"Loblaw delivered strong operating performance in the quarter, while investing in providing exceptional value, safety and convenience," said
The COVID-19 pandemic continued to impact the Company's operations in the quarter, positively impacting sales in the Food Retail business, supported by significant investments to ensure the safety and security of customers and colleagues. Loblaw continued to make investments to enhance the overall value proposition for consumers, maintaining its promotional intensity through the pandemic to retain its share gains in conventional banners and further improve its positioning in discount banners.
Food Retail same-store sales continued at elevated levels, growing by 6.9% in the quarter, with the Company's Market division delivering strong growth of 9.7% and the Discount division delivering 4.7% growth. Drug Retail same-store sales also experienced growth in the quarter, growing by 6.1%, with pharmacy delivering strong growth of 10.3% and front store sales growing by 2.4%. The Company invested approximately
The COVID-19 pandemic has accelerated certain longer-term trends, enabling the Company to advance its strategic growth areas of Everyday Digital,
In September, the Company made two important announcements in its strategic growth areas of Payments and
2020 THIRD QUARTER HIGHLIGHTS
Unless otherwise indicated, the following highlights include the impacts of the consolidation of franchises and COVID-19.
- Revenue was
$15,671 million . When compared to the third quarter of 2019, this represented an increase of$1,016 million , or 6.9%. - Retail segment sales were
$15,464 million . When compared to the third quarter of 2019, this represented an increase of$1,044 million , or 7.2%. - Food retail (Loblaw) same-stores sales growth was 6.9%.
- Drug retail (
Shoppers Drug Mart ) same-store sales growth was 6.1%, with pharmacy same-store sales growth of 10.3% and front store same-store sales growth of 2.4%. - The Company's e-commerce initiative continued to contribute to Everyday Digital sales which have grown 175% on a quarter-to-date basis.
- The Company incurred approximately
$85 million in COVID-19 related costs to ensure the safety and security of customers and colleagues. - Operating income was
$718 million . When compared to the third quarter of 2019, this represented an increase of$28 million , or 4.1%. - Adjusted EBITDA(2) was
$1,524 million . When compared to the third quarter of 2019, this represented an increase of$32 million , or 2.1%. - Adjusted EBITDA margin(2) was 9.7%. When compared to the third quarter of 2019, this represented a decrease of 50 bps.
- Net earnings available to common shareholders of the Company were
$342 million . When compared to the third quarter of 2019, this represented an increase of$11 million , or 3.3%. Diluted net earnings per common share were$0.96 . When compared to the third quarter of 2019, this represented an increase of$0.06 , or 6.7%. - Adjusted net earnings available to common shareholders of the Company(2) were
$464 million . When compared to the third quarter of 2019, this represented an increase of$6 million , or 1.3%. - Adjusted diluted net earnings per common share(2) were
$1.30 . When compared to the third quarter of 2019, this represented an increase of$0.05 , or 4.0%. - In the third quarter of 2020, the Company repurchased 5.0 million common shares at a cost of
$350 million . - In
October 2020 , the Company extended the maturity on its existing$1 billion revolving credit facility toOctober 2023 . - The Company invested
$396 million in capital expenditures and generated$121 million of free cash flow(2). - The Company recorded approximately
$12 million of restructuring and other related charges, primarily related to Process and Efficiency initiatives. - Quarterly common share dividend to be increased by 6.3% from
$0.315 per common share to$0.335 per common share.
See "News Release Endnotes" at the end of this News Release. |
CONSOLIDATED RESULTS OF OPERATIONS
Unless otherwise indicated, all financial information includes the impacts of the consolidation of franchises and COVID-19.
