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07/23/2015

Food will lose most square footage from Loblaw store closures

Locations of stores to close will be revealed over next six months

Loblaw Companies says the bulk of the square footage slated to disappear from its closure of 52 unprofitable stores will be in the food category.

Overall, the closures represent about 1% of Loblaw's square footage, company president Galen Weston said on Thursday. He was speaking to stock analysts after the release of Loblaw's second-quarter results. However, overall net square footage in the company’s network will grow in 2015.

Weston said announcements about specific store closures will be made over the next two quarters, and that closures will be in all sectors and be distributed across the country. Stores to close include gas stations, Joe Fresh apparel shops, pharmacies and grocery stores.

“The restructuring is as it is, but it’s worth keeping in mind we would have, as part of the normal course, closed somewhere between 10 and 15 stores every year,” he said. It’s an increase “but it’s not radically different. It doesn’t signal any kind of change from a strategic perspective.”

Weston added the bulk of Joe Fresh stores that will close will be in the U.S., but that not all of the brand’s American stores will shuttered.

Loblaw chief financial officer Richard Dufresne said the company did a review of all of its 2,300 stores following the completion of its buyout of Shoppers Drug Mart last year and identified 52 that were consistently underperforming and unprofitable.

The company said in March it would build 50 new stores and renovate or improve more than 100 existing ones this year as part of a $1.2-billion expansion. Weston said those plans are still on track.

Dufresne said Loblaw does not expect second half growth in earnings to match first half levels, citing health-care budget cuts in Ontario and Quebec and increased labour costs as among the reasons.

Weston said Loblaw is watching carefully to see if there’s a shift toward discount stores as a result of a deteriorating Canadian economy, now surmised to be in recession.

However, he noted there is a lifestyle change underway with people buying more fresh food and having a greater interest in higher quality products. Beef prices are at all-time highs but tonnages are growing. “That, we think, is because people are choosing to trade up when they have a little bit of money and they’re choosing to buy a steak.”

Weston added that Loblaw has not seen a major shift in consumer buying habits in Alberta despite the province’s declining economy due to lower oil prices. Should there be a consumer downturn, “I think our business is disproportionately better positioned because we have such a high penetration of discount there.”

More than nine million Canadians are using the PC Plus loyalty card and more than 700,000 are registered for My Optimum, the recently unveiled digital and personalized version of Shoppers Drug Mart’s Optimum loyalty program.

“We are seeing a higher level of loyalty, an increase in the number of shopping trips from the people who are highly engaged in the program,” he said of PC Plus.

As well, President’s Choice brand sales in Shoppers stores are “significantly better” than anticipated which has caused problems in ordering and supply.

“We think it’s going to be a very nice part of incremental sales momentum for the food business in Shoppers and helpful to margins as well.” Customers “are really delighted to have access to this stuff in Shoppers.”

Weston added that Shoppers front-of-store sales have benefited slightly more than expected from Target stores closures as well as from strong allergy drug and sunscreen sales.