Canada NewsWire
BRAMPTON, ON, Nov. 13, 2019
BRAMPTON, ON, Nov. 13, 2019 /CNW/ - Loblaw Companies Limited (TSX: L) ("Loblaw" or the "Company") announced today its unaudited financial results for the third quarter ended October 5, 2019. The Company's 2019 Third Quarter Report to Shareholders will be available in the Investors section of the Company's website at loblaw.ca and will be filed on SEDAR and available at sedar.com.
"With a focus on improving sales performance, we delivered solid financial results in the quarter," said Galen G. Weston, Executive Chairman, Loblaw Companies Limited. "We continue to accelerate strategic investments, evolving the customer experience to deliver long-term shareholder value."
2019 THIRD QUARTER HIGHLIGHTS
Unless otherwise indicated, the following highlights represent the Company's results from Continuing Operations and include the impacts of spin-out related incremental depreciation, the implementation of IFRS 16, "Leases" ("IFRS 16") and the consolidation of franchises. See "Other Business Matters" of this News Release for more information on the spin-out related incremental depreciation and the implementation of IFRS 16.
See "News Release Endnotes" at the end of this News Release. |
CONSOLIDATED RESULTS OF OPERATIONS
The Company's interest in Choice Properties Real Estate Investment Trust ("Choice Properties") is presented separately as Discontinued Operations in the Company's current and comparative results. Unless otherwise indicated, all financial information reflects the Company's results from Continuing Operations and includes the impacts of spin-out related incremental depreciation, the implementation of IFRS 16 and the consolidation of franchises.
For the periods ended October 5, 2019 and | |||||||||||||||||||||
October 6, 2018 | 2019 | 2018(4) | 2019 | 2018(4) | |||||||||||||||||
(millions of Canadian dollars except where | |||||||||||||||||||||
otherwise indicated) | (16 weeks) | (16 weeks) | $ Change | % Change | (40 weeks) | (40 weeks) | $ Change | % Change | |||||||||||||
Revenue | $ | 14,655 | $ | 14,319 | $ | 336 | 2.3% | $ | 36,447 | $ | 35,475 | $ | 972 | 2.7% | |||||||
Operating income | 690 | 592 | 98 | 16.6% | 1,729 | 1,478 | 251 | 17.0% | |||||||||||||
Adjusted EBITDA(2) | 1,492 | 1,060 | 432 | 40.8% | 3,707 | 2,633 | 1,074 | 40.8% | |||||||||||||
Adjusted EBITDA margin(2) | 10.2% | 7.4% | 10.2% | 7.4% | |||||||||||||||||
Net earnings (loss) | |||||||||||||||||||||
attributable to shareholders | |||||||||||||||||||||
of the Company from | |||||||||||||||||||||
Continuing Operations | $ | 334 | $ | (23) | $ | 357 | 1,552.2% | $ | 824 | $ | 488 | $ | 336 | 68.9% | |||||||
Net earnings (loss) | |||||||||||||||||||||
available to common shareholders of | |||||||||||||||||||||
the Company(i) | 331 | 106 | 225 | 212.3% | 815 | 533 | 282 | 52.9% | |||||||||||||
Continuing Operations | 331 | (26) | 357 | 1,373.1% | 815 | 479 | 336 | 70.1% | |||||||||||||
Discontinued Operations | — | 132 | (132) | (100.0)% | — | 54 | (54) | (100.0)% | |||||||||||||
Adjusted net earnings available | |||||||||||||||||||||
to common shareholders of | |||||||||||||||||||||
the Company(2) | $ | 458 | $ | 562 | $ | (104) | (18.5)% | $ | 1,121 | $ | 1,344 | $ | (223) | (16.6)% | |||||||
Continuing Operations | 458 | 466 | (8) | (1.7)% | 1,121 | 1,151 | (30) | (2.6)% | |||||||||||||
Discontinued Operations | — | 96 | (96) | (100.0)% | — | 193 | (193) | (100.0)% | |||||||||||||
Diluted net earnings (loss) | |||||||||||||||||||||
per common share ($) | $ | 0.90 | $ | 0.28 | $ | 0.62 | 221.4% | $ | 2.20 | $ | 1.40 | $ | 0.80 | 57.1% | |||||||
Continuing Operations | $ | 0.90 | $ | (0.07) | $ | 0.97 | 1,385.7% | $ | 2.20 | $ | 1.26 | $ | 0.94 | 74.6% | |||||||
Discontinued Operations | $ | — | $ | 0.35 | $ | (0.35) | (100.0)% | $ | — | $ | 0.14 | $ | (0.14) | (100.0)% | |||||||
Adjusted diluted net earnings | |||||||||||||||||||||
per common share(2) ($) | $ | 1.25 | $ | 1.49 | $ | (0.24) | (16.1)% | $ | 3.03 | $ | 3.54 | $ | (0.51) | (14.4)% | |||||||
Continuing Operations | $ | 1.25 | $ | 1.24 | $ | 0.01 | 0.8% | $ | 3.03 | $ | 3.03 | $ | — | —% | |||||||
Discontinued Operations | $ | — | $ | 0.25 | $ | (0.25) | (100.0)% | $ | — | $ | 0.51 | $ | (0.51) | (100.0)% | |||||||
Diluted weighted average | |||||||||||||||||||||
common shares | |||||||||||||||||||||
