May 5, 2009 / 12:22 PM / 9 years ago

UPDATE 3-Loblaw profit soars on prices, consumer caution

* EPS C$0.40 vs C$0.23

* Net income C$109 mln vs C$63 mln

* Revenue rose 2.9 percent to C$6.72 bln

* Shares up 8 pct (Adds company comments, details; updates share price)

By Scott Anderson

TORONTO, May 5 (Reuters) - Loblaw Cos L.TO posted a 73 percent jump in quarterly profit on Tuesday thanks to higher food prices and a trend by recession-wary consumers to stay at home and out of restaurants.

Shares of Canada’s largest supermarket chain rose 8 percent to C$35.46 on the sharply higher first-quarter profit, which comfortably topped analyst estimates.

But Allan Leighton, Loblaw’s president and deputy chairman, warned that the boost from higher food prices -- which rose 9 percent on average nationally -- could diminish later in the year.

“I‘m a hawk on inflation because I think it unwinds, and in the same way that inflation is the retailer’s friend, deflation is not the retailer’s friend,” he Leighton said during a conference call with analysts.

“We are very cautious about what happens when inflation unwinds in the second half.”

Loblaw said it earned C$109 million ($93.1 million), or 40 Canadian cents a share for the quarter ended March 28, up from a profit C$63 million, or 23 Canadian cents a share, in the same period last year.

Revenue rose 2.9 percent to C$6.72 billion.

Analysts had expected, on average, earnings per share of 35 Canadian cents before items and revenue of C$6.73 billion, according to Reuters Estimates.

The company said same-store sales, a figure that tracks the performance of stores open for at least a year, rose 2.1 percent, helped by higher prices and increased sales volumes. This was slightly weaker than the 2.8 percent same store sales growth it achieved for the same quarter last year.

“Obviously, inflation and food prices are helping on that same store sales number, and we do expect that will not be as prominent in the back half, but they are definitely benefiting a little bit,” said Brian Yarbrough, an analyst at Edward Jones in St. Louis, Missouri.

“I‘m not sure how long it will last. I would expect after the second quarter they will start not seeing as much of a positive impact from inflation.”

The company said that like most supermarket chains, it benefited from a recession-driven shift in consumer trends toward simpler, less expensive meals and away from restaurant visits and high-end goods

Loblaw said its revenue and same stores sales were hit by the shift of the Easter holiday into the second quarter of this year and a strike at some of its Quebec-based stores.

A costly and prolonged revamp of its computer systems also bit into results. The company said it spent about C$23 million on the upgrades during the quarter.

Operating margin, a measure of operating efficiency and price strategy, was 3.4 percent, up from 2.4 percent.

$1=$1.18 Canadian Reporting by Scott Anderson; editing by Rob Wilson

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