Shoppers takeover paying off for Loblaw
Synergies and the brisk sales of food and beauty products increase profits for grocer
Shoppers Drug Mart has turned into a better investment than expected with strong pharmacy and cosmetics sales, and also with the recent introduction of President’s Choice brand foods on the drugstore’s shelves, says Galen Weston, Loblaw Companies Ltd. chief executive.
The rapid exit of U.S. behemoth Target from the highly competitive Canadian shopping scene this year didn’t hurt either, he said.
“The two standouts (at Shoppers) are food and beauty, which have really benefitted from the closure of Target,” Weston told analysts Wednesday during the giant grocery chain’s third-quarter conference call.
Shoppers “is delivering very, very strong results,” he added.
In fact, Loblaw expects that its $12.4-billion acquisition of Canada’s largest pharmacy chain, completed in mid-2014, will result in greater synergies by year’s end of $235 million — up from the $200 million the company previously predicted.
Thanks to strong food sales, both Loblaw and rival Metro Inc. posted gains in profit and revenue in their most recent quarter. Loblaw, which also owns the No Frills banner, said it earned $166 million in its latest quarter, up nearly 17 per cent from a year ago.
Metro reported net earnings of $131.7 million in its latest quarter, up from $115.6 million a year ago.
Same-store sales growth, for those open more than one year, for the company’s food business was 3.1 per cent, excluding its related gas bars and the negative impact of a change in distribution model by a tobacco supplier.
Meanwhile, the company’s drug retail same-store sales growth, which includes Shoppers Drug Mart, was 4.9 per cent. Same-store pharmacy sales increased 3.5 per cent, while front store sales increased 6.2 per cent.
Management attributed the strong front-of-store sales results to the rollout of President’s Choice and No Name food products, improved merchandising strategies, and particularly strong performance in cosmetics, cold and flu and sun products.
“While the grocery industry remained intensely competitive, and the regulatory environment in health care challenging, we maintained a stable trading platform, achieved incremental efficiencies and delivered planned synergies,” Weston said.