Shoppers Drug Mart helps Loblaw more than double its profit

Loblaw Companies Ltd. is considering taking over some of the Target locations in Canada soon to be vacated by the U.S. retailer, but says the number will not be "significant or material'' to its overall growth strategy.

"The (Target) network of stores has been out and on the market for many, many years in one way, shape or form,'' Loblaw president and executive chairman Galen G. Weston told analysts in a call Thursday.

"Their network is not particularly complementary to the Loblaw network, (but) we have a team looking at the assets. We have identified the number of stores that could be complementary.''

Weston said the company, which is Canada's largest grocery and pharmacy chain, expects its business will be hurt by the liquidation sales currently going on at Target, which abruptly announced last month that it was closing all of its 133 locations across the country.

However, once the stores shut down, Loblaw expects to see an uptick in sales of its general merchandise and beauty categories.

Weston made the comments as the company reported that it more than doubled its profit in the latest quarter, helped primarily by the acquisition of Shoppers Drug Mart. Loblaw purchased the pharmacy chain in a blockbuster deal for $12.4 billion in July 2013.

Since the acquisition, Loblaw has been making some changes at the drugstores. For one, it has been steadily introducing its No Name and President's Choice brand products, along with fresh food, in some Shoppers locations. To date, there are more than 800 items in the stores such as baby food and its PC Decadent cookies.

The company has also been in talks with provincial governments about expanding services similar to its flu shots program at Shoppers locations, suggesting it could help bring down health-care costs.

Loblaw also recently opened a patient call centre, which employs 50 pharmacists and 70 pharmacy assistants who conduct followup calls with patients starting on new medications or multiple medications. Weston said the initiative will free up local pharmacists for other duties.

It also said it plans on expanding its Joe Fresh clothing line in 50 more Loblaw locations by the end of this year.

For the fourth quarter, Loblaw said it earned $247 million, or 60 cents per share, for the 13-week period ended Jan. 3, up from $114 million, or 41 cents per share, for the same quarter a year earlier.

Revenue was $11.4 billion, which included $3 billion from Shoppers. That was up nearly 50 per cent from $7.6 billion a year earlier.

Loblaw's adjusted earnings saw an even larger jump, rising to $396 million from $161 million year over year. The earnings amounted to 96 cents per share, up from 57 cents in the fourth quarter of 2013.

Same-store sales, a key metric in the retail sector, climbed 2.4 per cent, while the core grocery segment was up by 3.3 per cent.

Meanwhile, the company booked a loss of $14 million in the quarter on the sale of 11 Shoppers locations. Under an agreement with the Competition Bureau, Loblaw was required to divest 16 Shoppers locations, two grocery stores and nine in-store pharmacies to gain approval for the takeover.

In addition to the pharmacy and grocery businesses–which operate under various banners such as Loblaws, No Frills, Real Canadian Superstore, T&T Supermarket, Fortinos and Provigo–Loblaw also owns the Joe Fresh clothing line, President's Choice financial services and a majority stake in Choice Properties, a publicly traded real estate trust.