February 26, 2015
Loblaw hopes to forestall work stoppages
Gales Weston seeks “fair and appropriate” deal with employees following a 68.4% increase in adjusted earnings per share
Loblaw Companies Limited, which announced exceptionally strong fourth quarter results this morning, is turning its focus to tough labour negotiations, said Galen Weston, the company’s president, in a conference call with analysts.
“We want to construct a fair and appropriate deal to keep work stoppages as far away from the table as possible.” said Weston regarding upcoming talks with UFCW Canada (United Food and Commercial Workers) representatives.
Real Canadian Superstore, Loblaws and Zehrs Market employees are demanding a cut of the 68.4% increase in adjusted earnings per share that Loblaw Companies Limited recorded in the past quarter. UFCW negotiators are asking for a mix of wage increases, and scheduling and benefits improvements. The union is also seeking to protect workers’ hours by forcing Loblaws to limit use of in-store third party providers.
Loblaws employees could not have picked a better time to negotiate wage increases. The company announced a stunning 49.4% increase in sales to $11.4 billion during the quarter ended January 3, 2015. The jump stemmed from a range of factors. These included consolidation of recently acquired Shoppers Drug Mart stores into Loblaws results. Strong food inflation and a re-jigging of the data, to include 13 weeks of sales into the fourth quarter, compared to just 12 weeks in 2013 also helped.
If Loblaws’ internal food inflation, which ran just slightly faster than Statistics Canada’s 3.5% consumer price index food component, is excluded, same store sales at Canada’s largest grocery retailer actually fell during the quarter.
Loblaws’s strong earnings numbers were helped by approximately $49 million of net synergies associated with the Shoppers Drug Mart acquisition, realized during the quarter. Year-to-date, net synergies totaled $101 million.
Weston said that he was “pleased,” with the company’s performance and its focus on its strategy of “helping Canadians to live well.” In coming months Loblaws is counting on faster growth in services provided at Shoppers Drug Mart stores, relative to product sales, to help propel revenues. Weston noted that Shoppers and Loblaws in-store pharmacy employees supply flu vaccines at a cost of just $9 per shot, compared to the $35 that governments pay medical doctors for the same work.
Weston also gave analysts clues regarding Loblaws’ goals during 2015. These include maintaining positive same store sales and stable gross margins and paring the company’s outstanding debt, which totaled a whopping $9.9 billion as at January 3, 2015.
One big question relates to how the Target liquidation will play out. Loblaws officials expect the short-term impact to be negative as remaining Target locations sell off inventory at cut rate prices. However once Target stores close the impact should turn bullish.
That said, while Loblaws’ officials are looking at acquiring some locations, according to Weston, most do not form a good fit with existing Loblaws infrastructure. So any deals are expected to be relatively small.
Right now Loblaws executives’ main focus will be on making sure that their employees have smiles on their faces following the upcoming labour talks. According to UFCW Canada, union negotiators are slated to head back to the table on March 3, 2015.
Loblaw Companies 2014 Fourth Quarter Highlights
· Retail segment sales increased by 50.5% compared to the fourth quarter of 2013. Same-store sales growth, for core grocery, was 3.3% for the quarter, excluding gas bar (0.5%) and the negative impact of a change in distribution model by a tobacco supplier (0.4%).
· On a comparable basis, same-store sales growth was 2.4% (2013 – 0.6%). Excluding the impact of Shoppers Drug Mart and the 13th week, consolidated revenue increased by 1.9% compared to the fourth quarter of 2013.
· Shoppers Drug Mart sales were $3,054 million in the fourth quarter of 2014. On a same-store basis, Shoppers Drug Mart sales increased by 3.8%, with same-store pharmacy sales increasing by 4.2% and same-store front store sales increasing by 3.6% over the fourth quarter of 2013.
· The Company completed the conversion of substantially all of its corporate grocery locations and associated distribution centres to the new information technology (“IT”) systems.
· Financial Services revenue increased by 13.2% compared to the fourth quarter of 2013.
· Choice Properties Real Estate Investment Trust’s (“Choice Properties”) adjusted funds from operations increased by 13.8% compared to the fourth quarter of 2013. Additional information about Choice Properties is available online at www.sedar.com.
· During the fourth quarter of 2014, the Company realized approximately $49 million of net synergies associated with the acquisition of Shoppers Drug Mart. The net synergies realized, year-to-date, were $101 million.
· Free cash flow was $439 million for the fourth quarter of 2014. On closing of the acquisition of Shoppers Drug Mart, adjusted debt was $11,060 million.
· The Company made significant progress in meeting its debt reduction target by decreasing adjusted debt by $421 million in the fourth quarter of 2014 and by $1,065 million since the closing of the acquisition of Shoppers Drug Mart resulting in an outstanding adjusted debt balance of $9,995 million as at January 3, 2015. The reduction in adjusted debt since closing included the repayment of a $350 million medium term note (“MTN”) and a repayment of the unsecured term loan facility (net of the replacement of all tranches of inter-corporate debt of Choice Properties initially held by Loblaw and sold to unrelated parties).
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