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(Reuters) - Loblaw Cos Ltd (L.TO), Canada's largest food retailer, reported a bigger-than-expected, 22 percent fall in quarterly earnings as its food and drugstore sales stayed flat and costs rose.
Margins at established Canadian grocers such as Loblaw and Metro Inc MRU.TO have been pressured by the rapid expansion of Wal-Mart Stores Inc's (WMT.N) supercenters, which sell a wider array of grocery items.
Loblaw's first-quarter operating margin fell to 3.4 percent from 4.4 percent last year. Selling, general and administrative costs rose about 4 percent to $1.41 billion.
Metro, Canada's third-largest grocery store operator, said last month that the effect on sales due to Wal-Mart's growing presence in Quebec has been manageable.
Loblaw, however, is spending more to boost productivity in the face of increased competition.
The company, which plans to spend about 40 percent of its full-year budget of C$1.1 billion on its IT infrastructure and supply-chain projects, reiterated that per-share net earnings would be down this year due to the incremental costs.
First-quarter earnings fell to C$126 million ($128.02 million), or 45 Canadian cents per share, from C$162 million, or 56 Canadian cents per share, a year earlier.
Analysts, on average, had expected 49 Canadian cents per share, according to Thomson Reuters I/B/E/S.
Sales at the company, majority-owned by George Weston Ltd (WN.TO), rose 0.9 percent to C$6.94 billion, missing the C$7.01 billion analysts expected.
Sales at established locations, a key measure for retailers, fell 0.7 percent on one less day of store operations.
Loblaw shares, which have fallen about 13 percent this year, fell about a percent to C$33.13 on the Toronto Stock Exchange.
($1 = 0.9843 Canadian dollars)
Reporting by Krishna N. Das and Maneesha Tiwari in Bangalore; Editing by Joyjeet Das, Sreejiraj Eluvangal