TORONTO — Rapid product price inflation and reduced costs helped Loblaw Cos. here post quarterly earnings that exceeded analyst estimates. But executives remained cautious, citing the potential for additional volatility in the economy and margin challenges as prices recede.
“This was an OK quarter, maybe OK-plus,” Allen Leighton, president and deputy chairman, said in a conference call with analysts last week. “I think we're getting more of the basics right but we're flattered by inflation.”
For the first quarter that ended March 28, Loblaw posted net earnings of 93.2 million (U.S.) on sales of $5.7 billion, increases of 73% and 2.9%, respectively. Same-store sales improved 2.1%.
Leighton said Loblaw's product price inflation during the quarter was slightly lower than nationwide estimates of 9%, but provided a sharp contrast with the food price deflation it experienced in the same period a year ago. Increased prices helped Loblaw drive sales gains despite “modest” increases in volume, officials said, with food, drug and apparel sales strong and general merchandise showing significant declines.
Gross profit as a percentage of sales was 24%, vs. 22.8% in the same period a year ago. This improvement also reflected price inflation as well as better cost management including improved shrink and efficiencies from newly centralized buying departments.
“I've been around business for a long time and when you've got high inflation, generally all food retailers perform well. Because when you've got high inflation, you've got good sales numbers and if you've got good sales numbers, they'll run ahead of where your costs are running. And when it flips around, it's a different thing.”
An unwinding of the current price inflation could create difficult times for Loblaw in the months ahead, Leighton warned. He also acknowledged concern that the economic volatility could change shopping habits over the longer term.