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May 3, 2017

Loblaw posts 19% rise in profit, helped by lower expenses

Loblaws location on Carlton Street in Toronto

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TORONTO -- Canada's biggest grocery and pharmacy owner said Wednesday it anticipates competition between supermarket chains will be fierce this year as food prices continue to stay low.

Loblaw Companies Ltd. (L.TO) said grocers have been grappling with declining food prices, especially for meat, following a shift from last year's high inflation.

Although Loblaw CEO and chairman Galen G. Weston expects prices will eventually moderate by the end of the year, he does not see the "intense competition" with rivals easing off.

"The notion of a shift into a steady inflationary environment is going to be offset by what we see as a continued level of competitive intensity," Weston said during a conference call with financial analysts following the release of the company's latest results.

Food prices in March fell 1.9 per cent compared with a year ago as Statistics Canada's overall consumer price index for the same month rose 1.6 per cent from a year earlier, following a 2.0 gain in February.

Compared with a year earlier, the cost of fresh fruit dropped 12.4 per cent while fresh vegetable prices fell 10.2 per cent.

Weston said Loblaw, which owns grocery stores under various banners and the Shoppers Drug Mart chain, plans on making up for the shortfall by using its loyalty analytics programs to bring more customers into its stores and get them to spend more with each shopping trip.

It plans to do this by increasing its targeted offers and continuing to offer more sale promotions.

The company noted that it has also seen success with offering food in its Shoppers stores. Weston said this concept works best in urban centres such as Toronto, where customers are using the locations as a place to do their mid-week shop on their way home from work.

Loblaw recently expanded the initiative to one store in downtown Vancouver, with plans for more locations this year.

Earlier, the company reported its first-quarter profit was up 19 per cent from a year ago.

Loblaw said it had $230 million in net earnings available to common shareholders or 57 cents per diluted share for the quarter ended March 25. That was up from $193 million or 47 cents per diluted share in the same quarter last year.

Revenue edged higher to $10.40 billion from $10.38 billion a year ago.

It also announced that it was raising its quarterly dividend by a penny to 27 cents per share.

Last month, the company announced it was selling its 213 gas stations to asset manager Brookfield Business Partners for about $540 million.