BRAMPTON, ON, Feb. 22, 2018 /CNW/ - Loblaw Companies Limited (TSX: L) ("Loblaw" or the
"Company") today announced its unaudited financial results for the fourth quarter ended December 30, 2017 and the release of
its 2017 Annual Report – Financial Review ("Annual Report"), which includes the Company's audited consolidated financial
statements and Management's Discussion and Analysis ("MD&A") for the fiscal year ended December 30, 2017. The Company's
2017 Annual Report will be available in the Investors section of the Company's website at loblaw.ca and will be filed with SEDAR
and available at sedar.com.
"We delivered strong results in the fourth quarter and were pleased with our financial performance in 2017," said Galen G. Weston, Chairman and Chief Executive Officer, Loblaw Companies Limited.
"As our Company faces exceptional external headwinds in 2018, we are excited about our future and focused on meeting
the changing needs of our customers. We remain committed to our financial framework and continued value creation for
shareholders."
2017 FOURTH QUARTER HIGHLIGHTS
The following highlights include the impacts of the consolidation of franchises and disposition of gas bar operations.
- Revenue was $11,030 million, a decrease of $100 million, or
0.9%, compared to the fourth quarter of 2016.
- Retail segment sales were $10,718 million, a decrease of $127
million, or 1.2%, compared to the fourth quarter of 2016.
-
- The disposition of the Company's gas bar operations negatively impacted Retail sales growth by $350 million.
- Food retail (Loblaw) same-store sales growth was 0.5%, excluding gas bar operations.
- Drug retail (Shoppers Drug Mart) same-store sales growth was 3.6%, with pharmacy same-store sales growth of 3.9% and
front store same-store sales growth of 3.5%.
- Operating income was $140 million, a decrease of $309 million,
or 68.8%, compared to the fourth quarter of 2016.
-
- Operating income was negatively impacted in the fourth quarter of 2017 by charges related to the announcement of the
PC Optimum Program, restructuring activities and the Loblaw Card Program.
- Net earnings available to common shareholders of the Company were $19 million, a decrease of
$182 million, or 90.5%, compared to the fourth quarter of 2016. Diluted net earnings per common
share were $0.05, a decrease of $0.45, or 90.0%, compared to the
fourth quarter of 2016.
- Adjusted EBITDA(2) was $1,013 million, an increase of $57
million, or 6.0%, compared to the fourth quarter of 2016.
- Adjusted net earnings available to common shareholders of the Company(2) were $441
million, an increase of $48 million, or 12.2%, compared to the fourth quarter of 2016.
Adjusted diluted net earnings per common share(2) were $1.13, an increase of
$0.16, or 16.5%, compared to the fourth quarter of 2016.
-
- Normalized for the disposition of gas bar operations, adjusted diluted net earnings per common share(2)
increased by approximately 20.0%.
- The Company repurchased 2.3 million common shares at a cost of $154 million in the fourth
quarter of 2017. In 2017, the Company repurchased 16.2 million common shares at a cost of $1,139
million.
- In 2017, the Company invested $1,259 million in capital expenditures and generated
$1,479 million of free cash flow(2).
- The disposition of the Company's gas bar operations negatively impacted Retail adjusted EBITDA(2) by
approximately $20 million and diluted net earnings per common share growth by approximately
$0.03 per common share. Gas bar operations were a low gross margin business compared to the
Company's overall Retail segment.
See "News Release Endnotes" at the end of this News Release.
CONSOLIDATED RESULTS OF OPERATIONS
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For the periods ended December 30, 2017
and December 31, 2016
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2017
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2016
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2017
|
2016
|
|
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(millions of Canadian dollars except where
otherwise indicated)
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(12 weeks)
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(12 weeks)
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$ Change
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% Change
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(52 weeks)
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(52 weeks)
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$ Change
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% Change
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Revenue
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$
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11,030
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$
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11,130
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$
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(100)
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(0.9)%
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$
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46,702
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$
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46,385
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$
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317
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0.7%
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Operating income
|
140
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449
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(309)
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(68.8)%
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2,494
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2,092
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402
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19.2%
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Adjusted EBITDA(2)
|
1,013
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956
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57
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6.0%
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4,092
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3,852
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240
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6.2%
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Adjusted EBITDA margin(2)
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9.2%
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8.6%
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8.8%
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8.3%
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Net earnings attributable to
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shareholders of the Company
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$
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22
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$
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204
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$
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(182)
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(89.2)%
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$
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1,502
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$
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983
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$
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519
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52.8%
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Net earnings available to common
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shareholders of the Company(i)
|
19
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201
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(182)
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(90.5)%
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1,490
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971
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519
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53.5%
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Adjusted net earnings available to
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common shareholders of the
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Company(2)
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441
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393
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48
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12.2%
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1,799
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1,655
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144
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8.7%
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Diluted net earnings per common
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share
($)
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$
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0.05
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$
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0.50
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$
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(0.45)
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(90.0)%
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$
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3.75
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$
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2.37
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$
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1.38
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58.2%
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Adjusted diluted net earnings per
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common share(2) ($)
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$
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1.13
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$
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0.97
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$
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0.16
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16.5%
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$
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4.53
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$
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4.05
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$
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0.48
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11.9%
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Diluted weighted average common
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shares outstanding (millions)
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390.5
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405.6
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397.3
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409.1
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(i)
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Net earnings available to common shareholders of the Company are net
earnings attributable to shareholders of the Company net of dividends declared on the Company's Second Preferred Shares,
Series B.
|
Net earnings available to common shareholders of the Company in the fourth quarter of 2017 were $19
million ($0.05 per common share), a decrease of $182 million
($0.45 per common share) compared to the fourth quarter of 2016. The decrease in net earnings
available to common shareholders of the Company included improvements in underlying operating performance of $48 million, which were more than offset by the unfavourable year-over-year net impact of adjusting items
totaling $230 million, as described below:
- improvements in underlying operating performance of $48 million ($0.12 per common share), were primarily due to the Retail segment (excluding the impact of the consolidation
of franchises), driven by an increase in adjusted gross profit(2) partially offset by an increase in selling,
general and administrative expenses ("SG&A").
- the unfavourable year-over-year net impact of adjusting items totaling $230 million
($0.61 per common share) was primarily due to the following:
-
- the unfavourable impact of charges related to the announcement of the PC Optimum Program, including the
revaluation of the existing points liability and the impairment of certain IT assets, of $154
million ($0.39 per common share);
- the year-over-year unfavourable impact of restructuring and other related costs of $123
million ($0.31 per common share); and
- the unfavourable impact of the Loblaw Card Program of $79 million ($0.20 per common share); partially offset by
- the year-over-year favourable impact of asset impairments, net of recoveries, of $53
million ($0.12 per common share);
- the favourable impact of the remeasurement of deferred tax balances of $17 million
($0.04 per common share);
- the year-over-year favourable impact of pension annuities and buy-outs in the prior year of $15
million ($0.04 per common share); and
- the favourable impact of income earned, net of certain costs incurred, from the wind-down of PC Financial banking
services of $13 million ($0.03 per common share).