For the periods ended | 2020 | 2019 | 2020 | 2019 | |||||||||||
(millions of Canadian dollars except | (16 weeks) | (16 weeks) | $ Change | % Change | (40 weeks) | (40 weeks) | $ Change | % Change | |||||||
Revenue | $ | 15,671 | $ | 14,655 | $ | 1,016 | 6.9% | $ | 39,428 | $ | 36,447 | $ | 2,981 | 8.2% | |
Operating income | 718 | 690 | 28 | 4.1% | 1,663 | 1,729 | (66) | (3.8)% | |||||||
Adjusted EBITDA(2) | 1,524 | 1,492 | 32 | 2.1% | 3,709 | 3,707 | 2 | 0.1% | |||||||
Adjusted EBITDA margin(2) | 9.7% | 10.2% | 9.4% | 10.2% | |||||||||||
Net earnings attributable to | |||||||||||||||
shareholders of the | |||||||||||||||
Company | $ | 345 | $ | 334 | $ | 11 | 3.3% | $ | 760 | $ | 824 | $ | (64) | (7.8)% | |
Net earnings available to | |||||||||||||||
common shareholders of the | |||||||||||||||
Company(i) | 342 | 331 | 11 | 3.3% | 751 | 815 | (64) | (7.9)% | |||||||
Adjusted net earnings available | |||||||||||||||
to common shareholders of the | |||||||||||||||
Company(2) | 464 | 458 | 6 | 1.3% | 1,082 | 1,121 | (39) | (3.5)% | |||||||
Diluted net earnings per | |||||||||||||||
common share ($) | $ | 0.96 | $ | 0.90 | $ | 0.06 | 6.7% | $ | 2.09 | $ | 2.20 | $ | (0.11) | (5.0)% | |
Adjusted diluted net earnings per | |||||||||||||||
common share(2) ($) | $ | 1.30 | $ | 1.25 | $ | 0.05 | 4.0% | $ | 3.01 | $ | 3.03 | $ | (0.02) | (0.7)% | |
Diluted weighted average | |||||||||||||||
common shares outstanding | |||||||||||||||
(in millions) | 358.0 | 366.2 | 359.5 | 369.7 | |||||||||||
(i) | Net earnings available to common shareholders of the Company are net earnings attributable to shareholders of the Company net of dividends declared on the Company's Second Preferred Shares, Series B. |
REPORTABLE OPERATING SEGMENTS
The Company has two reportable operating segments (with all material operations carried out in
- The Retail segment consists primarily of corporate and franchise-owned retail food and Associate-owned drug stores. The Retail segment also includes in-store pharmacies and other health and beauty products, apparel and other general merchandise and supports the PC Optimum Program; and
- The Financial Services segment provides credit card and everyday banking services, the PC Optimum Program, insurance brokerage services, and telecommunication services.
2020 | 2019 | |||||||||||||||
(16 weeks) | (16 weeks) | |||||||||||||||
For the periods ended (millions of Canadian dollars) | Retail | Financial Services | Eliminations(i) | Total | Retail | Financial | Eliminations(i) | Total | ||||||||
Revenue | $ | 15,464 | $ | 278 | $ | (71) | $ | 15,671 | $ | 14,420 | $ | 309 | $ | (74) | $ | 14,655 |
Adjusted gross profit(2) | $ | 4,534 | $ | 226 | $ | (71) | $ | 4,689 | $ | 4,262 | $ | 262 | $ | (74) | $ | 4,450 |
Adjusted gross profit %(2) | 29.3% | 81.3% | —% | 29.9% | 29.6% | 84.8% | —% | 30.4% | ||||||||
Operating income | $ | 674 | $ | 44 | $ | — | $ | 718 | $ | 655 | $ | 35 | $ | — | $ | 690 |
Net interest expense and other financing charges | 205 | 23 | — | 228 | 203 | 20 | — | 223 | ||||||||
Earnings before income taxes | $ | 469 | $ | 21 | $ | — | $ | 490 | $ | 452 | $ | 15 | $ | — | $ | 467 |
