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Loblaw Reports Higher Q4, FY '07 Sales

BRAMPTON, Ont. -- Loblaw Cos., Ltd. yesterday reported that for the fourth quarter of 2007 ended Dec. 29, 2007, total sales increased CAN $183 million (US $181 million), or 2.7 percent, to CAN $6.97 billion (US $6.90 billion), vs. CAN $6.78 billion (US $6.72 billion) in the fourth quarter of 2006. Same-store sales increased 2.6 percent during the quarter.

"Total sales increases in the fourth quarter of 2007 were achieved by positive growth in both item and customer counts, despite internal food price deflation," the grocer said in a statement. "Total sales increased in food and drug store, while general merchandise sales were lower because of the intentional restriction of inventory as we continued to work on optimizing inventory controls, product mix, and markdown strategies."

Sales for the 2007 fiscal year ended Dec. 29 rose CAN $744 million (US $737 million), or 2.6 percent, to CAN $29.38 billion (US $29.10 billion), compared with CAN $28.64 billion (US $28.37 billion) last year. Same-store sales growth, excluding the impact of decreased tobacco sales, went up 3.4 percent.

Operating income in the fourth quarter was CAN $134 million (US $133 million), an increase of CAN $829 million (US $821 million), or 119.3 percent, from an operating loss of CAN $695 million (US $688 million) in the year-ago period. Operating margin was 1.9 percent, vs. -10.2 percent in the fourth quarter of 2006. The 2006 operating loss was affected by a CAN $800 million (US $792 million) noncash goodwill impairment charge related to the goodwill associated with the acquisition of retailer Provigo, Inc. in 1998.

"The fourth quarter concluded a year of transformational change, amidst intense competition and consequent pressure on earnings," noted Loblaw. "Despite these challenges, progress was made on our multiyear turnaround plan. This quarter provided indications of progress towards Making Loblaw the Best Again, with encouraging advances in the company's four major initiatives, 'Project Simplify' [a plan to boost effectiveness through clearer accountabilities and centralization], 'Fix the Basics' [store performance improvements], optimizing the Real Canadian Superstore banner, and 'Credit for Value' [lowering retail prices to deliver value to customers]."

Loblaw said it had completed Project Simplify, enabling it to "begin 2008 with the structure and processes of a truly national Retailer [and] leverage its scale for the first time. The company's focus would now be on stabilizing the business and improving execution at stores, distribution centers, and store support centers.

As for Fix the Basics, 233 of the retailer's highest-sales stores are now running the new Always Available program, and are demonstrating improved availability within range to achieve Loblaw's in-stock food target for these stores. Additionally, the company has experienced shrink-reduction levels below those of 2006, implemented national standards for front end customer experience, and improved its productivity in items-per-minute scanning rate.

The Milton, Ont. Superstore pilot, launched in 2007, is providing Loblaw with a model for which general merchandise and food productivity improvements will be selectively rolled out to other existing Superstores, while its Great Food pilots is identifying in-store operating improvements and fresh enhancements, particularly in produce. Once fully tested, these results will be introduced as appropriate to Loblaw's other stores as well.

The retailer said that it would continue to make price investments in 2008, albeit ones to help to support its profitability. Loblaw added that it expected to invest an estimated $700 million to $800 million in net capital expenditures, with the aim of increasing same-store sales. According to the company, it plans to use about two-thirds of these funds for remodeling, expanding, and maintaining existing stores, with the remainder of the money to go to upgrading information systems supply chain infrastructure.
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