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Metro Inc
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Good morning. My name is Jessa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Metro Inc. 2018 Fourth Quarter Results Conference Call. [Operator Instructions]Mr. Roberto Sbrugnera, Vice President, Treasury, Risk and Investor Relations, you may begin your conference.
Thanks, Jessa. Good morning, everyone, and thank you for joining us today. Our comments today will focus on the financial results of our fourth quarter, which ended September 29, 2018.Joining me today is Mr. Eric La Flèche, President and Chief Executive Officer; François Thibault, Executive VP and Chief Financial Officer.During the call, we will present our fourth quarter results and comment on its highlights. We'll then be happy to take your questions.Before we begin, I would like to remind you that we will use in today's discussions different statements that could be construed as forward-looking information. In general, any statement which does not constitute an historical fact may be deemed as a forward-looking statement. Expressions such as expect, intend or 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 industry, the general economy and our annual budget as well as our 2018-2019 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 the risks, which could have an impact on these statements, could be found under the Risk Management section of our 2017 annual report. 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 required by applicable law.I would like to turn the conference now to François.
Thank you, Roberto, and good morning, everyone. Before I go through our results, I just want to remind everyone that 2017 was a 53-week year versus 52 weeks for this year 2018. And the impact of the extra week represents about $258 million in sales and $11.9 million in net earnings or $0.05 a share. The acquisition of The Jean Coutu Group was completed on May 11 of this year, and consequently, we have been consolidating The Jean Coutu results for slightly more than 20 weeks. And during that period, synergies of $6.6 million were realized for an annual run rate of $17 million. The integration of The Jean Coutu Group is well on track.In the quarter, we recorded a pharmacy network closure and restructuring charge of $23 million after taxes, resulting from the forthcoming transfer of operations from the McMahon warehouse to The Jean Coutu warehouse in Varennes, the reduction of administrative positions, the closure of 3 Brunet pharmacies and the divestiture of 10 pharmacies as required by the Competition Bureau.So turning to our results. Total sales for the fourth quarter reached $3.7 billion versus $3.2 billion last year, that's an increase of 15.7%. Excluding $690.7 million of sales from The Jean Coutu Group in this quarter and removing the extra week in the fourth quarter of 2017, sales were up 2.5%.Food same-store sales were up 2.1%, and our food basket experienced inflation of about 0.8%.Pharmacy same-store sales were up 1.8%, that's 0.7% for prescription drugs and 3.9% for front of store sales, and the number of prescriptions grew by 2.5% year-over-year.Gross margins came in at 19.7% of sales in the fourth quarter compared to 19.6% last year. And operating expenses as a percentage of sales came in at 12.6% versus 12.3% last year. Excluding the pharmacy network closure and restructuring expenses of $31.4 million pretax, our SG&A as a percentage of sales stood at 11.7%. The lower SG&A ratio was due in part to the inclusion of The Jean Coutu but is partially offset by increases in operating expenses, mainly minimum wage, transportation and fuel costs.Adjusted EBITDA stood at $297.9 million, up $61.8 million or 26.2% and represented 8% of sales. On a comparable 12-week basis and excluding Jean Coutu's EBITDA of $74.2 million, adjusted EBITDA amounted to $223.7 million, and that's a 2.2% increase over last year's quarter and 7.3% of sales.The income tax expense for the quarter was $48.1 million, representing an effective tax rate of 24.9% compared with last year's effective tax rate of 23.4%.Net earnings for the quarter were $145 million versus $154.9 million last year, and earnings per share were $0.56 for the quarter versus $0.66 last year.On an -- on an adjusted basis, net earnings were $161 million compared with $119.2 million last year on a comparable 12-week basis and that's up 35.1%. Adjusted EPS were $0.63 versus $0.51 last year, that's up 23.5%.We are pleased with our cash flow performance. The deleveraging of our balance sheet is occurring at a faster pace than originally forecasted, and in the fourth quarter, we sold all the remaining Couche-Tard shares for gross proceeds of $326 million. And these proceeds, combined with the free cash flow generated, allowed us to reimburse about $850 million of debt since the acquisition of Jean Coutu on May 11.Our financial leverage now stands at our targeted adjusted debt-to-EBITDA ratio of 2.5, and consequently, the Board of Directors yesterday authorized the reinstatement of our share repurchase program, which will enable us to repurchase in the normal course of business between November 23, 2018, and November 22, 2019 up to $7 million of our common shares.That's it for me. I will now turn it over to Eric.
