Loblaw tops analysts' estimates as rising grocery prices still outpace inflation

A shopper buys produce at a Toronto Loblaw store in this file photo.Ammar Bowaihl/The Globe and Mail

Grocery giant Loblaw Cos. Ltd. L-T reported growth in both sales and profits in the second quarter, beating analysts’ estimates as grocery prices continue to rise, outpacing general inflation.

The Brampton, Ont.-based company reported that sales growth was driven by inflation-weary shoppers continuing to visit its discount grocery stores more frequently, such as No Frills, Maxi, and Real Canadian Superstore.

Loblaw reported that its net earnings available to common shareholders grew to $508-million or $1.58 per share in the second quarter, compared to $387-million or $1.16 per share in the same period the previous year. According to the company, the majority of that 31-per-cent jump in profit was accounted for by an earlier $111-million charge related to a tax matter in its PC Bank business, which significantly reduced the comparable profits in the prior year’s quarter.

Overall, Loblaw’s revenue grew by 6.9 per cent in the 12 weeks ended June 17, to $13.7-billion.

Same-store sales – an important industry metric that tracks sales growth not tied to new store openings – grew by 6.1 per cent at Loblaw’s grocery stores, and 5.7 per cent at drugstores. E-commerce sales grew by 13.9 per cent in the quarter.

Canada’s annual inflation rate eased in June to its lowest level since early 2021, Statistics Canada reported last week, but grocery prices have resisted this trend. While The Consumer Price Index rose by 2.8 per cent in June, down from 3.4 per cent in May, grocery prices rose by 9.1 per cent, nearly matching the 9-per-cent increase in costs reported in May. Food inflation has outpaced the general rate of inflation for more than a year.

Loblaw reported that its own internal food inflation measures were “generally in line” with CPI increases. But the retailer, along with other grocers, has repeatedly said that food is already more expensive before it reaches their stores – with costs pushed up by myriad factors including supply-chain issues, extreme weather events, and geopolitical factors. While overall sales and profits are up, Loblaw contends that the profit margins it makes on each grocery sale have fallen.

“In fact, it’s important to note that once again our food margins are down – our costs are growing faster than our prices as we continue to face unprecedented increases from suppliers and are not passing them all on to customers,” Loblaw spokesperson Catherine Thomas wrote in an emailed statement on Wednesday.

Loblaw’s profit forecast for the year remains unchanged, with the company expecting earnings to grow in the low double digits.