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Loblaw execs say innovations starting to bear fruit

First-quarter sales rise as retailer spurs digital investments

Loblaw Cos. reported higher retail sales for the first quarter as executives gave updates on efforts to offer more shopper conveniences and better use data to make promotions more relevant to customers.

Canada’s largest food and drug retailer yesterday posted companywide sales of $10.66 billion (Canadian) for the quarter ended March 23, up 3.1% from $10.34 billion a year earlier.

Retail sales totaled $10.45 billion, rising 2.9% year over year from $10.16 billion. Excluding franchise consolidation, the retail sales gain was 2%, Brampton, Ontario-based Loblaw said.

Food retail sales increased 3.4% to $7.52 billion from $7.27 billion, with same-store sales up 2%. Loblaw noted that food retail traffic was relatively flat during the quarter, though the company saw growth in basket size.

Drug retail sales, from the Shoppers Drug Mart unit, came in at nearly $2.94 billion, up 1.8% from $2.88 billion a year ago. Comparable-store sales rose 2.2%, reflecting gains of 3.1% in the front end and 1.2% in the pharmacy. Prescriptions filled grew 2.6% year over year, while the average prescription value fell 2.1%.

Loblaw added that the timing of Easter had a “nominal impact” on same-store sales growth for food and drug retail in the first quarter, and drug retail sales performance was negatively impacted by health care reform.

Sarah_Davis_Loblaw.png“In Q1, we delivered consistent performance in our businesses. We continue to deliver value to our customers while also continuing to generate operational efficiencies that allow us to fund our investments for an exciting future,” Loblaw President Sarah Ruth Davis (left) told analysts in a conference call on Wednesday.

For example, she said, Loblaw is “really starting to get some traction” with initiatives to better leverage data to personalize promotions for customers. In April, the company announced that it has been testing a new service that uses its PC Optimum loyalty program to personalize ads for customers and reward them for seeing those ads while browsing online.

“We have seen an incredible shift in our ability to use the data from across our organization to provide better consumer offers, make better promotional decisions and more efficiently manage our supply chain network,” Davis explained. “In the [second] quarter, we will further refine our data and analytics center of excellence and welcome the new leader for the team. We now have over 400 colleagues and counting working in data and analytics-related roles. Across our stores, brands and services — be it in person or digitally — our focus is centered on our customer. As we mentioned last quarter, 2019 is about making further investments in data and technology to drive customer adoption and improve customer satisfaction.”

That includes improvements in Loblaw’s online grocery pickup service PC Express, available at about 670 grocery and drugstores and GO Transit stations.

“At PC Express, customers are telling us that they want faster turnaround on their orders. We deployed a new technology to track our efficiency and ensure service times are less than five minutes,” Davis said. “We are rolling out two click-and-collect windows in more stores every week, and we are testing our ability to offer customers a one-hour cutoff on pickup orders. That means customers can add a last-minute item to their basket in as little as an hour before they swing by the store to pick up their groceries on the way home.”

Faster turnaround for PC Express, Davis added, is part of Loblaw’s strategy to provide Canadians with convenient meal solutions.

“We believe the combination of our assets, including our trusted brands, our data on personal preferences, our store locations and our omnichannel presence places us in a unique position to help Canadians with this everyday challenge in many ways,” she told analysts. “Over the past few months, you may have noticed another one of our brands in your local store or on PC Express, called From Our Chef. We now have 20 meals that offer home-cooked options in under 30 minutes, heat-and-eat favorites like pad Thai and butter chicken. We will also be introducing a meal kit into 92 Loblaws stores in Ontario following the May long weekend.”

Galen_Weston_Loblaw.pngLoblaw Executive Chairman Galen Weston (left) also was bullish on the company’s investments in innovation, which he said would accelerate over the course of the year.

“These investments continue to show positive results successfully unlocking value in both our core business and across our growth initiatives. What excites us most is how these investments combined with our increasing experience and growing pool of talent are helping us uncover and explore new opportunities,” Weston said on the earnings call.

“Take, for example, the pilot of our Loblaw media business. By leveraging the technology and our loyalty platform, we are allowing our customers to see more relevant ads when they surf the web,” he explained. “Another example is the combination of our growing range of ready-to-heat and ready-to-eat meals now available through our increasingly popular one-hour delivery and pickup services. Whether removing clutter from the ads our customer see online or helping to solve their last-minute meal needs at 4 p.m. on a Wednesday, we are now able to stand up and scale these customer-centered ideas more quickly and with less cost than ever before.”

At the bottom line for the 2019 first quarter, net earnings available to common shareholders (continuing operations) came in at $198 million, or 53 cents per diluted share, compared with $212 million, or 55 cents per diluted share, in the 2018 quarter.

Adjusted net income available to common shareholders (continuing operations) was $290 million, or 78 cents per diluted share, versus $312 million, or 81 cents per diluted share, a year earlier. Normalized for the year-over-year impact of the Choice Properties REIT spin-out (4 cents per share) and the implementation of the new IFRS 16 lease accounting standard (2 cents per share), adjusted net earnings per share (diluted) was 84 cents, Loblaw said.

On average, analysts had projected Loblaw’s first-quarter adjusted EPS at 81 cents, according to Zacks Investment Research.

Loblaw finished the quarter with 2,424 stores in its retail network, including 550 corporate-owned supermarkets, 1,339 associate-owned drug stores and 535 franchised grocery stores. In the last 12 months, the company opened 18 food and drug stores and closed 13 food and drugstores.

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