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Good morning. We would like to welcome everyone to Alcanna Inc. and Nova Cannabis, Inc.'s First Quarter 2021 Earnings Results Call. [Operator Instructions]A copy of the company's earnings press release and management's discussion and analysis is available on their website and includes cautionary language about forward-looking statements risks and uncertainties, which also apply to the discussion during today's conference call. All amounts discussed on today's call are quoted in Canadian dollars. I will now turn this call over to Mr. James Burns, Alcanna's, Chief Executive Officer. Please go ahead, sir.
Thanks. Good morning, everybody. Thanks for your interest in both of our companies, somewhat unusual call today with 2 businesses. And the departure from our norm here, but I think the statements, Alcanna statements certainly were so noisy that it probably takes a little bit of explanation. I think we'd like to give some overview and perspective on things before we go to questions. And Darren Karasiuk, our CEO of Nova, will also give an introduction and an update on some of the mostly subsequent events that's happening at Nova since the statements really reflect a company that barely exists anymore from last quarter. So for Alcanna's point of view, we were very pleased with the first quarter. The top line was great, and the gross margin equally so, despite having to lap over the last 3 weeks of March of 2020 when the pandemic first hit and there was significant hoarding and stockpiling and sales like we've never seen before, and probably never see again. The bottom line is a little noisy, but most of that is transaction costs or some of the many transactions that we've done this over the last 12 months. And most of those expenses are nonrecurring in our opinion. Operating cost at the store level are as tight as they've ever been and equally at our head office administration level, were equally tight and continue to make adjustments where we can find them. If we take all the nonrecurring costs out, our bottom line for Q1 actually is about 50% better than it would have been last year. Going forward, the business continues to go well. No one knows what the impact of COVID is. Lockdowns continue in Alberta, our main market, obviously, for Alcanna. And as they were last year at this time. Last year, outdoor events and barbecues in backyard, so on was permitted this year, not at the moment. But on the other hand, the playoffs are here soon and the Oilers are in with the good chance of a decent run. So that always helps us out with our sales, especially in our Northern Alberta-centric portfolio of stores. Regardless of the short-term and things that are out of control, weather and so on, which just is what it is. We're very confident and our business is strong, and our market share continues to grow in the trade areas that we want to be in. Well, that's key. We'll not just go for the sake of it. We don't just have stores for the sake of having stores or putting out press releases. We have stores, and we allocate our capital in a manner that is most efficient for the shareholders. And I guess that's the thing I wanted to stress the most today. Alcanna is about capital allocation. And that's what it's been for the last 3 years, and that's what it will continue to be. Efficiently allocating capital, shareholders' capital in a way that maximizes the return on that capital. So what does that mean? And I think you've seen all the transactions we've done over the last 12 months. We'll sell assets when the sale price is accretive. And especially when those assets require capital investment, just to basically continue where they were at, which was the case on Alaska and our first transaction on the North part of Vancouver Island or in the case of the lower mainland and interior stores in BC, the stores weren't -- were in pretty good shape as a rule, but there's the risk on a convenience format store in just 12 months from now of the 20-year moratorium on new licenses expires. And there -- no one knows yet what the BC government will choose to do to extend it, to renew it, to adjust it. The price we achieve for those assets and to allocate that capital, we felt was extremely beneficial to shareholders on their investment. And lastly, and it goes somewhat unreported, but we've also exited 31 low-volume stores over the last 12 to 15 months. Some people call them underperforming, but that's not really true. They're really just low-volume stores in areas, which really never going to get any better, and they don't really -- it's not an efficient use of our capital to have $250,000 of inventory, give or take in each one of those stores as well as have to look after them, have the overhead to look after them, the area manager and the infrastructure to make minimal EBITDA. That $7.5 million back on our books in capital that can be redeployed productively or returned to shareholders that wouldn't have been otherwise. Again, Alcanna is about capital allocation, not about growth for growth's sake. We paid back our convertible debentures recently, $78 million company, and now is a milestone for this company, which was riddled with debt and declining market share only a few years ago. We now have 0 debt, 0 on our balance sheet and $100 million of inventory fully paid for. So we have tremendous firepower and dry powder, if, in fact, the situation comes. We certainly have the financial capacity, a mix of cash flow from operations as well to weather any storms that may come. And this last year has shown the world anything, it's -- who knows what the future may bring, good or bad. At the end of the day, though, for Alcanna, it's all about allocating capital efficiently, the shareholders' capital. We returned $30 million or will tomorrow or Thursday, returned $30 million