Loblaw to close 52 unprofitable stores

Loblaw Companies says it will close 52 unprofitable stores across a range of its banners and formats in a move that will cut sales but boost its operating profit.

The company says the closures will take place over the next 12 months and reduce its sales on an annual basis by about $300 million.

However, Loblaw says the closures, which it called a “restructuring plan” will mean an improvement in operating income of $35 million to $40 million.

Loblaw said that the restructuring is expected to cost it $120 million.

A spokesperson for Loblaw told Canadian Grocer that the decision to close stores came after the company "reviewed in detail all of our 2,300 locations."

"Through the process we identified 52 consistently underperforming and unprofitable stores that we will close. The list includes gas bars, Joe Fresh standalone stores and select pharmacies and grocery stores," Bob Chant, senior vice-president of corporate affairs and communication, said in an email.

Loblaw is not releasing the specific locations of stores to be closed yet. Chant said that with Loblaw's earlier announced plan of $1.2 billion in capital spending, "we are on track to grow the number of jobs in our network of stores this year."

That capital spending was announced in March when Loblaw said it would build 50 new stores and renovate or improve more than 100 existing stores in 2015. The additions were across the country, and Loblaw’s estimated it would create about 5,000 jobs at its corporate and independently-owned stores.

The company announced the closures this morning as it reported a second-quarter profit of $185 million or 45 cents per share in its latest quarter compared with a loss of $456 million or $1.13 per a year ago.

On an adjusted basis, Loblaw says it earned $350 million or 85 cents per share in the quarter compared with an adjusted profit of $297 million or 74 cents per share a year ago.

Revenue grew to $10.54 billion, up from $10.31 billion a year ago.

Same-store sales at Loblaw's food stores grew 4.2% in the quarter, excluding gas bar (1.2%) and the negative impact of a change in distribution model by a tobacco supplier (0.9%). Including these impacts, same-store rose 2.1%

Shoppers Drug Mart same-store sales increased by 3.8%, with pharmacy up 3.9% and front of store up by 3.7%.

In a statement this morning, Loblaw's president and executive chairman, Galen Weston, said he was "pleased" with the second-quarter results "as we continued to execute well against our strategic framework."

"Looking ahead," he added, "the grocery industry remains highly competitive and health-care reform continues to put pressure on our pharmacy business. We are well positioned to achieve earnings growth through a stable trading platform, incremental efficiencies, synergies and a stronger balance sheet."

The 52 store closures come just over a year after Loblaw’s chief rival, Sobeys, announced plans to close underperforming stores.

In the case of Sobeys, it closed 50 stores under banners such as Safeway, Foodland, Sobeys and IGA. Though the cuts were countrywide, many were in Western Canada where Sobeys had a year earlier purchased Canada Safeway.