Loblaw Expands Joe Fresh in U.S.

BRAMPTON, Ontario — Loblaw Cos., long focused on feeding Canada, now wants to dress the United States.

The retailer last week said that its proprietary clothing line, Joe Fresh, would expand throughout the U.S. as part of specialty departments at 700 JCPenney stores and at JCPenney’s website. The first departments, which will be 1,000 to 1,500 square feet, will focus on women’s fashion and are expected to open early next year.

Joe Fresh is a line of stylish, inexpensive clothing by designer Joe Mirman introduced in at Loblaw’s Real Canadian Superstores in 2006 and today is Canada’s largest clothing brand by dollar sales and units, Loblaw said. The company expanded the concept to the U.S. in specialty stores that opened in New York last year. Vincente Trius, Loblaw’s president, said the JCPenney agreement would not preclude opening additional specialty stores.

Trius described the business arrangement with JCPenney as a wholesale agreement requiring little up-front capital and limited financial risk. Loblaw would continue to control the brand. And although JCPenney has struggled recently amid a radical transformation under Ron Johnson, its chief executive officer, Trius said, “We believe in the vision from Ron Johnson to create a specialty department store and we feel very good that Joe Fresh will fit very, very well.”

The announcement came as Loblaw reviewed second-quarter financials marked by a 15.9% decline in net profits driven by price investments and increased costs.

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Comparable-store sales improved by 0.2% and overall revenues improved by 1.1% to $7.2 billion (U.S.) for the 12-week quarter that ended June 16. EBITDA margin slid to 6.4% of sales from 6.9% as a result of around $15 million in price investments and higher labor costs, and ongoing IT expenses, officials said. Net earnings totaled $156 million (U.S.).

“While I’m not happy that earnings are down, we are on plan, we are staying on strategy, and we’re consistently executing,” Trius said. He characterized the market as rational, but “competitively intense” as square footage increased while consumer confidence and inflation decreased.

Trius said the company was experiencing positive results as a result of comprehensive resets in five categories, saying sales and margins improved as a result of lower shelf pricing and emphasis on mix. However, he stressed it was still early in the process, noting the company had 50 or 60 categories still to address. He estimated it would take two to three years to complete.