Thank you, François, and good morning, everyone. As you know, fiscal 2018 was a pivotal year in our company's history with the acquisition of The Jean Coutu Group. We believe we now have a significantly stronger platform to meet our customers' everyday needs in food, pharmacy and health and beauty and to grow their loyalty to our brands.Turning to our fourth quarter. We are pleased with our results, ending the year on a strong note and delivering solid growth on pretty much all key metrics. Food same-store sales grew by 2.1% in a very competitive market. Food inflation increased slightly during the quarter as our internal food basket was up 0.8%, up from 0.5% in the third quarter. Traffic, basket and tonnage were all up. Despite continued pressure on operating expenses, namely minimum wage, transportation and fuel costs, our teams did a great job to mitigate most of these cost increases.We are also pleased with our pharmacy same-store sales showing strong prescription count growth and very solid front-store sales growth of 3.9%, driven by growth in all core categories, notably OTC. We also saw good growth in our summer seasonal and back-to-school programs.For fiscal '18, CapEx totaled $317 million as we opened 4 new stores, expanded, renovated or remodeled 26 stores and closed 3 stores for a net increase of 0.3% or 60,000 square feet. We are quite happy with the sales lift from our recent food store remodeling projects in both Québec and Ontario.So as François mentioned, The Jean Coutu integration plan is on track. We are actively working on procurement synergies and have also reduced some admin positions to support the new pharmacy division. You may have noticed that The Jean Coutu pharmacies have started to offer Selection and Irresistible food private label products, and Brunet has now started selling Personnelle brand OTC products. Soon, our food stores will also carry some items from Jean Coutu's Personnelle brand, which has built a solid reputation here in Québec.We are confident in delivering the $75 million run rate in synergies at the end of 3 years. We are also in the process of getting site plan approvals for our new automated fresh and frozen DCs in Toronto. We expect to start construction in early 2019. So as you can see, we are investing in our infrastructure and in technology to become more efficient and provide better service to our stores, and ultimately, to our customers.On the e-commerce front, sales continued to grow in Québec as we continue to attract new customers to the Metro brand as well as growing share of wallet from our existing customers. We will be launching a similar service in Ontario in 2019 as planned.In closing, we don't normally give guidance, but I will say that we are feeling positive about our prospects for fiscal '19 as we will soon lap significant cost headwinds, food inflation seems to be returning to more normal levels and the industry's square footage growth remains modest.Those are my comments. We'll be happy to take your questions.
[Operator Instructions] Your first question comes from the line of Peter Sklar from BMO Capital Markets.
This is Jennifer filling in for Peter. My first question is just on the inflation. I was wondering if you could give a little bit more color on where that was coming from? Any specific categories? And if it was in line with what you kind of expected for the quarter?
Okay. Thank you for the question. So yes, we did see a pickup in inflation throughout the quarter. A lot of it driven by mix. So it's our internal basket. So mostly mix, but also some dairy products saw some price increases and produce also saw some increases mostly driven by transport. So all-in-all, I think the key message is that inflation picked up a bit, which we think is positive and we're continuing to see that into Q1.
Okay. And then on the drug retail same-store sales, I was wondering if you could just give a little bit more color on the driver of the strong front-store comp?
