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Loblaw Companies Limited Reports 2011 First Quarter Results(1)

^{Published on 2011-05-04 05:10:57 - Market Wire}
 

 2011 First Quarter Summary(1) - Basic net earnings per common share of $0.58, up 20.8% - EBITDA margin(2) of 6.6% compared to 6.2% in the first quarter of 2010 - Revenue of $6,872 million, a decline of 0.6% over the first quarter of 2010 - Retail sales and same-store sales declines of 0.5% and 0.1%, respectively, from the first quarter of 2010 

 - The Retail segment, which consists primarily of food and also includes drugstore, gas bars, apparel and other general merchandise; and - The Financial Services segment, which includes credit card services, a retail loyalty program, insurance services, personal banking services provided by the direct banking division of a major Canadian chartered bank and telecom. (1) This news release contains forward-looking information. See Forward-Looking Statements 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 factors and 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 sedar.com and at loblaw.ca. (2) See Non-GAAP Financial Measures. Consolidated Quarterly Results of Operations ------------ For the periods ended March 26, 2011 and March 27, 2010 (unaudited) 2011 2010 (millions of Canadian dollars except where otherwise indicated) (12 weeks) (12 weeks) % Change ------------------------------------------------------------------------- Revenue $ 6,872 $ 6,913 (0.6%) Operating income 303 289 4.8% ------------------------------------------------------------------------- Net earnings 162 132 22.7% Basic net earnings per common share ($) 0.58 0.48 20.8% ------------------------------------------------------------------------- Operating margin 4.4% 4.2% EBITDA(1) $ 455 $ 431 5.6% EBITDA margin(1) 6.6% 6.2% ------------------------------------------------------------------------- ------------ - Revenue decreased by $41 million, or 0.6%, to $6,872 million in the first quarter of 2011 compared to the first quarter of 2010. This decrease was primarily due to the declines in Retail sales and Financial Services revenue as described below. - Operating income increased by $14 million, or 4.8%, to $303 million in the first quarter of 2011 compared to the first quarter of 2010. Operating margin was 4.4% for the first quarter of 2011 compared to 4.2% in 2010. These increases were driven by improvements in gross profit and selling, general and administrative expenses as described below. Included in consolidated operating income are the following items: - Incremental costs of $43 million related to investments in information technology and supply chain, which negatively impacted basic net earnings per common share by $0.11. These costs included: - A charge of $21 million related to changes in the distribution network, of which $16 million was incremental; and - A charge of $36 million related to depreciation and amortization, of which $13 million was incremental. - An $8 million charge related to an internal re-alignment of the business centred around the Company's two primary store formats, Discount and Conventional, which negatively impacted basic net earnings per common share by $0.02; and - Income related to the effect of share-based compensation net of equity forwards of $7 million (2010 - $6 million charge). The effect on basic net earnings per common share was income of $0.01 (2010 - $0.01 charge). - Net earnings increased by $30 million or 22.7%, to $162 million in the first quarter of 2011 compared to the first quarter of 2010 due primarily to the increase in operating income, a decrease in net interest expense and other financing charges due to a net decrease in long term debt, an increase in net interest income on financial derivative instruments and an increase in interest income as a result of higher short term interest rates and lower income taxes. The consolidated quarterly results by reportable operating segments were as follows: Retail Results of Operations ------------ For the periods ended March 26, 2011 and March 27, 2010 (unaudited) 2011 2010 (millions of Canadian dollars except where otherwise indicated) (12 weeks) (12 weeks) % Change ------------------------------------------------------------------------- Sales $ 6,757 $ 6,791 (0.5%) Gross profit 1,554 1,542 0.8% Operating income 285 265 7.5% ------------------------------------------------------------------------- Same-store sales(decline) growth (0.1%) 0.3% Gross profit 23.0% 22.7% Operating margin 4.2% 3.9% ------------------------------------------------------------------------- ------------ (1) See Non-GAAP Financial Measures. - In the first quarter of 2011, the following factors explain the major components in the change in Retail sales over the same period