July 24, 2013 / 10:19 AM / 4 years ago

Loblaw raises outlook in tough Canadian retail market

(Reuters) - Loblaw Cos Ltd (L.TO) reported a higher quarterly profit as food and clothing sales rose throughout its stores, prompting Canada’s largest grocer to raise its full-year operating income forecast in defiance of tougher competition.

Loblaw, which is buying Shoppers Drug Mart Corp SC.TO to bulk up against an influx of U.S. competitors, said profit rose 14 percent in the second quarter. Sales growth was strongest in its clothing line and its gas-station network.

The company forecast 2013 operating income would grow, percentage-wise, in the mid-single digits. Previously, it had forecast modest or low-single-digit growth.

The retail environment in Canada remains competitive, however, and Loblaw said sales growth would be moderated by the expansion of its rivals and tighter price controls on generic drugs, which the company also sells.

Loblaw and parent George Weston Ltd (WN.TO) have been under increasing pressure from U.S. rival Wal-Mart Stores Inc (WMT.N), which has ramped up its grocery offerings in Canada.

U.S. discounter Target Corp (TGT.N) plans to have 124 stores across the country by the end of the year, while Empire Co Ltd (EMPa.TO) is buying Safeway Inc’s Canadian assets to cement its position as Canada’s No. 2 grocer and Loblaw’s closest rival.

Loblaw’s net income in the second quarter rose to C$178 million ($173 million), or 63 Canadian cents per share, from C$156 million, or 55 Canadian cents per share, a year earlier.

Revenue rose 2 percent to C$7.52 billion. Sales at established stores, a key measure for retailers, rose 1 percent.

Loblaw this month announced a C$12.4 billion deal to buy Shoppers Drug Mart, Canada’s biggest pharmacy chain, to create a combined retail operation with more than C$42 billion in annual revenue.

This will give Loblaw increased exposure to pharmaceutical sales, which are expected to benefit from the aging of Canada’s population. It would also gain a foothold in the market for smaller stores serving dense urban neighborhoods.

Shoppers reported a slight increase in second-quarter profit last week as its shops filled more prescriptions.

Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Robin Paxton

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