Mr. Galen Weston reports
LOBLAW COMPANIES LIMITED REPORTS 2013 FOURTH QUARTER RESULTS
Loblaw Companies Ltd. has released its unaudited financial
results for the fourth quarter of 2013 and its 2013
annual report -- financial review, which includes the
company's audited consolidated financial statements, and management's
discussion and analysis for the fiscal year ended Dec. 28,
2013. The company's 2013 annual report will be available in the
investor centre section of the company's website and will be filed with SEDAR.
Fourth-quarter 2013 highlights:
- Revenue of $7,640-million, an increase of 2.3 per cent over the fourth quarter
of 2012;
-
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) up 1.2 per cent to $518-million compared with $512-million in the fourth quarter
of 2012;
-
Adjusted basic net earnings per common share down 1.5 per cent to 65 cents compared with 66 cents in the fourth quarter of 2012;
-
Basic net earnings per common share down 8.2 per cent to 45 cents compared with 49 cents in the fourth quarter of 2012;
-
Retail sales increase of 1.8 per cent and same-store sales growth of 0.6 per cent compared with the fourth quarter of 2012. Retail
same-store sales growth was positively impacted by the timing of the Thanksgiving
holiday, estimated to be between 0.6 per cent and 0.8 per cent, and negatively impacted
by an ice storm in Eastern Canada and a strike in Western Canada which
negatively impacted same-store sales growth by approximately 0.2 per cent and 0.1 per cent, respectively. The range of
same-store sales growth for the quarter, after the impact of these items, was
approximately 0.1 per cent to 0.3 per cent.
Full-year 2013 highlights:
- Revenue of $32.4-billion, an increase of 2.4 per cent over 2012;
-
Adjusted EBITDA up 3.9 per cent to $2,149-million from $2,069-million in 2012;
-
Adjusted basic net earnings per common share up 3.2 per cent to $2.60 compared with $2.52 in 2012;
-
Basic net earnings per common share down 0.4 per cent to $2.24 compared with $2.25 in 2012;
-
Retail sales increase of 2.1 per cent and same-store sales growth of 1.1 per cent compared with 2012.
"In a year of unprecedented retail square footage growth within an
intensely competitive environment, we grew same-store sales, revenue
and adjusted operating income," said Galen G. Weston, executive
chairman, Loblaw Companies. "This was a result of remaining
firmly focused on our strategy to invest in the customer proposition,
while at the same time driving efficiencies in our business --
particularly in administration and supply chain -- as well as strong
performance from President's Choice Financial.
"We are carefully balancing our commitment to competitiveness and
financial performance, and in 2014, we expect to grow revenue and
adjusted operating income. We also expect to see material progress in
the implementation of our information technology infrastructure, where
we have achieved a scalable model. Finally, we look forward to closing
the acquisition of Shoppers Drug Mart, which creates a compelling
blueprint for the future, and allows us to capitalize on some of the
most important trends in Canadian society, including the imperatives of
convenience and value," concluded Mr. Weston.
During 2013, the company introduced new financial measures: adjusted
operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net earnings and adjusted basic net earnings per common share, which are all non-generally accepted accounting principles measures. Management uses these and other
non-GAAP financial measures to exclude the impact of certain expenses
and income that must be recognized under GAAP when analyzing
consolidated and segment underlying operating performance, as the
excluded items are not necessarily reflective of the company's
underlying operating performance and make comparisons of underlying
financial performance between periods difficult. From time to time, the
company may exclude additional items if it believes doing so would
result in a more effective analysis of underlying operating
performance. The exclusion of certain items does not imply that they
are non-recurring.
With respect to Choice Properties Real Estate Investment Trust segment results, management also uses net operating income, funds from operations, adjusted funds from operations, adjusted funds from operations per unit diluted and adjusted funds from operations payout ratio to measure Choice Properties' operations. Management uses these
measures to assess the financial performance and financial condition of
Choice Properties.
The $175-million increase in revenue compared with the fourth quarter of
2012 was primarily driven by increases in the company's retail and
financial services segments.
Operating income increased by $53-million compared with the fourth quarter of 2012. The
change in operating income was positively impacted by favourable
year-over-year changes in fixed asset and other related impairments,
net of recoveries, and lower restructuring costs, partially offset by
lower gains on disposal of assets, costs related to the acquisition of
Shoppers Drug Mart Corp., higher
year-over-year equity-based compensation charges and general and
administrative costs related to Choice Properties. Adjusted operating
income decreased by $3-million compared with the fourth quarter of 2012,
primarily driven by a decrease in the retail segment's adjusted
operating income, partially offset by an increase in the financial services segment's
adjusted operating income.
Adjusted operating margin was 4.2 per cent for the fourth quarter of 2013 compared with 4.4 per cent in the same
quarter in 2012.
