Loblaw Companies Ltd.’s sales growth. is slowing as inflation continues to grip the economy and shape consumer shopping habits, the company’s president and chairman said Wednesday.
While the nation’s largest grocery and drugstore chain sees “some softening” with its Joe Fresh apparel brand going forward, what it calls “general merchandise,” or non-food sales outside of apparel, have been “significantly down” over the last quarter, said Galen Weston.
“It definitely impacted our overall (comparable) sales results,” he told analysts on a conference call to discuss the grocery and drugstore chain’s second-quarter results.
Several major US-based retailers have warned in recent months of unsold inventory as shoppers curb spending due to rising costs. Companies like Walmart and Target have suggested profits could take a hit as they are forced to cut excess inventory.
“The key in this situation is inventory. The question is how do you feel about the inventory and do you have aggressive markdowns that you need to make to clear that inventory,” Weston said.
“The answer is that we feel good about the inventory and we don’t see any meaningful margin risk associated with clearing what’s left.”
The company reported an increase in profit and sales in its second quarter, with drugstore sales driving overall margin expansion.
Pharmacy same-store sales increased 5.6%, while pharmacy and health services increased 6.1%.
“Cough and cold (sales) right now … it’s like we’re in the middle of winter,” Loblaw Chief Financial Officer Richard Dufresne said on the call.
Weston added: “There’s a huge power in scents. We kind of wonder what people are doing with all these perfumes.”
Meanwhile, Shoppers Drug Mart opened Canada’s first clinics staffed exclusively by pharmacists during the quarter, he said.
“We have four consultation rooms, we have four pharmacists and we see patients very, very often,” Weston said.
“As provinces become more confident in expanding the scope of practice for pharmacists, we see an opportunity to have select specialty locations that can provide services similar to health clinics provided by pharmacists.”
Pharmacists treat minor ailments, prescribe cold sores and offer treatment for strep throat and urinary tract infections, he said.
Meanwhile, the retailer’s discount grocery division continues to post strong growth.
Loblaw said its “hard discount” banners No Frills and Maxi, as well as its in-house brands No Name and President’s Choice, continued to benefit value-seeking shoppers.
Still, there are signs that inflation has peaked or will soon, with inflation expected to moderate in the second half of the year, Dufresne said.
“Commodity prices are coming off their peaks, some transportation costs are easing and supply chain issues are normalizing — except for fuel costs, which remain high but are down from their peaks last March,” he said.
The company said its net income available to common shareholders was $387 million, or $1.16 per share, up 3.2 percent from $375 million, or $1.09 per share, a year ago.
Adjusted earnings were $566 million, or $1.69 per diluted share, compared with $464 million, or $1.35 per share, in the second quarter of 2021.
Revenue was $12.85 billion, an increase of $356 million, or 2.9 percent, from $12.49 billion in the year-ago quarter.
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