Loblaw Sales Grow by 1% in Q3 but Earnings Jump Due to Court Ruling

• Loblaw Companies Ltd. reported a 25% year-over-year increase in Q3 net earnings, driven by a court decision reversing a charge at its President’s Choice Bank.
• Revenue increased slightly, while same-store sales saw moderate growth, with strong performance in pharmacy offset by a slight decline in front-store sales.
• The company has raised its guidance for adjusted EPS growth to low double digits and increased capital expenditure plans, signaling strategic expansion.

Earnings and Revenue Highlights

For the third quarter ending October 5, Loblaw reported a net profit of $777 million, or $2.53 per share, marking a notable increase from $621 million, or $1.95 per share, in Q3 last year. This uptick was partly attributable to a Federal Court of Appeal decision favoring President’s Choice Bank, which reversed a prior charge, adding to Loblaw’s profitability this quarter.

Loblaw’s total revenue reached $18.54 billion, up just 1% from $18.27 billion a year ago, reflecting a modest increase amid ongoing economic pressures. Adjusted earnings also rose to $2.50 per share, beating the $2.26 adjusted earnings per share reported in the same quarter last year, further underscoring the company’s robust earnings trajectory.

Retail Segment Performance

Loblaw, which operates Loblaws grocery stores and Shoppers Drug Mart locations, reported mixed results across its retail segments. Same-store sales in food retail rose just 0.5% but reached 1.3% after accounting for the timing of Thanksgiving, signaling steady demand despite inflationary pressures. The pharmacy sector performed particularly well, with same-store sales rising 2.9% overall, boosted by a 6.3% increase in pharmacy services, though front-store sales saw a slight decline of 0.5%.

The increase in customer foot traffic noted by CEO Per Bank highlights Loblaw’s ability to attract consumers through its competitive pricing and service offerings, positioning the retailer to maintain customer loyalty in a challenging economic environment.

Outlook and Capital Allocation

Given its strong year-to-date performance, Loblaw raised its full-year guidance for adjusted net earnings growth to low double digits from its previous high single-digit outlook, indicating confidence in its strategic positioning for the remainder of 2023. The company also increased its net capital expenditure forecast to $1.9 billion, up from $1.8 billion. This reflects an intensified investment in store expansions and distribution centers, potentially positioning Loblaw for stronger market share capture.

Gross capital investments are now projected at $2.3 billion, and property disposals at around $400 million, which aligns with the company’s aggressive reinvestment strategy to enhance operational efficiencies and future growth.

Stock Performance

Despite the positive quarterly report, Loblaw stock is down slightly, less than 1%, likely reflecting market caution as the stock is up an impressive 45% year-to-date. Investors may view Loblaw’s recent performance as largely priced in, especially following the significant year-to-date gains. The stock also pays investors a dividend which yields 1.1%.