Metro Inc. (MRU) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Metro Inc. 2023 Second Quarter Results Conference Call.[Operator Instructions] This call is being recorded on Wednesday, April 19, 2023. I would now like to turn the conference over to Mr. Sharon Kadoche, Manager, Investor Relations and Treasurer. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us today. Our comments will focus on the financial results of our second quarter, which ended on March 11. With me today is Mr. Eric La Fleche, President and Chief Executive Officer; and Francois Thibault, Executive VP and Chief Financial Officer. During the call, we will present our second quarter results and comment on its highlights. We'll then be happy to take your questions. Before we begin, I would like to remind you that we will use in today's discussion different statements that could be construed as forward-looking information. In general, any statement which does not constitute a historical fact may be deemed a forward-looking statement. Words or expressions such as expect, intend, are confident that, will and other similar words or expressions are generally indicative of forward-looking statements. The forward-looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy, our annual budget and our 2022 2023 action plan. These forward-looking statements do not provide any guarantees as to the future performance of the company and are subject to potential risks, known and unknown as well as uncertainties that could cause the outcome to differ materially. Risk factors that could cause actual results or events to differ materially from our expectations as expressed in our forward-looking statements are described under the Risk Management section in our 2022 annual report. We believe these forward-looking statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward-looking statements, except as required by applicable law. I will now turn the call over to Manta.

Thank you, Sharon, and good morning, everyone. Total sales for the quarter were $4.6 billion, an increase of 6.6% over last year, with food same-store sales of 5.8% in the quarter and pharma same-store sales up 7.3%. The -- our gross margin stood at 20.1% of sales, same as in last quarter -- in the second quarter last year, with both food and pharma gross margins stable year-over-year. With high food inflation persisting, the company has continued to invest in food margins during the quarter, but this was offset by productivity gains in direct labor, and as such, margins remained flat year-over-year. Year-to-date, food gross margin is down, partly offset by a higher margin in pharmacy. Operating expenses increased 4.9% to stand at $467.7 million or 10.3% of sales versus 10.4% of sales in the same quarter last year. 8 million in gift cards were paid last year, whereas this quarter, we also had new expenses that were incurred for the launch of the loyalty program on as well as fees paid to partners for the express delivery e-commsales. So EBITDA for the quarter totaled $447.3 million. That's up 8% year-over-year. And as a percentage of sales, EBITDA was 9.8% versus 9.7% last year. Total depreciation and amortization expense for the quarter was $120.6 million versus $116.3 million for the same quarter last year, and the 3.7% increase reflects the additional investment in supply chain and logistics as well as in-store technology. Adjusted net earnings were $225.4 million compared to $204.7 million last year, a 10.1% increase. And our adjusted net earnings per share amounted to $0.96. That's up 14.3% versus last year adjusted EPS of $0.84. Halfway through the fiscal year, capital expenditures amounted to $288.5 million versus $285.7 million last year. And turning to our current normal course issuer bid program, we have repurchased between November 25, 2022 and March 31 of this year, a little over 2.9 million shares for a total consideration of $210 million, representing an average share price of $0.81 a share. That's it for me. I'll turn it to Eric.

Thank you, Francois. Good morning, everyone. Building on our strong start in fiscal '23, we are pleased with our results in the second quarter as our teams continued to deliver value to our customers in the current high food inflation environment with competitive everyday prices, our full range of private label products effective promotional strategies and our loyalty programs. Our commercial programs continue to resonate well with our customers resulting in market share gains. Total sales grew by 6.6%, EBITDA by 8% and adjusted EPS by 14.3%. Food same-store sales were up 5.8% compared to elevated sales last year because of the Omicron variant with many restrictions on capacity and access to restaurants limited, if you'll remember. Our internal food basket inflation was 9%, slightly lower than in the previous quarter. Compared to last year, traffic was up while the average basket came down slightly. Promotional penetration remains very high as consumers search for value. Turning to online. Sales were up 41% versus last year, driven mostly by successful third-party marketplace partnerships and added capacity. Pharmacy comparable sales were up 7.3% on top of 9.4% in the second quarter last year. Prescription drugs were up 5% and commercial sales were up 12.2% primarily driven by over-the-counter products, cosmetics and health and beauty. We are looking forward to the launch of the MOi loyalty program later this spring across our Quebec banners. MOi we'll leverage the strength of our food and pharmacy networks where over 95% of Quebec households already shopped during the year, offer more points collection and redemption opportunities and enable more personalized promotions and greater customer engagement. Turning to the modernization of our supply chain. We are pleased with the operations of both fresh Phase 1 and the new freezer in Toronto. Our frozen DC is exceeding expectations in terms of productivity and capacity. About 95% of frozen products are now shipped through the DC versus 70% previously. This results in improved on-shelf availability for our customers and more efficient operations. In the province of Quebec, construction activities are now completed for the new fresh and frozen DC and Tubun and the installation of the automated systems is on track to start operations at the end of this summer. As we begin our third quarter, we remain focused on delivering value to our customers with quality products at competitive prices as higher than normal inflation and market challenges persist. Compared to last year, the number of price increase requests received from suppliers in the months of February and March came down as well as the size of those increases. While we are not able to predict how the current macro environment will evolve, we expect some moderation in food inflation. To conclude, the draft grocery code of conduct is expected to be released in the coming weeks, and I want to reiterate that the Metro has and will continue to support industry-led initiatives that enhance transparency, predictability and fair dealing throughout the supply chain. Mitas played an active leadership role in the drafting of the industry-led grocery code of conduct and is supportive of its widespread adoption. Thank you, and we'll now be happy to take your questions.