in the prior year: - Sales growth in food was flat; - Sales in drugstore declined marginally, negatively impacted by deflation due to generic prescription drug regulation changes in Ontario and other provinces and the impact of new generic versions of certain prescription drugs; - Sales in apparel declined marginally due in part to cooler weather and the timing of the Easter holiday; - Sales in other general merchandise declined moderately due to continued reductions in square footage and optimization of range and assortment of products; - Gas bar sales growth was strong as a result of higher retail gas prices and modest volume growth; and - The Company experienced modest average quarterly internal food price inflation during the first quarter of 2011, which was lower than the average quarterly national food price inflation of 2.5% (2010 - 0.7%) as measured by "The Consumer Price Index for Food Purchased from Stores" ("CPI"). In the first quarter of 2010, the Company experienced marginal average quarterly internal food price deflation. CPI does not necessarily reflect the effect of inflation on the specific mix of goods sold in Loblaw stores. - Gross profit increased by $12 million to $1,554 million (23.0% of sales) in the first quarter of 2011 compared to the first quarter of 2010 (22.7% of sales). This increase was mainly attributable to improved control label profitability, improved shrink, the shift of pharmaceutical professional allowances from selling, general and administrative expenses to gross profit as legislated and a stronger Canadian dollar. The timing of Easter vendor programs and increased transportation costs partially offset these improvements. - Operating income increased by $20 million, or 7.5%, to $285 million in the first quarter of 2011 compared to $265 million in the first quarter of 2010. Operating margin was 4.2% for the first quarter of 2011 compared to 3.9% in 2010. This increase was due to increased gross profit, labour efficiencies, the improvement in the performance of the Company's franchise business, a stronger Canadian dollar and the impact of share based compensation net of equity forwards, partially offset by the incremental costs related to the investment in information technology and supply chain and the charge associated with the internal re-alignment of the business. Financial Services Results of Operations ------------ For the periods ended March 26, 2011 and March 27, 2010 (unaudited) 2011 2010 (millions of Canadian dollars except where otherwise indicated) (12 weeks) (12 weeks) % Change ------------------------------------------------------------------------- Revenues $ 115 $ 122 (5.7%) Operating income 18 24 (25.0%) ------------------------------------------------------------------------- Average quarterly net credit card receivables $ 1,942 $ 1,985 (2.2%) Credit card receivables 1,887 1,874 0.7% ------------------------------------------------------------------------- Annualized yield on average quarterly gross credit card receivables 12.6% 13.3% Annualized credit loss rate on average quarterly gross credit card receivables 4.6% 6.3% ------------------------------------------------------------------------- ------------ - Revenues for the first quarter decreased by $7 million, or 5.7%, to $115 million compared to $122 million in the first quarter of 2010. The decrease was primarily driven by improved customer payment practices resulting from more stringent credit risk management policies implemented in 2009. Although these practices resulted in lower revenues, they favourably impacted the annualized credit loss rate as planned. - Operating income decreased by $6 million or 25.0% to $18 million in the first quarter of 2011 compared to $24 million in the first quarter of 2010. This decrease was mainly due to the reduction in revenue and an increase in marketing costs, partially offset by a lower allowance for credit card losses. 

 - 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 revenue 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 share-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. 

 ----------- For the periods ended March 26, 2011 and March 27, 2010 (unaudited) 2011 2010 (millions of Canadian dollars) (12 weeks) (12 weeks) ------------------------------------------------------------------------- Net earnings $ 162 $ 132 Add impact of the following: Income taxes 68 70 Net interest expense and other financing charges 73 87 ------------------------------------------------------------------------- Operating income 303 289 Add impact of the following: Depreciation and amortization 152 142 ------------------------------------------------------------------------- EBITDA $ 455 $ 431 ------------------------------------------------------------------------- -----------