Well, I can't say much more for competitive reasons than I said in my opening remarks. I think the core categories that drive traffic, the drug stores, were good, notably OTC, that's the key one. But on the front store, the seasonal programs worked well, the summer and back-to-school. So happy with those sales. So very happy with the sales.
Okay. And then on the NCIB renewal, do you plan to be active on that? Or is that more just when you're ready you'll go ahead with that?
François is going to take that.
Yes. We'll be in a position very shortly to do some buybacks. So we will do it as we did before, keeping in line our target financial leverage. So we will be -- we could expect us to be active regularly throughout the year.
Your next question comes from the line of Mark Petrie from CIBC.
So just following up in terms of the grocery market overall, are you seeing changes with regards to traffic performance between conventional and discount? And any sort of evidence of consumers either trading down or shifting to better value products or package sizes?
No. I can't say that we are seeing any big change in that regard throughout fiscal '18 or between Q3 and Q4. It's pretty similar. We're happy with our performance. I think our merchandises -- merchandisers did a great job in both discount and conventional. As I said in the third quarter, very happy with the conventional performance, the economy is strong, our CapEx projects are resonating well. I think that the guys are doing a good job in getting traffic into our stores, and once they're in that store, selling that extra item. So a good performance.
Okay. And then with regards to the synergy progress with Jean Coutu, I wonder if you can just give any sense in terms of sort of the split to this point between gross margin and SG&A? Or maybe your expectations for how each of those would progress? And then related to that, Pro Doc into the Brunet network, is that currently offered? And what sort of takeup are you seeing that versus -- seeing there versus what you have in The Jean Coutu network?
So on the first part, we're not going to give you a split between gross margin and SG&A. I said we're focused very much on procurement synergies right now so that goes into -- most of that goes into gross margin for obvious -- it's pretty obvious. But we're going to give you the run rate number, the progress we're making as we said we were, but we don't intend to split that into more detail. Pro Doc, the generic drug company, yes, has started to sell to Brunet pharmacists. It's the pharmacist's decision. So we hope that they will become Pro Doc customers, but it's their decision and that -- we'll see over time how it plays out. But we're confident that Pro Doc will provide great service and will be a good supplier partner to the Brunet franchisees as they are for the Coutu franchisees. So it's started, and it's going to build over time.
Okay. And one another question, I guess. I'm interested just to sort of hear your perspectives on the fit of the 2 companies together. Just in terms of areas or functions where each organization sort of brings relative strengths or core competencies? And what are sort of the best opportunities that you see in terms of being able to leverage those into the other platform?
Well, I think the fit is very good. I think we're off -- we've been working together for a few months now. I think the teams are very engaged. We have a good work plan to group some functions, that's already started. So the support functions, be it IT, HR, finance and all of those things, have been combined to service the new pharmacy division. It serves both banners. So Coutu is the clear leader of pharmacy in Québec. So obviously, their core competency is pharmacy more than Metro was. So I think we benefit from that for sure -- we are a stronger company together, that's for sure. We have core competencies on the food side. I think we are good on the cost control. I think we execute well, so do they. So I think it's very promising. And I think we have some time ahead of us to realize the full potential of this combination. I think I've said it before, it positions us better than ever to service, especially Québec customers for their everyday needs. I think we -- if we do our job right, we will earn the right to be part of customers' lives. And hopefully, they will shop our stores every day, be it food or health and beauty, I think we will be there to service their customers. So very confident about the fit.
Okay. I mean, I guess, I was -- I mean, I certainly appreciate all of that. I guess, I was more asking in terms of the functionalities, be it promotional effectiveness, data analytics, marketing. Are there opportunities to leverage particular strengths of Metro into the operations of Jean Coutu or vice versa? Or is it simply a matter of serve the fit of grocery and pharmacy?
