Loblaw Companies Limited Reports 2012 First Quarter Results(1)

    




 BRAMPTON, ON, May 2, 2012 /CNW/ - Loblaw Companies Limited   ("Loblaw" or the "Company") today announced its unaudited financial  results for the first quarter ended March 24, 2012. The Company's first  quarter report will be available in the Investor Centre section of the  Company's website at loblaw.ca and will be filed with SEDAR and available at sedar.com. 

 2012 First Quarter Summary((1)) 




        --  Basic net earnings per common share of $0.45, down 22.4%
            compared to the first quarter of 2011.
        --  EBITDA margin(2) of 5.9% compared to 6.6% in the first quarter
            of 2011.
        --  Revenue of $6,937 million, an increase of 0.9% over the first
            quarter of 2011.
        --  Retail sales growth of 0.8% and a same-store sales decline of
            0.7%, negatively impacted by one less day of store operations
            compared to the first quarter of 2011.




 "In the first quarter, we executed on our plan," said Galen G. Weston,  Executive Chairman, Loblaw Companies Limited. "Despite a decline in  year-over-year earnings, store conditions are improved, we made steady  progress on our IT implementation and we took a disciplined approach to  improving our customer proposition. Our outlook for 2012 remains  unchanged - we expect full-year net earnings to be down, with more  pressure in the first half. We are confident that our ongoing  investments in infrastructure will enable efficiencies and expense  leverage, setting the stage for future earnings growth." 

 Consolidated Quarterly Results of Operations  





                                                                                

    For the                                                                   
    periods
    ended March
    24, 2012
    and March
    26, 2011
    (unaudited)
    (millions
    of Canadian
    dollars
    except
    where                                                      
    otherwise                       2012                   2011          $           %
    indicated)                (12 weeks)             (12 weeks)     Change      Change

    Revenue       $                6,937   $              6,872   $               0.9%
                                                                        65

    Operating                        239                    303       (64)     (21.1%)
    income

    Net                              126                    162       (36)     (22.2%)
    earnings

    Basic net                       0.45                   0.58     (0.13)     (22.4%)
    earnings
    per common
    share ($)

    Operating                       3.4%                   4.4%                       
    margin

    EBITDA(2)     $                  409   $                455   $            (10.1%)
                                                                      (46)

    EBITDA                          5.9%                   6.6%                       
    margin(2)

                                                                                      






  





    (1)      This News Release contains forward-looking information. See
             Forward-Looking Statements in this News Release for a
             discussion of material factors that could cause actual results
             to differ materially from the conclusions, forecasts and
             projections herein and of the material factors and assumptions
             that were used when making these statements. This News Release
             should be read in conjunction with Loblaw Companies Limited's
             filings with securities regulators made from time to time, all
             of which can be found at
             sedar.com and at
             loblaw.ca.

    (2)      See Non-GAAP Financial Measures in this News Release.









