Good day. Welcome to the North West Company Inc. Fourth Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Edward Kennedy, President and Chief Executive Officer. Mr. Kennedy, please go ahead.

Thank you and good morning it should have been good afternoon yesterday. So I'll start by apologizing for the Newswire, GlobeNewswire crash or glitch that has stopped us from getting the results out. That's why we rescheduled to this morning because I don't think it even was out before 1 o'Clock or 1:30 Winnipeg schedule time. So here we are. And before we start, I’d just let you know on the call with me are John King, our CFO; and Amanda Sutton our VP, Legal. Amanda will now read our disclosure statement.

Thank you, Edward. Before we begin, I’ll remind you that certain information presented today may constitute forward-looking statements. Such statements reflect North West's current expectations, estimates, projections and assumptions. These forward-looking statements are not guarantees of future performance and are subject to certain risks, which could cause actual performance and financial results in the future to vary materially from those contemplated in the forward-looking statements. For additional information on these risks, please see North West’s Annual Information Form and its MD&A under their heading Risk Factors. Edward?

Thanks, Amanda. So I'm going to get right into the misses in the quarter because they deserve an explanation. Before that, I'll just say, top-line, we are very pleased, all of our banners, ex-GT -- I am going to come back to Giant Tiger at the end. We're up mid-single digits on the comp side. We talked to up this before that we -- this is all of us getting sales right now at North West whilst there’s a few other things we have bottom down, but we think that we're -- this is our niche in markets that we serve and are countercyclical but they're quite different. And the spending and income profile that we have in front of us is quite favorable. So we've got our pedal to the metal on getting sales and building the business that way. Having said that, we had some big misses and I'm going to talk about what those where they come in roughly $1 million plus club so they are the ones we're at missing. In Northern Canada, we're putting in a new price management system part of our merchandise management system. It's -- although we're very decentralized company and we want to be that way for -- to compete locally and win, there are certain aspects that benefit from central control and one of them is price management. We don't have that system in place yet, but we've tried to put processes in place that allow us to more carefully and effectively manage price promotion activity, track our markdowns and really understand where we are on the margin side. In convert to that sort of in a manual way going into the second half of this year, we were very reliant on what we considered to be solid information in terms of our COGS or cost of goods sold, the other cost inputs like freight. And then the information that we track centrally on scanning -- we scan our shrink, any product loss, damage et cetera is scanned by stores. Promotional activity, store-based markdowns for a variety of different reasons, are all tracked. And then I'm talking now of the most sensitive price volatility categories which would be fuel and food. Much less still on general merchandise which is zone priced. All of our other -- food and fuel are priced by store. Every store has a unique pricing profile gear to its cost inputs and local competitive situation. So that, those are just the parameters as we then book our margins based on all of that information, we rely on the information we have. And we plan against that and we expect certain rates to result, that didn't happen. When we trued up our inventory at year-end, we had in fact -- we were higher on what we had thought we had than what we achieved by about $3 million in Northern Canada. So that was a true up and a real eye opener for us on that we're not quite ready for prime time on central price management. There are some store disciplines. I could go-on on this a bit longer, but I think the key for us and for I think our investors to understand is, we count on ourselves as being very good at execution on a relative basis and very hard to execute markets, given the remoteness and other logistical factors of getting the right people, enroll with the right standard operating procedures. This approach that I'm describing was another level of -- is another level of discipline in the company. We've had an initiative called Pure Retail that has script several hundred thousand hours of extraneous non-low value added work. And we felt that the table for a more button down approach on some of the things that really matter, including price management, and we clearly weren't there yet. So that caused by surprise. I mean, what I'm describing right now is actually the only plausible reason why we could be in front of you in December and then talk to you in March about our margin-ness -- it's not -- and as we get into it, we see that the breakdown in a couple of dozen stores where we didn't have that price discipline or inventory account procedures are not as tight as they should be as well. All these things can kind of slide by the side when you allow for a wide range of variability and then what you focus on margin. But we are getting much more precise and in some ways just catching up to what other retailers do albeit in a more sometimes difficult to operate environment. There's no excuse for this and it's pushed itself up quite a ways. We thought we were in the rollout phase of our IT system. We still are going to turn it on. But we have some real lessons to learn here on pricing discipline and inventory control discipline. The net effect of this financially when we step back and look, what we're still trying to unpack it is that just probably of the 3 million I just mentioned, simply saying well, half of you just have had higher prices or not, no. Half of that realistically should go back into margin, half we should assume should never been there in the first place, these are legitimate pricing activities that should have taken place in the store. So that's kind of where it ends up. It's -- one way, it's one time in nature and in another way, we expected to have $3 million more than we did. So we think half of that should easily come back in our budget for this year, it is there already. Bigger picture for us is to focus harder on our execution in pricing and inventory control. So that's $3 million and that's in Northern Canada retail by the way. It's interesting for me that, that in Alaska, we have a much stronger cohort of stability in our stores. And this is another recurrent theme that you've heard from me, perhaps [indiscernible] that store stability is really important for North West, relatively it's good. Absolutely, it needs to be higher in Northern Canada. In Alaska, we don't have this issue, or they are in some ways more ready to take on the new merchandise system that we are about to put in place. So we don't see as much variability, but