Loblaw Cos. Ltd. made gains in its bottom line in the second quarter but its sales were flat as it grappled with a highly competitive grocery market. And investments in its operations dimmed profit prospects for the rest of the year.
In the 12 weeks to June 19, Loblaw's profit rose to $197-million or 70 cents a share, from $181-million or 65 cents a year earlier. Sales lifted only slightly, up 0.1 per cent to $7.28-billion from $7.27-billion. The quarterly profit-per-share missed analysts' consensus estimate of 73 cents.
Same-store sales, a key retail measure, dropped 0.4 per cent, compared with a drop of 0.3 per cent a year earlier.
"As we progressed through the second quarter, the company continued to focus on building out our infrastructure and developing opportunities for growth," said Galen G. Weston, executive chairman at Loblaw.
"Unpredictable and competitively intense market conditions continue to put retail sales at risk. Investment in information technology and supply chain infrastructure will continue to negatively impact our operating income for the remainder of 2011."
Loblaw has been racing since late 2006 to turn around its troubled operations, pouring money into new supply chain systems to ensure that shelves aren't empty when shoppers are in the stores. Mr. Weston, scion of the wealthy Weston family that controls Loblaw, took over the helm at the time with other executives to try to take on burgeoning competition, including the daunting Wal-Mart Canada Corp.
On Aug. 2, a new president - Vicente Trius - will replace British retail veteran Allan Leighton as president of Loblaw, taking up from where Mr. Leighton will have left the company in updating its operations. Mr. Trius, a native of Spain, is also a seasoned retailer, having worked at Wal-Mart Stores Inc. - as Mr. Leighton had - and, more recently, the French-based Carrefour SA.
Loblaw will need Mr. Trius's skilled hand. In its second quarter, its core food sales were flat, while revenues in other key segments, including financial services, pharmacy and general merchandise, declined. Its Joe Fresh Style apparel sales increased modestly in the quarter, as a result of the company adding more space for the fashions.
The retailer's second-quarter gross profit increased to 22.7 per cent of sales, from 22.4 per cent a year earlier. The gains were due to better private-label margins and more controls over losses from internal and external theft and other waste (known as "shrink.") However, spending on promotional pricing and transportation partly offset the gains.
Labour and other cost efficiencies also helped improve operating profit, although other costs, such as investments in information technology and supply chain, dampened to some extent those improvements.
On a brighter note, Loblaw's gas sales in the quarter enjoyed strong growth because of higher retail gas prices and moderate volume upticks, the company said.
In its financial services division, on which Loblaw is counting on more for future growth, second-quarter operating profit tumbled 62.5 per cent to $12-million. The decline was due to heavy spending on marketing and customer acquisition, Loblaw said. Lower financial-services revenues were largely offset by improved credit-card losses, it said.
Financial-services revenue slipped 1.6 per cent to $121-million in the quarter, driven mainly by increased customer payment rates as a result of changing customer behaviours and more stringent credit-risk management policies implemented in 2009.