BRAMPTON, Ontario — Food-retailing capacity growth in Canada reached “critical mass” during the third quarter, triggering aggressive price investment and a subsequent dip in profits at Loblaw, officials said Wednesday.
Galen Weston, Loblaw’s executive chairman, acknowledged that not all of Loblaw’s price adjustments during the period resulted in increased volume. The effects of this miscalculation and expected margin pressure during the current fourth quarter prompted officials to say the retailer would not meet expected operating income targets for the fiscal year.
“When we raised our outlook in Q2 we foresaw a competitive back half. However, the actual intensity we experienced in Q3 was greater than we projected and caused actual performance to be below our expectations,” Sarah R. Davis, Loblaw’s chief financial officer, said in a conference call.
For the quarter, which ended Oct. 5, Loblaw reported sales of $9.6 billion (U.S.), a 1.9% increase, and non-fuel comparable store sales growth of 0.1%. Gross profits were flat compared with the same period last year, while operating income fell by 8.3% and net earnings tumbled by 29% to $147 million (U.S.).
Vicente Trius, Loblaw’s chief executive officer, said Canadian markets were currently in the height of square footage expansion led by U.S. superstores Wal-Mart and Target, and that he expected similar pressures to continue through the first half of next fiscal year.
“We see a market environment that has increased in square footage at twice the pace of any other year,” Trius said.
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