Move will cut revenues but improve operating income, company says
BRAMPTON, Ont.—Loblaw Companies plans to shut down 52 unprofitable stores in its chain of retail outlets by early next year as it seeks to boost operating profit.
The company said in its second-quarter earnings report Thursday that the closures will take place over the next 12 months and save $35 million to $40 million in annual operating income despite the loss of $300 million in sales.
Loblaw president and executive chairman Galen Weston Jr. said in a conference call with analysts that the company was focused on finding efficiencies as growth slows.
In a normal year, he added, the company would close 10 to 15 stores.
“Yes, it’s an increase, but it’s not radically different,” he said. “It doesn’t signal any kind of change from a strategic perspective.”
The closures are distributed across the country, he said, and affect around one per cent of the company’s total retail square footage.
In its latest annual report, the company had more than 2,300 locations for its many brands including Loblaws, Shoppers Drug Mart, No Frills and Joe Fresh.
Weston would not identify which locations are due to close as the company has yet to notify affected employees, but he said the list included gas stations, Joe Fresh locations and select pharmacies and grocery stores.
Loblaw chief financial officer Richard Dufresne said the company did a review of all of its stores following the completion of its buyout of Shoppers Drug Mart last year and identified 52 that were consistently underperforming and unprofitable.
The company said in March it would build 50 new stores and renovate or improve more than 100 existing ones this year as part of a $1.2 billion expansion. Weston said those plans are still on track.
In May, the company said it was shuttering some Joe Fresh stores in the United States and would not renew a deal to sell its discount clothing in J.C. Penney stores when it expires early next year.
On Thursday, Weston said the 52 closures included the previously announced cutbacks at Joe Fresh’s U.S. operations, but would not make a “material change” to the clothing line’s Canadian locations.
The company announced the closures as it reported a second-quarter profit of $185 million or 45 cents per share in its latest quarter compared with a loss of $456 million or $1.13 per a year ago.
On an adjusted basis, Loblaw says it earned $350 million or 85 cents per share in the quarter compared with an adjusted profit of $297 million or 74 cents per share a year ago.
Revenue grew to $10.54 billion, up from $10.31 billion a year ago.
Canada’s retail market has become increasingly competitive as companies such as Loblaw and Wal-Mart have sought to diversify their sales and make their stores into one-stop shops for all of the daily necessities.