of capital to shareholders by way of our special issuer bid, which we will achieve, that's about 10% of our float today will be retired and canceled at about a 3% premium to yesterday's closing price, which again, we think that was a good allocation of shareholder capital versus trying to make acquisitions or do things to force deals that aren't there. Going forward, we expect a very busy half of this year. We've got 4 Wine and Beyonds coming up, which we're excited about always. That brand, that banner has been spectacularly successful during the pandemic. As people introduce themselves to it, maybe we speak as they are great big buildings and they could social distance easily. But once they got in there, they realized that it was not a luxury brand. It's actually a discount brand. And it's tremendous, tremendous selection, but also tremendous value, as good a value as you'll find in an East discount. So people came back and came back. And the numbers for the Wine and Beyond banner are staggeringly higher than even in our other stores. We are focusing our growth on that banner. That's for 2021. We got 4 more. We are also actively filling the pipeline right now for 2022 and 2023 with 9 targeted sites in various stages of negotiation. Net-net, over the last 12 months, we've sold about $12 million of EBITDA for $137 million. We'll replace that EBITDA by 2023 at a capital investment of $25 million, plus another, give or take, same amount in inventory. In our opinion, that is allocating capital appropriately and on the benefit of the shareholders. The last and probably the most major initiative we did to allocate capital and to -- was spinning out our Nova Cannabis division into an RTO and using other capital with different investment horizon and time frame to build that business versus using Alcanna's capital given our business. We are extremely pleased with the job that Darren and his team have done in very early going still with Nova. Our Alcanna's support an experience in executing a game plan exactly as Nova is planning. I think we're very confident that the early successes will continue to occur. And with that, I'll turn it over to Darren Karasiuk to comment on Nova more directly. Darren?
Thank you, Jamie, very much appreciate it. And good morning. I'm happy I'll be on this call today to provide you an update on our recent developments. It's been a busy and an incredibly exciting time for Nova since our go-public transaction just 2 months ago. As a reminder, Nova's growth strategy is anchored in the Value Buds banner and servicing the unmet needs to the high -- of the value-conscious cannabis consumer, a high-volume segment that makes up about 70% of the consumption volume in the market today. Borrowing from Alcanna's success and lessons learned in the discount liquor retailing business, we're developing stores and offering products that resonate specifically with this value-focused consumer and offering a truly better alternative to the unregulated market. Our Value Buds stores are located where our customers live, work and shop and are designed for both ease of in-store navigation and to accommodate increased customer counts and sales volume. Geographically, our focus is on largely underserved areas of Ontario and to a lesser degree, Alberta, where we already have a significant footprint. And this sets our strategy apart, and we believe it will bear fruit in our financial results in the years to come. As of today, we have 55 stores open and a further 30 in development for completion in 2021. This is exclusive of a much larger number of potential sites that we're evaluating. We continue to leave our Alcanna's relationship with national landlords to identify store locations that represent sustainable value. During the first quarter, the team began executing on the Value Buds strategy, converting stores from either from Nova Cannabis or deep discount cannabis banner to Value Buds. To date, 18 locations have been converted, primarily in Alberta. And we've also converted the original Nova store in Ontario on Queen Street West to Value Buds. And while it's still early days after the conversion, the initial uplift in sales following the conversions has been very strong, with new Value Buds stores seeing, on average, sales increases of 120% compared to the period before conversion. And these increases will realize that gross margin as a percentage of sales were approximately 19% compared to approximately 32% in the period before conversion. As we continue to increase the number of Value Buds locations and introduce as banner to more customers, we anticipate our gross margins as a percentage of sales will be blended out to approximately 12% to 15% in the second half of 2021. Of course, we're still in the process of adjusting our pricing strategy at these new stores as we start to implement the program in full, we believe it will continue to have a positive impact on our sales volumes and market share growth. Additional store conversions from Nova, YSS and Sweet Tree to Value Buds banner will be substantially completed in Q3 2021. And this, in spite of both a worldwide microchip shortage, which results in longer-than-expected lead times for certain point-of-sale hardware as well as the COVID-related construction delays that all of us are dealing with. We have an aggressive growth plan this year and with close to $38 million in cash at the end of Q1, we're well funded to continue to execute on our plan. But I think it's important to underscore that although we're building one of Canada's largest retail cannabis footprints in Canada. We believe what really sets us apart is our strategic focus on the high volume, value-conscious consumer and our ability to offer a truly better alternative to the unregulated market. And with that, I'll turn it over to the moderator to open us up for questions.
