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Loblaw Companies Limited Reports 2010 Fourth Quarter and Fiscal Year Ended January 1, 2011 Results(1)

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  Published in House and Home on Thursday, February 24th 2011 at 4:10 GMT by Market Wire
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 - Basic net earnings per common share of $0.54, which includes various charges as described below. - EBITDA margin was 6.2% compared to 5.7% in the fourth quarter of 2009. - Gross profit of $1.8 billion an increase of 2.7% compared to the fourth quarter of 2009. Gross profit as a percentage of sales was 24.8% compared to 23.6% in the fourth quarter of 2009. - Sales and same-store sales declined 2.1% and 1.6%, respectively, from the fourth quarter of 2009. For the periods ended January 1, 2011 and ---------- January 2, 2010 2010 2009 ($ millions except where (unaudited) (unaudited) otherwise indicated) (12 weeks) (12 weeks) Change ------------------------------------------------------------------------- Sales $ 7,161 $ 7,311 (2.1%) Gross profit 1,774 1,728 2.7% Operating income 289 277 4.3% Net earnings 151 165 (8.5%) Basic net earnings per common share ($) 0.54 0.60 (10.0%) ------------------------------------------------------------------------- Same-store sales decline (%) (1.6%) (7.8%) Operating margin 4.0% 3.8% EBITDA(2) $ 442 $ 420 5.2% EBITDA margin(2) 6.2% 5.7% ------------------------------------------------------------------------- ---------- 2010 2009 (unaudited) (unaudited) (52 weeks) (52 weeks) Change ------------------------------------------------------------------------- Sales $ 30,997 $ 30,735 0.9% Gross profit 7,604 7,196 5.7% Operating income 1,269 1,205 5.3% Net earnings 681 656 3.8% Basic net earnings per common share ($) 2.45 2.39 2.5% ------------------------------------------------------------------------- Same-store sales decline (%) (0.6%) (1.1%) Operating margin 4.1% 3.9% EBITDA(2) $ 1,924 $ 1,794 7.2% EBITDA margin(2) 6.2% 5.8% ------------------------------------------------------------------------- ---------- (1) This News Release contains forward-looking information. See Forward-Looking Statements in this News Release for a discussion of material factors that could cause actual results to differ materially from the conclusions, forecasts and projections herein and of the material assumptions that were used. This News Release must be read in conjunction with Loblaw Companies Limited's filings with securities regulators made from time to time, all of which can be found at [ www.sedar.com ] and at [ www.loblaw.ca ]. (2) See Non-GAAP Financial Measures. 

 - In the fourth quarter of 2010: - sales in food declined marginally; - sales in drugstore declined moderately, impacted by deflation due to regulatory changes in Ontario and the impact of generic versions of certain prescription drugs; - sales growth in apparel was moderate while sales of other general merchandise declined significantly due to lower discretionary consumer spending and reductions in assortment and square footage; - gas bar sales growth was strong as a result of higher retail gas prices and moderate volume growth; and - the Company's average quarterly internal retail food price index was flat. This compared to average quarterly internal retail food price deflation in the fourth quarter of 2009. - Gross profit increased by $46 million, or 2.7%, to $1,774 million (24.8% of sales) in the fourth quarter of 2010 compared to the fourth quarter of 2009 (23.6% of sales). This increase was primarily attributable to improved control label profitability and continued buying synergies and disciplined vendor management, the shift of pharmaceutical vendor rebates from selling and administrative expenses to gross profit, improved shrink and a stronger Canadian dollar. Increased transportation costs partially offset these improvements. - Operating income increased by $12 million, or 4.3%, to $289 million in the fourth quarter of 2010 compared to the fourth quarter of 2009. Operating margin was 4.0% for the fourth quarter of 2010 compared to 3.8% in 2009. In addition to the increase in gross profit described above, the following items influenced the Company's operating income in the fourth quarter of 2010 compared to 2009: - a charge related to the effect of stock-based compensation net of equity forwards of $7 million (2009 - $5 million). The effect on basic net earnings per common share was a charge of $0.02 (2009 - $0.01); - incremental costs of $27 million related to its investment in information technology and supply chain, which negatively impacted basic net earnings per common share by $0.07; and - a charge of $28 million (2009 - $27 million) for fixed asset impairments related to asset carrying values in excess of fair values for certain stores which negatively impacted basic net earnings per common share by $0.07 (2009 - $0.07). - Due to changes in the federal tax legislation that resulted in the elimination of the Company's ability to deduct costs associated with cash-settled stock options the Company has recognized a tax expense of $12 million in the fourth quarter of 2010. The effect on basic net earnings per common share was a charge of $0.04. - The Company invested $1.3 billion in capital in 2010 and estimates capital expenditures to be approximately $1.0 billion for 2011. - Subsequent to year-end, the Board of Directors approved discontinuing the Company's dividend reinvestment plan after the dividend payment on April 1, 2011 when approximately $300 million in common share equity will be raised through the program as planned. 

