This conference is being recorded. [foreign language] All participants, please stand by your meeting is ready to begin. Please be advised that this conference call is being recorded. Welcome to The North West Company, Inc. Third quarter result conference call. I will now like to turn meaning over to Mr. Dan McConnell, President and Chief Executive Officer. Mr. McConnell, please go ahead.

Thank you very much and good afternoon everybody. And welcome to The North West Company, third quarter conference call. I'm joined here today, by John King, our Chief Financial Officer and Amanda Sutton, our VP legal and Corporate Secretary. And I'm going to start the meeting off by asking Amanda to read the, our disclosure statement.

Thank you, Dan. Before we begin today, I remind you that certain information presented may constitute forward-looking statements. Such statements reflect North West current expectations, estimates, projections, and assumptions. These forward-looking statements are not guaranteed the future performance and our 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 Forms and its MD&A under the heading Risk Factors. Dan?

All right. Thank you, Amanda. So I'm pleased to share with you the details for The North West Company's performance for this third quarter. Let me start by giving you just an overview of the results, before I dive into the specifics, by region and banner. First of all, I wanted to highlight the positive sales momentum across the business. Third quarter consolidated sales increase 0.1% to 554 million. Excluding the impact of lower foreign exchange rate between Canada and The U.S, sales increased 2.1% compared to last year. This is really positive considering the exceptional COVID 19 related sales last year. On a same-store basis, sales remained strong with a decrease of only 0.1% compared to a 17.8% increase in the third quarter last year. Keep in mind that on a two year basis, same-store sales for the quarter were up 17.4%, when compared to the third quarter of 2019, this performance definitely speaks to the efforts that we've been putting forward in servicing our customers. And it indicates that we have captured and retained market share and wallet share over this past two year period. This quarter, it is especially important to consider the consumer income support funds are lower than last year, particularly in Northern Canada. And the mobility restrictions are less stringent today than they were a year ago. Over the past couple of months and taking advantage of the reduced trial restrictions, I as well as a lot of the other team members and leaders have done a lot of travel throughout our markets. The great news is that leadership sees a lot of opportunity for things that we can do better. And as a result, the new leadership team -- leadership team, sorry, is very encouraged and enthusiastic to do just that. That being said, the main takeaway I want to underline here is, we are very pleased and optimistic after seeing first-hand the commitment, passion and energy of our associates across right across the network. They continue to be focused on our customer experience, pivoting and finding solutions in the middle of a pandemic, while keeping health and safety at the top of their mind. At this all at the same time is keeping a good in stock position, while navigating the current global supply chain crisis. Our teams understand that the current supply chain environment has a potential of putting our ability to have the right merchandise for our customers at risk. That's why all of our banners have been focusing on moving inventory swiftly across our network. Our teams have planned for months to avoid, to adjust and avoid potential supply chain congestion by procuring inventory earlier to account for the extended lead times and being a good stock position to capture the holiday sales. This this includes actually normalizing inventory levels compared to last year while keeping up with demand and avoiding loss sales. And of course, we continue to leverage our relationships with our suppliers and make sure that they're prioritizing our orders. This in order to keep us delivering on our promise to our communities, protecting their food security and ultimately helping them live better. All right, now let me go and give you a little bit more color around region specific sales performance, Canadian operations sales increased 0.6% to 315 million. Same-store sales remain strong only decreasing 3.2% compared to a 22.9% increase last year. On a two year basis, same-store we're up 18.4%, compared to the two to the third quarter of 2019. These results were achieved even as income support programs, dwindled and travel restrictions loosened compared to last year. Our in-stock position is contributing to keeping food sales strong, even on specific road stores, our road markets, where customers are privy to out shop. As I previously mentioned, we took steps to be in this position by leveraging our supply relationships and benefiting from an owning an airline which helped us mitigate some of the supply chain disruptions. Total full food sales were relatively flat to last year and just 1.5% down on the same-store basis. Categories such as grocery food and beverages continue to lead that performance. The impact of lower income support in the markets compared to last year had a much larger impact on general merchandise sales decreased 9.8% in total and 10.4% on a same-store basis. However, going back on that two year basis, gentle merchandise same-store sales were up 31% compared to 2019. This definitely showing the positive sales trend driven by the business and this was led by categories such as motorized entertainment, media toys, as well as some other hard lines with respect to sales and our international operations. The momentum continues to be strong as income support payments across the U.S territory continues to fuel that demand. We are also seeing the positive impact of increased travel and some of the tourism dependent markets albeit still well below the COVID 19 -- pre COVID 19 levels. Overall international sales increased 4.7% over last year. On a same-store basis, sales remain very strong increasing 4.4% to last year and increasing 15.9% on a two year basis. Our signature categories program continues to [indiscernible] banner, particularly on our fresh card categories like produce and meat. B2B sales is also delivering very strong results in categories such as