Loblaw Companies is a leading grocery and pharmacy company in Canada. It is an omnichannel retailer with a growing online presence.

Loblaw operates across the country through a network of corporate and independent businesses. It offers a wide variety of food, health and beauty products, and operates more than 2,400 storesacross Canada. The supply chain includes 26 distribution centers across Canada.

Loblaw has grown to become a premier name in the country, as evidenced by the billion visits to Loblaw stores each year. Loblaw operates in the Market, Discount, PC Financial, Joe Fresh and Shoppers Drug Mart businesses.

Loblaw has two operating segments, namely retail, which accounts for 97% of sales (consisting of grocery and drugstore retail stores, in-store pharmacies and other health and beauty products, apparel and general merchandise) and financial services (credit card services, insurance) brokerage services, guaranteed Investment certificates and wireless mobile products and services).

Grocery retail is the larger business, accounting for more than 70% of total retail sales, while drug retailing accounts for the remaining 30%. Its brands like President’s Choice, Life Brand and No Name are three of Canada’s top ten consumer brands. Loblaw also has more than 18 million PC Optimum members and 3 million PC Financial Mastercard cardholders.

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Investment data

Sales growth and market exposure

Loblaw Companies is a centralized retailer with strong competitive strengths. The company is conveniently located for easy access to Canadians. More than 90% of Canadians live within a 10 km radius of any of Loblaw’s locations. The product range is also broad and covers the entire range of values ​​from discounts to specialties.

Over the years the company has built a solid reputation, won customer trust, and built deep customer relationships. With over 400 beauty boutiques, it enjoys the No. 1 market share in the prestige, derm and mass beauty categories. As Canada’s top-selling grocery retailer, Loblaw offers numerous opportunities to diversify and sell its products in its food segment.

Loblaw aims for growth by focusing on retail, healthcare and digital. The company is capitalizing on its day-to-day digital retail strategy and is seeing advances in its connected healthcare strategy. In 2020, the company launched the PC Health App, a health and wellness app that provides Canadians with convenient access to health resources and support.

Loblaw also launched its first standalone online grocery pickup location in the greater Toronto area. The company is well positioned to bolster its position as a leading Canadian retailer as both grocery and pharmacy stores are inherently very defensive.

Loblaw’s sales were positively impacted by the COVID-19 pandemic in the last quarter as purchases of staple foods increased. However, the cost remained high. Grocery stores saw revenue growth in market share for conventional drugs, pharmaceuticals and beauty products as the pandemic progressed, while higher-margin categories were negatively impacted. Retail sales were up 7.5% year-over-year, which resulted in growth in both grocery retail and Shoppers’ Drug Mart.

The company’s e-commerce sales also grew 160%. Loblaw benefited from scaling its online capacity as technology improved. The company will continue to streamline business operations and e-commerce, driving business strategies for future growth while respecting social distancing and other security control norms.

Dividends

Loblaw Companies is a Canadian dividend aristocrat who has paid quarterly dividends for the past five decades. Most recently, it increased its dividend by more than 6%. The company has a dividend yield greater than 2% and has increased its dividend growth to 6% + CAGR over the past three years. Earnings are also up ~ 7% CAGR over the three year period. In addition, a reasonable payout ratio of ~ 44% offers room for future expansion. Loblaw repurchased 5.5 million shares in the quarter at a total cost of $ 350 million. The company invested $ 418 million and generated free cash flow of $ 606 million.

Loblaw has consistently seen strong EPS growth and has seen stable growth in both retail and profit margins. The company is strengthening its position in its core retail segment through heavy investments and divestments in this direction. Loblaw also benefits from a strong ancestry in the Weston Group.

Loblaw is expanding its online presence through various digital initiatives as consumers become more tech savvy today. The company is well positioned to adapt to a dynamic and rapidly changing environment. By investing in digital platforms, the Loblaw branch network will be integrated to offer a more convenient shopping experience in the clothing, pharmacy and healthcare sectors.

Loblaw Companies also offers its customers a payment and bonus offering. The growing demand for food and medicine should serve as a tailwind for this dividend aristocrat. A strong balance sheet and the ability to generate significant cash flow from operations should support future dividend growth.

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competition

Loblaw Companies faces competition not only from traditional brick and mortar stores but also from online gamblers. Competition also increases as e-commerce giants like Amazon.com move into grocery delivery services. In the conventional space, Loblaw competes with Metro and Sobeys, the leading grocery and grocery retailers in Canada. A large Canadian presence, a network of retail stores, a huge customer base and a wide range of products make Loblaw Companies the undisputed retail king in the Canadian market.

Bottom line

Loblaw values ​​the continued volatility of his business as shopping behavior and demand for different types of products and services evolve. Certain categories are also expected to appear in the store, such as: B. Beauty, be affected. The company is working to strengthen the strategic growth areas of Everyday Digital Retail, Connected Healthcare Network and Payments and Rewards.

The diverse range of food, pharmaceutical, health and beauty, clothing and general merchandise sectors has made Loblaw the undisputed market leader in retail. The company has worked for the past three years to strengthen its customer offerings, with an emphasis on the quality and range of fresh products, as well as competitive value. So far, Loblaw has proven to be a crash-proof investment.

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