Loblaw, Metro margins squeezed in grocery wars

Loblaw Companies Ltd. says profit will be flat compared with 2012, the result of reduced margins while competitor Metro says its sales are down 1.1 per cent as competitors move in.

Grocery chains' stock falls after earnings downgrade by Loblaw, lower sales at Metro

Montreal-based Metro is reporting falling sales amid stiff competition in the grocery sector. Loblaw also downgraded its outlook for 2013. (Paul Chiasson/Canadian Press)

Loblaw Companies Ltd.no longer expects to grow its profit this year and says it will be flat compared with 2012, the result of reduced margins as the grocery company focuses on winning over customers in an intensely competitive marketplace.

The company, which owns Loblaw, Presidents Choice and several other grocery brands as well as the Joe Fresh clothing business, announced its revised outlook Wednesday along with a drop in third-quarter profit.

"In the third quarter of 2013, the company made greater than anticipated investments in targeted food categories as a result of an increasingly competitive environment driven by greater than historical square footage expansion," Loblaw said in a statement to investors.

"The company remains committed to its strategy to drive its customer proposition, including investments in food margins, in the fourth quarter of 2013."

Translated, that could mean good prices for shoppers as Loblaw competes against other domestic grocery chains, primarily Sobeys and Metro, and U.S. retailers such as Walmart, Target and Costco.

Loblaw said its net earnings were $154 million or 55 cents a share, compared to $217 million or 77 cents in 2012. Per store revenue was up, but Loblaw is struggling to reduce labour and supply costs.

Separately, Metro Inc. reported Wednesday that its sales for its fiscal fourth quarter ended Sept. 28 were down 1.1 per cent from a year earlier,  but adjusted net earnings from continuing operations were up at $83.6 million or 88 cents per diluted share.

The grocery chain missed analyst's expectations and Metro’s stock was down 6.4 per cent by mid-day at $61.49.

Food Basics fending off Wal-Mart

Montreal-based Metro also announced its dividend will rise to 25 cents per share, an increase of 16.3 per cent.

Same-store sales were down 1.8 per cent, with its Food Basics discount chain fighting off competition from Wal-Mart.

Loblaw executive chairman Galen G. Weston, whose family is the biggest shareholder of the Toronto-area company, said same-store sales have increased three quarters in a row.

"Unfortunately, due to incremental margin investment in the back half of the year, we are lowering our earnings growth expectations for 2013," Weston said.

The company is also introducing three new financial measures beginning with the third-quarter report, that weren't used in previous guidance — making comparisons with previous estimates more difficult.

Loblaw stock falls

Loblaw adjusted earnings, one of the new measures that excludes items that are part of standard accounting, was $220 million or 78 cents per share, down 3.7 per cent from 81 cents per share.

Revenue for the 16-week period was up 1.9 per cent to $10 billion. On Wednesday, Loblaw stock was down $33.34 or seven per cent at $44.50.

During the summer, Loblaw spun off its real estate holdings into a new publicly traded trust, Choice Properties which remains majority-owned by the grocery company.

Choice's publicly traded shares closed Tuesday at $10.20, up from $10.05 on the first day of trading on July 12.

Loblaw is also in the process of acquiring Shoppers Drug Mart, which will be operated as a separate division with complementary products.

With files from CBC News


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