* Fourth-quarter adjusted profit C$0.73 vs est C$0.55
* Revenue rises 2.3 percent to C$7.64 billion
* Gross margin in retail business rises 50 basis points to
* Shares rise almost 6 percent
By Ashutosh Pandey
Feb 20 Loblaw Cos Ltd's profit blew past
market forecasts as gross margins improved more than expected,
sending shares of Canada's largest grocer up almost 6 percent
even as it warned of an "extremely competitive" first half of
U.S. retailers such as Wal-Mart Stores Inc and
Target Corp have expanded in Canada over the past year,
posing a threat to local retailers such as Loblaw, Canadian Tire
Corp Ltd and Metro Inc.
"The competitive landscape has fundamentally changed with
new competitors growing strongly and incumbents competing to
maintain share," Loblaw President Vicente Trius said on a
conference call on Thursday.
"But we will continue to execute against our investment
program while balancing those investments with targeted
efficiencies," he said.
Loblaw said it expected the pace of store openings by rivals
to moderate in the second half of the year.
The company, which plans capital spending of about C$1
billion ($900 million) this year, said it expected revenue and
adjusted operating income to grow but did not provide details.
Loblaw has said it expects its C$12.4 billion deal to buy
Shoppers Drug Mart to close in the current quarter.
The company's net income fell to C$127 million ($115
million), or 45 Canadian cents per basic share in the fourth
quarter ended Dec. 28, from C$139 million, or 49 Canadian cents
per basic share, a year earlier.
After adjusting for one-time items, Loblaw earned 73
Canadian cents per share, beating the average analyst estimate
of 55 Canadian cents, according to Thomson Reuters I/B/E/S.
Gross margins in the company's retail business rose 50 basis
points to 22.1 percent, primarily driven by improved shrinkage
and transportation costs. Shrinkage refers to a retailer's
losses from theft, fraud and administration errors.
"After a disappointing Q3 due to over-investment in gross
margins, management appears to have exercised greater discipline
in Q4, finding a better balance between top line growth and
margin," RBC Capital Markets analyst Irene Nattel said in a note
Total revenue rose 2.3 percent to C$7.64 billion. Retail
sales rose just 1.8 percent while sales at established stores
rose 0.6 percent. Loblaw is also involved in property leasing
and financial services.
Loblaw shares had fallen about 19 percent as of Wednesday
from their 52-week high of C$52.06 reached on July 15, the day
it announced the Shoppers Drug Mart deal.
The TSX-Toronto Stock Exchange 300 Composite Index
rose about 12 percent in the same period.
Loblaw shares were up 4.3 percent at C$44.10 in early