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Loblaw Reports Third Quarter 2017 Results(1)

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BRAMPTON, ON, Nov. 15, 2017 /CNW/ - Loblaw Companies Limited (TSX: L) ("Loblaw" or the "Company") today announced its unaudited financial results for the third quarter ended October 7, 2017. The Company's 2017 Third Quarter Report to Shareholders will be available in the Investors section of the Company's website at loblaw.ca and will be filed with SEDAR and available at sedar.com.

"We delivered solid results in the third quarter in an increasingly competitive market," said Galen G. Weston, Chairman and Chief Executive Officer, Loblaw Companies Limited.

"In an industry that is facing significant financial headwinds, we remain focused on delivering shareholder value. Our strong balance sheet and free cash flow enable us to continue to return capital to shareholders and to invest to bring innovation to Canadian consumers."

2017 THIRD QUARTER HIGHLIGHTS
The following highlights include the impacts of the consolidation of franchises, as set out in "Other Retail Business Matters."

  • Revenue was $14,192 million, an increase of $49 million, or 0.3%, compared to the third quarter of 2016.
  • Retail segment sales were $13,923 million, an increase of $32 million, or 0.2%, compared to the third quarter of 2016.
    • Food retail (Loblaw) same-store sales growth was 1.4%, excluding gas bar operations.
    • Drug retail (Shoppers Drug Mart) same-store sales growth was 3.3%, with pharmacy same-store sales growth of 3.9% and front store same-store sales growth of 2.8%.
  • Operating income was $1,236 million, an increase of $546 million, or 79.1%, compared to the third quarter of 2016.
  • Adjusted EBITDA(2) was $1,229 million, an increase of $86 million, or 7.5%, compared to the third quarter of 2016.
  • Net earnings available to common shareholders of the Company were $883 million, an increase of $464 million, or 110.7%, compared to the third quarter of 2016. Diluted net earnings per common share were $2.24, an increase of $1.21, or 117.5%, compared to the third quarter of 2016.
  • Adjusted net earnings available to common shareholders of the Company(2) were $549 million, an increase of $37 million, or 7.2%, compared to the third quarter of 2016. Adjusted diluted net earnings per common share(2) were $1.39, an increase of $0.13, or 10.3%, compared to the third quarter of 2016. Normalized for the disposition of gas bar operations, adjusted diluted net earnings per common share(2) increased by approximately 13.0%. Diluted net earnings per common share growth is higher than adjusted diluted net earnings per common share(2) growth primarily due to the gain on disposition of gas bar operations.
  • The Company repurchased 7.2 million common shares at a cost of $485 million.
  • The Company completed the disposition of its gas bar operations and recognized a post-tax gain of $432 million, net of related costs. The disposition negatively impacted the Company's Retail sales growth by $368 million, Retail adjusted EBITDA(2) by approximately $20 million and diluted net earnings per common share growth by approximately $0.03 per common share. Gas bar operations were a low gross margin business compared to the Company's overall Retail segment.
  • President's Choice Bank ("PC Bank"), a wholly owned subsidiary of the Company, entered into an agreement to end its relationship with a major Canadian chartered bank, which represented the personal banking services offered under the President's Choice Financial® brand. The agreement did not have a significant impact on the adjusted net earnings available to common shareholders of the Company(2) in the third quarter of 2017.

See "News Release Endnotes" at the end of this News Release.

 

CONSOLIDATED RESULTS OF OPERATIONS










For the periods ended October 7, 2017
and October 8, 2016

2017

2016



2017

2016



(millions of Canadian dollars except where otherwise indicated)

(16 weeks)

(16 weeks)

$ Change

% Change

(40 weeks)

(40 weeks)

$ Change

% Change

Revenue

$

14,192

$

14,143

$

49

0.3%

$

35,672

$

35,255

$

417

1.2%

Operating income

1,236

690

546

79.1%

2,354

1,643

711

43.3%

Adjusted EBITDA(2)

1,229

1,143

86

7.5%

3,079

2,896

183

6.3%

Adjusted EBITDA margin(2)

8.7%

8.1%



8.6%

8.2%




Net earnings attributable to shareholders of the Company

$

886

$

422

$

464

110.0%

$

1,480

$

779

$

701

90.0%

Net earnings available to common shareholders of the Company(i)

883

419

464

110.7%

1,471

770

701

91.0%

Adjusted net earnings available to common shareholders of the Company(2)

549

512

37

7.2%

1,358

1,262

96

7.6%

Diluted net earnings per common share ($)

$

2.24

$

1.03

$

1.21

117.5%

$

3.68

$

1.88

$

1.80

95.7%

Adjusted diluted net earnings per common share(2) ($)

$

1.39

$

1.26

$

0.13

10.3%

$

3.40

$

3.08

$

0.32

10.4%

Diluted weighted average common shares outstanding (millions)

395.0

407.0




399.2

410.0

















(i)   

Net earnings available to common shareholders of the Company are net earnings attributable to shareholders of the Company net of dividends declared on the Company's Second Preferred Shares, Series B.

