North West Company Inc
TSX:NWC
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North West Company Inc
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Please be advised that this conference call is being recorded. Welcome to the North West Company Inc. first quarter results conference call. I would now like to turn the meeting over to Mr. Edward Kennedy, President and Chief Executive Officer. Mr. Kennedy, please go ahead.
Thank you, operator. Good afternoon, everyone, and welcome to our first quarter call. Before we get started with the content of the meeting, I'd like to -- pardon me, introduce everyone first. Besides myself here today is -- are Dan McConnell, President of International Division and the incoming CEO mid-summer; Amanda Sutton, our Vice President, Legal Counsel and Secretary; and John King, Chief Financial Officer. So before we get going, I'll ask Amanda to read our disclosure statement.
Thank you, Edward. Before we begin today, I remind you that certain information presented may constitute forward-looking statements. Such statements reflect North West's current expectations, estimates, projections and assumptions. These forward-looking statements are not guarantees of future performance and are subject to certain risks, which could cause actual performance and financial results in the future to vary materially from those contemplated in the forward-looking statements. For additional information on these risks, please see North West's annual information form and its NDA under the heading of Risk Factors. Edward?
Thanks, Amanda. So as we all know, we're now reporting our fifth quarter that's affected by the pandemic. And unfortunately, it's -- in many, many ways, it's still with us, but also when it comes to sales forecasting and some of the business uncertainties through the rest of this year and probably on a comp basis into part of next year as well. So we'll keep coming back to that as we're talking about results. In total, we were pleased with that -- the sales momentum as much pre the COVID comp period, which would be mid-March to afterwards, we had a very, very strong April in 2020 that we knew would be difficult to comp. But now we've got that behind us and May was strong as well, and we've shared some information in our financials about where our quarter-to-date results are, and I'll come back to that when I talk about the outlook. So today, I also want to advise because on this call, this is the entire team that would be handling the call. But otherwise, Alex Yeo, who was President of our Canadian Retail division, has left North West and is no longer part of the executive team. Today, I will speak about our Canadian business. Talk about the outlook. But before I do that, I'd like to invite Dan to cover the International quarterly results and talk a bit about our outlook for that part of the North West business. Thanks, Dan. Over to you.
Thank you, Edward. Good afternoon, everyone. To start, let me briefly touch on the current transition process. Over the past couple of months, Edward and I have been working closely together on this process. We've been following comprehensive agenda to ensure an effective transition. It's going according to plan, and there's not much more to add at this point other than the process is going very well. And I have huge shoes to fill. That being said, I'm happy to announce the addition of Kevin Proctor as President of Cost-U-Less. Kevin has over 20 years of experience in the retail sector. He has developed and reinvented brands and also lead store expansions as COO of the digital group; as Chief Investment Officer for Lidl; and most recently, as the COO for Save A Lot. He brings extensive experience in building and mentoring teams as well as driving sales in highly competitive markets. We are confident he will continue CUL's track record of profitable growth and lead the business forward. Now regarding the next Alaska Commercial Company President, we expect to make an announcement in the next up and coming weeks. With that, let's shift gears and discuss results. International operations has had a positive start to 2021. In terms of sales for Q1, we were able to keep our market share and hold our ground. We knew the comparing sales performance against Q1 last year would be challenging, considering all the stock up-buying that took place. To set context, last year's Q1 same-store sales increased by 16.3% against 2019. For this year, total Q1 sales increased by 3.3%. On a same-store basis, we were basically flat to last year. Speaking to the macro drivers for this performance, we still see consumer spending shifts present. Also, income support due to $1.9 trillion American Rescue plan launched in March by the Biden administration is another big factor for our U.S. markets. And lastly, we're seeing COVID-19-related mobility restrictions being gradually lifted as vaccination rates increase, particularly in Alaska and some of our U.S. territories in the Pacific and Caribbean Islands. Let me start by talking about general merchandise sales. This quarter, they increased 30.8% on a same-store basis. Here, our supply chain, assortment and event-driven campaigns were of top focus. Our procurement and logistics teams work diligently to not only have a well-thought-out assortment strategy, but also on reaching the market on time to meet demand fueled by incoming funds from the American Rescue Plan. In Alaska, this was coupled with less mobility restrictions given a high vaccination rate, which allowed customers from nearby villages to shop in our hub stores such as Bethel. Similarly, with promotional events like get outdoor camping and our [ C O ] Better, we were able to capitalize on that same trend of reduced mobility restrictions. Overall, categories like entertainment media and home furnishings continued to exhibit strong results. In addition to the American Rescue Plan, one of the other key drivers of sales in our Alaska stores is the USDA Farmers to Families Food Box program. Our unique ability to reach under-serviced rural communities positioned ourselves as an instrumental partner to the government in providing packaged produce, chilled