they also have a more stable tenured cohort of store managers which we're trying to get to in Northern Canada. We just -- we’ve opened the training center here in Winnipeg last week. And I think that's a big step forward. It's a $1.5 million in annual investments to bring all of our store managers pre-hire or pre-going to their stores, both department store managers to the training center for a minimum of 30 days to ensure we've got the right core operating processes and still before they get out to the field. The next, missed in with $1 million freight overage compared to LOI. And this was a second year in a row, in the Mackenzie region of Northern Canada the government pulled out a lot of their ice breaking services that would help us continue to barge as Mackenzie River froze up. And until in fact, the ice was thick enough to then switch over to inner road. So it really minimized the usage of helicopter and more expensive airlift. That was cut back last year. What we do with our pricing in the Mackenzie region is we don't -- I mentioned how every store has individual price items tied to their cost inputs. We don't adjust that for the shorter seasons that I'm describing, where you have to use airlift. We average it. So we take a markup that would accommodate that in our planning, so the customer kind of pays for it through the course of the whole year and we don't get a big spike just because it’s been helicoptered or flown in for a month or more. In this case we underestimated what that bump had to be. We got caught off guard last year when the government changed, their service level -- and we thought we had it covered, we didn't. So that's almost another $1 million of freight loss or pardon me margin loss tied to higher freight that we had we were not going to put into our prices. This year we will recalibrate and make sure that we cover that off. So if you're following this, that’s $4 million out of NCR. Moving to the Caribbean. This is -- and again we've got all in the context of comp sales that are mid-single-digits, robust sales in the Caribbean. This is that I’d say planning this and maybe even guidance, but it certainly was in our plan that we would do better margin wise. Specifically and I will start BVI. So BVI has had great sales. We got reconstruction economy tourism coming back but last year we underappreciated that post hurricane recovery. Immediately post hurricane there was a massive resupply by consumers for what they needed and for to resupply their homes in every shape and form. Right now sales are great but we're back to the normal cadence of promotional activity. We are doing more wholesale business now with the yachts and the other retailers that are opening in our cash and carry business as a bigger blend of sales. It's all good news except the blend of everything I just mentioned is way lower margin than what we had coming out of our main store post hurricane. It was just the fact of nature so to speak that we had this unusual spike. We should have picked that up in our quarterly planning that we were going to have a pullback in our margins because of this. So that was a big one and it’s kind of the bad -- it's a hit in the quarter but it's part of a much stronger picture of where we sit today in our TW in our -- BVI business going forward. The other one just to a smaller degree Barbados and St. Maarten, we’ve got very strong results in St. Croix and we expect to see that when we finally get our St. Thomas door opened next November. But in Barbados competitive activity there and the general economy is still not as strong, so our margin eroded. And St. Maarten, although we’re up and running and sales are building, when you look at the macro factors in St. Maarten, it’s really a kind of tale of two islands, it’s a direct contrast to BVI and to lesser degree USVI, their GDP is still down, they haven’t figured out what their reconstruction financing arrangement will be Netherlands. So it’s a slower goal. We’re gaining the sales back slowing but it’s not as -- it wasn’t as profitable in the quarter, it was more like a relaunch of the store, still with some start up costs and it didn’t deliver a bottom-line that we would have expected. So that was margin hit as well. We had some write off from refrigeration issues there kind out of the gate. Even with our store opened in September some of these problems lingered in the Q4, so it was an underperforming on the margin side. Those -- what I’ve just mentioned is about CAD$1.8 million, as far as a hit in the quarter. And I am going to get to NSA. So NSA disappointingly to us, we didn’t have our plane flying and $16 million investment sitting on the ground and when I was talking to you in December we expected that plane to be up and operational. We’ve had an ongoing glitch with the fuel gauge that goes back to the manufacturer. It turns out that we now have a work around for that losses to fly the plane. So it’s been flying for the last 10 days every day. These -- the two ATRs that we run and to put in perspective NSA was overplan on revenue and it should never have a revenue problem because the planes I’m talking about fly 90% North West freight. The problem is on the cost side. With that plane sitting ideal we’re using very expensive chartered aircraft and there is no profit. It’s -- there’s nothing goes to NSA, it’s all cost, if the freight rates are okay to North West but NSA is getting no return on the investment that’s stranded on the ground. Combining with that is the maintenance ramp up that I described earlier and this is very much a switch on, switch off, until you’ve got your tools, our parts and your mechanics trained and all your operating procedures in place, the space leased or accommodated, you’re not doing your maintenance yet. So that hasn’t been fully operational. It has now started. As of February we’re done with all of our ATR line maintenance in our [indiscernible]. We pulled it all the way from the third party. And I don’t know if I gave enough color on this, I probably wasn’t aware of it much myself in December but our assessment of the fall choice to use a particular third party maintenance provider, it can only be described as a very poor decision. This provider was not capitalized efficiently to have the products on hand to do the work on a timely basis. There was never a safety factor with this but quality eventually was something that came to be a concern prospectively. So we pulled out and had to make this move. We had some temporary relationships established but we’re now free and clear from that maintenance provider and it was nothing but problems in the fall. So what is -- when we think about NSA and the how could things possibly be tougher than they were and we've had this looked at in many different ways and people who are fully objective, I'd say the NSA management team isn't because they're very -- I don't know they’re proud of what they can accomplish and very feel -- and bad about what’s happened and the mistakes that were made. But the people looked as independently say these planes, there's nothing wrong with these planes, these planes should fly 220 hours a month. And