Loblaw’s Retail Strategy Pays Off in Q3

Canadian company delivers adjusted EBITDA growth of 10.3%

11/16/2022

Loblaw's increased sales were led by strong performance in discount banners such as No Frills and Real Canadian Superstore.

Top Canadian food and pharmacy retailer Loblaw Cos. Ltd. has delivered positive financial and operating performance for its third quarter ended Oct. 8 as it continues to see robust grocery demand despite higher prices.

While Canadian retail food inflation remained among the lowest of the G7 countries, global inflationary forces continued to increase the cost of food in the quarter. Loblaw’s efforts to moderate cost increases and provide value to customers through its PC Optimum Program and promotions resulted in a 6.9% increase of same-stores sales and stable gross margins in food retail. Sales were led by strong performance at discount banners such as No Frills and Real Canadian Superstore, and a continued shift to private label brands, including President’s Choice and no name. In drug retail, revenues benefited from a 7.7% same-store sales increase in higher- margin categories like beauty, cough and cold. Overall, retail segment sales grew 8.2%.

“In a difficult economic environment, Loblaw is putting the strength of its unique assets to work for Canadians, offering record loyalty rewards, unmatched private label brands, the best discount stores and an inflation-fighting price freeze,” said Galen G. Weston, Loblaw chairman and president. “Customer expectations for value have never been higher, and we are working hard to meet them.”

Loblaw recently unveiled a price freeze on more than 1,500 no name brand products. The private label brand is sold in more than 2,400 stores, including Loblaws, Zehrs, Real Canadian Superstore, no frills, T&T, Atlantic Superstore, Maxi, and Shoppers Drug Mart.

During its third quarter, Loblaw’s revenue increased 8.3% to CAD $17.39 million. The operating income ticked up to CAD $991 million, a 14.8% increase. Adjusted EBITDA grew 10.3% in the quarter.

E-commerce sales also rose 3% in the third quarter. To help build on this momentum, Loblaw recently teamed with DoorDash Inc. to make on-demand grocery delivery easier for Canadians. In addition to Loblaw’s own PC Express app, customers can now place grocery delivery orders on the DoorDash Marketplace app directly from more than 1,100 Loblaw banner stores. DoorDash will also power same-day delivery from pcexpress.ca through DoorDash Drive, DoorDash’s fulfilment platform that offers direct delivery to customers for any business.

During its third quarter, Loblaw opened two food and drug stores, and closed three stores, resulting in a net decrease in retail square footage of 0.3 million square feet, or 0.4%.

On a full-year basis, the company continues to expect its retail business to grow earnings faster than sales. It also expects to invest approximately CAD $1.4 billion in capital expenditures, net of proceeds from property disposals, reflecting incremental store and distribution network investments. Based on its year-to-date operating and financial performance and momentum exiting the third quarter, the company expects full-year adjusted net earnings per common share growth in the high teens.

Loblaw also furthered its environmental, social and governance (ES&G) leadership last quarter. It partnered with Food Banks Canada and Second Harvest to provide new capacity grants and to expand fundraising support. Loblaw also released additional disclosures on its ongoing work to ensure that the company and its partners are upholding the highest human rights standards. Regarding the environment, Loblaw disclosed, for the first time, details regarding its approach to reducing carbon, climate risk mitigation and risks in line with the Task Force on Climate Related Financial Disclosures. The company also partnered with Gatik to launch fully driverless commercial operations. Gatik’s fleet of multi-temperature autonomous box trucks is now moving select online grocery orders for Loblaw’s PC Express service.

Loblaw Cos. Ltd. operates nearly 2,500 stores and national e-commerce options in Canada, with more than 190,000 full- and part-time employees. The Brampton, Ontario-based company is No. 11 on The PG 100, Progressive Grocer’s 2022 list of the top food and consumables retailers in North America.