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Loblaw sees retail sales edge up in fourth quarter

Canadian food/drug retailer reports flat results for full year

Retail sales were virtually flat at Loblaw Cos. for its 2018 fiscal year despite an uptick in the fourth quarter, driven mainly by its Shoppers Drug Mart unit.

Loblaw said Thursday that for the 12-week fourth quarter ended Dec. 29, overall revenue rose 2.1% to $11.22 billion (Canadian) from $10.99 billion a year earlier. For the full year, revenue inched up 0.2% to $46.69 billion from $46.59 billion.

Brampton, Ontario-based Loblaw noted that its fiscal 2018 results reflect the spinout of its Choice Properties unit — positioning the company as a pure-play retailer — as well as the disposition of its gas bar business and consolidation of franchises.

Fourth-quarter retail sales totaled $10.98 billion, up 1.7% from $10.8 billion in the prior-year period. Food retail sales edged up 1.7% to $7.75 billion, lifted in part by a 0.8% gain in same-store sales. The drug retail segment also saw sales rise 1.7%, with comparable-store sales up 1.9%. The latter reflects increases of 2.8% in the front end and 0.6% in the pharmacy.

For the year, retail sales dipped 0.1% to $45.84 billion from $45.86 billion. Sales in the food retail segment were down nearly 1% to $32.97 billion, despite a 1.1% comp-store sales uptick. Drug retail sales grew 2.3% to $12.87 billion, as same-store sales climbed 2.4%, including gains of 3.5% in the front end and 1.2% in the pharmacy.

“Q4 brought a fitting close to 2018, a year in which we set thoughtful but ambitious financial targets and then follow through on them. We saw strength in the underlying food and drug results, delivered through strong sales, core growth margin expansion based on data-driven margin decisions, and SG&A [selling, general and administrative expenses] disciplines with new process and efficiency wins. In turn, we intensified investments in the right strategic areas,” President Sarah Ruth Davis (left) told analysts in a conference call on Thursday.

“Our strategy is designed to rapidly accelerate growth in three important areas that matter to our customers: everyday digital retail payments and rewards and connected health care. We've made significant progress in each of these areas,” she said.

Loblaw’s e-commerce sales topped $500 million in 2018, Davis noted. The retailer now has 670 PC Express pickup sites in grocery and drug stores and GO Transit stations, with more locations upcoming. Plans also call for self-checkout to be in ove 1,000 grocery and drug stores by the year’s end, and electronic shelf labels — now in five stores — to be implemented in 50 stores.

“Last spring, we pledged to blanket Canada with digital conveniences, and looking back we did just that. Today PC Express pickup is only 10 minutes away from 75% of Canadians and 85% in the greater Toronto area, and home delivery is available to 65% of Canadian households,” Davis said. “2018 was about scaling our digital services; 2019 is about execution, making further investments in technology, driving customer adoption and improving customer satisfaction,” she added.

During 2018, Loblaw opened 17 food and drug stores and closed 22 locations, resulting in a 0.1% net increase in retail square footage. Overall, the company’s retail network includes 550 corporate-owned supermarkets, 1,337 associate-owned drug stores and 535 franchised grocery stores.

“During a year of more or less flat earnings performance, when it came to delivering against our long-term strategic priorities, 2018 was an extraordinary success,” Executive Chairman Galen Weston said in the call. “We launched three key products as part of our payments and reward strategy with the new digital credit card platform, PC Insiders and of course PC Optimum. We achieved scale on rapid growth across three of our major everyday digital retail platforms — grocery, beauty and pharmacy, significantly improving customer satisfaction along the way — and we continue to cement the technology foundation for connected health care.”

On the earnings side, Loblaw reported 2018 fourth-quarter net income available to common shareholders (including discontinued operations) of $221 million, or 59 cents per diluted share, compared with $31 million, or 8 cents per diluted share, a year earlier. Adjusted net earnings were $402 million, or $1.07 per diluted share, versus $436 million, or $1.12 per diluted share, in 2017.

Analysts, on average, projected adjusted EPS of $1.05 for the quarter, according to Zacks Investment Research. Loblaw said that for continuing operations, reported earnings per share (EPS) was 61 cents and adjusted EPS was $1.03.  

Fiscal 2018 net earnings available to common shareholders (including discontinued operations) totaled $754 million, or $1.99 per diluted share, versus nearly $1.51 billion, or $3.79 per diluted share, in fiscal 2017. On an adjusted basis, 2018 net income was $1.75 billion, or $4.60 per diluted share, compared with nearly $1.8 billion, or $4.52 per diluted share, for 2017.

The consensus analyst estimate was for 2018 adjusted EPS of $4.59, Zacks reported. For continuing operations, full-year reported EPS was $1.87 and adjusted EPS was $4.06, Loblaw said.  

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