Well, over time, for sure, data -- we have a lot of data at Metro, they have a lot of data at Coutu. So yes, over time, we will combine those and serve our customers even better and make even better personalized offers. They have -- we have competencies in e-commerce that I'm sure Coutu will benefit from over time. So clearly, yes, support functions and stuff that can be put in -- together in common will happen over time, one thing at a time. We have an execution plan for this integration. Step-by-step, we're going to go through that -- through it and create value for our customers and for our shareholders.
Your next question comes from the line of Irene Nattel from RBC Capital Markets.
Just thinking about the competitive environment and competitive intensity versus the inflationary cost pressures. What are you seeing in terms of flyers, in terms of flyer pricing, depth of promotions? And also from a consumer spending perspective, what are you seeing in terms of trends around percentage of transactions on promotion?
So Irene, I would say the competitive environment has remained stable quarter-over-quarter. So it's very promotional, it's very competitive. Nobody is giving an inch. But I would say flyer promotional price intensity is stable, that -- I would leave it at that. It's competitive out there. Our guys are doing a good job to merchandise and differentiate and attract customers. So confident that we can continue to succeed.
That's great. And have you seen any change in sort of percentage of transactions on promotion? Or is that also stable?
Overall, no. There is -- some banners will have a little less promo than the period -- the quarter before or the year before. But overall, for the business, I would say on the food side, the promotional ratios are pretty much the same. But one comment I would say is that they're not increasing. So stable is the best way to put it.
That's great. And just from an e-commerce perspective, certainly, as a Metro customer, I'm getting the promotions around free delivery. When you do those sorts of promotions, do you see a significant uptick in activity? And really, you see -- as you try different promotional strategies in e-commerce what seems to be the most effective and where the consumer hot-buttons seem to be?
Well, Irene, for competitive reasons, I don't think we should disclose what's working and what's not. So the e-commerce business is building customer count and sales, doing nicely. We're happy with the sales progress that we have. So they do, as any business does, some promotional strategies. So some of it's free delivery, some of it's x dollars off your next order or something like that. So I won't comment just to say that we're happy with the sales progress we have in e-commerce.
Understood. And just one final, if I may. In terms of following up on the Brunet -- or sorry, Pro Doc product into Brunet. Are you offering any sort of special incentives or anything for the Brunet pharmacists to buy from Pro Doc?
No. And that's not legally possible. It's medications, and you cannot give any incentive whatsoever. The only incentive we can provide is great service, great variety, availability, in-stock and that's what Brunet -- that's what Pro Doc offers.
Your next question comes from the line of Vishal Shreedhar from National Bank.
I'm just wondering about some of the longer-term synergy optionality associated with The Jean Coutu transaction, stuff that isn't necessarily included in the $75 million. So as you think about that, should we consider sales -- the sales opportunity to be the largest benefit? And within sales, are there a few items that we could think about that would be bigger drivers of potential benefit for those banners?
Well, we -- when we came out with $75 million over 3 years, that was on the cost side. We will stick to that number. Yes, we do see some potential sales lift opportunities. We've already talked about Pro Doc, and we've talked -- I've said in my opening remarks, private label across banners. Seasonal programs, Coutu is quite strong in seasonal programs. Hopefully, we can benefit from that on the Metro side. So yes, we do see sales opportunities down the road over time. But I'm not going to put a number on that or a timing on that. And we will work on it, but it would be -- it would not be smart to give you a number at this stage.
Okay. So within this quarter, you obviously are working on some of those initiatives, which aren't quantifying. How would you consider the consumer reception to the amalgamation of these brands between banners?
So far so good. I'm told that the Selection and Irresistibles food offering that we put into the Coutu stores is doing really well. So it's good -- off to a good start. It's really early days, and it's a limited assortment, let's be clear. So I don't want to blow this out of proportion. It just goes to show that there's potential for efficiencies and it's offering something to balance the customer, increasing our private label volume so we can get a better cost. So I think it's all positive, and we'll build it over time.
