Loblaw raises outlook in tough Canadian retail market

Wed Jul 24, 2013 10:08am EDT
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By Bhaswati Mukhopadhyay

(Reuters) - Loblaw Cos Ltd (L.TO: Quote) 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 higher guidance was probably expected as Loblaw's first two quarters were pretty good, said Bobby Hagedorn, an equity analyst with brokerage Edward Jones.

He said the guidance looks achievable even though the market will be more competitive in the second half.

"I think the company is being conservative," Hagedorn said.

The retail environment in Canada remains competitive 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: Quote) have been under increasing pressure from U.S. rival Wal-Mart Stores Inc (WMT.N: Quote), which has ramped up its grocery offerings in Canada.   Continued...