Depreciation and amortization | $ | 789 | $ | 6 | $ | — | $ | 795 | $ | 771 | $ | 4 | $ | — | $ | 775 |
Adjusted EBITDA(2) | 1,474 | 50 | — | 1,524 | 1,452 | 40 | — | 1,492 | ||||||||
Adjusted EBITDA margin(2) | 9.5% | N/A | —% | 9.7% | 10.1% | N/A | —% | 10.2% | ||||||||
(i) | Eliminations include the reclassification of revenue related to President's Choice Financial Mastercard® loyalty awards in the Financial Services segment. |
2020 | 2019 | |||||||||||||||
(40 weeks) | (40 weeks) | |||||||||||||||
For the periods ended (millions of Canadian dollars) | Retail | Financial | Eliminations(i) | Total | Retail | Financial | Eliminations(i) | Total | ||||||||
Revenue | $ | 38,816 | $ | 777 | $ | (165) | $ | 39,428 | $ | 35,778 | $ | 859 | $ | (190) | $ | 36,447 |
Adjusted gross profit(2) | $ | 11,468 | $ | 678 | $ | (165) | $ | 11,981 | $ | 10,622 | $ | 742 | $ | (190) | $ | 11,174 |
Adjusted gross profit %(2) | 29.5% | 87.3% | —% | 30.4% | 29.7% | 86.4% | —% | 30.7% | ||||||||
Operating income | $ | 1,582 | $ | 81 | $ | — | $ | 1,663 | $ | 1,602 | $ | 127 | $ | — | $ | 1,729 |
Net interest expense and other financing charges | 509 | 67 | — | 576 | 511 | 60 | — | 571 | ||||||||
Earnings before income taxes | $ | 1,073 | $ | 14 | $ | — | $ | 1,087 | $ | 1,091 | $ | 67 | $ | — | $ | 1,158 |
Depreciation and amortization | $ | 1,971 | $ | 16 | $ | — | $ | 1,987 | $ | 1,921 | $ | 14 | $ | — | $ | 1,935 |
Adjusted EBITDA(2) | 3,612 | 97 | — | 3,709 | 3,565 | 142 | — | 3,707 | ||||||||
Adjusted EBITDA margin(2) | 9.3% | N/A | —% | 9.4% | 10.0% | N/A | —% | 10.2% | ||||||||
(i) | Eliminations include the reclassification of revenue related to President's Choice Financial Mastercard® loyalty awards in the Financial Services segment. |
RETAIL SEGMENT
Unless otherwise indicated, the following financial information includes the impacts of the consolidation of franchises and COVID-19.
- Retail segment sales were
$15,464 million . When compared to the third quarter of 2019, this represented an increase of$1,044 million , or 7.2%. After excluding the consolidation of franchises, Retail segment sales increased by$939 million or 6.7%. - Food retail (Loblaw) sales were
$11,215 million and Food retail same-store sales growth was 6.9% (2019 – 0.1%). Food same-store sales growth was positively impacted by COVID-19. - The Company's Food retail average article price was higher by 5.3% (2019 – 2.2%), which reflects the year over year growth in Food retail revenue over the average number of articles sold in the Company's stores in the quarter. The increase in average article price was due to sales mix.
- Food retail basket size increased and traffic decreased in the quarter.
- Drug retail (
Shoppers Drug Mart ) sales were$4,249 million , and Drug retail same-store sales growth was 6.1% (2019 – 4.1%), with pharmacy same-store sales growth of 10.3% (2019 – 5.3%) and front store same-store sales growth of 2.4% (2019 – 3.1%). Drug same-store sales was positively impacted by COVID-19. - On a same-store basis, the number of prescriptions dispensed increased by 5.0% (2019 – 2.9%) and the average prescription value increased by 4.9% (2019 – 1.6%).
