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Loblaw Reports 2018 First Quarter Results and a 9.3% Increase to Quarterly Common Share Dividend(1); Announces National Roll-Out of E-commerce

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BRAMPTON, ON, May 2, 2018

BRAMPTON, ON, May 2, 2018 /CNW/ - Loblaw Companies Limited (TSX: L) ("Loblaw" or the "Company") today announced its unaudited financial results for the first quarter ended March 24, 2018. The Company's 2018 First Quarter Report to Shareholders will be available in the Investors section of the Company's website at loblaw.ca and will be filed with SEDAR and available at sedar.com.

"In the face of external headwinds, we delivered solid results, increased dividends, continued share buybacks, and invested in our digital future," said Galen G. Weston, Chairman and Chief Executive Officer, Loblaw Companies Limited. "As the retail landscape changes, we are now rapidly scaling our e-commerce pick-up and home delivery services to blanket Canada this year."

In 2018, the Company plans a national roll-out of its on-line grocery business, including the rapid expansion of PC Express pick-up sites and the complementary option of home delivery. PC Express will be introduced to 500 new pick-up sites, bringing the total to more than 700, including more grocery stores, GO Train commuter stations, and the first of many Shoppers Drug Mart stores. Home delivery is currently offered in 11 major markets (including Toronto, Vancouver and Calgary) through Instacart, with five to follow this year (including Montreal, Halifax and Regina). Nationally, almost half of Canadians already have access to PC Express or home delivery. By year end, 70 percent of Canadians, from coast-to-coast, will have both options. In major urban markets, the Company aims for over 90 percent coverage, providing customers the option to grocery shop in-person, in their car, or from the comfort of their home.

2018 FIRST QUARTER HIGHLIGHTS

The following highlights include the impacts of the consolidation of franchises and disposition of gas bar operations.

  • Revenue was $10,367 million, a decrease of $37 million, or 0.4%, compared to the first quarter of 2017.
  • Retail segment sales were $10,105 million, a decrease of $61 million, or 0.6%, compared to the first quarter of 2017.
    • Retail sales growth, excluding the disposition of gas bar operations, was 2.9%.
    • Food retail (Loblaw) same-store sales growth was 1.9%, excluding gas bar operations.
    • Drug retail (Shoppers Drug Mart) same-store sales growth was 3.7%, with pharmacy same-store sales growth of 3.5% and front store same-store sales growth of 3.8%.
  • Operating income was $480 million, a decrease of $15 million, or 3.0%, compared to the first quarter of 2017.
  • Net earnings available to common shareholders of the Company were $377 million, an increase of $145 million, or 62.5%, compared to the first quarter of 2017. Diluted net earnings per common share were $0.98, an increase of $0.40, or 69.0%, compared to the first quarter of 2017.
  • Adjusted EBITDA(2) was $876 million, an increase of $8 million, or 0.9%, compared to the first quarter of 2017.
  • Adjusted net earnings available to common shareholders of the Company(2) were $361 million, a decrease of $5 million compared to the first quarter of 2017. Adjusted diluted net earnings per common share(2) were $0.94, an increase of $0.03, or 3.3%, compared to the first quarter of 2017.
  • The disposition of the Company's gas bar operations negatively impacted Retail sales growth by $344 million, Retail adjusted EBITDA(2) by approximately $20 million, net earnings available to common shareholders of the Company growth by approximately $10 million and diluted net earnings per common share growth by approximately $0.03 per common share. Normalized for the disposition of gas bar operations, adjusted net earnings available to common shareholders of the Company(2) increased by approximately $5 million and adjusted diluted net earnings per common share(2) increased by approximately 6.7% or $0.06 per common share.
  • The Company repurchased 8.1 million common shares at a cost of $544 million.
  • Quarterly common share dividend to be increased by 9.3% from $0.27 per common share to $0.295 per common share.

As previously announced, the Company's year-over-year financial performance will be negatively impacted by minimum wage increases and incremental healthcare reform. In addition, the disposition of the Company's gas bar operations, in the third quarter of 2017, had a negative year-over-year impact on financial performance.

See "News Release Endnotes" at the end of this News Release.


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CONSOLIDATED RESULTS OF OPERATIONS



For the periods ended March 24, 2018 and March 25, 2017

2018

2017(4)

(millions of Canadian dollars except where otherwise indicated)

(12 weeks)

(12 weeks)

$ Change

% Change

Revenue

$

10,367

$

10,404

$

(37)

(0.4)%

Operating income

480

495

(15)

(3.0)%

Adjusted EBITDA(2) 

876

868

8

0.9%

Adjusted EBITDA margin(2)

8.4%

8.3%

Net earnings attributable to shareholders of the Company

$

380

$

235

$

145

61.7%

Net earnings available to common shareholders of the Company(i)

377

232

145

62.5%

Adjusted net earnings available to common shareholders of the Company(2)

361

366

(5)

(1.4)%

Diluted net earnings per common share ($)

$

0.98

$

0.58

$

0.40

69.0%

Adjusted diluted net earnings per common share(2) ($)

$

0.94

$

0.91

$

0.03

3.3%

Diluted weighted average common shares outstanding (millions)

384.5

403.2






(i)  

Net earnings available to common shareholders of the Company are net earnings attributable to shareholders of the Company net of dividends declared on the Company's Second Preferred Shares, Series B.

