National Post (National Edition)
Loblaw raises dividend on sales gains
Boost from work-from-home orders, closed restaurants
Loblaw Cos. Ltd., the largest supermarket and pharmacy chain in Canada, is raising its shareholder dividends after making big gains in sales and online grocery orders during its third quarter.
The company's grocery sales have soared throughout the pandemic, as workfrom-home orders and restrictions on restaurants pushed more people to cook for themselves. Loblaw's food sales this year are up by roughly $2.5 billion, or 9.7 per cent, compared to last year, according to its quarterly report released on Thursday.
In the third quarter, ending Oct. 3, Loblaw's samestore sales growth — a key performance indicator in the retail world — rose 6.9 per cent for its food business.
Anxieties about contracting COVID-19 have also dramatically sped up e-commerce sales growth for the grocers, all of which have ramped up their online ordering and home delivery operations.
Loblaw's e-commerce sales grew by 175 per cent in the third quarter, compared to the same period last year. The company also said it spent $85 million during the quarter “to ensure the safety and security of customers and colleagues” during the pandemic.
“Loblaws delivered better results, in a complex quarter,” executive chairman Galen Weston said on a conference call.
The company's net earnings were $342 million, up 3.3 per cent over last year. Loblaw said it will raise its dividend per share by two cents, or 6.3 per cent. It also spent $350 million during the third quarter to repurchase five million common shares.
RBC analyst Irene Nattel called Loblaw's results “solid and in line with our forecasts,” in a note to investors on Thursday.
But the success has not been without angst. Loblaw is in the midst of a fight with food manufacturers after the grocer increased the fees it charges suppliers in an attempt to help cover the costs of its $6-billion upgrade to e-commerce and store infrastructure.
The strategy followed Walmart Canada, which shocked and angered the manufacturing sector this summer by charging suppliers new fees to pay for its $3.5-billion modernization plan. At the time, Food, Health and Consumer Products of Canada (FHCP), the main trade association for suppliers, said Walmart had set a dangerous new precedent in the industry. It has since ramped up pressure on provincial and federal governments to impose an industry code of conduct.
“It continues to be absurd that they would be taxing manufacturers to support their capital investments while they're making such phenomenal profits,” FHCP chief executive Michael Graydon said on Thursday.
Loblaw, however, has said the new fees are necessary, in part, to help keep food prices low because suppliers keep pushing to raise what they charge grocers.
“It's never been more expensive to sell groceries,” Loblaw spokesperson Catherine Thomas said in October. “We are making massive investments, $6-billion worth, to improve how we do it. But we're also facing significant new costs, including unprecedented cost-increase demands from our suppliers.”
In a major development late last month, Sobeys' parent Empire Co. Ltd. publicly criticized its competitors over the new fees and endorsed the campaign for a code of conduct.
“Taken to the extreme, some of these behaviours are just plain bad for Canada,” Empire CEO Michael Medline said. “It's time that we got together as an industry and had a set of very simple, value-driven ground rules so that we don't get in this mess and that we have a very healthy food supply chain.”
Loblaw also drew criticism for cutting the $2-per-hour pandemic pay bonuses for its front-line staff on the same day as its two main competitors, Empire and Metro Inc., during a lull in COVID-19 infections in June.
Empire was also criticized for raising its shareholder dividend shortly after cutting employees' bonus pay. As COVID-19 cases surge, Loblaw could be courting the same controversy with its dividend increase.
Thomas, at Loblaw, noted the company has consistently raised dividends annually over the past nine years.
“Increases were paused earlier in the year due to very large investments in colleague and customer safety. The dividend increase occurred in spite of continued major investments in safety and security,” she said. “After making the conscious decision to delay any dividend increase through the early part of the pandemic, Loblaw is now returning to its normal business practice.”