Net interest and other financing charges increased by $57-million
compared with the fourth quarter of 2012. Net interest and other
financing charges included an unfavourable $34-million fair value
adjustment related to the trust unit liability, for the change in the
fair value of Choice Properties trust units held by
unitholders other than the company, and net interest of $14-million
relating to indebtedness incurred to finance the acquisition of
Shoppers Drug Mart. Excluding these impacts, net interest expense and
other financing charges increased by $9-million, driven primarily by
unit distributions by Choice Properties.
Net earnings decreased by $12-million compared with the fourth quarter of
2012, primarily driven by the increase in net interest expense and
other financing charges described above, partially offset by the
increase in operating income. Adjusted net earnings decreased by $2-million compared with the fourth quarter of 2012,
primarily driven by the impact of the increase in net interest expense
and other financing charges after excluding Shoppers Drug Mart related
costs and the fair value adjustment related to the trust unit liability
described above, and the decrease in adjusted operating income, partially offset by a lower effective income tax rate.
Basic net earnings per common share were 45 cents in the fourth quarter of 2013 compared with 49 cents in the
fourth quarter of 2012. Adjusted basic net earnings per common share were 65 cents in the fourth quarter of 2013 compared with 66 cents in the
fourth quarter of 2012.
In the fourth quarter of 2013, the company invested $304-million in
capital expenditures.
During the fourth quarter of 2013, the company announced the reduction
of approximately 275 store-support positions, and incurred a charge of
$32-million associated with this restructuring.
In the fourth quarter of 2013, the increase in retail sales of $130-million, or 1.8 per cent, over the fourth quarter of 2012 was a result of the
following factors:
-
Same-store sales growth was 0.6 per cent (2012 -- flat) and excluding gas bar was 0.6 per cent (2012 -- decline of
0.1 per cent), positively impacted by the timing of the Thanksgiving holiday,
estimated to be between 0.6 per cent and 0.8 per cent, and negatively impacted by an
ice storm in Eastern Canada and a strike in Western Canada which
negatively impacted same-store sales growth by approximately 0.2 per cent and 0.1 per cent, respectively. The range of
same-store sales growth for the quarter, after the impact of these items, was
approximately 0.1 per cent to 0.3 per cent.
- Sales growth in food was moderate.
-
Sales in drugstore declined marginally.
-
Sales in general merchandise, excluding apparel, declined marginally.
-
Sales growth in apparel was modest.
-
Sales growth in gas bar was modest.
-
The company's average annual internal food price inflation during fourth
quarter of 2013 was lower than the average quarterly national food
price inflation of 0.9 per cent (2012 -- 1.5 per cent) as measured by the Consumer
Price Index for Food Purchased from Stores. CPI does not
necessarily reflect the effect of inflation on the specific mix of
goods sold in Loblaw stores.
- Twenty-six corporate and franchise stores were opened and 13 corporate and
franchise stores were closed in the last 12 months, resulting in a net
increase of 400,000 square feet, or 0.8 per cent.
In the fourth quarter of 2013, gross profit increased by $68-million
compared with the fourth quarter of 2012. Gross profit percentage in the
fourth quarter of 2013 was 22.1 per cent, up 50 basis points compared with the
fourth quarter of 2012. The improvements in gross profit and gross
profit percentage were primarily driven by improved shrink and
transportation costs, and margin improvements in general merchandise,
partially offset by the negative impact of continued investments in
food margins.
Operating income increased by $43-million compared with the fourth quarter
of 2012, primarily driven by favourable year-over-year changes in fixed
asset and other related impairments, net of recoveries and lower
restructuring costs, partially offset by lower gains on disposal of
assets, and costs related to the acquisition of Shoppers Drug Mart.
Adjusted operating income decreased by $18-million compared with the fourth quarter of 2012,
primarily driven by investments in, and changes to the value of the
company's franchise business, costs related to the growth in certain of
the company's emerging businesses and higher other operating costs,
including depreciation and amortization, partially offset by higher
gross profit and labour efficiencies. For the fourth quarter of 2013,
adjusted operating margin was 3.7 per cent compared with 4.0 per cent in the same period in 2012.
Adjusted EBITDA decreased by $12-million compared with the fourth quarter of 2012. For the
fourth quarter of 2013, adjusted EBITDA margin was 6.3 per cent compared with 6.5 per cent in the same period in 2012. Retail
segment depreciation and amortization increased by $6-million compared with the fourth quarter of 2012.
Revenue for the fourth quarter of 2013 increased by 15.9 per cent compared with
the fourth quarter of 2012. This increase was primarily driven by
higher interest income from higher credit card receivable balances.
Higher PC Telecom revenues resulting from growth in the Mobile Shop business also
contributed to the increase.