        --  The $65 million increase in revenue compared to the first
            quarter of 2011 was driven by increases in the Company's Retail
            and Financial Services operating segments, as described below.
        --  As previously disclosed, for full-year 2012, the Company
            expects an incremental investment of $40 million in its
            customer proposition that is not expected to be covered by
            operations. In the first quarter of 2012, the Company invested
            an estimated $10 million entirely in gross profit related to
            its customer proposition.
        --  Operating income decreased by $64 million compared to the first
            quarter of 2011 as a result of a decrease in Retail operating
            income of $60 million and a decrease in Financial Services
            operating income of $4 million. Operating margin was 3.4% for
            the first quarter of 2012 compared to 4.4% in the same quarter
            in 2011. The $60 million decrease in Retail operating income
            was mainly driven by a decline in gross profit, the notable
            items as described below and changes in the value of the
            Company's investments in its franchise business.
        --  Consolidated operating income included the following notable
            items:
      o A $12 million charge (2011 - income of $7 million) related to the
        effect of share-based compensation net of equity forwards;
      o A $15 million charge (2011 - nil) related to the transition of
        certain Ontario conventional stores to the more cost effective and
        efficient operating terms under collective agreements ratified in
        the third quarter of 2010;
      o Reduction in costs of $5 million related to investments in
        information technology ("IT") and supply chain, including the
        following charges:
        # $71 million (2011 - $61 million) related to IT costs;
        # $46 million (2011 - $36 million) related to depreciation and
          amortization;
        # $3 million (2011 - $21 million) related to changes in the
          distribution network;
        # $3 million (2011 - $10 million) related to other supply chain
          projects costs; and
      o A nil charge (2011 - $8 million) related to an internal
        re-alignment of the Retail segment into a two division structure:
        conventional and discount.
        --  The decrease in net earnings of $36 million compared to the
            first quarter of 2011 was primarily due to the decrease in
            operating income partially offset by a decline in the Company's
            effective income tax rate.
        --  Basic net earnings per common share were impacted by the
            following notable items:
      o A $0.04 charge (2011 - income of $0.01) related to the effect of
        share-based compensation net of equity forwards;
      o A $0.04 charge (2011 - nil) related to the transition of certain
        Ontario conventional stores to the operating terms under collective
        agreements ratified in 2010;
      o $0.01 reduction in costs related to incremental investments in IT
        and supply chain; and
      o A nil charge (2011 - $0.02) related to the re-alignment of the
        Retail segment.
        --  In the first quarter of 2012, the Company invested $134 million
            in capital expenditures.




 The consolidated quarterly results by reportable operating segments were  as follows: 

 Retail Results of Operations  





                                                                    

    For the                  2012           2011                           
    periods ended
    March 24, 2012
    and March 26,
    2011
    (unaudited)

    (millions of       (12 weeks)     (12 weeks)      $ Change     % Change
    Canadian
    dollars except
    where
    otherwise
    indicated)

    Sales            $      6,808   $      6,757   $        51         0.8%

    Gross profit            1,529          1,554          (25)       (1.6%)

    Operating                 225            285          (60)      (21.1%)
    income

    Same-store             (0.7%)         (0.1%)                           
    sales decline

    Gross profit            22.5%          23.0%                           
    percentage

    Operating                3.3%           4.2%                           
    margin

                                                                           









        --  In the first quarter of 2012, the increase of $51 million, or
            0.8%, in Retail sales over the same period in the prior year
            was impacted by the following factors:
      o One less day of store operations estimated to have a negative
        effect of 0.8% to 1.0% on sales and same-store sales;
      o Same-store sales declined by 0.7% (2011 - 0.1%);
      o Sales in food were flat;
      o Sales in drugstore were flat;
      o Gas bar sales growth was strong as a result of higher retail gas
        prices, partially offset by a marginal volume decline;
      o Sales in general merchandise, excluding apparel, were flat;
      o Sales growth in apparel was strong, partially driven by increased
        apparel square footage;
      o The Company experienced modest average quarterly internal food
        price inflation during the first quarters of 2012 and 2011, which
        was lower than the average quarterly national food price inflation
        of 3.7% (2011 - 2.5%) as measured by "The Consumer Price Index for
        Food Purchased from Stores" ("CPI"). CPI does not necessarily
        reflect the effect of inflation on the specific mix of goods sold
        in Loblaw stores; and
      o 25 corporate and franchise stores were opened and five corporate
        and franchise stores were closed since the first quarter of 2011,
        resulting in a net increase of 0.6 million square feet, or 1.2%.
        --  In the first quarter of 2012, gross profit decreased by $25
            million compared to the first quarter of 2011 and gross profit
            percentage was 22.5%, a decline from 23.0% in the first quarter
            of 2011. These declines were primarily driven by increased
            transportation costs and higher input costs outpacing internal
            food price inflation, partially offset by improved shrink.
            Higher input costs that were not entirely passed on to the
            consumer included an estimated $10 million incremental
            investment in the Company's customer proposition. The decline
            in gross profit percentage was also attributable to a higher
            proportion of lower margin gas bar sales.
        --  Operating income decreased by $60 million compared to the first
            quarter of 2011 and operating margin was 3.3% for the first
            quarter of 2012 compared to 4.2% in the same period in 2011. In
            addition to the notable items described in the Consolidated
            Quarterly Results of Operations above, operating income and
            operating margin were negatively impacted by the decrease in
            gross profit and changes in the value of the Company's
            investments in its franchise business, partially offset by
            other operating cost efficiencies.




