A late surge from coronavirus-driven purchases hoisted retail sales and net earnings at Loblaw Cos. for the fiscal 2020 first quarter.
Overall retail sales in the 12-week quarter ended March 21 climbed 10.8% to $11.58 billion (Canadian) from $10.45 billion a year earlier, Loblaw said Wednesday. Excluding franchise consolidation, retail sales grew 9.3%.
Loblaw estimated that stock-up shopping by consumers amid the pandemic lifted retail sales by about $768 million in the quarter, including a favorable impact of $91 million from the consolidation of franchises.
“Late in the quarter, the company experienced unprecedented consumer demand and stockpiling relating to COVID-19, with sales surging in the final two weeks of March. The result was both a sharp increase in revenue and profit, followed by ramp-up in spending to protect and benefit colleagues and customers,” Loblaw stated. “Following the initial surge in March, demand has moderated, with continued strength in essential food categories and pressure on sales in pharmacy and some discretionary areas of the business.”
Food retail sales in the first quarter totaled $8.33 billion, up 10.9% from $7.52 billion a year ago. Same-store sales for food jumped 9.6% year over year, fueled by increased traffic and a bigger basket size, Loblaw said, noting that the company saw a 2% food retail comparable-sales gain in the 2019 quarter.
In the drug retail segment, Loblaw’s Shoppers Drug Mart chain, sales rose 10.7% to $3.25 billion from $2.94 billion. Same-store sales also grew 10.7%, reflecting gains of 10.7% in the front end and 10.6% in the pharmacy. Loblaw said COVID-19 positively impacted Shoppers Drug Mart’s comp sales. Prescription count advanced 5.5%, while the average prescription value increased 4.8%.
“These are unprecedented times, and I am incredibly proud of how our colleagues have risen to the challenge of ensuring that Canadians have access to the food and health essentials they need. And we will continue to make significant investments to keep our colleagues and customers safe through the pandemic,” Loblaw Executive Chairman Galen Weston (left) said in a statement. “As we remain focused on long-term value creation, and we see signs of fundamental change in consumer behavior, our conviction around the strategic importance of our leading positions in loyalty, digital retail and connected health care is stronger than ever.”
Loblaw said its coronavirus-related investments include enhanced customer convenience via more store staff, expanded PC Express e-commerce services, and eliminating fees and reducing prices with online services; safety measures such as store cleaning, hiring of security and ambassadors to manage social distancing, new customer protocols, and plexiglass barriers at checkouts and counters; and temporary pay premiums and pay protection safeguards for workers in stores and distribution centers. In addition, the retailer is providing financial aid to communities across Canada through large-scale donations to food and wellness programs and to President's Choice Financial Mastercard customers via new financial hardship programs.
“The company’s response and costs related to COVID-19 have accelerated following the end of the quarter, putting pressure on the business,” Loblaw said.
At the bottom line, first-quarter net income available to common shareholders was $240 million, or 66 cents per diluted share, compared with $198 million, or 53 cents per diluted share, a year ago. Adjusted net earnings available to common shareholders came in at $352 million, or 97 cents per diluted share, versus $290 million, or 78 cents per diluted share, in the prior-year period.
Analysts, on average, had forecast adjusted earnings per share (EPS) of 85 cents, according to Zacks Investment Research.
Initial demand for grocery and pharmacy products in March after the COVID-19 outbreak in Canada boosted first-quarter net EPS by 14 cents, Loblaw estimated.
Also in the quarter, Loblaw recorded $19 million restructuring and other related charges, including $15 million from the previously announced closing of two distribution centers in Laval, Quebec, and Ottawa, Ontario. The company said it plans a “modern and efficient” expansion of its DC in Cornwall, Ontario, to serve food and drug retail in Ontario and Quebec. Both the Laval and Ottawa are slated to transfer their volumes to Cornwall over the next two years.
“Uncertainty over the duration and severity of the pandemic make reliable estimates of the second-quarter and full-year COVID-19-related impacts on the financial results and operations of the company impossible,” Loblaw said.
At the close of the first quarter, Loblaw’s retail network spanned 2,430 stores, including 547 corporate-owned supermarkets under multiple banners, 539 franchised grocery stores and 1,344 Shoppers Drug Mart/Pharmaprix associate-owned drugstores.
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