- the increase in diluted net earnings per common share also included the favourable impact of the repurchase of common
shares ($0.04 per common share).
Adjusted net earnings available to common shareholders of the Company(2) in the fourth quarter of 2017 were
$441 million ($1.13 per common share), an increase of $48 million ($0.16 per common share or 16.5%), compared to the fourth quarter of
2016, due to the improvements in underlying operating performance and the favourable impact of the repurchase of common shares,
as described above. Normalized for the disposition of gas bar operations, adjusted diluted net earnings per common
share(2) increased by approximately 20.0%.
REPORTABLE OPERATING SEGMENTS
The Company has three reportable operating segments with all material operations carried out in Canada:
- The Retail segment consists primarily of corporate and franchise-owned retail food and Associate-owned drug stores, and
includes in-store pharmacies and other health and beauty products and apparel and other general merchandise and provides the
PC Optimum program. This segment is comprised of several operating segments that are aggregated primarily due to
similarities in the nature of products and services offered for sale in the retail operations and the customer base. Prior to
July 17, 2017, the Retail segment also included gas bar operations;
- The Financial Services segment provides credit card services, the PC Optimum program, insurance brokerage services,
deposit taking services and telecommunication services. As a result of the wind-down of PC Financial banking services, the
Financial Services segment no longer offers personal banking services; and
- The Choice Properties Real Estate Investment Trust ("Choice Properties") segment owns, manages and develops well located
retail and commercial properties across Canada. The Choice Properties segment information
presented below reflects the accounting policies of Choice Properties, which may differ from those of the consolidated Company.
Differences in policies are eliminated in Consolidation and Eliminations.
Retail Segment
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For the periods ended December 30, 2017
and December 31, 2016
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2017
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2016
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2017
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2016
|
|
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(millions of Canadian dollars except where
otherwise indicated)
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(12 weeks)
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(12 weeks)
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$ Change
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% Change
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(52 weeks)
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(52 weeks)
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$ Change
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% Change
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Sales
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$
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10,718
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$
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10,845
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$
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(127)
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(1.2)%
|
$
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45,634
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$
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45,384
|
$
|
250
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0.6%
|
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Operating income
|
56
|
392
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(336)
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(85.7)%
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2,248
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1,902
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346
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18.2%
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Adjusted gross profit(2)
|
3,095
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2,945
|
150
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5.1%
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12,820
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12,262
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558
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4.6%
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Adjusted gross profit %(2)
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28.9%
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27.2%
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28.1%
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27.0%
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Adjusted EBITDA(2)
|
$
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936
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$
|
889
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$
|
47
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5.3%
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$
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3,836
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$
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3,631
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$
|
205
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5.6%
|
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Adjusted EBITDA margin(2)
|
8.7%
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8.2%
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8.4%
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8.0%
|
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Depreciation and amortization
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$
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362
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$
|
355
|
$
|
7
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2.0%
|
$
|
1,534
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$
|
1,512
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$
|
22
|
1.5%
|
|
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For the periods ended December 30, 2017
and December 31, 2016
|
|
2017
|
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2016
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2017
|
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2016
|
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(millions of Canadian dollars except where
otherwise indicated)
|
|
(12 weeks)
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(12 weeks)
|
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(52 weeks)
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(52 weeks)
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Sales
|
Same-store
sales
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Sales
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Same-store
sales
|
Sales
|
Same-store
sales
|
Sales
|
Same-store
sales
|
|
Food retail
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$
|
7,546
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0.5%
|
$
|
7,789
|
1.1%
|
$
|
33,055
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0.6%
|
$
|
33,175
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1.1%
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Drug retail
|
3,172
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3.6%
|
3,056
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3.4%
|
12,579
|
3.0%
|
12,209
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4.0%
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|
Pharmacy
|
1,419
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3.9%
|
1,361
|
2.5%
|
5,959
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3.1%
|
5,730
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2.9%
|
|
Front
Store
|
1,753
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3.5%
|
1,695
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4.1%
|
6,620
|
2.9%
|
6,479
|
5.0%
|
|
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Sales, operating income, adjusted gross profit(2), adjusted gross profit percentage(2), adjusted
EBITDA(2) and adjusted EBITDA margin(2) include the impacts of the consolidation of franchises and
disposition of gas bar operations.
Sales Retail segment sales in the fourth quarter of 2017 were $10,718 million,
a decrease of $127 million, or 1.2%, compared to the fourth quarter of 2016. Excluding the
consolidation of franchises, Retail segment sales decreased by $214 million, or 2.0%, primarily
driven by the following factors:
- The impact of the disposition of gas bar operations of $350 million; partially offset by
- Food retail same-store sales growth was 0.5% (2016 – 1.1%) for the quarter, after excluding gas bar operations.
- The Company's Food retail average quarterly internal food price index was marginally higher than (2016 – slightly lower
than) the average quarterly national food price inflation of 1.0% (2016 – deflation of 2.3%), as measured by The Consumer Price
Index for Food Purchased from Stores ("CPI"). CPI does not necessarily reflect the effect of inflation on the specific mix of
goods sold in the Company's stores.
- Drug retail same-store sales growth was 3.6% (2016 – 3.4%) and was comprised of pharmacy same-store sales growth of 3.9%
(2016 – 2.5%) and front store same-store sales growth of 3.5% (2016 – 4.1%).
- 22 food and drug stores were opened and 19 food and drug stores were closed in the last 12 months, resulting in a net
increase in Retail square footage of 0.1 million square feet, or 0.1%.
Operating Income Operating income in the fourth quarter of 2017 was $56
million, a decrease of $336 million compared to the fourth quarter of 2016. The decrease in
operating income included improvements in underlying operating performance of $37 million, which
were more than offset by the unfavourable year-over-year net impact of adjusting items totaling $373
million, as described below:
- the improvements in underlying operating performance of $37 million were driven by an
increase in adjusted gross profit(2) partially offset by an increase in SG&A. The improvements in underlying
operating performance also included the unfavourable year-over-year contribution from the consolidation of franchises in the
quarter and the unfavourable impact of the disposition of gas bar operations; and
- the unfavourable year-over-year net impact of adjusting items totaling $373 million was
primarily due to the following:
-
- the unfavourable impact of charges related to the announcement of the PC Optimum Program, including the
revaluation of the existing points liability and the impairment of certain IT assets, of $211
million;
- the year-over-year unfavourable impact of restructuring and other related costs of $163
million; and
- the unfavourable impact of the Loblaw Card Program of $107 million; partially offset
by
- the year-over-year favourable impact of asset impairments, net of recoveries, of $77
million; and
- the year-over-year favourable impact of pension annuities and buy-outs in the prior year of $21
million.
