Restructuring Drags Down Loblaw Cos. Q1 Profits

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Restructuring Drags Down Loblaw Cos. Q1 Profits

TORONTO -- Mainly due to charges relating to an ongoing restructuring, first quarter earnings at Loblaw Cos., Ltd. here nosedived by CAN $86 million (US $77 million), or 61.4 percent, to CAN $54 million (US $49 million), compared to CAN $140 million (US $126 million) in the year-ago period, the retailer said yesterday.

The company reported basic net earnings per common share for the first quarter of 2007 of 20 cents, vs. 51 cents last year, a plunge of 60.8 percent.

Loblaw's "Simplify" program, which the company said aims to, among other goals, to streamline merchandising and store operations, includes cutting 800 to 1,000 jobs at the head office, Store Support Centre, and regional offices. The total restructuring costs, mainly related to severance under this plan, are expected to come in at the lower end of the previously announced range of CAN $150 million (US $135 million) to CAN $200 million (US $180 million), the company said.

In the first quarter, Loblaw incurred CAN $75 million (US $68 million) of restructuring costs, comprising CAN $58 million (US $52 million) for employee termination benefits, including severance, additional pension costs connected with the termination of employees, and retention costs, and CAN $17 million (US $15 million) of other costs, mostly consulting.

During a conference call yesterday, chairman Galen Weston expressed optimism about the financially challenged company's recently unveiled "Making Loblaw the Best Again" strategy, which includes improving its current stores; but he admitted that there still remained "work to be done."

Sales for the first quarter rose 3.3 percent, or CAN $200 million (US $180 million), to CAN $6.3 billion (US $5.7 billion), with same-store sales growing by 4.0 percent, excluding the impact of the continued slide in tobacco sales.

In the third quarter of 2006, a major tobacco supplier began shipping directly to certain customers of the company's cash-and-carry and wholesale club network, which Loblaw said adversely affected sales. This loss of sales is expected to continue affecting comparisons with 2006 sales until the end of the third quarter of 2007, the company said.

Loblaw earned operating income of CAN $134 million (US $121 million) during the quarter, vs. CAN $259 million (US $233 million) during the year-ago period, due to such factors as legislative changes by the Ontario government in the second half of 2006, which negatively affected pharmacy-related operating income by about CAN $10 million (US $9 million); consulting costs, other than those in connection with the Simplify program, and costs associated with the change in the company's executive bonus plan, of about CAN $15 million (US $14 million); and the company's reduction of prices "in a strategic and coordinated manner" in both Ontario and Quebec, with a rollout to the rest of Canada to take place over the course of the year.

In 2006, the company said it would close 19 underperforming grocery stores in Quebec, eight Atlantic region stores, and 24 wholesale outlets, and reported its first annual loss in 19 years.

In other news, Loblaw said it is now using customer ratings and review content from Austin, Texas-based Bazaarvoice.

The chain launched the program last November, promoting it in its "December Holiday Insiders Report" and outfitting employees in 135,000 T-shirts urging shoppers to "rate our products at" The results were so positive that Loblaw now prominently features review content in seasonal "Insider Reports," weekly fliers, in-store signs, and on the site.

"Loblaw takes pride in being a very customer-focused company that relies on feedback from our shoppers," said Jim Osborne, v.p. of e-commerce and online marketing at Loblaw. "Bazaarvoice has been a great partner in helping us bring the customer voice to the forefront of our marketing efforts both online and in the store."

Loblaw's first integrated promotion featured its private label President's Choice Vegetable Lasagna with Seven Cheeses, which garnered 4.5 out of five stars from 179 customers, with over 90 percent of shoppers recommending the entree to a friend. Based on reviewer response, Loblaw employed the lasagna in a January in-store campaign that included signs featuring review excerpts. The retailer then included review content while promoting other products, among them Omega J Orange Juice (4.4 stars) in its "February Healthy Insider's Report."

Canada's largest food distributor and a leading provider of general merchandise items and drug store and financial products and services, Loblaw operates a portfolio of store formats across the country.