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Loblaws Has 'Challenging' Q1, Releases First CSR Report

Struggling to reinvigorate its business, Loblaw Cos., Ltd. yesterday posted sales for the first quarter of 2008 of CAN $6,527 million (US $6,419 million), compared with CAN $6,347 million (US $6,243 million)  in the year-ago period, an increase of 2.8 percent. Net earnings came to CAN $62 million (US $61 million), a 14.8 percent rise over last year.

The company experienced total sales increases in Ontario, Atlantic, and western Canada, while Quebec sales were flat vs. the same period last year. All regions saw positive same-store sales growth. Sales growth in food and drug store were positive, while sales of general merchandise were flat compared with last year. Same-store sales grew 2.8 percent in the quarter, during a period of deflationary internal retail food prices.

However, margins fell in the first quarter of 2008 as a result of Loblaw's ongoing investment in lower retail prices to drive same-store sales growth. The company initiated significant pricing investments in the third quarter of 2007 and as a result, margins in the first quarter of 2008 were adversely affected vs. first quarter of 2007. Sales increases in the quarter were insufficient to offset margin declines and cost increases.

"Performance in the first quarter was challenging," admitted Loblaw executive chairman Galen G. Weston in a statement. "The company continues to make progress on its turnaround plan. However, over one year into our turnaround, we are not where we need to be. The new centralized organization is on track to deliver the expected benefits of cost management, better buying, and operational discipline; however it lags behind as an effective selling organization. Last week, we took action to address this by changing the senior executive team. Our new structure will provide the clarity and focus that is required to execute the next phase of our strategy."

Last week's management shakeup resulted in the appointment of Allan L. Leighton as president, in addition to his role as deputy chairman, and the departures of president and chief merchandising officer Mark Foote, c.f.o. William Wells, and e.v.p., food Pietro Satriano. Foote was replaced by Frank Rocchetti, while Robert Vaux, c.f.o. of parent company George Weston, Ltd., was named interim c.f.o. of Loblaw.

Operating income of CAN $155 million (US $152 million) for the first quarter of 2008 rose CAN $21 million (US $20.7 million), or 15.7 percent, over the first quarter of 2007. Operating margin in the quarter was 2.4 percent compared with 2.1 percent last year, because of lower restructuring costs in the first quarter of 2008.

For the first quarter of 2008, basic net earnings per common share were 23 cents compared to 20 cents in the same quarter last year. Net earnings for the first quarter of 2008 grew CAN $8 million (US $7.9 million), or 14.8 percent, to CAN $62 million (US $61 million), from CAN $54 million (US $53 million) in the first quarter of 2007.

"Management's ongoing focus on cost and operating efficiencies is expected to help offset the effect of pricing and competition on margins," Loblaw said. "Although some financial benefits of the restructuring are anticipated to take hold in the second half of the year, there is still much work to do.

Loblaw is Canada's largest food distributor and a leading provider of general merchandise products, drug store, and financial products and services.

In other Loblaw news, the company unveiled its first-annual responsibility report at its 52nd Annual General Meeting. "The 2007 Loblaw Companies Limited Corporate Social Responsibility Report: The Way We Do Business" lays out the grocer's approach to social responsibility and the values on which its commitments and actions are based.

Loblaw's five pillars of corporate social responsibility are Respect the Environment, Source with Integrity, Make a Positive Difference in our Community, Reflect our Nation's Diversity, and Be a Great Place to Work.

"This past year we worked steadily to set our strategy and confirm our approach, we reviewed our current initiatives, mapped our stakeholders and engaged with them, benchmarked ourselves against international CSR leaders and discussed and debated our commitments," noted Loblaw s.v.p. corporate social responsibility Daniel Tremblay. "Most importantly, we were buoyed by the work we already have underway and our commitment to do more. Our pillars are being integrated into all of our business decisions, and as a result, our customers, colleagues, vendors and the public will begin to see our commitment more clearly through our actions."

Loblaw's social responsibility strategy includes:

-- The introduction of product lines offering consumers healthier eating and environmentally responsible living options.

--The creation of President's Choice Children's Charity in 1989, which today is one of the largest corporate charities in Canada.

-- The support of local, regional, and national community initiatives and programs through giving and sponsorship.

--The rollout of the first bagless stores and the President's Choice Green Reusable Shopping Bag made from post-consumer waste.

Among the targets for 2008:

--Implementing the systems needed to track and divert 1 billion plastic grocery bags from stores to landfill in 2009.

--Launching the company's second environmental flagship store.

--Reducing electricity use and implementing two renewable energy pilots.

--Giving $10 million to local and national initiatives that support the communities in which Loblaw operates, in addition to raising and granting an additional $10 million through President's Choice Children's Charity.

--Training 52,000 colleagues and opening six new Learning Stores

--Introducing a Colleague Discount program

The report is available as a PDF at
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