q2 compared to Q1 is a big step up. And when we look at the facts, which is the Nielsen data and compare our sales of Canadian products compared to the rest of the industry. We are several percent points higher, higher than average. And then, of course, it's not for me to judge who are doing better and we're doing worse. But at least, we are doing much better than the industry. So we feel very good on the Buy Canadian sentiment.

Richard Dufresne: One thing I want to add, Tamy, like if you remember, last year, in Q2, we had some weakness in same-store sales, particularly in our conventional business. So we're obviously comping that, and so that is helping our comp in conventional. But despite that, our absolute performance has been better than planned.

Tamy Chen: Okay. Got it. And my follow-up is, are you seeing any change or any slight uptick in promotional intensity in the industry. I think we have recently seen a bit more price rollbacks by competitors. So just wondering if that's I'm trying to regain some lost tonnage during the whole Buy Canadian.

Unidentified Company Representative: The promo pen is more or less the same as it has been for some time now. And of course, different players in the industry have different tactics, some do more everyday low price, some do more promotions. But what we do like having a great combination of good shelf price and good promotions. That's what we believe would resonate well with customers. And over the quarter, we have invested more back in self price, and that's why our -- that's also why our margin is stable, and we'll continue to be sharp on our prices. So we can compete both on shelf and on promotions.

Operator: Your next question comes from John Zamparo with Scotiabank.

John Zamparo: I wanted to move to the drug side, and I wonder if you can address the recent loss of patent protection for Ozempic and Wegovy and what the implications are for Loblaw. And obviously, there's lots of unknowns here. But historically, this has been -- these types of transitions have been positive for EBITDA dollar generation. And I wonder if you're confident that that's the case here as well. And are there any other relevant metrics you could share?

Unidentified Company Representative: It's a very relevant question. And for us, it's a little bit too early to say because we're in the middle of it, and we are trying now to discover how that's going to play out. We don't know yet. But one thing we know is that this is great news for customers. I think when prices come down, which we believe they will, I think we will have more customers that will be able to utilize this GLP-1 drug, more customers who need it and also more customers who can't afford to stay on it today. So good news for customers. And I believe a good news for us as well.

John Zamparo: Okay. Understood. And then sticking with the pharmacy. On the clinics, can we get an update on how these are performing in terms of revenue generation, and you saw a meaningful acceleration in script count in the quarter on a same-store basis. I wonder if you think the clinics are contributing to that and traffic results at Shoppers.

Unidentified Company Representative: Yes, they are. The clinics they're helping and they're building more scripts than the stores without clinics. And they're also giving a little bit more sales to the entire store, so helping the trips and helping the basket size, but that's minimal. But within the pharmacy care, they are helping, and they are delivering up to the plans that we have. And by the end of the year, we're still planning on adding another, I think, 76. So we will be just over 250 at the end of the year. But it's also worth to remember that in all our 1,800 pharmacies, we are providing primary care. But in the clinic, customers feel more confident that they have more privacy, and they are just doing the job that we expected them to do. So we feel really, really pleased with that, and we will continue building more clinics.

Operator: Next question comes from Vishal Shreedhar with National Bank.

Vishal Shreedhar: With respect to the Buy Canada and anniversarying some of the media comments last year relating to grocers. Are you able to isolate the benefit on your comp or give us some sense? And should we expect that benefit, if you agree, there is some on a year-over-year basis to fade as we go through the year?

Richard Dufresne: Very hard to measure, Vishal, like very hard to measure.

Unidentified Company Representative: Yes, we were up against a little bit of a weaker comp, as we said before in quarter 2, but that's what we can say. And we still have good momentum in quarter 2 or quarter 3.

Richard Dufresne: I think you look on an absolute basis, that's what you should focus on, like we were -- all of our businesses are doing well. So that's what we're really focused on and the noise and comp like is it's a bit noisy, but the business is definitely heading in the right direction here.

Vishal Shreedhar: Okay. With respect to East Gwillimbury, you said it in the preliminary comments that it was ahead of schedule. So is 40% still the target by end of the year in terms of capacity utilization?

Richard Dufresne: I don't have that number off hand, but the number I do have on hand is like we're going to be shipping over 6 million more cases than planned by year-end based on the trend we're in. And our budgeted costs are going to be down from budget by some millions of dollars. And so -- and just to cite our vendor, Vitran. Vitran has told us that this has been the smoothest and fastest ramp-up that they've seen in any of their facilities globally. So all of that and the way it's ramping up is giving us confidence to launch ambient earlier than expected. And so I suspect, yes, the number you have in your head is definitely going to be higher. But the beauty of this is because like the faster we ramp up, the more -- the faster we realize benefits. So we're excited because that's going to help us in '26 as this facility will be processing and more volume than expected.