you will get your results, but you -- anything that could have happened against you happened in this year and once you've bought those planes that's -- it’s something we should consider to be recurring. So what is non-recurring look like? Well, non-recurring means the normal state in the sense of, we don't have these problems and there always be some in any business. But in our -- financially for us and all this tied is kind of back to the dividend, because the delta on NSA is $2.5 million in the quarter. And if we saw, we're going to continue to drive our business like -- we're fortunate if we cycle through it in 2019. That would be a different tone altogether, but we don't see that at all. And it's not flying the plane for 10 days and just -- isn't just green shoots, like we're -- we've looked at this hard and again there's no magic as to why the plane shouldn't fly once we've got it mechanically where needs to be. When that happens, I’ll just tell you our plans is that we've got $8 million to $10 million of free cash flow out of this business of NSA. And that's after a significant well normally -- a normal high level of CapEx goes back in, in terms of your engine overhauls. So the EBITDA is about twice that, but part of it goes back to the airplanes. We're considering to be legitimately free cash flow would be the 8 million range for sure and that's our goal for the year. So it's a big swing and it's one that we expected for the last two quarters to start to transpire and it didn't in the fourth, there's some things that are that we have to look in the mirror about in terms of, did we learn quickly enough? I'm talking about the North West side in terms of our governance of NSA. But I'm not going to make a bigger meal, because it's bad enough, but it's also not the way we see it anywhere close to the end of the world. I mean these are things that we picked up a lot of insight about over the last two years now 18 months since we’ve owned the front of the airline and are getting a very high level of comfort of what we're facing. And strategically are completely comfortable and aligned -- I'm talking about myself to NSA, up to the Board with what we're accomplishing here. This is a fundamental capacity, I am not going to say game changer, part of defensive, if you think about where we started protect yourself against monopolistic carriers with high freight cargo increases pending. To not just have controlling your own destiny, but creating something can go in longer and the synergies that we're putting together with North West, they've been kind of overshadowed by these operational challenges, but the vision inside the company and the energy around what we're creating with the cargo airline is very compelling for us. So that’s the NSA story, not a positive one in the quarters but still very bright for us we believe in the future, beginning in 2019. In the quarter, we also had $3 million in utilities and insurance. And it was a cold winter you know that, that was a big number, we had a lot of work to do. We've done a lot of good work in energy reduction. We just signed actually a solar conversion deal for Nunavik. There's a lot of federal dollars now in the market to encourage sort of conversion which is really lot needed, you can't do it on a normal business ROI, even with $0.70 a kilowatt power cost in the North you still need government assistance to convert to solar or wind but there's an an emerging industry that we are going to want to be part of in one shape or form in terms of local partnerships to convert. In the meantime we did feel this pressure tied to utilities and a little bit in the Caribbean as well. That’s the different ballgame, that's deal of prices and what the utilities decide to charge. Our St. Thomas store as an example we hope to get at least two-thirds solar but we probably won't get 100% because WAPA the utility would want to keep some of the revenue for themselves off the grid. That's the kind of thing that goes on in the islands. Right now in the quarter it was a negative. The other one is insurance. I'm not going to tell you what the insurance delta is going to be next year. It's going to be a few million dollars. And it started us in Q4. Obviously with the impact of fires and hurricanes, it's not a pretty picture to go to visit your insurance company. And the renegotiations have been tough and I am not going to expect that we're going to be pay more. We'll look at different options, not in 2019, but going forward on how we can structure insurance perhaps more cost effectively. The simple answer is here we believe we've got more than enough growth to cover insurance and a few other costs, but that’s the biggest inflationary cost that’s facing us and we've got a growth profile that should more than offset that. But it is a cost pressure and we can’t mitigate any further, it is what it is for 2019 and then started to hit us into Q4 period. One more I’ll mention we have a $1 million roughly closure costs of our Fur Marketing main ops in Toronto. We shut that down, bought out the lease and took the charge in the quarter. Before I open for questions, I am just going to finish with -- I started with Giant Tiger, finish with Giant Tiger. So I mentioned that almost all of our banners had mid-single digit comp increases in the quarter, GT wasn't one of those. They dragged this down in the Canadian sales. What we're recognizing is -- and I talked before our preference is new stores that are more rural and Northern. The urban stores are taking up to four years to make money, I think that's GT's guidance to us but at the East is that's what they experience. That's a long time whether the urban stores are in great locations could be another issue but we have a strong preference for rural. And what I call rural Northern, so Northern DC for example all the way from for St. John, Kitimat and Terrace would be a more desirable place for us to go next than going into very what we consider to be much more competitive, more expensive real estate in urban markets. And then rural centers like for example we just approved Meadow Lake, Saskatchewan a fantastic regional trade center in a very strong comparison to other great Giant Tiger stores we have in La Ronge and Thompson. So we know we need to be but we have in the pipeline 10 stores, not all like this, not all urban that are in that zero to three year stage. So they're definitely a drag on bottom line. On top line we are out of the meat business, the fresh meat business last year, we're finally back into it, that's dragged down sales and then the construction around the Winnipeg stores. We're just starting to comp that now. So Q4 not as big a surprise to us but it was just when you -- when I know the top-line when you see Canada, the Northern Canada business is closer to the 4%, 5% range, continues to run at that range, 5% into Q1. We had the benefit of the carbon tax, post credits that are being paid out. So our income tax service is recycling that cash to our customers and back into our store so we had a constructive Q1 that way. I think that’s enough for now. Operator, I will open the call for questions.

