Loblaw's Q1 earnings slipped 22.2% from a year ago to C$126M as sales climbed 0.9% to C$6.94B; company expects earnings to fall year-over-year in 2012 because of planned investments in IT, supply chain
May 2, 2012
– Loblaw Companies Limited (TSX: L) ("Loblaw" or the "Company") today announced its unaudited financial results for the first quarter ended March 24, 2012. The Company's first quarter report will be available in the Investor Centre section of the Company's website at loblaw.ca and will be filed with SEDAR and available at sedar.com.
2012 First Quarter Summary(1)
Basic net earnings per common share of $0.45, down 22.4% compared to the first quarter of 2011.
EBITDA margin(2) of 5.9% compared to 6.6% in the first quarter of 2011.
Revenue of $6,937 million, an increase of 0.9% over the first quarter of 2011.
Retail sales growth of 0.8% and a same-store sales decline of 0.7%, negatively impacted by one less day of store operations compared to the first quarter of 2011.
"In the first quarter, we executed on our plan," said Galen G. Weston, Executive Chairman, Loblaw Companies Limited. "Despite a decline in year-over-year earnings, store conditions are improved, we made steady progress on our IT implementation and we took a disciplined approach to improving our customer proposition. Our outlook for 2012 remains unchanged - we expect full-year net earnings to be down, with more pressure in the first half. We are confident that our ongoing investments in infrastructure will enable efficiencies and expense leverage, setting the stage for future earnings growth."
Consolidated Quarterly Results of Operations
For the periods ended March 24, 2012 and March 26, 2011 (unaudited)
(millions of Canadian dollars except where otherwise indicated)
Basic net earnings per common share ($)
The $65 million increase in revenue compared to the first quarter of 2011 was driven by increases in the Company's Retail and Financial Services operating segments, as described below.
As previously disclosed, for full-year 2012, the Company expects an incremental investment of $40 million in its customer proposition that is not expected to be covered by operations. In the first quarter of 2012, the Company invested an estimated $10 million entirely in gross profit related to its customer proposition.
Operating income decreased by $64 million compared to the first quarter of 2011 as a result of a decrease in Retail operating income of $60 million and a decrease in Financial Services operating income of $4 million. Operating margin was 3.4% for the first quarter of 2012 compared to 4.4% in the same quarter in 2011. The $60 million decrease in Retail operating income was mainly driven by a decline in gross profit, the notable items as described below and changes in the value of the Company's investments in its franchise business.
Consolidated operating income included the following notable items:
A $12 million charge (2011 - income of $7 million) related to the effect of share-based compensation net of equity forwards;
A $15 million charge (2011 - nil) related to the transition of certain Ontario conventional stores to the more cost effective and efficient operating terms under collective agreements ratified in the third quarter of 2010;
Reduction in costs of $5 million related to investments in information technology ("IT") and supply chain, including the following charges:
$71 million (2011 - $61 million) related to IT costs;
$46 million (2011 - $36 million) related to depreciation and amortization;
$3 million (2011 - $21 million) related to changes in the distribution network;
$3 million (2011 - $10 million) related to other supply chain projects costs; and
A nil charge (2011 - $8 million) related to an internal re-alignment of the Retail segment into a two division structure: conventional and discount.
The decrease in net earnings of $36 million compared to the first quarter of 2011 was primarily due to the decrease in operating income partially offset by a decline in the Company's effective income tax rate.
Basic net earnings per common share were impacted by the following notable items:
A $0.04 charge (2011 - income of $0.01) related to the effect of share-based compensation net of equity forwards;
A $0.04 charge (2011 - nil) related to the transition of certain Ontario conventional stores to the operating terms under collective agreements ratified in 2010;
$0.01 reduction in costs related to incremental investments in IT and supply chain; and
A nil charge (2011 - $0.02) related to the re-alignment of the Retail segment.
In the first quarter of 2012, the Company invested $134 million in capital expenditures.
For fiscal 2012, the Company continues to expect:
Capital expenditures to be approximately $1.1 billion, with approximately 40% to be dedicated to investing in the IT infrastructure and supply chain projects and the remaining 60% to be spent on retail operations;
Costs associated with the transition of certain Ontario conventional stores under collective agreements ratified in 2010 to range from $30 million to $40 million;
Incremental costs related to investments in IT and supply chain to be approximately $70 million;
Incremental investments in its customer proposition to be approximately $40 million; and
Net earnings per share to be down year-over-year, with more pressure in the first half of the year, as a result of the Company's expectation that operations will not cover the incremental costs related to the investments in IT and supply chain and its customer proposition.
