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COMPANY OF THE WEEK: Loblaw Predicts Challenging 2010
(CANADA, 2/26/2010)
Loblaw Companies Ltd. (Public, TSX:L), Canada’s largest grocery chain, said that two of its toughest years are still ahead, after reporting its fourth quarter profits dropped 13.2 per cent for the fourth quarter and fiscal year ended January 2, 2010.
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| Allan Leighton |
Allan Leighton, Loblaw president and deputy chairman said: “I do have concerns still about the economy and unemployment does make a big difference to us, but household debt is also a big factor in what happens in food markets," Leighton told investors on a conference call last week. He also pointed that sales and margins will be challenged by increased competition throughout this year as the company pushes through a period of declining revenues and costly upgrades.
The grocery chain, which operates across Canada under numerous banners including Loblaws, Zehrs, Real Canadian Superstore, No Frills, Atlantic Superstore and Provigo, said it had profits of CAD 165 million in the fourth quarter of 2009, compared to CAD 190 million last year, though 2009 year-period contained an extra week. Earnings per share fell 14.3 per cent to 60 cents from 70 cents, while revenue was down 5.6 per cent to CAD 7.3 billion from CAD 7.7 billion in the 13 weeks ended January 3, 2009. Same stores sales were down 7.8 per cent. Loblaw said that using a 12-week basis for comparison, food sales growth was flat, pharmacy sales growth was moderate, general merchandise sales declined, and apparel sales and gas bar sales increased.
Loblaw will spend CAD 1 billion on store renovations and infrastructure upgrades, with investments in technology and supply chain efficiencies reducing annual operating income by CAD 185 million from last year's levels. “This is a massive program, currently the biggest retail infrastructure program of its type in the world. We continue to edge forward, but there's still more to do. The next two years, the final two of our renewal program, will be the toughest yet," Leighton said. “This will be happening against a backdrop of zero inflation to deflation in the first half of the year, and an increasingly competitive and soft market”, he added.
In an attempt to resolve supply difficulties that had resulted in stock not reaching stores efficiently, Loblaw launched the refurbishment of its distribution facilities in 2007. The company had to deal with management troubles as the company hired costly consultants to oversee the process. Since then, the company has replaced many of those consultants with its own employees, resulting in lower operating costs. When the new supply chain program is completed at the end of next year, the company will have transformed a data system that was once significantly below industry standards into the best supply chain infrastructure in North America, said Leighton
Investors seemed to react positively to the company's news last week, pushing the stock up three per cent, or CAD 1.12, to CAD 38.04 with over 1.6 million shares traded on the Toronto Stock Exchange. Analysts said that the results were slightly positive, adding the company's five-year infrastructure upgrade program appears to be ahead of schedule, and the CAD 185 million investment would help to meet its deadline by the end of 2011.
Loblaw is also pushing ahead with a program to revamp another 200 stores across the country, despite market uncertainties. The company is already completing renovations at two-thirds of its stores. The renovation program has damaged Loblaw's revenues, as stores going through the renovations had approximately 10 to 15 per cent less area for general merchandise in 2009.
Loblaw’s full-year earnings per share for the 52 weeks in 2009 were CAD 2.39, up 18.9 per cent compared to a 53-week fiscal 2008. Full-year sales declined 0.2 per cent and same-store sales were down 1.1 per cent compared to last year. However, comparing the years on a 52 week basis and excluding one time costs, overall sales increased 1.6 per cent and same-store sales increased 0.7 per cent.
About Loblaw Companies Limited
Loblaw Companies Ltd. operates as a food distributor, and provides drugstore, general merchandise, and financial products and services in Canada. The company operates approximately 1,000 corporate and franchised stores from coast to coast and 139.000 employees.
Through its portfolio of store formats, Loblaw focuses on providing a range of products and services to meet the everyday household needs of Canadian consumers. The company also offers control private label program, including the President's Choice and Joe Fresh Style brands.
In addition, it makes available to consumers President's Choice Financial services and offers the PC points loyalty program. The company was founded in 1956 and is headquartered in Brampton, Canada. Loblaw Companies Limited is a subsidiary of George Weston Limited (Public, TSE:WN).
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Margaret E.L. Stacey
Information of the company:
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Address:
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1 President's Choice Circle
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City:
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Brampton
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State/ZIP:
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Ontario (L6Y 5S5)
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Country:
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Canada
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Phone:
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+1 905 459 2500
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Fax:
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+1 905 861 2206
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E-Mail:
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info@loblaw.com
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More about: 
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