Loblaw Moves Ahead with Focus on Retail Excellence & Careful Expenditure Management

Loblaw Companies Limited concluded the year with another quarter of steady operational and financial results. The company continued to produce robust earnings growth due to its emphasis on retail excellence and careful expenditure management. The strong sales across all of Loblaw's businesses are a result from its distinctive assets, value offerings, and promotional effectiveness.

Consolidated revenue increased by 9.8% in the fourth quarter of 2022. In drug retail, same-store sales rose 8.7% over last year, and absolute sales rose 11.6%. Shoppers Drug Mart performed exceptionally for both the quarter and the entire year. Growth in margin-enhancing categories like cosmetics and over-the-counter medications is still driven by increased demand for beauty products and severe cold and flu season. 

The transition of pharmacies from providing COVID testing and vaccinations to delivering vital daily health services helped contribute to an excellent year for Loblaw’s pharmacy division. Pharmacy same-store sales increased by 5.4%. For Loblaw, pharmacy services are a significant component of its current business, and the company anticipates further growth in this area.  

Absolute sales rose 8.8%, and same-store sales rose 8.4% in the food retail sector. Intense traffic and increases in Loblaw's market share indicate offerings are resonating with customers. Internal food inflation at Loblaw was in line with Consumer Price Index (CPI) in Q4 2022. Significant increases in traffic and item counts for Loblaw’s heavy discount banners show that the discount banners are still performing well.

After converting four more locations in the quarter to Discount stores, bringing the total to 11, all showing promising early results, Loblaw strengthened its position in the discount market. The business will open about 30 new food and drug stores in 2023 and convert more than 20 market stores to discount ones. While discount continues outperforming traditional grocery stores, Loblaw's market banners also produce impressive results.      

“Our role is to meet the needs of the communities we operate in and the expectation of our customers. This means refining the promotions, mix, and presence of our supermarkets and drug stores,” said Loblaw’s Chief Financial Officer, Richard Dufresne, in the latest earnings call. “If we're successful, results follow. A good example this year is in Quebec, where we are modifying our profile, adding discount stores, refining market stores to suit local markets, and increase our share.”

The food segment did witness gross margin pressure in the fourth quarter of 2022 due to active investments in value coupled with a higher cost of goods. While the strong performance of the drugstore business offered some relief, the overall gross margin still suffered a hit due to the increasing supplier costs. 

“The good news is that customers responded well to our efforts, helping deliver strong sales and market share growth. One notable item in the quarter was the outstanding growth in our prepared meals categories as customers chose fresh prepared food at great value as an alternative to dining out,” said Loblaw’s Chief Executive Officer, Galen Weston, in the same earnings call. “Looking forward, we expect that managing the balance between cost and price inflation will remain difficult. We are seeing some costs stabilize and even begin to reverse in a few areas, and we are actively lowering prices in key categories. 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.”

Loblaw plans to invest more than $2 billion in 2023 to improve and expand its store network, offer more wellness and healthcare to Canadians, reduce waste, create employment opportunities, and meet its carbon reduction commitments.