Loblaw profit soars 40% as inflation hits grocery chain

·2 min read
Ottawa, Ontario, Canada - November 18, 2020: A Loblaws grocery store location in the College Square shopping centre.
Loblaw (L.TO) reported a profit of $437 million in the first quarter of the year.

Canada's largest grocery chain saw its profit soar 40 per cent in its most recent financial quarter, as shoppers turned to discount stores amid rising prices.

Loblaw Companies Ltd. (L.TO) reported a profit of $437 million in the 12-week period ending March 26, or $1.30 per diluted share, up from $313 million, or $1.36 per diluted share, during the same time last year. Total sales topped $12.3 billion, up from $11.9 million last year.

The boost in profit comes as prices rise amid soaring inflation. Loblaw said its internal food inflation rate was slightly higher than the 7.5 per cent Consumer Price Index (CPI) for food purchased from stores.

"Our food business continued to face global supply chain challenges and cost increases across the board, including for fuel, shipping, ingredients and packaging," Loblaw president and chairman Galen Weston said on a conference call with analysts on Wednesday.

"We're watching these structural pressures closely."

As food prices rise, more shoppers are shifting towards Loblaw's discount brands such as No Frills, with same-store sales at the company's discount banners increasing 2.1 per cent in the quarter. Same-store sales at the company's "market" brands, which includes banners such as Loblaws and Zehrs, were slightly negative in the quarter.

The company also said customers are buying less but shopping more frequently, a shift from the COVID-19 pandemic when customers were making bulk purchases in one trip.

Still, Weston said the shift in consumer behaviour is back to what it was before the pandemic hit, and that the company is "not yet seeing that expected shift that comes when you have plus-6 per cent inflation month after month."

"We think that's an indication of the consumer having more money in their wallets than they would have had pre-COVID," Weston said.

"But we're watching it very carefully, because prices are continuing to grow... If inflation doesn't begin to moderate because of some of these external forces we've been talking about, it's going to increasingly become a concern."

Loblaw also hiked its quarterly dividend from 36.5 cents per share to 40.5 cents per share, an increase of 11 per cent, marking the 11th consecutive annual increase.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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