Loblaw profit drops after merger
Earnings take hit due to costs associated with PC Optimum and bread price-fixing scandal
Loblaw Companies Ltd. recorded a charge of $107 million in the last quarter of 2017 in relation to the $25 card offered to customers affected by the company’s bread price-fixing activities, but declined to discuss the issue with financial analysts on an earnings call Thursday.
The company expects that the $107-million charge for the quarter will be an offset against future civil liability.
Loblaw announced in December that it would file a $75- to $150-million charge for the quarter related to the card program.
Analysts were advised at the beginning of the earnings call that Loblaw executives would not comment on the bread price-fixing matter.
Loblaw and George Weston Ltd. are the only two companies that have admitted involvement in what company officials have described as an industry wide pricefixing arrangement.
The arrangement took place between late 2001 and March 2015, affecting popular bread products in Canada.
They received immunity from criminal prosecution after reporting the activity to
“We are adding new stores in very specific opportunistic markets where there is potential.” GALEN WESTON LOBLAW CHAIRMAN AND CEO
the Competition Bureau.
Loblaw Cos., which includes Shoppers Drug Mart, said fourth-quarter profit was down over a year ago, due to costs associated with the merger of the Shoppers Optimum loyalty rewards program and the PC Plus reward programs.
Profit available to common shareholders totalled $19 million or five cents per share for the quarter, compared with a profit of $201 million, or 50 cents per share, in the final quarter of 2016.
Loblaw chairman and chief executive officer Galen G. Weston said on the call that combining the Shoppers Optimum and PC Plus rewards programs will allow the company to offer better-targeted promotions to customers, which will reduce unprofitable promotions based solely on cutting prices to beat competitors.
“We are focusing right now on making sure that we migrate our customers into the combined program as quickly, as effectively and as seamlessly as possible.”
“But we do expect it to have a positive influence on our top line sales and a positive influence . . . in terms of how we deliver promotions to our customers.”
Six million members have already converted to the new program.
On an adjusted basis, Loblaw says its earnings available to common shareholders totalled $441million or $1.13 per share, up from $393 million or 97 cents per share in the fourth quarter of 2016.
Analysts had expected an adjusted profit of $1.11 per share, according to Thomson Reuters.
Revenue for the 12-week period fell to $11.03 billion compared with $11.13 billion a year earlier due to the sale of the company’s gas bar operations.
Food retail same-store sales were up 0.5 per cent, excluding gas bar operations, while drug retail samestore sales increased 3.6 per cent, driven in part by a strong performance in health and beauty products. Also, the value of the number of prescriptions filled continued to outpace the decline in price of prescriptions in 2017.
As it races to compete with Amazon, which is ramping up grocery sales online, the biggest source of sales growth for the company’s retail network won’t be coming from new square footage, it will be coming from investment in technology and services, analysts were told.
“We are adding new stores in very specific opportunistic markets where there is potential for high incremental sales,” Weston said.
He added that the bulk of the company’s retail capital will be invested in technology to improve efficiency and improve services for customers.
“So don’t expect meaningful square footage growth.”
The retailer is continuing to invest in its popular click-and-collect program.
As of the end of the fourth quarter of 2017, about 300 stores offered click-and-collect, which is now being rolled out at a rate of one new store a day, Weston said.
“We believe very strongly that digital grocery shopping is going to be an essential part of the future competitive landscape,” Weston said.
It will also continue to invest in scan-and-go technology in store and self-scan technology, now deployed in more than 80 Shoppers Drug Mart stores.
While the company continues to face significant headwinds, including increasing labour costs and health care reforms that are driving down the price of prescription medications, the company also said that its strong cash and liquidity position will allow it to continue to make share buybacks.