[Operator Instructions]And the first question is from Kyle McPhee from Cormark Securities.
Starting on the liquor side of the business. I'm just hoping for some color on what you're seeing with the year-over-year sales trend in Q2 so far? You clearly had a big tailwind in Q1 from COVID and all the other market share moves that are still paying off. But in Q2, which is now comped against a full COVID quarter. Are you still seeing any lift? Or are you kind of back to neutral for the divestment-adjusted business? Any color there would be helpful.
Sure, Kyle. I guess we can't talk about the exact numbers and so on, but I think you've -- in your notes, pretty well got it. There's tailwinds still. And nothing's really changed COVID-wise versus -- last year was a weird year. The first 3 weeks of March was huge panic buying where people thought liquor stores will be closed down, people were trying to stored up and stockpile and so on. And then when liquor retail was declared pretty well worldwide as an essential service. Through the month of April, sales were relatively low last year because people were essentially drinking up their stockpiles that they bought. And then it kind of got up into May, later in May. Finally, when that was done, it sort of started to just settle into a new normal of a pandemic, which we saw for the balance of last year. Given that there's really nothing much changed in the external world from back then, I think it will be a fair assumption to say that things are pretty much just the way they were. How the actual quarter turns out because of the weird bumps in April, I don't know. But net-net, day after day, week after week, we're very, very pleased with how things are going in Q2 still.
So far, Kyle, we haven't skipped a beat from where we were trending in Q1 in terms of just in the current year when you look at week-over-week, forget over last year, and our business is doing very well. And so if we keep on this trend, we're going to have a good quarter. How it will shape up against last year? I don't know yet. And that's really going to come down to how do the long weekends perform and that comes down to weather for the most part. How do these restrictions on social gatherings shake out over the next couple of months, I don't know. But we're very happy with how the business is moving today.
Got it. And also on liquor, the Alberta liquor retail landscape. You guys were pretty disruptive in recent years. You're now back to your normalized type margins. But wondering if the landscape of the other peer retailers are staying pretty status quo with things like pricing and promotion? Or are there changes starting to emerge? Essentially, just wondering if it's still a pretty rational competitive environment out in Alberta?
I think it's pretty rational. Given that the liquor retail industry is all winning as a whole, unfortunately, on the back of the closures of the restaurants and the bars and the lounges and things going on out there. I think everybody in the industry is pretty rational, given that the rising tide floats all boats.
And we don't -- I mean, you can never -- competition is going to do what they're going to do. I don't spend a huge amount of time worrying about it in advance as you react is -- but we don't see at the moment any one that looks like there may be kind of some kind of disruptive market share gains. I mean, our main competition are the grocery stores and Costco. And they build stores near their grocery stores for the most part and use them as part of an integrated business for their grocery business. So they're not just willy-nilly growing the liquor business, which is relatively insignificant in the grand scheme of their world. They have very big liquor businesses, but not compared to the size of Loblaws or Empire, Sobeys.So we're -- the industry, I think, is in good shape, as David said. And everyone's interest is to keep it that way. And the consumers are winning. We got the prices are down and a really good margins for Alberta, customers will pay as cheap as retail alcohol prices anywhere in Canada. So we're -- it's a win-win for everybody.
