North West Co achieves 12.9% net earnings increase in Q3, navigating funding cuts and strategic initiatives amid sales decline.

Made and the Company disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future results or otherwise other than what's required by law. For additional information on these risks, please see Northwest's Annual Information form and its MD&A under the heading Risk Factors.

Okay, thanks Alexis. I'm going to start with an overview of our results for the quarter and then move on to comment on our outlook and the next 100 program and then I'll be opening up for questions. All right, let me begin by summarizing the story this quarter. Overall, we delivered solid net earnings gains with a very challenging quarter. From a top line perspective, sales in the quarter decreased 0.5% compared to last year. That's primarily due to less money in market resulting from reduced child and family services funding in Canada and a lower permanent fund dividend in Alaska. Despite these headwinds, we delivered a 12.9% increase in net earnings compared to last year, driven by improved gross profit rates from our next 100 work and lower expenses.

All right, let's unpack that starting with. Sales consolidated same store sales decreased by 1.7% this quarter compared to a 4% increase last year, and that's primarily due to the headwinds in our Canadian operations and the challenge of matching strong sales comps from Q3 last year. Canadian operations' sales decreased 2% with same store sales down 2.8% compared to a strong 4.9% increase in Q3 of last year. The lower sales in Canada was primarily due to a decrease in money in market from the elimination of funding for the Inuit Child First Food Voucher Program and a reduction in funding for Jordan's principal programs compared to last year. Decrease in drinking water settlement payments and climate action incentive payments compared to the third quarter last year were also factors, but to a lesser degree. The decrease in money in the market combined with consumers shifting their spending from general merchandise to food were the primary reasons for the 3.1% decrease in general merchandise and other sales in Canadian operations as higher airline revenue from third party cargo and passenger business and an increase in pharmacy sales were more than offset by an 11.1% decrease in same store general merchandise sales. On a positive note, all of our. Stores in the communities impacted by Wildfire evacuations have resumed operations and had a modest decrease in sales for the quarter. I'm going to switch gears now and just briefly comment on the international sales. Sales in our international operations were flat for the quarter as an increase in same store food sales of 1% offset a decrease of 9.9% in same store general merchandise sales in Alaska. A lower permanent fund dividend of $1000. Compared to 1700 last year combined with consumers shifting more of their spending to food were the key factors contributing to the decrease in general merchandise sales. Softer economic conditions in the South Pacific Markets were also a factor. Okay with that deeper dive on sales, I'll briefly comment on consolidated gross profit and expenses. Gross profit increased 1.4% for the quarter with the gross profit rate up 64 basis points compared to the third quarter last year. This improvement reflects the positive impacts from our next 100 work, particularly the ongoing refinement of our merchandise assortment and expanded private label offering in both our Canadian and international operations. A change in sales blend including lower wholesale sales and a decrease in general merchandise seasonal markdowns in our international operations compared to last year were also factors. Expenses decreased by 1% for the quarter and were down 13 basis points as a rate to sales, largely due to reduced share based compensation costs primarily related to the changes in the company's share price and a decrease in vessel repairs in Transport Nanook. We also incurred $1.3 million in one time costs related to the execution of our next 100 program which were more than offset by the benefits from our next 100 initiatives. We continue to see store labor productivity gains which are resulting in lower store staff costs as a percentage of sales in addition to other cost savings initiatives such as reduced print media. The net impact of all these factors combined with a decrease in interest expense and a lower effective tax rate resulted in a 12.9% increase in net earnings for the quarter. All right, now let me talk briefly about our outlook and provide a few comments on the Next 100 program. Since we provided commentary on the key. Factors we expect to impact our outlook. In the report to shareholders, I will just comment on the expected near term impact of money and market in Canada. The elimination of Inuit Child First Initiative food voucher funding and a reduction in Jordan's principal program funding are expected to continue to impact sales in Q4 with some offsets anticipated from an increase in consumer demand from First Nation child and care settlement payments. As we noted in our outlook, the distribution of first class of Child and Care Settlement payments to individuals in the communities we serve began with a very small number of payments at the end of Q3 and there has been a modest increase in the volume of payments so far in the fourth quarter. We expect the distribution of child and care settlement payments to ramp up in 2026 and extend for a number of years beyond 2026 based on the requirements for individuals in the Removed Child Class to reach the age of majority before payments are issued, combined with the anticipated opening of the application process and distribution of settlement payments for the other eight classes. Regarding the Next 100 program, we remain focused on driving operational excellence and cost efficiencies from a category managed perspective. Category Management perspective we continue to refine our merchandise assortments and procurement strategy with a focus on the expansion of our private label offering. Throughout 2025, we have ramped up the. Rollout of new merchandise assortments and expanded the private label offering in both our Canadian and international operations. Although it is still early in the process, feedback from customers has been positive and the trends of private label penetration are encouraging. The implementation of store based inventory forecasting, replenishment technology and a new warehouse management system are also underway. With the new processes and tools, we expect to improve on shelf availability for our customers and streamline the merchandise ordering processes for our store and warehouse teams. We are pleased with progress and results to date, but also recognize that there's still a lot of work to do as we continue to learn and refine this new operating model. Let me wrap up by saying that the next 100 operational excellence focus has helped mitigate some of the external headwinds that impacted our results this quarter, and the foundation we're building is expected to continue to deliver value to our customers, shareholders and employees going forward. With that.