 Financial Services Results of Operations  





                                                                     

    For the                    2012           2011            $           %
    periods ended        (12 weeks)     (12 weeks)       Change      Change
    March 24, 2012
    and March 26,
    2011
    (unaudited)
    (millions of
    Canadian
    dollars except
    where
    otherwise
    indicated)

    Revenue          $          129   $        115   $       14       12.2%

    Operating                    14             18          (4)     (22.2%)
    income

    Earnings                      4              5          (1)     (20.0%)
    before income
    taxes

                                                                           

                                                                     

                                                                     

                              As at          At as                         

    (millions of          March 24,      March 26,            $           %
    Canadian                   2012           2011       Change      Change
    dollars except
    where
    otherwise
    indicated)
    (unaudited)

    Average          $        2,004   $      1,942   $       62        3.2%
    quarterly net
    credit card
    receivables

    Credit card               1,987          1,887          100        5.3%
    receivables

    Allowance for                37             33            4       12.1%
    credit card
    receivables

    Annualized                13.1%          12.6%                         
    yield on
    average
    quarterly
    gross credit
    card
    receivables

    Annualized                 4.5%           4.6%                         
    credit loss
    rate on
    average
    quarterly
    gross credit
    card
    receivables

                                                                           









        --  The 12.2% increase in Financial Services revenue compared to
            the first quarter of 2011 was primarily driven by increased
            credit card transaction values and receivable balances,
            resulting in higher interchange fee and interest income. Higher
            PC Telecom revenues resulting from the 2011 launch of the new
            Mobile Shop kiosks also contributed to the increase.
        --  Operating income decreased by $4 million in the first quarter
            of 2012 compared to the first quarter of 2011. Increases in
            revenue were offset by higher customer acquisition costs and
            operational costs, which ramped up in the latter half of 2011,
            consistent with the Company's continued investment in the
            growth of its Financial Services segment. Increased PC Points
            loyalty costs and investments in the launch of the Mobile Shop
            kiosks also contributed to the decrease in operating income.
        --  Earnings before income taxes decreased by $1 million in the
            first quarter of 2012 compared to the first quarter of 2011,
            primarily driven by the decline in operating income, partially
            offset by lower net interest expense.




 Outlook((1)) 

      For fiscal 2012, the Company continues to expect: 




        --  Capital expenditures to be approximately $1.1 billion, with
            approximately 40% to be dedicated to investing in the IT
            infrastructure and supply chain projects and the remaining 60%
            to be spent on retail operations;
        --  Costs associated with the transition of certain Ontario
            conventional stores under collective agreements ratified in
            2010 to range from $30 million to $40 million;
        --  Incremental costs related to investments in IT and supply chain
            to be approximately $70 million;
        --  Incremental investments in its customer proposition to be
            approximately $40 million; and
        --  Net earnings per share to be down year-over-year, with more
            pressure in the first half of the year, as a result of the
            Company's expectation that operations will not cover the
            incremental costs related to the investments in IT and supply
            chain and its customer proposition.




  





    (1)      See Forward-Looking Statements in this News Release.

              






 Forward-Looking Statements 

 This News Release for Loblaw Companies Limited contains forward-looking  statements about the Company's objectives, plans, goals, aspirations,  strategies, financial condition, results of operations, cash flows,  performance, prospects and opportunities. These forward-looking  statements are typically identified by words such as "anticipate",  "expect", "believe", "foresee", "could", "estimate", "goal", "intend",  "plan", "seek", "strive", "will", "may" and "should" and similar  expressions, as they relate to the Company and its management. In this  News Release, forward looking statements include the Company's  continued expectation that for fiscal 2012: 




        --  its capital expenditures will be approximately $1.1 billion;
        --  costs associated with the transition of certain Ontario
            conventional stores under collective agreements ratified in
            2010 will range from $30 million to $40 million;
        --  incremental costs related to investments in information
            technology ("IT") and supply chain will be approximately $70
            million;
        --  incremental costs associated with strengthening its customer
            proposition will be approximately $40 million; and
        --  net earnings per share to be down year-over-year, with more
            pressure in the first half of the year, as a result of the
            Company's expectation that operations will not cover the
            incremental costs related to the investments in IT and supply
            chain and its customer proposition.