[Operator Instructions]. The first question is from James Allison with Barclays. Please go ahead.

Just looking, obviously a lots of moving parts here with the -- what some might be one-time expenses in the quarter, some putting a drag on to 2019, what’s your sense on from a high level kind of reestablishing EBITDA growth as we progress through 2019. Obviously insurance premiums going up and a bit of the headwinds, just wanted to get your kind of thoughts around that?

Yes, well the torque that we didn’t get some of that goes away -- I will start with NSA, we’re now in the EBIT and EBITDA frame that we start we thought we were at last year, that covers a lot. The Caribbean business I talked about a couple of lines that were challenged but the overall Cost-U-Less business combined with right way is a growth business for us with no significant margin pressure that we see. So it should grow and then we look at the bottom line it’s growing beyond the insurance rate of increase. So looking at the insurance rate by itself that’s one cost line but we’ve got more than enough offsets mostly at the gross profit dollar line. So that’s where that is. Giant Tiger it’s not a big factor either way except that we’re up trending. I mean when I said that it was the poorest performer, it was still an improving poor performing and we see that continuing in Q1. So on a relative basis Giant Tiger in our plan is going to give us lift because we’re coming off of some very poor numbers in 2019 and our optimism is I think grounded because of the cycle through effect and no additional pricing pressure that we see in the market anyways. When I get to northern Canada it’s all about growth and there is an insurance part to that but over a much larger business it’s not as impactful in terms of what we need to offset. And there is really no area of the business that doesn’t have growth potential in Northern Canada in terms of the categories we sell. We have got our convenient stores that are opening that we -- with the five we opened in the fall -- we got five to six opening this year, so lift there as well in terms of EBITDA growth. And then in Alaska it’s kind of a steady state but there is growth unexpected -- we don’t know how big but the increase coming this fall and just a very good lock down approach to that business that though our main market has got very robust growth going on, we’re looking adding one or two stores there, perhaps getting back in the liquor business. So those are some of things. We just bought a pharmacy in Nunavut and its healthy as well. We got maybe one or two that more we can do this year. So there is a number of factors that give us confidence and EBITDA growth that offset insurance. And I guess the other way to look at this is, when we look at what are the pressures that would drive down EBITDA, the big one we had last year, the big one that stood out anyways was NSA. And we think that's controlled and not recurring. The other ones I mentioned on price management it's in -- it's now behind us. So that issue in NSA, front with NCR, we're can look at it two ways, so you apparently impaired your margins aren't that high, we’d say well no, they're not that high, but now as we dig in about half of that should be that high and maybe the other half shouldn't, but that's a one-time thing, so from this point on the good news is that we will manage our margins better. This pricing system will give us that ability. We have to be careful now and the stories that aren't as perhaps stable operationally that we -- that they're watched more closely, but the other 85% of the Northern stores and all of the AC stores in Alaska will benefit from this. So there is in our payback for that pricing system. We had expected that there would be price optimization benefits that's built in our EBITDA growth as well.

So I mean, it sounds to me like there might be some adjustment in Q1, but kind of after that you feel, there is some good tailwinds to push them through the years. Is that a fair characterization?

Yes. And there's something I should have mentioned we have it referred to in our report to shareholders. I'm just going to stick it up here, because it's important. Structurally you know that we setup [indiscernible] but we setup the structure and I think it's really working, needs to be managed, but we're moved on or we have a president of international one of Canada retail and the president of international plug-in and completely aligned with his decision to move our office from, to close our office Bellevue and to move our office for Cost-U-Less to South Florida and to move back to Alaska when we bought Cost-U-Less 10 years ago we -- 11 -- we consolidated buyers into Bellevue. We're going to move the buyers back to Anchorage and put leadership back into Alaska to drive that business and do this same for Cost-U-Less. South Florida being we have more upside we feel across the Caribbean and the Pacific. So that's the closest place and the most important place to be to serve that market. There's going to be cost incurred in Q1 for that relocation, I guess we're closing an office and people are going to leave our organization, the house down bonuses to [Technical Difficulty] for different reasons either up the Anchorage or down to South Florida. And then we're going to hire new people. And there's going to be moving costs, et cetera. And it's going to -- we will disclose in Q1, but I'm just telling you, that's going to be a charge in the quarter. I just thought it that because it’s in the outlook and when you start actually what could happen, that's one thing that's going to happen.

The next question is from Matt Bank with CIBC. Please go ahead.

I guess first, I mean there was a mention of the early SNAP payments and I'm just wondering if you could quantify that? And with that, if that leads to a lower comp store sales number in Q1.

It will lead to a lower comp store sale. It’s tough to quantify I don’t think it’s now we've got the SNAP back in for March. It looks like it had a bigger impact in Alaska, but there’s some other positives going on there. So sufficed to say it will be a factor I don't know how big it will be. It's hard to say right now.

Okay so as I look at, how the comp was almost 10% just in that one international sub-segment? Is that -- was SNAP a big part of that or it was all other things you talked to this?

It was a factor. So it's a good question I don't have the number, the slide was ballpark, it could have been worth a couple of points.

Okay thanks and there's a lot of moving parts here. But I guess in terms of the gross margin in 2019, can you just share sort of how you're thinking about that between the two geographies or segments I should say?

Yes so we still see -- and as I said earlier because we think that those margins hits in Q4 in the end the year-end adjustments with your physical accounts for Northern Canada, we're going to get at least half of that back. So there will be a pickup in margin in Northern Canada on that alone. Blend wise it's a little bit different because when I shift to general merchandise as part of the thing that happens when you've got good spending as you're going to sell more big ticket at a lower margin. So our modeling would show that there's some potential margin erosion but gross profit dollar growth in our general merchandise business. When you net it out we're probably flattish on the gross profit side in Northern Canada. In the Caribbean, we expect margin gain. We think we bond out in Barbados and was St. Maarten now open for a full year we expect to get a good control at our operation, basically normalize it and get a margin recovery there. So there is a margin recovery expected in Cost-U-Less. AC is stable, flat in Northern Canada and same thing with Giant Tiger. So it's really again back it's about growth about top-line growth and good OpEx control and no surprises on gross profit.

Okay, thanks very much. And I'm just going to squeeze in one on North Star. So I mean you talked about getting through this $8 million to $10 million free cash flow. The ATRs flying, the maintenance is running. Is it fair to say that you're at that run rate right now?

Today?

Yes.

