Metro's (MTRAF) CEO Eric La Fleche on Q4 2016 Results - Earnings Call Transcript

| About: Metro, Inc.A (MTRAF)

Metro, Inc. (OTCPK:MTRAF) Q4 2016 Earnings Conference Call November 16, 2016 10:00 AM ET

Executives

Roberto Sbrugnera - IR

Eric La Fleche - President and CEO

Francois Thibault - EVP and CFO

Analysts

Jim Durran - Barclays

Mark Petrie - CIBC

Michael Van Aelst - TD Securities

Irene Nattel - RBC Capital Markets

Kenric Tyghe - Raymond James

Vishal Shreedhar - National Bank

Peter Sklar - BMO Capital Markets

Tal Woolley - Dundee Capital Markets

Keith Howlett - Desjardins Bank

Patricia Baker - Scotia Bank

Operator

Good morning. My name is Amanda, and I will be a conference operator today. At this time, I would like to welcome everyone to the Metro Inc 2016 Fourth Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session [Operator Instructions]. Thank you. Mr. Roberto Sbrugnera, you may begin your conference.

Roberto Sbrugnera

Thank you, Amanda. Good morning everyone and thank for joining us today. Our comments today will focus on financial results of Metro’s fourth quarter, which ended September 24, 2016. Joining me today is Eric La Fleche, President and Chief Executive Officer, and Francois Thibault, Executive Vice President and Chief Financial Officer. During this call, we will present our fourth quarter financial results and comment on fourth quarter highlights. We will then be happy to take your questions.

Before we begin, I would like to remind you that we will use in today’s discussions different statements that could be construed as being forward-looking information. In general, any statement, which does not constitute historical fact, may be deemed a forward-looking statement. Expressions such as expect, intend, are confident that, will, and other similar expressions are generally indicative of forward-looking statements.

The forward-looking statements are based upon certain assumptions regarding the Canadian food industry, the general economy and our annual budgets, as well as our 2015-2016 action plan. These forward-looking statements do not provide any guarantees as to the future performance of the Company and are subject to potential risks, known or unknown, as well as uncertainties that could cause the outcome to differ significantly.

A description of the risks, which could have an impact on these statements can be found under the Risk Management section of our 2015 Annual Report. We believe these statements to be reasonable and pertinent at this time and represent our expectations. The Company does not intend to update any forward-looking statements except as required by applicable law.

I would now like to turn the call the Francois.

Francois Thibault

Thank you, Roberto, and good morning everyone. The sales in our fourth quarter 2016 totaled $2.92 billion, that’s an increase of 2.4% versus last year. Same-store sales came in at plus 2.8%, while our food basket inflation declined to 0.7%. EBITDA in the fourth quarter totaled $221.6 million or 7.6% of sale, up 6.8% from $207.4 million or 7.2% of sales for the same quarter last year. Our gross margin in Q4 was 19.8% compared to 20% for the same quarter in 2015, and operating expenses, as a percentage of sales, was 12.2% versus 12.6% for the same quarter last year, as we continue to leverage our sales growth.

Our depreciation expense was $43.9 million, that’s about $1 million increase over last year. And our share of earnings from Couche-Tard was $22.8 million in the fourth quarter versus $21.4 million for the same quarter last year. Our Q4 2016 income tax expense of $42.5 million represented an effective tax rate of 22.7% compared with last year's tax expense of $40.8 million for an effective tax rate of 22.7%. We benefited from the positive outcome and certain tax files.

Net earnings for the fourth quarter 2016 were $145 million, that’s an increase of 10.1% versus $131.7 million last year. Our fully diluted net earnings per share rose 15.4% to $0.60 from $0.52 to previous year. As you're aware, on September 08, 2016, we renewed our normal course issuer bid program, and we may now repurchase up to 12 million common shares between September 12, 2016 and September 11, 2017. As at October 28, 2016, we repurchased 2.3 million shares for a total consideration of $96.5 million at an average price of $42.24 a share.

