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Loblaw Warns of Difficult Times

Although sales and earnings improved for Loblaw Cos. during the third quarter, this is not yet a trend, warned Allen Leighton, the retailer's president and deputy chairman. We're living in a world which is the most unpredictable it's been for a period of time. We're in uncharted waters, Leighton said in a conference call in which Loblaw predicted difficult times through early next year due

TORONTO — Although sales and earnings improved for Loblaw Cos. during the third quarter, “this is not yet a trend,” warned Allen Leighton, the retailer's president and deputy chairman.

“We're living in a world which is the most unpredictable it's been for a period of time. We're in uncharted waters,” Leighton said in a conference call in which Loblaw predicted “difficult times” through early next year due to global economic pressures impacting the Canadian consumer.

“Already there are signs that consumer confidence is falling off the log, and economic indicators are going in the wrong direction,” he said.

Loblaw said net income in the third quarter, which ended Oct. 4, improved 32.5% to $125.9 million on sales of $7.7 billion (U.S.). Sales improved 3.9%, and comparable-store sales were up 3%, including a negative impact from the shift of the Canadian Thanksgiving holiday to the fourth quarter. The company credited the quarterly performance to progress in efforts to reduce costs and enhance its image with consumers.

The quarterly performance was among the strongest over the last few years for Loblaw, which is attempting a massive turnaround. But officials — and analysts — were especially cautious.

“Loblaw's earnings report certainly contained some rays of light,” Perry Caicco, an analyst at Toronto-based CIBC World Markets, said in a research note. “Same-store sales growth was decent and the [23 basis point] margin improvement vs. last year was better than we expected.”

Caicco, however, reduced his earnings estimates for 2009, citing changes in consumer behavior, greater price competition from Wal-Mart, and an anticipated slowdown in vendor rebates next year due to swings in exchange rates. He also raised questions as to whether Loblaw could be successful in achieving its planned labor savings.