TORONTO — Loblaw Cos. here said it has fallen behind on the five-year recovery plan it laid out in 2005, but it hopes to catch up within six to nine months.
Citing the progress it's made in the last few months, Allan L. Leighton, president and deputy chairman, said, “We can build the sales momentum the business requires, and I'm confident we'll get ourselves back on track within six to nine months.”
He made his remarks during a conference call with analysts to discuss financial results for the second quarter and first half that ended June 14.
Net income for the 12-week period jumped 17.6% to $137.4 million (U.S.), while sales rose 1.5% to $6.9 billion and comparable store sales were up 0.7%, including fuel. For the 24-week period, net income increased 16.8% to $198.2 million, while sales rose 2.1% to $13.3 billion and comps rose 1.6%, including fuel. The company does not break out comps excluding fuel.
Excluding a change in year-over-year restructuring charges and the favorable impact of a gain on the sale of some investments, Canada's largest supermarket operator said net earnings would have been down in both periods on a comparable basis.
Sales results in the quarter were impacted by the shift of Easter into this year's first quarter, compared with last year's second quarter. Total sales growth in food was positive, the company said, and drug store sales were strong, while general merchandise sales declined.
In his remarks Leighton said Loblaw developed a five-point plan to help the company become a more effective selling organization.
“But it doesn't get turned around overnight, and that's why we said this is a six- or nine-month catch-up period,” he explained. “We're looking at driving sales momentum that is sustainable over a period of time, not something that comes and goes on a week-by-week or period-by-period basis.”
Detailing progress on each of the five points, Leighton made the following comments:
Renovation work has started on the company's 20 conventional stores in Ontario, including investments in customer service and fresh departments, with completion scheduled for the latter part of the year.
“Almost 1,000 new hires have joined the stores in front-line service roles,” he said, with new uniforms, new standards in the fresh areas and new advertising and graphics programs based around “eating well and saving more,” he pointed out.
He said the company is pleased with early results of is efforts. “We can see sales and mix benefits, and, more importantly, improvements in customer perception, and we expect to roll out the learning success from this program to the majority of our conventional stores across the country.”
Although the changes include some price adjustments that improve the offer, “pricing is just 20% or 25% of the equation,” Leighton said. “The other 75% is the pieces we're going to work on, and that's where the sustainable momentum comes from.
“What we're trying to do to drive sustainable sales is really make a difference with all the other things, and that's where our focus is. Value and pricing is just part of the equation.”
He said the company is “pretty comfortable with our general overall price platform. But pricing is something that [changes] every week, so it's important to have the ability to still be flexible. We will invest in price where we need to, to maintain our value position, but we made a significant investment last year, and clearly that's largely not going to be repeated.”
The majority of renovations at the company's Real Canadian Superstore units in Western Canada will be completed by the end of the second quarter of 2009, including “a very comprehensive training program refocusing on standards, process and service,” he said.
In addition, the conversion of approximately 20 conventional Extra Foods in urban markets to the hard-discount No-Frills banner is on track, he noted, with 12 conversions expected by the end of the year.
The move to introduce local sourcing is nearly complete, with most of the impact likely to be felt early in 2009, he said.
Improvements to its supply chain are proceeding on schedule, with construction to expand its Calgary distribution center already under way and expansion at two other facilities due to start later this month.
“Unless you get the physical infrastructure right, which we're beginning to do now, and unless you make that a pretty simple operation, which we're now beginning to do, then you can add whatever you want on top of it and it doesn't work,” Leighton said.
Plans are under way to re-energize the chain's President's Choice brand throughout 2009, with new packaging and over 500 new product introductions, he said; and the chain is also moving forward with its No Name product line, “which we believe is Canada's best-valued brand,” he added.
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|* INCLUDES FUEL|