We review Loblaw’s fourth quarter performance and the outlook for the year ahead.
Stronger traffic and basket trends
Loblaw’s fourth quarter revenue increased by 2.1% to $11.1bn, with food retail same-store sales up 0.8% and drug retail same-store sales up 1.9%. It delivered a solid performance within its food business in the quarter, growing same-store sales while also increasing its margins. The retailer saw both strong traffic and a bigger basket, with food inflation broadly in line with the CPI measure. Drug retail saw growth in all front store categories, with strong prescription growth more than offsetting the negative impact of drug reform.
Adjusted net earnings fell 7.8% to $402m. For the full year, total revenue increased 0.2% to $46.7bn with adjusted net earnings down 2.8% to $1.7bn.
Source: IGD Research
Expanding retail margins through productivity and efficiency focus
Retail margins improved as the business made progress with process and efficiency initiatives, using more data-driven insights, improving promotional effectiveness and driving shrink lower. However, sales in general merchandise were impacted as it shifted from a high-low to everyday low price pricing approach. While this supported margin expansion, sales were softer than expected. It will revise its approach this year, using a combination of pricing strategies.
As part of its focus on reducing costs, it will continue to add self-checkouts at pace. Around one-third of its customers are using these in stores where they have been deployed. Self-checkouts are expected to be in 1,000 stores by the end of the year. Loblaw will also extend its electronic shelf label pilot from five stores to 50 by the year end.
Investing $1.1bn in the business
Against a backdrop of continued cost headwinds, in the year ahead, Loblaw expects to deliver positive same-store sales growth and stable retail gross margins, while investing $1.1bn in capital expenditures. It plans to accelerate initiatives aligned with its three strategic priorities of everyday digital retail, payments and rewards and connected healthcare.
Ecommerce sales hit $500m
Ecommerce continues to be a major focus, with sales surpassing $500m in 2018. Its PC Express pickup service has been extended to 670 locations, reaching 75% of Canadians within a 10-mimute drive time. Its home delivery service, where it is partnering with Instacart, is available to 65% of Canadian households. In the year ahead, it will focus on improving execution, driving customer adoption and improving customer satisfaction.
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