[Operator Instructions] Your first question comes from Mark Petrie from CIBC.

I wanted to just start out on the food gross margin performance. And Francois, you called out productivity gains. And I'm just hoping you could expand on that a little bit. Is that stem specifically from the new DCs? Or is that more broad? And I'm just curious if sales mix in one form or another, either category or channel had any notable effect?

So basically, the productivity gains come from 2 factors. One, top line growth is still healthy. So you get efficiencies because of the increase in sales. But also, as you pointed out, our investment in DCs are showing improvement. So there's less labor touching the product to bring it to the store. So we're gaining efficiencies in that respect. So it's mostly these 2 factors that explains the improvement. Even though we made some investment in margin at the merchandising level, those were offset by these direct labor gains, so that overall, the margin remained flat.

Okay. And so is it fair to say then that those productivity gains accelerated in Q2 from Q1...

Yes. Yes. It's -- yes, I am cautious when I say that. But yes, these are long-term projects, but we're looking at the improvement -- the learning curve and the productivity improvements, as expected, is increasing. And as Eric pointed out, the performance of the freezer, especially is above expectations. So that is showing up. And yes, we expect that's not over. And as we move to the next phases, that's what we expect to have in coming months, coming years. But there has been an improvement in Q2, yes.

Yes. Okay. Appreciate that. On SG&A, obviously, another great quarter controlling costs. Hoping you could just expand on the various pieces there? And then specifically, what kind of wage inflation are you experiencing in your business today? Or are you seeing in terms of your union negotiations?

Well, the SG&A, as I said in my remarks, a 4.9% increase, it was 4.2% in Q1. So I think we're -- as you say, we're pleased in the environment that we're in. We're pleased with that year-over-year increases. We did have $8 million of gear cards last year. But as I said, there's also new items this year, which were not there, like the launch of MOi and the fees that we pay for the express delivery sales with our partners and e-comm. So all in, on looking at an increase at 4.9%, we're okay with. And as I said, this is a focus for us as we move forward. There's more of a lag in SG&A than cost of goods sold, obviously, with respect to inflation. So we've got to be mindful and we're going to make sure that we're on top of these expenses as top line growth will -- as top line growth will will -- is expected to come down as inflation pressures ease off. So that's the first thing. On the labor contract, yes, obviously, as labor agreements come due, people are looking for some catch up. So the first year of a new labor agreement is a higher-than-normal increase, but as we negotiate multiyear agreements so that on a CAGR, if you will, for the next 4 or 5 years or more that the labor agreement is in place. It's a reasonable CAGR. So -- and it's something we manage as you've seen in our SG&A is something that we can manage. But yes, there are some cost increases, minimum wage that we manage. So I think overall, so far so good.

Your next question comes from Peter Sklar from BMO Capital Markets.

Your food same-store sales was positive 5.8%, but your inflation, I think you said in the write-up was 9%, suggesting you lost some tonnage. I'm just wondering how you reconcile that with your statement that you gained market share during the quarter. So maybe you could talk a little bit about the ins and outs of all that arithmetic.

