Canada’s largest food retailer has just had a banner quarter and critics say it’s yet another example of a company profiting from inflation.

Loblaw Companies Ltd. said Wednesday its first-quarter profit was up almost 40 per cent compared to the same period last year. Taking into account a tax ruling that went in its favour as well as other adjustments, its net earnings were up 17.1 per cent to $459 million.

Most of its retail profit growth came from its drugstore retailers (it owns Shoppers Drug Mart and Pharmaprix), Loblaw said, owing to higher sales of prescription drugs, over-the-counter cough and cold medications, and cosmetics, which got a boost as pandemic restrictions loosened.

The company’s drugstore sales were up 5.4 per cent to $3.4 billion overall.

However, food sales revenue also increased, by 2.4 per cent to $8.7 billion, and adjusted gross profit for the retail division as a whole increased by 5.9 per cent to $3.7 billion.

DT Cochrane, an economist and researcher who works with Canadians for Tax Fairness, said Loblaw’s profit in the quarter “is just one more piece of evidence that suggests one of the major drivers of inflation is corporations raising prices.

“This is companies doing what companies will do … They are bottom-line driven,” Cochrane said. “We can’t look to the corporations to do what’s right. We need government to act to do what’s right.”

He’s calling for regulations on grocery prices as well as new taxes on what he says are excess profits, a measure the Canadian Centre for Policy Alternatives (CCPA) also supports.

“The increase in food prices is not squeezing Loblaw’s profits,” said Sheila Block, senior economist with the CCPA.

Block said the surge in profits at Loblaw show that the coming year will see the continuation of a trend in which companies raise prices higher than they have to and profit from inflation.

A recent report from the CCPA concluded that Canada’s present rate of inflation would be at least a quarter lower were it not for the gains that companies across all sectors have made on price hikes.

During an investor conference call, one financial analyst asked Loblaw executives how much of the costs associated with inflation the company is passing on to consumers.

Richard Dufresne, Loblaw’s chief financial officer, said the company bases its pricing on its competition, not inflation.

“We’re not trying to manage our business to an inflation number,” he said, adding that the company focuses instead on how its prices compare to its peers in the grocery sector. “We’re trying to manage our business as to where we are priced versus our competition.”

Loblaw said that as prices have risen, shoppers have been spending less on average each time they visit its stores and consumers have been shifting to its discount stores, including No Frills and Maxi, which now account for 60 per cent of its grocery sales.

“This is an indication of the Canadian consumers’ steadily increasing focus on value,” Loblaw chairman and president Galen G. Weston said during the investor conference call Wednesday.

Loblaw itself is dealing with higher prices at its food business and Weston cited “supply-chain challenges and cost increases across the board, including for fuel, shipping, ingredients and packaging.”

The company said its internal measure of food inflation was slightly higher than the Statistics Canada Consumer Price Index measure for food purchased from stores, which increased by 7.5 per cent in the quarter.

Loblaw would not disclose detailed figures on this, but spokesperson Catherine Thomas said in an email, “it is inaccurate to say our food prices are outpacing inflation.”

Thomas said the company’s “increased profits this quarter were driven primarily by higher-margin sales, like cosmetics.”

“Grocery is an extremely low-margin business where in this most recent quarter we made less than 4 cents for every $1 we sold,” Thomas said. “We work very hard to keep our costs and prices low. This has been a challenge industry-wide due to many unusual inflationary forces.

Grocery rivals Empire Co. Ltd. and Metro Inc. have also reported profit growth in their most recent quarters.

Net earnings at Metro were up 5.3 per cent to $198 million in the 12 weeks ended March 12 and Empire reported its net earnings increased by 15.4 per cent to $203.4 million for the 13 weeks ended Jan. 29.

Loblaw’s revenue for the first quarter of 2022 totalled $12.26 billion, up from $11.87 billion in the same quarter last year.

Loblaw reported its profit available to common shareholders totalled $437 million or $1.30 per diluted share for the 12-week period compared with $313 million or 90 cents per diluted share a year earlier.

The company said it will pay a quarterly dividend of 40.5 cents per share, up from 36.5 cents per share.

On an adjusted basis, Loblaw said it earned $1.36 per diluted share, up from an adjusted profit of $1.13 per diluted share a year ago.

With files from The Canadian Press


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