© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen, and welcome to Metro Inc. 2021 Fourth Quarter Results Conference Call. [Operator Instructions] Also note that the call is being recorded on Wednesday, November 17, 2021.I now would like to turn the conference over to Sharon Kadoche, Manager, Investor Relations and Treasury. Please go ahead.
Thank you, Sylveen. Good morning, everyone, and thank you for joining us today. Our comments will focus on the financial results of our fourth quarter, which ended on September 25. With me today is Mr. Eric La Fleche, President and Chief Executive Officer; and Francois Thibault, Executive VP and Chief Financial Officer. During the call, we will present our fourth quarter results and comment on its highlights. We will then be happy to take your questions.Before we begin, I would like to remind you that we will use in today's discussion different statements that could be construed as forward-looking information. In general, any statement which does not constitute a historical fact may be deemed as a forward-looking statement. Expressions such as expect, intend, are confident that, will and other similar expressions are generally indicative of forward-looking statements. The forward-looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy, and our annual budget as well as our 2020/2021 action plan. These forward-looking statements do not provide any guarantees as to the future performance of the company, and are subject to potential risks, known and unknown as well as uncertainties that could cause the outcome to differ materially. A description of these risks, which could have an impact on these statements could be found under the risk management section of our 2020 annual report. As with the preceding risks, the COVID-19 pandemic constitutes a risk that could have an impact on the business, operations, projects, synergies and performance of the company. We believe these statements to be reasonable and pertinent at this time, and represent our expectations. The company does not intend to update any forward-looking information, except as required by applicable law.I will now turn the call over to Francois.
Thank you, Sharon, and good morning, everyone. So for the quarter, total sales were up, $4.092 billion versus $4.144 billion last year. That's a decrease of 1.2%, but up 6%, when compared to the fourth quarter of 2019. Food same-store sales declined by 2.9% for the quarter, but grew by 6.8% on a 2-year basis. Pharma same-store sales were up 4.1% on top of 5.5% in the previous year.Our gross margin stood at 20.4% of sales versus 20.2% for the same quarter last year, reflecting an overall good merchandising performance in both food and pharma.Operating expenses were down slightly year-over-year, and represented 10.5% of sales versus 10.4% last year. And our COVID-19-related expenses amounted to $9 million for the quarter. That decrease of $18 million in COVID costs versus the same quarter last year was offset by an increase in other operating expenses, mainly related to activities and services that have been reinstated after initially being paused at start the pandemic, such as hot foods, for example. Advertising is also up versus last year. Going forward, though, we will no longer report specific COVID-19-related costs, not only because these costs are much lower than before, but also to be frank, the line between the COVID expense and a regular expense has now become quite blurred.EBITDA for the quarter totaled $403.6 million, flat versus last year, but as a margin on sales of 9.9% versus 9.7% last year. Our depreciation expense was down 6.5% versus last year, but I remind you that we had $10.7 million of accelerated amortization last year related to the opening of our new fresh DC Ontario.Adjusted net earnings were $200.6 million, compared to $193.1 million last year, an increase of 3.9% and our adjusted net earnings per share were $0.81, up 5.2% versus last year's adjusted EPS of $0.77. On a 2-year basis, EPS grew 19.1%, representing an annual compounded growth rate of 9.1%, well in line with our annual growth target of 8% to 10%.In fiscal 2021, capital expenditures amounted to a little under $600 million, up $88.6 million versus last year. And this record level of CapEx is a result of our ongoing investments in the modernization of our supply chain in both provinces, and in our retail store network, including in-store technology as well as the increase in our online capacity. At the end of the fourth quarter, we had 340 stores equipped with self-checkouts, and 170 stores with electronic shelf labels. And for fiscal 2022, we plan on adding another 80 stores with self-checkouts and another 70 stores with electronic shelf labels.Also during the fiscal year, we opened our online dark store in Montreal, 1 Metro Plus and 1 Adonis in province Quebec, and 1 Food Basics in Ontario. We also relocated another Food Basics and carried out major renovations in 9 stores, representing a net increase of 260,000 square feet or 1.3% of our food retail network.On September 30, we announced the amendment to our normal course issuer bid program allowing us to repurchase an additional 1.5 million shares over and above the initial 7 million shares authorized. We completed our program on November 9, having repurchased a total of 8.5 million shares for a consideration of $498 million, representing an average share price of $58.55.So that's it for me. I'll now turn it over to Eric.
