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Restructuring Drags Down Loblaw's Q3 Net

TORONTO -- Blaming supply chain problems related to a complex company restructuring, Loblaw Cos., Ltd., Canada's biggest supermarket operator, said third-quarter profits drooped 25.6 percent. The company posted net income of CAN $192 million (US $161 million), vs. $258 million (US $217 million) last year.

Sales, meanwhile, grew 6.4 percent from the year-ago period, to $8.7 billion (US $7.3 billion) from $8.1 billion (US $6.8 billion), with all of Loblaw's regions reporting increases, although sales at stores open a year or more were flat.

"Sales and same-store sales were adversely affected by supply-chain disruptions experienced during the quarter, with the general merchandise and health and beauty care departments experiencing the greatest impact," the company said in a statement.

Loblaw is in the midst of implementing such initiatives as office consolidation, systems conversions, supply chain network restructuring, and relocation of its general merchandise operations. The company noted that its goal was "to minimize the duration of these changes by working to achieve resolution in an expedient manner."

Loblaw further noted that all other system overhauls originally slated for 2005 had been put on hold and would be rescheduled once the earlier issues have been successfully resolved.

The supply chain disruptions led to a loss in anticipated sales growth for Loblaw of about 0.8 percent to 1.2 percent of total sales in the quarter vs. last year. Direct costs related to the carrying out of the supply chain initiatives during the third quarter negatively affected operating income by about $20 million (US $17 million), the company said.
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