In September, the Board of Directors approved a dividend of $0.14 a share. The same amount is in the previous three quarters, which represented 20% increase from last year. This increase supports our commitment of steadily growing our dividend.

To conclude, we remain in good shape financially. Our strong balance sheet and strong liquidity position give us room for future growth as we intend to continue investing in our network to grow sales, profits, and create value for our shareholders.

This concludes my comments. I would now like to turn it over to Eric La Fleche. Thank you very much.

Eric La Fleche

Thank you, Francois and good morning everyone. We are very pleased with our record fourth quarter results to finish another strong year for the Company. Fiscal '16 highlights where market share gains driven by strong same-store sales, very solid growth in operating income and net earnings per share, and finally, higher investments in our networks to better position us for the future.

Now, with respect to the fourth quarter, the environment was very competitive and highly promotional, consistent with previous quarters. We continue to see aggregate higher customer count, average baskets and tonnage, with same-store sales coming in at 2.8% on top of a strong 3.4% in the same quarter last year. Our internal food basket inflation decelerated quarter-over-quarter, but was a bit higher than CPI at 0.7%.

Our strong sales performance generated good operating leverage which fuelled the increase in EBITDA for the quarter. All our food banners in both markets contributed to our growth, as Adonis and Première Moisson also performed well. Industry square footage growth was moderate in the quarter and for the year. CapEx investments totaled approximately $350 million for fiscal '16 as we opened eight new stores and expanded or remodelled 43 stores for a gross expansion of 428,000 square feet and net increase of 135,000 square feet or 0.7%. In fiscal '17, we are again planning CapEx of about $350 million, including a dozen in new and replacement stores as well as some 40 major innovations.

So, to conclude, the market environment remains competitive but rational. We're currently cycling higher food inflation levels in the first half last year, and that obviously will put pressure on top-line growth in the first half this year. However, we have demonstrated in the past our ability to navigate and perform well in an lower inflation environment. We remain focused on our long-term performance objectives, and I am confident that with our experienced management team, strong execution, and sustained investments in our retail network, we will continue to grow and create value for our shareholders.

That concludes my comments, and we'll now take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Jim Durran from Barclays. Your line is open.

Jim Durran

In the quarter, it looked like SG&A was a primary contributor to the operating leverage; it was contained quite successfully. But it was -- it looked to be the other income, so the other expense line in the SG&A bucket that was the major contributor to the year-over-year easing. Can you give us some idea as to any initiatives that might have contributed to this specifically, or was it more of a one-time thing. And so how should we view SG&A on a run rate basis in the new fiscal?

Francois Thibault

So, the other expense line is the series of several expense items like warehouse, the transportation, obviously maintenance supplies, all these buckets Metro & Moi. So they’re not extraordinary items, so they were reduced by good cost containment. But overall SG&A if you look at the big buckets, the wages and employee benefits, went up by 1.8% only when sales go up by 3.4%. Occupancy, when you combine the rent electricity, went up only 1.4%. So again we are benefitting from good operational leverage other than just the reduction in other expenses. So, I'm not saying that's in a lower top-line growth environment that we can do a 40 bps improvement consistently, but certainly the focus will remain on cost containment going forward.

Jim Durran

And through the quarter, did you see inflation become deflation?

Eric La Fleche

No, we exited the quarter lower than we started the quarter. I wouldn't call it deflation. Right now, there's very little inflation, if at all. But our number for inflation for Q4 reflects the basket that we're selling. So there was a bit of inflation in produce. The meat deflation year-over-year but the mix in meat has changed with beef costs and beef prices coming down, and we're able to change the mix. So, there's some internally generated inflation in the meat department, which is behind some of our numbers. So, I wouldn't call it deflation yet and that's where we are.

Jim Durran

And from a gross margin standpoint, minus 20 basis points is not a severe investment obviously. Is that just a normal course of competitive intensity that you're feeding into? And how much of role did deflated COGS play in keeping that number under control?