(1) See Forward-Looking Statements in this News Release.
This News Release for Loblaw Companies Limited contains forward-looking statements about the Company's objectives, plans, goals, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects and opportunities. These forward-looking statements are typically identified by words such as "anticipate", "expect", "believe", "foresee", "could", "estimate", "goal", "intend", "plan", "seek", "strive", "will", "may" and "should" and similar expressions, as they relate to the Company and its management. In this News Release, forward looking statements include the Company's continued expectation that for fiscal 2012:
its capital expenditures will be approximately $1.1 billion;
costs associated with the transition of certain Ontario conventional stores under collective agreements ratified in 2010 will range from $30 million to $40 million;
incremental costs related to investments in information technology ("IT") and supply chain will be approximately $70 million;
incremental costs associated with strengthening its customer proposition will be approximately $40 million; and
net earnings per share to be down year-over-year, with more pressure in the first half of the year, as a result of the Company's expectation that operations will not cover the incremental costs related to the investments in IT and supply chain and its customer proposition.
These forward-looking statements are not historical facts but reflect the Company's current expectations concerning future results and events. They also reflect management's current assumptions regarding the risks and uncertainties referred to below and their respective impact on the Company. In addition, the Company's expectation with regard to its net earnings in 2012 is based in part on the assumptions that tax rates will be similar to those in 2011, the Company achieves its plan to increase net retail square footage by 1% and there are no unexpected adverse events or costs related to the Company's investments in IT and supply chain.
These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations, including, but not limited to:
failure to realize revenue growth, anticipated cost savings or operating efficiencies from the Company's major initiatives, including investments in the Company's IT systems, including the Company's IT systems implementation, or unanticipated results from these initiatives;
the inability of the Company's IT infrastructure to support the requirements of the Company's business;
heightened competition, whether from current competitors or new entrants to the marketplace;
changes in economic conditions including the rate of inflation or deflation, changes in interest and currency exchange rates and derivative and commodity prices;
public health events including those related to food safety;
failure to achieve desired results in labour negotiations, including the terms of future collective bargaining agreements, which could lead to work stoppages;
the inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory and to control shrink;
failure by the Company to maintain appropriate records to support its compliance with accounting, tax or legal rules, regulations and policies;
failure of the Company's franchise stores to perform as expected;
reliance on the performance and retention of third-party service providers including those associated with the Company's supply chain and apparel business;
supply and quality control issues with vendors;
changes to or failure to comply with laws and regulations affecting the Company and its business, including changes to the regulation of generic prescription drug prices and the reduction of reimbursement under public drug benefit plans and the elimination or reduction of professional allowances paid by drug manufacturers;
changes in the Company's income, commodity, other tax and regulatory liabilities including changes in tax laws, regulations or future assessments;
any requirement of the Company to make contributions to its registered funded defined benefit pension plans or the multi-employer pension plans in which it participates in excess of those currently contemplated;
the risk that the Company would experience a financial loss if its counterparties fail to meet their obligations in accordance with the terms and conditions of their contracts with the Company; and
the inability of the Company to collect on its credit card receivables.
This is not an exhaustive list of the factors that may affect the Company's forward-looking statements. Other risks and uncertainties not presently known to the Company or that the Company presently believes are not material could also cause actual results or events to differ materially from those expressed in its forward-looking statements. Additional risks and uncertainties are discussed in the Company's materials filed with the Canadian securities regulatory authorities from time to time, including the Enterprise Risks and Risk Management section of the Management's Discussion and Analysis ("MD&A") and the MD&A included in the Company's 2011 Annual Report - Financial Review. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect the Company's expectations only as of the date of this News Release. The Company disclaims any intention or obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Non-GAAP Financial Measures
The Company uses the following non-GAAP financial measures: EBITDA and EBITDA margin. The Company believes these non-GAAP financial measures provide useful information to both management and investors in measuring the financial performance of the Company for the reasons outlined below. These measures do not have a standardized meaning prescribed by GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies, and should not be construed as an alternative to other financial measures determined in accordance with GAAP.
EBITDA and EBITDA Margin The following table reconciles earnings before income taxes, net interest expense and other financing charges and depreciation and amortization ("EBITDA") to operating income which is reconciled to GAAP net earnings measures reported in the consolidated statements of earnings for the 12 week periods ended March 24, 2012 and March 26, 2011. EBITDA is useful to management in assessing performance of its ongoing operations and its ability to generate cash flows to fund its cash requirements, including the Company's capital investment program.
Click here to read the entire release.