 These forward-looking statements are not historical facts but reflect  the Company's current expectations concerning future results and  events. They also reflect management's current assumptions regarding  the risks and uncertainties referred to below and their respective  impact on the Company. In addition, the Company's expectation with  regard to its net earnings in 2012 is based in part on the assumptions  that tax rates will be similar to those in 2011, the Company achieves  its plan to increase net retail square footage by 1% and there are no  unexpected adverse events or costs related to the Company's investments  in IT and supply chain. 

 These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ  materially from current expectations, including, but not limited to: 




        --  failure to realize revenue growth, anticipated cost savings or
            operating efficiencies from the Company's major initiatives,
            including investments in the Company's IT systems, including
            the Company's IT systems implementation, or unanticipated
            results from these initiatives;
        --  the inability of the Company's IT infrastructure to support the
            requirements of the Company's business;
        --  heightened competition, whether from current competitors or new
            entrants to the marketplace;
        --  changes in economic conditions including the rate of inflation
            or deflation, changes in interest and currency exchange rates
            and derivative and commodity prices;
        --  public health events including those related to food safety;
        --  failure to achieve desired results in labour negotiations,
            including the terms of future collective bargaining agreements,
            which could lead to work stoppages;
        --  the inability of the Company to manage inventory to minimize
            the impact of obsolete or excess inventory and to control
            shrink;
        --  failure by the Company to maintain appropriate records to
            support its compliance with accounting, tax or legal rules,
            regulations and policies;
        --  failure of the Company's franchise stores to perform as
            expected;
        --  reliance on the performance and retention of third-party
            service providers including those associated with the Company's
            supply chain and apparel business;
        --  supply and quality control issues with vendors;
        --  changes to or failure to comply with laws and regulations
            affecting the Company and its business, including changes to
            the regulation of generic prescription drug prices and the
            reduction of reimbursement under public drug benefit plans and
            the elimination or reduction of professional allowances paid by
            drug manufacturers;
        --  changes in the Company's income, commodity, other tax and
            regulatory liabilities including changes in tax laws,
            regulations or future assessments;
        --  any requirement of the Company to make contributions to its
            registered funded defined benefit pension plans or the
            multi-employer pension plans in which it participates in excess
            of those currently contemplated;
        --  the risk that the Company would experience a financial loss if
            its counterparties fail to meet their obligations in accordance
            with the terms and conditions of their contracts with the
            Company; and
        --  the inability of the Company to collect on its credit card
            receivables.




 This is not an exhaustive list of the factors that may affect the  Company's forward-looking statements. Other risks and uncertainties not  presently known to the Company or that the Company presently believes  are not material could also cause actual results or events to differ  materially from those expressed in its forward-looking statements.  Additional risks and uncertainties are discussed in the Company's  materials filed with the Canadian securities regulatory authorities  from time to time, including the Enterprise Risks and Risk Management  section of the Management's Discussion and Analysis ("MD&A") and the  MD&A included in the Company's 2011 Annual Report - Financial Review.  Readers are cautioned not to place undue reliance on these  forward-looking statements, which reflect the Company's expectations  only as of the date of this News Release. The Company disclaims any  intention or obligation to update or revise these forward-looking  statements, whether as a result of new information, future events or  otherwise, except as required by law. 

 Non-GAAP Financial Measures 

 The Company uses the following non-GAAP financial measures: EBITDA and  EBITDA margin. The Company believes these non-GAAP financial measures  provide useful information to both management and investors in  measuring the financial performance of the Company for the reasons  outlined below. These measures do not have a standardized meaning  prescribed by GAAP and therefore they may not be comparable to  similarly titled measures presented by other publicly traded companies,  and should not be construed as an alternative to other financial  measures determined in accordance with GAAP. 

