Loblaw moves to counteract retail headwinds

Loblaw Companies Ltd. reported a dip in sales for its 2018 first quarter, while net earnings were in line with analysts’ forecast.

The Canadian supermarket operator also said Wednesday that it plans to up the competitive ante with a rapid expansion of online grocery pickup and delivery.

For the quarter ended March 24, Loblaw totaled revenue of about $10.37 billion (Canadian), down 0.4% from $10.4 billion a year earlier.

Retail sales came in at nearly $10.11 billion, a decline of 0.6% from almost $10.17 billion in the prior-year period.

Excluding the disposition of fuel operations, retail sales were up 2.9%, according to Loblaw. The company also said that, not counting the consolidation of stores under a new franchise agreement, retail segment sales fell 1.2%. The timing of New Year’s Day and Easter also had slight unfavorable impact on retail sales.

Food retail sales in the first quarter decreased 2.3% to $7.22 billion from $7.39 billion a year ago, while same-store sales edged up 1.9%. Drug retail sales through the Shoppers Drug Mart chain rose 4% to $2.88 billion from $2.77 billion. Same-store sales growth of 3.7% for drug retail reflected gains of 3.8% in the front end and 3.5% in the pharmacy.

Operating income for the retail segment fell 10.5% to $399 million from $446 million for the quarter.

Loblaw said that in the 12 months through March 24, it opened 25 food and drug stores and closed 26 locations, resulting in a 0.1% net increase in retail square footage. The company ended the period with 2,419 stores, including 551 corporate-owned stores, 533 franchise stores and 1,335 Shoppers Drug Mart stores.

"In the face of external headwinds, we delivered solid results, increased dividends, continued share buybacks and invested in our digital future," Loblaw Chairman and Chief Executive Officer Galen Weston said in a statement. "As the retail landscape changes, we are now rapidly scaling our e-commerce pickup and home delivery services to blanket Canada this year."

Loblaw said the national rollout of its online grocery business includes more than tripling the number of sites for its PC Express click-and-collect service and greater market coverage for complementary home delivery.

Plans call for 500 new PC Express pickup locations — raising the total to 700 — in grocery stores, GO Train commuter stations and Shoppers Drug Mart stores. This year, home delivery is slated to be launched in five more markets (including Montreal, Halifax and Regina), adding to the 11 markets (including Toronto, Vancouver and Calgary) that currently offer the service through Instacart.

Nearly half of Canadians now have access to PC Express pickup or home delivery, and by end of 2018 both options will be available coast to coast for 70% of Canadians, Loblaw said. The company noted that it’s targeting 90%-plus online grocery pickup and delivery coverage for urban customers.

On the earnings side in the first quarter, Loblaw posted net income available to common shareholders of $377 million, or 98 cents per diluted share, compared with $232 million, or 58 cents per diluted share, a year earlier. Adjusted net earnings available to common shareholders were $361 million, or 94 cents per diluted share, versus $366 million, or 91 cents per diluted share, in the year-ago period.

Analysts, on average, had projected first-quarter adjusted EPS at 94 cents, according to Zacks Investment Research.

Loblaw said adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $876 million for the quarter, up 0.9% from $868 million a year ago.