Vishal Shreedhar: Okay. And with respect to the real estate growth and the pressure associated with East Gwillimbury. I know in the past, people have asked about quantifying those pressures and you sidestep those questions. So maybe another way to ask it is, when should we anniversary that pressure and expect the real estate growth to start contributing on a P&L basis, on an earnings basis and the DC pressure to also inflect.

Richard Dufresne: For sure. Once we cycle that, it's definitely going to help because opening 80 stores bring drag, ramping up at DC brings drag. So the drag of that DC will be over sometime next year. The drag from new store will no longer be a drag because we're opening more or less the same number of stores next year. And so that will help. And -- but we'll be opening a new DC in Caledon. We call it Tullamore. We started construction on that one. And so that will create another drag, but that one is later. It's more in '28. So -- but along -- before that, like we're going to start to see the benefits of that.

Operator: Your next question comes from Chris Li with Desjardins.

Christopher Li: When you said that Q3 was -- is off to a good start. I'm wondering for food retail. Is it fair to say that the comp so far in Q3 similar to Q2? Would that be a fair comment?

Richard Dufresne: Because of the ease that we had versus Q2 of last year, comp in Q3 in food will be slightly lower than what we have in Q2, but still very healthy. And our top line growth will also be very healthy.

Christopher Li: Okay. That's helpful. I'm sorry if I missed it earlier, but the right-hand side impact on comp this quarter, was it minimal?

Richard Dufresne: Negligible. Like it's only six stores like mathematically.

Unidentified Company Representative: But overall, it's 35 bps. So overall, it's not the new 6 stores, but that's the way that we treat and we trade the right-hand side. So we're not just waiting for those new stores. We're also applying new trade mechanics to all of the stores. So if we get some early learnings on, for example, toys, then we try to deploy that to all stores. So that's -- some of that's helping. So we can't wait 3 years or 4 years. until we have finished all 180 superstores. But what I think is very encouraging for us feels more numbers and it still takes some time for us to deploy. But that's how we have managed to take some of the learnings from the first pilots in superstores and bring them back to the Loblaws and the Sears and the YIG stores. And we're seeing some really, really good numbers on the nonfood there in the first two, three stores. Again, early days, but it's good to see.

Richard Dufresne: Yes. Just to be precise, I was referring to like the impact of the new renovation on our six stores. If you look at the normal drag we get from right-hand side, like yes, it's in the 30, 35 basis points. So getting better than last year.

Christopher Li: Okay. That's great. And then maybe just a quick follow-up on the earlier discussion around sort of what's driving the tonnage growth in conventional. I remember attending a recent industry conference, and I think it was discussed that there's a lot of sort of blocking and tackling the enhancement you guys remain fresh, multicultural, natural organic foods are all kind of contributing to growth. I was just wondering if you can elaborate a little bit more on sort of what's driving the tonnage growth in conventional beyond the Buy Canadian or sort of the industry factors that were already discussed.

Unidentified Company Representative: Fresh and multicultural that will be the two drivers. And of course, we're still doing well with our control brand across center of store. But except from that, is actually healthy, and it's all over the piece. It's not one category, but multiculture and fresh special produces. That's one of the areas where we're doing very well.

Richard Dufresne: I get to be precise, Chris, like conventional as a sector is still trending a little bit negative. And -- but our tonnage growth versus our peers is really, really good. And like the absolute tonnage growth is all coming from discount.

Christopher Li: Got it. Okay. That's helpful. Maybe just a couple of quick ones on Shoppers. Your beauty category continues to be very strong. And I think you made some investment in technology recently Again, wondering sort of what's driving that growth? And is the bay sort of exiting -- is that having any meaningful impact on that front?

Unidentified Company Representative: Yes. So our investment technology, I think we're only in a few stores now, and that will help us over time, but it will take a little bit of time. So that's too early to judge. I think the bay we got some benefit last year. And of course, we are going to get some benefit this year as well. And you are right, it is overall the prestige, the harbor, the beauty category that's helping the growth in Shoppers. Food is also turned in to be positive, but it's a marginal part. So it's been driven by locally the higher-margin categories. And the market in general for Beauty & Prestige it's just a good market to be, and it's growing over and above the food. And customers, it seems like they're not as price sensitive when they are buying fragrances compared when they're buying food. And I normally say that if we are -- if we are $0.10 off a loaf of bread, then customer, they won't forgive us, but they don't discuss frequencies. But that's also because our offers, our redemption offers in shoppers when they can go in and trade point like 30x a point or whatever, then we are the most competitive player in beauty in Canada. So that's resonating really well and continue to do so for our customers.

Richard Dufresne: Over the last few months, Chris, like we've seen slowly building momentum in front store, and that momentum, we're seeing it again in Q3.

Christopher Li: Okay. That's great. And my very last question, just maybe a follow-up on the discussion around the GLP drugs becoming generic. Is it fair to say just the gross profit dollars that you are on just generic version of those drugs should be higher than the patent drugs? Is that fair to...