food and meat boxes. Our AC banner team has also delivered from an in stock and assortment standpoint on the food side, leveraging our relationships with vendors and performing well in categories such as beverages, meat and frozen products. The Food Box program was extended into May, which will us against good strong sales from Q2 last year.In our Caribbean and Pacific U.S. territories, positive results were based on the same tailwind factors. In addition, we have been observing a gradual return of tourism in markets like the USVI, given low mobility restrictions with vaccination rates that continue to show a positive trend. This has helped improve our performance on categories like fresh produce and alcohol. On the flip side, headwinds in Caribbean markets like BVI, St. Martin and Curacao continue as income support is lacking. Although vaccination rates are improving and mobility restrictions are slowly being revisited by the government, a meaningful tourism reactivation has not been observed. It's probably important to mention here like territories and environments -- territories like Barbados and Curacao did suffer from a resurgence of COVID-19 cases earlier in the quarter. This triggered curfews and mobility restrictions from the government that affected operation hours of our stores. This is a very different situation to what the U.S. markets are currently facing. More recently, VG has experienced a COVID-19 resurgence, which is why we are doubling down our health and safety protocols. Now speaking to gross profit rates, it's worth noting that they were positively affected by a higher blend of general merchandise sales and an improved sell-through that lowered markdowns and inventory shrinkage. Lower blend of Cost-U-Less sales were also a factor since they carry lower gross profit rate given its format. B sales and gross profit factors, combined with well controlled expenses, were the key factors contributing to the 21% increase in earnings from operations in the quarter. Looking ahead, in international, we are expecting lower earnings compared to the strong earnings in 2020 as tailwinds discussed continued throughout the year, but we are expecting overall good results on the CAGR compared to 2019. As income support dwindles in U.S. territories around the fourth quarter, economic activity on some of our tourist-dependent markets are expected to pick up somewhat dependent on vaccination and mobility restriction levels. That said, the consolidation of the positive trends to keep the market share gain are top of mind for the international team. In Alaska, we expect to continue growing by expanding our footprint in new markets, adding 3 new stores in 2021. We also are working hard on replicating our success with the USDA Food Box program. Over the next 2 years, Alaska has $500 million allocated to tribal governments by the Biden administration. And we are positioning ourselves to serve them as strategic partner through B2B contracts or specific purchases required by the community through these programs. In our Caribbean and Pacific regions, we'll continue to focus on improving our execution at the stores, our assortment and our product flow. We are gearing up for our tourist-dependent markets to be prepared for the potential economic pickups by the end of the year and be ready to meet that potential demand. Although this is still uncertain and fluid, we need to be prepared. We are also equipped to navigate supply chain challenges as well as cost of goods and freight rate pressures. We are leveraging and actively strengthening our relationships with carriers as well as vendors to mitigate these impacts. Similarly, inflationary pressures will be balanced appropriately through pricing, keeping our customers in mind, but also considering competitors in our required margins. Lastly, I'd like to mention that I'm proud of the tremendous efforts done by our team this quarter, and I'm confident on the path we have outlined to grab the opportunities and face the challenges ahead. Thank you. And with that, I'll turn it back to you, Edward.
Thanks, Dan. That was, I think, a great summary of the different market situations. Before I talk about Canada, I'll just maybe add a bit to that observation. The American Recovery Plan is -- we're recognizing an increasing factor in the income that will be available to international shoppers in U.S. territories and the state of Alaska and Hawaii, where we have stores. So it has kind of -- is a dynamic for the -- on the upside, increased our confidence on positive comps in the International division. When I talk about Canada, it's a bit different. The -- again, it varies by region and community. We had a very, very strong, as I said earlier, April, and we've now gone through and comped our very strong May results. Sales in the last 2 weeks have been positive. Over the quarter, they're down. We've showed our total quarter-to-date performance at minus 6.6%. Just to give you a sense and not to -- we're not overly concerned. That to us is exceeding expectations. And when we look at over on a 2 LI basis over 2 years, it's a very, very strong increase, up 25%. So we like the trends overall. We think we're resetting our base sales and earnings to something higher than we would have otherwise not achieved through a lot of hard work and some good timing. For example, our airline is well positioned. We have the fleet to take advantage of higher business volumes and to start to go after third-party cargo as we sort of confirmed or invested in through our acquisition of a wide-door cargo ATR coming into the fleet at the end of Q3. Just to back up a bit on Canada. The -- again, the numbers are decent. And more than that in terms of 2 LY, we think we've got the 2 toughest comp months behind us, but now we face the positive for society easing of COVID restrictions.We know there's going to be again, some setbacks, which will make this, probably throughout Q2, still fairly restricted for mobility. I'll just point out this week, you may have seen an outbreak in Port Albany was in the news, 46 cases, even though of the Indian variance, and that's in a community that has 94% uptake of