*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[BlackArcher101]

Originally Posted by The Fonz

They do a 25bps drop on Dec 6th. I can feel it in my plums.

Might want to check for lumps. A drop that soon? No way.

[nik-]

Originally Posted by The Fonz

They do a 25bps drop on Dec 6th. I can feel it in my plums.

in my pluuuuuuuuums

[opendoor]

Originally Posted by The Fonz

So over the past year (since peak), we're averaging a .5% drop per month. It'll be interesting to see what happens over the next 3-6 months, and if they can level it off around 1.0-2.0%.

That's very unlikely, for a couple of reasons:

1) With mortgage interest inflation adding ~1% to the headline number, we'd have to essentially have the other 96% of the basket be in or near deflation to hit those numbers.

2) On top of that, we have already had about 2.7% inflation (actual, not annualized) through the first 6 months of 2023. So even if we see zero inflation for the rest of the year, we'd still be in the 2.5-3% range. Now inflation is extremely seasonal, so having ~0-0.5% inflation in the 2nd half of the year would be totally normal and expected. But going negative enough to bring the year-over-year number down to 1-2% would be pretty abnormal, particularly with such high mortgage interest inflation baked in already.

[opendoor]

Originally Posted by BlackArcher101

Might want to check for lumps. A drop that soon? No way.

It wouldn't be all that unprecedented. The time from hitting a terminal rate to the first cut is usually pretty short, often 4-6 months. Of course we might not have even hit the terminal rate yet, so who knows.

[Tkachukwagon]

https://twitter.com/user/status/1681283435485347842

[Slava]

Originally Posted by bizaro86

They're pointing to non-grocery items as the cause of higher profits, but I don't believe any if the large grocers report segmented financials do they? Hard to conclusively say that's true without actual numbers, imo.

Well I can see that on my system, and I've posted about it here before. I just think that people love to have someone to blame for this and it falls on deaf ears. But, regardless, the reality is they're not making a killing on grocery items...it's pharmacy and of course that entire other half of a Superstore that is where the margins are.

[Hack&Lube]

Originally Posted by Azure

In other words if we actually had more competition in the food sector, the BoC wouldn't have needed to blow up the economy with repeated rate increases and we'd likely see lower food prices and lower mortgage inflation resulting in overall lower inflation?

I mean lower cell phone prices have pushed inflation down this past month.

Shocker I know.

Lower cell phone prices were due to heavier competition by the telecom giants to try to head off the upcoming juggernaut of the Rogers/Shaw merger.

Consolidation of Rogers/Shaw however is likely to cause the same issue as grocery store consolidation/price fixing in the longer term.

We need more smaller carriers (even if they need to piggyback off Rogers infrastructure) as well as discount grocers like Aldi.

OR

To shield yourself from inflation, you could just avoid food and cell phones and everything else seems to be okay.

[bizaro86]

Originally Posted by Slava

Well I can see that on my system, and I've posted about it here before. I just think that people love to have someone to blame for this and it falls on deaf ears. But, regardless, the reality is they're not making a killing on grocery items...it's pharmacy and of course that entire other half of a Superstore that is where the margins are.

I'd be quite interested in the underlying source of that data. I just pulled Loblaws quarterly financials from Sedar. They report 2 segments: Retail and Financial Services, with retail producing $1.39 billion of adjusted EBITDA in the quarter compared to financial services at $58 MM. So financial services basically doesn't matter.

They do separately report sales for their food retail and drugstore operations, and drugstore sales were up more than grocery sales. But they don't report costs or margins separately since they don't formally segment the financials. I'm generally pro-business and qualified to review financial statements, and imo they don't report enough detail to determine where the increases in profits are coming from, so I don't really see where those claims are coming from. It seems to me the other half of superstore is included in food retail sales, so there really isn't a way to isolate food specifically.

I do think this line in the MD&A is somewhat telling: "the improvement in underlying operating performance of $63 million was primarily from an increase in adjusted gross profit, partially offset by an increase in SG&A and depreciation and amortization"

Finally, I think it's extremely borderline that they don't report Shoppers as a separate segment. I'm not an accountant, but IFRS 8 has the following requirements for segment reporting.

-that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity)

-whose operating results are reviewed regularly by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and

-for which discrete financial information is available

Shoppers clearly meets the first criteria of being a business. it has a separate President, so I think it's very likely they budget it separately internally, although obviously I can't prove that, which would meet criteria 2. And they obviously have separate financials since they report sales, so it definitely meets criteria 3.

