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 10% due to a CAD 156.5 million charge for a class action settlement related to historical bread price-fixing; after-tax charge was $121 million.

• Retail business is normalizing post-pandemic and food inflation, with steady operational and financial performance and a focus on value, private label brands, and digital engagement.

• Customer traffic and tonnage increased, with hard discount banners and pharmacy clinics outperforming conventional stores.

Financial highlights

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

• Retail free cash flow was CAD 475 million; net capital investments totaled $475 million; CAD 482 million of common shares repurchased.

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

• Drug retail sales grew 2.4%, with pharmacy and healthcare services same-store sales up 5.4%.

• Food retail same-store sales grew 0.2%, lapping a strong 6.1% growth last year; e-commerce sales increased 14.2%.

Outlook and guidance

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

• 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.

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

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