Yahoo Finance Loblaw sees profit increase as customers turn to discount brands amid inflation
Loblaw (L.TO) reported a $541 million profit in the fourth quarter, as customers continue to turn to the company's discount banners amid higher food inflation.
Canada's largest grocery retailer reported net earnings available to common shareholders in the fourth quarter of $541 million, or $1.72 per diluted share, up from $529 million, or $1.62 per diluted share, during the same period last year. Sales increased 3.7 per cent annually to $14.5 billion in the quarter, bringing the company's total year sales to $59.5 billion, an increase of $3 billion compared to the prior year.
"Our leading hard discount grocery banners outperformed in Q4, and lead our performance, bringing value to Canadians at a time of heightened cost-of-living pressure," Loblaw's chief financial officer Richard Dufresne said on a conference call with analysts on Thursday.
While Canada's annual inflation rate slowed more than economists were expecting in January to 2.9 per cent, food price growth remains higher than the headline figure. Grocery store prices increased 3.4 per cent in January, with Statistics Canada noting that the deceleration was broad-based.
Dufresne says Loblaw's internal food inflation was "significantly lower" than CPI in the fourth quarter, which "clearly demonstrates the role we are playing to help stabilize food prices for our customers." He also notes that Loblaw's average price increase in the fourth quarter was "the lowest it had been in more than two years."
Loblaw has faced public pressure and scrutiny over profitability increases amid soaring food prices. 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.
"Canadians continue to seek greater value as they continue to face challenging and persistent inflationary pressures, and we are committed to delivering that," Loblaw chief executive officer Per Bank said on the call.
"Food price increases in our stores are as low as they have been over the past two years. We are pushing back whenever we can on suppliers' cost increases and we are finding more ways to be efficient to keep prices low for our customers."
Loblaw has consistently seen customers turn to its discount chains such as No Frills and Maxi amid higher cost-of-living pressures. The discount brands outperformed the company's conventional grocery banners like Loblaws and Real Canadian Superstore in the quarter. Amid the push to discount, the company converted 24 Provigo branded stores in Quebec to Maxi stores, with plans to convert another 30 stores in 2024.
"We believe our outperformance of our hard discount stores will continue as Canadians seek value to help manage through the challenges of these extended periods of economic uncertainty," Dufresne said.
Food retail same-store sales, a key metric in the retail industry that excludes recently opened locations, increased 2 per cent in the quarter. Drug retail same-store sales rose 4.6 per cent in the quarter as cosmetics, health and beauty sales at Shoppers Drug Mart continued to climb.
Bank also says the company saw an improvement in the quarter when it came to shrink, which is when a company loses inventory due to factors including theft, product damage and fraud, among others. Last quarter, Loblaw said higher theft drove down margins at Shoppers Drug Mart, and that the company was investing and working with law enforcement to address the impact of what it called "organized retail crime." Bank says shrink level has come down since last quarter, and that the company is "entering this year at the level where we want it to be."
"It's something that we are paying really, really (close) attention to and we need to work hard to continue to reduce shrink, especially in Shoppers, because that's where we have the most expensive products," Bank said, noting that Loblaw has "locked up" many products and is installing gates at stores.
"We're paying a lot of attention to it because we know it's important to continue on the trajectory of getting shrink down."
With files from The Canadian Press.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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