Thank you, Francois, and good morning, everyone. We ended the fiscal year on a strong note with adjusted earnings per share growth of 5.2% in the fourth quarter despite lower sales, as we cycled exceptional sales last year. On a 2-year basis, we delivered sales growth of 6%, and adjusted EPS growth of 19.1%.In our fourth quarter, food same-store sales were down 2.9%, but up 6.8% when compared to fiscal 2019. As expected, with government restrictions easing over the summer, a portion of food consumption transferred back to restaurants. Similar to Q3, transactions were up in Q4 year-over-year, but are still below 2019. Average basket size was down versus last year, but remains significantly higher than 2 years ago. Promotional penetration increased and is now back to pre-pandemic levels. For the quarter, our internal food basket inflation was 2%, up from the 1% in the prior quarter with the main drivers being meat and dairy products.Turning to pharmacy, comparable sales were up 4.1% and 9.8% versus 2019, with prescription drugs up a strong 6.7% in the quarter as we continue to see an uptick in physicians' visits. Front of store sales were down 1.1% this quarter, and up 4.9% versus 2019. OTC, beauty, and cosmetics sales were up versus prior quarters. However, we were cycling significant sales of COVID products such as masks, gels, and sanitizers last year.Online grocery sales were flat versus last year in the fourth quarter, as demand is leveling off from peak COVID levels, but up 160% versus 2019. The online market is still growing, but at a slower pace. We are on track to increase our capacity with the ramp-up of the Montreal dark store. Click and collect, now available in 180 Metro stores versus 170 originally planned, and new hub stores in Ottawa and Chicoutimi this summer, and soon Windsor. Super C is now on the Cornershop platform for rapid home delivery. So our strategy is providing operational flexibility, and we believe well adapted to our local markets and demand growth. When fully deployed in 2023, our online service will be available to 85% of the population of Quebec and Ontario.On the pharmacy side, our e-commerce offering is evolving as well. This month -- actually this week, we will be launching our click and collect service at more than 250 Jean Coutu locations across Quebec, Ontario, and New Brunswick. Customers will now be able to order online more than 20,000 products, including over-the-counter medicine and pick it up the same day at their local Jean Coutu pharmacy. This new service is in addition to the longstanding delivery service for prescriptions and the more recent Cornershop platform for quick delivery of HABA products.Our supply chain projects are progressing well. Operations in the new produce DC in Toronto are not yet at the expected productivity level, but continue to improve every week. We are pleased with the service level to our store and the quality of our products. The new automated frozen DC is in the final commissioning stage, and we expect to start shipping to stores in January. The transition from the existing frozen DC will take place over a 4-month period. In Quebec, construction of the new automated fresh and frozen facility in Terrebonne is well underway, and is scheduled for a 2023 opening.Looking ahead, well, we can't predict exactly how the pandemic will evolve, we expect our food sales to decline versus last year until the second anniversary of the pandemic in March. But they continue to compare favorably on a 2-year basis. In our pharmacy division, we expect strong comparable sales in the first half of the year as we are cycling an 8-week labor conflict at Varennes in Q1 last year, and 6 weeks of government restrictions on the sale of non-essential goods in Q2 last year.Our industry is experiencing cost inflation pressures, mostly cost of goods sold, labor, transportation. However, we're working hard to contain those cost increases and provide the best value possible to our customers. As always, our teams are focused on daily execution, while delivering on our strategic priorities.So that's it. We'll now take your questions. Thank you.
[Operator Instructions] And your first question will be from Patricia Baker at Scotiabank.
Eric and Francois, I just would like to talk about the current backdrop, and you talked about seeing labor cost inflation and cost of goods inflation. What are you seeing from the CPG companies? What are they looking for, because they're sort of incurring higher costs? And then somewhat related to that, have you seen any disruption to availability of any product in the context of the current backdrop?
Okay. So yes, for sure, some of our vendors are experiencing inflationary pressures of their own clearly, and we have received some cost increases late summer. And through these last few weeks, there are cost increases coming because of commodity issues, weather issues, labor, and whatnot at the vendor end. So yes, there are cost increases and that's what's causing inflation. We're confident in our ability to pass on costs over time, but we are working hard to contain those costs and make sure that we are market competitive and that we can provide great prices to our customers. So that's a reality. Right now, those inflationary pressures, we're managing as best we can. The availability, yes, there are SKUs that continue to be hard to get supply, and to get the quantities that we would like. There are some -- there are not that many, but there are some key items where we are on allocations, the whole industry is. So that continues to be an issue. It's better than it was, but it continues to be a factor.