outstanding (millions) | 366.2 | 376.3 | 369.7 | 380.0 | |||||||||||||||||
(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 |
Other Business Matters
IFRS 16 Implementation On December 30, 2018 the Company implemented IFRS 16, replacing IAS 17, "Leases" ("IAS 17") and related interpretations. The standard introduced a single, on-balance sheet recognition and measurement model for lessees, eliminating the distinction between operating and finance leases. The Company implemented the standard using the modified retrospective approach. As a result, the Company's 2019 results incorporate lease accounting under IFRS 16. Prior year results have not been restated. See Section 10, "Accounting Standards", of the Company's Management Discussion and Analysis in the 2019 Third Quarter Report to Shareholders for more information on the implementation of IFRS 16.
Under IFRS 16, the depreciation expense on right-of-use assets and interest expense on lease liabilities replaced rent expense, which was previously recognized on a straight-line basis in operating income under IAS 17 over the term of a lease.
The following table provides the year-over-year impacts of the implementation of IFRS 16 on the consolidated results of the Company in the third quarter of 2019:
(millions of Canadian dollars unless where otherwise indicated) | $ Change | ||||||||
Favourable/(unfavourable) | (16 weeks) | (40 weeks) | |||||||
Operating income | $ | 104 | $ | 261 | |||||
Adjusted EBITDA(2) | 382 | 954 | |||||||
Net interest expense and other financing charges | (106) | (270) | |||||||
Depreciation and amortization | (278) | (693) | |||||||
Net earnings available to common shareholders of the Company | (2) | (8) | |||||||
Diluted net earnings per common share ($) | $ | — | $ | (0.02) | |||||
Spin-out of Choice Properties On November 1, 2018, the Company and its parent George Weston Limited ("Weston") completed a reorganization under which the Company distributed its approximate 61.6% effective interest in Choice Properties to Weston on a tax-free basis to the Company and its Canadian shareholders (the "reorganization" or the "spin-out"). The Company no longer retains its interest in Choice Properties and ceased to consolidate its equity interest in Choice Properties in its consolidated financial statements as at October 31, 2018. The reorganization has been reflected separately as Discontinued Operations in the current and comparative results. Unless otherwise noted, all comparisons of operating results exclude the results of Choice Properties. As a result of the spin-out, buildings owned by Choice Properties and leased by the Company are accounted for as leases, not as owned property. The building components associated with these leases post spin-out are classified as leasehold improvements and depreciated over the lesser of the lease term and useful life up to 25 years. The remaining average lease term on the leases related to these leasehold improvements is approximately 10 years. The impact of this change in 2019 is expected to be an increase in annual depreciation and amortization of approximately $85 million compared to 2018. The Company's 2019 third quarter financial results includes incremental depreciation and amortization for the post spin-out period of $28 million ($0.06 per common share) and $70 million ($0.14 per common share) year-to-date. For a complete description of the reorganization, please see Section 5 "Overall Financial Performance Business Developments" of the Company's Management Discussion and Analysis in the 2018 Annual Report.
Process and Efficiency The Company continues to execute on a multi-year plan which was initiated in 2018. The plan focuses on improving processes and generating efficiencies across administrative, store, and distribution network infrastructure. Many initiatives are underway to reduce the complexity and costs associated with business operations with the aim to achieve a low cost operating structure that allows for continued investments in the Company's strategic growth areas. Expenses related to these initiatives will be incurred in 2019 and beyond. In the third quarter of 2019, the Company recorded approximately $22 million of restructuring and other related charges, primarily related to Process and Efficiency initiatives ($50 million year-to-date).