But the one thing to think about for everybody looking at the comps for Q2 versus last year, we really cut back on promotions and marketing last year for the first 3 or 4 months of pandemic. Customers were not paying attention to those kind of materials. And so we'll have a little bit of incremental marketing spend this Q2 just normal promotional spend. So that should be factored in. And normal promotions will lead to some promotional type pricing, which will play with the margins a bit. So again, we're happy with where the business is. It's normal. But look for that comp as you go through for Q2.
Got it. And last one for me before I pass it off. Just on the -- just high level on the Value Buds disruptive strategy you guys are rolling out. Are you seeing any competitive responses yet from the other peer retailers? And maybe even just give some color on where do you think all this big sales is coming from that 120% gain? Is this from the peer retailers? Or is this largely just from the illegal channel?
Well, I think we're -- thanks for the question, Kyle. We're seeing it from both, really. We've got some anecdotal evidence where we've had stores where we've got Nova stores and Value Buds stores in kind of close proximity to each other, where -- and we've launched Nova -- or sorry, launched Value Buds and seeing this incredible lift, but hasn't necessarily negatively impacted our -- some of our Nova locations too much. And then in other context, we've seen, which just sort of speaks to the fact that we're seeing people coming in from the unregulated market to join us, they're not necessarily moving from one to the other across the board. In other context, we're very much hearing that we are taking from our competition that's out there. And we're seeing some plays by others to try to respond to us, what's happening on Ontario a little bit. And you're seeing some price matching efforts attempted underway in Alberta as well. But again, the key takeaway on that one is that we're making this move first. We're making it aggressively, and we're expanding aggressively. And we've got a lot of confidence that we're going to continue to see the growth that we've seen in a few short weeks since we've actually converted these stores over.
And that's a good point to highlight, Kyle. When Alcanna did our pilot back in the fall with the first 4 stores, the ramp-up period was really, really long. Like we had some really good results right off the bat, but it has just continued to grow and grow and grow in most of those stores. Jamie and I were looking at one of those 4 stores. We hadn't really paid attention to it in the last couple of weeks, and we just almost fell off our chairs. And because we can't market in this industry, it takes consumers a while, word of mouth, coming in, trying it once in a while to see what kind of value offering that we're offering in these stores. And so to be up 120% at this point in a short period of time in these 18 stores is quite exciting. The trajectory that we're on, I think, is quite significant and hope to see some really good gains here in Q2, Q3 and then into Q4 still.
Got it. Maybe just a quick follow-up. When you talk about sales continuing to accelerate beyond the 120%, is that still at that 19% margin? Or have you started lowering that even more, your filings indicated maybe 12% to 15% is where you're taking it down to?
Yes. We've become more aggressive, Kyle, with that, and we are moving those margins down, which is going to translate to pricing on the shelf that customers are really responding to very well. And we started that process with a view again to only increasing the volume and the share capture strategy and to increase that trajectory in terms of growth on the top line across the board.
Got it. And just to confirm here, my math, like if you're getting a sales lift of 120% plus, even down at gross margins of 12% to 15%, you're still neutral to or still adding gross margin dollars while you take this share, correct, so you're not having a negative contribution margin from the stores?
Yes. There might be in the early weeks. Kyle. But no, we're quite confident, and that's why we're moving them down even further. There's more market share to be captured and generate at least the same amount of gross margin dollars. But we think, as we saw in the liquor trial or the liquor phase of our discount entrants into the market that we can then move it back up and make substantial dollars on the bottom line in time.