 EBITDA and EBITDA Margin The following table reconciles earnings before income taxes, net  interest expense and other financing charges and depreciation and  amortization ("EBITDA") to operating income which is reconciled to GAAP  net earnings measures reported in the consolidated statements of  earnings for the 12 week periods ended March 24, 2012 and March 26,  2011. EBITDA is useful to management in assessing performance of its  ongoing operations and its ability to generate cash flows to fund its  cash requirements, including the Company's capital investment program. 

 EBITDA margin is calculated as EBITDA divided by revenue. 





                                                             

                                                   2012                2011

    (millions of Canadian dollars)           (12 weeks)          (12 weeks)
    (unaudited)

    Net earnings                       $            126   $             162

    Add impact of the following:                                           

      Income taxes                                   39                  68

      Net interest expense and other                 74                  73
      financing charges

    Operating income                                239                 303

    Add impact of the following:                                           

      Depreciation and amortization                 170                 152

    EBITDA                             $            409   $             455

                                                                           

                                                           






 Selected Financial Information 

 The following includes selected quarterly financial information, which  is prepared by management in accordance with International Financial  Reporting Standards ("IFRS") and is based on the Company's 2012 First  Quarter Report to Shareholders. This financial information does not  contain all interim period disclosures required by IFRS, and  accordingly, should be read in conjunction with the Company's 2011  Annual Report - Financial Review and 2012 First Quarter Report to  Shareholders which are available in the Investor Centre section of the  Company's website at www.loblaw.ca. 

 Condensed Consolidated Statements of Earnings 





                                                              

                                           March24, 2012     March 26, 2011

    (millions of Canadian dollars             (12 Weeks)         (12 Weeks)
    except where otherwise indicated)
    (unaudited)

    Revenue                              $         6,937   $          6,872

    Cost of Merchandise Inventories                5,284              5,203
    Sold

    Selling, General and                           1,414              1,366
    Administrative Expenses

    Operating Income                                 239                303

    Net interest expense and other                    74                 73
    financing charges

    Earnings Before Income Taxes                     165                230

    Income taxes                                      39                 68

    Net Earnings                         $           126   $            162

    Net Earnings perCommon Share ($)                                       

    Basic                                $          0.45   $           0.58

    Diluted                              $          0.45   $           0.56

                                                                           






   

 Condensed Consolidated Balance Sheets   





                                                          

                                    As at          As at             As at

    (millions of Canadian  March 24, 2012 March 26, 2011 December 31, 2011
    dollars) (unaudited)

    Assets                                                                

    Current Assets                                                        

      Cash and cash        $          657 $          427 $             966
      equivalents

      Short term                      780            678               754
      investments

      Accounts receivable             432            367               467

      Credit card                   1,987          1,887             2,101
      receivables

      Inventories                   1,926          1,928             2,025

      Income taxes                      5              -                 -
      recoverable

      Prepaid expenses and            123             90               117
      other assets

      Assets held for sale             18             68                32

    Total Current Assets            5,928          5,445             6,462

    Fixed Assets                    8,694          8,384             8,725

    Investment Properties              95             74                82

    Goodwill & Intangible           1,026          1,026             1,029
    Assets

    Deferred Income Taxes             241            207               232

    Security Deposits                 249            184               266

    Franchise Loans                   352            315               331
    Receivable

    Other Assets                      293            400               301

    Total Assets           $       16,878 $       16,035 $          17,428

    Liabilities                                                           

    Current Liabilities                                                   

      Trade payables and            3,079          3,048             3,677
      other liabilities

      Provisions                       37             63                35

      Income taxes payable              -              2                14

      Short term debt                 905            905               905

      Long term debt due               82             52                87
      within one year

    Total Current                   4,103          4,070             4,718
    Liabilities

    Provisions                         50             43                50

    Long Term Debt                  5,489          5,249             5,493

    Deferred Income Taxes              27             36                21

    Capital Securities                222            221               222

    Other Liabilities                 885            660               917

    Total Liabilities              10,776         10,279            11,421

    Shareholders' Equity                                                  

    Common Share Capital            1,542          1,478             1,540

    Retained Earnings               4,504          4,229             4,414

    Contributed Surplus                51             44                48

    Accumulated Other                   5              5                 5
    Comprehensive Income

    Total Shareholders'             6,102          5,756             6,007
    Equity

