BRAMPTON, Ontario — Loblaw Cos. officials last week insisted they were making progress but analysts reviewing lackluster quarterly financial results questioned whether they could produce some proof.
The retailer, still in the midst of reconstructing its supply chain and information technology systems, said net income for the first quarter declined 22.2% as a result of soft sales, higher costs and a $10 million investment in lower prices. Earnings of $128 million (U.S.) or 45 Canadian cents per share, came in below analyst estimates of 50 cents. Sales of $7 billion (U.S.) were up by 0.9% but same-store sales decreased by 0.7%.
Galen Weston, Loblaw’s executive chairman, and Vincente Trius, its chief executive officer, emphasized that Loblaw was gaining momentum in terms of store conditions and in customer survey responses. They reiterated a previous outlook for declining earnings in 2012, saying pressure would lift in the second half of the year.
“In the first quarter we executed our plan,” Weston said in a statement. “Despite a decline in year-over-year earnings, store conditions are improved, and we made steady progress on our IT implementation and we took a disciplined approach to improving our customer proposition.”
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Their remarks, however, prompted several different analysts to ask if the company could provide data indicating their optimism was grounded — and how they know the investments they’re making will adequately spark the turnaround. Trius answered by saying Loblaw was making progress in “Net Promoter” customer loyalty metrics and emphasized that price investments — the company expects to invest $40 million in price this year — would have a gradual impact.
“I don’t believe in a journey you see a reaction overnight,” Trius said. “If it were that easy then it would be easy to just pass that investment and get a reaction really quickly. But I do believe we are doing the right thing. It is important that the customers are telling us that, and they’re telling that through a pretty top measurement.”
Loblaw said food and drug sales during the quarter were flat, while gas revenues grew as a result of price increases. Food inflation was “modest,” the company said, but less than national food inflation figures of 3.7% in the quarter.
Loblaw said customer counts were up, while average ticket was down. Weston attributed this to a more consistent price offering and less inflation passed along to shoppers.
“It is how you position the pricing in my mind,” Weston said. “It is less weighted on promotions and more weighted on the everyday overall offer.”
Combining the more consistent prices with better execution in stores is key to converting shopper loyalties, he added.