So on the market share, we rely on Nielsen market track data that we track weekly, monthly, quarterly, and we can say based on those figures that we are gaining share overall. So very pleased with our market share performance, and it has been the case for the last few quarters. On tonnage, the quick math that you're doing is a bit misleading in this high inflation period, the discount mix package, private label sales. There are different factors at play here that indicate that our tonnage is more like flat to slightly positive versus the decline that you get on the back of the envelope calculation that you're using. But we're pleased overall with our performance in discount. Obviously, discount continues to perform very well, market-wide. And for us, very pleased with our performance and discount. Our conventional stores are not growing as fast. That's a market reality. But within the discount -- within the conventional segment, we're pleased with our relative performance. So those would be my comments.

Okay. Understood. And then just my last question is with the launch of MOi, you briefly touched on it in your commentary, Eric, but can you elaborate a little bit on it. What are the advantages for the consumer? And what are the advantages for Metro?

So the consumer will get more opportunities to collect points and redeem points throughout our channel of food and pharmacy. So instead of just metal stores in Quebec, it's metro, Super Sewell participate. Jean Coutu banner will be the big newcomer and Bernier. So more stores or opportunities to collect points online and in store for our customers in Quebec. Like I said in my opening statement, almost everybody in Quebec shopped one of our banners through during the year. Hopefully, they'll shop even more with this internal what gets called an internal coalition program in the province of Quebec. So I think for customers, it's an opportunity to get points, save money, get targeted promotions on what they buy, what they like even more so. So we think it's a more personalized, more generous program for our customers. And for us, we get better visibility of customer behavior throughout our stores. So I think that gives us and our vendor partners more opportunities to target and be more personalized and engage more with our customers. So we think it's a win-win. And the last new thing, I said it before, I didn't say it in the opening statement today is the credit card partnership with RBC. It's a co-branded card. So customers who select that card will collect points not only in our networks, in our stores, but they will collect metro points on whatever the purchase they make on that credit card. So we think that's going to be a benefit for customers, too. So we're looking forward to launching it in a few weeks. We're going to have a marketing campaign to support it. And hopefully, people will sign up.

Your next question comes from Chris Li from Desjardins.

Eric and from SI guess my first question is maybe a bit tougher one to answer, but just wanted to get your thoughts, even though inflation is starting to moderate, prices are still going to be meaningfully higher than a year ago. So I guess my question is, how sticky do you think the shoppers are who have shifted to discount how sticky are they? Will they remain there for longer even though inflation is starting to moderate a little bit.

Yes, prices are high, and that's why discount is growing fast. There's no big surprise there, but we do provide good value in our Metro stores. There are strong promotional programs in the Metro store, and there's good value for our customers there. And I think conventional stores are going to continue to do well. The transfer between one and the other, there's ebb and flow, hard to predict. I think overall, the general long-term trend favoring discount continues and will continue. But that doesn't mean that conventional stores are not going to continue to do well in many, many markets. It's the right store, it's the right format for the market. So we like to have both in our portfolio, and we'll continue to do well with both.

Okay. That's helpful. And maybe a follow-up to that is, was the transaction count at the conventional banner up compared to last year?

Yes. So customers are in the stores more often buying smaller baskets, but there's higher traffic in all of our banners.

Got you. Okay. That's helpful. And then maybe shifting gears a little bit, just Eric, if you can comment just maybe on what you're seeing in terms of the competitive intensity. And I wanted to maybe drill down a little bit in the Quebec market. As you know, one of your competitors have been converting some of the conventional banners to discount banners in Quebec. Are you seeing any notable impact on your business? Maybe just some comments on that would be helpful.

So yes, we're tracking all competitive activity in all of our markets, and we monitor the impact. So I can't say it's really store by store, market by market. In some places, it's hardly noticeable in other places, it's very noticeable. So it really varies. And for competitive reasons, I'm not going to say more.

Okay. But last one for me just on the drug reform side. Are you seeing any update? I know the agreement has coming done. Just any update on that on generic drug pricing?

So no, we're still waiting for resolution and news of those negotiations. So the agreement expired on April 1. So it's been extended for undefined period, but we are still awaiting the news. And hopefully, the reductions, whatever reductions or pricing that comes out of that will respect the realities of distribution. Our distribution fees are based on the price of these drugs and our costs are going up. There's inflation in the supply chain, as we all know. So I'm sure the government is aware of that, and we'll see where the negotiations end up.

Your next question comes from Vishal Shreedhar from National Bank.

Can you give me -- give us a sense of what will change at Metro for investors when you look at the company as a result of this grocery code of conduct?

