George Weston Limited reported a fall in profit in its third quarter, despite a rise in revenue.
Per-share earnings were $0.82, down from $1.96 in the comparable quarter a year ago. Revenue increased 2.4 per cent to $16.19 billion. The increase in revenue was attributed to revenue growth of 2.4 per cent at Loblaw, primarily driven by an increase in retail sales and an improvement in financial services revenue. Retail sales increased by $367 million, or 2.4 per cent, compared to the same period in 2020. The increase was primarily due to positive same-store sales growth and a net increase in retail square footage. Food retail same-store sales grew by 0.2 per cent for the quarter. Sales were impacted by lower eat-at-home trends after strong growth last year, offset by higher industry inflation levels.
Food retail basket size decreased and traffic increased in the quarter, as compared to the third quarter of 2020. George Weston says Loblaw’s internal measures of inflation were slightly higher than the average quarterly national food price inflation of 2.6 per cent (2020 – 1.8 per cent), as measured by “The Consumer Price Index for Food Purchased from Stores” (“CPI”). Drug retail same-store sales grew by 4.4 per cent. Pharmacy same-store sales growth benefited from strong sales in fee related services. Front store same-store sales growth benefited from the economic re-opening in the third quarter of 2021.
"George Weston's third quarter results reflect the strength of its underlying operating businesses," says Galen G. Weston, chairman and CEO of George Weston. "Loblaw's focus on core retail execution and an enthusiastic consumer response drove another quarter of strong financial results, while Choice Properties' results were stable and reflect its resilient necessity-based portfolio.With the recently announced agreements to sell Weston Foods, George Weston will continue to focus on its market-leading Retail and Real Estate businesses. The Company is pleased that the proud legacy of the bakery business is well-positioned to continue into the future with two high-quality buyers."
Consolidation of Franchises
Loblaw has more than 500 franchise food retail stores in its network. Non-controlling interests at Loblaw represent the franchise's earnings in food. Loblaw's net earnings attributable to non-controlling interests were $54 million in the third quarter of 2021. When compared to the third quarter of 2020, this represented an increase of $39 million or 260%. The increases in non-controlling interests at Loblaw were primarily driven by higher franchise earnings in comparison to the same period in 2020.
Subsequent to the end of the third quarter of 2021, Loblaw finalized network optimization plans that will result in banner conversions, closures and right-sizing of approximately 20 unprofitable retail locations across a range of banners and formats, the majority of which will be banner conversions and 3 will be closures within food retail. Loblaw expects to record charges of approximately $25 million to $35 million resulting from this network optimization. These charges will be recorded as incurred and are expected to include equipment, severance, lease related and other costs. Loblaw expects to realize approximately $25 million in annualized EBITDA run-rate savings related to these plans. This store optimization project will be substantially complete by the end of 2022. As Loblaw places emphasis on optimizing its store and office network, there may be additional charges of this nature in the fourth quarter of 2021 and into 2022.