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Loblaw says strong sales growth could dampen in late 2022

Year-on-year revenue growth will be challenged as the country returns to a pre-pandemic normal, the grocer cautions
Signage on the Loblaws grocery store on Lower Jarvis Street and Queen's Quay on Toronto's waterfront

Loblaw Companies Ltd. expects sales will benefit from the ongoing pandemic and higher industry-wide inflation in the first half of 2022, but cautions its grocery and drugstore revenue growth could taper towards the end of the year.

The parent company of Loblaws and Shoppers Drug Mart said Thursday its revenue gains could be dampened as restrictions ease and its earnings are compared against higher prices last year and its COVID-19 vaccination program.

"As economies reopen and the company starts to lap elevated 2021 inflationary prices and COVID-related pharmacy services, year-on-year revenue growth will be more challenged," Loblaw said in an outlook as it reported its fourth-quarter and full-year earnings.

"However, the company cannot predict the precise impacts of COVID-19 and the current industry volatility on its 2022 financial results."

Rising inflation, especially on food prices, is expected to be a critical issue in the coming months across Canada's food industry.

Galen G. Weston, Loblaw chairman and president, said in a statement the company is "effectively managing through a challenging environment of supply chain constraints and higher costs."

Yet efforts to rein in cost increases appear to have strained Loblaw's relationship with at least one supplier.

Frito-Lay Canada, one of Canada's biggest food manufacturers, has halted shipments to Loblaw stores after the grocer refused to accept a price hike. The situation has left the chip and snack food aisle of many Loblaw stores less full than usual or stocked with the retailer's house brands, President's Choice and No Name.

Meanwhile, Loblaw said its fourth-quarter earnings benefited from strong demand as consumers continued to eat-at-home, particularly over the holiday period.

Its discount stores, which include No Frills and Maxi, benefited from the return of "price-sensitive customers," while its conventional supermarkets like Zehrs and Provigo benefited from promotions, Loblaw said.

The company said its fourth-quarter profit more than doubled compared with a year ago, boosted by a one-time gain related to a Supreme Court decision on a tax case.

The grocery and drugstore giant said its net earnings available to common shareholders totalled $744 million or $2.20 per diluted share for the 12-week period ended Jan. 1. The result compared with a profit of $345 million or 98 cents per diluted share for the 13-week period ended Jan. 2, 2021.

Revenue totalled nearly $12.8 billion, down from nearly $13.3 billion a year earlier when the quarter included an extra week.

The most recent quarter included a recovery of $301 million related to the Supreme Court's decision on the Glenhuron Bank Ltd. tax case involving Loblaw Financial Holdings.

On an adjusted basis, Loblaw said it earned $1.52 per diluted share for the quarter, up from an adjusted profit of $1.22 per diluted share a year earlier.

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