Operator, I will now open up the. Call for any questions. Certainly. As a reminder to ask a question, please press star11 on your touchtone telephone. If you would like to remove yourself from the queue, please press star 11 again. Please stand by for our first question. Our first question will be coming from Ty Collin of cibc. Your line is open.

Hey, good morning guys. Thanks for taking my question. To start. I guess can you maybe just help us understand the relative impact of the various factors you called out driving the same store sales decline in Canada? And with respect to the declines in government funding specifically, is that stable or did that kind of worsen compared to last quarter?

You turn it up, it's hard to hear. Sorry, can you repeat that question? You cut it. Yeah, yeah, yeah. Sure, sure.

Sure thing. I'll go again. So I'm just wondering if you could help us understand the relative impact of the. You got me. Just want to understand the relative impact of the various factors driving the same store sales decline in Canada. And then with respect to the declines in government funding for some of those programs, is that stable or did that Worsen compared to Q2?

Okay, lots to unpack there. So look, I'll give you the full down. The biggest impact on sales was definitely. The money in market. And that's I think something that I think we've been pretty consistent with that and clear on some of the messaging that we've identified especially with the, you know, the icfi, the Jordan's principle, the pullback in funding and the, the slower pace, I guess than some of the market has anticipated. Although we've always said that I think Q1 is when we thought we were expecting some of the payments from the child benefit. But I would say so money in market is the number one headwind, big ticket motorized sales reduction, that's also a big one. Obviously they're a higher price point, lower margin, but that's been a pretty good big impact as well. Definitely some taste, some thumb pointing like we we've just gone and we've rolled out. We've engaged with a lot of, with new vendor, our supply chain that we just rolled out this year where we've moved over to a new system on a push system and there was some disruption there. So I would say, you know, to not nearly degree as some of the others, but there was probably higher out of stock on our shelves than, than typical. Just as a result of some of the disruption that we experienced which would be expected but definitely reacted very quickly and are looking very positive as far as how we're rebounding from that and being a lot stronger as a result of it. I might add. Some of the, you know, with reducing prices, I know we're, we're just getting into it but with the private label program obviously lowering prices, increasing gross profit, but lowering prices for our customers had some impact. Not a lot, but certainly something to be considered as the private label program is starting to gain a lot of traction in our markets. And don't forget we're comping some big quarters. I mean double digit I think of this year, certainly Q3, Q4 and then Q1 into next with a lot of the money that was in the market previously. However, you know, as we indicated we are expecting to be able to offset that in Q1 with more of the child care benefit money coming in. I'll also say that with respect to payments, I mean look, there has been some press out there if you recall. I've been pretty consistent with forecasting in Q1 is when we thought a majority of the money is going to come. The child care benefit did ramp up from the previous quarter. But again, it's not anywhere near the level that we're anticipating. So yeah, I think I answered your question, sir.

