LOBLAW COMPANIES LTD. $69(Toronto symbol L; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 412.7 million; Market cap: $28.5 billion; Price-to-sales ratio: 0.6; Dividend yield: 1.4%; TSINetwork Rating: Above Average; www.loblaw.ca) plans to close 52 less profitable stores in the next year, including supermarkets, gas bars and stand-alone Joe Fresh clothing outlets. Following these closures, it will operate 2,400 stores, including the 1,250 Shoppers Drug Mart pharmacies it bought for $12.3 billion in cash and shares in March 2014.
The move will cut $300 million from Loblaw’s yearly sales, but it should add $35 million to $40 million to its annual gross profits. Loblaw also expects to save $200 million this year by merging its warehouses and other operations with Shoppers.
Excluding store-closure costs, Loblaw earned $350 million in the three months ended June 20, 2015, up 17.8% from $297 million a year earlier. Earnings per share gained 14.9%, to $0.85 from $0.74, on more shares outstanding.
Sales rose 2.2%, to $10.5 billion from $10.3 billion. Excluding gasoline, same-store sales rose 4.2% at Loblaw’s supermarkets, while Shoppers’ same-store sales gained 3.8%. Savings from the Shoppers acquisition are helping Loblaw repay the money it borrowed to complete the purchase. The company ended the latest quarter with total debt of $11.1 billion (or 39% of its market cap), down from $11.4 billion at the end of 2014. It also held cash of $1.3 billion.
The company’s earnings will probably rise by 9.6%, to $3.53 a share, in 2015, and the stock trades at a reasonable 19.5 times that forecast. The $1.00 dividend yields 1.4%.
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