Loblaw embarks on its next chapter

Despite a still-challenging economic climate, Loblaw’s profit in the second quarter beat analysts’ expectations, and was bolstered by strong sales in its recently acquired Shoppers Drug Mart.



Sales at the pharmacy and beauty retailer, which contributed to Loblaw’s net sales for the first time this quarter, accounted for more than a quarter of the food retailer’s total sales of C$10.31 billion in the quarter.



"The second quarter of 2014 marked the opening of the next chapter for Loblaw, combining the number one food retailer in Canada with the number one pharmacy and beauty retailer," said president and executive chairman Galen G. Weston. "For the balance of the year, we expect to continue to improve our competitive positioning, advance our businesses and realize material synergies related to the transaction."



Loblaw’s revenue for the quarter was C$10.31 billion, an increase of 37.1% compared to the prior-year quarter. Excluding Shoppers Drug Mart, revenue increased by 2.4% compared to last year’s quarter.



Retail sales growth was 37% compared to the prior-year quarter. Excluding Shoppers Drug Mart, retail sales growth was 1.6% and same-store sales growth was 1.8%. Retail same-store sales growth was positively affected by approximately 0.1% due to the shift in the timing of Easter.



Shoppers Drug Mart sales were $2.7 billion during the quarter. On a same-store basis, Shoppers Drug Mart sales increased 2.5% over last year’s second quarter. On a same-store basis, pharmacy sales increased 2.5% and front store sales increased 2.4% over the prior-year quarter.



The company realized net synergies of approximately $8 million in the quarter associated with the acquisition of Shoppers Drug Mart.



With the upgrade of its information technology infrastructure, the company expects to complete the conversion of its corporate grocery stores to a perpetual inventory management system in 2014. The implementation of a perpetual inventory system, combined with visibility to integrated costing information provided by the new IT systems enables the company to estimate the cost of inventory using a more precise system-generated average cost.



In the last 12 months, the company opened 22 corporate and franchise stores and closed 12 corporate and franchise stores, resulting in a net increase of 0.4 million sq. ft., or 0.8%. During the second quarter, Shoppers Drug Mart opened two new drugstores and closed five smaller pharmacy format stores.