Loblaw expects adjusted earnings to be flat this year

FILE PHOTO: A Loblaw supermarket is pictured in Ottawa, Ontario, Canada, November 14, 2017. REUTERS/Chris Wattie

(Reuters) - Canadian grocery and pharmacy chain Loblaw Cos Ltd L.TO said it expects adjusted earnings to remain flat this year due to a rise in minimum wages and reforms that are expected to lower generic drug prices.

Shares of the company, which sells everything from groceries to mobile products, fell as much as 2 percent on Thursday.

Chief Financial Officer Darren Myers said the company would face “significant headwinds” due to the higher labor costs and unfavorable health reforms. He now estimates an additional C$250 million ($197 million) hit to the company’s 2018 operating income.

Ontario, Canada’s most populous province, raised its minimum wage by 21 percent to C$14 an hour in January. Loblaw had previously said higher labor costs would reduce its 2018 operating income by C$190 million.

The Brampton-based company has ramped up its online presence in a highly competitive market and sold all of its gas stations to simplify its business.

For the fourth quarter, Loblaw posted a 1.2 percent drop in its retail sales business.

Total revenue slipped 0.9 percent to C$11.03 billion.

Net profit attributable to common shareholders fell to C$19 million, or 5 Canadian cents per share, in the fourth quarter ended Dec 31, from C$201 million, or 50 Canadian cents per share, a year earlier. The company recorded $230 million in charges in the quarter.

Excluding items, the company earned C$1.13 per share that beat the average analyst estimate of C$1.11, according to Thomson Reuters I/B/E/S.

Reporting by Akshara P in Bengaluru; Editing by Shailesh Kuber