Adjusted Gross Profit(2) Adjusted gross profit(2) in the fourth quarter of 2017 was
$3,095 million, an increase of $150 million compared to the fourth quarter of 2016.
Adjusted gross profit percentage(2) of 28.9% increased by 170 basis points compared to the fourth quarter of 2016.
Excluding the consolidation of franchises, adjusted gross profit(2) increased by $55
million. Adjusted gross profit percentage(2), excluding the consolidation of franchises, was 27.5%, an increase
of 110 basis points compared to the fourth quarter of 2016. The increase in adjusted gross profit percentage(2) was
due to the favourable impact from the disposition of gas bar operations of approximately 70 basis points and higher Drug retail
margins primarily driven by front store margins. Food retail margins were stable.
Adjusted EBITDA(2 ) Adjusted EBITDA(2) in the fourth quarter of 2017
was $936 million, an increase of $47 million, compared to the fourth
quarter of 2016 and included no impact for the consolidation of franchises and the unfavourable impact of the disposition of gas
bar operations of approximately $20 million. The increase in adjusted EBITDA(2) of
$47 million was driven by an increase in adjusted gross profit(2) as described above,
partially offset by an increase in SG&A of $103 million. SG&A as a percentage of sales was 20.1%, an increase of 110
basis points compared to the fourth quarter of 2016. Excluding the consolidation of franchises, SG&A increased $8 million. SG&A as a percentage of sales, excluding the consolidation of franchises, was 18.8%, an
unfavourable increase of 40 basis points compared to the fourth quarter of 2016 driven by the unfavourable impact from the
disposition of gas bar operations of approximately 50 basis points as store and store support costs were relatively flat as a
percentage of sales.
Depreciation and Amortization Depreciation and amortization in the fourth quarter of 2017 was
$362 million, an increase of $7 million compared to the fourth quarter of 2016 primarily
driven by the consolidation of franchises and an increase in IT assets. Included in depreciation and amortization is the
amortization of intangible assets related to the acquisition of Shoppers Drug Mart Corporation ("Shoppers Drug Mart") of
$121 million (2016 – $124 million).
Other Retail Business Matters
Competition Bureau Investigation On December 19, 2017, the Company and George
Weston Limited ("Weston") announced actions taken to address their role in an industry-wide price-fixing arrangement involving
certain packaged bread products. The arrangement involved the coordination of retail and wholesale prices of certain packaged
bread products over a period extending from late 2001 to March 2015. Under the arrangement, the
participants regularly increased prices on a coordinated basis.
Class action lawsuits have been commenced against the Company and Weston as well as a number of other major grocery retailers
and another bread wholesaler. It is too early to predict the outcome of such legal proceedings. Neither the Company nor Weston
believes that the ultimate resolution of such legal proceedings will have a material adverse impact on its financial condition or
prospects. The Company's cash balances far exceed any realistic damages scenario and therefore it does not anticipate any impacts
on its dividend, dividend policy or share buyback plan.
The Company has not recorded any amounts related to the potential civil liability associated with the class action lawsuits in
the fourth quarter of 2017 on the basis that a reliable estimate of the liability cannot be determined at this time. The Company
will continue to assess whether a provision for civil liability associated with the class action lawsuits can be reliably
estimated and will record an amount in the period that a reliable estimate of liability can be determined or the matter is
ultimately resolved.
As part of its response to this issue, the Company has announced the Loblaw Card Program pursuant to which the Company is
offering a $25 Loblaw Card to eligible customers. The Loblaw Card can be used to purchase items
sold in Loblaw grocery stores across Canada. The Company has recorded a charge of $107 million in relation to the Loblaw Card Program in the fourth quarter of 2017. The Company expects that
Loblaw Cards issued to customers will be an offset against civil liability. The charge recorded for the Loblaw Card Program
should not be viewed as an estimate of damages.
As a result of admission of participation in the arrangement and cooperation in the Competition Bureau's investigation, the
Company and Weston will not face criminal charges or penalties.
PC Optimum Program In the fourth quarter of 2017, the Company announced plans to bring together the
Shoppers Optimum and PC Plus reward programs to create one program, PC Optimum. As a
result, the Company recorded a charge of $189 million, related to the revaluation of the existing liability for outstanding
points to reflect a higher anticipated redemption rate under the new program, and $22 million, related to the impairment of
certain IT assets that support the existing loyalty programs in the fourth quarter of 2017. Subsequent to the fourth quarter of
2017, the Company successfully launched the PC Optimum Program.
Restructuring and other related costs In the fourth quarter of 2017, the Company
eliminated approximately 500 corporate and store-support positions and finalized a plan that will result in the
closure of 22 unprofitable retail locations across a range of banners and formats. The Company expects to record charges of
approximately $135 million related to this restructuring, of which $123 million was recorded
in the fourth quarter of 2017. The charges included $109 million for severance and lease related
costs, $7 million for asset impairments and $7 million related to other costs. The Company
expects to realize approximately $85 million in annualized savings related to these plans. The Company expects that the
store closures will be substantially complete by the end of the first quarter of 2018.
In addition, the Company recorded $20 million in severance and other related charges and
$3 million for asset impairments as a result of other restructuring plans approved in the fourth
quarter of 2017 and a charge of $19 million related to an adjustment of onerous contract provisions
related to previously announced restructuring plans.
Consolidation of Franchises The Company has more than 500 franchise food retail stores in its network. As at
the end of the fourth quarter of 2017, 310 of these stores were consolidated for accounting purposes under a new, simplified
franchise agreement ("Franchise Agreement") implemented in 2015.
The Company will convert franchises to the Franchise Agreement as existing agreements expire, at the end of which all
franchises will be consolidated. The following table provides the total impact of the consolidation of franchises included in the
consolidated results of the Company.