Unidentified Company Representative: I think it's probably what could happen, but we actually don't know right now because we're still looking at it, we're still negotiating, we've been talking to we don't know whether those players right now, whether they want to lower their prices, and it's something that, of course, we're on top of, but it's too early, too early to tell.

Richard Dufresne: Vishal, I got your number to your question, 40% becomes 60% with advancing the volume in...

Operator: [Operator Instructions] Your next question comes from Mark Petrie with CIBC.

Mark Robert Petrie: I just had one follow-up question actually. Just with regards to the square footage growth outlook. I think I heard Richard say that you expected about 80 stores again next year. Although I think I heard Per earlier in the call say something about accelerating impact, but maybe that was just from the ramp-up on stores the previously opened new stores. So if you could just clarify that. And then any commentary just about the mix of stores in 2026 or just generally going forward? And specifically wondering about discount and the mix of urban versus smaller market stores.

Richard Dufresne: Okay. It's still early days, though, we have not like finalized the full numbers. So I was saying in the zone of, so we'll come back to you later as to the specific of the number of stores for next year. As to the makeup of it, I think it's going to look a lot like this year, like Shoppers or Mart and discount stores. There's going to be a few TNT stores and we might be able to slip one conventional or two in there. But like that should be what you should expect to see in 2026. But we will get back to you in a few quarters.

Unidentified Company Representative: Yes. And the ramp-up, I was alluding to is just that I think previously when I've been talking is that I expected to see the second year comp sales to be much higher than the normal comp sales. And by measuring the first 60 stores that we have opened in the past year. We see that -- we're seeing that those second year like-for-like, as I call it, they're doing very well. So that was what I was talking about.

Mark Robert Petrie: Understood. Okay. And then maybe just to clarify, Richard, just with regards to -- or follow up, the performance of this discount -- small format discount stores that you've opened so far. Would that be relatively consistent for those urban markets versus those more rural markets that you've also been opening sourcing?

Unidentified Company Representative: I would say that the urban source, we are really, really pleased. We haven't really tested rural stores yet. I think we had the first one opening very soon. and there are lots of potential to go into rural, but it takes a little bit longer time to plan, to build because we had many more options downtown, the big cities where we can just go into existing buildings. So it takes more time to test the rural. But I do stay as optimistic as I have been -- when I came here a couple of years ago, ongoing into rural. But we haven't really tested enough yet to let you know.

Richard Dufresne: Yes. Suburban is one where we're asking ourselves questions. So we need to do some more work there. But like definitely urban where every site we can put our hands on we're doing.

Unidentified Company Representative: Yes. And suburban, we're only asking sells a question how big we're going to build them. not ask a question whether it works or not. So where 10,000 square feet store works well urban and probably also rural, then I think first indication is that we want to build them bigger in the suburban.

Operator: Your next question comes from Michael Van Aelst with TD Cowen.

Michael Van Aelst: I just want to ask about TNT because it seems like every story you open seems to blow the led off of your expectations. And I know you have, I think, 1 come in this fall and you mentioned six confirmed locations in the U.S. with more plan, but what are the key indicators you're looking for as you open up in the U.S. to make you confident or to give you confidence that this is a banner that can actually be expanded more aggressively throughout the U.S.

Unidentified Company Representative: Yes. I think we are -- of course, we're looking for absolute sales. And the first store is so good and it's better than far most of the supermarkets in the U.S. to our knowledge. And what we are seeing that really is really, really encouraging. It's our offer in kitchen and bakery. So with our commissary and the way that we have our recipes for TNT. What Tina tells me is that this is a big, big part of sales and much more in the U.S. than in Canada. So that's a big driver of footfall to our stores. So basically, sales and margin, and it's all holding up and actually much better than we expected. So we stay very bullish. But again, it's early days. It's one store only, but we are so happy with the first stores that, as Richard said, we have approved six , and we're going to extend the trial with a few more stores. So we don't lose time ramping up.

Richard Dufresne: Yes. And I think we need to add that the Canadian business is also very healthy. If you were to look at the absolute sales growth of TNT Canada, it's actually our most performing banner on the whole organization. And where we continue to fail miserably is in our ability to forecast the sales of these new stores. We systematically underestimate the sales of all the TNT we've opened so far.

Michael Van Aelst: So I guess what I'm trying to figure out, though, is at what point -- like how many success stories you have to have in these U.S. new store openings for you to get confidence that this is actually transferable to other parts of the country.

Unidentified Company Representative: I think if we have -- if we're seeing the first six works, then it will work everywhere. So we are -- and if you ask Tina Lee, the CEO of TNT's, she's confident already now, but I think we need to see five or six and then we can talk to you about how to plan how to accelerate.

Operator: There are no further questions at this time. I will now turn the call over to Roy MacDonald for closing remarks.

Roy MacDonald: Thanks for your time this morning, everybody. Let me know if you have any follow-up questions and put a circle on your calendar for Wednesday, November 12, when we will be releasing our Q3 results. Thanks very much, and have a great day.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.