first vaccine. So it's really important that second vaccines are distributed broadly, and they will be in the next 2 months across Canada, but especially in the north, where there's been great, great takeup overall. But as you can see with the new variants, even one dose makes you vulnerable or you remain vulnerable. Other areas that are of notice and a little bit of concern for us are product availability. We're no different. Supply chain stresses are worldwide today. It's hard to say, but at least -- because we had a very, very strong general merchandise quarter anyways, and that's where the stresses really are. But we're getting into the neighborhood of $5 million to $10 million of sales in big ticket categories that we just can't get our hands on the product floor. I'm talking specifically about motorized ATVs, snow machines and electronics. Furniture is a different situation with the tariffs and duties that may be reversed, but in the meantime, are causing a bit of grief. We'll get through this. It's not obviously the ideal situation because we know that our customers, when they have the income, and if they're shopping and staying closer to home, we're their store. So it's just one thing that we're having to contend with probably through the next quarter. Couple of things I highlighted I want to touch on from my annual meeting remarks. One was telehealth where we've announced that we're launching our own virtual platform, Wellness Connect, which is a physician service. And we're going to do it initially with indigenous organizations, but also with our own staff. So we can test that. Today, we have an option with another provider. We started a while ago. And this will give us a great beta to get into a space as a first mover in Northern Canada. We're also starting teleoptometry, and that's part of a new wellness concept store that we're opening in [ Calgary ] in early July. I spoke about that as well. It's a very interesting phase to the customer with an Inuktitut brand and image, a leading assortment of health and wellness products and a complete suite of our virtual and in-person health care offering. In-person will be the pharmacy, but also through in person and telepharmacy is the optical and our medical service. I mean just to give you some context on the need, this is going to lead into my final remark about impact, social impact and social impact investing. On the -- on Baffin Island, which is the entire sort of catchment area of the [ Calgary ], there's an 800-person waiting list for an optical appointment. And that's on a population base of about 15,000, 16,000 people. So we are, I think, true to our mission of helping people live better quality of lives, unmet services, under-delivered services and products are areas that we're very, very interested in. And when I spoke today about social impact, I talked about something that's part of who we are. Dan's touched on it, and he and I have worked on this as has many people before us for generations, really recognizing North West as a community store that elevates the community alongside the customer that works closely in collaboration, which we did remarkably well, thanks to the communities and our people, through the pandemic. It's brought us even closer together. But when we step back and look at ESG, and we're always paying attention to ESG reporting measures, environmental, social governance, we believe we need to talk more about the social impact part of what we do. We're also approached by investors who remind us of that. And the fact that impact investing is a point of separation from more standard ESG metrics. And we believe we're that kind of company, always have been. When we shine the light on ourselves, there'll be areas that we're going to want to up our game on. But just being true to our identity and what we were fortunate to do and deliver based on the types of communities that we've chosen to serve and focus on, I think, puts us in a real good position to tell our stories and be evaluated on that, good and bad, but we believe more on the good side. And that will translate into value for all stakeholders. Those are the areas that I'd like to just let you know about. Again, on the outlook, we did provide -- it's not really guidance as just telling you what our quarter-to-date performance is. It's really hard to say. We're quite sure that we're going to fall a little short of last year's earnings, but we're not going to go down without a fight in terms of trying to comp last year's numbers. And I know that Dan talked about the tailwinds in International. We probably won't have those kind of tailwinds, although I will say that the indigenous service Canada budget is extremely aggressive and bullish for income in indigenous communities. And some of that will have an effect, but a much longer tail into the next several years. And finally, I'll just say that some of the things we started last year that didn't take place the way we expected. We did close on Giant Tiger. We did our admin restructuring, and those 2 are positive factors underlying the Canadian bottom line performance, irrespective of the top line growth. The investment in food pricing, as we've shared with investors now for several quarters, has -- is on pause. We're in 30 markets, we're seeing good results. But we're also seeing a lot of people with stay-at-home spending patterns that make it hard to separate what we're driving versus what the market conditions COVID-related are making happen. So that pause will be lifted, and we'll come back to that initiative in the second half of the year and continue to iterate it under Dan and his team's leadership because we do believe there's market share gains to capture through very, very smart food pricing investments in Northern Canada. With that, John, I'll ask you before I open for questions. Is there anything that Dan and I haven't covered that you think we should touch on before we open for questions?
No, I don't think so, Edward. I think we should go to questions.
Okay. Operator, could you open the call for questions, please?
[Operator Instructions]. And the first question is from Michael Van Aelst, TD Securities.