Operating income and earnings before income taxes increased by $9-million and $6-million, respectively, compared with the fourth quarter of
2012. These increases were mainly attributable to the higher revenue
described above, partially offset by higher operating costs and
continued investments in marketing and customer acquisitions.
As at Dec. 28, 2013, credit card receivables were $2,538-million, an
increase of $233-million compared with Dec. 29, 2012. This increase
was primarily driven by growth in the active customer base as a result
of continued investments in customer acquisitions and marketing
initiatives. As at Dec. 28, 2013, the allowance for credit card
receivables was $47-million, an increase of $4-million compared with
Dec. 29, 2012, primarily due to the growth in the credit card
receivables portfolio.
Revenue for the fourth quarter of 2013 was $165-million, of which $148-million was received from the retail segment. Revenue consists of base
rent, operating cost and property tax recoveries.
Operating income for the fourth quarter of 2013 was $186-million and
included $5-million of selling, general and administrative costs.
Adjusted operating income was $191-million and included a $69-million favourable fair value
adjustment on investment properties, which are measured by the company
at cost.
Net operating income for the fourth quarter of 2013 was $114-million, which consists of cash
rental revenue less property operating costs.
Funds from operations and adjusted funds from operations for the fourth quarter of 2013 were $83-million and $65-million,
respectively.
Results of Choice Properties operations for the fourth quarter of 2013
were in line with the financial forecast included in Choice Properties'
equity and debt prospectuses dated June 26, 2013.
In the fourth quarter of 2013, Choice Properties acquired 11 investment
properties from the company for a purchase price of
approximately $187-million, which was settled through the issuance of
11,576,883 Class B limited partnership units and cash. In addition,
Choice Properties acquired a property from a third party for
approximately $2-million, which was settled in cash.
Subsequent to the end of the year, Choice Properties completed the
issuance of $450-million principal amount of senior unsecured
debentures.
Agreement to acquire Shoppers Drug Mart
On July 14, 2013, the company entered into an arrangement agreement to
acquire all of the outstanding common shares of Shoppers Drug Mart. The
transaction is subject to various regulatory approvals under the Competition Act (Canada) and by the Toronto Stock Exchange, and the fulfilment of
certain other closing conditions customary in transactions of this
nature. The process of review under the Competition Act (Canada) is proceeding as expected and the company anticipates that the
transaction will be completed during the first quarter of 2014. There
can be no assurance that all conditions will be met or waived or that
the company will be able to successfully consummate the proposed
transaction as currently contemplated or at all.
Declaration of dividends
Subsequent to the end of the fourth quarter of 2013, the board of
directors declared a quarterly dividend on Loblaw Companies common shares of 24 cents payable April 1, 2014, to shareholders of
record on March 15, 2014, and a dividend on the second preferred shares,
Series A, of 37 cents per share payable April 30, 2014, to shareholders of
record on April 15, 2014.
Outlook
In a highly competitive market, Loblaw's strategy of focusing on its
customer proposition and generating targeted efficiencies resulted in
positive revenue and adjusted operating income growth in fiscal 2013.
The company will continue to focus on investing in its customer
proposition in 2014 in its retail business -- value, assortment and
service -- while focusing on balancing these investments with
incremental efficiencies. In the first half of 2014, the environment is
expected to remain extremely competitive driven by continued greater
than historical square footage expansion, which is expected to moderate
in the second half of the year.
CONSOLIDATED STATEMENTS OF EARNINGS
(millions of dollars except per share amounts)
12 weeks 12 weeks 52 weeks 52 weeks
ended ended ended ended
Dec. 28, Dec. 29, Dec. 28, Dec. 29,
2013 2012 2013 2012
Revenue $ 7,640 $ 7,465 $ 32,371 $ 31,604
Cost of merchandise inventories sold 5,795 5,731 24,696 24,185
Selling, general and administrative expenses 1,531 1,473 6,349 6,224
------- ------- -------- --------
Operating income 314 261 1,326 1,195
Net interest expense and other financing charges 141 84 468 351
------- ------- -------- --------
Earnings before income taxes 173 177 858 844
Income taxes 46 38 228 210
------- ------- -------- --------
Net earnings $ 127 $ 139 $ 630 $ 634
======= ======= ======== ========
Net earnings per common share
Basic $ 0.45 $ 0.49 $ 2.24 $ 2.25
Diluted 0.45 0.46 2.22 2.23
Conference call and webcast
Loblaw Companies will host a conference call as well as an audio
webcast on Feb. 20, 2014, at 11 a.m. (EST).
To access via teleconference please dial 416-642-5212. The playback
will be made available two hours after the event at 647-436-0148,
access code: 6708138. To access via audio webcast, please go to the
investor centre section of the company's website and click on webcast. Preregistration will be available.
We seek Safe Harbor.
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