May 4, 2010 / 12:31 PM / 8 years ago

UPDATE 3-Loblaw profit jumps on acquisition, currency

* EPS C$0.49 vs consensus C$0.44

* Revenue rose 3.1 pct to C$6.93 billion

* Same store sales up 0.3 percent

* Shares up 1.7 pct to C$38.42 (Adds company comments from conference call)

By Scott Anderson

TORONTO, May 4 (Reuters) - Loblaw Cos, (L.TO) Canada’s largest supermarket operator, said on Tuesday profit jumped 25 percent, topping expectations, thanks to its purchase of an ethnic grocery-store chain and the rising Canadian dollar.

Loblaw, whose shares rose on the news, said the August 2009 purchase of T&T, which specializes in Asian groceries, added about 2 percent to its total sales.

The company, whose banners include Loblaws and No Frills, also benefited from the strengthening Canadian dollar. Grocers import almost all of their produce from late fall to late spring, and have paid lower prices as a result of the stronger currency.

Looking ahead, upgrades to Loblaw’s delivery and technology systems will likely weigh on its results for the remainder of the year, the Brampton, Ontario-based company said.

“Obviously, (the system upgrades) are going to be a big headwind going forward,” said Brian Yarbrough, an analyst at Edward Jones in St. Louis, Missouri.

“There is still work to be done on the systems implementation and this is the biggest risk over the months. To think it will be seamless is being unrealistic.”

Earnings rose to C$137 million, or 49 Canadian cents a share, during its first quarter, from C$109 million, or 40 Canadian cents, a year earlier.

Sales rose 3.1 percent to C$6.93 billion, with sales in stores opened at least a year up 0.3 percent.

Analysts, on average, had expected earnings of 44 Canadian cents a share excluding items, and revenue of C$6.79 billion.

Loblaw expects to spend about C$185 million ($180.9 million) more this year on the IT upgrades than last year, and has earmarked about C$1 billion for capital projects in 2010. About half of that is to be spent on store renovations that will boost square footage by about 1 million square feet to 52 million square feet.

Some of the expansion will focus on its in-store pharmacies as Loblaw aims to capitalize on the fallout from the Ontario government’s plan to lower prices paid for generic drugs.

The company currently has about 500 pharmacies in its stores and it aims to add more, as well as more than double the number of medical centres it has in its store.

It’s a bid by Loblaw to take customers from the big drugstore chains such as Shoppers Drug Mart SC.TO that have cut hours and services in response to Ontario’s new drug plan, which they say will lower their revenues.

Canada’s largest province said last month that it wants to overhaul the way pharmacies would be compensated for dispensing generic drugs, in a move to trim healthcare costs. Pharmacy companies say the changes would cost them hundreds of millions of dollars.

“There’s (many) consumers out there who are going to be looking for improving service, and that’s what we intend to do,” Loblaw President Allan Leighton said on a conference call.

Shares of Loblaw rose 62 Canadian cents to C$38.42 on the Toronto Stock Exchange. ($1=$1.02 Canadian) (Reporting by Scott Anderson)

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