Eric La Fleche

Yes, I would call it normal and rational and reflects our mix, our promotional mix, and our discount versus conventional mix. So, I'll leave it at that. But the gross margin investment I would call normal, and we’re quite pleased with the top-line results that came with it.

Operator

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

Mark Petrie

I was just hoping if you could give a little bit more color in terms of the same-store sales performance, and the relative trade-down of consumers between conventional and discount. I know you commented that all banners in all regions are contributing to growth. But, any color you can provide on that type of behavior?

Eric La Fleche

Well, we don’t segregate, as you know. But the trend towards discount continues to happen. It’s not at the same speed as before. So, I would say, our Metro stores are holding up well. But there is a market continuing trend towards discount, and we’re well positioned, as I said before, to capture that with Super C and Food Basics. So, yes, there is a continuing shift, but at a slower pace.

Mark Petrie

And then with regards to the CapEx number for next year. Was that a higher number of new and replacement stores? And so what should we think about in terms of net square footage growth for fiscal ‘17?

Eric La Fleche

So, as I said in my opening statement, the net square foot for ’16 was 0.7%. We opened eight new stores during the year. We forecast 10 to 12 new stores for next year. And the net square footage should look similar between 0.5% and 1%. And so, the CapEx plan is on track. There are several projects underway. We’ll see where we finish. But that’s what we’re aiming for.

Operator

Your next question comes from the line of Michael Van Aelst from TD Securities. Your line is open.

Michael Van Aelst

Just on the -- and getting back to the inflation, I know you said that you didn’t see any deflation or you haven’t seen any deflation yet. But, one of your competitors obviously is investing in price and did see deflation. And I’m wondering if you’re feeling that you’re going -- at some point, you’re going to need to match that. And at the same time, last quarter I think you had said you would ask for similar 1.45% rebate from your suppliers. I was wondering if you can talk about the success of that and whether that’s getting pass-through yet?

Eric La Fleche

So, on our pricing, I can tell you we are competitive. We’re happy with our competitive position in our formats in our respective markets. We make the price investments that are necessary to stay competitive. So, it’s aggressive. It’s promotional. And we compete, I think, pretty well. So, when I said that there is very little inflation right now, that’s where we are as we cycle high numbers last year. So, we have to face that and that puts pressure, as I said earlier, on the top-line. But I think we can still do well in that environment, although it’s, for sure, challenging.

The supplier initiatives, we have good relations with our suppliers. We will make sure that we are cost positioned, remains competitive with our competitors. So, we -- private discussions with our suppliers one-on-one and we’ll come to solutions that are mutually beneficial. And at the same time making sure we get the right cost, so that we can invest in our pricing and be competitive in the markets. So, we’re pleased with those discussions with our suppliers. For competitive reasons, I’ll leave it at that. But we’re making progress.

Michael Van Aelst

So, just so I understand, I know you did start investing in price. I think it was late last calendar year or early this year. Can you remind me on the timing and what do you think that that is put you head I guess of where Loblaws and price investment started?

Eric La Fleche

So in the fall of 2016, which is of Q1 of 2016 we made some targeted price investments, especially on grocery and dairy products in some of our conventional stores to be more better positioned competitively and to narrow the gap with the discount channels. And that gave us the results that we were accounting on. So, there were not across the board wholesale price reductions. They were targeted investments on key items that are important to pricing for the shopper. And as you know, we have good data on our shoppers with our [indiscernible] [Metro & Moi] program in Quebec. So there’re certain items that we adjusted prices, I would call it like that. And we're happy with those results.

Michael Van Aelst

And then on the tax rate, I know that you've been thinking that these tax files would eventually come to an end. When do you expect them to come to an end, because it seems like they keep happening every quarter?

