Consumer demand for pharmacy drugs and discount groceries remains resilient although shoppers continue to focus on value, according to Loblaw Cos. Ltd. second-quarter results.

The Brampton, Ont.-based grocery giant on July 26 said overall revenue increased 6.9% to $13.7 billion for the quarter ending June 17, and net income grew more than 31% to $508 million, or $1.58 per diluted share. Adjusted net earnings were $626 million, or $1.94 per diluted share.

“Our hard-discount locations have never been busier, with our highest-ever customer counts, double-digit growth and No Frills was recently named the most trusted store for low prices,” chair and president Galen Weston told analysts on a call.  The company plans to open 25 more No Frills stores in 2023 and Loblaw has also seen shoppers redeem points from its PC Optimum program more often, as people look for ways to save money.

The company’s quarter was characterized by “a focus on value” and lower gross margins as food inflation continued to increase, the company said. But Loblaw beat analyst expectations, who had forecast revenue of $13.6 billion and per share earnings of $1.91, according to Refinitiv data reported by Reuters.

Food inflation has been one of the biggest strains on Canadians’ wallets, outpacing headline figures. As a result, shrink, an industry term that refers to theft-related losses, began increasing last year as inflation was accelerating.

But Loblaw is beginning to see “indicators” that suggest the number of stolen items is “peaking,” chief financial officer Richard Dufresne said on the call, and the company is taking measures to prevent shrink, such as locking up perfumes and colognes in Shoppers stores. “If you were to exclude shrink, gross margins in Shoppers would have been up in the quarter,” he said.

Gross margins for the retail segment fell by 30 basis points to 31.1%; it increased by 50 basis points last year.

Dufresne said he took a firm stance with suppliers that were a major contributor to depressed margins and higher sticker prices for groceries, telling analysts that one vendor submitted price increases of 50%, “or a quarter of a billion dollars.”

“The math is very simple,” he said. “Cost increases from big brands were well above Canada’s food inflation and our food margins declined, suggesting grocer profiteering just doesn’t add up.”

Sticker prices for a large share of grocery items increased 10% or more on a year-over-year basis during 2022 and consumers are changing their shopping habits as a result, Statistics Canada said on July 26. Half of Canadians are searching for promotions and discounts when buying groceries and a similar percentage said they seek out cheaper alternatives, brands and items.

Overall, the retail segments of Loblaw’s business posted a 6.7% increase in sales for the quarter to $13.47 million. Same-store sales in the grocery segment grew 6.1% as traffic increased, but basket sizes decreased. At its drug stores, same-store sales grew 5.7% due to an increased number of prescriptions (up almost 1%), as well as prescription values, which were up nearly 5%.

Loblaw’s financial services’ revenue grew more than 17% to $348 million. Dufresne said earnings were “unusually” high this year due to a one-time cost of $100 million the company incurred last year at PC Financial.

To view the full results, visit the Loblaw website. 

Source: The Star
Source: Globe and Mail
Source: Financial Post
Source: Loblaw