So one of my questions had to do with those price investments that you discussed. And I think the original numbers that you were talking about, somewhere in that $10 million to $15 million range, depending on the results and how high you would go. So maybe you could clarify that. And how much did you invest before the project went on pause? And I guess, when -- how significant will the -- do you expect it to be once you're done?
Well, it's harder to say. Our initial plan was the $10 million to $15 million or potentially higher. We had modeled this in very -- in different ways and based on the tonnage lift in GP dollar contribution assumptions we made. And we really had to start with something and then build on that and decide how it would roll out. So we -- $30 million in 30 stores. There's another $2 million that we've recently invested, but we're cautious. So you say that's $5 million. The return on that besides engendering some general customer loyalty is very hard to tell right now. So we can't go further, Michael, until we get more space between us and into new normal shop for mobility. As far as the range, I think that north of $10 million is still certainly in the cards. Like we have -- we're not deterred from the, call it, the idea or the strategy. We had sound analytics that took us down this path that said that we really need to get our indexes in some categories that are low share for us, lower just to sell the indexes if we want to grow tonnage. But we couldn't say no. Our view on all this is that we use the word investment specifically because we expect a return. And if consumer behavior doesn't catch it, doesn't make a difference, then obviously, it's not a great idea. But right now, we just don't have enough of a run rate because the control group of stores versus the 30 isn't differentiated by prices, if they're all in the same COVID-limited mobility situation, and that's what we're dealing with.
Okay. Sorry, did I hear you said you invested $3 million already?
Yes, last year. And the $3 million didn't -- I mean it's there, but it's not, it's not pertinent to the ROI versus the control group of stores because when you look at the numbers, all the stores are up, and we can't tell you.
And when you say you expect that you would expect a return, do you measure that some kind of percentage? Or is it just incremental gross profit dollars? Or how do you look at that?
It's gross profit dollars.
All right. There was a comment in the press release about Giant Tiger. The sale of Giant Tiger resulted in a certain percentage decrease in sales. And if I did the math correctly, I think it was $37 million reduction in sales year-over-year in the quarter. Is that correct? And is that net of the wholesale sales to Giant Tiger?
I'm going to let John answer that question. Maybe we'll have to be more -- we're not trying to be opaque on this, but we probably should just lay that all out. John, do you want to comment?
Yes. Mike, it was -- what was your number? You were calculating $37 million you said?
Yes.
Yes. It was -- the impact of the sale was higher than that. And it wasn't out of the wholesale sales coming back in. I don't have the exact number right in front of me, but it was higher than the $37 million. It would have been in the $50 million range.
So roughly $50 million of sales reduction...
Net.
Net of the increase from wholesale?
Correct.
Okay. Right. If you could just send me the math on that, I'd appreciate it, John. And then the -- you also rightly indicated that the sales impact from a fading pandemic is difficult to predict over the next year or so. So what I'd like to know is, how are you positioning the business in terms of inventory levels of things like seasonal and general merchandise and perishables to balance at the risk of having large inventory write-downs, if you're wrong on one side and versus missed sales on the other?
Yes. Well, so here's -- you're not going to like this because there's more uncertainty. So in international, Dan would know, we're both kind of concerned that we're long in electronics. That turn to be pretty smart thing because of supply shortages. And I think it's helped drive the GM business in international. But we had exactly that frame of mind that you're referring to is that, okay, we're long, and this thing is ending. Well, it's not ending, and it's okay. I think Electronics was justifiably, not knowing how the shortage of chips and everything else is going to affect people because it's a trend obsolescence issue. We're less concerned about the big ticket categories of furniture and motorized. They -- people don't -- ATVs are not upgraded with new bells and whistles every year like your TV or a car. So the -- we're okay going along, and we're trying to marry that up because -- and also, by the way, we're short. Like as I said earlier, we didn't think we'd have this degree of scrambling for products. Last year we could scramble and find it because there are a lot of other retailers who had their doors closed and didn't have demand. So we were able to pick up products everywhere to meet the $270 million sales lift we got out of the same stores essentially. This year, people are busier. You talk the entire numbers, so they're not going to answer that call. So we actually don't have the problem you're suggesting in the sense of going too long. I was encouraging us to go longer because I want to be in front of the customer with a strong in-stock position on product that we didn't have the markdown, but at worst would carry over to the next season because we want to sell from a full wagon and not be so representational in our assortments. And I'll use something as simple as trampolines, which are a great ring at $500. But if you only bring in 2, you're not going to sell 3. So and sure enough, we couldn't get enough trampoline. Like, again, this could be a $2 million business or a $1 million business, they all add up. So we're looking for more product. We're not concerned about obsolescence or markdowns because of the reasons I just mentioned. The last thing I'll say is that our inventories are higher for another reason in our winter road and soon to be our C lift, even though we're very pleased with the efficiency of our air cargo division. We are also trying to devote optimization. And you understand that when you're writing checks for new airplanes. You can go after third-party revenue, which is great. But if you're going to do your own, we want to make sure it to be on the plane in the first time. And we've done this for years, but we took a new algorithm approach to it and shifted a few million pounds of freight onto our winter road. And that's a cost activity cost-based analysis that intentionally puts our inventories up in nonperishable foods. So when you add it all up, the inventory increases are fine, as far as were concerned, and we actually wish we could have more and we just want to stay away. The Giant Tiger merchandise we're buying is not the high risk fashion. It's the 12-pack socks for $10, that kind of stuff. So I think right now, we're okay there. Like, I don't think we're going to have a problem. If we had a lot of electronics in Northern Canada right now, I might be concerned, but we don't.