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|
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|
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For the periods ended December 30, 2017 and December 31, 2016
|
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2017
|
2016
|
2017
|
2016
|
|
(millions of Canadian dollars unless where otherwise indicated)
|
|
(12 weeks)
|
(12 weeks)
|
(52 weeks)
|
(52 weeks)
|
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Number of Consolidated Franchise stores, beginning of period
|
|
273
|
165
|
200
|
85
|
|
Add: Net number of Consolidated Franchise stores in the period
|
|
37
|
35
|
110
|
115
|
|
Number of Consolidated Franchise stores, end of period
|
|
310
|
200
|
310
|
200
|
|
Sales
|
|
$
|
186
|
$
|
99
|
$
|
710
|
$
|
363
|
|
Adjusted gross profit(2)
|
|
202
|
107
|
733
|
361
|
|
Adjusted EBITDA(2)
|
|
27
|
27
|
66
|
20
|
|
Depreciation and amortization
|
|
11
|
6
|
43
|
21
|
|
Operating income (loss)
|
|
16
|
21
|
23
|
(1)
|
|
Net income attributable to non-controlling interests
|
|
14
|
28
|
24
|
7
|
|
|
|
|
|
|
Operating income (loss) included in the table above does not significantly impact net earnings available to common
shareholders of the Company as the related income (loss) is largely attributable to non-controlling interests.
The Company expects that the estimated annual impact in 2018 of new and current consolidated franchises will be revenue of
approximately $1,000 million, adjusted EBITDA(2) of approximately
$100 million, depreciation and amortization of approximately $60 million and net earnings attributable to
non-controlling interests of approximately $25 million.
Financial Services Segment
|
|
|
|
|
|
|
|
|
|
For the periods ended December 30, 2017
and December 31, 2016
|
2017
|
2016
|
|
|
2017
|
2016
|
|
|
|
(millions of Canadian dollars except where
otherwise indicated)
|
(12 weeks)
|
(12 weeks)
|
$ Change
|
% Change
|
(52 weeks)
|
(52 weeks)
|
$ Change
|
% Change
|
|
Revenue
|
$
|
281
|
$
|
261
|
$
|
20
|
7.7%
|
$
|
956
|
$
|
911
|
$
|
45
|
4.9%
|
|
Earnings before income taxes
|
59
|
39
|
20
|
51.3%
|
153
|
124
|
29
|
23.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
As at
|
|
|
|
(millions of Canadian dollars except where otherwise indicated)
|
|
December 30, 2017
|
December 31, 2016
|
|
$ Change
|
% Change
|
|
Average quarterly net credit card receivables
|
|
$
|
2,908
|
$
|
2,769
|
$
|
139
|
5.0%
|
|
Credit card receivables
|
|
3,100
|
2,926
|
174
|
5.9%
|
|
Allowance for credit card receivables
|
|
47
|
52
|
(5)
|
(9.6)%
|
|
Annualized yield on average quarterly gross credit card
receivables
|
|
13.2%
|
13.5%
|
|
|
|
Annualized credit loss rate on average quarterly gross credit card
receivables
|
|
3.7%
|
4.3%
|
|
|
|
|
|
|
|
|
Earnings Before Income Taxes Earnings before income taxes in the fourth quarter of 2017 were $59 million, an increase of $20 million compared to the fourth quarter of 2016, primarily driven by:
- recognition of income of $17 million, net of certain costs incurred, relating to President's
Choice Bank's agreement to end its business relationship with a major Canadian chartered bank, which represented the personal
banking services offered under the President's Choice Financial® brand;
- an increase in revenue attributable to growth in the credit card portfolio and The Mobile Shop;
- lower credit losses due to the strong credit performance of the portfolio; and
- lower marketing and acquisition costs; partially offset by
- higher operating costs and costs associated with the loyalty program;
- higher information technology ("IT") costs; and
- higher interest expense, primarily due to the Eagle Credit Card Trust® ("Eagle") debt issuance in
the fourth quarter of 2017, as a result of growth in the credit card portfolio.
Credit Card Receivables As at December 30, 2017, credit card receivables were $3,100 million, an increase of $174 million compared to December 31, 2016.
This increase was primarily driven by growth in the average customer balance and active customer base as a result of continued
investments in customer acquisition, marketing and product initiatives. As at December 30, 2017, the allowance for credit
card receivables was $47 million, a decrease of $5 million compared
to December 31, 2016 due to the strong credit performance of the portfolio.
Choice Properties Segment
|
|
|
|
|
|
|
|
|
|
For the periods ended December 30, 2017
and December 31, 2016
|
2017
|
2016
|
|
|
2017
|
2016
|
|
|
|
(millions of Canadian dollars except where
otherwise indicated)
|
(12 weeks)
|
(12 weeks)
|
$ Change
|
% Change
|
(52 weeks)
|
(52 weeks)
|
$ Change
|
% Change
|
|
Revenue
|
$
|
211
|
$
|
198
|
$
|
13
|
6.6%
|
$
|
830
|
$
|
784
|
$
|
46
|
5.9%
|
|
Net interest expense and other
|
|
|
|
|
|
|
|
|
|
financing
charges(i)
|
116
|
(11)
|
127
|
1,154.5%
|
351
|
900
|
(549)
|
(61.0)%
|
|
Net income (loss)(ii)
|
36
|
256
|
(220)
|
(85.9)%
|
405
|
(223)
|
628
|
281.6%
|
|
Funds from operations(2)
|
117
|
103
|
14
|
13.6%
|
443
|
410
|
33
|
8.0%
|
|
|
|
|
|
|
|
|
|
|
(i)
|
Net interest expense and other financing charges includes a fair value
adjustment on Class B Limited Partnership units.
|
|
(ii)
|
Choice Properties qualifies as a "mutual fund trust" under the Income Tax
Act (Canada) and therefore net income (loss) is equal to earnings before income taxes.
|
Net income (loss) Net income in the fourth quarter of 2017 was $36 million, a
decrease of $220 million compared to the fourth quarter of 2016. The decrease was primarily driven
by:
- the change in fair value adjustment on Class B Limited Partnership units; and
- the change in fair value adjustment on investment properties; partially offset by
- an increase in net operating income from existing properties; and
- additional net operating income generated from acquisitions and tenant openings in newly developed leasable space.
Funds from Operations(2) Funds from Operations(2) in the fourth quarter of 2017 were
$117 million, an increase of $14 million compared to the fourth quarter of 2016, primarily
driven by higher contributions from property operations and lower interest expense due to the repayment of the Series 6 senior
unsecured debentures in the first quarter of 2017, partially offset by an increase in interest expense due to higher drawings on
credit facilities.
Other Matters
Acquisition of Investment Properties In the fourth quarter of 2017, Choice Properties acquired two
investment properties from third-party vendors for an aggregate purchase price of approximately $18
million, excluding acquisition costs, which was settled by an assumption of a $7 million
mortgage, with the remainder in cash. Also, Choice Properties acquired five investment properties from the Company for an
aggregate purchase price of approximately $62 million, excluding acquisition costs, for
consideration of $47 million in cash and issuance of 1,092,052 Class B Limited Partnership
units.
Debentures and Medium Term Notes Subsequent to the end of 2017, Choice Properties completed an issuance of
$650 million aggregate principal amount of senior unsecured debentures of the Trust in two series.