Eric La Fleche

Well, I wouldn’t say every quarter, but they have been happening, but hard to predict. I mean, obviously, we know we start with the stat rate monitor the impact of the Couche-Tard earnings that are tax for the capital gains. That gives you a high 24% starting point. As we do our tax planning, there is things that are, as you pointed out, they’ve been positive for us. And these are real tax reductions, not just an accounting entry, these are -- but they are not recurring. And I agree with you. Hard to predict Michael one that will come down. But if you look at the past quarter, we've always been able to find ways to reduce our overall tax build. But it won't be 22% going forward under recurring basis for sure. We might have a few more next year, but I suspect we’ll be closer to the mid to high 24 level.

Michael Van Aelst

That's including the Couche-Tard, so excluding Couche-Tard, you’d be close to your statutory rate?

Eric La Fleche

Yes, but Couche-Tard is, as I said, it's tax for capital gain at 13%, so the blended tax rate between our income and the Couche-Tard earnings that's what gives you the high 24 starting point. And listen if we can find ways to reduce our overall tax expense, we’ll continue to do so. But on a recurring basis, that's where it would be the mid to high 24.

Operator

Your next question comes from the line of Irene Nattel from RBC Capital Markets. Your line is now open.

Irene Nattel

I'd like to please come back to the discussion around same store sales growth, top-line inflation of 70 bps higher than CPI. Can you talk a little bit about how you're managing your flier and your promotional strategies to deliver better -- to deliver same-store sale and inflation numbers that are better than CPI?

Eric La Fleche

Well, it's a question I guess of good merchandizing and promotional mix, and regular price mix, based on the markets that we have, especially on the perishable. So I wouldn't say there was much change on the center store. But I think we, as I said earlier, we were able to generate a bit of inflation internally. With cost opportunities on the fresh side, we were able to merchandize and promote some items that meet little higher prices than last year. So, that generated a bit of inflation in the quarter. So came in slightly above CPI, and it is what it is. But we'll remain competitive going forward and I have confidence that our teams will execute well and have efficient merchandizing that will continue to do well for us. So, I don't want to comment in more detail on precise strategies Irene; but again, pleased with our same-store sales and top-line growth, and market share.

Irene Nattel

And just continuing on that whole theme, in terms of growth of discount versus conventional and in terms of penetration of items on promotion versus shelf-pricing. Was there any abatement in Q4 in terms of the year-over-year change in those items?

Eric La Fleche

I wouldn't call it abatement. The promotional penetration is, I would call it, stable, remains high its part of our strategy, but it's not abating. The discount versus conventional mix, as I said in earlier response, discount is continuing to grow a little faster but at a slower pace than before. So, we're pleased with our mix.

Irene Nattel

And just in terms of Adonis and Première Moisson, what kind of benefits are you seeing in terms of the sales levels in-store from those flagship products, if you will?

Eric La Fleche

So, the Première Moisson offering in the Metro stores is complete. So, all Metro stores in Quebec and a lot of our Ontario stores too have, I would call it, an elaborate offering of Première Moisson brands. The full pastry offering and daily offerings and parties and what not, it's in our concept two stores. So we've about 25 stores in Quebec that have that expanded offering, not just beyond breads, I would say. So, that's doing well for us. We're investing in as we renovate stores, we incorporate the Première Moisson more elaborate offering into Metro stores in a measured way. So, it's on track, I would say.

The Adonis products in our Metro stores, we continue to sell a higher number of the imported dry grocery products that's finish imports for us. So, in our discount stores and even in our Metro stores, depending on the market, we're seeing higher sales of our Phoenicia and feeder products, which is a differentiator for us. And as far as the fresh items, as you may have seen, marinated meats and the flagship -- some of the flagship Adonis meat items, we do well in our Metro stores. And we're pleased with those sales, so no big news to report on that front, we’re just progressing well.

Irene Nattel

And just finally, if I may. Are there any efficiency programs that you guys want to call out for F17?

