Discount stores still the (no) name of the game for Loblaw in Q3
Loblaw Cos. Ltd. saw its third-quarter profit rise as shoppers continued to favour its discount banners over full-service stores.
Chief executive Per Bank said customers know how to navigate price increases and find value where they can. For example, many customers switched to buying chicken as shortages and drought drove red meat prices higher, he told analysts during an earnings call on Wednesday.
"That's how customers continue to navigate through inflation and keeping their costs low, and of course, as well, shifting to discount (stores)," he said.
Annual price hikes at grocery stores have largely trended higher since a recent low in April 2024, as September food inflation came at four per cent, according to Statistics Canada.
However, Bank said consumer demand for hard discount banners has largely stabilized.
Loblaw reported a profit attributable to common shareholders of $794 million or 66 cents per diluted share for the quarter ended Oct. 4. The result compared with a profit of $777 million or 63 cents per diluted share in the same quarter last year.
Revenue for the 16-week period totalled $19.40 billion, up from $18.54 billion a year earlier.
The effects of tariffs on American imports have also started to wane, particularly after Canada's counter-tariffs were dropped, Bank said. However, that has dampened the momentum of the Buy Canadian movement as prices return to normal levels, he added.
"We are seeing some customers who are going back to those products that they love now that they are much cheaper than they were, and that will have some impact on Canadian sales," he said.
The grocer is betting on the expansion of its storefronts — with a strong focus on discount banners.
"Seven, eight years ago, we all in our industry thought that there was no need to build new stores," Bank said.
However, there's still a strong appetite among consumers to shop in person, touch their produce, and look at what they buy, he said.
Earlier this year, Loblaw announced a plan to spend $2.2 billion, opening new grocery and pharmacy stores (the company also owns Shoppers Drug Mart), with about 50 of them being smaller-format discount stores.
The company opened 19 Maxi and No Frills stores in the third quarter and remains on track for its full-year plan to open about 76 new stores: 49 "hard discount" banners, 23 Shoppers Drug Mart stores and the rest a mix of conventional banners.
RBC analyst Irene Nattel said in a note to clients that Loblaw enjoys the "highest exposure to discount banners and private label penetration," in comparison with Metro and Empire.
Food retail same-store sales were up two per cent, while drug retail same-store sales rose four per cent with pharmacy and health-care same-store sales growth of 5.9% and a gain of 1.9% for front store same-store sales.
Nattel said it was "another solid quarter" for the company, however, same-store food sales and revenue was "a string bean shy of forecast."
Meanwhile, full-service grocery stores, such as Loblaws and Fortinos, aren't seeing similar momentum as seen with hard discount banners.
"Conventional channel is not growing (at) the same pace as the others," said chief financial officer Richard Dufresne.
Real Canadian Superstore, which is a conventional banner, outperformed the other conventional banners, the company said in its release.
Bank said the company is continuing to add more brands to its Superstores banner — in clothing and food, as well as a broader multicultural assortment.
On an adjusted basis, Loblaw says its earned 69 cents per diluted share in its latest quarter, up from an adjusted profit of 62 cents per diluted share a year ago.
