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Loblaw says it's still facing price hikes from consumer packaged goods suppliers

The grocer says its gross margin on food declined, but did not quantify any decline

Galen G. Weston, Chairman and President of Loblaw Companies Limited waits to appear as witnesses at the Standing Committee on Agriculture and Agri-Food (AGRI) investigating food price inflation in Ottawa, Wednesday, March 8, 2023. THE CANADIAN PRESS/Spencer Colby
Loblaw says it continues to face cost increases from food suppliers, including multinational consumer packaged goods companies, something the grocery giant says "is one of the big drivers of cost inflation." (THE CANADIAN PRESS/Spencer Colby) (The Canadian Press)

Loblaw says it continues to face cost increases from food suppliers, including multinational consumer packaged goods companies, something the grocery giant says "is one of the big drivers of cost inflation."

"We are continuing to see elevated cost increases from our food suppliers," Loblaw chief financial officer Richard Dufresne said on a conference call with analysts on Wednesday following the release of first quarter results. Dufresne said the cost increases include ones from small and medium-sized Canadian vendors that are "catching up on costs," adding that the grocery giant is "doing our best to expedite those."

"More concerning, we're still seeing outsized cost increases rolling in from large consumer goods companies, exceeding what we would be expecting at this point," he said.

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"Year-to-date, suppliers have increased our product cost nearly $1 billion, which is down from last year at this time, but more than double the annual historic norm."

Loblaw has faced continued public pressure and scrutiny over profitability increases amid soaring food prices. On Wednesday the company reported a 10 per cent increase in adjusted profit in the three month period ending March 6, and hiked its quarterly dividend by 10 per cent.

Still, the grocery giant has repeatedly said it is not causing or profiting from food inflation, pointing to consistent margins, and higher supplier and input costs as the key factors driving price increases. Before the pandemic, the company said it would typically receive price increase requests that totalled $400 million in a year. In 2022, price hike requests from suppliers came in at more than $2 billion. So far this year, the price increases are already at $1 billion.

"We wanted to call it out because it's one of the big drivers of cost inflation that we are seeing," Loblaw president and executive chairman Galen Weston said on a conference call with analysts.

"We are definitely seeing more inflationary cost pressure from the large multinational [consumer packaged goods companies] than we would have expected at this time, based on what's happening in the commodity cost environment,"

The company's retail gross margin was 31.3 per cent, up from 31.1 per cent last year. Retail gross margin is the amount of profit made on goods, measured as a percentage. The retailer said the increase in the recent quarter was again driven by higher sales growth in more profitable drug store categories, such as cosmetics and over-the-counter medicine. It said food retail gross margins declined, as costs have increased faster than prices. The company does not break out separate gross margin data for its food and drug retail businesses, and so a food retail decline was not quantified.

"Once again we did not pass the full amount of cost inflation to customers leading to food gross margin declines yet again this quarter," Weston said.

The company said internal food inflation was "generally in line" with Statistics Canada's Consumer Price Index (CPI) for food purchased from grocery stores, which averaged 10.5 per cent in the quarter.

Total sales in the quarter grew 6 per cent, from $12.3 billion last year to nearly $13 billion. Same store sales for food retail, a key metric in the retail industry that excludes recently opened locations, increased 3.1 per cent in the quarter, while same store sales for drug retail jumped 7.4 per cent.

On an adjusted basis, Loblaw says it earned $1.55 per diluted share in its latest quarter, up from an adjusted profit of $1.36 per diluted share a year ago. Analysts on average had expected an adjusted profit of $1.55 per share and $13.2 billion in revenue, according to estimates compiled by financial markets data firm Refinitiv.

With files from the Canadian Press

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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