Okay. And on the supply chain that you discussed, are you subject to some of the same pressures out there with availability of cars and stuff like that or whatever, railcars or shipping, trucks or whatever? Or are you isolated because you have a lot of your own supply chain [ matters ]?
No, we're exposed on the import side. I mean I mentioned ATVs. Even domestically produced snow machines, the component shortages and the huge demand within other parts of Canada, urban and near urban markets where, again, closer to home activities are just sopping up all this product, and we can't get our hands on enough of it. So I don't have a forecast of this effect. I mean we're working and scrambling to diversify our supply lines. When something like this happens, it's not the best news for North West because yes, we're more nimble and smaller. I mean Dan's -- or now Kevin Proctor's store group can go into Panama and some unconventional places to scoop up product in not big quantity, just enough for them. But because we're smaller, we don't have as much weight to throw around. So right now, it's not a major red flag, but we do -- we think we're going to get some ATVs in August from Yamaha, but we're watching this really carefully because if we don't get enough product on the Sealift, we'll have to fly stuff in as we get it, and that won't be good from a price point standpoint, but we're more concerned about the sales. And I'd say right now it's probably $10 million at risk top line, and this stuff comes in at about a 30% margin because it is a big ticket.
[Operator Instructions] The next question is from Mark Petrie, CIBC.
Could you just talk a bit about the airline, expand on the performance in the quarter? And then what your expectations are for growth and any capital needed over the course of the next year or 2?
Sure. So the airline had another very good quarter, high, high utilization. I mentioned in my remarks today that this actually dates back to cover all of 2020. We had record high utilization for cargo ATR, according to ATR. So the hours we're flying per plane are exceeding our expectations. We have acquired a fourth ATR, wide-body cargo configuration that will be in service at the beginning of -- end of Q3. So that's a capital investment. But each one, we're justifying based on either we're reducing our third-party hours because we do have some contracted aircraft in the ATR fleet. So we replaced that with our own and get an accretive [ loan ] out of that. And now we're looking at capacity for -- intentional capacity for third-party cargo. We did -- because of the efficiency of our fleet and things like I mentioned in the annual meeting about like using plastic pallets, that's 37 pounds freed up times 15 pallet positions at $2 a pound, that adds up. You can't sell a pallet, but you can sell the product that you can replace that weight with. And we had more freed up turns of planes that could be used to do contracts with some resource companies. So we started to get into the resource company business. We know it's more volatile, but it's much more lucrative. I mean North West Company pricing enterprise is at arm's length between North West stores and NSA. We use third-party reference pricing and activity-based costing. But the other types of price that we can get from third-party are very, very attractive. So that's starting to kick into gear as well. And we have a vision, maybe we can articulate it better, but it is to become a premier cargo airline in the northern part of Canada. And we think we're well on our way on that path. And we modeled ourselves in some ways after London Air Cargo and Northern Air Cargo in Alaska. And every investment is the big one. We know that, too. Will we have partners at some point? Will we bootstrap our growth through acquisition or joint ventures? All very, very possible. We know that as we get bigger, the base rate that North West contributes to mitigate the risk gets smaller. So we have to be mindful of that. But so far, the next phases of growth, which would be looking at repatriating even more cargo to the North West to NSA, is safe business. But we want to make sure we've got a really strong sense of what the third-party cargo demand is going to be like. We think it's going to be good. How big that makes the business is still to be finalized, if you think about it today, measured by numbers of planes and whether we get into a jet cargo configuration. Those are all on the planning board. From a CapEx standpoint, beyond the expenditure on that ATR wide door, which I think John was $8 million?
That's about right.
That -- there's no CapEx, no growth CapEx currently on the boards for this year, but we are doing a lot of planning that Dan will step into the shoes for working with our NSA team.
And how much of -- that's very helpful. How much of North West Canadian Air freight goes through NSA? And how much of NSAs -- and where do you think that trends? And how much of NSA's capacity is devoted to North West? And you mentioned that will become a smaller number over time, but any sort of goal, I guess, would be helpful.