Okay. And on the actual PJC franchisees themselves, what has been the reception to some of the initiatives that Metro is proposing? Have they been generally -- have they generally been accommodative? Or are there issues that may restrict some of these initiatives that you hope to implement?
Well, there has been no change to the franchisee business relations with Coutu. It's business as usual for -- on the Coutu side, except for the private label introductions and the promotion last summer across Québec for all of our banners in which they participated and did well with. The rest is really business as usual. There is no change on them. There is more change on the Brunet side to change the systems and then eventually switch to another warehouse. So that's where the heavy lifting will be over the next year or so, more on the Brunet side than the Coutu side.
Okay. And I'm not sure the extent to which you can comment on this, but there is a general perception that Québec's market seems to be doing a little bit better than the rest of Canada. Is that something that you're seeing? And is there some consumer difference that you're noticing within your markets?
Well, we are in Québec and Ontario, and we're very happy with our performance in Ontario. So I can't comment for the rest of Canada. Québec, we're happy with the results, very competitive market. We're holding our own and the same in Ontario. So -- not much else I can add.
Your next question comes from the line of Jim Durran from Barclays.
I'm just wondering on the legacy business. Can you tell us whether the gross margin was up or down on the legacy business in the quarter? And whether SG&A was an assist as well to EBITDA growth?
François?
Yes. The gross margin -- the Coutu numbers have -- has a lower gross margin than the food and a lower SG&A. So the gross margin, if you exclude Coutu, would have been higher than the 19.7% we published.
And that would have been up versus last year then?
Last year, it was 19.6%. And so we showed 19.7% this quarter. So it would have been higher than 19.7% without Coutu.
Okay. And on e-commerce, like, are we at a juncture within the Québec business where it's meaningful enough to be assisting on comp store sales? And is it negatively affecting EBITDA margin in the Québec market?
For us, we are adding those sales to our same-store sales on the Metro banner. So no, we -- it's a slight benefit to the same-store sales. It remains a small proportion of the banner sales. So it's not that significant at all. It's still an investment. We're affecting EBITDA negatively to answer your question. It's not contributing right now, but we're confident that over time, as we fine-tune our model, we will scale up that we will get there, but we're not there yet.
And so as you look at 2019, I mean, obviously, there's a lot of positive shifts as you mentioned at the beginning of the call in terms of headwinds last year turning into at least neutrals or possibly even tailwinds in 2019. Do you feel that the scaling up of e-commerce -- like as you and others provide that opportunity to consumers more aggressively, do you see 2019 as a transition year where you might be able to scale up enough in the established market to minimize or mitigate the EBITDA hit that e-commerce might represent? Or are we still a couple of years away from getting to that level?
So in the market where we first started, which is Québec, we certainly hope the sooner the better, and our plan is to get there fast. I won't give you an exact date, but we are continuing to invest. And our plan is to get to breakeven and positive territory pretty soon. So hopefully, that's in 2019. And then we will start investing in Ontario. So we will be investing there. So we have to invest for our future because there is some demand for the e-commerce service, and we will provide it. So we have to make some investments in Ontario. Hopefully, the investment in Ontario will turn -- in Québec will turn positive in 2019, and then will turn positive in Ontario after a little while over there as we scale up. So I will leave it at that, Jim, for obvious reasons.
No, no. Understandable, Eric. And just last question is National Pharmacare. Now it's become a bit of a topic as we wait for the liberals to potentially table what they actually want to do with the National Pharmacare initiative, I assume, in advance as they get closer to the election time frame next year. Can you share with us what your sort of views are on the National Pharmacare conversations you've been involved in so far, like, do you think it's something that we need to understand as being a cautionary component in terms of headline risk and then tangibly into 2020, a negative effect of pharmacy? Or is it your sort of sense that where it may net out maybe generally positive for the industry both short term and long term?