 

Net earnings available to common shareholders of the Company in the third quarter of 2017 were $883 million ($2.24 per common share), an increase of $464 million ($1.21 per common share) compared to the third quarter of 2016. The increase in net earnings available to common shareholders of the Company was driven by improvements in underlying operating performance of $37 million and the favourable year-over-year net impact of adjusting items totaling $427 million, as described below:

  • improvements in underlying operating performance of $37 million ($0.09 per common share), were primarily due to the following:
    • the Retail segment (excluding the impact of the consolidation of franchises), driven by an increase in adjusted gross profit(2) and lower selling, general and administrative expenses ("SG&A"), partially offset by an increase in depreciation and amortization; and
    • the Financial Services segment, primarily due to the strong credit performance of the credit card portfolio.
  • the favourable year-over-year net impact of adjusting items totaling $427 million ($1.08 per common share) was primarily due to the following:
    • the gain on disposition of gas bar operations of $432 million ($1.10 per common share); and
    • the change in fair value adjustment to the Trust Unit Liability of $13 million ($0.03 per common share); partially offset by
    • the change in fair value adjustment on fuel and foreign currency contracts of $21 million ($0.04 per common share).
  • diluted net earnings per common share also included the favourable impact of the repurchase of common shares ($0.04 per common share).

Adjusted net earnings available to common shareholders of the Company(2) in the third quarter of 2017 were $549 million ($1.39 per common share), an increase of $37 million ($0.13 per common share) compared to the third quarter of 2016, due to the improvements in underlying operating performance and the favourable impact of the repurchase of common shares, as described above.

On October 31, 2017, the Company and George Weston Limited confirmed that they were aware of an industry-wide investigation by the Competition Bureau concerning a price-fixing scheme involving certain packaged bread products. The companies are cooperating fully. Court filings made by the Competition Bureau remain sealed while searches are completed. The companies expect to be able to provide further comment after those filings are unsealed.

REPORTABLE OPERATING SEGMENTS
The Company has three reportable operating segments with all material operations carried out in Canada:

  • The Retail segment consists primarily of corporate and franchise-owned retail food and Associate-owned drug stores, and includes in-store pharmacies and other health and beauty products and apparel and other general merchandise. This segment is comprised of several operating segments that are aggregated primarily due to similarities in the nature of products and services offered for sale in the retail operations and the customer base. Prior to July 17, 2017, the Retail segment also included gas bar operations;
  • The Financial Services segment provides credit card services, loyalty programs, insurance brokerage services, personal banking services provided by a major Canadian chartered bank, deposit taking services and telecommunication services. As a result of the wind-down of PC Financial banking services, the Financial Services segment no longer offers personal banking services; and
  • The Choice Properties Real Estate Investment Trust ("Choice Properties") segment owns, manages and develops retail and commercial properties across Canada. The Choice Properties segment information presented below reflects the accounting policies of Choice Properties, which may differ from those of the consolidated Company. Differences in policies are eliminated in Consolidation and Eliminations.

Retail Segment










For the periods ended October 7, 2017
and October 8, 2016

2017

2016



2017

2016



(millions of Canadian dollars except where otherwise indicated)

(16 weeks)

(16 weeks)

$ Change

% Change

(40 weeks)

(40 weeks)

$ Change

% Change

Sales

$

13,923

$

13,891

$

32

0.2%

$

34,916

$

34,539

$

377

1.1%

Operating income

1,168

642

526

81.9%

2,192

1,510

682

45.2%

Adjusted gross profit(2)

3,874

3,714

160

4.3%

9,725

9,317

408

4.4%

Adjusted gross profit %(2)

27.8%

26.7%



27.9%

27.0%



Adjusted EBITDA(2)

$

1,159

$

1,087

$

72

6.6%

$

2,900

$

2,742

$

158

5.8%

Adjusted EBITDA margin(2)

8.3%

7.8%



8.3%

7.9%



Depreciation and amortization

$

467

$

456

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