The offering included (i) $300 million aggregate principal amount of Series I senior unsecured
debentures bearing interest at a rate of 3.01% per annum and maturing on March 21, 2022 and (ii)
$350 million aggregate principal amount of Series J senior unsecured debentures bearing interest at
a rate of 3.55% per annum and maturing on January 10, 2025.
Subsequent to the end of 2017, Choice Properties redeemed $400 million Series A senior unsecured
debentures with an original maturity date of July 5, 2018.
Choice Properties' Agreement to Acquire Canadian Real Estate Investment Trust On February 15, 2018, Choice Properties entered into an agreement to acquire all of the assets and assume all of
the liabilities, including long-term debt and all residual liabilities of Canadian Real Estate Investment Trust ("CREIT"). CREIT
will then redeem all of its outstanding units for $22.50 in cash plus 2.4904 Choice Properties
units per CREIT unit, on a fully prorated basis. Using the Choice Properties closing unit price on February 14,
2018 of $12.49, this represents $53.61 per CREIT unit. The maximum amount of cash to be paid by Choice
Properties will be approximately $1.65 billion and approximately 183 million units will be issued, based on the
fully diluted number of CREIT units outstanding.
Choice Properties will finance the cash portion of the transaction with committed credit facilities totaling $3.6
billion. These committed facilities consist of an $850 million bridge facility that Choice Properties intends
to refinance through the issuance of senior unsecured debentures and a $1.25 billion term loan. The term loan is
structured in tranches maturing in 3, 4 and 5 years. Choice Properties will consider hedging the term loan to manage
floating interest rate exposure. Choice Properties has also arranged a new $1.5 billion committed revolving
credit facility, that will replace its and CREIT's existing credit facilities ensuring that Choice Properties will have
maximum flexibility to support ongoing growth prospects, including acquisitions and development.
The Company, Choice Properties' controlling unitholder, has entered into a voting agreement in support of the transaction. To
facilitate Choice Properties' financing for the transaction, the Company has agreed to convert all of its outstanding Class C
Limited Partnership units of Choice Properties Limited Partnership with a face value of $925
million into Class B LP units of Choice Properties Limited Partnership on closing. Following the transaction, Loblaw will
own approximately 62% of Choice Properties.
The transaction is anticipated to close in the second quarter of 2018. The transaction will require the approval of at least
66 2/3% of the votes cast by unitholders of CREIT at a special meeting expected to take place in April
2018. In addition to CREIT unitholder approval and court approvals, the transaction is subject to compliance with the
Competition Act and certain other closing conditions customary in transactions of this nature. There can be no assurance that any
such approvals will be obtained or that the Company will be able to successfully consummate the proposed transaction as currently
contemplated or at all.
DECLARATION OF DIVIDENDS
Subsequent to the end of the fourth quarter of 2017, the Board of Directors declared a quarterly dividend on Common
Shares and Second Preferred Shares, Series B.
|
Common Shares
|
$0.27 per common share, payable on April 1, 2018 to shareholders of record
on March 15, 2018
|
|
|
|
Second Preferred Shares, Series B
|
$0.33125 per share, payable on March 31, 2018 to shareholders of record on
March 15, 2018
|
OUTLOOK(3)
Loblaw is focused on its strategic framework, delivering best in food and health and beauty, using data driven
insights underpinned by process and efficiency excellence. This framework is supported by the Company's financial plan of
maintaining a stable trading environment that targets positive same-store sales and stable gross margin, creating efficiencies to
deliver operating leverage, investing for the future and returning capital to shareholders.
Headwinds from minimum wage increases and healthcare reform will negatively impact the Company's financial performance in
2018. In addition to the previously announced incremental impact of minimum wage increases of approximately $190 million, the Company now expects that the announced healthcare reform will have an additional impact of
approximately $250 million on operating income. This compares to the average impact of healthcare
reform of approximately $70 million to $80 million per year over the
past three years.
In 2018, on a full-year comparative basis, normalized for the disposition of the gas bar business, the Company expects to:
- deliver positive same-store sales and stable gross margin in its Retail segment in a highly competitive market;
- deliver essentially flat adjusted net earnings growth with positive adjusted earnings per share growth based on our
share buyback program;
- invest approximately $1.3 billion in capital expenditures, including $1.0 billion in its Retail segment; and
- return capital to shareholders by allocating a significant portion of free cash flow to share repurchases.
NON-GAAP FINANCIAL MEASURES
The Company uses the following non-GAAP financial measures: Retail segment gross profit; Retail segment adjusted gross
profit; Retail segment adjusted gross profit percentage; adjusted earnings before income taxes, net interest expense and other
financing charges and depreciation and amortization ("adjusted EBITDA"); adjusted EBITDA margin; adjusted operating income;
adjusted net interest expense and other financing charges; adjusted income taxes; adjusted income tax rate; adjusted net earnings
available to common shareholders; adjusted diluted net earnings per common share, free cash flow; and with respect to Choice
Properties: funds from operations. The Company believes these non-GAAP financial measures provide useful information to both
management and investors in measuring the financial performance and financial condition of the Company for the reasons outlined
below.
Management uses these and other non-GAAP financial measures to exclude the impact of certain expenses and income that must be
recognized under GAAP when analyzing underlying consolidated and segment operating performance, as the excluded items are not
necessarily reflective of the Company's underlying operating performance and make comparisons of underlying financial performance
between periods difficult. The Company excludes additional items if it believes doing so would result in a more effective
analysis of underlying operating performance. The exclusion of certain items does not imply that they are non-recurring.
These measures do not have a standardized meaning prescribed by GAAP and therefore they may not be comparable to similarly
titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial
measures determined in accordance with GAAP.
For details on the nature of items excluded in the calculation of any of the non-GAAP financial measures detailed below see
the "Non-GAAP Financial Measures" section of the Company's 2017 Annual Report.
Retail Segment Gross Profit, Retail Segment Adjusted Gross Profit and Retail Segment Adjusted Gross Profit Percentage
The following tables reconcile adjusted gross profit by segment to gross profit by segment, which is reconciled to revenue and
cost of merchandise inventories sold measures as reported in the consolidated statements of earnings for the periods ended as
indicated. The Company believes that Retail segment gross profit and Retail segment adjusted gross profit are useful in assessing
the Retail segment's underlying operating performance and in making decisions regarding the ongoing operations of the
business.