- Operating income in the third quarter of 2020 was
$674 million . When compared to the third quarter of 2019, this represented an increase of$19 million , or 2.9%. - Adjusted gross profit(2) in the third quarter of 2020 was
$4,534 million . When compared to the third quarter of 2019, this represented an increase of$272 million , or 6.4%. Excluding the consolidation of franchises, adjusted gross profit(2) increased by$153 million . Adjusted gross profit percentage(2) of 29.3% decreased by 30 basis points compared to the third quarter of 2019. Adjusted gross profit percentage(2), excluding the consolidation of franchises, was 26.7%. This represented a decrease of 60 basis points compared to the third quarter of 2019. Food margins were negatively impacted as a result of COVID-19 related changes in sales mix, and pricing investments. Drug retail margins were negatively impacted as a result of COVID-19 related changes in prescription refill limits from 30 days back to 90 days. - Adjusted EBITDA(2) in the third quarter of 2020 was
$1,474 million . When compared to the third quarter of 2019, this represented an increase of$22 million , or 1.5%. The increase included the year-over-year favourable impact of the consolidation of franchises of$8 million . Excluding the consolidation of franchises, the increase was driven by an increase in adjusted gross profit(2) of$153 million , partially offset by an increase in SG&A of$139 million . SG&A as a percentage of sales, excluding the consolidation of franchises, was 17.2%, a decrease of 10 basis points compared to the third quarter of 2019. The favourable decrease of 10 basis points was primarily related to sales leverage and process and efficiency gains which was partially offset by COVID-19 related costs and incremental e-commerce labour costs as a result of increased on-line sales. - Depreciation and amortization in the third quarter of 2020 was
$789 million , an increase of$18 million compared to the third quarter of 2019, primarily driven by the consolidation of franchises and an increase in IT assets. Included in depreciation and amortization is the amortization of intangibles assets related to the acquisition ofShoppers Drug Mart Corporation of$155 million (2019 –$157 million ). - The Company recorded approximately
$12 million of restructuring and other related charges, primarily related to Process and Efficiency initiatives. Included in the restructuring charges are$6 million of charges related to the closure of the two distribution centres inLaval andOttawa , that were previously announced in the first quarter of 2020. The Company is investing to build a modern and efficient expansion to itsCornwall distribution centre to serve its food and drug retail businesses inOntario andQuebec . The distribution centres inLaval andOttawa will be transferring their volumes toCornwall and the Company expects to incur additional restructuring costs through to 2022 related to these closures. - As at the end of the first quarter of 2020, the Company consolidated all of its remaining franchisees. Consolidation of franchises in the third quarter of 2020 resulted in a year-over-year increase in revenue of
$105 million , an increase in adjusted EBITDA(2) of$8 million , an increase in depreciation and amortization of$9 million and a decrease in net earnings attributable to non-controlling interests of$4 million .
FINANCIAL SERVICES SEGMENT
- Revenue was
$278 million . When compared to the third quarter of 2019, this represented a decrease of$31 million . The decrease was primarily driven by lower interest, interchange income and credit card related fees due to lower customer spending, partially offset by higher sales attributable to The Mobile ShopTM. - Earnings before income taxes were
$21 million . When compared to the third quarter of 2019, this represented an increase in earnings of$6 million . The increase was primarily driven by lower credit losses and expected credit losses, and lower customer acquisition costs, partially offset by lower revenue, as described above. - In the third quarter, the Company launched the PC Money Account. New customers enrolled in the PC Money Account to date have exceeded the Company's expectations.
COVID-19 UPDATE
General
The COVID-19 pandemic had a significant impact on our colleagues, customers, suppliers and other stakeholders in the third quarter. As disclosed previously, starting in March, the Company reacted quickly to changing circumstances by ramping up investments in various areas.
In the four weeks following the end of the third quarter, the Company observed continued sales volatility and changes in sales mix as the pandemic impacted consumer behaviour. Food retail same-store sales trends and COVID-19 related costs were in line with third quarter results, however, Drug retail same-store sales have decelerated when compared to the third quarter.
In light of the uncertainty surrounding the duration and severity of the pandemic, it is not possible to reliably estimate the length and severity of COVID-19 related impacts on the financial results and operations of the Company. As announced on
Liquidity
The Company's liquidity position is supported by a strong balance sheet and the ability to generate significant cash flow from its operations. In
Risk Factor
For more information on the risks presented to the Company by the COVID-19 pandemic, please see Section 9, "Enterprise Risks and Risk Management" of the Company's MD&A for the quarter ended
DECLARATION OF DIVIDENDS
Subsequent to the end of the third quarter of 2020, the Board of Directors declared a quarterly dividend on Common Shares and Second Preferred Shares, Series B.
