TORONTO — Lower prices helped Loblaw Cos. here boost sales during its fiscal first quarter, but accompanying lower margins — along with restructuring costs related to employee severance and other cost-cutting measures — led to a net earnings decline of 61.4% for the quarter, which ended March 24, the company here said.
Sales of $5.8 billion (U.S.) increased 3.3% for the 12-week quarter, with same-store sales increasing by 4%. Net earnings totaled $48.8 million.
“The quarter was roughly where we expected it to be,” Galen Weston, Loblaw's chairman, said in a conference call last week. “Sales were pretty good but keeping in mind off a low base from 2006. Food sales continue to grow at a satisfactory rate while general merchandise sales are not as strong. However, they are nicely on our plan.”
Loblaw announced a three-year restructuring plan two months ago including 800-1,000 layoffs. Those costs accounted for charges of 21 cents per share during the quarter.
Loblaw this month will begin to centralize its merchandising operations, an element of the strategic plan Weston described as “the most difficult work” of the restructuring. That work, which will give merchandising functions previously employed at the store or regional level over to a new centralized team, will continue through the end of October.
“It's all hands on deck just to make sure we get through the risks,” Mark Foote, president and chief merchandising officer, told analysts in a conference call. “We have to make sure we're watching the business every day so that we haven't let our stores or our customers down.”
Foote said Loblaw has overcome most of the issues it encountered over the last two years related to its supply chain initiative, with service levels reaching nearly 93% as the quarter ended. Supply chain issues leading to poor in-stock performances in the first quarter last year led to a 2.5% comparable-store sales decline.
While Loblaw's price investments have been mainly in Ontario and seen as a defense against increasing competition from Wal-Mart, Weston said it had extended the practice to Quebec in the quarter and that it would launch in Atlantic and Western provinces as well. He said studies indicated Loblaw could improve its price image and use pricing more consistently throughout the organization. Loblaw intends to manage the mix to protect profits as it makes investments, Weston added.
“We have multiple businesses with multiple pricing strategies across the country,” Weston said. “We felt that there was an opportunity to improve prices and an opportunity to manage the mix so that the margin impact could be offset somewhat. We've been systematically taking pieces of business across the country and deploying a new pricing system against those parts of the business and I think we've been gaining some traction from it.”