Retail segment adjusted gross profit percentage is calculated as Retail segment adjusted gross profit divided by Retail
segment revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
2016
|
|
|
|
|
|
(12 weeks)
|
|
|
|
|
(12 weeks)
|
|
For the periods ended December 30, 2017
and December 31, 2016
(millions of Canadian dollars)
|
Retail
|
Financial
Services
|
Choice
Properties
|
Consolidation
& Eliminations
|
Total
|
Retail
|
Financial
Services
|
Choice
Properties
|
Consolidation
& Eliminations
|
Total
|
|
Revenue
|
$
|
10,718
|
$
|
281
|
$
|
211
|
$
|
(180)
|
$
|
11,030
|
$
|
10,845
|
$
|
261
|
$
|
198
|
$
|
(174)
|
$
|
11,130
|
|
Cost of Merchandise Inventories Sold
|
7,625
|
32
|
—
|
—
|
7,657
|
7,896
|
27
|
—
|
—
|
7,923
|
|
Gross Profit
|
$
|
3,093
|
$
|
249
|
$
|
211
|
$
|
(180)
|
$
|
3,373
|
$
|
2,949
|
$
|
234
|
$
|
198
|
$
|
(174)
|
$
|
3,207
|
|
Add (deduct) impact of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other
|
|
|
|
|
|
|
|
|
|
|
|
|
related costs
|
2
|
—
|
—
|
—
|
2
|
—
|
—
|
—
|
—
|
—
|
|
Charges related to retail locations
|
|
|
|
|
|
|
|
|
|
|
|
|
in Fort McMurray, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
recoveries
|
—
|
—
|
—
|
—
|
—
|
(4)
|
—
|
—
|
—
|
(4)
|
|
Adjusted Gross Profit
|
$
|
3,095
|
$
|
249
|
$
|
211
|
$
|
(180)
|
$
|
3,375
|
$
|
2,945
|
$
|
234
|
$
|
198
|
$
|
(174)
|
$
|
3,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
2016
|
|
|
|
|
|
(52 weeks)
|
|
|
|
|
(52 weeks)
|
|
For the periods ended December 30, 2017
and December 31, 2016
(millions of Canadian dollars)
|
Retail
|
Financial
Services
|
Choice
Properties
|
Consolidation
& Eliminations
|
Total
|
Retail
|
Financial
Services
|
Choice
Properties
|
Consolidation
& Eliminations
|
Total
|
|
Revenue
|
$
|
45,634
|
$
|
956
|
$
|
830
|
$
|
(718)
|
$
|
46,702
|
$
|
45,384
|
$
|
911
|
$
|
784
|
$
|
(694)
|
$
|
46,385
|
|
Cost of Merchandise Inventories Sold
|
32,816
|
97
|
—
|
—
|
32,913
|
33,130
|
83
|
—
|
—
|
33,213
|
|
Gross Profit
|
$
|
12,818
|
$
|
859
|
$
|
830
|
$
|
(718)
|
$
|
13,789
|
$
|
12,254
|
$
|
828
|
$
|
784
|
$
|
(694)
|
$
|
13,172
|
|
Add impact of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other
|
|
|
|
|
|
|
|
|
|
|
|
|
related costs
|
2
|
—
|
—
|
—
|
2
|
3
|
—
|
—
|
—
|
3
|
|
Net impairment (impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
reversals) related to
|
|
|
|
|
|
|
|
|
|
|
|
|
Drug retail ancillary assets
|
—
|
—
|
—
|
—
|
—
|
4
|
—
|
—
|
—
|
4
|
|
Charges related to retail locations
|
|
|
|
|
|
|
|
|
|
|
|
|
in Fort McMurray, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
recoveries
|
—
|
—
|
—
|
—
|
—
|
1
|
—
|
—
|
—
|
1
|
|
Adjusted Gross Profit
|
$
|
12,820
|
$
|
859
|
$
|
830
|
$
|
(718)
|
$
|
13,791
|
$
|
12,262
|
$
|
828
|
$
|
784
|
$
|
(694)
|
$
|
13,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Income, Adjusted EBITDA and Adjusted EBITDA Margin The following tables reconcile adjusted operating
income and adjusted EBITDA to operating income, which is reconciled to net earnings attributable to shareholders of the Company
as reported in the consolidated statements of earnings for the periods ended as indicated. The Company believes that adjusted
EBITDA is useful in assessing the performance of its ongoing operations and its ability to generate cash flows to fund its cash
requirements, including the Company's capital investment program.
Adjusted EBITDA margin is calculated as adjusted EBITDA divided by revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
2016
|
|
|
|
|
|
(12 weeks)
|
|
|
|
|
(12 weeks)
|
|
For the periods ended December 30, 2017
and December 31, 2016
(millions of Canadian dollars)
|
Retail
|
Financial
Services
|
Choice
Properties
|
Consolidation
& Eliminations
|
Consolidated
|
Retail
|
Financial
Services
|
Choice
Properties
|
Consolidation
& Eliminations
|
Consolidated
|
|
Net earnings attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders of the Company
|
|
|
|
|
$
|
22
|
|
|
|
|
$
|
204
|
|
Add (deduct) impact of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Non-Controlling Interests
|
|
|
|
|
14
|
|
|
|
|
28
|
|
Net interest expense and other
|
|
|
|
|
|
|
|
|
|
|
|
|
financing charges
|
|
|
|
|
118
|
|
|
|
|
128
|
|
Income taxes
|
|
|
|
|
(14)
|
|
|
|
|
89
|
|
Operating income
|
$
|
56
|
$
|
74
|
$
|
152
|
$
|
(142)
|
$
|
140
|
$
|
392
|
$
|
52
|
$
|
245
|
$
|
(240)
|
$
|
449
|
|
|
|
|
|
|
|
|
|
|
|
|
Add (deduct) impact of the following:
|
|
|
|
|
|
|
|
|
|
|
|
PC Optimum Program
|
$
|
211
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
211
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
|
Restructuring and other related
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
|
165
|
—
|
—
|
—
|
165
|
2
|
—
|
—
|
—
|
2
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
acquired with Shoppers
|
|
|
|
|
|
|
|
|
|
|
|
|
Drug Mart
|
121
|
—
|
—
|
—
|
121
|
124
|
—
|
—
|
—
|
124
|
|
Loblaw Card Program
|
107
|
—
|
—
|
—
|
107
|
—
|
—
|
—
|
—
|
—
|
|
Asset impairments, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
recoveries
|
53
|
—
|
—
|
—
|
53
|
130
|
—
|
—
|
—
|
130
|
|
Pension annuities and buy-outs
|
—
|
—
|
—
|
—
|
—
|
21
|
—
|
—
|
—
|
21
|
|
Charges related to retail locations
|
|
|
|
|
|
|
|
|
|
|
|
|
