SUPPLY WOES SINK LOBLAW

TORONTO - Saying the company "went too fast" with initiatives to modernize its supply chain, Loblaw here said sales and earnings in its fourth quarter would be lower than expected.In a conference call, John Lederer, Loblaw's president, said the restructuring - including the closure of six warehouses, the relocation of some operations and the introduction of new procedures - have resulted in some stores

TORONTO - Saying the company "went too fast" with initiatives to modernize its supply chain, Loblaw here said sales and earnings in its fourth quarter would be lower than expected.

In a conference call, John Lederer, Loblaw's president, said the restructuring - including the closure of six warehouses, the relocation of some operations and the introduction of new procedures - have resulted in some stores being unable to get product, causing higher labor costs, and forcing the chain to dial back promotions, which has hurt sales.

"You can't disappoint the Canadian consumer, and we did a little of that," Lederer said. "You also can't disappoint your store people."

The disruptions caused a "tough fourth quarter from an earnings standpoint and a very soft quarter from a top-line standpoint," Lederer said.

Loblaw began streamlining its supply chain in 2004, and last April said it would close six warehouses in Quebec and Ontario. The project was intended to boost efficiency and improve the flow of general merchandise.

"The supply chain has been the most significant cost factor that's been out of line," Lederer told analysts. "But the impact is not only cost - it's had a major impact on top-line sales in two ways: one, you simply don't have the product; the other being, during the quarter we slowed the program activity down in order to be sure we could be in an in-stock position."

Lederer said the issues would be resolved by the end of Loblaw's second quarter in June.

"One of the things we've learned is that if you run a business that runs one way for 20 years and then make a change, you had better make sure you have the talent and resources to make sure you complete that transformation properly," he said. "We probably went too fast."

The company said it now expects fourth quarter earnings before charges to range between 92 and 97 Canadian cents per share, and same-store sales to fall by 1%. Yearly profit estimates of $3.50 to $3.55 were previously expected to be $3.95. Full results are scheduled to be reported Feb. 8.