This has been, yes, but the plane -- it's been 10 days. So if you'd ask me that a month ago I'd say no. So it's kind of okay we're here. And -- I'm not saying we’re not making a decision because it’s -- and it's almost a joke now at the present days the planes are flying but not a problem bummer but that's the thing that plane has to fly. That mean it has to be in house and it is. So we are steady state today. That's the answer.

Thank you. Next question is from Michael van Aelst with TD securities. Please go ahead.

Hi. So thanks for the rundown on the message but given how fast it was and given how important it is I just want to kind of go through them quickly and just make sure that Ive captured it properly. So in Northern Canada you talked about a $3 million hit from the NCR side, the pricing systems and half of that you expect back next year the other half you don’t?

At this point yes.

And then the 1 million freight overage you expect that to come back as your price -- your adjusted price is forward?

We already have.

The Caribbean, the 1.8 million, is that considered one time in nature then?

Yes.

And that’s already out of the numbers?

Yes.

And then the NSA you said over the last 10 days you are kind of at a run rate where you had that, I think you said $2.5 million hit in Q4 to EBITDA?

Yes, and that’s against plan of course. Rather what I am describing anything as planned, but.

So you will have so for the first, for most of Q1 you probably aren’t running at that rate but for starting in Q2 you expect to be back.

Right. Q1 will be a 50-50.

And then utilities and insurance you said $3 million impacting Q4 for utilities and insurance or is that just utilities?

It’s both and there would be -- the majority would be utilities but there is also -- I mean we locked it together where it’s kind of the segway into we’re going to have a large insurance increase in 2019.

So the utilities is tied mostly to the cold winter which continued in Q1?

Right.

So, utility costs are still higher so you’re not expecting necessarily to get that back in Q1 but maybe by Q2, Q3 kind of normalized.

Yes. When it’s a different season, and it’s a different situation, it’s not comparable. I mean the challenge for us, and we have escalated -- again with covered money available. And also just because it’s a big number what else can we do energy efficiency but that will be next Q3, Q4 in case we get cold weather again.

And the insurance cost, when you say your growth will cover this, are you talking about the growth in EBITDA is just going to be offset by the insurance or partially offset not fully offset I am assuming.

Well gross profit dollars, so like our -- when we look at our plan, in the EBIT delta on waterfall so you got gross profit rate and you got gross profit that is sales driven. And if you look at it I am not going to show you the number that it’s a big bar for next year that’s gross profit sales driven. Right so relatively constant rate but strong sales. And then you got also the cost below that, everything from $1.5 million training center to the x million on insurance but the GP dollar delta is big, we have to achieve it of course but that’s where the growth is next year, all driven off of sales.

I think I might have missed the 1.5 million on the training center. Can you just clarify one that kick in when that kicked in and when we’re going to seize up?

It’s in now, it opened two weeks ago.

And that’s the cost is -- that's an annual cost run rate?

Yes it is.

So that new cost in 2019, that needs to.

Now you’re getting into, I have got other -- we have got other cost streamlining, cost management offsets as well. And I can’t just go to everything that’s going up in cost that’s obviously very intentional investment in our people. When we look at our entire spend and I look at where something might be not as important where we trim that. So I'll just come on back what I said, it's not all driven by gross profit dollars, we're also looking at our other costs in our system so to speak. And sometimes they incur cost of fund, like deferred marketing lease in Toronto with a buyout, but it's got a payback. We just bought out -- or we just bought a store in Moosonee but at a very attractive price we’ve raised the buyout there. So the CapEx or an OpEx the move to South Florida, that's a one-time very important in terms of driving our business closer to the customer. So things like that going on puts and takes, but I think the training center, yes, it's 1.5 million and we've got some offsets in our admin side actually to pay for that.

It seems like the insurance, that I was going to be a significant number and you're not able to give us any kind of range on how big of an impact?

I'm going to say, it's a few million dollars it’s 4 million, 5 million range.

And then on the revenue side. I'm not sure, if your explanation covered it all for me. But I noticed, I found when I go through the math it just seems like, again I take a look at the international side of it you had same-store sales up 9% total revenues up in local currency. So really only, if you kind of just do the math on that, you've got $2 million from revenues outside of the same-store sales. But last year, you called out I think $24 million of hurricane impact. And it was shrinking, because you're down to only one store now. So there's probably $15 million or so that you should have been making up at least between last year's impact and this year's impact from the hurricane. So was it just not as big of an impact last year as you thought it was then. Is that what you're trying to say?

Okay. I'm trying to catch up. The store that’s not open yet, is a very large store. And it's -- like to for competitive reasons I can't tell you. But it's the largest store we have order of magnitude of to any store in the Caribbean. What else can I say, Michael? I mean, okay. So trying to catch up to your thinking here. So that's a big missing piece of, I think of your equation, because you don't know how big that stores in sales.

And now you had a closed yet one Cost-U-Less closed, you had liquor store closed. But then it just seemed like the -- my point is -- my point was that you only had other than same-store sales, which wouldn't cover the hurricane impacted stores, wouldn't capture that, right?

Right.

So the only -- if you take out the same-store sales, you probably only had $2 million of revenue growth?

Oh! New revenue growth, yes.

Other than, that didn't -- wasn't captured by same-store sales. But last year, you had a massive -- the peak of the hurricane impact in the number of stores. And now would you quantify the 24 million US impact on revenues last year?

Keep in mind though, Mike that we also closed a Cost-U-Less store in Q1, right?

Right.

So you've got that all those sales are out. So last year in your 2 million delta, I think that's the number you were trying to explain. Keep in mind that we've got a Cost-U-Less that's out.

