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Loblaw sees fourth-quarter dip

Earnings hit by loyalty program, price-fixing costs

Canadian retailer Loblaw Companies Ltd. reported a drop in its fourth-quarter profit, as the operator of Loblaws and Shoppers Drug Mart was hit by costs related to the launch of its PC Optimum loyalty rewards program and the fallout from its admission of participation in an alleged industry-wide bread price-fixing conspiracy.

Revenue for the fourth quarter fell to $11.03 billion compared with $11.13 billion a year earlier, or 0.9%, due to the sale of the company's gas bar operations. The company said the disposition of the gas bar operations negatively impacted retail sales growth by $350 million.

Food retail same-store sales were up 0.5%, excluding gas bar operations, while drug retail same-store sales increased 3.6%.

In December, Loblaw and its parent company George Weston admitted their participation in what they said was an industry-wide arrangement to coordinate the price of packaged bread for at least 14 years. Days later, Loblaw offered customers a $25 gift card as a goodwill gesture.

Loblaw recorded a charge of $107 million in relation to the gift card program in the fourth quarter of 2017, and said that it expects the program to be an offset against civil liability. The company, in a call with analysts this morning, declined to comment further on the issue.

The company also recorded a $189 million charge related to its merger of the Shoppers Optimum and PC Plus programs this year under the PC Optimum brand. The costs were associated with a higher anticipated redemption rate of points and IT assets that support the existing loyalty programs.

Regarding that program and its recent launch, Loblaw Cos. Chairman and CEO Galen G. Weston spoke enthusiastically in today’s analyst call, saying, “Our strategic investments are unlocking value across our existing assets. This is best illustrated by the creation and launch of PC Optimum where we combined Canada's two best loyalty programs and made them better together. Three weeks since the launch of the new program, we are tracking very well. Customers clearly share our enthusiasm with over 6 million members having already converted to the new program. They have earned and redeemed points more than 32 million times with over a million visits daily to our new website and app.”

He added, “In a future defined by those who understand their customers best, a personalized loyalty program with which millions of Canadians get engaged every day represents a unique opportunity by offering us a single view of our customers all across our retail stores, services and digital platforms.”

Loblaw continues to grow its e-commerce initiatives, noted Weston, “giving Canadians more beauty, apparel, pharmacy and food product by mail, personal delivery and our rapidly expanding Click & Collect business. This increasingly compelling program is now rolling out at a rate of more than one store each day.” Click & Collect is Loblaw’s foray into the e-commerce and store pickup business.

In the fourth quarter, the company eliminated approximately 500 corporate and store-support positions and finalized a plan that will result in the closure of 22 unprofitable retail locations across a range of banners and formats. Although Loblaw expects to record charges of approximately $135 million related to this restructuring, it estimates annual savings of $85 million related to these plans. 

Based in Brampton, Ontario, Loblaw is Canada’s largest food retailer, operating more than 2,300 stores.

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