grocery food and beverages as lower COVID 19 related restrictions have given away for restaurants and bars to, to get back open again. In Alaska, our strong in stock position also allowed us to capture demand from a strong fishing season down in the coastal village or coastal source. Here, it’s has also formed to highlight the impact of the timing of the PFD or the Permanent Fund Dividend. Last year, the dividend was paid was $992 and it was issued earlier. In fact, it's a second quarter. This year, there was a slight increase to $1,114, and so, and it went back to its regular calendar timing, which was paid in the third quarter. On the flip side, the business has also experienced head-winds from supply chain issues and inflationary trends during the quarter. And particularly we felt some of these pressures on our gross profit, which decreased 2.3% compared to last year due to an 82 basis point reduction is rate to sales. The decrease in rate was primarily due to changes in product sales blend, particularly related to general merchandise sales in Canada. However, there were also an impact of inflation costs that were not fully passed on in certain of mark to markets, which I'll give you a little of commentary just to explain, unfortunately, in some of our markets and some of our local competitors are lagging when passing along cost increases to customers. Here, our focus is remained on keeping both our customers trust, obviously, and at the same time trying to keep up with the momentum of the market share, we're trying to keep our market share and grow it. So we have to -- we are definitely very actively monitoring the, the market for price changes and we want to make sure we make competitive while at the same time, we're continuing to drive value for our market, our shareholders. In terms of expenses, the quarter for the quarter, there was a $7.4 million or 5.6% decrease compared to last year. This is mainly due to the decrease in share base compensation costs related to mark, to market adjustments from changes in our share price. Excluding the share base compensation costs, expenses increased hundred thousand dollars and we're up 12 basis points as a percentage of sales, inclusive of reductions on COVID 19 related cost and decreases in international expenses related to the impact of the foreign exchange. All right here, I wanted to take a brief moment to refer to the performance of the airline. We have seen positive trends in the passenger business demand for scheduled passenger flights are picking up following your reduction in community travel restrictions, which have also had a positive impact on charter type flying. This has mitigated -- this mitigated the impact of the million dollar payment received third quarter last year from the Canada emergency wage subsidy, which we did not actually receive this year. The cargo business continues to be an asset for the company and has provided a competitive advantage to navigate the supply chain constraints and pent-up demand. On the flip side, we experienced unplanned repairs to our ATRs, which requires to have a higher usage of lease Aircrafts both these factors have negative impacts on our gross profit rate for the quarter. Lastly, on the airline, the [ph]ATR LCD, which is the stands for the large cargo door will stop our start operating this month. This plane is equipped with an oversized panel door on the side to it actually helps facilitating unloading of palletized cargo. We're using this plan as kind of a proof of concept to test reduction of aircraft turn times, and man, our requirements at base in markets for both our third party, as well as our own freight, after all the above was considered the company's net earnings increased $3.2 million to $39.2 million compared to last year. And on a two year basis, net earnings were up $14.3 million or 57.6% compared to the third quarter of 2019 that said the after taxi impact of share base compensation adjusted net earnings decreased from net earnings decreased by $4.4 million. However, on a two year basis, performances up 14.1 million or 57.9% when compared to the third quarter of 2019, looking ahead, the short term is still subject to the uncertainties of COVID 19, particularly as we see the development of a new Omicron variant based on the strong in stock position referred to previously, we were cautiously optimistic about the holiday selling season. However, we acknowledge the fact that consumer income support in our markets, particularly in Northern Canada will be lower compared to last year in our Caribbean and specific regions, we will continue to focus on improving our execution at the stores, our assortment and our product flow. We're also seeing positive trends of tourism coming back in some of our Caribbean markets, although still well below pre-pandemic levels. In Alaska, we expect to continue growing by expanding our footprint to new markets. We are confident that we'll hit the goal of three new stores in 2021, two of them already open and one's on track to open prior to the fiscal year end heading into 2022, the expansion will continue in Alaska. In Canada, we are focused our efforts on price optimization strategy. We had paused this initiative for a while, given the COVID 19 related volatility, but we are currently recalibrating and doing tasks before deploying at banner wide. We anticipate this will be ready to roll out by Q1. Next year in Northern Canada, we have also been focusing on improve our product flow, which includes initiatives that involve the airline. We continue to explore opportunities to improve our end to end supply chain and capitalize on the learnings and successes we've had so far navigating through this pandemic related start change challenges. We are also doubling down Canada on approving our sermon and execution at the store level companywide. Overall, we anticipate that the fourth quarter sales to be lower than last year, but higher when compared to 2019. But as I mentioned previously, the uncertainties of COVID 19 make sales forecasting quite difficult. All right. Just want to, let me wrap it up with saying that we are very pleased with the financial results in this quarter, and we will once again, like to thank all of our frontline staff and support teams for the passion and commitment showing every day to make people's lives better in the communities that we serve with that. We'll now ask the operator to open up the call for any questions thanks.

