Brian, Loblaws in Canada Reported 3Q09 Earnings today
Loblaw reports third-quarter profit of $189M
Canada's largest supermarket chain said it faces a highly competitive Christmas selling season and will continue to cut prices to boost sales.
However, Loblaw Cos. Ltd also said it managed to boost profit in its latest quarter despite falling inflation and "pressure" on volume sales.
The news drove Loblaw's share price 3.68 per cent higher to $31.52 in early trading on the Toronto Stock Exchange.
"If you look at most flyers most weeks, once upon a time you got a couple of new lows in any one month. Now we're getting two or three new lows every week. I think this Christmas will be pretty fierce in terms of competition," Loblaw deputy chairman Allan Leighton told analysts on a conference call today.
Basic net earnings for the third quarter rose 20.4 per cent to $189 million, or 69 cents a share, the company said.
Sales declined 0.2 per cent to $9.47 billion despite the positive impact of a shift in the calendar, which moved Thanksgiving into the quarter this year. The quarter ended Oct. 10.
Same-store sales, considered a key measure of retail performance, fell 0.6 per cent. Thanksgiving added 0.5 per cent to the quarter, while the acquisition of Asian supermarket chain T&T in September, added 0.2 per cent. These were partially offset by the sale late last year of Loblaw's food service business, which would have contributed 0.5 per cent to third quarter sales, the company said.
Gross profit margin rose 80 basis points to 22.9 per cent as the company benefited from improved efficiencies in buying and transportation and a better sales mix.
Internal retail food price inflation fell 3.5 percentage points, more than the Canadian Consumer Price Index for food and significantly more than in the second quarter, which hurt revenue.
But the company also said volume sales fell during the quarter, not just dollar sales. It said it planned to focus this quarter on boosting unit volume.
The company spent $25 million in the quarter on previously announced improvements to its computer systems, which lowered earnings by 6 cents a share.
Sales of food a drugs declined modestly, sales of apparel, mainly it's exclusive Joe Fresh brand, were moderate and sales of gasoline declined significantly on lower gasoline prices.
Sales of general merchandise also fell significantly, as the company continues to exit that business in all but its largest superstores.
"As we progressed through the third quarter, our sales were increasingly impacted by the significant decline in inflation and the ramp-up of our pricing investments. Earnings benefited from cost containment and supply chain efficiencies," Loblaw executive chairman Galen Weston said in a statement. "We expect that sales and margins will be challenged due to decreasing inflation, competitive intensity and our ongoing renovation and infrastructure programs."
Canada's $76 billion a year grocery industry has become increasingly competitive since the entry two years ago by general merchandise giant Wal-Mart Canada Corp. into the fresh food business.
The company plans to invest $1 billion this year in capital improvements, both in improving its food stores and computer systems.