What will change at Metro for investors...

Yes, look, as we get... Okay. So there won't be a...

Just to give you -- it's an industry-led code of conduct that will make big rules of engagement a little clearer, and it will encourage more written agreements between the parties so that there are no surprises and no unilateral decisions to increase, decrease in post fees or whatever. So it's not going to change how we go to market. It's not going to change the way we deal with our suppliers. We think our relations with the supplier community are good, are fair. We've always believed in fair dealing, and we do our best to deliver on the commitments that we make. So we negotiate fairly. We -- of course, we negotiate hard. We want to have a competitive thoughts it's not going to change the way we do business.

Okay. In your opening commentary, you mentioned that promotional intensity is strong. Wondering if you -- when you compare that to 2019, will you say it's at levels comparable or more intense than 2019 levels pre-COVID?

So slightly above pre-pandemic in terms of penetration, percentage of sales on promo versus regular, it's slightly higher now than it was pre-pandemic. So again, very much a function of high inflation. -- features, specials are selling more, people managing their budgets, very normal behavior. And we try to serve our customers the best we can. We have promotional strategies in all of our banners, and we try to be as effective as possible. And I think our results show that they have been effective. So we're pleased with that.

Okay. And maybe on another topic here, pharmacy services, just given the long-term outlook of that business, I would anticipate the pharmacy services in their drug stores to increase? And wondering on -- given that your business is franchisee, is that -- do the economics predominantly flow to the franchisee? How should we think about how Metro thinks about pharmacy services and your inclination to expand that?

Yes. So it would -- pharmacy services are going to grow. Yes, we expect long term that number will continue to grow to relieve pressure on the public system and demographic reasons that you know very well. So the economics of it will influence or impact our franchisees and will impact us. The franchisees makes a fee or charges a fee that's negotiated with the government on the value of those services for the most part. And we -- and those services become part of the retail sales of the franchisee, and we make a royalty off of that. So it has an impact on us. So we are working with our franchisees through our professional services group to be the best in the market to deliver those services in the most efficient way for our patients, for their patients and for the pharmacists. So Yes, it's a focus of our team, for sure, and we're looking for more down the road.

And maybe just one last one here. Obviously, encouraging to see some of the initiatives that Metro has been working on for several years starting to bear fruit in terms of on the P&L. But can you give us some insight on the capital expenditure and when you expect that to normalize? Are there any other big projects in the pipe after the supply chain initiative? And what is the normal level of CapEx that we should expect for Metro after the supply chain initiatives?

Yes. So I'll take that one, Vishal. So as we said, we did $620 million last year, which was a record. We called about $800 million this year and probably a similar level next year. So the biggest years in terms of CapEx is this year and next year. This year and next year. As we finalize the Tuban and then we come back and finish fresh Phase II in Ontario. And then you'll start to see CapEx coming down. In the number that -- in the $800 million number for this year, there is some real estate, which can be a little choppy. So we know it's not as precise as P&L. But -- so we'll stick to that. And if there's any change, we'll give you an update. But to your question, this year and next year will be the 2 biggest. And then you come back down to a more normal level, which is going to be around $500 million, I would call it, roughly. That includes both food and pharma on a regular run rate investment. So this is all factored in our plan. We are looking to earn the rate of return as we do all projects in which we invest. And so far, we're -- as we said earlier, we're tracking well on these big projects.

Your next question comes from Irene Nattel from RBC.

I think we're all kind of trying to square the circle on consumer spending behavior today versus pre-pandemic. So you said the promotional intensity was higher. Where do we stand on discount versus conventional and also private label and things like tax size? If you could provide a little color there, that would be great.

Yes. So promotional penetration, as you said, is higher. It's high, it's elevated. It has creeped up with the high inflation. It was -- it went down early in the pendemic. -- if you'll remember, because of people doing one-stop shop and availability of product was an issue. So last year, when inflation started to pick up quickly, promotional penetration picked up also very quickly, and that's where we are. So I think we're back to a little above pre-pandemic levels, and we expect that to stay elevated. Discount versus conventional continued -- it just continues what we've said for the last 3 quarters. Discount is growing substantially faster than conventional and that continues for us and the market in general. Again, we're well positioned in discount in both of our markets in Quebec and Ontario, and we're pleased with our performance and discount on a relative basis and on an absolute basis, I'm very pleased with our share. So private label throughout all of our banners is growing at double the rate basically of sales. because they provide -- our private label portfolio provides a lot of value to customers, lower prices, great quality. So we're very pleased with that performance. And I think our portfolio of 4,000 or so private label products is the best quality it's ever been. And I think a seating well and being bought by a lot of customers more and more in our stores, not just yes, the price, but the quality is there, too, and that builds loyalty and it builds repeat purchases. So there's not much change net-net on customer behavior over the last few quarters. This was the fourth quarter basically of very high inflation. So it's very similar to what we described in the last few calls.