[PeteMoss]

Originally Posted by bizaro86

I'd be quite interested in the underlying source of that data. I just pulled Loblaws quarterly financials from Sedar. They report 2 segments: Retail and Financial Services, with retail producing $1.39 billion of adjusted EBITDA in the quarter compared to financial services at $58 MM. So financial services basically doesn't matter.

They do separately report sales for their food retail and drugstore operations, and drugstore sales were up more than grocery sales. But they don't report costs or margins separately since they don't formally segment the financials. I'm generally pro-business and qualified to review financial statements, and imo they don't report enough detail to determine where the increases in profits are coming from, so I don't really see where those claims are coming from. It seems to me the other half of superstore is included in food retail sales, so there really isn't a way to isolate food specifically.

I do think this line in the MD&A is somewhat telling: "the improvement in underlying operating performance of $63 million was primarily from an increase in adjusted gross profit, partially offset by an increase in SG&A and depreciation and amortization"

Finally, I think it's extremely borderline that they don't report Shoppers as a separate segment. I'm not an accountant, but IFRS 8 has the following requirements for segment reporting.



Shoppers clearly meets the first criteria of being a business. it has a separate President, so I think it's very likely they budget it separately internally, although obviously I can't prove that, which would meet criteria 2. And they obviously have separate financials since they report sales, so it definitely meets criteria 3.

I'd eat my hat if they don't have a separate budget for Shoppers. At minimum - they'd have budget grocery, other grocery and Shoppers. Its a very different type store so would make no sense to budget it with No Frills.

[blankall]

Originally Posted by Tkachukwagon

https://twitter.com/user/status/1681283435485347842

A huge portion of that inflation must be rent and mortgage payments. Rent for a 1 bedroom in Vancouver is up 17% year over year. Same deal in Ontario/Quebec, and those provinces really are the ones driving inflation, based on that map.

[PeteMoss]

Missed opportunity to bash Quebec...

[blankall]

Originally Posted by PeteMoss

Missed opportunity to bash Quebec...

I edited that as you were typing this comment. Could have been a Freudian slip to leave them out of my discussion of Canada, but rent for a 1 bedroom is up 14% year over year in Montreal.

[CorsiHockeyLeague]

What's driving Sask there, I wonder...

[opendoor]

Saskatchewan's looks to be mostly shelter (7.2% vs. 4.8% nationally). Almost all of BC's is transportation, which is due to gas prices not dropping as much as in the rest of the country (it's still $1.83 on average). BC's shelter inflation is exactly the same as the national number at 4.8%.

[The Yen Man]

Originally Posted by CorsiHockeyLeague

What's driving Sask there, I wonder...

I'm guessing relatively cheap house prices and a resource rich economy. You'd have to think immigrants who aren't super rich are seeing Saskatchewan as an option if they're priced out of the major cities.

[Leondros]

Originally Posted by bizaro86

I'd be quite interested in the underlying source of that data. I just pulled Loblaws quarterly financials from Sedar. They report 2 segments: Retail and Financial Services, with retail producing $1.39 billion of adjusted EBITDA in the quarter compared to financial services at $58 MM. So financial services basically doesn't matter.

They do separately report sales for their food retail and drugstore operations, and drugstore sales were up more than grocery sales. But they don't report costs or margins separately since they don't formally segment the financials. I'm generally pro-business and qualified to review financial statements, and imo they don't report enough detail to determine where the increases in profits are coming from, so I don't really see where those claims are coming from. It seems to me the other half of superstore is included in food retail sales, so there really isn't a way to isolate food specifically.

I do think this line in the MD&A is somewhat telling: "the improvement in underlying operating performance of $63 million was primarily from an increase in adjusted gross profit, partially offset by an increase in SG&A and depreciation and amortization"

Finally, I think it's extremely borderline that they don't report Shoppers as a separate segment. I'm not an accountant, but IFRS 8 has the following requirements for segment reporting.



Shoppers clearly meets the first criteria of being a business. it has a separate President, so I think it's very likely they budget it separately internally, although obviously I can't prove that, which would meet criteria 2. And they obviously have separate financials since they report sales, so it definitely meets criteria 3.

IFRS 8 permits and even sometimes requires the aggregation of operating segments if they share enough similarities. The essence of this rule was to not have 100 reportable segments in the financials that just adds to the confusion. However, given the higher focus on groceries, their auditors may make the call that carving out grocery from other retail to be required given the focus of many of the users of the financial statements.

Here is the note on judgements used to make that assessment from their 2022 FS.

