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Higher food prices, apparel sales boost Loblaw

Tags: Loblaw, Retail
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Helped by pumped-up financial services and higher food prices, Loblaw Cos. Ltd. (L-T) enjoyed a better third quarter than a year earlier but still warned about coming pressures as the grocer invests further to update its systems.

In its third quarter, profit jumped almost 20 percent to $236 million or 84 cents a share from $197 million or 71 cents a share a year earlier. Revenue picked up 2 percent to $9.7-billion from $9.5 billion.

Loblaw's same-store sales, a key measure of a retailer's health, improved by 1.3 percent after having slipped by 0.4 percent a year earlier.

"In the third quarter, Loblaw's continued improvement in execution helped to drive the top-line [sales] while EBITDA [profit] margin and expenses remained on trend," Galen G. Weston, executive chairman at Loblaw, said in a statement.

"As our infrastructure program progresses, going forward we expect the related investments to negatively impact operating income."

Loblaw's same-store sales, at 1.3 percent, weren't as robust as those at Metro Inc., which reported on Wednesday that those sales rose 3.2 percent. Still, Loblaw's same-store sales beat the estimate of many analysts.

Loblaw has been scrambling to overhaul its systems and redesign its stores and labour contracts since the fall of 2006, when Weston and a new executive team took charge. The moves followed years of a botched revamping to take on burgeoning food competition from discount titan Wal-Mart Canada Corp.

Now under a new president, Vincente Trius, who was a former Wal-Mart executive in its international division, Loblaw is grappling with flat or declining food sales by focusing on an array of fast-emerging segments. They include financial services, apparel, ethnic-oriented products and health and wellness goods.

In its third quarter, Loblaw's revenues were shored by higher sales in financial services, expanded space for its Joe Fresh Style fashions and food price inflation.

The company's sales were helped by "moderate average" quarterly internal food price inflation, although price increases trailed the national food price inflation of 4.9 percent, as measured by the consumer price index. CPI doesn't necessarily reflect the effect of inflation on the specific mix of goods sold at Loblaw, the company said.

It said sales in food were "moderate," while sales in its drugstores dropped "marginally" because of new generic drug reforms. The company's move to add more of its private label Joe Fresh clothing, including opening standalone stores, led to a "moderate increase" in that business.

Gas sales were strong as a result of higher gas prices, while general merchandise sales "declined moderately" as the company reduced its space for those products (excluding apparel) and introduced new lines.

Profit was squeezed by $19 million of technology upgrades, as well as a charge of $15 million for share-based compensation net of equity forwards; a $12 million charge for store transition costs which are aimed at generating long-term labour savings; and a $14 million gain tied to the sale of a B.C. property.

In contrast, Metro beat analyst expectations, according to a poll by Thomson Reuters, with fourth-quarter profit dropping 7.8 percent as it booked closure costs for two of its facilities.

The Montreal-based grocer, the third largest in Canada, reported a quarterly profit of $86.1 million, a decline from $93.4 million a year earlier.

The result included a $20.2 million non-recurring charge for shuttering the operations of a meat processing plant in Montreal and a grocery warehouse in Toronto, intended to improve operational efficiency.

On an adjusted basis, profit was 98 cents per share, which is four cents above analyst expectations, according to a poll by Thomson Reuters. Sales grew to $2.66 billion from $2.56 billion.

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