REPORTABLE OPERATING SEGMENTS
The Company has two reportable operating segments (with all material operations carried out in Canada):
2019 | 2018(4) | |||||||||||||||||||||||
(16 weeks) | (16 weeks) | |||||||||||||||||||||||
For the periods ended October 5, 2019 and October 6, 2018 | Retail | Financial | Eliminations(i) | Total | Retail | Financial | Eliminations(i) | Total | ||||||||||||||||
(millions of Canadian dollars) | ||||||||||||||||||||||||
Revenue | $ | 14,420 | $ | 309 | $ | (74) | $ | 14,655 | $ | 14,105 | $ | 274 | $ | (60) | $ | 14,319 | ||||||||
Adjusted gross profit(2) | $ | 4,262 | $ | 262 | $ | (74) | $ | 4,450 | $ | 4,108 | $ | 239 | $ | (60) | $ | 4,287 | ||||||||
Adjusted gross profit %(2) | 29.6% | N/A | —% | 30.4% | 29.1% | N/A | —% | 29.9% | ||||||||||||||||
Operating income | $ | 655 | $ | 35 | $ | — | $ | 690 | $ | 551 | $ | 41 | $ | — | $ | 592 | ||||||||
Net interest expense and other | 292 | |||||||||||||||||||||||
financing charges | 203 | 20 | — | 223 | 273 | 19 | — | |||||||||||||||||
Earnings before income taxes | $ | 452 | $ | 15 | $ | — | $ | 467 | $ | 278 | $ | 22 | $ | — | $ | 300 | ||||||||
Depreciation and amortization | $ | 771 | $ | 4 | $ | — | $ | 775 | $ | 457 | $ | 2 | $ | — | $ | 459 | ||||||||
Adjusted EBITDA(2) | 1,452 | 40 | — | 1,492 | 1,017 | 43 | — | 1,060 | ||||||||||||||||
Adjusted EBITDA margin(2) | 10.1% | N/A | —% | 10.2% | 7.2% | N/A | —% | 7.4% | ||||||||||||||||
(i) | Eliminations include the reclassification of revenue related to PC MasterCard® loyalty awards in the Financial Services segment. |
2019 | 2018(4) | |||||||||||||||||||||||
(40 weeks) | (40 weeks) | |||||||||||||||||||||||
For the periods ended October 5, 2019 and October 6, 2018 | Retail | Financial | Eliminations(i) | Total | Retail | Financial | Eliminations(i) | Total | ||||||||||||||||
(millions of Canadian dollars) | ||||||||||||||||||||||||
Revenue | $ | 35,778 | $ | 859 | $ | (190) | $ | 36,447 | $ | 34,860 | $ | 746 | $ | (131) | $ | 35,475 | ||||||||
Adjusted gross profit(2) | $ | 10,622 | $ | 742 | $ | (190) | $ | 11,174 | $ | 10,231 | $ | 663 | $ | (131) | $ | 10,763 | ||||||||
Adjusted gross profit %(2) | 29.7% | N/A | —% | 30.7% | 29.3% | N/A | —% | 30.3% | ||||||||||||||||
Operating income | $ | 1,602 | $ | 127 | $ | — | $ | 1,729 | $ | 1,309 | $ | 169 | $ | — | $ | 1,478 | ||||||||
Net interest expense and other | ||||||||||||||||||||||||
financing charges | 511 | 60 | — | 571 | 419 | 50 | — | 469 | ||||||||||||||||
Earnings before income taxes | $ | 1,091 | $ | 67 | $ | — | $ | 1,158 | $ | 890 | $ | 119 | $ | — | $ | 1,009 | ||||||||
Depreciation and amortization | $ | 1,921 | $ | 14 | $ | — | $ | 1,935 | $ | 1,134 | $ | 7 | $ | — | $ | 1,141 | ||||||||
Adjusted EBITDA(2) | 3,565 | 142 | — | 3,707 | 2,477 | 156 | — | 2,633 | ||||||||||||||||
Adjusted EBITDA margin(2) | 10.0% | N/A | —% | 10.2% | 7.1% | N/A | —% | 7.4% | ||||||||||||||||
(i) | Eliminations include the reclassification of revenue related to PC MasterCard® loyalty awards in the Financial Services segment. |
RETAIL SEGMENT
Unless otherwise indicated, the following financial information represents the Retail segment's results from Continuing Operations and includes the impacts of spin-out related incremental depreciation, the implementation of IFRS 16 and the consolidation of franchises.
FINANCIAL SERVICES SEGMENT
DECLARATION OF DIVIDENDS
Subsequent to the end of the third quarter of 2019, the Board of Directors declared a quarterly dividend on Common Shares and Second Preferred Shares, Series B.
Common Shares | $0.315 per common share, payable on December 30, 2019 to shareholders of record on |
Second Preferred Shares, Series B | $0.33125 per share, payable on December 31, 2019 to shareholders of record on |
OUTLOOK(3)
Loblaw is focused on its strategic framework, delivering best in food and health and beauty, using data driven insights underpinned by process and efficiency excellence. This framework is supported by the Company's financial plan of maintaining a stable trading environment that targets positive same-store sales and stable gross margin, creating efficiencies to deliver operating leverage, investing for the future and returning capital to shareholders.
