Canada’s largest grocer reported growth in sales and profits in its third quarter, as shoppers weary of high food prices continue to visit its discount stores more often.
Loblaw Cos. Ltd. L-T -1.89%decrease reported on Wednesday that adjusted profits grew by 6.7 per cent, and that customer traffic continues to grow at its hard discount banners No Frills and Maxi, driving up grocery sales.
The Brampton, Ont.-based retailer has been expanding its discount locations, and opened 25 new stores in the quarter. It is also testing three new No Name stores that pare down prices further by lowering operating costs: the stores carry a narrower assortment of products and do not have refrigerators, meaning that shoppers have to go elsewhere for items such as meat and dairy.
However, Loblaw missed analysts’ estimates for third-quarter revenues, as demand has slowed for non-essential products such as household items.
Same-store sales – an important metric that tracks sales growth not tied to new store openings – were up 0.5 per cent at the company’s grocery stores in the quarter, as customers visited stores more often but bought fewer items during each trip. Year-over-year sales growth was affected by the timing of the Thanksgiving holiday shopping surge, which occurred in the third quarter last year but fell within the fourth quarter this year. Excluding that timing issue, the company reported that food same-store sales grew by approximately 1.3 per cent in the quarter ended Oct. 5.
Since reaching double-digit highs early last year, the rate at which food prices are rising has been slowing. But after the cumulative price increases of the past few years, grocery shoppers are still left with much higher grocery bills overall.
In previous quarters, Loblaw has made a point of saying that its internal measures of food inflation show its prices have been either in line with, or lower than, Statistics Canada’s consumer price index for food purchased from stores. In the third quarter, however, Loblaw reported that its internal food inflation was higher than CPI, which was up 2.3 per cent. The company does not specify its internal numbers.
Drug store sales benefited from strong demand for beauty products, however shoppers have been spending less on “convenience items,” according to a press release on Wednesday. The company has also been phasing out some electronics products from its Shoppers Drug Mart stores, further dampening sales in the front of the stores. Drug store same-store sales were up 2.9 per cent, driven by a 6.3-per-cent increase in pharmacy and healthcare services. Sales of products in the front of the stores were down 0.5 per cent.
E-commerce sales were up 18.5 per cent.
The company’s revenue grew 1.5 per cent in the third quarter, to $18.5-billion. That fell below analysts’ expectations of $18.6-billion, according to the consensus estimate from S&P Capital IQ.
Loblaw reported net earnings available to common shareholders of $777-million or $2.53 per share, compared to $621-million or $1.95 per share in the previous year.
A previous charge related to a commodity tax matter at President’s Choice Bank was reversed during the quarter, after Loblaw won a legal appeal. That change positively affected the company’s net earnings by $125-million, offset by the amortization of assets related to Shoppers Drug Mart and the Lifemark chain of clinics.
Including those and other adjustments in the same quarter the previous year, adjusted net earnings available to common shareholders were $767-million or $2.50 per share in the third quarter, compared to $719-million or $2.26 per share in the prior year.
