Loblaw Companies finished its Q1 2020 on March 21, 2020 with major growth thanks in part to unprecedented demand related to COVID-19. Such massive growth levels are unsustainable; however, sizeable investments in its business and operations will help Loblaw maintain strong growth aside from the pandemic’s help.
Through the last couple weeks of the quarter, Loblaw particularly benefited from unprecedented consumer demand thanks to COVID-19. The following growth includes the sizeable boost in sales provided by COVID-19.
Retail segment sales for the quarter amounted to CAD11,584 million, a 10.8% increase from the CAD1,132 million recorded during the same period prior year. Excluding the consolidation of franchises, retail segment sales increased 9.3%.
Revenue for the quarter reached CAD11,800 million, representing 10.7% growth compared to the same quarter in 2019. This growth came from both food retail (Loblaws store) and drug retail (Shoppers Drug Mart). Food retail same-store sales growth was 9.6% while drug retail same-store sales growth was 10.7%. Within food retail, inflation on the retailer’s mix of goods sold, increased basket size, and higher traffic impacted growth. Within drug retail, pharmacy same-store sales growth was 10.6% and front store same-sales growth 10.7%. On a same-store basis, the number of prescriptions filled during the quarter increased 5.5% and the average value of prescriptions increased by 4.8%. These growth values are enormous compared to the retailer’s usual comps, which come in around half or less than half these rates.
Loblaw has bolstered investment in four ways to react to uncertain circumstances surrounding COVID-19. The investment areas include increasing customer convenience by expanding online capabilities and store staffing, supporting associates and staff in stores and distribution centres with pay premiums and protection measures, securing operations with heightened store cleaning and security measures, and providing financial support to communities by pledging financial support to food banks and local charities and working with credit card customers experiencing financial hardship.
Costs allocated toward these investments, which began toward the end of Q1 and continue into Q2, amount to about CAD90 million per quarter. While panic-buying and stock-up trips boosted sales for the quarter, performance continues to evolve as shoppers’ needs and purchases continue to shift. In the five weeks following the end of Q1, food retail was up 10% and drug retail was down about 6% (each compared to the same period prior year.) With the uncertainty surrounding the pandemic, the retailer has withdrawn its previously stated 2020 Outlook.
During Q1, Loblaw spent about CAD19 million on restructuring, primarily relating to initiatives to improve processing and efficiency. Part of these charges include CAD15 million related to closing distribution centres in Laval and Ottawa, decisions that were announced earlier in the quarter. Instead, the retailer is investing to build a modern and more efficient extension onto its Cornwall distribution centre. This centre will serve Ontario and Quebec, and the retailer will spend the next two years transferring volume from the closing Laval and Ottawa locations to its Cornwall location; these operations will likely incur more restructuring costs through 2020 and 2021.
Loblaw’s investments in overall efficiency and shopping experience as well as improving safety through COVID-19 complications will help Canada’s major retailer continue to thrive through and beyond the pandemic. Growth across Loblaw was immense for Q1, and enhanced by shoppers’ COVID-19 related demands. While the double digit growth is difficult and unlikely to sustain, the investments in improving operations and in its shoppers and associates will strengthen key relationships and support and prime the business for continued solid growth.
For more information please contact:
Ellie Pinto, Analyst