Loblaw expects higher minimum wage rules to hurt profits

Loblaw Companies Limited, Canada's largest grocery and drug store operator, warned Wednesday that minimum wage increases in Ontario and Alberta threaten to harm its bottom line and it will have to find ways to cut costs.

The company, which owns Shoppers Drug Mart and grocery chains including Loblaws and No Frills, estimated the wage hikes would mean its labour expenses would balloon by about $190 million next year.

"We are flagging a significant set of financial headwinds and the organization is mobilizing all of its resources to see whether or not it can close that gap," Loblaw chairman and CEO Galen G. Weston told analysts during a quarterly earnings conference call.

"At this point, we don't know the answer."

The Ontario government has proposed legislation that would boost the hourly minimum wage, which is currently set to rise with inflation, from $11.40 an hour to $11.60 in October, to $14 on Jan. 1 and $15 the following year.

The provincial government has said the wage increases are intended to increase people's purchasing power and stimulate broader economic activity. But a number of business groups, including the Ontario Chamber of Commerce and the Canadian Federation of Independent Grocers, have decried the legislation, saying it will result in job cuts.

In 2015, Alberta announced plans to hike its minimum wage from $10.20 an hour to $15 an hour by next year.

Weston called the wage increases "the most significant in recent memory," adding that the company is expediting measures to save money such as increasingly digitizing manual invoice jobs and rolling out more self-checkouts at its Shoppers Drug Mart locations.

"We have a lot of work ahead of us as we're still assessing the extent to which we can mitigate these headwinds," said Weston.

Loblaw said another anticipated drag on its finances will be Quebec's changes to generic drug prices. Last week, the Quebec government reached a five-year deal with the Canadian Generic Pharmaceutical Association that would see the launch of new cost-saving generic prescription medicine and reduced prices.

The agreement will result in lower generic drug prices beginning in the fall and is expected to save the province more than $300 million a year.

There may be more challenges ahead for Loblaw. Last month, U.S. e-commerce giant Amazon announced a US$13.7-billion blockbuster deal to acquire Whole Foods, a move some say could upend Canada's grocery industry.

Earlier Wednesday, Loblaw reported a second-quarter profit attributable to shareholders of $358 million, up from its profit of $158 million a year ago.

Revenue for the quarter ended June 17 amounted to nearly $11.08 billion, up from $10.73 billion in the same quarter last year.