Loblaw Companies Ltd. (TSX:L) announced July 23 it will be closing 52 underperforming stores across the country.
The grocery giant’s president and executive chairman, Galen Weston, said the closures would be “pretty well distributed” across the company’s portfolio of store types, including drug stores, food stores, Joe Fresh locations and some from Loblaw’s emerging divisions.
He said in a conference call to investors they are not disclosing which stores will close, how many staff will be affected or their geographical regions at this time. This information is confidential, he said, because it hasn’t yet been communicated to the stores in question.
Weston said this information will be shared over the next couple quarters.
He also said the store closures represent approximately 1% of the square footage of the entire company’s floor space. Over the next year, total net square footage will actually increase as stores are added or expanded.
In March, Loblaw announced its intention to build 50 new stores at a cost of $1.2 billion, creating more than 20,000 staffing and construction jobs.
It had also announced its intention to expand its e-commerce presence.
In the 12 months ended June 20, the company said 48 food and drug stores were opened and 29 were closed.
Due in part to the acquisition of Shoppers Drug Mart, no change in square footage resulted over that period. Loblaw bought the drug store chain in a $12.4 billion deal in 2013.
The restructuring announced July 23 will cost around $120 million.
“Of this amount, a charge of $45 million was recorded in the second quarter of 2015. This amount included $30 million for severance and lease termination costs and $15 million for asset impairments associated with these retail locations,” the company said.
Loblaw expects to recognize $70 million in Q3 and the rest will be recorded as stores close.
The closures will decrease sales by $300 million annually, and will increase operating income by $35-40 million.
“Of this amount, a charge of $45 million was recorded in the second quarter of 2015,” Loblaw said in a news release
He said that in any typical year, the company will close between 10 and 15 stores in its network.
“Yes, it’s an increase [this year] – but not a significant increase,” he said.
“It does not signal a change in strategies.”
In the conference call, Weston confirmed the decision on which stores to close was based on return on capital.
Loblaw’s Q2 financial results
The store closure announcement was made in Loblaw’s Q2 2015 operating results news release.
The company’s consolidated sales were $10.5 billion in the quarter – up 2.2% compared with Q2 2014. Sales in the retail segment also increase 2.2%, to $10.3 billion.
Food retail same-store sales grew 2.1%. Removing gas bar (up 1.2%) and the negative effects of change in tobacco suppliers, overall same-store growth increased 4.2%.
Net earnings were $185 million, or 45 cents per share, in the quarter, compared with a loss of $456 million ($1.13 per share) in the same period last year.
Adjusted net earnings were $350 million or 85 cents per share, compared with $297 million or $0.74 per share last year.
“Looking ahead, the grocery industry remains highly competitive and healthcare reform continues to put pressure on our pharmacy business,” Weston said.
- With files from Glen Korstrom