Eric La Fleche

No, we're constantly looking to be more efficient. Store labor is a big focus it's a huge expense for us, as you know. So, we’re constantly trying to be more productive to facilitate the work in our stores since we’re more efficient supply chain. So there is a lot of work going on in the back office, supply chain distribution, to make our stores even more efficient and inside the stores, to be more efficient and lower strength. So that’s a continuous process. And I don’t want to call-out one specific initiative, but it’s a permanent focus to be efficient and continue cost. So, I’ll leave at that.

Operator

Your next question comes from the line of Kenric Tyghe from Raymond James. Your line is open.

Kenric Tyghe

Eric, I wonder if you could speak to the performance in the context of the current market of your WOW stores. And perhaps again just looking forward, how that performance would impact your thinking or roll-out with respect to that format? Then sophisticate your thoughts for us to whether that performance would have you looking to accelerate that roll-out, whether it's providing a valuable buffer or whether you see it as being something you would look to accelerate? Or perhaps just more broadly, how are you thinking about the WOW format, going forward?

Eric La Fleche

We’re pleased with the WOW stores. We have about 10 in each province with the full WOW offering; pleased with the results; continuing to renovate source with that concept in both of our markets. So, when we say 40 some renovations next year, there will be some WOW stores in there. So, we’re going to continue to roll-out in a measured pace and a disciplined capital allocation, which we try to do. We also have what we call a WOW lighter version. So, as we renovate stores in markets that maybe do not need all the services, all the bells and whistles, we renovate to provide a very nice store, but at a lesser cost.

So, we try to balance the opportunity in the market with the investments. So it's not, let’s go roll-out multimillion stores in a fast pace, it's we really look at it store-by-store, and we try to get a good return on all of our investments. And in urban locations, higher density populations that we’ve done several in Toronto in closer to downtown core; very pleased with those results; very pleased the customers feedback; and we’ll do more next year as we expand the circle in the GTA. And the same thing is true in Montreal and in Quebec. So, it’s a good format. We believe in the future of a good conventional store. And we will invest in that format in a measured way.

Operator

Your next question comes from the line of Vishal Shreedhar from National Bank. Your line is open.

Vishal Shreedhar

I just want to get your thoughts on click-and-collect, and what Metro sees for those projects in the future?

Eric La Fleche

So, as we announced recently, we just started the business. So Phase 1, we have three stores offering click-and-collect, and one store offering delivery on the Island of Montreal. So, we’re testing, and I would say, starting the machine. It was a serious project; an investment over the last year; the team did a great job. I think our platform is robust. The customer interfaces is good. We’re getting very good reviews. But its work-in-progress and very, very early days, low volume, but we’ll see where it goes. So, we’re going to expand this as demand calls for it. It's the e-commerce for food is just starting, and we will be ready when the demand, if and when the demand increases. So stay tuned. We just started.

Vishal Shreedhar

And I think I know the answer to this question, but I am going to ask anyway. Couche-Tard ownership, where do you stand with that?

Eric La Fleche

Well, we’re happy shareholder. It’s a great investment. Obviously, we like to -- we have no intention of disposing until we have user proceeds; so happy to hold-on.

Vishal Shreedhar

So just expand on that a little bit. So, there is no threshold level at which you say this is too high for us as centric market cap. You just look for an alternative use of proceeds, and if you find one then you’ll act?

Eric La Fleche

It's an investment we monitor, and we are very aware of where it sits, and its value. So I will -- for now, we’re happy with our investment. And we have no plans to divest, but it's something that we monitor. So I’ll leave it at that.

Operator

Your next question comes from the line of Peter Sklar from BMO Capital Markets. Your line is open.

Peter Sklar

Eric, during the inflation-deflation discussion, you mentioned that you were able to trade some of your internal inflation n some categories like meat. I wasn't quite sure what you meant by that. Does that mean you were able to raise prices on certain commodities that are in fact declining? Or does it mean there is some mix substitution within the category?

