Canadian supermarket operator Loblaw today (8 February) said that it expects fourth quarter profits to remain flat or fall as much as 5% year-on-year, down from previous guidance of growth ranging between 4% and 7%.
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Reporting its preliminary results, Loblaw said it will take a goodwill impairment charge of between C$600m and $900m (US$505.5m – US$758.0m) in the fourth quarter. The company added that it anticipates the value of $1.5bn of goodwill associated with its 1998 acquisition of Provigo will be classifies as impaired. The company said that goodwill charges would cut earnings per share by between $2.18 and $3.28.
After the accounting charge, Loblaw said it expects a loss per share of $2.03-3.12 per share in the fourth quarter. Its full year loss is expected to come in at $1.16 per share.
The company said its sales for the last quarter of 2006 rose by 3.5%, or $232m, to $6.8bn. Full-year sales totalled $28.6bn, up 3.7% year-on-year.
In an effort to increase competitiveness in order to compete with US retailer Wal-Mart which is expanding in the Canadian market, Loblaw had said it would reconfigure its supply chain and increase efficiency. While this strategy has failed to bear fruit in the company’s third quarter, chief executive John Lederer said that he expects the company’s restructuring to start paying dividends in 2008.
“I look at this as another 18 months to begin to really get the majority of efficiencies out, and drive on from there,” he told analysts on a conference call.
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By GlobalDataIn addition to the supply chain overhaul, Loblaw has added general merchandise to its product offering and embarked on an aggressive expansion plan to extend its network of larger-format stores throughout Canada.