Yes, but move it out doesn't mean to move the prices back up and mess with the consumer, it means increased margin in cannabis, unlike liquor. That we have a decent private label business in liquor, but it's very different. You're competing against massive national iconic world brands. Cannabis, there's nothing like that. So I mean, Darren is much better to comment on this, but in -- and he will. But the private label opportunity in cannabis is immense to build our own brand and capture some of manufacturers margin as well as our own. So normal retail margin. So that will be a huge source of margin enhancement for a major player with a lot of volume that can participate in a white label program. I don't know, Darren, do you want to add some more in terms of where you're at?
Well, as we said at the -- when we launched this, there was going to be a significant part of it. And Jamie is quite right, Kyle, the fact that brand loyalty, I mean, even brand awareness still doesn't largely exists in the cannabis space in this country. And given the regulations and the restrictions in place, the place to build brand awareness and build brand loyalty is within the 4 walls of retail. We recognize that. We know we communicate with the customers that are there and do so effectively. So with our private label plan, which, again, we've communicated that we intend to get out in the second half of this year. We believe that, that's going to actually only augment what we're doing in terms of, call them, the national brands or the LP brands that are there, which only further entrench our position in the minds of the consumer as the destination to come for the product, the quality that the consumer wants at a price point that's going to be unbeatable in the marketplace.
The next question is from Graeme Kreindler.
I wanted to start out on the liquor side of things. And on the last earnings call, you called out some of the consumer trends you saw with a bit of trade down exhibited by customers in the holiday period, probably driven by the fact that they weren't spending it with any large groups. When we consider the commentary you gave at the top of the call about things trending very well in stores in terms of volumes and in customer behaviors. I was wondering if there's any specific trends on the purchasing behavior that might affect the comp a bit, whether we're starting to see customers trade back up or if that trade down phenomenon still persist in the Q2? Would appreciate any color there.
The trade down that we saw in the fourth quarter really was around the holiday events. People weren't entertaining as much. They weren't having people over. So they weren't buying the top shelf type stuff for those parties. They were just drinking their regular stuff for the most part, that's generalization. In Q1, early Q2, you don't -- other than Easter, which is a less significant holiday, you don't have those same comps to worry about. And so I think people were just in a normal habit of drinking their normal stuff, and we didn't really see any trading around from Q1 2020 to Q1 2021.
Understood. Then switching over on to the Nova side. With respect to the 8 retail authorizations out of the total 19 planned stores in Ontario right now. Is the expectation that those would be able to open immediately after the emergency order is lifted in the province? Or have there any -- have there been any further delays or construction delays on those authorized stores because of COVID? Or is it basically waiting for the green light from the province here?
In terms of Ontario, it's a little bit of both. We've got a number of stores that were ready to open. In fact, just yesterday, we opened a new store, a store at Lansdowne, and we've got Queen West Store, which is scheduled to open this week as well. But in terms of the timing on those specific ones, the individual RSA dates are a little bit further out. So we'll be looking at those, again, opening up towards the back half of this quarter and the beginning of the next quarter when we'll be seeing most of those stores actually opening up in Ontario.
Yes. Just -- but to further to your point, Graeme, construction has not slowed. It's halted. We have not been able to touch these stores for a very long time other than like it was about a very brief period there for a week or 2 where it opened up and then got shut down again. So unfortunately, it just -- it's nothing to do with us and it's like in the time of COVID, where many stores, which we would have hoped to have had built out and ready for both an RSA or lifting lockdown are not going to be because we're not allowed to do construction. So as soon as that lifts, we've got our teams. We've got our construction crews or country. Everybody is ready. It's just got to wait for being permitted. So -- and your guess is as good as mine when that will be. At the moment, I think it's early June at the earliest. And I guess, depending on the situation at the time, the Ontario government will decide whether we can get back in back to business of construction or not.
Okay. Understood. Then my last question here is, with the additional 30 locations, you called out in the press release in Ontario that are under negotiation, can you give us any color on what the mix looks like there? Are these existing operating stores? Are these leases on just retail locations at this point in time? And quite a substantial amount with 30 locations under negotiation. What does that mean relative to the valuation environment? I know it's looking at the time value of scarcity, Ontario with the increase in the ramp of retail authorizations, is the market getting better or more conducive to making some nice deals here as the year goes on?
