TORONTO - For the second year in a row, Loblaw Cos. delivered bad news to shareholders at the company's annual meeting here this month.
Like last year, first-quarter results were down, and again most of the blame was attributed to increased competition from nontraditional and non-unionized food retailers such as Wal-Mart. The company also blamed its efforts to revamp its distribution for general merchandise.
To prepare for growing competition, Loblaw is adding more general merchandise, lowering prices and rolling out more discount superstores. Canada's largest grocer is also in talks with its unions to gain more wage concessions in an effort to level the playing field.
"We are changing the company from what it was to what it can be and what it must be," John Lederer, president, told shareholders.
But the changes have come with a price, as both profit and share price have been off for more than a year and the company doesn't expect any improvement before the second half of fiscal 2006. Expected cost savings have been pushed back a year to 2007.
Questioned by a shareholder whether bigger is better with its superstore format, Lederer said Loblaw is trying to appeal to all segments of the market.
In the first quarter, profit declined 1.5% to $126 million. While sales increased 1.5% to $5.5 billion, same-store sales fell 2.5%.
"We believe that core same-store food volume is experiencing a serious decline that needs to be remedied before we can have confidence in sustained earnings growth," CIBC World Markets analyst Perry Caicco stated in a report.
"The opportunity in general merchandise is significant, but for the next three years, the success of that business will depend on food traffic stability and merchandising integration. Hence, the next big challenge for Loblaw is, ironically, food," he added.
"It will take at least another several quarters, possibly a year, before the company realizes any meaningful productivity improvements," noted analyst Jim Durran at National Bank Financial.