Decelerating same-store sales at Wal-Mart Canada could be a harbinger of good things to come for the incumbent Canadian grocers, according to Desjardins Capital Markets Analyst Keith Howlett.
“In our view, Wal-Mart Canada’s deceleration in same-store sales growth in Q2 reflects the market strength of the leading grocery players in Canada when pricing and promotions are sharpened,” Howlett wrote in a report to clients Thursday.
Wal-Mart (WMT.N) beat profit expectations on Thursday as sales in U.S. stores rose for an eighth consecutive quarter. However, the picture in Canada was not quite so rosy with same-store sales growth slowing to 1.1 per cent in the second quarter against a 6.7 per cent first-quarter growth.
The results prompted Desjardins to maintain a buy rating on Loblaw (L.TO), while keeping Metro Inc. (MRU.TO) at a hold, with price targets of $80 and $46, respectively.
Desjardins’ preference for the grocers was not without some concern, however.
Howlett flagged “fraying of industry alignment” as Sobeys (and its parent, Empire Company) and Wal-Mart Canada continue to pursue new pricing strategies. He also warned about the risk of food deflation in Canada.
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