- Category: Economic
- Published Thursday, February 25, 2016
- CTV News
TORONTO -- Loblaw Companies Ltd. management is surprised at how well the company has been able to weather high food inflation.
Canadian food prices rose four per cent between January 2015 and last month, according to Statistics Canada's consumer price index, driven by a 12.9 per cent increase fresh fruit prices and an 18.2 per cent spike in the price of fresh vegetables.
"So far, the ability to pass through this inflation has surprised us," Galen Weston, Loblaw's president and executive chairman, told analysts Thursday after the company released its latest financial report.
Loblaw has about 900 market, discount and specialty grocery stores under various banners, but Weston said the company hasn't noticed any major changes in consumer behaviour.
There was a spike in the volume of potatoes sold when cauliflower prices soared, he said, but noted some shoppers typically opt for less expensive products when the cost of one item surges past a certain threshold.
In Alberta, where the economy is under the most pressure because of the collapse of oil and gas prices, Loblaw is seeing a "disproportionate momentum" at its No Frills discount stores, Weston said.
Edward Jones analyst Brittany Weissman said it helps Loblaw that all the major grocery chains seem to be increasing prices, rather than just one.
There's a demand for the products that have been most impacted by inflation -- such as fruits, vegetables and meats -- so people have been willing to pay the higher prices, Weissman said.
Still, Loblaw's fourth-quarter profit slipped more than one-third compared with the prior year -- primarily because of costs and accounting items associated with unusual items, rather than performance of its stores.
Overall retail sales were $10.86 billion. That was down from a year earlier when the quarter had an extra reporting week in 2014, but up $241 million or 2.3 per cent from $10.6 billion on a standard 12-week basis.
Loblaw's fourth-quarter net income for common shareholders fell to $128 million, or 31 cents per share.
That's down from $247 million or 60 cents per share reported a year earlier, when the comparable quarter had an extra week. Excluding the extra week, the year-earlier profit would have been $195 million or 47 cents per share.
Loblaw said the lower profit was largely because of special items including the write-down of drug retail assets that are being held for sale as well as costs for switching some grocery stores to more cost-effective labour agreements.
The writedown of drug retail assets shaved $112 million or 20 cents per common share from the earnings, the largest of the special items. The second-largest was $55 million, or 10 cents per share, related to the new labour agreements.
After adjustments, Loblaw earned $363 million -- up 5.5 per cent compared with the fourth quarter of 2014. The adjusted earnings per share were 88 cents in the latest quarter.