Thank you. We'll now take questions from the telephone lines. [Operator Instructions] Our first question is from Michael Zhang from TD securities. Please go ahead. Your line is open.

Hi, good afternoon. Afternoon, first, first question is actually on the comments that you said where inflation was not fully passed on. And I know you said you wanted to try and protect your market share is, are others passing it on and you're just trying to gain a little bit more, or is this the start of your was that the start of your price investments or are you just waiting to Q1 next year for that?

Yeah, the, the price investment would start next year and it's really a price optimization. It's just looking at, we're building some different systems as to how we can optimize pricing. So it's a lowering in -- it's lowering some, where we where we can and there's, there's others that we haven't had full transparency that we think we can that we can kind of offset some of those, but that's not what I was referring to. What I was actually referring to is that some of in some of our markets, our competitors were slower to take the inflation or to lower their price or increase their prices as it relates to inflation. So we didn't lead. So we waited we waited and until they, they kind of until they realize, as you can say that their prices were outweighing and it's just due to some of the sophistication of some of our competitors. So we obviously want to drive that perception. We don't want give up market share. And so we often just make sure that it sometimes is lager. Let me just say that. So sometimes take a little takes a little bit more time for the market to correct. And some of the more remote markets call it.

Okay. So have you seen those price increases go through now?

I would say they are definitely more so, yes, I would say a majority of them have, because that's pretty, they're pretty compelling in some instances, so it's, hard for harder for people to miss.

Okay. And when you talk about your price optimization strategy for starting Q1 next year, how will you be measuring the investments? Cause in the past you said, if you don't get a return off it, then you're not going to necessarily continue with it. So do you look for the return immediately or is there a, do you expect a three or six month lag? How, how should we expect you to be looking at that?

It's a great question. It's really a, it's a test timeline. So for, example, there's a lot of products that are out shopped that we're, that we're not competitive in us to compel people, to shop us locally. So it's, it's a pretty like it's as far as it catches on within the market. So we're making price investments in some of those other items and with some of the where we think we can make more gross profit dollars, but just lower our rate to sales. And then that just comes down to us being more strategic in our pricing strategy. So that's effectively it, so it doesn't we, we won't feel the impact over a long period of time. It's something that we would see some momentum gathering in fairly short order.

Okay. And is that something that'll be harder to measure because you're coming off some I in in market or in community shopping levels, and now you're just trying, you're almost trying to maintain it rather than grow it I'd assume.

Yeah. That's a, a great comment. Absolutely, which is why we've talked about a full launch next year. So we will be, we'll be testing it pretty vigorously and we'll have pilot stores. We won't just roll it the entire banner. It will be done in pilot stores that we that we think are more normalized than others, depending on their situation.

