Canada’s largest grocer Loblaw expects this year to be much like the last: customers continuing to seek discounts and deals, leading to more growth at the company’s discount brands and banners, and higher profits.
“We expect our retail business to grow earnings faster than sales, and adjusted earning- per-share growth in the high single digits,” Loblaw Cos. Ltd. chief financial officer Richard Dufresne said.
The company saw its earnings and sales rise in the fourth quarter of 2023 and for the full financial year, as its discount stores such as No Frills outperformed other banners.
Dufresne told a conference call to discuss the company’s latest results that Loblaw is gaining market share in the discount segment and holding its own against its peers in the rest of the grocery market.
“We’re very happy with what’s happening with our market share performance, specifically discount. And so that tells us that our strategies are working,” he said.
The company has been expanding its discount footprint across the country, opening eight more Maxi and No Frills locations in its fourth quarter. It plans to keep that growth going in 2024, having announced a $2-billion capital investment plan earlier this week.
The expansion will result in more than 40 new discount stores, and also involves renovations, relocations and 140 new pharmacy care clinics — almost tripling its total pharmacy care footprint from the current 74.
“This is a new initiative. And we’re actually quite thrilled with what it’s doing for us,” Dufresne said.
Inflation 'steadily going down' at Loblaw: CEO
Canada’s annual inflation rate slowed more than expected to 2.9 per cent in January, while core price measures have also eased. Grocery inflation cooled significantly to 3.4 per cent in the month, down from 4.7 per cent in December.
Loblaw said its internal inflation rate in the fourth quarter was lower than Statistics Canada’s figures for overall food price growth in the period, but the company did not provide specific figures.
New CEO Per Bank, who joined his first quarterly earnings call with analysts on Thursday, said the company’s internal inflation metrics have been “steadily going down” since January 2023, a trend he sees continuing in the months ahead.
“Inflation seems to be stabilizing. It’s still positive, but the next number we report should be lower,” he said on the call.
That’s at odds with how some consumers appear to be feeling about their grocery shopping experience, however.
A new survey by Leger for The Canadian Press found about 64 per cent of respondents feel grocery inflation is going up. Only 28 per cent said it was about the same, while just five per cent say it’s on the way down.
Some 27 per cent of respondents attributed the increase to global factors like inflation and supply chain issues, while 26 per cent said grocery chains are squeezing consumers in the name of profit. Another 23 per cent said it’s the federal government’s fault.
The survey, conducted online between Feb. 16-18, surveyed some 1,529 Canadian respondents. Online surveys cannot be assigned a margin of error because they are not considered a random sample.
Loblaw’s new CEO eyes best practices from European grocers
Bank said Thursday that he’s proud of Loblaw’s Maxi and No Frills discount offerings, but hinted that he would lean on his background in European retail as he takes the reins of Canada’s biggest grocer.
He pointed to a wider rollout of “shelf-ready packaging” – shipping products in boxes that fit right onto shelves and neatly present products to shoppers – as something he wants to company to ramp up. This is something he says is “100 per cent implemented” at European grocers Aldi or Lidl, but is so far only used 10-15 per cent of the time at Loblaw stores.
Bank suggested that Loblaw was working on other initiatives to lower costs for the grocer. The incoming CEO, who took over the day-to-day operations from Loblaw chairman Galen G. Weston in September, previously served as head of Danish retail giant Salling Group.
“I think there’s a lot of learnings that we can take from Europe,” he said. “Hopefully I can contribute a little bit with my experience.”
Bank noted he’s learned since joining that Loblaw has a “unique” relationship with customers, who are “not shy about letting us know when we can do things better.”
Loblaw’s results for the fourth quarter were better than expected, RBC Dominion Securities analyst Irene Nattel said in a note to clients.
In the fourth quarter of 2023, Loblaw said it earned a profit available to common shareholders of $541 million or $1.72 per diluted share for the quarter ended Dec. 30. The result compared with a profit of $529 million or $1.62 per diluted share in the last three months of 2022.
Revenue totalled $14.53 billion, up from $14.01 billion a year earlier.
On a same-store basis, food sales rose by 2.0 per cent, while drug sales increased 4.6 per cent, with front store sales growth of 1.7 per cent and pharmacy and health-care services sales growth of 8.0 per cent.
On an adjusted basis, Loblaw said it earned $2 per share in its latest quarter compared with an adjusted profit of $1.76 per share a year earlier.
Markets were expecting earnings per share of $1.90 as of Feb. 21, according to financial data firm Refinitiv.
The latest results come as Loblaw faces pressure from politicians and Canadian shoppers regarding inflation and the cost of groceries.
The company recently had to walk back a decision to reduce its discount on food items nearing their sell-by date after the move drew intense scrutiny.
Loblaw is also being urged by politicians to sign on to the grocery code of conduct, which it and Walmart Canada have said could raise prices.
– with files from Global News’ Craig Lord and Reuters
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