Eric La Fleche

I am refereeing to mix substitution in the category. No, we’re not increasing prices when they’re decreasing, it's market opportunities. In the summer last year, meat actually has been on an inflationary turn for a couple of years, that's since the summer now, or may be late spring and summer, meat has been -- costs have been coming down to more normal levels and that has allowed us to merchandize differently and change the mix. So price your cuts of meat, which were less affordable a year-ago are now more affordable. So that we can put them on the flair and we can put them at lower regular prices. And actually sell more of those than we did last year. So that's what I was referring to.

Peter Sklar

And just lastly wanted to ask about the CapEx, could you explain again how the CapEx is split, like store cut-backs, the split between the Company and franchisee? And how much franchisee capital do you anticipate being spent next year in addition to your own?

Eric La Fleche

Well, franchisee, let's call it affiliate capital in Quebec, independently owned Metro stores. They have normal, I would say, run-rate capital. There is a few projects in the works next year. So, when we say about $300 million invested in the retail network, $350 million about the total Company. The $300 million in retail network include affiliates, but it’s a small proportion of our total retail CapEx.

Peter Sklar

And do franchisees spend any capital or no?

Eric La Fleche

Well, the franchisees -- so in Quebec 85 to 90 stores are franchised. So the capital in those stores is we put up, it's in our numbers.

Operator

Your next question comes from the line of Tal Woolley from Dundee Capital Markets. Your line is open.

Tal Woolley

I just wanted to start-off talking a little about labor rates. Obviously, you had a minimum wage rate increase here in Ontario on October, I believe. And then; just wondering if you could comment on the outlook for Ontario and Quebec, and your discussions with unions, how that is going over the last couple of while?

Eric La Fleche

We have nothing special to report. We have good relations with our labor union partners in most provinces. The minimum wage increase in Ontario is legislated. It's related to CPI, and it took effect, as you said, in October. Our labor agreements reflect that structure. So, I think our labor units are competitive. We have agreements that come up for renewal every year, and we negotiate -- and we don't anticipate major issues. But there is always negotiation, and we have to make sure we're competitive. We compete with a lot of non-union format, as you know. So we're very diligent about that. And we try to make sure we stay competitive.

Tal Woolley

And just my last question is on freight, obviously, with oil having backed-off so much over the last couple of years. I'm assuming that provided some free tailwind for you. How are you thinking about your freight outlook for the next 2Q?

Francois Thibault

Yes, you're right. There has been a reduction, and that's been included in our numbers. We expect pretty much similar levels going forward. But obviously, it's not something that we can forecast on a long-term basis. But for now we expect pretty stable on that front.

Tal Woolley

And then just lastly, in Quebec for pharmacy, I think there was some hope that there might be a grander bargain reach before the end of the year. What's your sense of the state of the regulatory reforms in Quebec right now?

Eric La Fleche

Well, it remains unclear unfortunately. We hope that we will get more visibility the sooner is the better. But we're still -- there's still no change. So, there're negotiations going on with the Ministry of Health and with the pharmacists, and there're regulations being published that would allow for certain things. But nothing is in effect. So it's wait and see.

Operator

Your next question comes from the line of Keith Howlett from Desjardins Bank. Your line is open.

Keith Howlett

I was wondering if there is plans to convert additional Food Basics or -- additional Metro stores to either Food Basics or Super C?

Eric La Fleche

Yes, we do Keith, a few every year. So, there is a couple of conversions from Metro to Super C underway now. Those stores will open the Super Cs within the next month in Quebec. So, there's a few in Quebec planned for this year, and one or two in Ontario. So for the year ahead, that's about the numbers, couple of conversions in each province.

Keith Howlett

Then I was wondering on the private-label. If you could speak as to the number of items you have now, or the trends of the private label business?