Okay. So with giant tiger gone a lot of the markdowns are probably behind you, but you said you did have some markdowns. So where would we have seen those with a, in the business?

Well, there some, so the markdowns would well try no, that you're right. A lot of the Giant Tigers markdowns are behind us, but there's definitely some other opportunities where we've just miss buys. And so we take this opportunity. There is some money in the market to mark those down and not, not hold them on for any extended period of time. So we've been definitely more aggressive on clearing out call less saleable inventory.

Okay. And I'll ask one more and then I'll get back into queue. But the PFD in Alaska is paid late in the quarter. And I'm wondering if you feel that you felt the full impact or the full effect of that payment in Q3, or did you think some of it slipped into Q4?

I think there is going to be some trickle over into Q4 but we did get a nice we did get a, a nice portion of it in Q3 for sure.

Thank you. The next question is from Mark Petrie from CIBC, please. Go ahead. Your line is open.

Yeah, good afternoon. I just Michael touched on a bunch of my questions, but just wanted to follow up on the price optimization. Can you give us a sense what parts of your assortment is this going to be focused on? I mean, I'm assuming food, but if you can be more specific and then also roughly what percentage of your skews would be affected by this?

You're right in in your, in your first it is a lot to do it's in food, but as far as percentage or products, I'll, leave that as a TBD surprise you with everybody else.

Okay. All right, looking forward to that. Just with regards to North Star, I mean, being a drain on gross margin in the corridor, what is that going to continue into Q4 or next year? Or do you feel like you've, you've pretty much addressed that downtime issue?

Yeah, I think we've addressed it. I mean, we're going to we've been looking and the team is continuing to get more productive. There was kind of an unseen event a maintenance issue this year that was kind of a freak accident, I would say. And, and, and so we don't expect that to be a continuance ongoing. Okay. And then Let me rephrase that. I'll get used the word accident. It was a, it was an M&R item that came up. That was yeah, I guess I have to watch my terminology when referring to the airline. It was, it was more it was an M&R issue that came up with one of the engines a rock in fact was sucked into the engine that caused a pretty serious expense. So let me just clarify that, mark. Yeah.

Yep. Okay. Helpful. Thank you. And then just coming back to the topic of the impact or potential impact of lower government support payments on your business could you just sort of help us understand the relative sort of magnitude of that? How much of that do you think you felt in Q3 versus what we should be expecting into next year? Cuz I think the impact will, will potentially be greater and, and potentially larger in, in the US business I'm guessing, but would just appreciate your perspectives on that.

No, I, it's a great question and we're obviously it's something we think about often, but I think the impact actually is going to be in both markets, both Canadian and American markets because I, the American rescue plan is now starting to 2 tire and so I, don't, I think that, it's, depending on what happens, obviously a new variant and what kind of impact that and other variants might have on the economy and on the size of which we live. I'd say that we're thinking things are going to get back to a more normalized state next year, but what is a normalized state today, if it's kind of changed the, the landscape as we know it. So I, as we know everything we know about the funding that's been presented to date, it is going to be a significantly less than it was this year. To what extent, depending on what they introduce next year. I, can't, really predict at this point.

Yeah, sure. Absolutely. And, and would you have felt any of that in Q3, I guess maybe a little your Canadian business I'm not sure exactly, but expectations with regards to the timing of this and when this sort of starts to flow through, again, assuming that programs are not renewed or reinstated.

So you're asking me if I, if we, if part of our performance, this Q3 was as a result of some of the drag, the overflow of the stimulus program, is that what you're asking?

Yeah, exactly. And then, and then, or, or basically like when all of this flows off and, and you lapse these programs in, in both Canada and the U.S.

Well, it is we, I mean, we do think that it, there's still a trickle on we suspect going into Q4 of this year much beyond that again, back to previously commented it's unknown to us at this time.

Yeah. Okay. And then I guess one question I just have, sort of more broadly, when you are looking at the stores where there is some more sort of, that are, located in regions, where out shopping is easier. I think you commented that you're, pretty pleased with how much business you are retaining. I'm just curious, when you look at those stores or markets, is there anything you can glean with regards to sort of the composition of baskets or customer spending patterns that sort of informs how you approach your business in, 2022?

