Loblaw: First-quarter sales comps ‘do not tell entire story’

Loblaw Cos. recorded virtually flat food retail sales in its fiscal 2021 first quarter, which cycled last year’s sales surge from the COVID-19 pandemic, while earnings topped analysts’ high-end estimate.

Total retail sales in the 12-week quarter ended March 27 edged up 0.7% to $11.67 billion (Canadian) from $11.58 billion a year earlier, Loblaw said yesterday. The Brampton, Ontario-based retailer had posted a 10.8% retail sales gain in the 2020 first quarter.

First-quarter food retail sales for 2021 came in at $8.48 billion, up 1.8% from $8.33 billion in the 2020 quarter, which saw a 10.9% gain. Same-store sales for food inched up 0.1% year over year.

“The first quarter generated strong financial results that reflected continued improvement in our business. As we report on our second year of the pandemic, comparable numbers do not tell the entire story. As such, I will include commentary in two-year average growth rates as applicable to provide further context in our operating performance,” Chief Financial Officer Darren Myers told analysts in a conference call on Wednesday.

“Food retail same store-sales were relatively flat, up 0.1% in the quarter. Same-store sales continued its strong momentum from the fourth quarter before lapping the COVID-related pantry stocking from 2020, which drove same-store sales last year of 9.6%, including 44% in the final two weeks of the quarter,” he explained. “Our average article price was 3.9% for the quarter and unchanged from Q4. The increase in average article price compared to last year was driven by sales mix, and we continue to see outsized basket growth and traffic declines in the quarter. On a two-year rate, food same-store sales reflected average growth of 4.9%.”

Related:W. Galen Weston, former head of Loblaw’s parent company, dies at 80

A decrease in front-end sales pulled down overall same-store sales for Shoppers Drug Mart in the first quarter.

In the drug retail segment, constituting the Shoppers Drug Mart chain, first-quarter sales fell 1.9% to $3.19 billion from $3.25 billion a year ago, when Loblaw reported a 10.7% increase. Comparable sales were down 1.7% ( 10.6% a year ago), reflecting a decrease of 6.4% in the front end ( 10.7% a year ago) and an increase of 3.5% in the pharmacy ( 10.6% a year ago). Prescription count dipped 0.5% ( 5.5% a year ago), while the average prescription value rose 2.4% ( 4.8% a year ago).

“Front-store same sales continue to be impacted by sales mix. Front-store sales lapped strong sales of 10.7% last year, including 42% growth in the final two weeks of the quarter,” Myers said of the drug retail results. “Pharmacy performance was strong. However, against last year’s COVID-related surge, we recorded a prescription count decline of 0.8% and an average prescription value increase of 2.4%. On a two-year average rate, drug same-store sales have grown 4.5%, with front-store plus 2.2% and Rx at 7.1%.”

Related:Loblaw realigns leadership with plan to sell Weston Foods

The 2021 first quarter also lapsed an extra week of elevated sales from the previous year, negative impacting same-store sales by about 100 basis points in food and 170 basis points in drug, he noted.

Loblaw President Sarah Davis noted the continuation of “strong eat-at-home trends” for food retail in the quarter.

“Q1 delivered market share gains with continued strength in market and sequential share improvements in discount,” she said. “Our grocery stores gained tonnage and dollar share, while our inflation remained flat to Q4. As was the case through 2020, we have managed margins carefully to keep prices in check for Canadians in ways that set us apart from the market.”

Drug retail remains negatively impacted by lockdowns, Davis added. “Ultimately, we are pleased with the position and performance of our drug business. As I called out in Q4, we’re seeing strong results in convenience and food,” she said. “Our beauty sales are down, but our share is up. And our pharmacy business continues to grow as we play a bigger part in community care. I want to highlight the great work of our pharmacists, who have been key to the testing and vaccination efforts in most provinces.”

E-commerce sales jumped 133% in the 2021 first quarter versus a year ago, Loblaw reported.

“As the business grew exponentially, we delivered our highest fulfill rate, lowest wait time and the best satisfaction scores of all time. Across the business, we’re appealing more and more to those who transact online for the things that matter in life, in food and drug, rapidly growing programs like the PC Money Account and the PC Health app, and loyalty, where we're primed to give Canadians more than $1 billion in PC Optimum Rewards again this yearm” Davis said. “We have all the pieces assembled, an unmatched store network, unmatched loyalty, culture and satisfaction scores that have improved even as we face the challenges of last year, and clear line of sight to process, efficiency and data programs that will continue to make our company run better.”

E-commerce sales swelled by 133% as Loblaw customers continued to embrace online grocery delivery.

At the bottom line, Loblaw totaled first-quarter 2021 net income available to common shareholders of $313 million, or 90 cents per diluted share, compared with $240 million, or 66 cents per share, a year ago. Adjusted net earnings (common shareholders) were $392 million, or $1.13 per diluted share, versus $349 million, or 97 cents per diluted share, in the 2020 quarter.

Analysts, on average, had forecast adjusted earnings per share of 87 cents, with estimates ranging from 77 cents to 92 cents, according to Refinitiv.

Looking ahead, Loblaw Executive Chairman Galen Weston said Canada is entering “what we hope will be the homestretch of the pandemic.”

Executive Chairman Galen Weston is slated to take the reins as Loblaw chairman and president with the retirement of Sarah Davis.

“While we don't know what COVID-19 will hold in the near term, we are far enough into 2021 to know it will be a better year. I think that’s true for society and for our business,” Weston told analysts. “Here’s what we know today. We’re now on our fourth quarter of sequential performance improvements. Our determination to lower prices to serve Canadians and our company well and trust in our brands has never been higher. As we look to deliver fantastic supermarket choices and industry-leading, pharmacy-based community care through the nation’s best retail and e-commerce networks, our job is to build on this strong foundation.”

Over the past 12 months, Loblaw has opened 20 food and drug stores and closed nine locations, resulting in a net gain in total retail square footage of 0.4%. As of the end of the first quarter, the company’s retail network encompassed 2,443 stores, including 552 corporate-owned supermarkets under multiple banners, 546 franchised grocery stores and 1,345 Shoppers Drug Mart/Pharmaprix associate-owned drugstores.

Under a leadership realignment announced in late March, Davis is slated to retire on May 6 — the date of Loblaw’s annual meeting — and be succeeded by Weston, who will become Loblaw’s chairman and president. Weston also will retain his current role as chairman and CEO of parent company George Weston Ltd. (GWL). Myers also is slated to leave the company after the annual meeting and be succeeded as Loblaw CFO by Richard Dufresne, president and CFO of GWL. Robert Sawyer, a GWL board member, will take the reins as Loblaw’s chief operating officer.