The stores that we're talking about there, those are net new that we're looking at developing, which we've got a nice mix, but it's consistent with our overall strategy, as we've articulated for some time now, Graeme, which is trying to move away and definitely moving away from the areas which are perhaps oversaturated for the downtown cores. And again, looking at locations where our core consumers live, work and shop. The broader 9:05 strategy with smaller communities throughout Southwestern Ontario. But those 30 stores that we're talking about there are ones that we are looking at in terms of, I'll call them, organic for the most part, which is to say, ones that we've identified that's fitting our model that we levered the Alcanna real estate team to help get us leases that are favorable to us, and we started to work towards those ones. In terms of your other question, which was, if I'm understanding it correctly, trying to understand about sort of what's happening in the Ontario market. Listen, Graeme, it's no surprise that a lot more RSAs are being issued, and we've been in process for some time. And we will continue to monitor that. And as we look forward to our, I'll say, an acquisition strategy, we're only going to do those acquisitions if they make sense to us, right? The market is going to continue to, I'll say, compressed. There's going to be increased competition, and valuations are going to continue to fall, we believe, for those opportunities that are out there in the market. So we're going to look for those that fit within our broader strategy and only do those that makes sense, obviously, economically to us. We're, again, well capitalized. We've got a strong strategy, and we want to be vigilant in that going forward.
And the last question is from John Zamparo from CIBC.
I wanted to start on the liquor side of the business. And if we look at its history, this segment had achieved gross margins, I think, north of 25%. And obviously, there's a lot of changes since then, and the heavy discount component would suggest a lower ceiling. But how should we think about what level these gross margins can settle at once you've extracted gains from private label and some of the other initiatives you're working on? Is there a long-term target that you do have in mind?
John, yes, again, just given the history, as you say, where the -- where it's been in the Alberta marketplace and especially in the last few years, largely as a result of our own doing. We would -- in terms of the ability to raise prices for the consumer that they see, there's probably not too much room left to go. You can always play here and there, but not a lot. Our ability to raise margins will be based on -- we continue to maximize our buying power on using limited time offers to make sure we get a couple of points. And it's a business of really small margins now, and it's detail, detail, detail. Every little bit helps. We have a warehouse in Edmonton. We will soon have a warehouse in Calgary, which is a back part of a new Wine and Beyond we're opening, we had a large extra space. So we're going to use that as another warehouse to be able to hold LTO, given the cost of capital generally being so low, it's very advantageous for us to make large buys when the vendors put products, especially the hot selling products, which you don't make a lot of margin on anyway, the Smirnoffs and Captain Morgans of the world to buy those in bulk when you can to save a few -- even a few basis points is huge to us, given the volumes that we process. So that will be things like that. Again, we continue to hone and enhance our private label program, which continues to do extremely well. Especially just interestingly enough, it's -- wine is always the cornerstone to that, but we've been introducing some private label spirits made right here in Alberta. But you've been extremely successful over the last 18 months, and those are great margin products for us as well as wait for the vendor here in Alberta and for our province. So with those sort of things, you could always going to hope you can get maybe another 100, another 150 or over time. But just raising prices, not so much. You don't want to go down that trap again. I mean you could do it for a year and then you'd be back to where you were again. It's not logical to, us. That's short-term thinking. So.
Understood. That's very helpful. Moving to the balance sheet. Even after the SIB, it's still a very well capitalized business in terms of access to liquidity so any update on what you plan to do with the free cash flow that the business is likely to generate in '21 and '22? And if it's M&A, what would you potentially be looking for?
