Loblaw Cos. Ltd., Canada’s largest grocery and drug chain, has increased its dividend by 10 percent after reporting a higher-than-expected profit in the first quarter.
Profit Beats Expectations
Loblaw Cos. Ltd.’s quarterly net profit came in at $505 million on an adjusted basis, up 10 percent year-over-year, according to a financial update released on May 3. The company’s shares were down about 3.5 percent in morning trade.
Revenue Growth
The Brampton, Ont.-based company reported revenue of approximately $13 billion in the first quarter, a roughly 6 percent increase from the same period last year. However, food sales fell short of analysts’ expectations, with the chain facing a challenging comparison to the first three months of 2022, when the Omicron wave of COVID-19 drove stronger grocery sales.
Chief Financial Officer Richard Dufresne Explains
"We were in lockdown last year because of Omicron," said Dufresne on a conference call. "And in lockdown, food retail does well, and our drug stores also did well. This year, we have a bit more complexity with the start date being January 1st instead of January 2nd, which means we had one less operating day in this year’s results compared to last year."
Impact on Same-Store Sales
The closures decreased Loblaw’s same-store sales by about 1.1 percent. However, same-store sales in the food division increased 3.1 percent, up from 2.1 percent last year. Bank of Nova Scotia analyst George Doumet described the growth as "softer" than expected, coming in below his forecast of 5.5 percent.
Gross Profit Margin
Loblaw slightly increased its gross profit margin by about 20 basis points to 31.3 percent, above forecasts of 30.6 percent. The gains came from the company’s drug stores, which outweighed a slight decline in food retail gross margin due to increasing costs outpacing price increases.
Loblaw President Galen Weston Comments
"Once again, we did not pass the full amount of cost inflation to customers, leading to food margin declines yet again this quarter," said Weston on May 3.
Dividend Increase
As part of the financial update, Loblaw announced its 12th consecutive annual increase to its dividend, boosting the dividend by 10 percent to 44.6 cents per common share.
Reaction from Analysts
Bank of Nova Scotia analyst George Doumet described the growth as "softer" than expected, while RBC’s Nattel said "margin gains from efficiency initiatives more than offset" the food sales performance.
Context and Relevance
Canadian grocery executives, including Weston, have faced criticism in recent months over their profit margins during a time of high food inflation. However, they have denied allegations that they are taking advantage of consumers.
Conclusion
Loblaw Cos. Ltd.’s financial update has provided insights into the company’s performance in the first quarter. Despite facing challenges, the company has increased its dividend and reported a higher-than-expected profit. As the Canadian grocery market continues to evolve, it will be interesting to see how Loblaw and other major players respond to changing consumer trends and economic conditions.
Sources:
- Loblaw Cos. Ltd.’s financial update (May 3)
- Bank of Nova Scotia analyst George Doumet’s comments
- RBC analyst Nattel’s comments
- Canadian parliamentary hearing on food inflation
