Shares of Loblaw—and many others in the same industry— fell on news that online retailer Amazon.com Inc. will buy organic grocery chain Whole Foods (New York symbol WFM). Amazon will pay $13.7 billion U.S.
Investors fear that Amazon’s e-commerce expertise will let it capture a large share of the grocery retail business in the same way it has disrupted sellers of books, music and clothing.
However, Loblaw already lets its customers order groceries online and pick them up at the store. As well, they have many more locations in Canada compared to the 13 stores that Whole Foods operates in this country.
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LOBLAW COMPANIES LTD. (Toronto symbol L; www.loblaw.ca) operates Canada’s largest supermarket chain. Its 1,096 stores include a variety of banners: Loblaw, Zehrs, Provigo, Real Canadian Superstore and No Frills. In March 2014, the company purchased the Shoppers Drug Mart chain for $12.3 billion in cash and shares. Shoppers now operates 1,324 drug stores across Canada.
The company continues to expand its Internet operations.
Those include its click-and-collect program, where customers can buy groceries and other items online and pick them up at a nearby store when it’s convenient for them. This method is a lot cheaper than delivering packages to a customer’s house. Loblaw now offers the service at 128 stores.
The company has also made it easier for its customers to refill and update their drug prescriptions over the Internet and pick them up at a Shoppers Drug Mart pharmacy. The company reported better-than-expected second quarter earnings this week; however, the stock fell 5%.
That’s because Loblaw warned investors that coming increases in the minimum wage for Ontario and Alberta could hurt its 2018 earnings. New healthcare regulations in Quebec—meant to cut the cost of generic drugs—are also likely to reduce the company’s revenue.
<h3>Blue Chip Stocks: Same-store sales rise for Shoppers Drug Mart</h3>
In the three months ended June 17, 2017, Loblaw’s overall sales rose 3.2%, to $11.1 billion from $10.7 billion a year earlier.
Excluding gasoline purchases, same-store sales at Loblaw’s supermarkets rose 1.0% in the quarter. Higher volumes offset lower selling prices.
Same-store sales for Shoppers Drug Mart gained 3.7%. That reflects a 2.9% rise in prescription drug sales and a 4.5% increase in the sale of other merchandise.
Overall earnings in the quarter rose 8.0%, to $445 million from $412 million a year earlier. Earnings per share gained 9.9%, to $1.11 from $1.01, on fewer shares outstanding. That beat the consensus forecast of $1.10.
The company now plans to spend $1.3 billion to upgrade its operations in 2017. That includes spending $1.0 billion on its retail stores across the country.
Loblaw has also raised its quarterly dividend by 3.8%. Starting with the July 2017 payment, investors receive $0.27 a share, up from $0.26. The new annual rate of $1.08 yields 1.5%.
The stock trades at a moderate 16.0 times the $4.44 a share the company will probably earn in 2017.
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