Ottawa, Jul. 25 - Second-quarter profit at Loblaw Companies Ltd tumbled after one-time charges were stripped out, Canada's biggest supermarket chain said Friday, as weaker-than-expected sales growth coupled with price-chopping ate into earnings.
Still six to nine months behind schedule on its recovery plan, Loblaw said that profit margins are expected to remain under pressure for the rest of this year.
Net profit increased to C$140 million ($138.6 million), or 51 Canadian cents a share, in the period ended June 14, from earnings of C$119 million, or 43 Canadian cents, in the same period last year.
The most recent quarter included C$1 million in restructuring charges versus C$73 million in the year-ago period, which had an impact of 18 Canadian cents per share.
"They missed," said BMO analyst David Hartley in an interview. "We get 45 Canadian cents adjusted versus 59 cents adjusted last year, so it's a significant decline year over year, and it's a 12 percent miss from consensus estimates."
Analysts expected earnings before exceptions of 50 Canadian cents a share, according to Reuters Estimates.
"You've got this big gulf between wholesale inflation and price deflation on the retail side," said Hartley.
"They also said they were going to see downward pressure on their margins in the second half of the year, so cost containment is going to be huge thing for them in the next six months."
Revenue at Loblaw, which is majority owned by North America's biggest baker, George Weston Ltd, grew 1.5 percent to C$7.03 billion, lagging the average analyst estimate of C$7.12 billion.
Sales at stores open for at least one year rose by 0.7 percent, compared with a gain of 2.7 percent in the 2007 quarter, partly reflecting the shift of Easter sales to the first quarter.
Scotia Capital analyst Ryan Balgopal had forecast same-store sales growth of 2 percent in a note preceding the results.
"As stated during our last quarter, we are behind in our plans for operating as an effective selling organization. This is reflected in our second quarter sales performance," said Executive Chairman Galen Weston in a statement. "However we remain on track with our cost reduction efforts.
Loblaw is using a strategy of chopping prices to spark revenue growth and to keep its customers as Wal-Mart Stores expands food sales in Canada. It is also trying to pinch expenses to offset lower margins.
The Toronto-based company, which also offers mobile phone and financial services, launched a sweeping three- to five-year turnaround plan a year ago, closing some stores and cutting about 900 jobs.
Loblaw also said Friday that it was also starting to see "positive results" from its a five-point plan that President Allan Leighton announced soon after his appointment in April.
Aimed at accelerating growth the company is opening more stores and hiring service staff in Ontario, while renovating stores and expanding its discount banner in Western Canada. It is also improving its supply chain and systems programs, re-launching its President's Choice private-label brand.
Shares in Loblaw fell 2.2 percent to C$29.69 on the Toronto Stock Exchange in early trade. Over the last 12 months the stock has lost nearly 42 percent of its value.