Well, our pharmacy business outside of Québec is quite small. So I don't think for us, it's a significant or a material impact on the company, the impact of a potential Pharmacare on our Ontario business. In Québec where we are big in pharmacy, we de facto have already sort of a Pharmacare. It's a hybrid program, but everybody is covered. So I think on the script count growth that you see in Québec, which is healthy, I think some of it has to do with the fact that it's available. You're either covered with private insurance or you're on the public side and people are covered. So if there is a different fee system with National Pharmacare for the pharmacists, that's another issue, I won't comment on that for now. But we don't see it as a risk to our business. Short answer, we don't see the Pharmacare discussion to be a risk to the Metro business.
Your next question comes from the line of Michael Van Aelst from TD Securities.
So very good tonnage growth on the food side. Would you say you're gaining share? Or do you think it was just a strong market given the great summer weather?
We think we are holding share. We're doing well. We're happy with our tonnage. We're happy with our sales. But the numbers we see, we consider or we think we're holding share in both of our markets, which we think is pretty good in this competitive environment.
Okay. And then you talked about gross margin improving on the food business. Would you say that's more from a mix improvement? Or are you -- or does the inflation include some passing along of the higher costs more -- like higher operating costs and things like that rather than simply cost controlled inflation?
Well, it's mostly mix and -- the mix of our business and of our merchandising within the different businesses. So I would say, it's mostly mix. We're always trying to improve shrink. It's a bunch of things, Michael, as you know, but we're pleased with our performance on gross margin on the food side in both discount and conventional. Some cost increases are being passed along. Produce is a good example. I think we're pretty successful so far to pass on those cost increases, which are largely based on transport cost increases, and some dairy price increases, the milk price went up and some dairy products associated with that did go up. So we were able to pass on most of that.
Okay. All right. And are you able to give some degree of split between where the synergies are coming on food versus the drug side?
Well, we didn't want to give you precise numbers on that. It may vary quarter to quarter, some Coutu, some Metro on procurement, some Coutu on SG&A. So it's going in -- to the benefit of both organizations. So our position is we will give you the synergy run rate annualized progress quarter over -- quarter after quarter to give you where we're at.
Okay. In Q3, you said that there was no contributions from synergies. And now you've got $6.6 million year-to-date. So was there some retroactive payments from suppliers in the quarter?
That's correct. There is some, depends which category and which supplier, but that's right. So the $6.6 million refers to the period of May 11 to the end of September.
And we were not -- Michael, we were not in a position to confirm that in Q3 because they were negotiated later and you should expect that similar pattern going forward. There is -- we expect to have some retroactive payments every time we conclude an agreement.
Okay. And then the tax on the Couche-Tard share sale, that's -- that wasn't paid yet, right, that's coming in Q1 fiscal '19?
Yes, that's right. And we expected that and we have the funds for that.
Great. Okay. And then you talked about your e-commerce coming in fiscal '19 for Ontario. Can you talk about maybe the timing around the launch? And what is the -- what were you looking for in Québec before you decided to launch it in Ontario? What's -- like why is it -- why is there a bigger gap between the 2 launches?
Well, it's a new business. For us, it's a new model. So there is a lot of learnings and process and procedures to be efficient. So we're a lot better than we were when we first started. So when we go to Ontario, hopefully, we'll be even better. So we will be in a better position to not invest so much. We're not going to go with 7 stores, I can tell you that. We're going to go with a smaller number to start. So we're building out physically the space to do that inside these stores. And we'll be ready sometime in the spring to start the project and build it over time.
So with a smaller number of stores will you be able to get 60%?
Yes. To start, we will start with a smaller number of stores. Our plan is still to service 60% of the GTA.
Sorry, was that 50% or 60%?
60%.
60%, okay. Great. And just finally, on your -- as far as food is concerned in The Jean Coutu sites, can you talk about the possibilities to expand the offering there, not just kind of switch over some of them, but more expand the offering in grocery, fresh food and maybe even milkettes?
