Loblaw Sees Tough Year Ahead

Loblaw's fourth-quarter financials showed progress in its turnaround program, but company officials are bracing for a difficult year ahead. A worsening economy, along with needed investments in store renovations and technology infrastructure, would challenge results in fiscal 2009, which began Jan. 4, Loblaw officials said in a conference call last week. People have accused me of being too

TORONTO — Loblaw's fourth-quarter financials showed progress in its turnaround program, but company officials are bracing for a difficult year ahead.

A worsening economy, along with needed investments in store renovations and technology infrastructure, would “challenge results” in fiscal 2009, which began Jan. 4, Loblaw officials said in a conference call last week.

“People have accused me of being too cautious about this, but I think this will be a very tough year and I don't think we've yet seen the beginning of it,” said Allen Leighton, president and deputy chairman.

Leighton said the chain has already begun a program to strengthen its price positioning and “tweak” value at its stores, including a round of “Price Freeze” extended discounts and the reintroduction of the No-Name value private label. “We believe continuing to own value, particularly in our discount and superstore [banners], will become increasingly important as the year unfolds,” he said.

As it begins the third year of what officials called a three-to-five-year turnaround program, Loblaw will also be spending heavily to improve its operations. It has plans to spend around $595 million (U.S.) to renovate 300 stores and an additional $79 million to begin a two-year program of modernizing its IT systems. The latter expense, Leighton warned, will not show a return until 2011 but is crucial to replace its current inventory, forecasting and ordering systems, which he described as “archaic by any measure.”

The store renovation program will implement new produce, meat, seafood and grocery programs developed at pilot stores over the last year, Leighton said. He said these programs, along with shrink control and a better understanding of general merchandise execution, represented real progress for the chain but added the company still needs to improve its consistency on these fronts.

“I think we are getting better every day, there's no doubt about that,” Leighton said. “But we are far from perfect. The issue is our ability to do it on a consistent basis. We [are] in much better shape than we were a year ago, but I think that we've still got some way to go.”

For the 13-week quarter, Loblaw reported net income of $149 million (U.S.), a 370% increase from the 12-week fourth quarter a year ago, on overall sales of $6.1 billion (U.S.), an improvement of 11.2%. Same-store sales improved by 10.6%. The extra selling week accounted for 7.9% of the same-store sales increase.

For the fiscal year, sales improved 4.8% to $24.4 billion and net earnings were up 65.2% to $432 million.

Q4 RESULTS

Qtr Ended 1/3/09* 12/29/07
Sales $6.1B (U.S.) $5.5B
Change 11.2%
Comp-store 10.6%
Net Income $149M (U.S.) $31.7M
Change 370%
Inc./Share 69¢ (Cdn.) 14¢(Cdn.)
Fiscal Year 2008* 2007
Sales $24.4B (U.S.) $23.3B
Change 4.8%
Net Income $432M (U.S.) $261.7M
Change 65.2%
Inc./Share $1.58 (Cdn.) 95¢(Cdn.)
• MOST RECENT FOURTH-QUARTER AND FULL-YEAR PERIODS COMPRISE 13 WEEKS AND 53 WEEKS, RESPECTIVELY, VS. 12-WEEK AND 52-WEEK PERIODS IN THE YEAR PRIOR.