Pandemic Pay Boost Sinks Profit at Canada’s Largest Grocer

Divya Balji, Bloomberg News

A customer loads groceries into her vehicle outside a Loblaws store in Ottawa on July 10. , Bloomberg

(Bloomberg) -- Loblaw Cos., Canada’s biggest grocer, saw a jump in second-quarter sales but extra costs to deal with as Covid-19 hurt its profits.

The owner of the Loblaws supermarket chain and Shoppers Drug Mart pharmacies reported revenue that climbed 7.4% from the prior year to nearly C$12 billion ($9 billion), beating analyst expectations. Retail segment sales jumped 7.9% and food retail same-store sales grew 10%.

Adjusted net earnings slumped 29% to C$266 million because of pandemic-related spending. Major costs included a temporary pay boost for employees of C$180 million -- including a one-time bonus for store and distribution center staff of C$25 million -- and added security and cleaning expenses.

“Loblaw delivered strong operational performance, as both our base business and strategic growth pillars performed well amidst the extraordinary conditions brought on by Covid-19,” Executive Chairman Galen G. Weston said in a statement Thursday. “Significant investments in the safety and well-being of everyone in our stores delivered against customer expectations, despite negatively impacting earnings.”

Read more: A Supermarket Billionaire Steps Into Trouble Over Covid Pay

Adjusted diluted earnings came in at C$0.74 per share, surpassing analyst expectations but still 27% lower than in 2019.

While it continues to incur pandemic-related costs, Loblaw is now seeing a lower rate of increase compared to the second quarter, “reflecting a greater degree of stability in store and distribution center operations,” the company said. It did not provide a full-year outlook.

The expected drop in Covid-19 costs will drive improved profitability going forward, Desjardins Securities analyst Chris Li said in a report.

E-commerce sales saw a 280% increase as more customers chose to shop online to avoid going into stores during the pandemic. Year to date, almost C$1.2 billion has been spent via digital sales across Loblaw’s grocery, pharmacy, and apparel e-commerce platforms.

The company said expects continued growth in its e-commerce business and is spending money to expand capacity and enhance its same-day service.