Common Shares | |
Second Preferred Shares, Series B |
NON-GAAP FINANCIAL MEASURES
The Company uses non-GAAP financial measures as it believes these measures provide useful information to both management and investors with regard to accurately assessing the Company's financial performance and financial condition.
Management uses these and other non-GAAP financial measures to exclude the impact of certain expenses and income that must be recognized under GAAP when analyzing underlying consolidated and segment operating performance, as the excluded items are not necessarily reflective of the Company's underlying operating performance and make comparisons of underlying financial performance between periods difficult. The Company excludes additional items if it believes doing so would result in a more effective analysis of underlying operating performance. The exclusion of certain items does not imply that they are non-recurring.
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.
For reconciliation to, and description of, the Company's non-GAAP financial measures and financial metrics, please refer to Section 11 "Non-GAAP Financial Measures" of the Company's 2020 Third Quarter Report to Shareholders.
FORWARD-LOOKING STATEMENTS
This News Release contains forward-looking statements about the Company's objectives, plans, goals, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects, opportunities and legal and regulatory matters. Specific forward-looking statements in this News Release include, but are not limited to, statements with respect to the Company's anticipated future results, events and plans, strategic initiatives and restructuring, regulatory changes including further healthcare reform, future liquidity, planned capital investments, and the status and impact of Information Technology systems implementations. These specific forward-looking statements are contained throughout this News Release including, without limitation, in the "Consolidated Results of Operations" Other Business Matters section and "COVID-19 Update" section of this News Release. Forward-looking statements are typically identified by words such as "expect", "anticipate", "believe", "foresee", "could", "estimate", "goal", "intend", "plan", "seek", "strive", "will", "may", "should" and similar expressions, as they relate to the Company and its management.
Forward-looking statements reflect the Company's estimates, beliefs and assumptions, which are based on management's perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. The Company's expectation of operating and financial performance in 2020 is based on certain assumptions including assumptions about the COVID-19 pandemic, healthcare reform impacts, anticipated cost savings and operating efficiencies and anticipated benefits from strategic initiatives. The Company's estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events, including the COVID-19 pandemic and as such, are subject to change. The Company can give no assurance that such estimates, beliefs and assumptions will prove to be correct.
Numerous risks and uncertainties could cause the Company's actual results to differ materially from those expressed, implied or projected in the forward-looking statements, including those described in Section 12 "Enterprise Risks and Risk Management" of the MD&A in the 2019 Annual Report and the Company's 2019 Annual Information Form (for the year ended
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. Except as required by law, the Company does not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
CORPORATE PROFILE
2019 Annual Report and 2020 Third Quarter Report to Shareholders
The Company's 2019 Annual Report and 2020 Third Quarter Report to Shareholders are available in the "Investors" section of the Company's website at loblaw.ca and on sedar.com.
Additional financial information has been filed electronically with various securities regulators in
Conference Call and Webcast
To access via tele-conference, please dial (647) 427-7450 or (888) 231-8191. The playback will be made available approximately two hours after the event at (416) 849-0833 or (855) 859-2056, access code: 9959726. To access via audio webcast, please go to the "Investors" section of loblaw.ca. Pre-registration will be available.
Full details about the conference call and webcast are available on the
News Release Endnotes | |
(1) | This News Release contains forward-looking information. See "Forward-Looking Statements" section of this News Release and the Company's 2020 Third Quarter Report to Shareholders for a discussion of material factors that could cause actual results to differ materially from the 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 |
(2) | See Section 11 "Non-GAAP Financial Measures" of the Company's 2020 Third Quarter Report to Shareholders, which includes the reconciliation of such non-GAAP measures to the most directly comparable GAAP measures. |
(3) | To be read in conjunction with the "Forward-Looking Statements" section of this News Release and the Company's 2020 Third Quarter Report to Shareholders. |
SOURCE
© Canada Newswire, source