National Post (National Edition)
Food inflation not taking bite out of Loblaw
Sales jump and so do its shares
TORON TO • Consumers are accepting Canadian food price inflation from Ltd. without any overt complaints — even in the notoriously competitive centre-store aisles, which stock packaged goods such as granola bars and tomato sauce.
Food sales at Canada’s biggest grocery chain were strong in the first quarter ended March 22, a factor driven primarily by inflation. Shoppers Drug Mart’s sales were strong on a 4.8 per cent increase in the number of prescriptions dispensed.
Loblaw executives said the retailer’s average quarterly internal food price index was higher than the national quarterly consumer price index average of 4.6 per cent.
“We were expecting to see this, really, as a result of the depreciation in the Canadian dollar, product coming through the U.S., pressure from the big multinationals to try and put cost increases through,” executive chairman Galen Weston told analysts on a conference call Wednesday. “In itself, it is not a bad thing: The inflation levels in grocery are certainly not anywhere near the levels that we have seen in fresh (food) over the last 12 months. But it is moving, and there is pressure, and remember, these are the categories that tend to be the most price sensitive.”
Canadian beef prices were up 18 per cent in March year over year, according to Statistics Canada, and pork prices were up more than 11 per cent.
“We have talked before about people trading down specific proteins — trading down from meat to pork or chicken — that’s been going on for the last year and a half. It’s not accelerating at this stage,” Weston said, adding Loblaw execs were watching the trend “very carefully,” and closely monitoring consumer shopping habits for any changes. “Our strategies appear to be working. We are not feeling that we need to substantially ramp up our promotional intensity.”
In the meantime, the grocery and pharmacy giant reported a 22 per cent jump in net income for the period compared with the same quarter a year ago, to $146 million from $120 million. Adjusted net earnings rose 96.7 per cent to $301 million, or 73 cents per share, from $153 million (54 cents), beating analyst estimates of 68 cents per share.
Revenue was $10.05 billion, up 38 per cent to $2.76 billion. Total retail same-store sales growth was 2.3 per cent: samestore sales growth at Loblaw was four per cent, excluding gas bar sales, and up two per cent, accounting for gas sales and the negative impact of a change in the tobacco distribution model.
At Shoppers Drug Mart, same-store sales rose by three per cent, with pharmacy sales up 3.5 per cent and front-ofstore sales up 2.7 per cent.
Loblaw, which aims to yield annual cost synergies of $300 million by three years after the Shoppers purchase, achieved $44 million of synergies during the quarter.
“The process of integrating Shoppers Drug Mart appears to have progressed well during the first year of ownership,” analyst Keith Howlett, who rates the shares a buy with a target price of $72. They closed Wednesday at $63.71, up $2 or 3.2 per cent.