Segment Information
Judgments Made in Relation to Determining the Aggregation of Operating Segments

The Company uses judgment in assessing the criteria used to determine the aggregation of operating segments. The Retail reportable operating segment consists of several operating segments comprised primarily of food retail and Associate-owned drug stores, and also includes in-store pharmacies and healthcare services and other health and beauty products, apparel and other general merchandise. The Company has aggregated its retail operating segments on the basis of their similar economic characteristics, customers and nature of products. This similarity in economic characteristics reflects the fact that the Company’s retail operating segments operate primarily in Canada and are therefore subject to the same economic market pressures and regulatory environment. The Company’s retail operating segments are subject to similar competitive pressures such as price and product innovation and assortment from existing competitors and new entrants into the marketplace. The similar economic characteristics also include the provision of centralized, common functions such as marketing and information technology (“IT”) across all retail operating segments.
The retail operating segments’ customer profile is primarily individuals who are purchasing goods for their own or their family’s personal needs and consumption. The nature of products and the product assortment sold by each of the retail operating segments is also similar and includes grocery, pharmaceuticals, cosmetics, electronics and housewares. The aggregation of the retail operating segments reflects the nature and financial effects of the

[bizaro86]

Originally Posted by Leondros

IFRS 8 permits and even sometimes requires the aggregation of operating segments if they share enough similarities. The essence of this rule was to not have 100 reportable segments in the financials that just adds to the confusion. However, given the higher focus on groceries, their auditors may make the call that carving out grocery from other retail to be required given the focus of many of the users of the financial statements.

Here is the note on judgements used to make that assessment from their 2022 FS.

For sure, I'm not saying definitively that they MUST do that, and I'm definitely not qualified to predict what an auditor would say on the matter. But 3 segments doesn't feel unreasonable for a business of that size, and Shoppers is pretty different than the grocery operations, imo. It does seem to meet the tests under IFRS for different segments, but obviously they don't feel it's required.

As an investor I'd value the grocery segment more highly than drugstore front-of-store sales, because I think they're less discretionary and less subject to competition.

[Leondros]

Originally Posted by bizaro86

For sure, I'm not saying definitively that they MUST do that, and I'm definitely not qualified to predict what an auditor would say on the matter. But 3 segments doesn't feel unreasonable for a business of that size, and Shoppers is pretty different than the grocery operations, imo. It does seem to meet the tests under IFRS for different segments, but obviously they don't feel it's required.

As an investor I'd value the grocery segment more highly than drugstore front-of-store sales, because I think they're less discretionary and less subject to competition.

And I am telling you they are IFRS 8 compliant today however given the new environment and special scrutiny of inflation and food costs coupled with grocery store profits its likely PwC, their auditor likely has some further discussions with them this year on their segmentation assessments. Just trying to offer some insight and context to your assessment - coming from a CA and former auditor.

[bizaro86]

Originally Posted by Leondros

And I am telling you they are IFRS 8 compliant today however given the new environment and special scrutiny of inflation and food costs coupled with grocery store profits its likely PwC, their auditor likely has some further discussions with them this year on their segmentation assessments. Just trying to offer some insight and context to your assessment - coming from a CA and former auditor.

Thanks! I'm definitely a user of financial statements not a creator of them, so I appreciate the additional colour.

[Slava]

Originally Posted by bizaro86

I'd be quite interested in the underlying source of that data. I just pulled Loblaws quarterly financials from Sedar. They report 2 segments: Retail and Financial Services, with retail producing $1.39 billion of adjusted EBITDA in the quarter compared to financial services at $58 MM. So financial services basically doesn't matter.

They do separately report sales for their food retail and drugstore operations, and drugstore sales were up more than grocery sales. But they don't report costs or margins separately since they don't formally segment the financials. I'm generally pro-business and qualified to review financial statements, and imo they don't report enough detail to determine where the increases in profits are coming from, so I don't really see where those claims are coming from. It seems to me the other half of superstore is included in food retail sales, so there really isn't a way to isolate food specifically.

I do think this line in the MD&A is somewhat telling: "the improvement in underlying operating performance of $63 million was primarily from an increase in adjusted gross profit, partially offset by an increase in SG&A and depreciation and amortization"

Finally, I think it's extremely borderline that they don't report Shoppers as a separate segment. I'm not an accountant, but IFRS 8 has the following requirements for segment reporting.



Shoppers clearly meets the first criteria of being a business. it has a separate President, so I think it's very likely they budget it separately internally, although obviously I can't prove that, which would meet criteria 2. And they obviously have separate financials since they report sales, so it definitely meets criteria 3.

As far as a source, I get my information from FactSet. It's an insane amount of detail that they provide, but of course I pay what I consider to be a significant amount for that.