No. I just and the point that I guess, when I did the same math in Q3 and look like there's kind of $8 million missing from revenues, which I'd assumed was because of the store closures, when I did the math in Q4 it looked like there's something like double that missing. So I don't know if it was just a you had so many extra sales right after as people restock right after the hurricanes and therefore the hurricane impact maybe wasn't as big as you originally thought it was. Is that what you're trying to say earlier in the call?

That part of it. Yes.

Thank you. The next question is from Neil Linsdell with Industrial Alliance. Please go ahead.

Just want to follow up a little bit on the insurance costs if we're looking at higher insurance premiums going forward. For the hurricane impact to the stores you're rebuilding but you're rebuilding to a much higher standard. And I think in Northern Canada you've had a little bit of an issue in with fires lately. Is it really all about hurricane damage which is boosting your insurance premiums and do not get any benefit from your new building code?

We will but everything is looking backwards and then in some of this we're doing it because it’s a strong business case not just insurance but business continuity too for other reasons. So getting back to stores as the cat 5 is a little bit of CapEx in there. The stores weren’t in bad shape but the ones obviously that did get destroyed were close the cat 5 already but there's showing up and then the new engineering standards for the St. Maarten rebuilding and the St. Thomas rebuild, and then a bit of work in St. Croix. So the insurance companies want to see that too. So it's both us and it’s them. But even they see that this is the way they think right now. And what percentage of this is a reality based on where we do business and just where the insurance market is today. Eventually we're going to get a lot of credit from this, insurance, customer community service and business continuity, hopefully not soon because that means it’s encouraging. But at the point as we're ready, we will be. Now the shift into Northern Canada that's actually a significant part of insurance increase. And this is I believe on us I mean, we we've made the better of where we choose to do business. And it's a very unique niche and it has upside than it has downside, that’s positive, wouldn't be there But on the downside is one of them is the insurance and there are some risks. So there's some very practical mitigation steps that are some ways long overdue. And we've gone out and we’ve put that into a capital plan and we've got a program based on risk, we got the restores the same to go in and look at what has to be done in terms of the garbage room. So I think I talked about this before. And the stores the underwriting of the stores, some fencing, this kind of thing. And as we do that and we address those stores we expect that risk to go down appreciably. There's some wiring things we have to look at too, we had a one -- two fires tied wiring so we've now gone into all of our stores and looked at that. The insurance companies will give credit for doing that, but they are still going to look at your loss experience and we've seen this where it does come back. I mean but you have to show your loss experience to be what is more profitable for them. And that's just the way it is for 2019. I did say that we're looking at other options and whether it's a captive or something else we want to explore but there was no time to do that. And again I think we've been caught a bit behind on this because it’s not the first year it’s happened but now we’re totally on top of it and we’re going to try to turn what’s been a cost, a cost increase into something that could be a cost decrease but it’s not going to happen in 2019, it will be 2020 and beyond and we can come back and say we have got a different plan in place and the mitigation plans there, talking now about how we structure our insurance and that will not happen in 2020.

Okay that’s fine. And just when you were talking about missing regarding Canada you mentioned the inventory accounts need improvement is that because you just weren’t tracking what was being sold properly or you are having any other kind of issue which shrinkage or something like that there is some type of mitigation?

Well there is shrinkage it’s higher than stores than it is in the Northern stores compared to giant Tiger and it’s tied to supply chain the remoteness but we think that we know if we’re going to have a pricing system that’s based on scan and shrink so this is a simple point you’ve got a held on hand held then you scan everything that goes up that you are throwing away or spoiled or damages, you got damaged codes and so forth, so we know what isn’t available for sale, what’s been or what’s been marked down commercially or permanently marked down. If those disciplined aren’t followed it will lead to price adjustment because it involves competitive activity or just because you decided to change your price, all these things aren’t tracked into our central cost to good system which is not the final solution that we bought but it’s a proxy for what’s going to happen down the road if we don’t have good core fundamental disciplines. If your inventory count is wrong and you miss something and you over understated then it comes back to get you the next calendar though usually by the next one. So there is a multitude of factors here that need to in place and we know it looks like when it works well, we have a very tight collar in terms of our gross profit. And given that we aren’t like the promotional activity that we would have would be much lower and the vacillations in the price would be much lower in terms of competitive driven reasons than in Southern urban retail. So we’re actually in a fairly controlled environment that way where we’re not as controlled and this is more a systemic challenge is that I talk to a couple of dozen storage as we have high turnover and not acceptable levels of operating stability. That is for our present in retail, I don’t know if I mentioned this in December, 100% of which is incentive is on us. And is to crack this into really focus on where we need to be on the recruiting the training center. So that’s longer term of course you need a pipeline of people and processes but we do have processes and we can mitigate it now so we have got to go into each of these stores situations. I’m sure there will be some more changes but I can update you on in Q1. I regret that it had to come like this that we have to have a surprise but it’s on our radar, we have this as an initiatives going into 2019 and it’s been escalated balance for obvious reasons and again that’s kind of all the things that happen that would affect an adjustment on your gross profit. I mentioned in our staff wide meeting yesterday that it’s also a cultural mentality where if we had a cash charges we’re in the cash business with financial services and it’s a big deal as it is on your over insurance on your registered every day, every lane has an over insurer reporting. We tend to have a different talk when it turns into inventory and we are short $3.5 million or $3 million $3 million. It's like, okay. Let's just take the new number. Well no, that's why did you have that and you got to think about light cash and you got to be on it and that's just a way of thinking you would say, why not? Well, I'm telling you, it hasn't been quite like that in North West. And I think the system are dragging us that way, but also the upside in price and margin management. There's just too many reasons why we need to do it. And as I say I will report back as we go through the year. Our mid-year calendar starting to take place in late spring through the July. So we'll probably have some indications in Q1 and how the mid-year accounts went and whether our currencies are improving and take it from there.

