Loblaw seeing price deflation

Brampton Ont.-based grocery giant Loblaw Companies said Thursday it's feeling the pinch from price deflation and doesn't see any signs that will ease anytime soon.

Loblaw president Allan Leighton told investors on an earnings conference call that deflation has deepened at a quickened pace in recent months, which has challenged the company's overall growth.

"In the second quarter for Loblaw Companies we deflated at a faster rate versus the first quarter, and we were deflating at a deeper rate as we exited the quarter than as we entered it," he said.

"The markets are pretty aggressive," Leighton said of the competition between supermarkets like Sobeys Inc., owned by Empire Company Ltd., and Metro Inc.

"Most of the customer base in Canada is much more value conscious than they were two years ago."

Pressures on sales have only increased since Walmart Storesunveiled its supercentre concept in Canada, offering a wide array of food products and produce at discounted prices.

Increased competition and consumer unwillingness to accept price increases generally mean weaker revenues and a squeeze on profit margins.

"We see this (deflation) trend continuing well into the third quarter, and it's more difficult to predict when inflation will return to the market," Leighton said.

Leighton's comments came as Loblaw reported a nearly seven per cent drop in second quarter profit compared with the same period last year.

Canada's largest grocery store operator reported net income of $180 million, or 64 cents a share, down from $193 million or 70 cents per share.

Revenue was $7.3 billion, up 1.2 per cent from last year.

Loblaw, a subsidiary of George Weston Limited, beat analyst estimates in terms of profit but its revenue fell short.

Estimates compiled by Thomson Reuters had predicted revenue would be about $100 million higher than reported, with earnings at 62 cents per share.

Company invests in IT

The firm has been reorganizing its operations over the last few years, investing in technology to make its logistics and inventory management more efficient.

"We continue to make progress on our overall renewal plan," said executive chairman Galen G. Weston.

"However, we are now in the critical period of heightened risk for the infrastructure and information technology components of the plan.

"We expect investments associated with this to continue to negatively impact our operating income during this period."

The report comes as 30,000 unionized workers at Loblaw stores in Ontario are threatening to strike over the company's push for wage concessions.

The company operates under several banners including Loblaws, Fortinos, Zehrs,Real Canadian Superstore, Provigo, No Frills and Atlantic Superstore.

On the Toronto Stock Exchange Thursday shares in the company closed up36 cents to $41.78.