 - the possibility that the Company's plans and objectives will not be achieved; - changes in economic conditions including the rate of inflation or deflation and changes in interest and currency exchange rates; - changes in consumer spending and preferences; - heightened competition, whether from new competitors or current competitors; - changes in the Company's or its competitors' pricing strategies; - failure of the Company's franchised stores to perform as expected; - failure to realize sales growth, anticipated cost savings or operating efficiencies from the Company's major initiatives, including investments in the Company's information technology systems, supply chain investments and other cost reduction initiatives, or unanticipated results from these initiatives; - increased costs relating to utilities, including electricity and fuel; - the inability of the Company to successfully implement its infrastructure and information technology components of its plan; - the inability of the Company's information technology infrastructure to support the requirements of the Company's business; - the inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory and to control shrink; - failure to execute successfully and in a timely manner the Company's introduction of innovative and reformulated products or new and renovated stores; - the inability of the Company's supply chain to service the needs of the Company's stores; - failure to achieve desired results in labour negotiations, including the terms of future collective bargaining agreements, which could lead to work stoppages; - changes to and failure to comply with the legislative/regulatory environment in which the Company operates, including failure to comply with environmental laws and regulations; - the adoption of new accounting standards and changes in the Company's use of accounting estimates; - fluctuations in the Company's earnings due to changes in the value of stock based compensation and equity forward contracts relating to its Common Shares; - changes in the Company's income, commodity and other tax liabilities including changes in tax laws or future assessments; - reliance on the performance and retention of third-party service providers including those associated with the Company's supply chain and apparel business; - public health events including those related to food safety; - the inability of the Company to collect on its credit card receivables; - any requirement of the Company to make contributions to its registered funded defined benefit pension plans in excess of those currently contemplated; - the inability of the Company to attract and retain key executives; - supply and quality control issues with vendors; and - failure by the Company to maintain appropriate documentation to support its compliance with accounting, tax or legal rules, regulations and policies. 