Okay. No that makes sense. It explains the training center benefits in much more detail. And so let me just finish on that training center. Is that just to support or address problems that you're having in Northern Canada? Or does this also apply to managers for Alaska, the Caribbean and such where you're going to have been training here on -- are we seeing anything similar types of problems or things that you can address?

The solutions will be different and I think the other -- I'm going to say that with the two Presidnet structure, it's evolving view that would put solutions we have best practice some of the curriculum will be standard across the company where we run the same point of sale system. So you can imagine the standard operating procedure SOP for the point of sale be the same across all banners. But we actually want to go the other way in more localized and regionalize training and even recruiting as we get down the road further . So the solution that we're describing here in the training center Winnipeg is geared specifically to department managers and store managers for Northern Canada stores. Giant Tiger has its own training system. There's some crossover on who can run some of our corporate staff through in terms of on-boarding cultural awareness and those kind of things basics of business. But it's really about the Northern Canada stores. I don't know what your after solution will look like. They'll have something tailor made for a much smaller store division in a much tighter geography. So they could have something down in Anchorage. But as I said earlier, they benefit from a much more stable cohort of older experienced managers. And I think there's a lot of reasons for that and one of them includes just the abilities, in the US, we find that we can recruit people to move to Alaska, inter-Alaska, to Northern Canada, that's just part of it. The Cost-U-Less one will be different again, those are very large stores. The directors of those stores are almost our VP stratum. So the way, we train it on-board would likely to within the islands themselves versus a central place. So we'll have more color on that, but right now, I think the big news for us, because this is where the biggest opportunity is, is Northern Canada and the training center will be part of that solution.

Thank you. The next question is from Keith Howlett with Desjardins Securities. Please go ahead.

Yes, I had a question. You mentioned that future development of Giant Tiger would be focused in Northern and rural regions of the -- I think you have 40 some stores now. What's the current composition of your stores in Western Canada?

50% would meet that criteria and the other 50% would be urban. And the -- and there's a subset to that, one Winnipeg stores got high brand recognition and a strong what we're finding and I again Giant Tiger would have a different experience in the in the East the different demographic to in some ways that we do really well in Winnipeg with some of the new Canadian demographics and First Canadian it's large First Canadian business community in Winnipeg that's a strong Giant Tiger shopper segments. Filipino Canadian is strong Giant Tiger shopper segment. And then the fact we've got I think 10 stores in the city. Where we're we just got beachheads, like a store in Calgary a few in Edmonton. It's a function of when you get good real estate. Can you don't get all the cost factors in place and establish a brand presence you have the right customer mix. The path at least resistance to making money sooner than rather in Giant Tiger stores is to be in rural areas we find I mean you're not shadow of Walmart and you are the dominant fashion store in your discount offer and food is dominant as well. That's what we've learned. So it's finding more of that and finding rest of the other. And just getting that weight heavier towards the types of locations that have now told us don't make money faster.

And that was a secondary question I had when you reduced some of your store counts, I think maybe four or five years ago in Calgary, is the big difference between Calgary and Winnipeg just maybe when you opened or your big presence in Winnipeg, or do you think it's a different competitive set or?

We're still not sure after all these years. No question the cost inputs are higher. Lease rates $15 an hour minimum labor , and transportation costs wages that cascade through the road transport sector. Everyone else puts on their pants the same way so the competitors all face it too. But to the extent they have national pricing strategies and average the freight and do other things that that completely hurdles reasonable costs. That that's what would bother us a bit of in Calgary. If we had a bunch of stores there'd be some scale on the brand image side, but these cost inputs would still be there.

Just on your sourcing. With your diffuse you've got your Caribbean the Northern Canada and Western. Are you able to procure Americans wholesalers or do you go direct to manufacturers or I'm thinking mostly of your food business?

Right. So we are largely regional there. I mean as we moved to this more further regional structure so just to give you a little more background on the split of our Bellevue office and the closure of the office, we're moving to putting a picture and marketing VP in the last that gives us only the VP is who is from Canada originally. It was in Bellevue is now moving to South Florida with our President and they'll be focused -- as long as the President will cover about Alaska and Cost-U-Less but he'll be focused only on Cost-U-Less. We expect, we structured that will be called a sharing sort of table of people are our [PNMDP] to sit down in Canada with the ones in the US and they'll look at where they can do cross border joint procurement. As we train the international division they were a deal right now with Super Value is a wholesaler and they will leverage that together the two sort of reason, Alaska and Cost-U-Less when it comes to think like, meat, they have international deal with [cargo]. So production you can also, you go cross border there on your procurement and then it can get really regional to the extent where you’re procuring on the island literally in terms of local manufacturers. So it’s a combination, always looking to maximize for example on freight the way it works with the status in the US is a small group of US ocean carriers that are allowed to serve point to point within U.S territories and U.S mainland, so we’re big customers of those and obviously we combine our buying power with them in terms of our Alaska business, our specific business our Florida business. So where we it makes sense we go across the whole enterprise on computer systems or meat and where it doesn’t make sense because the consumer want local goods and we don’t cross over.

And how many people are involved in your decision to move.

55.

The next question is a follow up question from James Allison with Barclays. Please go ahead.

Just quickly back on the IT systems upgrade. Can you remind us what the implementation is for NSA maintenance in house?

Yes. It’s Q2 for Canada and differed in Alaska because of the move to [indiscernible], it will be Q3 for international.

The next question is a follow up question from Michael van Aelst with TD Securities. Please go ahead.

