North West (TSE:NWC) said its fourth quarter was “challenging,” as headwinds in Canadian operations weighed on results despite what Chief Executive Officer Daniel McConnell described as solid performance in international markets.
McConnell told investors that consolidated sales were up slightly year over year, but compared against “the strong results we delivered in Q4 last year.” He attributed the Canadian shortfall primarily to “reduced money in-market,” including the elimination of the Inuit Child First Initiative (ICFI) Food Voucher Program and lower drinking water settlement payments, which contributed to unusually strong results in the prior-year quarter.
Sales trends: Canada pressured, international operations gain
He said both food and general merchandise same-store sales declined in Canada, driven by “less money in-market” and a “shift in consumer spending from general merchandise over to food.” Those pressures were “partially offset” by increased demand tied to First Nations child in-care settlement payments, according to McConnell.
International operations, by contrast, delivered what management called strong results. McConnell said international sales rose 5.4% in the quarter and that same-store sales increased 5.2% in food and 9.5% in general merchandise, on top of what he called solid gains in the prior-year fourth quarter. He attributed the performance to a positive tourist season in the Caribbean and market share gains in Alaska, including the opening of a new store in Utqiagvik at the end of October. Those positives “more than offset” softer economic conditions in some South Pacific markets, he said.
Profitability and expenses: mix and operational issues weigh on gross margin
McConnell said gross profit decreased 2% for the quarter, and gross profit rate declined 74 basis points. He noted the comparison was against a strong prior-year quarter in which gross profit rose 9.4% and the gross profit rate increased 141 basis points.
Among the factors pressuring gross margin this quarter, McConnell cited changes in sales mix and issues at North Star Air, including “changes in aircraft utilization and higher aircraft maintenance costs.” He also pointed to higher markdowns and increased shrink in both Canadian and international operations.
McConnell said the higher shrink was “particularly due to weather and other delays,” which affected timely deliveries to stores in Canada and Alaska. He also noted that lower sales in certain South Pacific stores contributed to higher shrink and markdowns.
On expenses, McConnell said costs fell 1.1% and were down 30 basis points as a rate to sales, primarily due to lower annual incentive costs. That benefit was partially offset by higher depreciation and share-based compensation costs. The company also incurred CAD 1.3 million in one-time Next 100 execution expenses, compared with CAD 1.0 million in the prior year.
McConnell said those one-time costs were more than offset by benefits from Next 100 initiatives, including store labor productivity gains and other cost-savings efforts. He added that excluding share-based compensation and one-time costs, adjusted EBITDA increased 1.3% in the quarter.
Overall, McConnell said net earnings declined 7.7% year over year, following an 18.9% increase in the prior-year quarter.
Outlook: Canadian funding changes continue; fuel costs emerging as a risk
Looking ahead, McConnell said the elimination of the ICFI Food Voucher Program and reduced funding for Jordan’s Principle programs are expected to continue impacting Canadian sales in the first quarter. He said those impacts should be partially offset by increased demand from First Nations Child and Family Services settlement payments, which he said “have started to increase modestly compared to the fourth quarter.”
McConnell said it remains early but that the company’s “sales capture rate is meeting our expectations” in communities where settlement payments have been issued. He also expects the distribution of settlement payments to “ramp up in 2026 and extend for a number of years,” driven by the need for individuals in the Removed Child Class to reach majority age before payments are issued, as well as the anticipated opening of applications and distribution for other classes.
Management also flagged fuel-related inflation and logistics pressures. McConnell said the company is monitoring macroeconomic conditions, “including the ongoing war in Iran and the impacts of higher oil prices,” which he said could affect fuel-related freight and utility costs. He noted the company is “starting to see some fuel surcharges impact freight costs,” with uncertainty about the magnitude and duration of those pressures. He emphasized the impact of fuel increases is “a compound factor in the north as compared to in southern retail.”
During the Q&A, McConnell told CIBC’s Ty Collin the company did not pass on higher costs “before Easter,” but said carriers have implemented freight increases. “There’s no avoiding it,” he said, adding the company will take a “balanced approach” and pass through costs strategically.
Next 100 program: private label expansion and supply chain projects underway
McConnell said the Next 100 program remains focused on execution and cost efficiency, including ongoing refinement of merchandise assortments and procurement strategies, with an emphasis on expanding private label. He said the company ramped the rollout of new assortments and expanded private label offerings across Canadian and international operations throughout 2025, and that private label penetration trends “remain positive and have sustained as the rollout has progressed.”
He also said implementation is underway for store-based inventory forecasting and replenishment technology, along with a new warehouse management system. Those initiatives are expected to improve on-shelf availability, streamline ordering, and reduce shrink and markdowns.
Asked by TD Securities’ Evan Yukevich where the company stands on the Next 100 rollout, McConnell estimated it is “about 50% or 60% of the way through the initiative,” noting that supply chain optimization work is among the more difficult remaining tasks. He said a warehouse management system implementation is just beginning and that the company is working to replicate Canada’s forecasting and replenishment approach in Alaska.
In response to BMO Capital Markets’ Steven MacLeod on timing, McConnell said he expects the program to be “fully mature” in 2027, but he did not confirm a specific percentage of completion by the end of 2026.
Settlement payment cadence and consumer behavior
Several analysts focused on how settlement payments are flowing through North West’s markets. McConnell said in Q4 and into Q1 the trend has been a “trickle” rather than the pace he expects later in the year. He also said only about half of the stores the company expects to benefit have seen payments so far. “Out of the…63 stores that we anticipate, only half those have received checks at this point,” he said.
On how recipients are spending, McConnell told TD Securities that the company is seeing purchases across categories. “They’re sizable checks,” he said, adding the company is seeing an “uptick in motorized and some of the big ticket items,” along with “some trickle over into the food.”
McConnell also said inventory levels were positioned to capture anticipated demand, telling CIBC the company is “ready for business” and comfortable with both inventory levels and supplier relationships.
On Alaska’s SNAP benefits, RBC Capital Markets’ Ryland Conrad asked whether eligibility changes were impacting demand. McConnell said there has been “no noticeable impact in Q1.”
McConnell said the company will provide its next update when it reports first-quarter results and holds its annual general meeting in June.
About North West (TSE:NWC)
The North West Co Inc is a Canada-based company that is principally engaged in retail business in underserved rural communities and urban neighborhoods. The company provides food, family apparel, housewares, appliances, and outdoor products, with food products accounting for the majority of the company’s revenue. The company also offers services, including post offices, income tax return preparation, money transfers, commercial business sales, and others. Its geographical segment includes Canada and International.