The Company will remain focused on delivering Process and Efficiency improvements to offset increasing costs and to fund continued incremental investments in its strategic growth areas of Everyday Digital Retail, Connected Healthcare and Payments & Rewards.
In 2019, on a full-year comparative basis, excluding the impact of the spin-out of Choice Properties, we expect to:
NON-GAAP FINANCIAL MEASURES
The Company uses non-GAAP financial measures as they believe these measures provide useful information to both management and investors with regard to accurately assessing the Company's financial performance and financial condition.
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 underlying consolidated and segment 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. The Company excludes 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.
These measures do not have a standardized meaning prescribed by GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with GAAP.
For reconciliation to, and description of, the Company's non-GAAP financial measures and financial metrics, please refer to Section 12 "Non-GAAP Financial Measures" of the Company's 2019 Third Quarter Report to Shareholders.
FORWARD-LOOKING STATEMENTS
This News Release contains forward-looking statements about the Company's objectives, plans, goals, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects, opportunities and legal and regulatory matters. Specific forward-looking statements in this News Release include, but are not limited to, statements with respect to the Company's anticipated future results, events and plans, strategic initiatives and restructuring, regulatory changes including further healthcare reform, future liquidity, planned capital investments, and the status and impact of Information Technology ("IT") systems implementations. These specific forward-looking statements are contained throughout this News Release including, without limitation, in the "Consolidated Results of Operations" Other Business Matters section and "Outlook" section of this News Release. Forward-looking statements are typically identified by words such as "expect", "anticipate", "believe", "foresee", "could", "estimate", "goal", "intend", "plan", "seek", "strive", "will", "may", "should" and similar expressions, as they relate to the Company and its management.
Forward-looking statements reflect the Company's estimates, beliefs and assumptions, which are based on management's perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. The Company's expectation of operating and financial performance in 2019 is based on certain assumptions including assumptions about healthcare reform impacts, anticipated cost savings and operating efficiencies from Process and Efficiency initiatives and anticipated benefits from strategic initiatives. The Company's estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events, and as such, are subject to change. The Company can give no assurance that such estimates, beliefs and assumptions will prove to be correct.
Numerous risks and uncertainties could cause the Company's actual results to differ materially from those expressed, implied or projected in the forward-looking statements, including those described in Section 12 "Enterprise Risks and Risk Management" of the Management Discussion and Analysis in the 2018 Annual Report and the Company's 2018 Annual Information Form ("AIF") (for the year ended December 29, 2018).
Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect the Company's expectations only as of the date of this News Release. Except as required by law, the Company does not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
CORPORATE PROFILE
2018 Annual Report and 2019 Third Quarter Report to Shareholders
The Company's 2018 Annual Report and 2019 Third Quarter Report to Shareholders are available in the "Investors" section of the Company's website at loblaw.ca and on sedar.com.
Additional financial information has been filed electronically with various securities regulators in Canada through the System for Electronic Document Analysis and Retrieval (SEDAR) and with the Office of the Superintendent of Financial Institutions (OSFI) as the primary regulator for the Company's subsidiary, President's Choice Bank. The Company holds an analyst call shortly following the release of its quarterly results. These calls are archived in the "Investors" section of the Company's website at loblaw.ca.
Conference Call and Webcast
Loblaw Companies Limited will host a conference call as well as an audio webcast on November 13, 2019 at 10:00 a.m. (ET).
To access via tele-conference, please dial (647) 427-7450 or (888) 231-8191. The playback will be made available approximately two hours after the event at (416) 849-0833 or (855) 859-2056, access code: 8554138. To access via audio webcast, please go to the "Investors" section of loblaw.ca. Pre-registration will be available.
Full details about the conference call and webcast are available on the Loblaw Companies Limited website at loblaw.ca.
News Release Endnotes | |
(1) | This News Release contains forward-looking information. See "Forward-Looking Statements" section of this News Release and the Company's 2019 Third Quarter |
(2) | See Section 12 "Non-GAAP Financial Measures" of the Company's 2019 Third Quarter Report to Shareholders, which includes the reconciliation of such non-GAAP |
(3) | To be read in conjunction with the "Forward-Looking Statements" section of this News Release and the Company's 2019 Third Quarter Report to Shareholders. |
(4) | Comparative figures have been restated. See note 4 in the Company's 2019 third quarter unaudited interim period condensed consolidated financial statements. |
SOURCE Loblaw Companies Limited
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