Reuters reported today that Loblaw Co. Ltd. has had a 40 percent drop in fourth-quarter profit, as the result of supply chain disruptions caused by an ambitious restructuring plan.

Loblaw, Canada's largest food retailer, which owns the Provigo and Loblaws supermarket chains, said it earned C$201 million ($174.4 million), or 73 Canadian cents a basic share, for the quarter ended December 31, down from a profit of C$337 million, or C$1.23 a basic share for the same period a year earlier.

This was within Loblaw's forecast for a profit of 71 Canadian cents to 76 Canadian cents a share, announced last month when the retailer warned its fourth-quarter earnings would be lower than expected, blaming restructuring costs and supply chain disruptions.

Loblaw said last March it would close six warehouses and cut 1,400 jobs as it replaced smaller distribution centers with a network of larger facilities to improve competitiveness as U.S. giant Wal-Mart Stores (WMT.N: Quote) prepares to enter Canada's grocery business with its supercenters.

"The need for this transformative process was driven by the company's assessment of a fast-changing retail environment marked by increased consumer choice, low-cost global retailers, and the addition of an increasingly unsustainable amount of industry square footage," Loblaw said in a statement.

Restructuring plan becomes nightmareBut its ambitious restructuring plan, which Loblaw said will lower costs and create a smoother system to get products to stores, started to weigh on its earnings during its last third-quarter.

edward jones analyst Patrick Schumann said even if the worst of the makeover now seems to be behind it, Loblaw still has work to be done over the next two quarters.

"This is a good Loblaw management team that has done a very good job over the long term, but 2005 was a bit too aggressive ... It certainly seems too ambitious to take on as much as they did at a time when the competitive environment is as fierce as it is," Schumann said.