Loblaw shapes ‘the right customer offer’ in stores as Q1 sales rise

Canadian supermarket giant Loblaw saw both food and drug sales climb in the fiscal 2023 first quarter, with discount grocery banners again providing an impetus.

And at the bottom line, the Brampton, Ontario-based retailer posted adjusted earnings per share in line with analysts’ consensus estimate.

For the 12-week quarter quarter ended March 25, overall retail sales came in at $12.74 billion (Canadian), up 5.7% from $12.05 billion a year earlier, when top-line retail results rose 3.2%, Loblaw reported Wednesday.

Food retail sales advanced 3.8% to $9.01 billion in Q1 from $8.68 billion a year ago, which marked a 2.4% gain. Food same-store sales in the 2023 quarter grew 3.1%, building on a 2.1% uptick in the prior-year period. Comparable-store results reflected a negative impact of 1.1% from the timing of New Year's Day and compared with higher-than-normal food-at-home levels a year ago, Loblaw noted. Food retail traffic increased and basket size decreased, although food price inflation for the quarter was 10.5% versus 7.5% in the 2022 quarter.

Value grocery provides catalyst

Sales growth in the No Frills and Maxi discount food banners remained strong, lifted in part by the the no name value grocery and household own brand, while conventional grocery banners edged out their competitors, according to Loblaw.

With Canadian grocery shoppers zeroing in on value amid inflated priced, Loblaw continues to generate strong results at discount banners like Maxi and No Frills. / Photo: Shutterstock

“In our food business, we stayed laser-focused on delivering value to customers, and Canada is now one of the few OECD countries that has seen food inflation moderate in recent months. Once again, we did not pass the full amount of cost inflation to customers, leading to food gross margin declines yet again this quarter,” Loblaw Chairman and President Galen Weston said Wednesday in a conference call with analysts. (Call transcript provided by AlphaSense.)

“Our approach continues to work,” he noted. “Market stores outperformed peers, our Discount division grew share through more traffic and bigger baskets, engagement and PC Optimum loyalty rose substantially, and President’s Choice and no name [private brands] grew at more than twice the pace of the big national brands.”

Pharmacy stays on upswing, online sales growth recovers

Drug retail sales, from the Shoppers Drug Mart subsidiary, jumped 10.7% to $3.72 billion from $3.36 billion in the year-ago span. Sales surged by 9.8% to $1.8 billion in the front end and by 11.6% to $1.92 billion in the pharmacy. Drug retail comp sales increased 7.4% year over year, including gains of 10.3% in the front end and 4.7% in the pharmacy. Prescriptions filled fell 1.9% and average prescription value was up 6% on a comparable basis.

Categories like cosmetics and health and beauty aids spurred the front-end performance in Q1 at Shoppers Drug Mart, and over-the-counter health care product sales “remained strong, but off its peak,” Loblaw Chief Financial Officer Richard Dufresne said in the call. Growth in acute and chronic scripts were partially offset by lower COVID-19 vaccination and testing.

“Overall, we are encouraged by the steady and strong pace of growth in pharmacy services. These services represent an exciting new business for Loblaw, and we continue to expect them to drive long-term growth,” Dufresne explained. “Looking ahead, after lapping pandemic headwinds in pharmacy in Q1, we should see a return to more normal front-store growth rates going forward.”

E-commerce sales dipped 1.1% in the 2023 first quarter, compared with a 9.8% decrease in the 2022 quarter, which cycled prior-year growth of 133%.

“Online sales in the quarter decreased 1.1%, lapping elevated demand last year due to pandemic related restrictions,” noted Dufresne. “We are pleased to see sequential improvement in our online sales penetration over the past three quarters, currently sitting at the highest level since Q1 of last year.”

Loblaw said its pharmacy business remains robust, and the company plans further health care expansion. / Photo: Shutterstock

Store development remains active

On the earnings side, fiscal 2023 first-quarter net income (available to common shareholders) totaled $418 million, or $1.29 per diluted share, compared with $437 million, or $1.30 per diluted share, in the 2022 quarter, Loblaw reported. Adjusted net earnings for common shareholders were $505 million, or $1.55 per diluted share, versus $459 million, or $1.36 per diluted share, a year earlier.

Analysts, on average, had forecast adjusted EPS of $1.55, with projections ranging from $1.53 to $1.56, according to Refinitiv.

Loblaw said it opened 11 food and drug stores and closed nine in the 12 months through the first quarter.

“Our hard discount banners continue to outperform the overall discount channel, delivering strong profit and item-count growth as customers continued to focus on value offerings. In Quebec, our discount position continues to grow. We converted one Provigo store to Maxi at the end of the quarter, two more have opened since, and we will convert an additional eight stores in Q2. We continued to deliver outside sales performance in these Maxi conversions, and we are particularly excited by the traction of our Maxi banner in the Quebec markets,” Dufresne told analysts. “Our Market banners are also performing well and continued to outperform their peer group. Having the right customer offer in all of our stores remains a key focus.”

As of the end of Q1, Loblaw’s retail network encompassed 2,442 stores, including 548 corporate-owned supermarkets under multiple banners, 551 franchised grocery stores and 1,343 Shoppers Drug Mart/Pharmaprix associate-owned drugstores.

Also during the analyst call, Weston—slated to remain Loblaw Cos. chairman after Danish retail executive Per Bank takes over as president and CEO in first-quarter 2024—cited plans to invest more than $2 billion into the Canadian economy this year, including brick-and-mortar development.

“With Q1 behind us, we’re comfortable with our position,” he said. “Looking forward, we will invest more than $2 billion CAD into the economy, creating thousands of jobs, adding discount supermarkets in underserved regions, expanding our T&T supermarket chain and continuing to open pharmacist-led clinics, with plans to add more than 70 new points of primary care for patients in Alberta, Ontario, Nova Scotia, New Brunswick, and PEI [Prince Edward Island].”