(Reuters) - Loblaw Cos Ltd (L.TO), Canada’s largest food retailer, said it would close 52 unprofitable stores following a review of its 2,300 grocery and other locations launched last year.
Loblaw’s shares rose as much as 4 percent to C$70.42 on the Toronto Stock Exchange on Thursday after the company also reported a slightly better-than-expected profit on cost savings from its acquisition of Shoppers Drug Mart in 2014.
Despite the closures, Loblaw will increase its network this year, President and Executive Chairman Galen Weston said on a post-earnings call.
Apart from its namesake stores, Loblaw’s banners include No Frills and Wholesale Club as well as Shoppers Drug Mart.
Loblaw said in March it would invest more than C$1.2 billion ($920 million) in Canada this year to open more than 50 stores and renovate more than 100.
“It’s better to cut your losses and move on, and I suspect that’s what they’ve done,” said Antony Karabus, chief executive officer at HRC Advisory.
Loblaw is facing increasing competition in its grocery business from Wal-Mart Stores Inc (WMT.N) as well from as domestic rivals such as Sobeys Inc [SOBEF.UL], owned by Empire Co Ltd (EMPa.TO), and Metro Inc (MRU.TO).
Its pharmacy business has also been hurt by price-controls imposed on generic drugs, aimed at cutting costs for government and private health programs.
“Looking ahead, the grocery industry remains highly competitive and healthcare reform continues to put pressure on our pharmacy business,” Weston said in a statement.
The store closures will reduce sales by about C$300 million a year but add about C$35-C$40 million to operating income, Loblaw said. It did not specify which stores would close.
The company said the closures and related charges would amount to about C$120 million, of which about $45 million was recorded in the second quarter ended June 20. About C$70 million will be recorded in the current quarter.
Excluding items, Loblaw earned 85 Canadian cents per share in the second quarter, beating analysts’ average estimate of 83 Canadian cents, according to Thomson Reuters I/B/E/S.
Revenue rose 2 percent to C$10.54 billion, short of the average estimate of C$10.61 billion.
(Story corrects title of Karabus in paragraph 6)
Reporting By Manya Venkatesh in Bengaluru; Editing by Joyjeet Das and Ted Kerr