Yeah, Mark, definitely. Well, we are we're first of all, we're, we've got strong in stocks, so that's helped grocery food and beverages have been strong. So we we're, we're, we're keeping more of the, of that kind of centre store shop in in market. And it's really just being in stock and being at the, and being at the right price. And this is a kind of a runoff of some of the pricing work that we've done call it at the beginning or mid-COVID era. So we have got, we have received some a good reception there, and that will, that Intel will definitely kind of inform more about how we how we move forward. Some of the price optimization I'll call it Paul in the, in the, in the near future.

Okay. And then just my last one, I guess, just related to your comments with regards to in stock, I mean, you spoke pretty positively about your ability to navigate some of the supply chain challenges, but ha have you had situations where you've had disruptions that have, potentially compromised you're in stock position and, and potentially your sales, or do you feel like you've navigated this without, without any sort of material issues?

No, we've definitely been impacted, but I've got to say that there's been a lot of substituting. There's been a lot of pivoting, some called athletic buying as far as looking for new sources, new suppliers. And that's part of the benefit even of having the many different regions that we operate in. I mean, we, we have a lot of we have a long web or a big web that we're able to kind of source from. And the key is we're, we're, we're proving to be much stronger than the competition in, in, in all the markets that we're currently operating in. So that's been one of the big benefits for sure.

Thank you. The next question is from Neil Linsdell from IA Capital Markets. Please go ahead.

Yeah. Hi, thanks guys. Just to expand on that supply chain question. So across all your, your regions, you're, you're performing better, I guess, than any of your competitors for our supply chain. And you're leveraging that into the, to the rest of your network, I assume. Is that opening up any opportunities for, for supplying your non-traditional markets for other customers I'm thinking that don't have access to those types of supply chains or distribution?

Good question. Yes. I would say that there have been some opportunities in our B2B business that we've been able to capitalize on our supply chain. So that's, that's definitely been a source of some of our incremental business and just, and building new relationships with other groups that we expect to extend on beyond COVID. So yeah, the answer is yes, predominantly in some of the Southern markets,

Southern markets and you think that might be sticky after all these things are resolved?

We hope so. That's the, the intent for sure. I mean, it's a, I mean, you find out who your strong partners are in times of need and it's the best time to build a relationship cuz they know they can count on us. So I, I hope that they do, it's use your words to remain sticky and that we can kind of build that for the future.

Okay. And, and if we look at some of these remote communities, I mean, OB obviously like travel restrictions where it's your benefit, right? At the beginning of the, of the pandemic, how much has that completely, really opened up and customers are willing to travel further to shop or do you think people are, are still sticking closer? I'm trying to figure out you, you, you haven't really dropped off as much as I would've thought in some of your sales, so it's sticky, you're benefiting from it, but how much of it could still be lost as more restrictions are, are lifted.

Yeah, that's, the quite the key is now that we're, we're trying to enlighten the customer experience with everybody when we have them in our store. So trying to take advantage of that and build that relationship. I would say a lot of the markets have been open and people have been mobile, but not nearly as they, as much as they have called pre pandemic. So I think it's really about while we have the attention just really building the relationship and the customer experience with the CU with the, with the, the community members. So that's, that's really what we're focusing on as far as what the quantum is. It's just not something I really can share right now. Cause it's, it's not it's not really known one.

Okay, fair enough. And if I can just finish off on, the standard question, labor availability, restrictions capacity in different regions and if it's changing, depending on which region we're talking about?

Yeah. I mean what we have let's talk to the Southern markets. We have some stability, I mean, Northern markets. It's, it's definitely always, always been a, a, a challenge let's say, and it's always been something we put a lot of attention to the we've it's, it's always been a focus, but I'd say that we're focusing now more than ever because I think it's going to be, there's a battle for talent on for now and there will be, I foresee forever. So we've actually put a lot more focus into developing our customer. Our employee experience just recently hired a chief people officer to do just that the role is to first and foremost to make the, the experience for all of our employees is delightful and fulfilment or fulfilling as, as we can. And it's also looking to make sure we can understand exactly what makes a great North Western, if you will. And, just really trying to get our story out there, so people that are looking for the experience that we can offer them through our stores can find us. So it's something I get guess Neil, in summary, it's something that we're very cognizant of. We're putting a lot of resource and time to it. And I like our chances. I think we have a great and very unique kind of story to tell. And it's just about getting it out there and, and ensuring we can not only attract, but maintain top people to kind of, to follow on our vision and our mission.

