Loblaw earns $529 million in fourth-quarter earnings as Canadians grapple with soaring food prices
Fourth quarter results from Loblaw Companies Ltd. topped analysts’ expectations on Thursday as the Canadian retailer was buoyed by its pharmacy business and continued demand for groceries.
The company reports earnings available to common shareholders of $529 million. Fourth-quarter revenue was $14.01 billion, up about 10 percent from the same period last year, beating estimates of $13.75 billion.
On an adjusted basis, Loblaw earned $1.76 per share, beating analyst expectations of $1.71 per share.
Chief Financial Officer Richard Dufresne said during a conference call Thursday morning that the company’s grocery retail gross margins peaked in mid-2021, ahead of the start of the current episode of inflation in Canada, but have not returned to those levels since.
He then said the results are “further evidence of that [food] Retail prices aren’t growing faster than costs, and the company isn’t using inflation to boost profits.”
CLOCK | Loblaw profits up 12 percent as food prices continue to rise:
Dufresne made a similar statement during last November’s third-quarter earnings call.
While inflation cooled to 5.9 percent in January, food prices continued to rise. Meat, baked goods and vegetable prices have been rising faster – and Canadians are feeling the pressure during their regular grocery shopping.
“I was trying to find clever ways to keep things cheaper,” said Toronto-based Tramika Blackwood. “It’s annoying that things are going up.”
Others are increasingly frustrated with grocery retailers, as critics say “greedflation” is benefiting businesses at a time when food prices are rising at the fastest pace in over 40 years.
“What little money I earn I spend on rent and groceries. Survival shouldn’t be that expensive,” said Mena Aparicio, also in Toronto.
“Companies have no heart. They always want to earn the same or more. So their pockets are full now. Always, always.”
Consumer spending on essentials
Retailers are leaning on the sale of groceries and medicines as rising prices are forcing consumers to prioritize spending on essentials and resort to cheaper private label alternatives from higher-priced brands.
Loblaw saw retail segment sales increase 9.7 percent, reflecting strong growth in the food and drug business, with steady demand for cough and cold medicine and high-margin beauty and cosmetics products.
But retail pioneer Walmart Inc. on Tuesday forecast its full-year earnings to come in below estimates, warning that tight consumer spending could squeeze profit margins.
Loblaw, on the other hand, expects full-year 2023 adjusted earnings per common share to be in the low double-digits versus the median analyst estimate of 9.64 percent, according to data from Refinitiv IBES.
A lack of competition
Phoebe Stephens, assistant professor of food security and sustainable agriculture at Dalhousie University in Halifax, said grocery retailing in Canada is highly concentrated. About 80 percent of sales are controlled by five major chains, including Loblaw, she said.
“Whether or not ‘greedflation’ is involved is really, really hard to pin down,” Stephens said, noting that food processing and manufacturing are also highly concentrated parts of the sector.
“So there is a lack of competition there, too. And that could allow these companies to raise prices more than they could with more competition.”
Several converging factors are putting upward pressure on food costs, including geopolitical events such as the war in Ukraine and climate-related disasters such as a bird flu outbreak in North America, which are driving poultry prices higher.
“But there’s also a question mark over the role of market concentration and lack of competition in driving these food prices up,” Stephens said. “Because of their unique position in the food system, grocery retailers actually have power over suppliers and consumers.”