in Fort McMurray, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
recoveries
|
—
|
—
|
—
|
—
|
—
|
(5)
|
—
|
—
|
—
|
(5)
|
|
Certain prior period items
|
(4)
|
—
|
—
|
—
|
(4)
|
—
|
—
|
—
|
—
|
—
|
|
Fair value adjustment on fuel
|
|
|
|
|
|
|
|
|
|
|
|
|
and foreign currency contracts
|
(5)
|
—
|
—
|
—
|
(5)
|
(6)
|
—
|
—
|
—
|
(6)
|
|
Prior year land transfer tax
|
|
|
|
|
|
|
|
|
|
|
|
|
assessment (recovery)
|
(9)
|
—
|
—
|
—
|
(9)
|
—
|
—
|
—
|
—
|
—
|
|
Wind-down of PC Financial
|
|
|
|
|
|
|
|
|
|
|
|
banking services
|
—
|
(17)
|
—
|
—
|
(17)
|
—
|
—
|
—
|
—
|
—
|
|
Adjusting Items
|
$
|
639
|
$
|
(17)
|
$
|
—
|
$
|
—
|
$
|
622
|
$
|
266
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
266
|
|
Adjusted operating income
|
$
|
695
|
$
|
57
|
$
|
152
|
$
|
(142)
|
$
|
762
|
$
|
658
|
$
|
52
|
$
|
245
|
$
|
(240)
|
$
|
715
|
|
Depreciation and amortization
|
362
|
3
|
—
|
7
|
372
|
355
|
4
|
—
|
6
|
365
|
|
Less: Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
acquired with Shoppers Drug Mart
|
(121)
|
—
|
—
|
—
|
(121)
|
(124)
|
—
|
—
|
—
|
(124)
|
|
Adjusted EBITDA
|
$
|
936
|
$
|
60
|
$
|
152
|
$
|
(135)
|
$
|
1,013
|
$
|
889
|
$
|
56
|
$
|
245
|
$
|
(234)
|
$
|
956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
2016
|
|
|
|
|
|
(52 weeks)
|
|
|
|
|
(52 weeks)
|
|
For the periods ended December 30, 2017
and December 31, 2016
(millions of Canadian dollars)
|
Retail
|
Financial
Services
|
Choice
Properties
|
Consolidation
& Eliminations
|
Consolidated
|
Retail
|
Financial
Services
|
Choice
Properties
|
Consolidation
& Eliminations
|
Consolidated
|
|
Net earnings attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders of the Company
|
|
|
|
|
$
|
1,502
|
|
|
|
|
$
|
983
|
|
Add impact of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Non-Controlling Interests
|
|
|
|
|
24
|
|
|
|
|
7
|
|
Net interest expense and other
|
|
|
|
|
|
|
|
|
|
|
|
|
financing charges
|
|
|
|
|
525
|
|
|
|
|
653
|
|
Income taxes
|
|
|
|
|
443
|
|
|
|
|
449
|
|
Operating income
|
$
|
2,248
|
$
|
209
|
$
|
756
|
$
|
(719)
|
$
|
2,494
|
$
|
1,902
|
$
|
175
|
$
|
677
|
$
|
(662)
|
$
|
2,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add (deduct) impact of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquired with Shoppers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drug Mart
|
$
|
524
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
524
|
$
|
535
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
535
|
|
PC Optimum Program
|
211
|
—
|
—
|
—
|
211
|
—
|
—
|
—
|
—
|
—
|
|
Restructuring and other related
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
|
165
|
—
|
—
|
—
|
165
|
46
|
—
|
—
|
—
|
46
|
|
Loblaw Card Program
|
107
|
—
|
—
|
—
|
107
|
—
|
—
|
—
|
—
|
—
|
|
Asset impairments, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
recoveries
|
53
|
—
|
—
|
—
|
53
|
135
|
—
|
—
|
—
|
135
|
|
Fair value adjustment on fuel
|
|
|
|
|
|
|
|
|
|
|
|
|
and foreign currency contracts
|
20
|
—
|
—
|
—
|
20
|
5
|
—
|
—
|
—
|
5
|
|
Pension annuities and buy-outs
|
12
|
—
|
—
|
—
|
12
|
23
|
—
|
—
|
—
|
23
|
|
Charges related to retail locations
|
|
|
|
|
|
|
|
|
|
|
|
|
in Fort McMurray, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
recoveries
|
—
|
—
|
—
|
—
|
—
|
2
|
—
|
—
|
—
|
2
|
|
Net impairment (impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
reversals) related to Drug
|
|
|
|
|
|
|
|
|
|
|
|
|
retail ancillary assets
|
—
|
—
|
—
|
—
|
—
|
(4)
|
—
|
—
|
—
|
(4)
|
|
Certain prior period items
|
(4)
|
—
|
—
|
—
|
(4)
|
—
|
—
|
—
|
—
|
—
|
|
Prior year land transfer tax
|
|
|
|
|
|
|
|
|
|
|
|
|
assessment (recovery)
|
(9)
|
—
|
—
|
—
|
(9)
|
10
|
—
|
—
|
—
|
10
|
|
Wind-down of PC Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
banking services
|
—
|
(24)
|
—
|
—
|
(24)
|
—
|
—
|
—
|
—
|
—
|
|
Gain on disposition of gas bar
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
(501)
|
—
|
—
|
—
|
(501)
|
—
|
—
|
—
|
—
|
—
|
|
Adjusting Items
|
$
|
578
|
$
|
(24)
|
$
|
—
|
$
|
—
|
$
|
554
|
$
|
752
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
752
|
|
Adjusted operating income
|
$
|
2,826
|
$
|
185
|
$
|
756
|
$
|
(719)
|
$
|
3,048
|
$
|
2,654
|
$
|
175
|
$
|
677
|
$
|
(662)
|
$
|
2,844
|
|
Depreciation and amortization
|
1,534
|
10
|
1
|
23
|
1,568
|
1,512
|
13
|
1
|
17
|
1,543
|
|
Less: Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
acquired with Shoppers Drug Mart
|
(524)
|
—
|
—
|
—
|
(524)
|
(535)
|
—
|
—
|
—
|
(535)
|
|
Adjusted EBITDA
|
$
|
3,836
|
$
|
195
|
$
|
757
|
$
|
(696)
|
$
|
4,092
|
$
|
3,631
|
$
|
188
|
$
|
678
|
$
|
(645)
|
$
|
3,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following describes the new adjusting items in the fourth quarter of 2017:
PC Optimum Program In the fourth quarter of 2017, the Company announced plans to bring together the
Shoppers Optimum and PC Plus reward programs to create one program, PC Optimum. As a
result, the Company recorded a charge of $189 million, related to the revaluation of the existing liability for outstanding
points to reflect a higher anticipated redemption rate under the new program, and $22 million, related to the impairment of
certain IT assets that support the existing loyalty programs in the fourth quarter of 2017.
