Loblaw cautions on competition after profit trumps estimates

Thu Feb 20, 2014 1:46pm EST
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By Ashutosh Pandey

(Reuters) - Loblaw Cos Ltd's (L.TO: Quote) profit blew past market forecasts as gross margins improved more than expected, sending shares of Canada's largest grocer up almost 6 percent even as it warned of an "extremely competitive" first half of 2014.

U.S. retailers such as Wal-Mart Stores Inc (WMT.N: Quote) and Target Corp (TGT.N: Quote) have expanded in Canada over the past year, posing a threat to local retailers such as Loblaw, Canadian Tire Corp Ltd (CTCa.TO: Quote) and Metro Inc (MRU.TO: Quote).

"The competitive landscape has fundamentally changed with new competitors growing strongly and incumbents competing to maintain share," Loblaw President Vicente Trius said on a conference call on Thursday.

"But we will continue to execute against our investment program while balancing those investments with targeted efficiencies," he said.

Loblaw said it expected the pace of store openings by rivals to moderate in the second half of the year.

The company, which plans capital spending of about C$1 billion ($900 million) this year, said it expected revenue and adjusted operating income to grow but did not provide details.

Loblaw has said it expects its C$12.4 billion deal to buy Shoppers Drug Mart to close in the current quarter.

The company's net income fell to C$127 million ($115 million), or 45 Canadian cents per basic share in the fourth quarter ended December 28, from C$139 million, or 49 Canadian cents per basic share, a year earlier.   Continued...

A Loblaws store is pictured in Ottawa February 24, 2011. REUTERS/Chris Wattie