Loblaw shares wilt after profit warning as supply-chain woes continue

Filed in archive News on January 23, 2006

According to CBC, canadian food distributer Loblaw Cos. Ltd., struggling to upgrade its distribution system to confront the Wal-Mart challenge, issued a profit warning Thursday as its supply-chain revamp continued to drag on its results.

Shares in Canada's largest supermarket operator fell about five per cent on the news.

Loblaw said it expects to report fourth-quarter earnings of between 92 cents and 97 cents per share, not including about 20 cents per share in one-time charges for restructuring, distribution disruptions and stock-based compensation.

Loblaw earned $1.22 a share in the final quarter of 2004 and analysts were expecting $1.19 per share in the latest quarter, according to a consensus estimate compiled by Thomson Financial.

Loblaw shares, which peaked at $76.50 last April, traded at $54.05 at midafternoon Thursday, down $2.62 on the session.

"The reality is that the supply chain (reorganization) has cost the business," president John Lederer told a conference call.

"We have an appreciation for the number and it's not a small number," he said, pegging it at "tens of millions of dollars" but adding, "We're comfortable that will very soon be behind us."

The "transformation" of the supply chain, announced last March and affecting 1,400 jobs, included shutting six warehouses in Ontario and Quebec, with relocations to large new distribution centres.

Loblaw also moved its general-merchandise centre from Calgary to Brampton, Ont., transferring 125 people, hiring 65 more and shifting non-grocery distribution to a third-party complex in Pickering, Ont.

Disruptions in getting merchandise to stores erupted "because we moved very quickly - now some might say too quickly," Lederer said.