Loblaw Struggles to Slight Q2 Sales Hike

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Loblaw Struggles to Slight Q2 Sales Hike

As it works to turn around a trend in lackluster performance, Loblaw Cos., Ltd. reported sales for its second quarter of 2008 of CAN $7,037 million (USD $6,902 million) Friday, compared with CAN $6,933 million (USD $6,801 million) in the year-ago period, a rise of 1.5 percent.

Net earnings came to $140 million, a 17.6 percent increase vs. CAN $119 million (USD $117 million) last year. Basic net earnings per common share were 51 cents, as opposed to 43 cents in the second quarter last year, primarily due to lower restructuring costs the second quarter vs. last year.

Same-store sales in the quarter rose 0.7 percent, compared with 2.7 percent for the same period last year. Although sales and same-store sales growth in the quarter were adversely affected by about 0.7 percent due to a shift of Easter sales into the first quarter of 2008, total sales growth in food was positive and drug store sales were especially strong, while general merchandise sales decreased from the year-ago period, the company said.

Also affecting sales in the quarter was what Loblaw termed "modest internal retail food price deflation."

Operating income in the quarter was CAN $263 million (USD $258 million), representing an increase of CAN $45 million (USD $44 million), or 20.6 percent, from CAN $218 million (USD $214 million) last year. Operating margin was 3.7 percent, vs. 3.1 percent in year-ago period. The increase in operating income was mainly attributable to lower restructuring costs in the second quarter of 2008 than in the second quarter of 2007. On the other hand, operating income was also negatively affected by the grocer's ongoing investment in lower retail prices, according to Loblaw.

"We are behind in our plans for operating as an effective selling organization," conceded Loblaw executive chairman Galen G. Weston. "This is reflected in our second-quarter sales performance. However, we remain on track with our cost reduction efforts. We are also beginning to see positive results from our recently announced five areas of immediate focus of our turnaround strategy. While we are satisfied with our margin performance, we are continuing our investments in foundational infrastructure, offer enhancement, and value for our customers."

The five areas of immediate focus are Back-to-Best great food renewal in the province of Ontario, refurbishment of stores in western Canada, local market merchandising; foundational infrastructure, and private label innovation.

For the rest of the year, Loblaw said its goal was to "direct its efforts towards building profitable sales momentum while continuing to improve value for customers. Focus on cost and operating efficiencies will continue as margins are expected to remain under pressure."