Loblaw’s profit jumps by 12%
Income hike comes amid consumer ire over higher grocery bills
Loblaw Companies Ltd. predicts its profits will grow faster than its sales in 2023 as the company’s fourthquarter adjusted profits jumped nearly 12 per cent while Canadians continue to grapple with soaring food costs and inflation.
The supermarket giant has blamed rising food costs on price hikes passed down from suppliers and manufacturers but on Thursday said it expects its adjusted earnings per common share to grow by a low double-digit percentage for the full year 2023.
The parent company of Loblaws grocery stores and Shoppers Drug Mart also said it earned a profit available to common shareholders of $529 million in its latest quarter as its revenue rose nearly 10 per cent compared with a year ago.
The retailer said the sales growth “was driven by continued strong demand for cough and cold products and strength in high-margin beauty and cosmetics categories,” while its discount grocery stores outperformed.
The company reported that its overall revenue increased nearly 10 per cent to $14 billion in the weeks ended Dec. 31, 2022, up from $12.8 billion in the fourth quarter of 2021. The increase in revenue came as food retail same-store sales gained 8.4 per cent, while drug retail samestore sales rose 8.7 per cent.
When asked about profit on different products, Loblaw said in an email “we don’t break down profit by segment.”
This news comes as Loblaw CEO Galen Weston, Empire CEO Michael Medline and Metro CEO Eric La Flèche — the heads of Canada’s largest supermarkets — were summoned by the House of Commons agriculture committee last Monday as part of its inquiry into alleged profiteering by the grocery industry and its business practices.
Consumers over the last year have grown weary of skyrocketing grocery bills as the big grocers report record profits. Grocery prices continue to surge far past the “headline” inflation rate, rising by 11.4 per cent, despite Canada’s annual rate of inflation falling to 5.9 per cent in January, Statistics Canada reported. This week butter prices soared 19.1 per cent year over year in January, while bread prices climbed 18.1 per cent, eggs were up 15.6 per cent and fresh or frozen chicken increased 14 per cent, according to the federal agency.
Yet Loblaw’s adjusted profit increased almost 12 per cent to $575 million, up from $515 million in the same quarter the year before. The adjusted earnings amounted to $1.76 per diluted share in its latest quarter, compared with an adjusted profit of $1.52 per diluted share a year earlier. This surpassed analysts’ expectations of $1.71 per share according to financial markets data firm Refinitiv.
At the same time, the grocer’s gross margins for Loblaw’s retail business, which refers to the difference between the costs of goods and their sales revenue, dipped slightly to 30.6 per cent down from 30.9 per cent a year earlier. But gross margins are still a percentage point higher than in January 2020, before the pandemic, at 29.78 per cent.
The company said the decline was largely related to the No Name product price freeze that took place over the holidays but were “partially offset by continued strength in higher margin front-store sales in the drug business.”
Canadians for Tax Fairness economist DT Cochrane said the retailer will try paint itself in the most positive light for both shareholders and consumers.
“Out of one side of their mouths, they want to say to their shareholders, ‘look how profitable we are.’ At the same time, they are also very mindful about the fact the public is paying attention to them,” Cochrane said.
What Canadians should be looking out for, Cochrane said, is how much of a markup companies like Loblaw are applying on top of the higher costs they are facing, adding that the retailer was steadily increasing markup well before the pandemic. According to Cochrane, Loblaw’s markup over base costs in 2010 was 32.5 per cent, by 2019 it was 44.3 per cent and in 2022 it was 46.7 per cent.
“If they had maintained their 2019 markup, that would have saved Canadians almost $900 million,” Cochrane said.
The company needs to be more transparent in its reports and about where profits are coming from especially as it owns several brands, Cochrane added.
“It raises question about whether we should allow a company like this to bundle together essential goods,” he said. “It makes it much more difficult for us to figure out where this profit is actually coming from and how much is coming out of the pockets of Canadians just trying to survive.”