Strong food sales boost Loblaw, Metro earnings
Drug reform will likely have malign effect on companies’ bottom lines
Metro Inc. and rival Loblaw Cos. Ltd. beat industry analysts’ projections for quarterly earnings Wednesday as the large grocery retailers benefited from stronger food sales, though the latter warned drug regulatory changes will weigh on its pharmacy business for the remainder of the year.
Net earnings at Loblaw, the owner of banners such as Shoppers Drug Mart and No Frills, climbed to $166 million, in the third quarter ended Oct. 10, or 40 cents a share, compared with $142 million (34 cents) in the same period a year ago.
Revenue was $13.95 billion, up from $13.6 billion a year ago, topping analyst expectations of $13.87 billion, according to mean estimates from Thomson Reuters. Adjusted earnings were $408 million, or 99 cents a share compared with analyst mean predictions of 97 cents. That rose from $371 million, or 90 cents per share, a year ago.
Loblaw’s sales at stores open for more than a year, known as samestore sales, grew 3.1 per cent in its food business, excluding gasoline sales and an impact from a change in tobacco distribution. Same-store sales growth in pharmacy were up 4.9 per cent, with drug sales up 3.5 per cent and front-of-store sales up 6.2 per cent.
Executive chairman Galen Weston told shareholders that sales and profits at Shoppers Drug Mart were driven by growth in all non-drug categories, including the introduction this year of President’s Choice food to the pharmacy chain. But ongoing provincial drug reform aimed at lowering costs to consumers and an increase in the penetration of generic prescription drugs are anticipated to make an impact in the current quarter.
“We are very focused on mitigating the impact of incremental drug reform,” Weston told shareholders on a conference call. “We budget visible drug reform and then we go about ways to offset it. It’s the unbudgeted drug reform that comes unexpectedly, in addition to what we are expecting, that is harder for us to address in the moment that it lands. That is a meaningful part of what is happening in (the fourth quarter).”
Since Loblaw’s $12.4-billion purchase of Shoppers Drug Mart last year, the company has been introducing private label goods into each other’s stores and refurbishing some locations while closing other unproductive ones.
Loblaw said Wednesday that the 52 store closures it announced in July will be completed by the end of the second quarter of 2016, resulting in restructuring costs of about $140 million. The quarter included a charge of $86 million related to the closures.
At Metro, net earnings per share rose 18 per cent to 52 cents in its fourth quarter, up from 44 cents per share in the same period a year ago. Analysts were anticipating profit of 51 cents a share, according to Thomson Reuters.
Sales in the period ended Sept. 26 grew to $2.83 billion, up 4.5 per cent from $2.71 billion in the same quarter last year. Same-store sales climbed 3.4 per cent.
Metro said retail inflation was 2.8 per cent in the fourth quarter and gross margin was 20 per cent as the retailer sold more fresh food products.
“Metro appears to be able to continue to pass through the cost of grocery inflation,” Peter Sklar, analyst at BMO Capital Markets, said in a research note, calling a year over year improvement in gross margin “an ongoing positive development.”
For the full year, Metro earned $519.3 million, or $2.01 per share, on $12.2 billion in sales, compared with profit of $456.2 million ($1.69) and sales of $11.6 billion in 2014.