Canadian grocery retailer Loblaw has booked a drop in first-quarter profits due to higher IT and supply chain costs.

For the three months to the end of March, net earnings slid 36% to C$126m (US$128m), the company reported today (2 May).

Operating profit in the period slumped 64% to C$239m, as a result of a decrease in retail operating income of C$60m and a drop in financial services operating income of C$4m. Loblaw’s first-quarter operating margin fell to 3.4% from 4.4% in the year-ago period.

Sales, however, amounted to C$6.94bn, an increase of 0.9% over the first quarter of 2011.

In February, Loblaw warned investment in its supply chain and its market positioning would affect its financial performance in 2012.

“In the first quarter, we executed on our plan,” said executive chairman of Loblaw Galen Weston. “Despite a decline in year-over-year earnings, store conditions are improved, we made steady progress on our IT implementation and we took a disciplined approach to improving our customer proposition.”

Loblaw said its outlook for 2012 remains unchanged.

“We expect full-year net earnings to be down, with more pressure in the first half. We are confident that our ongoing investments in infrastructure will enable efficiencies and expense leverage, setting the stage for future earnings growth.”

Click here to view the full earnings release.