We're going to build Wine and Beyonds. That's what we're going to do, John. And also some smaller format convenience discount liquors. Largely those ones in new areas, new neighborhoods of Calgary and Edmonton, particularly that are growing just as cities grow. So it's -- we're pretty well -- our free cash flow is pretty well fully spoken for. We -- the 4 Wine and Beyonds this year and the other 5 we've targeted for next year and 4 for the year after, right now with hoping to get more. We can -- we have a financial capacity to build as many as proper, I stress proper, properly allocated capital sites we can find. We're not going to build them just for the sake of it, but we're going to build them where we think they're successful and where the overall EBITDA of the company will be enhanced to justify the capital invested. So yes, we'll providing increased cash flow. But as we also have the capacity to consider future return of capital to shareholders. And there's the usual mechanisms. We've used one. I mean can always use that one again, but there's NCIB dividend. The usual suspects are always available, and we do have the ability and the capacity to do all of the above if we choose and shareholders who contact us quite a bit and give us their views as to what they think we should do with the company that they own part of, which we always welcome. It's their company after all ours. We are big shareholders personally. We'll see what the future brings. We're also very cautious generally by nature. So we don't -- COVID is just so uncertain. Things are so uncertain. Alberta economy right now is really picking up again as the L patch starts to reinvigorate itself after a very long dry spell. If oil prices continue to stay at the levels that we're seeing. A lot of people are back at work that haven't been working for 18 months and so on. So anecdotally, things are looking positive for us. And if our results keep continuing like this. Yes. M&A. Again, anything that's accretive and is proper allocation of capital, we'll certainly look at, but we're not trying to find one. We'd rather give the -- keep share -- give capital back to the shareholders than we will do some cowboy acquisition just to feel better.
Understood. Okay. A question for Darren. I want to better understand the sales increases you see when you transition these stores to Value Buds and I think it was 120% increase you saw from the recent conversions that -- I mean, it's remarkable, but it is a step down from the 240% or so, you saw from the initial conversion. So is it that these stores that you're converting now, are they behaving any differently? Or is it that the earlier test stores started at a lower level, similar to what you're seeing now and then they jumped up? Is there an element of competitive response that's impacting that? Just would like to understand the cadence of increase on the recent conversions versus the initial ones? Is there anything to help reconcile the difference between those 2 numbers?
Yes. I appreciate it, John. I appreciate the call -- or the question, rather. These stores that we're talking about here, we really kicked this process off middle of this last quarter. And what we've seen has been early days in terms of the lift. When we talk about sort of what we saw with the original experiment last year, that was over a longer period of time. It's a different marketplace, to be sure. But this is still early days, and we've got confidence now these stores and the trend lines associated with them will continue, particularly as we get even more aggressive in the margin profiles. And really, what matters is the price that the consumer is going to be seeing on shelf. So when you take it as or look at it across the board, this is very much in alignment with what we've seen previously with the experience just at a broader scale. There's absolutely increased price competition from folks out there as they recognize that this is really where the core of the market is, and they really also come to recognize that this is where the core consumer base is. We just happened to have identified it sooner than anyone else.
And John, just to put a fine point on that. For the same period as those 4 stores that we piloted last fall versus these 18, the 18 are on the same trajectory as those 4 were at this very same point in time. And so -- and maybe even a little better, I might be being conservative in that comment. So we're very happy with where these stores are today. Are they going to get to 240%? I don't know. That would be a home run, but anything north of where we are today, we're in really, really good shape.
Okay. That's very helpful. And then one last one for me, more of a housekeeping question. I wanted to ask about administrative costs and what you expect here. You called out the -- I think it was $2.1 million of transaction costs in the quarter. If we back that out, you get to a bit over $6.5 million. I think last quarter, we suggested maybe the Q2 or Q3 number from last year was probably what you'd see moving forward, and that was around $5.5 million or $6 million. So was there anything else onetime in nature that you can call out? or is Q1 the right way to think about administrative expenses moving forward?
No. And I guess we weren't maybe as clear as possible, but we said transaction costs and other nonrecurring amounts. And so yes, Q2, Q3 is a much better trajectory for going forward.
That concludes the question-and-answer session. We'll turn the meeting back over to Mr. Burns.
Thanks, Laurie. I appreciate everybody's interest, as usual, and we got to get back to work. Thanks very much till next -- till August.
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