Loblaw sees food and drug sales uptick in Q1
Inflation having an impact as shoppers turn to Canadian retailer’s discount banners
![Loblaws-supermarket-storefront_1-1.png Loblaws-supermarket-storefront_1-1.png](https://eu-images.contentstack.com/v3/assets/blt58a1f8f560a1ab0e/blt3fc2743dc26e1b22/66997b958108304a8d5464cd/Loblaws-supermarket-storefront_1-1.png?width=1280&auto=webp&quality=95&format=jpg&disable=upscale)
Loblaw Cos., Canada’s largest grocery retailer, delivered another strong quarter in a retail environment experiencing fewer COVID-19 related restrictions in Canada and continued inflationary pressures driving customers to the retailer’s discount banners.
For the first quarter of 2022, ending March 26, retail sales were $12.04 billion Canadian, an increase of 3.2% over the first quarter of 2021. Food Retail (Loblaw) same-store sales increased by 2.1%, while Drug Retail (Shoppers Drug Mart) same-store sales increased by 5.2%.
Food sales continued to benefit from higher-than-normal eat-at-home levels, and customers responded favorably to data-driven marketing promotions and Loblaw’s PC Optimum loyalty program offers. The company’s Discount division performed very well, led by strong growth in the No Frills hard-discount banner. The Market division performed well relative to the Canadian conventional grocery sector, but was impacted by the shift to discount.
“Loblaw demonstrated consistent operating and financial results, reflecting the strength of its portfolio of businesses and the ability to provide service and value to meet the evolving needs of Canadians,” said Galen G. Weston, chairman and president, Loblaw Cos., in a statement. “We have begun the year with momentum in our core retail businesses, a clear strategic agenda, and continued traction in our growth initiatives.”
On a consolidated basis, revenue grew by 3.3%, adjusted EBITDA increased by 10.3%, and adjusted earnings per share grew by 20.4% to $1.36 a share.
In other Q1 highlights:
• E-commerce sales decreased by 9.8%, lapping growth of 133%.
• Operating income was $738 million Canadian, an increase of $121 million, or 19.6%.
• Adjusted EBITDA was $1.34 billion Canadian, an increase of $125 million, or 10.3%.
• Retail segment adjusted gross profit percentage was 31.1%, an increase of 80 basis points.
• Net earnings available to common shareholders of the Company were $437 million, an increase of $124 million or 39.6%. Diluted net earnings per common share were $1.30, an increase of $0.40, or 44.4%.
• Adjusted net earnings available to common shareholders of the Company were $459 million, an increase of $67 million, or 17.1%.
“The first quarter of 2022 saw continued strong performance across our business, continuing on our momentum from 2021,” noted Richard Dufresne, chief financial officer, on a call with analysts on Wednesday morning. “We delivered solid sales performance, coupled with stability in our gross margin. We continue to focus on market share and our pricing position and carefully manage our expenses, all part of our focus on retail excellence.”
He continued, “We started the quarter in lockdown [in Canada]. Then as restrictions eased, consumer behavior shifted as people began to gather, return to the office and travel again. Inflation accelerated in the quarter, which accelerated the shift to discount in Food Retail. Our mix of assets across Food and Drug Retail, along with our strong e-commerce and loyalty offering, helped us deliver strong results in this evolving environment."
At the end of fiscal 2021, Brampton, Ontario-based Loblaw’s retail network encompassed 2,438 stores, including 545 corporate-owned supermarkets under multiple banners, 551 franchised grocery stores and 1,342 Shoppers Drug Mart/Pharmaprix associate-owned drugstores.
“Although customer buying patterns shifted as restrictions loosened and inflation continued,” Dufresne said, "our market banners remain strong and continue to perform well against our conventional grocery peers." He noted that, in Q3 last year, Loblaw announced its network optimization and said that over the last few weeks, three converted stores have been completed. “We are pleased with their sales performance, which is running ahead of expectations,” said Dufresne. “More conversions are on the way.”
Omnichannel performance remained strong in Q1. Although online sales decreased by 9.8%, lapping last year's 133% growth rate during a period with more stringent lockdown measures, Dufresne noted that Loblaw’s digital businesses delivered $3 billion Canadian in sales over the last 12 months, continuing to run well above pre-COVID levels.
“Our omnichannel network is well-positioned,” he said. "We continue to enhance our customer shopping experience through our digital platform, while offsetting its cost through optimizing operational efficiencies, deploying new technology and refining our delivery offering.”
Looking ahead, in Q2, Loblaw expects eat-at-home trends to continue to taper and inflation to remain elevated in the short term. “However,” Dufresne added, “inflation may moderate in the second half of the year as we begin to lap higher levels from the second half of 2021 and see the impact of actions taken by central banks.
“That said, there are broader macro and geopolitical factors that are outside of our control that impact the inflation landscape. While we continue to experience challenges within our supply chain, our in-stock position has improved and we remain confident in our ability to navigate the situation."