    Total Liabilities and  $       16,878 $       16,035 $          17,428
    Shareholders' Equity

                                                                          






   

 Condensed Consolidated Statements of Cash Flow   





                                                        

                                    March 24, 2012             March 26,
    (millions of Canadian               (12 weeks)                  2011
    dollars) (unaudited)                                      (12 weeks)

    Operating Activities                                                

      Net earnings             $               126   $               162

      Income taxes                              39                    68

      Net interest expense                      74                    73
      and other financing
      charges

      Depreciation and                         170                   152
      amortization

      Income taxes paid                       (69)                  (41)

      Interest received                          7                    10

      Net decrease in credit                   114                   110
      card receivables

      Change in non-cash                     (533)                 (502)
      working capital

      Fixed assets and other                     3                     4
      related impairments

      Other                                     12                  (17)

    Cash Flows (used in)                      (57)                    19
    from Operating
    Activities

    Investing Activities                                                

      Fixed asset purchases                  (134)                 (155)

      Change in short term                    (43)                    64
      investments

      Proceeds from fixed                        1                     5
      asset sales

      Change in franchise                     (17)                   (1)
      investments and other
      receivables

      Change in security                        14                   167
      deposits

      Other                                      -                   (7)

    Cash Flows (used in)                     (179)                    73
    from Investing
    Activities

    Financing Activities                                                

      Change in bank                             -                  (10)
      indebtedness

      Change in short term                       -                   370
      debt

      Long term debt:                                                   

        Issued                                  23                    57

        Retired                               (29)                 (858)

      Interest paid                           (63)                  (82)

      Common shares:                                                    

        Issued                                   2                     3

        Purchased for                          (2)                     -
      cancellation

    Cash Flows used                           (69)                 (520)
    inFinancing Activities

    Effect of foreign                          (4)                   (2)
    currency exchange rate
    changes on cash and cash
    equivalents

    Change in Cash and Cash                  (309)                 (430)
    Equivalents

    Cash and Cash                              966                   857
    Equivalents, Beginning
    of Period

    Cash and Cash              $               657   $               427
    Equivalents, Endof
    Period

                                                                        






   

 2011 Annual Report and 2012 First Quarter Report to Shareholders  

 The Company's 2011 Annual Report and 2012 First Quarter Report to  Shareholders are available in the Investor Centre section of the  Company's website at www.loblaw.ca or at www.sedar.com. 

 Investor Relations  

 Shareholders, security analysts and investment professionals should  direct their requests to Kim Lee, Vice President, Investor Relations at  the Company's National Head Office or by e-mail at [e-mail]. 

 Additional information has been filed electronically with various  securities regulators in Canada through the System for Electronic  Document Analysis and Retrieval (SEDAR) and with the Office of the  Superintendent of Financial Institutions (OSFI) as the primary  regulator for the Company's subsidiary, President's Choice Bank. 

 Conference Call and Webcast 

 Loblaw Companies Limited will host a conference call as well as an audio  webcast on May 2, 2012 at 11:00 a.m. (EST). 

 To access via tele-conference please dial [phone]. The playback  will be made available two hours after the event at [phone],  access code: 65409659. To access via audio webcast please visit www.loblaw.ca, go to Investor Centre and click on webcast. Pre-registration will be  available. 

 Full details are available on the Loblaw Companies Limited website at www.loblaw.ca. 

 Annual and Special Meeting of Shareholders 

 The 2012 Annual and Special Meeting of Shareholders of Loblaw Companies  Limited will be held on Thursday, May 3, 2012 at 11:00 a.m. (EST) at  the Metro Toronto Convention Centre, South Building, Meeting Room 701,  222 Bremner Boulevard, Toronto, Ontario, Canada. 

 To access via tele-conference, please dial [phone]. The playback  will be available two hours after the event at [phone], access  code: 65429438. To access via audio webcast please visit the Investor  Centre section of www.loblaw.ca.  Pre-registration will be available. 

   

   

   

   

   

   

   

Loblaw Companies Limited


CONTACT:  Kim Lee, Vice President, Investor Relations at the Company'sNationalHead Office or by e-mail at [e-mail] 


    

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