Have you had to do any appreciable salary increases any specific regions or had to reduce store hours to accommodate or is it basically been minor tweaks and just employee morale and training and support?

Well, we are always -- we haven't had to close stores. When I say tweaks, I mean, we're always ensuring that we're competitive with our compensation packages. So that's just a regular practice that we continue to continue to roll with. And we, I would say it no we haven't like we're open to it. We're in fact we're under we've done as of recent, we've been doing some market studies to ensure that we're there; that we're on track. And, I'm happy to say that we are, and we have a pretty unique value offer, obviously depending on where the stores are. There's a lot of ways that we can make it attractive for people to come and, and join the team.

Thank you once again, [Operator Instructions]. And the next question is from Michael Zhang from TD securities. Please go ahead

And thanks. A few follow ups, so your CapEx is going up a reasonable amount next year. Can you give us some color as to what you're spending on differently this year or next year, the persons this year?

Well, there's obviously a, I mean with COVID last year, there's some catch. So a lot of it is getting some of the work done that we weren't able to do last year. There's also, we have some exciting projects that we're working on that are kind of overdue and that we think are going to be great projects for us to kind of drive the business, continues to sustain the business, moving forward. We at Alaska, obviously we have our new stores that we're that we're working on. And that was three this year, as you recall, and we're going to aim to do at least that next year. And we're just about to open we're just in the midst of building our third store concluding the build and that'll be open before the end of this fiscal year. So yeah, no, it's I, I'm very happy if that's a question I I'm very happy with the capital projects that we are underway. A lot of it is some of it is catch up and other of it, other projects are that, that we're able to conclude our come to some good, agree, some strong agreements with some of our partners and it's kind of work a lot of it's work. That's been it's call it long overdue. So it's, it's all good quality work that we're, that we're looking to pursue.

How much would be maintenance versus growth projects.

Hmm. I'm trying to think off the top of my head, John?

I would say there's, there's always a bit of growth even Michael in the type of projects we do, like our major store renovations would always have a bit of growth in there. So it makes it a little bit tougher to, we call it the ha called the halo effect. Yeah. But a good chunk of that will be sustaining, if you want to look at it that way. Dan talked about the new store growth in Alaska, that's a, that's certainly a driver. But a lot of this is, is predominantly sustaining with the growth factor though. Yeah. Yeah. As I said, there's always a, a part of that as opposed to pure new store, growth.

Okay. Yeah. I think you have a, you talked about a $24.7 million deferred tax liability. How much is still to be paid in the next six months?

Good question, Michael it's come down substantially. I think off the top of my head here, probably our, our current run rate of taxes paid it'll continue into the fourth quarter and then start to decrease in, in Q1 next year. I expect it to normalize 2020. Was it exceptionally low for the reasons that we previously talked about. So that's, that's the guidance I'll give at this point.

Okay. And then just finally the NCIB. Do you expect to be any more active on it this year than last or over the next 12 months let's say?

I think we we'll see, take a look at that. I mean, we implemented it last year was our first year in we've, we've been, I guess, active in the market regularly, but on a, on a modest basis. And I think that's we look at that, we look at that our investment in the NCIB relative of two other capital requirements in the business opportunities for acquisitions and dividend payments. So it's, it really is a balancing act, Michael. So I wouldn't I'd say, from your perspective and from shareholders' perspective continuing on more of the, Yeah. Yeah.

Thank you. [Operator Instructions]. And there are no further question. I'd like to turn a meeting back over to you, Mr. Mcconnell.

Okay. Well, thank you very much, everybody for attending much appreciate much appreciate it. I do appreciate the questions and same goes for us. We'd like to wish you guys a happy holidays and all the best in the New Year and I'm sure, and we will be speaking to me and look forward. We look forward to it. So thank you.

Thank you. The conference has no windows. Please disconnect your lines at this time, and we thank you for your participation.