Loblaw reports higher profit as it opens more discount stores, raises dividend

Loblaw Cos. Ltd. L-T -2.45%decrease reported a 6.8-per-cent increase in adjusted first-quarter profit and boosted its dividend paid to shareholders on Wednesday, as the country’s largest grocer continued to benefit from opening more No Frills and Maxi discount stores.

The Brampton, Ont.-based retailer reported that customers – who have been consistently shopping at lower-priced stores in recent years to cope with food inflation – have been “responding well” to its new store openings. Discount chains, which also include Real Canadian Superstore, are outperforming its full-price stores.

The company opened five new discount locations in the first quarter, and saw an increase in both the traffic to its stores and the amount customers purchased during each visit.

Loblaw is not alone in these efforts: Competitor Metro Inc. MRU-T -0.30%decrease has also said its Food Basics and Super C discount chains are growing, and last month reported that customer traffic had increased because of new store openings.

“We are very pleased that our strategic investments in opening new stores, and our focus on value, are resonating with Canadians and helping us to deliver strong financial results,” Loblaw president and chief executive officer Per Bank said in a press release Wednesday.

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Loblaw’s net earnings available to common shareholders jumped to $594-million or 50 cents in diluted earnings per share in the quarter ended March 28, compared to $503-million or 42 cents per share in the same period last year.

The earnings numbers were affected by a number of factors, including lower amortization of assets related to the acquisitions of Shoppers Drug Mart and Lifemark; the sale of the Wellwise business and property last year; and fair-value adjustments on fuel, investments and foreign currency contracts. Accounting for those factors, adjusted net earnings amounted to $609-million or 52 cents in diluted earnings per share, compared to $570-million or 47 cents per share during the same quarter last year.

Loblaw also announced on Wednesday that it will increase its quarterly dividend paid to shareholders by 10 per cent, to15.5 cents per common share.

First-quarter revenue grew by 4.2 per cent to $14.7-billion.

Same-store sales – an important measure of sales growth in existing store locations, rather than growth tied to new store openings – rose by 2.4 per cent in the company’s grocery stores, and by 4.1 per cent in its Shoppers Drug Mart chain and other drugstores. Drugstore sales were driven by strength in prescription drug sales and health care services.

E-commerce sales grew by 20.3 per cent in the quarter, driven by growth in delivery orders as well as success with third-party delivery partnerships with services such as Uber Eats. Those partnerships continue to expand: Following the end of the first quarter last month, Toronto-based delivery service Skip also announced a new partnership with Loblaw.