Loblaw net earnings dip in Q2 as it settles price-fixing lawsuit

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Loblaw Cos. Ltd. net earnings took a dip in the second quarter as the company agreed to pay hundreds of millions in settlements for its involvement in the bread price-fixing scandal that rocked Canadian supermarket chains.

Loblaw and parent company George Weston Ltd., which owned wholesaler and distributor Weston Bakeries until 2021, on Thursday announced they had agreed to pay a settlement totalling $500 million to resolve nationwide class action lawsuits over the industry-wide price fixing.

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“On behalf of the Weston group of companies, we are sorry for the price-fixing behaviour we discovered and self-reported in 2015,” Galen Weston, chief executive of George Weston and chairman of Loblaw, said in a press release. “This behaviour should never have happened.”

George Weston will pay $247.5 million in cash and Loblaw will pay $252.5 million in both cash and credit already paid out to customers in gift cards, they said.

The companies had previously admitted their role in a multi-year scheme involving wholesale and retail competitors in the sale of fresh bread products. They received immunity from prosecution in exchange for co-operating.

The alleged industry-wide co-ordinated price setting became public in 2017, and in early 2018, the Competition Bureau filed documents in court alleging that at least $1.50 had been artificially baked into the price of a loaf of bread between 2001 and 2016.

In its second quarter earnings release, Loblaw said the charges related to the class action settlements had negatively affected net earnings by $121 million.

The company’s operating income declined by 6.4 per cent to $868 million, including an 11.9 per cent dip in retail operating income to $815 million in the second quarter.

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Still, the grocery giant’s revenue grew to $13.9 billion in the quarter ended June 15 — a 1.5 per cent year-over-year increase — despite a month-long boycott of its stores in May. Retail segment sales were up 1.4 per cent to almost $13.7 billion from the same period last year.

Same-store food retail sales went up by 0.2 per cent to $9.65 million, while same-store drug-retail sales increased by 1.5 per cent to $4 million. The company said its 5.4 per cent same-store sales growth in pharmacy and health-care services was partially offset by a decline in front-store same-store sales of 2.4 per cent. E-commerce sales increased 14.2 per cent in the second quarter compared to last year.

“Food retail sales reflected increased customer visits in the quarter, despite lapping very strong sales growth last year,” the retailer said in a press release.

Loblaw reported an adjusted EBITDA of $1.7 billion, an increase of $73 million or 4.5 per cent from the prior year.

Diluted net earnings were $1.48 per common share, a decrease of $0.10 or 6.3 per cent. Adjusted diluted net earnings came at $2.15 per share, an increase of $0.21 or 10.8 per cent. This was in line with consensus expectations.

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Royal Bank of Canada analyst Irene Nattel said that Loblaw’s results were in line despite the softer than expected top line.

“Bottom line on settlement of bread price fixing lawsuit: Investors had likely forgotten about the issue, settlement should (hopefully) put the issue to bed for Loblaw and George Weston,” Nattel wrote in a note to clients.

Company stock was down to $167.20 by Thursday noon.

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