Saskatoon StarPhoenix

Loblaw Q2 earnings top analysts’ estimates

Country’s largest grocery and drug retailer ready for possible price war

- HOLLIE SHAW

TORONTO A move by Loblaw Cos. Ltd. to cut grocery prices in response to sliding food inflation is beginning to pay off, according to Galen Weston.

The country’s largest grocery and drug retailer began making strategic price cuts at its top-tier stores in the second quarter after customers became increasing­ly resistant to paying higher food prices, company president Weston told analysts on Loblaw’s second-quarter conference call Wednesday.

“We had successive years of inflation leading up to high food prices and consumers were starting to feel a ceiling,” in the first quarter of 2016, Weston noted, and shoppers were tightening their belts and shifting into more discount brands and banners, particular­ly in areas of Western Canada hard hit by a downturn in the oil economy.

Loblaw made moves to strategica­lly cut prices on some goods in the second quarter, which ended June 18, and also sent its major suppliers a letter asking them to cut the amount they charge Loblaw for goods.

“We are well down the journey of investing (in price cuts) at this point,” Weston told analysts. “We will invest 100 per cent of the proceeds that come from this supplier (request) back into the customer.”

Loblaw beat analyst estimates for adjusted net earnings in the period, which rose 20 per cent compared with a year ago.

“Price wars are generally not something that we look forward to, but we will certainly be ready if the marketplac­e heats up,” Weston said. “We are in a low inflation environmen­t and we don’t expect that to change.” To be successful in deflationa­ry periods, retailers need to find ways to drive up customer traffic and sales volume, he added “because volume is the only thing that will make sure that your sales stay in positive territory.”

Net income was $158 million or 39 cents per share, down from $185 million or 44 cents per share, largely due to higher interest expenses and financing charges.

Adjusted earnings rose to $412 million or $1.01 per share from $350 million or 84 cents per share in last year’s second quarter. That beat analysts’ mean estimates of 94 cents, according to Thomson Reuters.

Retail analyst Peter Sklar of BMO Capital Markets said one upside of the quarter was Loblaw’s turnaround on the amount of food being shipped to its stores.

“The earnings beat, driven by the reversal of a negative tonnage trend in the grocery business, continued solid sales growth at Shoppers, lower-than-expected expenses and higher-than-expected synergies, demonstrat­es a solid quarter for the company,” Sklar wrote in a note to clients.

 ?? NATHAN DENETTE/THE CANADIAN PRESS ?? Shoppers across the country, but especially in Western Canada, have been tightening their belts making it necessary to cut food costs, says Loblaw president Galen Weston.
NATHAN DENETTE/THE CANADIAN PRESS Shoppers across the country, but especially in Western Canada, have been tightening their belts making it necessary to cut food costs, says Loblaw president Galen Weston.

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