Yeah, that's great. Appreciate those comments. And then on next 100, appreciate all the commentary there, I guess. Can you maybe just update us with respect to which initiatives you still see the most low hanging fruit for at this point and then maybe just at a higher level. I mean how far along would you say you are in the overall journey of executing next 100 as we're exiting 2025 here.

Okay, so as we're exiting 2025. There'S. A number of different initiatives. So the low hanging fruit, not sure there's any more low hanging fruit, but we're in the execution phases, you know, like we're as indicated on the private label, we're starting to get ramped up. I would say we had it executed October, November, but it's with some fixes in place. So we're on a nice trajectory there. Things are getting better and better as we go on. On the other hand, the Supply Chain Optimization, it was a little rocky. We anticipate that. The headwinds are behind us and but yet it's going to be a, it's still a pretty good journey. We've got the pilots, stores are done. We've rolled it out now to the, to most of the chain in Canada on our forecast and replenishment and we anticipate that it would probably be up and operational fully in 27. But we think that there's, we know there's going to be some benefits certainly throughout 2026. The CPI work, the category performance improvement plan, I would say we're probably 50% through that. Approximately. But we expect to see some more benefits into 2026 and probably, I would say it'll probably level off. By the end of 2026 and then we'd be comping that into 27.

John, looking at GNFR, I think is.

We'Re. Pretty well into it. I'd say 75% through GNFR. That's good enough for resale. Sorry. So I think that the biggest benefit probably to come is going to be from the Supply Chain Optimization and that's in our forecast and replenishment, moving away from the pull system that we had in the stores previously and going into a push working through algorithms to just get more controls and be more accurate. With our inventory management.

Okay, great, thanks. And if I could just sneak one more in. So you guys renewed your NCIB last month. Do you plan to be active on the NCIB going forward or how are you thinking about potential buybacks relative to some of your other priorities?

Well, I mean, our other priorities are in and operating and we have some healthy investments to make in the business now and into 2026, obviously with some of the things that we talked about and some of the new store renovations in some of our major markets. So I think it's somewhat tbd, obviously, much like you would look at it, depending on what the stock price does. But we're really optimistic about the future of the company. So we have no problem investing more into the ncib. Yeah.

All right, thanks, Dan. I'll jump back in the queue.

Thank you.

And our next question will be coming from Michael Van Els of TD Cohen. Your line is open, Michael.

Great, thank you. Just to finish up on the NCIB question, so you do have a higher level of spending short term. Can you comment on what the CapEx rollout looks like this year, next year and maybe 27. And then given that you have a strong balance sheet, would you be willing to supplement. Any free cash flow with some maybe balance sheet leveraging to also fund the NCIB while the share price is depressed?

Yeah, I think we would look at that. Absolutely. And it's something that we are looking at just how we would want to position ourselves going forward pending our next phase strategy, which is work that we're undergoing as we speak. So in other words, much like the same commentary I've made before. We think the best place for the money obviously is investing it in our business and infrastructure in order to generate some strong returns for our shareholders. If there's no opportunities at that point in time, then we certainly, and we had a buildup of cash, we would certainly look to execute on the NCIB. And if it was sustainable, if we had sustainable higher cash flows, then obviously we would look at working with our dividend.

Okay, so what does the CapEx look like the next little while?

145 this year still 145, yep.

And how about next year?

160 is, I think, what we're forecasting currently.

Okay. And so, I mean, that's above your normal run rates. Is that when do we get back to a normal, like a more normal level?

I would say the following year. 27. We've had some pretty sizable projects that we're kind of in the midst of, Michael. So as soon as we get over that hump, then it will start to normalize both with it, with some of our IT Investment as well as some of our major Markets that have had. A long drought of capital. I would say this. And so we've just undergone a project, it's been a three year project particularly in Iqaluit, Canada is what I'm talking about. So that'll be coming to an end at the end of 26.

And so what's 2020 like what's a normal level of CapEx that we can expect over time?