Yes. 2/3 of our air cargo goes to NSA today, and it's 80% of -- 70% of NSA's revenues, more like 85%, given the passenger decline within NSA because of reduced travel under COVID. So when the past year volumes come back, it will be 70% cargo, of which 80%, 85% is North West today. So there's room to still rebalance that into a -- well, first of all, to grow the North West component. It won't get to 100%. There are certain regions of the country where we will not want -- we won't want to go there with the infrastructure required, at least not in the medium term. But as each time we grow into a lane, we're going to be looking for a third party. And within that mix, it may drop from the 85% I mentioned or 80% to half and half even if we sign up the right types of contracts.
Okay. And then my other question was just around the competitive environment in the north. I mean I know it's not as dynamic as in the south, obviously, but I'm just curious if you've seen any shifts. I mean obviously, it's been a tremendously difficult operating environment, but at the same time, in certain categories, it has been lucrative. I'm just curious if, at a high level, you've seen any changes in the competitive set or competitive dynamics?
Not on the -- not in terms of increased intensity. We had a couple of acquisitions. I think Skagway, which we approved today, I think Skagway is a big -- is it 1 million cruise ship passengers, I think, Dan? It's a very high number that you get.
Yes.
1.8 million in total tourist. So obviously, that was in the numbers. Family owned business. Does that precipitate the sale? Perhaps a little bit. We acquired a store and rank and inlet. I think that owner just wanted to retire. We've looked at a lot of businesses. And if they've got the COVID uptick in them, then they're talking about the owners about what's the normalized base to buy from. So we think they're still out there. Some companies have been wounded by COVID. They will recover, but they may not have the pockets to wait it out. And others that we think are really interesting businesses probably have to get through a few new normal quarters so that they -- so they and we see what their run rate is.I know I'm getting past what your question was, but there's not a lot of new capital interest in investing in that we've seen going into the north, certainly not during COVID. It's very hard, by the way, if you're going to invest and then build something, it's almost impossible. Construction costs have gone through the roof. That will come down, but materials are still going to be high, but the labor mobilization costs when you've got quarantines and so on has kept people out of that part of the business. And finally, I'll say that up in Beryl, Alaska, where we exited our large store, We're doing phenomenally well with the smaller store that we acquired. So I think we're putting -- we're capturing market share. I think our cost less numbers show market share capture as well. We -- just to finish the point. There is one new competitor opening in Guam. I don't know, Don -- Dan, if you want to add anything to that, the timing of that opening?
It's been a major delay because of COVID. But we expect it to probably be open in the mid Q2 of 2022, but we're keeping a keen eye on it.
The chain is called Don Donki (sic) [ Don Don Donki ]. It's out of Japan. They're in Hawaii. It's a discount format store. Our cost -- we have 3 Cost-U-Less stores in Guam. Of course, they are a much bigger ticket but it's still -- when we look at competition, it comes in all shapes and sizes. And there aren't that many stores in some of these markets. They're never over-retailed, but just one new entrant causes us to pay attention. But that's broadly what comes to mind right now when I think about new entrants. There's really not a lot else that is keeping us up at night. One -- pardon me, there is another one, a new store in BVI but not a great time to open a store in BVI. So we'll see how that one turns out.
Yes. Okay. And then I guess just a last question. What are your thoughts on the dividend and sort of payout ratio? I mean obviously, it's been a really, really strong couple of years or 1.5 years for North West. And how do you sort of factor that in when you think about the dividend and payout ratio?
Well, we're now getting into territory past my tenure to share because it won't be a dividend before -- another dividend increase before I retire. But I think, Mark, the difference here is this is uncharted territory. We're so delevered right now. I don't know if that's a gift to Dan. I mean in terms of opportunities for growth, organic investments and acquisitions, we have that capacity. Longer term, we wouldn't build our dividend around financing capacity. So the debt equity and cash generation surge doesn't justify for us, which is we consider to be permanent when that dividend goes up. Would require more visibility, which we usually say, especially this year to get Q2 under our belt. And then Dan and John and the team will look with the Board and make a recommendation on whether to increase the dividend beginning in Q3. But it won't be because of the capital, the delevered part we're in now, it will be because of the visibility we have on all of these questions that I know you have and we have about where do sales level off under a new normal. The capital structure is a whole another kettle of fish. We got the NCIB in place, and that can be tweaked upward if we think that's the way to go. But I think I'll just leave that now, Mark, till we roll around September, and then you can lay that question on Dan and John.
[Operator Instructions]. The next question is from Sabahat Khan, RBC Capital Markets.
Great. I recall at the beginning of sort of the downturn you were discussing some commentary on the e-commerce strategy and kind of what you might do there. I just wanted to check, given where we are today, what the thought process on that channel is for the company.
