Sales at Loblaws and Shoppers Drug Mart continue to grow, helping boost profit to $508M

The owner of Canada's largest grocery and drugstore chains posted a quarterly profit of $508 million in the past three months, as sales across virtually all of its businesses continue to grow.

Loblaw Cos. Ltd. reported a 31.3 per cent increase in its net income for the three months up to June 17, a profit surge that the chain said looks bigger than normal because the comparable period a year ago saw the company's financial services arm, PC Bank, book a one-time charge of $111 million.

The company said Wednesday morning that it spent $511 million during the quarter buying back more than four million of its own shares, which provides no tangible benefit to the operation of the business, but helps shareholders by reducing the number of shares available. That drives up earnings for those that remain as profits are split in a smaller pool of shares.

On an adjusted basis, the company says its net earnings were up by 10.6 per cent. That works out to a profit of $1.58 per share, up from $1.16 a year ago.

Revenue across all of the company's businesses came in at $13.7 billion — an increase of $891 million, or almost seven per cent.

Same-store sales at the company's grocery businesses — which include Loblaws, No Frills, Provigo, Real Canadian Superstore and others — were up by 6.1 per cent.

The company says the growth in its food division is led by discount stores, as consumers continue to push back against stubbornly high inflation. 

Cost increases

The company's gross margin — a metric that tracks a company's total profit compared to its revenues and expressed as a percentage — came in at 31.1 per cent. That's a slight decline from the 31.4 per cent it used to be.

"Retail gross margin declined slightly in both food and drug as the company faced double-digit supplier cost increases that were not fully passed on to consumers and higher shrink," the chain said. Shrink is a retailer term for the loss of product without it being paid for, typically in the form of shoplifting.

Sales at the drugstore arm, Shoppers Drug Mart, rose by 5.7 per cent. Within that, most of the growth came from the pharmacy unit itself, as opposed to other items sold at the front of the store.

E-commerce sales across all divisions grew sharply, up 13.9 per cent during the quarter.

While consumers have been outraged over high prices for food, Loblaws says they have increased their retail prices by a smaller amount than they have absorbed themselves.

Company chair Galen Weston says suppliers have increased their prices by more than $1 billion.

"This is double what we would expect normally," he told analysts on a conference call. "We have received double-digit increases from the same suppliers who gave us double-digit increases last year. That's why you see products that are noticeably more expensive than they were just a couple of years ago."