Loblaw (L.TO) sales fell short of analyst expectations in the third quarter, as customers spent less on discretionary items and the company exited some electronics categories amid a continued shift to its discount stores.
The largest grocery retailer in Canada saw total sales in the quarter ending Oct. 5 increase 1.5 per cent from last year, from $18.26 billion to $18.54 billion this year. Analysts were expecting sales to reach $18.65 billion, according to Reuters.
Shares of Loblaw fell on Wednesday following the release of the third-quarter results. The company’s stock was trading at $182.57 as at 12:10 p.m. ET, a decline of three per cent compared to Tuesday’s close.
The company says non-food sales – household goods, electronics and other discretionary items – had a negative impact on food retail same-store sales in the quarter. Growth of same-store sales, a key metric in the retail industry that excludes recently opened locations, slowed at both Loblaw’s grocery and Shoppers Drug Mart business. While total sales were up, food retail same-store sales increased 0.5 per cent, a slowdown compared to 4.5 per cent growth last year. Shoppers Drug Mart same-store sales growth came in at 2.9 per cent, down from 4.6 per cent last year.
Loblaw chief financial officer Richard Dufresne notes that same-store sales growth was also negatively affected by the timing of Thanksgiving, which last year was in the third quarter but this year fell into the fourth quarter. Without the impact of Thanksgiving, food retail same-store sales would have grown 1.3 per cent.
With discretionary spending weakening, Loblaw has decided to exit low-margin electronics categories sold at Shoppers Drug Mart, including laptops, computers, TVs, cameras, game consoles and games. Dufresne says the move will have an impact on the fourth quarter, which includes the holiday shopping period.
While inflation has moderated in Canada, customers are still turning to discount brands as they seek value. Loblaw said on Wednesday that same-store sales at the company’s discount banners like No Frills and Maxi continue to outperform conventional stores such as Loblaws and Superstore. Loblaw says it opened 25 new discount stores in the quarter, and is testing three new “ultra-discount” No Name-branded pilot stores. The No Name stores aim to save customers 20 per cent on purchases by lowering operating costs and offering a narrow assortment of goods, including no refrigerated products.
“The intent of these stores is to take out all unnecessary costs, and then pass those savings back to our customers,” Loblaw CEO Per Bank said on a conference call with analysts on Wednesday.