And can I just follow up with 1 follow-up question that is, did you see any sort of difference in the pace of growth at conventional versus discount in this quarter relative to what you've seen in the first 3 quarters of the year?
I would say that in Q4 versus prior quarters, it was not that different as inflation accelerated late in Q4, in September mostly, and into this quarter right now. Clearly, there is an inflationary pressure, and that's causing customers to look for value. So when I said that restaurants were opening up this summer, we certainly felt that. But our sense is that consumers are consuming more at homes than they were 2 years ago that's for sure, but they're consuming more at home right now than they were over the summer. So we're confident that we're well positioned in both our discount stores, our conventional fresh stores to serve customers, who are facing these inflationary pressures. So managing as best as we can, like I said, to provide great value, great prices so that we can meet the customer -- consumer demand for food at home.
And your next question will be from Mark Petrie at CIBC.
I just wanted to follow up specifically on the inflation topic. And so could you just discuss sort of anything you're seeing with regards to consumer behavior to the acceleration in inflation sort of at the end of Q4 and then into Q1? And also have you observed any changes in the competitive landscape?
So pretty much the same answer to the previous question. Inflationary pressures are making consumers look for value and eat at home a little more. So search for value, so that you would think would favor discount. So we're confident that we have a great discount offer. We also provide great prices in our fresh stores, but we have great businesses with Super C and Food Basics in Ontario and Quebec. We're really well positioned to meet consumer demand for those customers who are looking for value in both of our formats. Not much more I can say.
And are you observing any adjustments in the competitive landscape? I know that you said promotional activity has returned to pre-pandemic levels, but any further comments?
It's very competitive. Everybody is looking for their piece of the pie, so it's very aggressive. Promotions are aggressive. It's hard to promote certain items with some of these inflation cost pressures we see especially in meat. It makes it more difficult, but I think our merchandisers are experienced that can stick-handle through this. We've done it before. And I think we're well positioned to face the competitive, but it's a very competitive and we expect that to remain.
And actually, sorry, just 1 more on that topic. Any difference in behavior promotionally, discount versus conventional or relatively balanced?
Well, both formats have their own merchandising strategies and same for our competitors. So I don't think there is a huge change. I'm just saying it's very competitive and balanced.
Yes. Understood. Okay. And then just with regards to e-commerce, I mean I understand growth has flattened out as you're lapping a significant surge last year. But what are you observing now in terms of basket size and sort of composition? Is the slowdown, just a matter of people mixing online and in-store a bit more? Or are you seeing something different in the consumer behavior?
Well, as I said in my opening remarks, demand has leveled off. It's still growing, but at a much slower pace. E-com sales are clearly above 2 years ago, but whether or not at where they were during the peak pandemic when all the windows, a mid-week, earlier in the day, whatever, everything was full. This is not the case now. So demand has leveled off. People are going to restaurants, are going back to old habits and visiting more stores shopping around. So e-com has leveled off a bit. So that said, we like our model. We like our flexibility. We have different models to serve the customer for delivery, for click and collect. We have partners for instant delivery. We have dark stores for high-density markets, hub stores for mid-density markets. So I think, we are investing at a measured pace and we're meeting consumer demand. Not easy, e-com is a tough business, but we're getting better and I'm confident that we can perform well.
Understood. I'm sorry, Francois, I think -- I'm not sure if I missed it in your comments, but can you provide any commentary with regards to CapEx for next year or this year?
Yes. So as I said, $600 million this year was a record level, but it's going to be higher next year in light of those ongoing investment supply chains mostly. So look, you can expect something north of $700 million for next year.
Next question will be from Vishal Shreedhar at National Bank.
I was hoping that you could update us on the Ontario frozen DC. Is that still on track for January 2022? And are there any learnings from your prior DC implementations that you can apply to that to maybe have a quicker ramp-up time on more efficiencies?