Yes. So that's the kind of stuff we're going to be working on to determine what makes sense for the Coutu banner, the Coutu franchisees. So private label is one avenue where I think it's a better assortment. So it's not just switching one product from another, but perhaps having a better offer. On the fresh side, we're going to be careful with that. We may do some tests, but nothing to write home about. So Jean Coutu's stores are quite productive, high sales per square foot. So the space is, I think, the right size. But before you take something out and put something in, you've got to make the right decision. So we're going to do a lot of analysis before we change the offer. It's a good offer right now. We think there is potential to sell more food, but we're going to go -- we're going to go site by site, market by market to determine what's the best opportunity. And our growth...
And milkettes?
Yes, milkettes, that's an opportunity to sell milkettes in drugstores, especially urban ones that have perhaps less food store competition around them. So yes, we're looking at that. So stay tuned, we'll keep you posted.
[Operator Instructions] Your next question comes from the line of Keith Howlett from Desjardins Securities.
Yes. I had a question about capital spending. Could you review the capital budget for fiscal '19 across grocery and pharmacy?
Yes. Ballpark, the CapEx plan for fiscal '19 is about $450 million, but on the retail grocery side, we see somewhere around $200 million. We have investments on the supply chain or the warehouses in Ontario. So that's going to step up in fiscal '19. The CapEx on the drugstore side is quite small. So we have some warehouse configuration investments to make in automation where the Coutu warehouse needs to be expanded a bit. So there's some investment on the DC at Coutu, but nothing like what we're going to be doing in Ontario. So $450 million total number. I would say the majority of that goes to food obviously. And within food, a good portion next year will be on supply chain.
And is there any dealer investment in the $450 million? Or is that all corporate?
$450 million is the corporate number. On the retail side in Metro Québec, there is always investments or some remodelings done by French affiliates. So that would be on top of that.
That's right.
And then on the square footage growth in grocery, do you anticipate sort of 0 to 1%? Or can you -- what are you thinking in terms of square footage addition?
Well, we will be at 1% -- we will be less than 1% ourselves. We expect the industry to be in the same area. So our traditional competitors, we don't expect a significant square footage expansion. So the main players should be -- we think next year will be 1% or less. There are other players, the nontraditionals, that are going square footage. So we keep an eye on that and they are having an impact. But on the overall food market, it's -- as I said in my opening remarks, we see it as being modest growth, which is good.
And I just had a question on reporting going forward. I presume that you're going to make Brunet part of Jean Coutu sometime during fiscal '19. So I'm wondering will you continue to break out Jean Coutu numbers separately or not?
So the same-store sales numbers we're giving for drug combines Brunet and Coutu. That's the first thing I want to make it clear. We will disclose the Coutu performance sales and EBITDA for 1 year. And after that, we intend to not do that. We will continue to provide sales, but not the EBITDA number -- same-store sales, I mean, comp sales performance. After a year, we will be continuing to give you that for drug.
And so the Brunet EBITDA is not in the Coutu EBITDA, but they're in the same-store sales, is that correct?
Correct. That's correct.
And just one last question on freight. Are you getting -- a, how are you handling freight costs and are you having a lot of your vendors come to you to say they need price increases due to freight or sort of where is the freight issue going, I guess, is what I'm trying to figure out?
It's clearly an element and cost pressure that we're having -- that our suppliers are having and that we're having. So yes, it's a fact of the industry. Significant transportation cost increases, most of it is reflecting -- is reflected in the cost of goods, some of that is in SG&A. And as I said earlier, we have been successful so far to be able to pass that on. But it's a contributor to some of the inflation here.
There are no further questions at this time. I turn the call back over to management for closing remarks.
Yes. Thanks, Jessa. Okay, well, we'd like to thank you for joining us today. And we look forward to speaking with all of you again for our first quarter results, which will be held on January 29, 2019. Thank you.
This concludes today's conference call. You may now disconnect.