Loblaw faces fresh price hikes, signalling food inflation won’t ease any time soon

The supermarket giant has come under intense scrutiny amid rising food prices

CITYnews halifax \ Brett Bundale, The Canadian Press

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Loblaw Companies Ltd. says it’s facing fresh price hikes from suppliers, signalling food inflation won’t be easing any time soon, but Canada’s biggest grocer is still expecting its profits to rise this year.

The parent company of grocery chains like No Frills, Real Canadian Superstore and Fortinos said Thursday it expects to grow profits faster than sales in 2023, predicting adjusted net earnings per common share growth in the low double digits.

The outlook comes as inflation continues to squeeze Canadian household budgets, with Statistics Canada reporting this week that grocery prices rose 11.4 per cent in January compared with a year earlier.

“We still have over 1,000 supplier requests on our desks for significant cost increases,” Galen G. Weston, chairman and president of Loblaw, said during a call with analysts to discuss the company’s latest results.

“We continue to believe that these inflationary pressures are temporary and that they will ease with time, but predicting how long that will take is proving extremely challenging,” he said. “We will continue to push back on unjustified cost increases from suppliers.”

The parent company of grocery chains like Provigo, Zehrs and T&T as well as drugstores like Shoppers Drug Mart said its fourth-quarter profit amounted to $529 million or $1.62 per diluted share.

The result was down from $744 million or $2.20 per diluted share a year earlier when the quarter included a recovery of $301 million related to the Supreme Court’s decision on the Glenhuron Bank Ltd. tax case involving Loblaw Financial Holdings.

The grocer’s gross margins also dipped slightly in the quarter ended Dec. 31, with an adjusted gross profit of 30.6 per cent down from 30.9 per cent in the same quarter a year earlier.

The company said a decrease in its food retail margin — largely related to its No Name price freeze and increased promotional activity —was partially offset by growth in higher margin drug retail sales.

Yet Loblaw’s adjusted profit increased almost 12 per cent to $575 million, up from $515 million in the same quarter the year before.

The adjusted earnings amounted to $1.76 per diluted share in its latest quarter, compared with an adjusted profit of $1.52 per diluted share a year earlier. Analysts on average had expected a profit of $1.71 per share, according to financial markets data firm Refinitiv.

The supermarket giant has come under intense scrutiny amid rising food prices.

Critics have suggested the company is profiteering off inflation to pad profits, accusations that are unlikely to lose steam as the company forecasts profits will rise faster than sales this year even as food inflation continues its increase at a staggering pace.

The company has said its profit margin on food has remained flat since inflation set in — or even edged down in the latest quarter — though it doesn’t break down food margins from other retail sales in its financial reporting.

Meanwhile, the company’s revenue rose nearly 10 per cent compared with a year ago.

Revenue totalled $14.0 billion, up from $12.8 billion in the fourth quarter of 2021.

The increase in revenue came as food retail same-store sales gained 8.4 per cent, with discount grocery stores continuing to outperform conventional chains, while drug retail same-store sales rose 8.7 per cent on strong demand for cough and cold products and beauty and cosmetics.

“Our strong sales and market share performance this quarter are a clear indication that our efforts resonate with customers,” Loblaw chief financial officer Richard Dufresne said during the call.

Statistics Canada said this week that butter prices soared 19.1 per cent year over year in January. Bread prices climbed 18.1 per cent, eggs were up 15.6 per cent and fresh or frozen chicken increased 14 per cent, according to the federal agency.

In Loblaw grocery stores, shoppers continued to “trade down” to cheaper food items to save money, Weston said.

“We’re seeing customer price sensitivity really across the board,” he said.

Shoppers are increasingly seeking out deals and promotions and opting for the company’s in-house brand No Name, which Galen said is on average 25 per cent less than national brand names.

Customers are also using the company’s PC Optimum loyalty program more actively, with an increase in the redemption of points to buy groceries, he said.

In its outlook for 2023, Loblaw said it expects net capital expenditures of $1.6 billion for the year including gross capital investments of about $2.1 billion offset by $500 million in proceeds from real estate sales.

This report by The Canadian Press was first published Feb. 23, 2023.

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Brett Bundale, The Canadian Press