So yes, we are on track for January to start shipping to our stores, as I mentioned earlier. So the building is up. The temperature is being brought down. Inventory is going to start to come in there soon. So yes, we are very much on track for January start. For sure, there are lots of lessons learned with the fresh Phase 1 that we did this year. So the new DC for frozen foods is fully automated. You would think that, that would make it more complicated and perhaps riskier. We think it's -- it probably is going to be a little easier because the produce we were mixing manual pick with a portion of automation is not an easy task. So we expect that we're going to be ready and that we're going to be able to wrap it up efficiently. It hasn't started, so I can't tell you exactly and make promises that we can keep it. We're doing everything we can to have the smoothest transition that we can have. We want to derisk the business. We want to make sure our stores are serviced well. So we're going to plan the transition -- we're going to plan -- is planned over 4 months. Hopefully, it could take a little less and go a little faster, but we're going to do things right. And then that's the way the team has planned it. And I think it should be simpler, but a change is a change, and there is always risk with that, but I think we're managing that risk well and it will be ready.
Okay. And from time to time Metro has been active in M&A. I know you have larger CapEx investments coming up. But over the next few years, wondering how Metro thinks about the M&A backdrop currently? And would Metro entertain buying assets outside of its direct circle of operations of pharmacy and grocery?
No, not for now. Our focus is on food and pharmacy in Canada. So yes, there are fewer targets than there were. But we take a long-term view, and that's our business. That's our core business, and that's what we're focused on. Are there adjacent -- adjacencies that could strengthen our food or pharma platform that we could look at? Never say never, but we like food and pharmacy, and that's what we're focused on.
And Vishal, I'd just like to add on your comment about higher CapEx. It still leaves us with a very strong financial position, strong balance sheet that could take -- that could be -- we seize any opportunity in M&A that makes sense. So the higher CapEx doesn't change our financial position, doesn't change the fact that we still be in positive free cash flow territory. So we still be able to act pretty quickly should there be an opportunity to -- that comes up.
Yes, absolutely. And just a quick 1 here. I was wondering about pharmacy in -- beauty and pharmacy. How far is that business away from pre-pandemic levels? And do you make more margin selling beauty products into PJC from your DC as well?
How far, it's -- I don't have an exact number versus the pre-pandemic. I think we're a bit shy of it. But we're certainly getting more traction like I said in beauty and cosmetics, as the economy opens up and people are returning to the office. But it's not quite at the level of 2 years ago. On the margin side, beauty and cosmetics is a higher margin category both at retail and wholesale. So for both our franchisees and for us as distributor, it is, yes, for sure, a higher margin category.
Next question will be from Peter Sklar at BMO Capital Markets.
These kind of declining baskets and negative tonnage trends that the industry is experiencing as restrictions ease and people go back to normal activity in restaurants, how are you seeing that? Like is it across all categories? And how is it trending? And I'm just wondering what your outlook is as residual restrictions are eased. Do you expect these basket and tonnage trends to get worse? Maybe you have some insights because you're seeing how it's trending as you get into the first fiscal quarter here?
The overall number, the top line is down. So yes, it's a mix of the higher traffic, but lower basket versus last year. The composition of the basket is it's across the basket. There is no department or there is no category in the basket that is more down than others. I think it's just a general decline versus very, very high levels. I think the key point for me is that on a 2-year stack basis we are up in our sales, in our tonnage, in our market share. I'm pleased with that. Like I said, I think there was a rush to restaurants this summer and people you know, and you can't blame them after a long COVID period, wanted to get out. So we felt that in the grocery channel over the summer. But as the summer ended and inflation picked up, I think a combination of both people are reverting back to more food at home consumption. So -- and I think that bodes well for us. So we're seeing our 2-year stack so far in the quarter improved. And so we think that's positive and we think that food sales will remain more elevated post-COVID than pre-COVID.
Okay. On a different topic, can you talk a little bit about how the Montreal dark stores performing? Any trends or learnings from that? And is your expectation that you also do -- eventually do a dark store in Toronto?
Okay. So the Montreal dark store opened this summer. We closed the delivery operations in 3 Montreal Island stores and concentrated in the new dark store. So we're using pretty much the same technology that we have in stores, with some adjustments. So it's a learning curve. There are some changes. It's not exactly the same as in the store. It's more efficient, but we honestly have had some issues staffing. Labor in Quebec is an issue. This summer, it was hard to get labor everywhere in our stores, in our DCs, and in the dark stores. So the ramping up is working with that. So we're pleased with our progress. And at the same time, demand leveled off like we said. So I think it was good timing to start the new DC -- the dark store in Montreal. Toronto is the largest market in Canada. So our plan is eventually to have a dark store in Toronto, for sure, and we'll keep you posted.