Thank you. That's a good question for -- that we should answer. We had -- we're not an e-commerce-focused company in the sense of how much of our business can go there. And for us, profitably go there. It's not a defensive move for us. There is out -- I'm just giving you a bit of color in terms of -- for those who kind of followed our journey or not journey into e-commerce. We saw a lot of convenience type items, call Couche-Tard, single serve, food service is a big part of our business, fuel, post office, financial services, health services. So -- but we do sell products that can be out shopped, general merchandise. There are some areas that we say, go ahead, do it because we're not in that space. But when you get to food, nonperishable food and some general merchandise categories, we do think we should be offering a stronger e-com option to our customers. We were -- we still believe, and Dan has been instrumental with that, leading that through Alaska, geographically, we should really get our feet wet. And I commented in the AGM about our dark store, which did really well last year with the general surge, especially in Alaska, pretty well-developed e-commerce market, tighter hub-and-spoke from Anchorage out -- and Fairbanks out to the different communities by air. So we did very well with our dark store. It was set up already and fortuitously was timed perfectly for the e-com upswing. Beyond that, though, we've developed a platform that we can use mobile-based out of our hub stores. So that -- unlike Canada, there's many, what we call, hub markets but larger cities that have an AC store are surrounded by, in some cases, dozens of smaller villages that are too small for an Alaskan commercial stores. So we're going to kind of do a parallel approach and may the best one win. Keep the dark store, of course, keep focus on that. That stand elite is the brand through our wholesale B2B arm or B2C. And then using the retail arm to use the hub-and-spoke model where you're going online, your town -- your small town of 100, 250 people does not have an AC store, but we can get you quicker delivery from the hub, a short plane ride over to your village. Way better than our own stand elite and certainly way better than Amazon in Seattle. So those are some of the things that we're looking at. And when you look longer term, and I think this will come back to Mark Petrie's question on the air cargo, we still believe there's a couple of things there. One is, well, on passenger, we stay in that space, we're testing a loyalty program, like I forgot to mention to integrate with our stores. It's a handful of stores in Northern Ontario, where we do the pasture business, once it kicks back up. But we wanted the air cargo business to be developed where we can get into small packages and into third-party e-commerce type services. So we are starting to look at that, too. Now as we get -- we've stabilized and created capacity, that we could offer a frequency that would allow us to be a better option than today, the way people shift to the north for e-commerce. So if we can't sell it, we'd be the move side of the equation. Beyond that, we're really putting our eggs in the basket in Alaska and watching carefully to see how we can impact an already developed market. Can we make inroads and capture share given our proximity to the customer and take that into Canada potentially. But if it does go into Canada, it's going to probably lean heavily on our air cargo side because we're going to be a new entrant and the only thing I'll say at the end of the day, and I think I speak for Dan on this, is that I said it a little bit at the beginning, is it has to be materially large and it has to be profitable. And that's where we kind of separate ourselves, I think, from some other retailers that feel they have to do this because defensively, if they don't, they're just not going to be in a big part of the game with their customers. We are in a big part of the game with our customers. Since catalog shopping, people have shopped out of the community. And now with digital, it's still going on. Do we want to go after that? Leveraging existing core strengths, not necessarily the technology of e-commerce, but the fact that it has to get there somehow, be picked up, returned, et cetera.
And I guess just based on the last comment, is there a lot of -- I guess, have you seen that out of town online penetration increase or e-commerce penetration over the last year?
Not significantly. And we know that with some confidence because of our prepaid Visa card business segment. We know where the spends are in terms of which retailers are moving up or down. And we get the dominant share of that, and there hasn't been a significant increase. I mean some have gone up a lot from small bases, but they're still a very, very small base. So it hasn't been a huge shift. And I think when you look at our $270 million of sales capture, I mean shopping on an Island like Guam by e-commerce is like you are a long way from where the e-commerce supplier is going to ship it to you. So you have to be prepared to wait. If we don't sell that class of category, we don't really care. But where we do, we haven't seen a big change.And when I said we've gained market share, I think we've gained market share on all channels, both capturing from e-commerce, because people are shifting their spending to local. And the type of things that we sell -- and certainly from local competitors as well because of our in stock position. So the answer -- short answer is no big uptick in e-comm. General broad trends are still -- it's a great CAGR business if you're -- it's your core business and you know how to make money in it. For us, it's not the death of 1,000 cuts, but it's small slivers of our business that we really have to be honest about in saying, okay, is there $20 million there, is there even $10 million of sales and will it convert at, say, 15%? Okay. That's one convenience store for us in Northern Canada. So putting it all in context, right, how big a surprise. We'll work through that. And I know that Dan -- and I fully endorse the way he's got it set up in Alaska -- we're going to really, really dig into it.
The next question is from Michael Van Aelst, TD Securities.
