Loblaw sees profit increase, while Metro sees profit drop despite sales increase

TORONTO - Loblaw Companies Ltd. says its third-quarter profit was up 19.8 per cent from the same time last year, on higher retail sales and food prices.

The grocer said Wednesday that profit rose to $236 million or 83 cents per share in the three month period, compared to $197 milion or 70 cents per share a year earlier.

Revenue at the country's largest grocery company was also up, growing two per cent to $9.7 billion in the 16 weeks ended Oct. 8.

Loblaw says it benefited from improved retail sales and financial services revenue. In addition to the grocery business, Loblaw owns President's Choice Financial as well as the Joe Fresh clothing chain.

The company's profit was bolstered by improved operating income, lower interest expenses and a lower tax rate.

Loblaw says its profit margin improved to 4.2 per cent from 3.8 per cent in the third quarter of 2010 due to several factors.

Analysts, on average, had been expecting earnings of 85 cents per share from Loblaw on revenue of $9.64 billion, according to Thomson Reuters.

Loblaw Co. (TSX:L) has predicted this year will be one of its most challenging as it contends with rising food prices, stiff competition and an uncertain economy, all while it wraps up one of the company's biggest-ever infrastructure overhauls.

"As our infrastructure program progresses, going forward we expect the related investments to negatively impact operating income," said Galen Weston Jr., executive chairman of the Loblaw board.

"With our initiatives tracking to plan, we look forward to the ongoing leadership of our new president, Vicente Trius, who is now firmly established in his role."

Trius, a veteran global retail executive, was appointed to the position early in the year and officially joined the company in August. He replaced Allan Leighton, who has been a long-standing adviser to the Weston family and deputy chairman of the Loblaws parent company, George Weston Ltd. (TSX:WN).

Earlier Wednesday, Metro Inc. (TSX:MRU.A), Canada's No. 3 grocery chain announced a reduced third-quarter profit as closures and other restructuring costs offset improved revenue.

Metro said the profit for the company's fiscal fourth-quarter dropped 7.8 per cent to of $86.1 million, down from $93.4 million a year earlier. Its sales grew to $2.66 billion from $2.56 billion.

Montreal-based Metro is Quebec's leading grocery chain with nearly 34 per cent market share. It has more than 65,000 employees in Quebec and Ontario.

Rising world prices for everything from meat and flour to sugar and gasoline have put upward pressure on food processors, grocers and most companies operating in the food business.

Both are feeling a double pinch from consumers reluctant to spend in an uncertain economy and rising raw materials costs, which is squeezing their bottom line.

Rising world prices of everything from meat and flour to sugar and gasoline have put upward pressure on food processors, grocers and most companies operating in the food business.

But consumers are resisting price increases on store shelves so the two big chains as well as Sobeys parent Empire Co. Ltd. (TSX:EMP.A), are finding it hard to recoup their higher costs.

National grocery chains have increased promotions over the past year to attract cash-strapped consumers and as they face fierce competition, particularly in Ontario, from each other and retailers like Zellers and Shoppers Drug Mart (TSX:SC) who are increasing their food offerings.

U.S. retail king Walmart also plans a major expansion of 40 new grocery stores in Canada this year, its rival Target plans to enter the Canadian market in 2012.

Loblaw is spending $1 billion this year as it wraps up one of its biggest-ever store and technology upgrades. In a search to increase revenue in difficult times, the chain is also ramping up its President's Choice private label with more gourmet and ethnic offerings in its new black label line.

Loblaw, a subsidiary of George Weston Ltd. (TSX:WN), operates more than 1,000 stores across Canada under numerous banners which also include Great Canadian Super Store, Provigo, No Frills and Atlantic Superstore. The company employs 138,000 full- and part-time workers.

Metro is beefing up revenue with increasing forays into ethnic foods. The Canadian grocer recently bought a majority stake in Marche Adonis, a Mediterranean-style retailer that's planning to enter the crowded Ontario market.