It's a great question, especially given the inflation and cost and what it costs to do things in the north. But I would say. My expectation would be to be sub 140.

All right, so just getting back then, so to the ncib, would you. I mean it seems like you're going to be using a lot of your free cash flow on your dividend and CAPEX.

And growth or excess incremental CAPEX but your balance sheet at just over 1 times leverage is very clean relative to other retailers out there. So I'm wondering like would you, are you thinking of looking at that now and leverage, using some leverage to buy back the stock opportunistically given, given the low price or would you, or are you just waiting till free cash flow comes through? Currently we were waiting for free cash flow, Michael, but I can tell you that we're, you know, it is fluid. So we are undergoing some strategy work right now to understand what our future, our next adventure is. We wanted to make sure that we focused on execution obviously with a number of ideas as to where we would like to go from here. But I would say currently, to be frank. It was more thinking about future incremental cash flows brightening down ncib. We haven't. We have not planned to currently flex the balance sheet to buy NCIB current right now, but I'd say it's somewhat fluid. But that's not in the cards right now.

Okay. Just. And then on the Next 100, that was also mostly covered. But just to summarize on that one, if you were kind of, if you're looking at $100 in total benefit, let's call it over the course of it, where would you have been in 25 and where do you think you'll be in 26 before getting all of it in 27?

I would say. That'S a great question. 50%. I'd say 50%. 50% in 25. Yeah.

Okay. And then I guess we extrapolate and say it's 75 or 80 in 26 and then all of it in 100% in 27.

Yep.

Okay. All right, good enough. Just to get an idea. Okay, so. And then I just wanted to touch on some of those Jordan principal claim settlement payments. And so it sounds like the AFN is talking about something like 6600. Payments having been made at this point, which just over 40,000, just about $40,000 each by the sounds of it, which is a pretty big ramp up compared to zero almost a few months ago. But also only 1% of the total payments that are expected over time. So. Why do you think you're not seeing a bigger ramp up in Q4. In your communities currently?

I mean, look, it could be the postal strike, it could be the administrative. Efficiency of the administrators. This isn't new though, right? I mean we've seen this many times before as far as the disbursement of these different payments, which is why I would always put a hedge on it on timeframe. So I would, I can't answer why, but I can tell you that it's not unexpected. And so it's something that we're kind of ready for and optimistic obviously hopefully for this season that people have a few more dollars in their pockets to enjoy the season. But like I said, more so looking to Q1 of 26 is when we think that it's going to, I mean, look, it's not a. I don't think there's any question on whether it's coming. We know it's coming. It's just about how quickly it can be processed. And I think we can appreciate that. The history has shown that it doesn't happen as quickly as everybody would like, including some of the leaders that are obviously advocating on behalf of some of their constituents.

Right, yeah, that's clear. Okay. So if I remember correctly, like some of these other. Payments that you're that are falling off now, the water settlement payments and things like that, I mean those were smaller than what this one is going to be and they only. The water settlement itself only affected 30 of your communities, I think if I remember correctly.

So just under that?

I think, yeah, just under. So does this, does this, Jordan's principal settlement, is this affecting all 140 of your communities? Is this benefiting all of them?

No, it wouldn't be all of them. A large majority of them, I would say in northern Canada, but not all of them. I think it's about, I think the number is about 60, so just under half.

Okay, so about 60. Yeah. Okay. And so do you have any sense as to what percentage of that 23 billion of payments that are going to be made are going to end up in your communities. I think you'd probably have to do your own math on that, Michael, just because there's a lot of assumptions that we make and knowing you, I think you'll probably get pretty close to an assumption that we would. But no, we wouldn't. It would be a, it's a really highly educated or uneducated, it's a very high assumption as to what we had. So it's not something that we would release. It would just, yeah, it wouldn't be productive, I don't think, for you, for us to give you a number. Last question for you. Are you. Could you try to hazard or give us some kind of insight into your capture rates in the past when these types of programs or payments come out in your communities?

No, we don't release that, but we do. I will tell you that the capture rates that we've seen and the few that we've had have been. On our forecast pretty consistent with what we anticipated with slight improvement. But I would say it's, it's. So we're pretty, we've been pretty accurate so far. We just need more of it. All right.

