TORONTO — A little more than halfway through a five-year recovery program, Loblaw is racing to the finish.
The retailer here said it would step up the investment — and the pace — of its turnaround with heavy spending behind supply chain and information technology upgrades this calendar year. Allen Leighton, president and deputy chairman, in a conference call last week said 2010 and 2011 would be the most challenging of the five in the renewal program.
According to Leighton, the technology upgrades include expanding new transportation and warehouse management systems nationwide by the end of the calendar year, at a pace of one distribution center per month. In addition, Loblaw said it planned to have SAP finance and merchandising systems operational for category managers in the first half of 2011, earlier than initially planned. The latter program, Leighton said, is “the biggest retail infrastructure program of its type in the world.”
The programs will increase operating expenses by around $177.4 million (U.S.) in 2010, compared with 2009, Leighton said, adding that he expects a similar level of spending in 2011. The company plans capital expenditures of almost $1 billion in 2010, split evenly between store investments and infrastructure.
Leighton said Loblaw was confident the investment would pay off in the long run but was prepared to invest heavily to make it happen.
“You can feel pain two ways in these [infrastructure] programs — slow pain or fast pain,” he said. “Whichever way you do it, it's painful. But I want to get this done in a two-year period.”
Leighton's remarks came while reviewing financial results for the fourth quarter and fiscal year that ended Jan. 2. The retailer posted $158.3 million in net earnings on sales of $7 billion for the 12-week quarter. Net income fell 13.2% and sales were down 5.6% from the 13-week fourth quarter last year. Same-store sales were down 7.8%. When adjusted for the extra week and other one-time items, sales were flat and same-store sales increased 0.7%, Loblaw said, citing volume gains amid internal price deflation.
For the 52-week fiscal year, sales of $29.5 billion decreased 0.2%, and same-store sales fell by 1.1%. Adjusted for the extra week, yearly sales and same-store sales increased by 1.6% and 0.7%, respectively.
Leighton said the year played out as he expected it would, with sales boosted by first-half inflation and stronger volume in the second half of the year when prices fell. He said he remains “a hawk on economic indicators,” saying he was concerned over continued high unemployment and rising household debt across Canada.