Your next will be from Michael Van Aelst at TD Securities.
I just wanted to start on gross margin because it was quite nice, up 20 basis points. But considering the inefficiencies that usually come with the drop in tonnage and the initial cost of goods sold inflation ramping up, I was surprised that it was up by 20 basis points. So can you walk us through, I guess, what allowed you to see that margin inflate upside? And whether that's -- I know you don't like to give guidance on margins, but you did comment about cost of goods sold being passed through over time rather than maybe immediately. So I'm not sure if that implies some pressure coming?
Well, I think it's a combination of factors that our teams -- essentially, I think our merchandising programs are well done and effective and providing the margin. I think our tools to manage shrink in our stores keep getting better and that's always a factor. Inflation in certain categories can help too. One other factor I would say is pharmacy. The mix of our sales, pharmacy changed a bit over the quarter. We had a -- after we switched operations, the Metro Pharmacy DC combined with the Jean Coutu. If you remember early last summer, there is a portion of the McMahon business, which was wholesaling to hospitals, which we let go. So that was a low margin business. So that's a contributing factor, not the main factor, but it's a contributing factor. So it's a bunch of things. Our private label sales continue to do better. HMR sales in our stores are up. So there's ups and downs. And there's inflation, then there's tonnage. I get all that, but we're pleased with our results at 20 basis points. Michael?
Please, unmute Michael.
Sorry. And just 2 other quick questions. One, what should we expect for transition cost for the DC in '22? And then what does the normal CapEx look like once you're beyond all of these new DCs?
Normal CapEx will be somewhat similar to what we had before starting the fresh part one, which will be sort of a mid $500 million level -- $550 million that's -- that was the normal sort of CapEx run rate. As I said earlier, next year you should expect CapEx to be higher. I would call it now at north of $700 million. So that's the run rate CapEx I think you could be using going forward, $550 million.
We're not going to give guidance on the transition cost. We have to manage that as best we can. There will be some costs. So when you transition and you operate from 2 DCs for 3 to 4 months, there is going to be some cost. Maybe we can give you more color...
Like we did this year when we had 1 quarter where there was a transition cost for the fresh part one. So we highlighted it. But we -- in their business plan and a model, we assume some transition cost, we assume some overhead duplication. So hopefully, we'll be on track. But if it's something that affects particular quarter, we'll -- we can give more color as it happens.
Next question will be from Irene Nattel at RBC Capital Markets.
I apologize ahead of time for beating the inflation horse, but it does seem to be sort of the biggest issue of concern. So in the past when we've seen inflation, you've seen some trade down and let's say, cuts of meats or fresh to frozen. In your experience, at what level of inflation does that occur? That's the first element. But the second is, because we've seen so much higher inflation in food away from home, are you expecting -- and maybe this time it's a little bit different? Or you think that won't make a difference?
So exactly, like you said, people trading down or on cuts of meat, that will happen when their favorite cut of meat is up significantly, or is not promoted because the costs are gone too high. So there have been some weeks recently where it's been challenging for our people to advertise some of the cuts we would have liked to advertise because the prices would be too high for everyone. So it's related to the category and to the SKU or to the cut that will generate that trading down activity. And then after -- if inflation is the story in the news for months and -- weeks and months and everybody is talking about inflation that creates a mindset for sure, and then the general population can start trading down on a more broad level, private label, fresh to frozen, cuts of meat, everything you mentioned is behavior that can happen. We're not seeing that much yet, but if inflation is the story for a long period of time that could happen. Like you said, inflation away from home seems to be even higher. So again, that's I think reflected in our performance so far in this quarter, where, as I said, our 2-year stack has gone back up a bit. So it's not -- it's good for us.
For sure, for sure. And then if I just might switch gears a little bit over to PJC. At this point in time, do you feel as though you've gotten all of the synergies from the distribution, sort of the merging of the distribution from looking sort of the supply. You just started from A to Z. Do you feel like you're now at a steady run rate? Or we can still expect kind of a step-up, if you will, relative to where the 1 plus 1 historically?
We guided to a $10 million distribution synergy for F '22, following the combination of the operations in Varennes, earlier this summer and we're sticking with that.