Thanks, Russ. Thanks.

And as a reminder to ask a question, please press Star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. And our next question will come from Stephen McLeod of BMO Capital Markets. Stephen, your line is open.

Thank you. Good morning, guys. Lots of. Thank you. Morning. Lots of great color so far. So a lot of my questions have been answered, but I just wanted to get, see if I could get a better sense of, you know, Dan, you were talking about the fact that you've always said that Q1 is probably when you expect to see some of the more meaningful settlement payments coming through. And obviously it's been a bit, hasn't been very transparent in terms of the timing from the administrator. So I was just curious what kind of visibility you have into the payments beginning in Q1 and kind of how. We should think about. You know, that actually coming to fruition.

Oh, maybe. I wouldn't say I'm an expert, but I would say that it's just based on some of the, you know, being around the history that we've, how we've seen payments administered in the past. It's a hypothesis, it's a guess, but it's, I know I get exposed to the same information that everybody else does. So. And you heard some of the people that are, that are close, they thought it would have been sooner. And so I was probably putting a contingency on what some of the other people were identifying. So it's not all that scientific, unfortunately, but yeah, I wish I could give you more assurances there, but I can't. It's simply, it's simply a guess based on putting a hedge or a contingency on what is anticipated or expected with some of the community leaders who are, I'd say, on the front line of negotiations and in constant conversations. But it comes down to bureaucracy and bureaucracy is controlled by. I don't know. If you find out, let me know. But it's just. So the decisions are reached, the decisions are made. So I don't think there's anything going to halt it. It's just on the timing of the payments. Yeah. So I guess that's calming. It's calming the fact that you know it's coming, but everybody's anticipating and including obviously the customers that are going to be receiving it. I would think nobody wants it more than them, but it's just. That's where we're sitting right now. Yeah, no, understood. Thank you. And then maybe just, you know, looking at the Inuit Child first food voucher program and the reduction in funding from Jordan's principal programs, which kind of weighed on, weighed on the Q3 numbers and. You highlight as a uncertainty in the outlook, do you have any insight. Maybe. Thinking of each of those ones separately? Is there a scenario where the funding for those programs ramps back up or are those being phased out and we just have to deal with it going forward and ramp, you know, we comp the impact next year. Timing is so the inner Child first. I don't, I don't anticipate that's going to ramp up again. But I know that there's a lot of, you know. Works in place to try and get. That to be the case. Jordan's principle, that comes down to the discussion, that will ramp up again, I think. When I don't know, because it's between a negotiation now with some of the indigenous leaders on how it's going to be administrated. But it's already, you could say it's already committed to by Canada. But as you recall, the vote came through with the chiefs in the regions and they had voted that they weren't going to accept it. And it wasn't based on the quantum or the settlement. It was more based on how is it going to be administrated within their communities. So as you know, Ontario actually elected to accept it and the rest of. The regions declined it. And so that was one of the major causes of some of the retraction. Of the Jordan principal money. I do anticipate that'll come back around, but it's stuck in some political dispute right now. So I couldn't venture a guess as far as when that's going to be resolved. But once it is resolved it'll be. A positive for sure for the community. Members in the North. Okay, that's helpful. Thanks Dan. And then maybe just turning to the international business because we don't want to leave any stone unturned here. You're getting a lot in Canada just obviously kind of flattish same store sales growth and you know, were you seeing obviously the permanent fund dividend was a negative impact as well as weaker economic conditions in the South Pacific. So can you talk about what some of the positive offsets were to those two headwinds? Sure. Some of the positive offsets a little different. A lot of book not necessarily transacted. But there as we have started to sell more big ticket in Alaska, although I think the seasons ahead are going to be stronger than prior but we will see a big increase in particularly skidoos in Alaska. But also we had a new store. Come online. Which is a real positive which was real positive for AC So that was a nice offset as well. New store in Barrow, Alaska. So that's a really nice community and it's going to be a. Good asset for Northwest for sure. Otherwise the team is working hard right now. It's a tough environment in Alaska. Yeah. And the Caribbean again is starting to. It's doing fine and it's had some, you know, it's been stable but it's really the South Pacific that has been a bit of a drain on and just getting back from some of the typhoon work and just the economy is the competition has increased and the economy has worsened. So it's kind of a tougher situation. But we're optimistic next year that some of the strategies that we're putting in place are going to hold us in a good stead. We're. Combining some of our operations and building a more impactful, efficient store that's going to take two out and put one in. And we think it's going to make a real positive impact in Guam. Right. And then maybe just finally with the. You know, maybe not reduction in snap benefits but the noise around snap benefits through the big beautiful bill. Did any of that sort of work into your numbers and was that an impact in the quarter this quarter? I think that's more this quarter. Steven. So that'll be have a little bit of an impact on this quarter. And it was. Yeah, it was a bit of a. Yeah, did introduce some noise. Okay, okay. Okay, that's great. Thanks. Thanks for the color, guys. Appreciate it. For sure. Yep.

