Loblaw Companies (L) Q2 2024 earnings summary

Executive summary

• Revenue grew 1.5% to CAD 13.9 billion, with adjusted EBITDA up 4.5% and adjusted diluted EPS up 10.8% to CAD 2.15 year-over-year.

• GAAP net earnings declined due to a CAD 156.5 million pre-tax ($121 million after-tax) charge for a class action settlement related to historical bread price-fixing.

• Retail business is normalizing post-pandemic and post-inflation, with food inflation now back to normal levels and value-focused strategies driving performance.

• Drug Retail outperformed Food Retail, with beauty and healthcare services driving growth, while food sales benefited from increased customer visits and discount banners.

Financial highlights

• Adjusted EBITDA reached CAD 1.71 billion, up 4.5% year-over-year; adjusted net earnings up 6.1% to $664 million.

• Adjusted diluted EPS grew 10.8% to CAD 2.15; reported diluted EPS down 6.3% to $1.48.

• Retail free cash flow was CAD 475 million; CAD 482 million in common shares were repurchased.

• Retail gross margin improved by 90 basis points to 32%, driven by reduced shrink and higher drug retail margin.

• Online sales increased 14.2%, with delivery outperforming as a channel.

Outlook and guidance

• Q3 is off to a stronger start with improved same-store sales and positive tonnage.

• Expects Retail business earnings to grow faster than sales for full-year 2024, with high single-digit growth in adjusted net earnings per share.

• Gross margin expected to remain strong in Q3, though not as high as Q2.

• SG&A rate expected to be flat in Q3, with levers available for the second half.

• Plans net capital expenditures of $1.8 billion and continued share repurchases.