First of all when you bring your in-house or now that you have the NSA maintenance brought in house is this a cost reduction verses original plan or just where it was getting to in recent quarters.

I think regional, there is a cost reduction against what we have occurred in the recent quarters. Original plan we knew from when this is creating after some due diligence and some of the experts that we brought in to just talk about airlines and so forth. There wasn’t order of magnitude savings to go to in house maintenance but it was we had a probably three or four year and we’re going to try and right now there is cost, it’s not we have looked at building ahead our hanger and its under bay and it would ROI just based on the maintenance, now we’re doing the maintenance where we believe [space] and its going to be fine. Down the road we still may look at that [hanger] that achieving more cost savings. And like being clear enough. In a way we have no choice because we don’t make reliance or price maintenance they are too small, they are not reliable and it’s not just we had some decent ones but there is and when it’s about getting service and priority service turn, plans around. So there is qualitative factor there too. But as we scrub the numbers yes we expect it to save money compared to what we happy for. Right now we would be satisfied to just to do at original plan was which was the use third party maintenance at certain cost, that’s kind of where at today but as we look around the corner we might put a little bit investment in but it looks like in ROI.. But it looks like in ROIs that we would be able to achieve cost savings over any third-party maintenance that's out there today. I know I'm being a little bit which you want on this, but part of it is, as we learned about the space of third-party maintenance in between size airline like ours is not very wide. There are a lot of choices. So we're not the good news is we're not afraid higher comps, it's going to be equal or lower than our original planning scenarios. It's just that we've had a tool up literally tools and put more admin cost into the business to get there.

And is the in-house maintenance capability for all of your fleet or just the AGRs?

All, we'll also pull out the Pilatus, from our Pilatus maintenance supplier. What we don't have in-house, our e-cheques with the major overhauls. And many airlines don't. So that's left to the side for now.

And the relocation of the offices, international offices. I know there's one-time costs in Q1. But beyond, is it going to cost you more to operate two offices versus one revenue opportunity strategy or is there cost to it?

I just to clarify. The timing of the office move and the occurrence of those one-time cost will be spread between Q1 to Q2, because we don't misunderstand bonuses and whatever else where it was in the one-time cost components will stretch into the Q2, Q3 probably. We've done this on a net neutral basis that was the challenge put out to our present international. The reason we did it in the first place condensed the offices was there was a cost efficiency, we felt opportunity and your point, it's a very, it's a good question. As we push the strategy of it more delegated distributed regional approach to running the business. That's going to be one of our guiding tools is to have offsetting efficiencies. So that we're not incurring higher costs. I don't see it being across the efficiency measures, it's very hard to do that, when retailers in Canada centralize they're buying. So they go too far and then it was touch with their customer. Our assessment and I'm, we read this call, we've got a blue sky meeting on the call T store to other store. Like what keeps you awake and I decided it was staff or stores. It's about the regional locally on competitor and all they do is get up in the morning to feed their family and they come to battle against you in that Ireland in that community. So we do okay, but we would do better, we feel by having the highest stratum executive that we can afford and they pay for themselves if they're good in that market in that region, not in want to say. So that's our approach to why we're doing it. But to get there we also want to do it in a way, that's cost neutral. And that's what we've achieved so far and paper with the planning for the belt enclosure and the two offices in Anchorage and things and so forth. And that's going to be the model going forward. If we decide to go further in debt or I'd say close to the customer activities timeline will sell maybe some of the core HR, store HR activities like recruiting and training. We'll continue to look at the sensor and say well and we've got to make this efficient. And not and cost neutral at least.

On the higher incentive compensation on the international side, can you explain what that's based on like what triggers higher incentives given that the profit in the US G&A and for the quarter or in those for the quarters?

Mike. The bulk of that increase was share based compensation component.

I thought I thought in the international there wasn't there was nothing I was mostly in Canada,

It was, it substantially all but there was a smaller portion that actually hit an international operations in the quarter. And then there was in addition to that, there is when you look at our incentive plan our short term incentive plan, and you go across the different regions, there are people that within those regions that that perform very well. And so there's bonus cost on that.

Just going to quantify I don't think it will make a big difference. But I, but you will see more between regions for in house, we're building this way that we are looking at the incentive being tied marks in the region. The executive to see that more on to their TSU options have skin in the game across the enterprise. So we actually want to keep going the other way that and instead, more people on there in the business units to actually manage or support and less about the cost enterprise because we are still dispersed. There's an equity and motivation and alignment thing. So I don't see that as a negative as long as in total, we're not driving up our comp costs. I don't think we will actually, because they'll be by variability between business units. So we model that and I just I just want to bring that out because you will see more potential variability between businesses.

And then final kind of topic is just on the Canadian revenue. Similar to what I did before like the Callaway Store was closed for upwards of 10 days I believe. Was that a material impact at all on revenues?

It was -- it's I think very large store. It was an impact.

Okay. And so because when I look at your same store sales and your total revenue growth was pretty nice, pretty comparable.But you had at least three new GT stores open year over year and a bunch of smaller C-stores and things like that as well. Was the new stores fully offset by the closure of the Northern Store and the Tim Hortons that you posed. Or

Basically that -- if you come back into the -- yes, that's all there is really.

Okay alright thank you.

Thank you. And there are no further questions registered at this time. I would like to meeting back over to Mr. Kennedy.

Okay, thanks, operator. And thanks, everyone, for the part of the call. I think we've answered everything. I just whether we have any takeaways John wants to take a look after.And there was obviously a lot more detailed questions and some of these variances, but I think the best thing here is just as usual to keep open communications with -- John and I if you have any follow up. And otherwise we'll look forward to be on the call with you in June after Q1. Thanks very much.

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