Loblaw sees food retail sales growth soften in third quarter

Loblaw Cos. posted strong retail sales gains in its fiscal 2020 third quarter but saw sequential growth spurred by the COVID-19 crisis tail off in its food segment.

For the 16-week quarter ended Oct. 3, overall retail sales rose 7.2% to $15.46 billion (Canadian) from $14.42 billion a year ago, Loblaw said yesterday. The Brampton, Ontario-based food and drug retailer said retail sales advanced 6.7% excluding the impact of franchise consolidation.

Food retail sales totaled $11.22 billion, up 7.6% from $10.42 billion a year earlier. Same-store sales gained 6.9% year over year. Loblaw said its supermarkets’ food and pharmacy sales turned in strong growth, with food lifted by heightened consumer demand from the coronavirus pandemic as well as a 5.3% higher average article price. The company noted that food retail basket size increased while traffic declined during the quarter.

Third-quarter retail sales for the drug retail segment, Loblaw’s Shoppers Drug Mart chain, climbed 6.3% to $4.25 billion from just under $4 billion in the prior-year period. Same-store sales increased 6.1%, reflecting gains of 2.4% in the front end and 10.3% in the pharmacy, which Loblaw attributed to a positive impact from COVID-19. Prescriptions filled rose 5% overall and on a comparable-pharmacy basis, with the average prescription value up 4.9% year-to-year.

Related:Loblaw teams up with local restaurants for meal kit delivery

In the second quarter, Loblaw had reported overall retail sales growth of 7.9%, with increases of 11.3% in food ( 10% in same-store sales) and a 0.9% decrease in drug (-1.1% in same-store sales).

Loblaw said its investments in online grocery pickup and delivery service are driving ongoing robust digital sales growth.

“The third quarter represented an improvement in our results in what continues to be a challenging and dynamic time. The pandemic continues to influence consumer behavior, impacting sales mix and elevating associated costs,” Chief Financial Officer Darren Myers told analysts in a conference call yesterday.

“Food sales growth included changes within the category mix and the benefit from strong demand for essential food categories,” he explained. “Demand across our formats remained strong, with 9.7% growth in our Market division and 4.7% in our Discount division.”

He added, “For the quarter, our food retail basket size remained elevated, while traffic continued to be negative. We did see traffic starting to improve and the basket not quite as high; however, we remain well outside pre-COVID rates.”

E-commerce sales jumped 175% across the grocery, pharmacy and apparel platforms in the third quarter, continuing the momentum from a 280% surge in the second quarter. The company said the gain shows that its online investments are bearing fruit, including in everyday digital, connected health care, payments and rewards, and store pickup and home delivery. Digital retail was expanded in the third quarter to include front-store items from Shoppers Drug Mart and Pharmaprix pharmacies.

Related:Food retail boosts Loblaw Cos. in second quarter

“During the quarter, we made good progress on our strategy, and our new customer behaviors confirmed that we are on the right path. More specifically, as the early pandemic panic settled, customers told us what really matters to them now,” Loblaw Cos. President Sarah Ruth Davis said in the call. “They care about convenience, health and brands they can trust. These customer priorities align beautifully with our strategy. 

“Our ‘Everyday Digital Retail’ strategy continues to deliver convenience. We have an unmatched network and a first-mover advantage,” she said. “In Q3, we expanded our digital offering with Shoppers front-store offer, adding to the strong existing beauty offer, which was up nearly 200% in the quarter. We also created some great e-commerce excitement. Our Shoppers beauty team held a hashtag challenge on TikTok that drew over 800 million views. And our Joe Fresh team had overwhelming success with our exclusive Jilly Jacket based on a social media influencer program.”

On the earnings side, third-quarter net income (common shareholders) totaled $342 million, or 96 cents per diluted share, compared with $331 million, or 90 cents per diluted share, a year earlier. Including amortization of intangible assets acquired with Shoppers Drug Mart and restructuring and related costs, adjusted net earnings for the 2020 quarter were $464 million, or $1.30 per diluted share, versus $458 million, or $1.25 per diluted share, in the 2019 quarter.

Analysts, on average, had forecast adjusted earnings per share of $1.26, with estimates ranging from a low of $1.20 to a high of $1.31, according to Refinitiv/Thomson Reuters.

In the 12 months through the end of the third quarter, Loblaw opened 16 food and drug stores and closed six food and drug stores, ending the period with 2,438 stores overall, including 551 corporate-owned and 540 franchised grocery stores and 1,347 Shoppers Drug Mart/Pharmaprix associate-owned drugstores.