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Loblaw Sticks to Plan Despite Q3 Dip

BRAMPTON, Ontario — Quarterly sales were flat and profits fell but Loblaw Cos. here raised dividends in a signal that its board remained confident in the retailer’s long-term strategy.

In financial results for the 16-week quarter, which ended Oct. 6, Loblaw said retail sales of $9.6 billion (U.S.) increased by 0.7% while same-store sales climbed by 0.2%. Net earnings of $221.3 million (U.S.) decreased by 6% as operating margins declined 20 basis points to 4.1% of sales.

The company said the earnings decrease was due mainly to a decrease in operating income and on higher interest rates. The sales lift reflected “modest” food sales growth, slight inflation and a net increase in square footage.

Financial analysts expected slightly higher revenues and a penny more per share in earnings.  However, a forecast for modest earnings growth in 2013 and at least some traction in ongoing efforts to strengthen relationships with its customers provided a sliver of optimism at Loblaw.

“While the overall sales result appears somewhat disappointing, management is encouraged by the [customer satisfaction measures] and by the shopping patterns of the company’s most loyal and valuable customers,” Keith Howlett, an analyst for Desjardins Capital Markets, said in a research note.

Read more: Loblaw Plans 700 Corporate Layoffs

Howlett, who upgraded his rating on Loblaw to “Buy-Above Average Risk” from “Hold-Average Risk,” noted however “it may be two or more years before the financial benefits to shareholders of the last seven years of transformational investment are meaningful.”

The enthusiasm was shared by Loblaw’s board of directors, which approved a 1-cent per-share increase in its quarterly dividend to 22 cents. Officials said the move reflected the board’s confidence in the retailer’s long-term prospects.

In a conference call discussing results, Vincente Trius, Loblaw’s president, said the company was continuing to make investments designed to strengthen its customer proposition amid “intense” competition sparked by expanding retail square footage in Canada. He said the company was beginning to see results of those investments, intended to drive customer loyalty. The company is also making progress implementing a companywide IT platform.

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