And our next question will be coming from Rylan Conrad of RBC Capital Markets. Your line is open.

Yeah, thanks very much. Good morning. Just starting off on the 23 billion settlement and the payment volumes being low there today. Have you actually observed any in market spending from those payments? Or is that what you're expecting to be more of a Q1 event?

You mean the. Sorry, the individuals that did get payments. Have we seen an increase in spending of those payments in our stores? Is that what you mean? Yeah. Correct. Yeah. Yep. And yes, we have. And as we said, we've seen a good. We've retained a lot of those. Our expected retention on the money that we've been able to track in markets. Okay, great.

And then just on the two open classes within that settlement, I guess, can you just talk about your expectations around those? I think from my perspective, it seems like more of the removed child family class compensation would be flowing to individuals on reserve and in your market. So just curious to hear your thoughts about those two.

I don't really have too much thought around it other than the fact that we're excited for the rest of the class to open. But this is. This is just getting going. So I don't know, maybe I'm not understanding your question. Could you go a little deeper? As far as how I think about the quantum, is that. Yeah, I guess just with, you know, how the money's flowing to the individuals that are eligible under those classes, I guess there would be obviously circumstances where, you know, children might have been removed from their homes under the removed child class that are no longer on reserve. So maybe directionally there'd be more money flowing to. Reserves through the removed child family class, if that makes sense. No, I don't know like you mean. Sorry, John, do you understand the question? I'm sorry, I'm having a tough time. Do you mean money going to the reserve, to the council or the administration on the reserve rather than the individual? No, two individuals, but we can take.

It offline as well. Yeah, that'd be great. Sorry. Okay, that'd be great. And then just on international, on the pfd. I mean, we've seen a few years of lower dividends now and next year is an election year in Alaska. So do you think it would be reasonable to assume that we should see a larger PFD next year?

No, I don't think it's. It'S not always rational, but next year's not an election year. So the election years are usually when they, when they ramp up. And if you remember, it's been as high as 3,000 plus 17 last year, 1,000 this year. I don't anticipate it would go down, but I don't think it would get, you know, in my kind of experience, it's just watching the, the cycles, I don't expect it's going to triple. And it's tough to even forecast what it's going to be. But I would not anticipate it would go down. I would say, if anything, marginally up. But it's. Yeah. Okay, got it.

And then just lastly on private label, I know it's still early days, but I guess could you just provide an update on how many stores are now stocked with those products and just whether you've seen any trade down from the national brands?

Yeah, most of the stores are now stocked at the private label, with the exception of. A few, like, for example, where we're doing a major renovation in Kalawit, for example, which is a substantial store, and a couple others. But most of the stores are up. Now with the private label offering.

Okay, perfect.

That's all from me.

Thanks.

Thank you.

I'm showing no further questions. I would now like to hand the call back to Mr. McConnell for closing remarks.

All right. Well, thank you, operator. Yeah, really, I'd just like to wish everybody the very best of the holiday season and I look forward to speaking you on our Q4 earnings in April. So thank you.

And this concludes today's conference call. Thank you for participating. You may now disconnect.