That's really helpful, Eric. That 4,000 SKU number on the private label, has that been relatively stable? Or have you been increasing the private label? Because it looks like there's more of -- or they're just redoing and they look good.

Yes. Well, the packaging is redone once in a while, and they're labeling requirements that force us to redo packaging. So well at it, we improve it. So yes, no, I think the team has done a great job. The 4,000 number is plus or minus in the same numberhood as it's been for a long time. I think the quality and the innovation has improved a lot over the last 5 years. So I think that's reflected in the sales performance we're getting for those products.

That's great. And then just coming back to the launch of MOi, is there anything you can share with us at this point about the ease of conversion for existing Meta customers and whether we should be expecting another step-up in spend around that in the current quarter.

So for Metro and MOi members, cardholders, it will be similar. So they will have to do nothing and their card will be accepted on their purchases at our other stores, other banners in addition to metro -- so at [indiscernible] there will be a campaign to sign up members, a lot of Metro MOi members shop at Juno already. So for them, it's going to be seamless, but those that do not, we will have to sign them up as new members. So we'll have in-store campaigns, digital and in-store to sign up the membership. We have 1.2 million members of mid-wins we're looking to increase that substantially over the next year, and we'll put some gunpowder behind it on the marketing side.

So to your question, Irene... To your question there will be some expenses in Q3 as they were in this quarter, and it's part of the -- it's planned and it's part of the pool of the expenses that we manage. So we'll give more color on the next call.

That's very helpful. And then just finally, if I may. On PJC, front of store, very strong. Can you talk about what you're seeing in the current quarter, where we are in terms of sales levels by category relative to pre-pandemic and how you think -- how you expect that to evolve?

So thanks for the question. Very strong front store sales in Changshu in the last few quarters, the cough and cold season has been long and strong. which drives traffic, as you know, in our stores. So it's very good for OTC sales and traffic, and we sell a lot of other stuff. -- beauty and cosmetics has done really well also. Since the end of March, cough and cold season has abated quite a bit. So we're seeing lower OTC sales currently and expect that to be so for the next little while until the next burst in cough and cold and viruses comes about. So we were expecting that. I -- the peak of cough and cold was, like I said, long and strong. So at some point, it has to come off. And I think we're going to be through that in the next few months. So we're expecting lower front-end sales performance going forward, but still healthy -- on Rx, you saw from the 7% or so increases we saw in previous quarters, down to 5% in this quarter, still very strong Rx performance. You have to remember that last year, we were distributing tests for COVID and that counted in Rx performance. We were providing vaccines. So there's much, much less of that going on today, and there's no more distribution of test. So that caused a few points of growth on the Rx, but we're still very pleased with the 5% growth. And we look for continued strong performance on Rx going forward. I hope that answers your question.

Your next question comes from George Doumet from Scotiabank.

Just a couple of follow-ups for me. On the pharmacy, do you know the Rx kind of volumes for prescriptions volumes, do you know where they are versus pre-pandemic? And maybe on that front end front-end 12% comp number. Can you maybe break out how much of that was pricing?

So we'd have to get back to you on volume of our IFRS 2019. I don't have that top of mind. And on the pricing, there was inflation. There's inflation on the pharmacy commercial sales, not as elevated as what we're reporting for food and the 9%, 10%. It's more mid-single digit on Habaproducts. So that is also a factor in the elevated commercial sales. And... We expect that to moderate also as we expect food inflation to moderate going forward, we're expecting some moderation on the pharma side, too.

Got it. On the gross margins for Food, I think last quarter, you called out higher feature penetration, weaker produce margins. Just wondering if that pressure was consistent this quarter and maybe if there's any other headwinds that you might want to call out?

Not really. I think the margin performance in the current environment, very competitive, high inflation, you have to be sharp. You have to be how should I say, I think our teams are doing a really good job to deliver that value and deliver a decent margin. So like Francois said, we invested in gross margin. We're not passing on all the inflation that we receive. But productivity on the labor front, which counts on the cost of goods sold was better. So we're reporting a flat margin. But other than that, we're happy with our performance.

