Loblaw Cos. said consumers continued to gravitate toward its discount banners and to sharp pricing on private label in the fourth quarter, which helped drive a 9.7% increase in retail sales.
The company also said it was accelerating its investment in new-store openings, and increasing its capital expenditures to about $2 billion (Canadian), or about $1.5 billion U.S. The increase comes after the company recently had the most successful opening in its history — a T&T Supermarket in Quebec that set records for new-store sales, company executives said in a conference call with analysts.
The 70,000-square-foot store was built at the location of a former Loblaw supermarket that had been closed for about 10 years, said Galen Weston, executive chairman, president and CEO at Loblaw.
“That store is blowing the doors off,” he said, adding that there are “a number of other [new-store opportunities] we are intentionally pursuing.”
Weston said the company has lagged behind competitors in new-store development and is eying a return to annual square-foot growth of about 1%. A portion of the funding for its expanded cap-ex program will come from the sales of some assets, which are expected to generate about U.S.$370 million this year.
“One of the learnings of last 12 months has been opportunity for new growth,” Weston said.
Loblaw noted that although sales were strong in both its grocery and drugstore divisions, gross margins in grocery were impacted by ongoing inflation and its commitment to keep shelf prices as low as possible. The adjusted gross profit percentage in the retail segment overall was 30.6% in the fourth quarter, down 30 basis points from a year ago.
Retail segment sales in the 12-week fourth quarter, which ended Dec. 31, totaled about $10.1 billion U.S. For the full year, retail sales were up about 6.2%, to about $41 billion U.S., and total revenues were up 6.3%, to about $41.7 billion U.S.
Same-store sales for the full year were up 4.7% in food retail and 6.9% in drug retail. Drug retail sales growth was driven by strong demand for cough-and-cold products and high-margin beauty and cosmetics categories, the company said.
Ecommerce sales for the full year totaled about $2.2 billion U.S., a decrease of 3.8% from a year ago, when the company said it saw elevated online sales due to lockdowns.
Net earnings available to common shareholders for the full year were about $1.4 billion U.S., an increase of 2.5% over year-ago levels.
The company said it anticipates ongoing high levels of inflation in grocery throughout the first half of 2023, but has little visibility beyond that time.
“Costs from our suppliers continue to increase faster than our prices,” said Weston, who noted that the company has “more than 1,000” additional requests for price increases from suppliers pending.
Among other news from the conference call:
- The company plans to continue to guarantee that prices on its “no name” private label brand will beat name brand equivalents by at least 25%.
- Promotional activity in Canadian supermarkets has increased since the pandemic, but has not returned to higher pre-pandemic levels.
- Loblaw has seen strong sales growth in sales of prepared meals, as customers apparently view the offerings as an affordable alternative to dining out.
- Consumers are trading down to less expensive proteins, such as choosing chicken or pork instead of beef, for example.
- The company’s new retail media platform, which allows advertisers to build their own campaigns, is proving a small amount of incremental sales, and is profitable. The company is also exploring other opportunities to generate retail media sales.
