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Thursday, July 27, 2017

Loblaw Companies Ltd. says that minimum wage increases in Ontario and Alberta threaten to harm its bottom line and it will have to find ways to cut costs. 

“In a quarter characterized by continued price deflation, we delivered solid sales metrics and are pleased with our financial performance," said Galen G. Weston, chairman and CEO, Loblaw Companies Limited, in Wednesday’s Q2 analysts’ call.

"We plan to intensify our focus on cost reductions in this highly competitive market given incremental external pressures on our industry.”

The company estimates that the wage hikes will mean its labour expenses will jump by about $190 million next year. “We are flagging a significant set of financial headwinds and the organization is mobilizing all of its resources to see whether or not it can close that gap,” Weston said. “At this point, we don’t know the answer. We need to increase our focus on cost reductions and accelerate our plans to realize efficiencies."

The Ontario government has proposed legislation that would boost the hourly minimum wage, which is currently set to rise with inflation, from $11.40 an hour to $11.60 in October, to $14 on January 1, 2018 and to $15 in 2019.

The provincial government has said the wage hikes are intended to increase people’s purchasing power and stimulate broader economic activity. But a number of business groups, including the Ontario Chamber of Commerce and the Canadian Federation of Independent Grocers, have decried the legislation, saying it will result in job cuts, the Globe reports.

In 2015, Alberta announced plans to hike its minimum wage from $10.20 an hour to $15 an hour by next year.

Weston called the wage increases “the most significant in recent memory,” adding that the company is expediting measures to save money such as increasingly digitizing manual invoice jobs and rolling out more self-checkouts at its Shoppers Drug Mart locations.

For the 24 weeks ending June 17, 2017, Loblaw reported a profit attributable to shareholders of $358 million or 89 cents per diluted share, up from its profit of $158 million or 39 cents per diluted share a year ago.

Revenue for the quarter ended June 17, 2017, amounted to nearly $11.08 billion, up from $10.73 billion in the same quarter last year or +3.2 per cent.

Loblaw announced that its food retail business, same-store sales rose 1.2 per cent. The company attributed the improvement to strong customer spending because of the timing of the Easter holiday.

Drug retail (Shoppers Drug Mart) same-store sales growth was 3.7 per cent, with pharmacy same-store sales growth of 2.9 per cent and front store same-store sales growth of 4.5 per cent. Excluding the favourable impact of the timing of Easter, Drug retail same-store sales growth was approximately 2.9 per cent, with pharmacy same-store sales growth of approximately 3.5 per cent and front store same-store sales growth of approximately 2.3 per cent.

 

Click here to listen to the conference call webcast.

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