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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 investor@loblaw.ca.
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 (647) 427-7450. The playback will be made available two hours after the event at (416) 849-0833, 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 (647) 427-7450. The playback will be available two hours after the event at (416) 849-0833, 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 investor@loblaw.ca