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The Loblaws store located on St. Clair Ave.West in Toronto is shown on Wednesday, Feb. 18, 2009. (NATHAN DENETTE/NATHAN DENETTE/The Canadian Press)
The Loblaws store located on St. Clair Ave.West in Toronto is shown on Wednesday, Feb. 18, 2009. (NATHAN DENETTE/NATHAN DENETTE/The Canadian Press)

Loblaw earnings rise on sales, financial services gains Add to ...

Loblaw Cos Ltd. says an improved performance by its retail sales and financial services segments boosted fourth-quarter revenues and helped drive a five per cent increase in fourth-quarter profit.

The operator of Canada's largest grocery store chain said Thursday that net earnings in the three months ended Dec. 31 were $174-million or 60 cents per diluted share. That was up from $165-million or 58 cents per diluted share in the same 2010 period.

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Revenue grew 3.6 per cent to $7.37-billion from $7.12-billion.

For the full year, Loblaw reported net earnings of $769-million or $2.71 per diluted share on revenues of $31.25-billion, compared with net earnings of $675-million or $2.38 per diluted share on revenues of $30.84-billion in 2010.

“We are pleased with our performance in the fourth quarter and the year,” executive chairman Galen Weston said in a statement accompanying the results.

“The ongoing strengthening of our customer proposition delivered improved sales at satisfactory margins, particularly in the second half of the year.”

However, Mr. Weston warned that the current year looks to be less profitable as the company expects to invest some $70-million in information technology and supply chain improvements and the continuation of investments in its customer proposition of some $40-million.

“We do not expect our operations to cover these incremental costs and, as a result, we anticipate full-year 2012 net earnings per share to be down year-over-year, with more pressure in the first half of the year,” he said.

Analysts, on average, had been expecting earnings of 67 cents per share on revenue of $7.25-billion in the fourth quarter, according to Thomson Reuters.

Same-store sales, an important metric in the retail business, were up 2.5 per cent in the quarter, partially helped by an extra day of store operations, and 0.9 per cent for the year, compared with declines of 1.6 per cent and 0.6 per cent in the prior-year periods.

Revenue from retail operations was $7.23-billion in the quarter, up from $7-billion with strong growth in food sales and apparel sales. The increase in apparel sales was partially driven by increased square footage, including five new Joe Fresh free standing stores, Loblaw said.

However, excluding apparel, there was a decline in general merchandise sales and pharmacy sales were flat.

Financial services contributed $147-million in revenue in the quarter, up from $118-million, with the 24.6 per cent increase being driven by increased credit card transaction values resulting in higher interchange fee income and higher PC Telecom revenues as a result of the launch of the new Mobile Shop kiosks in the fourth quarter.

Decreases of $3-million to $18-million in the segment's operating income and $4-million in earnings before income taxes to $7-million were attributable to investments in the launch of PC Telecom's Mobile Shop kiosks and an increased credit card loss provision as a result of quarterly growth in the receivables program, partially offset by the increase in interchange fee income.

Loblaw Co. has been facing rising food prices, stiff competition and an uncertain economy, all while it wraps up one of the company's biggest-ever infrastructure overhauls, which has been ongoing for a number of years.

Rising world prices for everything from meat and flour to sugar and gasoline have put upward pressure on food processors, grocers and most companies operating in the food business.

Loblaw faces the challenge of balancing the effects of rising raw material costs with attracting consumers in an increasingly competitive environment.

National grocery chains Loblaw, Metro , and Sobeys parent Empire Co. Ltd. have faced fierce competition, particularly in Ontario, from each other and retailers like Zellers and Shoppers Drug Mart who are increasing their food offerings.

U.S. retail king Wal-Mart also plans a major expansion of 40 new grocery stores in Canada this year, with rival Target planning to enter the Canadian market in 2012.

Loblaw, a subsidiary of George Weston Ltd. , operates more than 1,000 stores across Canada under numerous banners which also include Great Canadian Super Store, Provigo, No Frills and Atlantic Superstore. The company employs 138,000 full- and part-time workers.

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