Following disappointing sales, Loblaw’s stock falls by 5%

When announcing its fourth quarter results of 2018, Loblaw (TSX: L) somewhat disappointed investors, making its stock lose 5% in valuation. Investors have remained on their hunger, while sales of the grocer have increased of 0.8%. Operating profits increased by 1.5% over the previous year to CAD$ 895 million or $ 1.03 per share, lower than the forecast of $ 1.06.

This announcement followed a recent Metro (TSE: MRU) news of a 3.2% increase in comparable grocery sales for the same quarter. Loblaw’s results therefore seemed disappointing, especially since Jim Durran, analyst at Barclays, had forecasted an improvement of 2.2%. Indeed, a 1.6% increase in food inflation during this period bode out a similar or even higher increase in Loblaw’s sales. The analyst believes that investors will be wary of Loblaw’s explanation that he wants to focus on profitable sales and his gross margin even if it ends up in a loss of market shares.

Investors were subsequently reassured by forecasts for 2019, allowing the action to recover during the session. Earnings growth is expected to be of 10.6% in 2019 compared to 3.3% in 2018. Comparable grocery store sales are expected to increase by 1.4% compared to 1.1% in 2018. It remains to be seen whether these targets will be met, or if they will be missed like those for 2018.

Sources

Les affaires. (2019). Les ventes de Loblaw déçoivent, l’action perd 5%. Retrieved from : https://www.lesaffaires.com/bourse/analyses-de-titres/les-ventes-de-loblaw-decoivent-l-action-perd-5/608413

La Presse. (2019). Stagnation des ventes d’aliments chez Loblaw. Retrieved from : https://www.lapresse.ca/affaires/entreprises/201902/21/01-5215554-stagnation-des-ventes-daliments-chez-loblaw.php

Supermarket News. (2019). Loblaw sees retail sales edge up in fourth quarter. Retrieved from : https://www.supermarketnews.com/retail-financial/loblaw-sees-retail-sales-edge-fourth-quarter

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