July 21, 2011 / 12:18 PM / 6 years ago

UPDATE 2-Loblaw profit rises, cautions on competition

* EPS C$0.67 vs C$0.64 a year earlier

* Same-store sales down 0.4 percent

* New president to join on Aug. 2

* Shares down 0.08 percent (Adds details, analyst’s comments, share price; changes per-share figures to diluted from basic)

By S. John Tilak

TORONTO, July 21 (Reuters) - Loblaw Cos Ltd L.TO, Canada’s No. 1 grocery chain, posted a higher quarterly profit on Thursday but warned that its sales position is at risk due to “unpredictable and competitively intense market conditions”.

Competition in the C$100 billion-plus Canadian grocery sector has heated up greatly in the last three quarters, with Wal-Mart Stores Inc WMT.N expanding its food-stocked supercenters.

Loblaw has historically competed against Metro Inc MRUa.TO and Empire Co Ltd EMPa.TO, and the three control more than half of the grocery industry. But Wal-Mart and Costco COST.O have been gaining share.

Sales at Loblaw stores open for at least a year, a key measure for retailers, dropped 0.4 percent in the second quarter ended June 18. Overall sales rose 0.2 percent.

The results came as newly named Loblaw president, former Carrefour CARR.PA executive Vicente Trius, is set to join the company on Aug. 2 and as Canadian retailers prepare for the entry of Target Corp TGT.N into the market. Target plans to open its first Canadian stores in two years.

“We are seeing a very cautious consumer that’s very value-driven. People are looking for deals right now,” Edward Jones analyst Brian Yarbrough said.

“What consumers will do is they will cherry pick” and go from one store to another to buy what’s on sale, he said.

Such an environment prompts retailers to get more aggressive in cutting prices to drive store traffic, he added.

Loblaw has been focusing more on its lower-priced banner, No Frills, as uncertain times push consumers are toward discount stores. The competition for No Frills includes FreshCo from Sobeys and Food Basics from Metro.

Target Corp TGT.N has said it plans to stock food, though the scope of its offerings is likely to be limited by the size of the stores it has leased. Earlier this year it bought the the leases of Zellers discount department stores from Hudson’s Bay Co.

Loblaw’s earnings rose to C$197 million ($209 million), or 67 Canadian cents a share, in its second quarter from C$181 million, or 64 Canadian cents a share, the year before.

Revenue rose slightly to C$7.28 billion.

The stock slipped 0.08 percent to C$38.28 in the Toronto Stock Exchange on Thursday morning.

$1=0.94 Canadian Reporting by S. John Tilak, editing by Peter Galloway

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