Net earnings available to common shareholders of the Company in the first quarter of 2018 were $377 million ($0.98 per common share), an increase of $145 million ($0.40 per common share) compared to the first quarter of 2017. The increase in net earnings available to common shareholders of the Company included improvements in underlying operating performance of approximately $5 million, excluding the unfavourable impact of the disposition of gas bar operations of approximately $10 million, and the favourable year-over-year net impact of adjusting items totaling $150 million, as described below:

  • the decline in underlying operating performance of $5 million ($0.01 loss per common share) was primarily due to the following:
    • the Retail segment (excluding the impact of the consolidation of franchises) due to the unfavourable year-over-year impact of the disposition of gas bar operations of approximately $10 million and an increase in depreciation and amortization. Minimum wage increases and incremental healthcare reform also had a negative year-over-year impact on the Retail segment; and
    • an increase in adjusted net interest expense and other financing charges(2) primarily as a result of Choice Properties Real Estate Investment Trust's ("Choice Properties") issuance of new unsecured senior debentures related to the agreement to acquire Canadian Real Estate Investment Trust ("CREIT") and the call premium for the early redemption of the Series A senior unsecured debenture; partially offset by
    • the Financial Services segment, primarily due to certain one-time gains and the strong credit performance of the credit card portfolio; and
    • the Choice Properties segment primarily from the expansion of the property portfolio through acquisitions and completed development projects, as well as an increase in net operating income from existing properties.
  • the favourable year-over-year net impact of adjusting items totaling $150 million ($0.37 per common share) was primarily due to the following:
    • the change in fair value adjustment to the Trust Unit Liability of $160 million ($0.41 per common share);
    • the favourable impact of income earned, net of certain costs incurred, from the wind-down of PC Financial banking services of $13 million ($0.03 per common share);
    • the change in fair value adjustment on fuel and foreign currency contracts of $8 million ($0.02 per common share); and
    • the favourable year-over-year impact of pension annuities and buy-outs in the prior year of $5 million ($0.01 per common share); partially offset by
    • the unfavourable impact of the additional charge in the first quarter of 2018 related to the Loblaw Card Program of $14 million ($0.04 per common share);
    • the unfavourable impact of healthcare reform on inventory balances of $14 million ($0.04 per common share); and
    • acquisition and other costs related to Choice Properties' agreement to acquire CREIT of $9 million ($0.02 per common share).
  • the increase in diluted net earnings per common share also included the favourable impact of the repurchase of common shares ($0.04 per common share).

Adjusted net earnings available to common shareholders of the Company(2) in the first quarter of 2018 were $361 million ($0.94 per common share), a decrease of $5 million (increase of $0.03 per common share or 3.3%), compared to the first quarter of 2017. Normalized for the disposition of gas bar operations, adjusted net earnings available to common shareholders of the Company(2) increased by approximately $5 million, as described above. Adjusted diluted net earnings per common share(2) also included the favourable impact of the repurchase of common shares ($0.04 per common share). Normalized for the disposition of gas bar operations, adjusted diluted net earnings per common share(2) increased by approximately 6.7%.

REPORTABLE OPERATING SEGMENTS
The Company has three reportable operating segments with all material operations carried out in Canada:

  • The Retail segment consists primarily of corporate and franchise-owned retail food and Associate-owned drug stores, which includes in-store pharmacies and other health and beauty products, apparel and other general merchandise, and provides the PC Optimum program. This segment is comprised of several operating segments that are aggregated primarily due to similarities in the nature of products and services offered for sale in the retail operations and the customer base. Prior to July 17, 2017, the Retail segment also included gas bar operations;
  • The Financial Services segment provides credit card services, the PC Optimum program, insurance brokerage services, Guaranteed Investment Certificates and telecommunication services. As a result of the wind-down of PC Financial banking services, the Financial Services segment no longer offers personal banking services; and
  • The Choice Properties segment owns, manages and develops well-located retail and commercial real estate across Canada. The Choice Properties segment information presented below reflects the accounting policies of Choice Properties, which may differ from those of the consolidated Company. Differences in policies are eliminated in Consolidation and Eliminations.

Retail Segment




For the periods ended March 24, 2018 and March 25, 2017

2018

2017

(millions of Canadian dollars except where otherwise indicated)

(12 weeks)

(12 weeks)

$ Change

% Change

Sales

$

10,105

$

10,166

$

(61)

(0.6)%

Operating income

399

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