Over and above the $75 million that we had realized yet.
Procurement and expenses in admin. So we achieved our $75 million synergy number earlier than planned. The last portion related to distribution was delayed because of COVID. And we're now operating out of there. Our operations are steady-state, and we are confident that we will achieve the $10 million over the course of fiscal '22. Like I said earlier, I'm confident that Jean Coutu pharmacy was a tough year F '21. We had a labor conflict. We had the COVID, and with the restrictions. So F '21 was a tough year in pharmacy. We're looking for F '22 to deliver stronger results in addition to those synergies.
[Operator Instructions] The next question will be from Chris Li at Desjardins.
Eric, I know you don't have a crystal ball, but just wondering if you assume you continue to manage cost inflation the way you have so far, is it reasonable to assume that gross margin rates for next year to remain stable? Just curious to see what are some of the major puts and takes for gross margin for next year?
Well, again, we hope to keep our margin rates healthy and we will do the best we can. But there is clearly inflation out there and we want to stay very competitive and provide value to our customers. So can that put pressure on the gross margin rate? It could. So I'm not going to guarantee the rate. But I think we have experienced merchandisers. We have a good mix with conventional discount pharmacy. So we are looking for -- we're planning to deliver our numbers. So gross margin is part of that, but we have to manage the rate and with our expenses and with our tonnage, and it's all a mix, as you know, to deliver the bottom line. So for sure, gross margin is a KPI, and it's something we look at very closely. But there can be movement in the rate in times like these, so we'll see how we do.
Okay, that's helpful. And then maybe a quick question on e-commerce. Just curious other than the dark store in Montreal, can you share with us what other initiatives are being deployed to further improve online profitability over the longer term?
Well, it's execution and it's processes and it's just getting more efficient every day, every week, every month. Clearly, volume helps to achieve better profitability. So we have a good team. We are putting a lot of effort into our systems, and to be efficient. I think we are investing at the right level. We're adding capacity at a measured pace, and we're looking to generate contribution. As I said, no surprise there. It's dilutive versus brick and mortar, but it's part of our mix. Our customers -- some of our customers want e-com, and we are there for them, and we will deliver or let them pick up at our stores. So again, execution is the name of the game with good people and good systems, and hopefully our profitability keeps getting better.
Great. And maybe just a couple of quick ones on operating expenses. The first one, just a clarification. Was any of the $10 million of the warehouse integration from Jean Coutu, was that realized in the quarter? Or are they still to come?
It's for fiscal 2022.
Okay. And Francois, just another quick one. If I -- for the quarter, if I exclude the COVID-related expenses, it looks like your operating expenses for the fiscal '21, the entire year were up about 3.5%. Again, do you expect a similar growth rate for next year? Again, sort of what are some of the major puts and takes?
Well, it's -- again, it's -- what we're seeing now is a bit of the reversal we saw in pandemic. When we had high COVID expenses last year, our increase in SG&A was not -- year-over-year was not that much higher. It's the same thing now. We have lower COVID expenses, although as I said, the line is getting bit blurry. It's part of the way we operate. But we have lower COVID expenses, but we have more operating expenses and services that were reintroduced, hot foods, HMR, some maintenance, some advertising, as I said, is up as well. So we always manage our cost in line with our sales volume. So we intend to continue to do all we can to improve and create operating leverage. So we try to keep the increase in operating expenses lower than increase in sales. That's our aim without affecting, obviously, service and remaining competitive. So I think just on the gross margin discussion we had earlier, we're going to be doing the same thing on cost containment going forward. So you can expect the same sort of operating leverage that we keep delivering.
Next question will be from Mark Petrie at CIBC.
Yes. I just wanted to follow up with regards to the launch of the click and collect program at PJC. Are there any expenses or material expenses to you through the launch of that? And does that affect -- and then the sort of store-level costs, I assume those all are borne by the franchisee, but just any comment with regards to the economic impact of that would be helpful.
So it's not material, so -- at our level and neither for the franchisees. So they bear the cost of retail operations and the staff to provide the service. But it's part of their operation and we don't expect a material impact on them or us.
At this time, there are no further questions. I would like to turn the call back to Sharon Kadoche.
Thank you all for your interest in Metro, and we will speak again soon to discuss our first quarter results on January 25. Thank you.
Thank you. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.