Canada's largest grocer saw food prices rise in its most recent quarter in the face of higher food costs and the company predicted that further increases are likely.
"We are seeing cost pressures translate into retail price increases," said Galen Weston, Loblaw Companies Ltd. CEO, in a conference call Wednesday with analysts.
The company's average item price was up in its third quarter, but the price increases were in the lower range of what the company expected, he said.
"It's in line with our expectations and what we thought was likely to happen in this quarter and beyond," said Weston.
The company expects its internal food inflation measure to rise a little bit higher in its fourth quarter.
Loblaw, Sobeys Inc., and Metro Inc. all said in their recent calls with analysts that higher food prices were inevitable due to tariffs and other cost pressures facing their businesses.
The higher prices along with increased traffic helped Loblaw boost its same-store sales -- a key retail metric -- in its food business during its third quarter, which ended Oct. 6. Same-store sales in the business increased 0.9 per cent for the quarter, and 2.5 per cent in the company's drug retail division, that includes Shopper's Drug Mart.
The company's relatively new PC Optimum rewards program, which combined two other loyalty programs last February, now has more than 15 million members.
The loyalty program is an increasingly powerful platform, Weston said. Loblaw is focusing on offering customized promotions to members.
While its same-store sales grew, the company's third-quarter profit fell compared with a year ago as it was hit by a one-time charge related to a tax court ruling that it plans to appeal.
The retailer earned a profit attributable to common shareholders of $106 million or 28 cents per share for the quarter.
The quarter included a $367-million charge related to its former Barbadian banking subsidiary Glenhuron Bank Ltd. after a tax court ruling regarding Canada Revenue Agency's reassessments. Loblaw has said it will appeal the decision.
The result for the quarter compared with a profit of $883 million or $2.24 per share a year ago when its results were boosted by a gain of $432 million on the sale of its gas bar operations.
Revenue totalled $14.45 billion, up from $14.19 billion.
On an adjusted basis, Loblaw says it earned $562 million or $1.49 per share, up from an adjusted profit of $549 million or $1.39 per share a year ago. Analysts on average had expected a profit of $1.44 per share, according to Thomson Reuters Eikon.
Irene Nattel of RBC Capital Markets said the slightly better-than-expected results are evidence of its hyper focus on operating efficiency and productivity.
She said the company's unchanged outlook for 2018 includes initiatives to offset cost pressures to deliver stable net income.