Okay. Just one last one, if I may. What would be your outlook maybe for tonnage growth for the second half of the year? I know we've been kind flat to up a little bit, but your outlook there, and I know it's a bit of a crystal ball question, but what needs to happen for discount to stop outpacing conventional going forward, I guess?

We don't provide guidance or outlook for tonnage growth. We'll -- like we say, we provide many formats, many stores, and we're looking for increased sales in all of our stores, be the conventional or discount or pharmacy. What has to change for discount to slow down. Like I said earlier, it's inflation remains elevated. It's hopefully going to moderate, but it'd still be elevated versus pre normal inflation that we used to have. So you can expect discounts to continue to perform well short term. That's what is all I would say.

[Operator Instructions] Your next question comes from Michael Van Aelst from TD Cowen.

I wanted to get back on to the gross margin a little bit. You talked about the productivity gains from your frozen DC. Can you just give us a bit more color on how that's ramped up over the past couple of quarters since you opened it and how much more upside there is to come from that?

Well, so it has ramped up. Obviously, when you first go live, it's not near where it has to be, and it's not near as what the old warehouse we're doing, but it's as we said, it's performing ahead of business plan. And so there's been a steady increase in performance, and we -- eventually, that will get to the business case, the sort of the run rate level. We're not there yet. And then the fresh Phase 1, same thing that continues to ramp up. Taban will go live. So we'll have a similar pattern where it will be learning curve and some doubling of admin, which is as per plan. And then as you start ramping it up and moving forward, we expect to see sequential improvements as well. So doing it in phases is sort of minimizes the impact -- the overall impact. We're trading. We're reducing labor, but -- and getting efficiencies in labor at the expense of depreciation, but I'm pleased with the year-over-year depreciation expense, $3.7 million given the investment that we're making, that's in line with our expectation, and I'm pleased with that number. So steady improvements, but we're not done yet. There's still some phases to go, but we expect for that to continue.

But just to pick up on that, the frozen DC in Toronto, as you know, is a fully automated facility, basically. And so fixed cost. It's a fixed cost operation pretty much. So as we load up the volume as all the DSD, the direct-to-store deliveries are transferred into the DC. We're increasing volume and the thereby getting productivity gains, efficiency gains, and that's what's helping a lot. So it's not quite full yet, but we're getting there. We have transferred pretty much all that's supposed to be done out of there. So now it becomes a question of putting -- how should I say, just gaining more efficiency in our operations. But in terms of a substantially higher fixed cost operation and most of the volume is in there now. So going forward, it's going to be tweaks and improving it. We still see room for improvement, but we've received our most of the gain.

Okay. And earlier in your -- in the conference call, I think you said -- did you say there was 95% of the product was now going through the DC the pros?

Yes. for our Ontario stores. So from 70% or so, 30% DSD, we're now 95% DC, 5% DSD. So that's better for the customer because there's more product on the shelf, and it's better for our efficiency, both in the DC and in the stores. So that's why we did it. So we're on our way.

And do you expect to get to 100? Or is it 95% where it's going to [indiscernible]?

It might tweak up a little bit, but we're pretty much there.

Okay. All right. And then on the cost tied to the launch of your new loyalty program, the cost that you called out this quarter and as you said, next will continue next quarter. I'm assuming those are mostly launch costs. But do we see those go away? Or are they replaced by higher program costs in the future quarters? Are those -- are the higher program costs that you're talking about in terms of the increased points? Are those funded by vendors? Or are those funded by expectations for higher sales?

The launch costs are going to be onetime costs. The going-forward cost points cost we're going to pay with increased sales, and we're going to pay with vendor revenues that we negotiate. But that's all going to be part of the margin of the businesses. You shouldn't put a line an additional cost on Metro because of this program. This program is to drive sales and drive customer engagement. And yes, it costs money, but it will provide a return.

Mr. Kadoche, there are no further questions at this time. Please proceed with your closing remarks.

Before we end the call, I would like to remind everyone that METRO will be hosting an Investor Day on May 10. A webcast will be available for presentations made by senior management. Please contact me directly or sending e-mail for more information. And again, thank you all for your interest in METRO, and we will speak again soon to discuss our third quarter results on August 9. Thank you.

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines. Thank you.