Grocer's profit soars 20

Loblaw Cos. Ltd. said Canada's supermarket industry is facing a highly competitive Christmas season and it would continue cutting prices to boost sales.

Shares in the market-leading chain rose Tuesday after it said it managed to boost profit in the latest quarter, despite lower food price inflation and "pressure" on volume sales. But it cautioned against expecting revenue rises in the near future as competition increases.

"If you look at most flyers most weeks, once upon a time, you got a couple of new lows in any one month. Now we're getting two or three new lows every week. This Christmas will be pretty fierce in terms of competition," Loblaw deputy chairman Allan Leighton told analysts on a conference call.

The company, which operates Loblaws, Zehrs, Real Canadian Superstore and No Frills, beat analyst forecasts on profit but disappointed on sales.

Earnings rose 20.4 per cent to $189 million, or 69 cents a share, the company said, beating analysts' expectations by seven cents a share, according to a Thomson/Reuters survey.

But sales declined a greater than expected 0.2 per cent to $9.47 billion, prompting analyst speculation that the company is losing market share to competitors.

Leighton would say only that volume sales improved as the quarter progressed. Analysts were expecting sales to rise to $9.6 billion.

Third-quarter sales were affected by various events. A shift in the calendar brought Thanksgiving into the quarter, adding 0.5 per cent in sales; acquisition of Asian supermarket chain T&T in September added 0.2 per cent in sales.

These gains were partly offset by the sale late last year of Loblaw's food service business, which would have contributed 0.5 per cent to third-quarter sales, the company said.

Same-store sales, a key measure of retail performance, fell 0.6 per cent.

Gross profit margin grew 80 basis points to 22.9 per cent with improved efficiencies in buying and transportation and a better sales mix. A basis point is one one-hundredth of a percentage point.

Internal retail food price inflation fell 3.5 percentage points during the quarter to a level below the Canadian Consumer Price Index for food, the company said.

Loblaw spent $25 million in the quarter on earlier announced improvements to its computers, lowering earnings by six cents a share.

Sales of food and drugs declined modestly, sales of apparel, mainly its exclusive Joe Fresh brand, were moderate and sales of gasoline declined significantly on lower prices.

Sales of general merchandise fell markedly, as the company continues to exit that business in all but its largest superstores.

Loblaw shares closed at $31.90, up $1.50, on the Toronto Stock Exchange Tuesday.

"Earnings benefited from cost containment and supply chain efficiencies," Loblaw executive chairman Galen Weston said in a statement.

"We expect that sales and margins will be challenged due to decreasing inflation, competitive intensity and our ongoing renovation and infrastructure programs."