Second quarter earnings at Canada’s largest grocery retail chain have declined by 8.1% as Loblaw reported CN$194m (US$170.19m) in profit and dropped its full year EPS guidance from CN$2.17 cents per share in FY2005 to as low as CN$2.12 per share. The company had previously predicted EPS growth of between 4% and 7%.

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Adjusted basic net earnings per common share for the second quarter totalled 70 cents compared to the 82 cents in 2005, a decline of 14.6%.


Operating income for the quarter totalled CN$327m, compared to CN$369m during the same period in 2005. Adjusted operating income declined to CN$336m in the second quarter of 2006 compared to CN$384m in 2005, resulting in adjusted operating margins of 5.1% and 6.1% respectively.


The Toronto-based chain said that although earnings were lower than expected, it was encouraged by a number of developments in the second quarter. “As the company continues to implement transformative initiatives that are key to its future growth, net earnings continued to be adversely affected,” the company said, suggesting that these changes were nonetheless essential for future stability and growth.


“Progress continues to be made in stabilising the supply chain function of the business,” Loblaw said.

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Moreover, sales grew by 4.6% to CN$6.7bn, including the positive impact of approximately 1% due to the late Easter period. However, the company’s investment in lowering food prices to drive sales has cut into profit margins.


Following the results release, shares in the company dropped to a low of CN$49.25 yesterday – the lowest levels since 2005. At time of press today, shares had climbed slightly to CN$49.85.