Loblaw to close 52 supermarkets
News of shuttering underperforming outlets raises stock 3.5%
TORONTO — Loblaw Cos. announced 52 store closures on Monday, but president Galen Weston emphasized that the country’s biggest food and pharmacy retailer is only doing so to make its 3,550 store network more efficient a year after its mega-merger with Shoppers Drug Mart.
“Despite these closures, we will still grow our network in the year,” Weston told analysts in a conference call to discuss second-quarter results, which topped industry expectations.
“Making sure that you don’t have inefficient assets in the business is something that (chief financial officer Richard Dufresne) and I are endeavouring to do.”
Loblaw plans to shutter the “consistently underperforming and unprofitable” stores over the next year, including previously announced closures for stand-alone Joe Fresh outlets, gas bars, select pharmacies and grocery stores. In the normal course of business, the retailer closes 10 to 15 stores a year as it expands more profitable areas of the business.
Loblaw’s shares rose 3.5 per cent in midday trading on the news.
In the meantime, the economy may be wilting but customers don’t seem to be deterred. Weston speculated a multi-year consumer trend toward eating fresher food means customers are willing to spend more money on meat and produce right now.
“We are watching carefully to see if there is a shift toward discount (store shopping) that might take place as a result of the deteriorating economic circumstance in Canada,” Weston said. But both discount business like No Frills and conventional businesses are performing at and generating traffic at similar levels.
For example, despite “all-time highs” in beef prices, the weight of shipments to the stores just keeps growing, Weston said.
“That, we think, is because people are choosing to trade up when they have a little bit of money, and they are choosing to buy a steak. Things are not unfolding in the typical way at the moment.”
The store closures will reduce sales by about $300 million, Loblaw said, but will add about $35 million-$40 million to the company’s annual operating income.
The retailer’s restructuring and related costs will amount to roughly $120 million, and Loblaw recorded a charge of $45 million in the quarter, including $30 million for severance and lease termination costs and $15 million for asset impairments. Loblaw anticipates a further $70 million in related charges in the third quarter of 2015, with the remainder expected to be incurred as stores close.
The retailer’s earnings after items climbed 15 per cent in the period ended June 20 due to solid sales in food and pharmacy. Adjusted net earnings per common share of 85 cents in the period ended June 20 compared with 74 cents in the same quarter last year, and beat analysts’ mean estimates of 83 cents per share, according to Thomson Reuters.
Retail sales at Loblaw and Shoppers Drug Mart were $10.5 billion, up $221 million from the second quarter of 2014. Food retail sales rose 1.9 per cent to $7.6 billion and drug retail sales were $2.7 billion, up 3.1 per cent. The retailer reported strong food sales growth and moderate sales increases in pharmacy, beauty products and apparel.
Net earnings in the quarter were 45 cents, compared with a net loss per of $1.13 in the second quarter of 2014. This year’s second quarter earnings were positively impacted by a $622 million ($1.14 per share) charge in the 2014 period related to the Shoppers Drug Mart acquisition and a $190 million (35 cent per share) 2014 charge related to inventory.
At Loblaw, same-store sales grew 2.1 per cent, but rose a solid 4.2 per cent excluding gas bar and tobacco supply changes.
At Shoppers, same-store sales were up 3.8 per cent overall on a rise of 3.9 per cent in its pharmacy and 3.7 per cent in the front of the store.
“We are watching carefully to see if there is a shift toward discount (store shopping) that might take place as a result of the deteriorating economic circumstance in Canada.
GALEN WESTON LOBLAW PRESIDENT