 Consolidated Statements of Earnings For the periods ended January 1, 2011 and ---------- ---------- January 2, 2010 2010 2009 2010 2009 ($ millions except where (unaudited) (unaudited) (unaudited) (unaudited) otherwise indicated) (12 weeks) (12 weeks) (52 weeks) (52 weeks) ------------------------------------------------------------------------- Sales $ 7,161 $ 7,311 $ 30,997 $ 30,735 Cost of Merchandise Inventories Sold 5,387 5,583 23,393 23,539 ------------------------------------------------------------------------- Gross Profit 1,774 1,728 7,604 7,196 ------------------------------------------------------------------------- Operating Expenses Selling and administrative expenses 1,332 1,308 5,680 5,402 Depreciation and amortization 153 143 655 589 ------------------------------------------------------------------------- 1,485 1,451 6,335 5,991 ------------------------------------------------------------------------- Operating Income 289 277 1,269 1,205 Interest expense and other financing charges 63 64 273 269 ------------------------------------------------------------------------- Earnings before Income Taxes and Minority Interest 226 213 996 936 Income Taxes 71 39 297 269 ------------------------------------------------------------------------- Net Earnings before Minority Interest 155 174 699 667 Minority Interest 4 9 18 11 ------------------------------------------------------------------------- Net Earnings $ 151 $ 165 $ 681 $ 656 ------------------------------------------------------------------------- Net Earnings Per Common Share ($) Basic $ 0.54 $ 0.60 $ 2.45 $ 2.39 Diluted $ 0.54 $ 0.59 $ 2.44 $ 2.38 ------------------------------------------------------------------------- ---------- ---------- Consolidated Balance Sheets As at January 1, 2011 and January 2, 2010 ---------- ($ millions) 2010 2009 ------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents $ 932 $ 776 Short term investments 735 614 Accounts receivable 724 774 Inventories 2,114 2,112 Future income taxes 39 38 Prepaid expenses and other assets 82 92 ------------------------------------------------------------------------- Total Current Assets 4,626 4,406 Fixed Assets 9,123 8,559 Goodwill and Intangible Assets 1,029 1,026 Security Deposits 354 250 Other Assets 787 750 ------------------------------------------------------------------------- Total Assets $ 15,919 $ 14,991 ------------------------------------------------------------------------- Liabilities Current Liabilities Bank indebtedness $ 3 $ 2 Accounts payable and accrued liabilities 3,416 3,279 Income taxes payable - 41 Long term debt due within one year 433 343 ------------------------------------------------------------------------- Total Current Liabilities 3,852 3,665 Long Term Debt 4,213 4,162 Other Liabilities 534 497 Future Income Taxes 178 143 Capital Securities 221 220 Minority Interest 41 31 ------------------------------------------------------------------------- Total Liabilities 9,039 8,718 ------------------------------------------------------------------------- Shareholders' Equity Common Share Capital 1,475 1,308 Retained Earnings 5,395 4,948 Accumulated Other Comprehensive Income 10 17 ------------------------------------------------------------------------- Total Shareholders' Equity 6,880 6,273 ------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 15,919 $ 14,991 ------------------------------------------------------------------------- ---------- Consolidated Cash Flow Statements For the periods ended ---------- ---------- January 1, 2011 and 2010 2009 2010 2009 January 2, 2010 (unaudited) (unaudited) (unaudited) (unaudited) ($ millions) (12 weeks) (12 weeks) (52 weeks) (52 weeks) ------------------------------------------------------------------------- Operating Activities Net earnings before minority interest $ 155 $ 174 $ 699 $ 667 Depreciation and amortization 153 143 655 589 Future income taxes 34 (33) 42 (29) Settlement of equity forward contracts - (17) - (55) Change in non-cash working capital 245 298 66 707 Fixed assets and other related impairments 32 36 72 46 Other (16) 14 60 20 ------------------------------------------------------------------------- Cash Flows from Operating Activities 603 615 1,594 1,945 ------------------------------------------------------------------------- Investing Activities Fixed asset purchases (453) (365) (1,280) (971) Short term investments 56 (98) (159) (181) Proceeds from asset sales 53 17 90 27 Credit card receivables, after securitization (138) (228) 7 8 Business acquisitions - net of cash acquired - (10) - (204) Franchise investments and other receivables 2 10 (11) 6 Security deposits (6) 34 (115) 148 Other 5 (7) 20 (45) ------------------------------------------------------------------------- Cash Flows used in Investing Activities (481) (647) (1,448) (1,212) ------------------------------------------------------------------------- Financing Activities Bank indebtedness 2 1 1 (50) Short term debt - - - (190) Long term debt Issued 45 32 450 402 Retired (26) (10) (368) (167) Common shares retired - (56) - (56) Dividends (15) (18) (65) (112) ------------------------------------------------------------------------- Cash Flows from (used in) Financing Activities 6 (51) 18 (173) ------------------------------------------------------------------------- Effect of foreign currency exchange rate changes on cash and cash equivalents (4) 5 (8) (27) ------------------------------------------------------------------------- Change in Cash and Cash Equivalents 124 (78) 156 533 Cash and Cash Equivalents, Beginning of Period 808 854 776 243 ------------------------------------------------------------------------- Cash and Cash Equivalents, End of Period $ 932 $ 776 $ 932 $ 776 ------------------------------------------------------------------------- ---------- ---------- 

 ---------- ---------- 2010 2009 2010 2009 (unaudited) (unaudited) (unaudited) (unaudited) ($ millions) (12 weeks) (12 weeks) (52 weeks) (52 weeks) ------------------------------------------------------------------------- Net earnings $ 151 $ 165 $ 681 $ 656 Add impact of the following: Minority interest 4 9 18 11 Income taxes 71 39 297 269 Interest expense and other financing charges 63 64 273 269 ------------------------------------------------------------------------- Operating income 289 277 1,269 1,205 Add impact of the following: Depreciation and amortization 153 143 655 589 ------------------------------------------------------------------------- EBITDA $ 442 $ 420 $ 1,924 $ 1,794 ------------------------------------------------------------------------- ---------- ----------