Eric La Fleche

We're pleased with our private label penetration and sales going up. Our selection in the irresistible two-tier offering is working well for us. Irresistible is getting awards and prices for quality and design. So, we’re pleased with our offering, and our sales. So, we won’t -- the flow is specific, but trending in the right direction and it’s a differentiator for us, especially well in our discount stores; and also in our Metro stores as a value proposition and helping with price perception. So key part of our strategy and happy with the trend.

Keith Howlett

Then just on the center of the store merchandise. Are you satisfied with your unit share trends in the center of the store?

Eric La Fleche

Well, we have a much better share in fresh and we do incentive stores. So, I can’t say we’re thrilled, and there is room for growth for us. Center store in the grocery channel is a challenge. I think we have strategy to improve, but work-in-progress. And there is a room to an opportunity to sell more in center store, we’re working on that.

Operator

[Operator Instruction] Your next question comes from the line of Patricia Baker from Scotia Bank. Your line is open.

Patricia Baker

Eric, you indicated that the first-half of the ’17, you will be cycling against very strong inflation. So that’s going to make it a little bit difficult. So, I guess it’d be fair to say that the corollary to that is at the second half you’ll be cycling against lower inflation, so the comparison to be a little bit easier?

Eric La Fleche

Yes. And yes for sure. And I think we all have to look beyond one quarter or two [multiple speakers], and yes, so exactly. So the second half of 2017, inflation levels were more normal. And so we’ll be cycling that, and hopefully with more normal inflation, so, yes.

Patricia Baker

You also in your comments said that you’re confident that Metro will be able to navigate well, even through more deflationary times. And I am just -- and as you have done in the past. And I’m just curious whether when you’ve had to face that before, how helpful was your inside data and the dunnhumby relationship, and being able to provide you with tactics and tools, and an ability to navigate through those times to make the right pricing decisions, and the right promotional decisions?

Eric La Fleche

Well, there’s one tool in the toolbox, but experience and good merchandizing abilities are important tools too. So, its being aware of market offerings, capturing those opportunities on the market, and using all of those insights and combine that with experience and good execution. Its hopefully what will get us results that we’ve had before. So, it's always challenging but I think the teams are up for it.

Patricia Baker

And just on the -- you were discussing earlier about meat prices seen deflation because they had been very high for a couple of years. I mean wouldn’t that be an example of meat prices coming down being an example of what we would call good deflation. You kind of want meat prices in a range where they’re affordable for the consumer, that’s just put them in the basket?

Eric La Fleche

Yes, absolutely. Beef tonnage, in particular, was under pressure. With more normal prices, cost and prices today, we expect that beef tonnage will increase as we’re seeing a bit right now. So hopefully that will continue.

Operator

Your next question comes from the line of Keith Howlett from Desjardins Bank. Your line is open.

Keith Howlett

I just wanted to ask about the click-and-collect. Is the store that offers delivery one of the three that is click-and-collect? And then in terms of click-and-collect, do you have pick teams in all three stores, or is there like a centralized picking operation?

Eric La Fleche

So, the answer to your first question, yes the store that offers delivery offers click-and-collect also. And to your second question, in each store, there is a dedicated team that has been trained to pick. So, it's a process, an operational process with the training that’s been done, the systems, the in-stock position in those stores, we have to pay particular attention to. We do everywhere, but especially on the e-commerce side. So, the substitutions are as low they can be. So, I think that, as I said earlier, we came up I think with a good robust system and processes. So, we’ll look forward to the more customers.

Keith Howlett

And would you have picked different types of trade area, like suburban, downtown, or are they all sort of similar where you think the greatest potential already exist?

Eric La Fleche

One, I would call center of town, the Montreal Island store it's back in the middle of the Ireland. The other two are suburban stores. The click-and-collect stores are suburban stores.

Operator

There are no further questions, at this time. I turn the call back over to the presenters.

Roberto Sbrugnera

Okay. Thank you for having joined us today. And we will be releasing our first quarter results in next year on January 24th. Thank you for joining us.

Operator

This concludes today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!