Just a couple of follow-ups. On the International side, what are you looking for as far as indicators that tourism is recovering or about to recover? And where do you see -- or what does that data tell you at this point?
Dan, I'd like to have you take that.
Sure. Okay. Thank you. Well, the first thing you look at is occupancy, and I can tell you in the USVI, particularly St. Thomas, it is full. So it's -- the reason being is because of the high vaccinations and the openness of the market, it's attracted a lot of tourists from mainland U.S. Looking at some of the other markets, you look at the bookings in the BVI, for example, or some of the other areas you look for the bookings in the cruise or in the ships -- sorry, in the moorings in the rented boats. And that has been -- it hasn't been overwhelming. So they're booking out. People are starting to -- we think revenge travel is going to probably come back in the later part of Q3 and Q4. But right now, it's really just trying to understand what the jurisdictions are going to do. Cayman Islands, for example, is still locked down. They haven't made any mention on when the cruise ships are going to be welcome back. So it's just factors like that. And right now, we're expecting, with the vaccinations kind of coming -- being more prevalent, that tourism will return kind of late Q3, Q4 to some of our tourist-bound markets. So it's really just on bookings, keeping our ears to the market as far as what's happening in the hotels, what's happening with some of the more -- such as moorings and other rental boats in the area and keeping a keen eye on what government is doing with their protocol around isolation and how long people have to be quarantine on arrival.
Okay. And last question, probably for John. With the talk of a 15% global minimum tax and you guys having some operations in the -- in tax-favorable areas, have you taken a look to assume what kind of impact that might have on your business?
Well, the short answer, Mike, is no. We are certainly monitoring that. The 15% minimum tax, looking at how that's going to be rolled out and what the implications are. That would hit us in 2 markets predominantly, BVI and Cayman. But it's still early in trying to model out how and when that will impact us, like what the amount is and the timing, pardon me.
Yes. I mean it might never happen, but just good to have some. But all right.
I'm just going to make -- this is outside of my realm, but it's interesting that in Cayman and BVI, we're not there for a tax haven. We're an actual operating business. And whether that differentiates between the race to the bottom to attract investment, I don't know, but I'll leave it at that.
Thank you. We have no further questions registered at this time. Back to you, Mr. Kennedy.
Thanks, operator. Just a few closing -- and really are the closing remarks from my career at North West in my role with you as investors, although I'm still here for another, I guess, better part of 1.5 months. So I always say at the end that you can contact John and I, and I mean that. So if you wanted to ask me a question, you can. But I've thoroughly, say enjoyed. I looked forward to this part of my role and not just through the analyst calls, but the -- over the many years, I guess, I've had over 100 analyst calls, probably more than that in my -- before being CEO, if we put them all together. I know it's an important part of what you do, and I appreciate many of you and some before who were part of covering North West and your interest in what we do. It's sometimes, I know, not the easiest company to deconstruct. We try to do our best. And I know Dan will do a good job. And as well, when you've been -- we've been able to visit investors through your different firms helping us and so forth. That's been an important part of our Investor Relations. So I appreciate that you've always included us and thought about us that way. I think it's helped us build our story authentically with investors over the years, and it got us to where we are as far as what people think the stock is worth and where they want to invest in a company like us. So I wanted to convey that -- to you that you played that part of an important role in our success. I just want to also close by saying that Dan touched on at the beginning of his remarks, it has been a very robust transition process. Dan and I will have a busy summer. At least I'll have a busy half of the summer. I think Dan is going to have a busy complete summer. But after August 1, I'll be a little less busy. But it certainly heads down until then. There's lots of things to cover together. Everything is going well. There's no major fires to put out. And who knows if he's going to want to start a couple and see what we can do to get things going in parts of the business. I think Dan's good at that in a positive way. And I do echo, he's done a great job on recruiting Kevin Proctor. I think we've got a dynamic leader there. We've got a great leader in the BVI. We're going to have a great one in Alaska. And Dan will have a great one in Canada very shortly reporting to him. So things are coming into place. As I look at it as an ongoing adviser and investor myself, I'm very, very pleased. Okay. It's been an hour already. I don't want to belabor it. But again, thank you very much, everyone. There is one part of the meeting that I can no longer say. So I actually have to turn this over to you, Dan, and I'll let you do the final wrap-up.
Okay. Well, as short and sweet as that is, I look forward to developing a relationship with you all that Edward has so keenly kind of overviewed over these last couple of minutes, and now you guys have obviously developed over the last many years. Looking forward to kind of learning the business through your lens and kind of solidifying that relationship. Other than that, I guess, that kind of brings this call to conclusion, and I look forward to seeing or speaking with you at the next analyst call in September.
Thanks very much, everyone.
Thank you.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.
Thank you.