Restructuring and other related costs The Company continuously evaluates strategic and cost reduction
initiatives related to its store infrastructure, distribution networks and administrative infrastructure with the objective of
ensuring a low cost operating structure. Restructuring activities related to these initiatives are ongoing. In the fourth quarter
of 2017, the Company recognized charges associated with restructuring and other related costs as set out in "Other Retail
Business Matters".
Loblaw Card Program In the fourth quarter of 2017, the Company and Weston acknowledged their involvement in
an industry wide price-fixing arrangement. In connection with the arrangement, the Company is offering customers
a $25 Loblaw Card, which can be used to purchase items sold in Loblaw grocery stores across Canada. The
Company has recorded a charge of $107 million associated with the Loblaw Card Program.
Certain prior period items In the fourth quarter of 2017, Management identified excess impairment that was
recorded against the Company's Franchise Loans Receivable balance on the consolidated balance sheets and recorded a gain to
correct this prior period error. Management determined that the impact of this item on the Company's previously issued annual and
interim financial statements and the current period financial statements was not material. This gain was partially offset by
certain charges associated with a prior period regulatory matter recorded in the fourth quarter of 2017.
Adjusted Net Interest Expense and Other Financing Charges The following table reconciles adjusted net interest expense
and other financing charges to net interest expense and other financing charges as reported in the consolidated statements of
earnings for the periods ended as indicated. The Company believes that adjusted net interest expense and other financing charges
is useful in assessing the Company's underlying financial performance and in making decisions regarding the financial operations
of the business.
|
|
|
|
|
|
|
For the periods ended December 30, 2017 and December 31, 2016
|
|
2017
|
2016
|
2017
|
2016
|
|
(millions of Canadian dollars)
|
|
(12 weeks)
|
(12 weeks)
|
(52 weeks)
|
(52 weeks)
|
|
Net interest expense and other financing charges
|
|
$
|
118
|
$
|
128
|
$
|
525
|
$
|
653
|
|
Add (deduct) impact of the following:
|
|
|
|
|
|
|
Fair value adjustment to the Trust Unit
Liability
|
|
12
|
2
|
10
|
(118)
|
|
Adjusted net interest expense and other financing charges
|
|
$
|
130
|
$
|
130
|
$
|
535
|
$
|
535
|
|
|
|
|
|
|
|
|
|
|
Adjusted Income Taxes and Adjusted Income Tax Rate The following table reconciles adjusted income taxes to income taxes
as reported in the consolidated statements of earnings for the periods ended as indicated. The Company believes that adjusted
income taxes is useful in assessing the Company's underlying operating performance and in making decisions regarding the ongoing
operations of its business.
Adjusted income tax rate is calculated as adjusted income taxes divided by the sum of adjusted operating income less adjusted
net interest expense and other financing charges.
|
|
|
|
|
|
|
For the periods ended December 30, 2017 and December 31, 2016
|
|
2017
|
2016
|
2017
|
2016
|
|
(millions of Canadian dollars except where otherwise indicated)
|
|
(12 weeks)
|
(12 weeks)
|
(52 weeks)
|
(52 weeks)
|
|
Adjusted operating income(i)
|
|
$
|
762
|
$
|
715
|
$
|
3,048
|
$
|
2,844
|
|
Adjusted net interest expense and other financing
charges(i)
|
|
130
|
130
|
535
|
535
|
|
Adjusted earnings before taxes
|
|
$
|
632
|
$
|
585
|
$
|
2,513
|
$
|
2,309
|
|
Income taxes
|
|
$
|
(14)
|
$
|
89
|
$
|
443
|
$
|
449
|
|
Add (deduct) impact of the following:
|
|
|
|
|
|
|
Tax impact of items included in adjusted earnings before
taxes(ii)
|
|
171
|
72
|
218
|
189
|
|
Remeasurement of deferred tax balances
|
|
17
|
—
|
17
|
—
|
|
Statutory corporate income tax rate change
|
|
—
|
—
|
—
|
(3)
|
|
Adjusted income taxes
|
|
$
|
174
|
$
|
161
|
$
|
678
|
$
|
635
|
|
Effective tax rate
|
|
(63.6)%
|
27.7%
|
22.5%
|
31.2%
|
|
Adjusted income tax rate
|
|
27.5%
|
27.5%
|
27.0%
|
27.5%
|
|
|
|
|
|
|
|
(i)
|
See reconciliations of adjusted operating income and adjusted net interest
expense and other financing charges in the tables above.
|
|
(ii)
|
See the adjusted operating income, adjusted EBITDA and adjusted EBITDA
margin table and the adjusted net interest expense and other financing charges table above for a complete list of items
included in adjusted earnings before taxes.
|
The following describes the new adjusting item in the fourth quarter of 2017:
Remeasurement of deferred tax balances In the fourth quarter of 2017, the Company recorded a deferred tax
recovery of $17 million resulting from a change in the applicable provincial income tax rate used
to measure certain deferred tax balances caused by a change in the location of certain business activities.
Adjusted Net Earnings Available to Common Shareholders and Adjusted Diluted Net Earnings Per Common Share The following
table reconciles adjusted net earnings available to common shareholders of the Company and adjusted net earnings attributable to
shareholders of the Company to net earnings attributable to shareholders of the Company and then to net earnings available to
common shareholders of the Company for the periods ended as indicated. The Company believes that adjusted net earnings available
to common shareholders and adjusted diluted net earnings per common share are useful in assessing the Company's underlying
operating performance and in making decisions regarding the ongoing operations of its business.
|
|
|
|
|
|
|
For the periods ended December 30, 2017 and December 31, 2016
|
|
2017
|
2016
|
2017
|
2016
|
|
(millions of Canadian dollars except where otherwise indicated)
|
|
(12 weeks)
|
(12 weeks)
|
(52 weeks)
|
(52 weeks)
|
|
Net earnings attributable to shareholders of the Company
|
|
$
|
22
|
$
|
204
|
$
|
1,502
|
$
|
983
|
|
Prescribed dividends on preferred shares in share capital
|
|
(3)
|
(3)
|
(12)
|
(12)
|
|
Net earnings available to common shareholders of the Company
|
|
$
|
19
|
$
|
201
|
$
|
1,490
|
$
|
971
|
|
Net earnings attributable to shareholders of the Company
|
|
$
|
22
|
$
|
204
|
$
|
1,502
|
$
|
983
|
|
Adjusting items (refer to the following table)
|
|
422
|
192
|
309
|
684
|
|
Adjusted net earnings attributable to shareholders of the
Company
|
|
$
|
444
|
$
|
396
|
$
|
1,811
|
$
|
1,667
|
|
Prescribed dividends on preferred shares in share capital
|
|
(3)
|
(3)
|
(12)
|
(12)
|
|
Adjusted net earnings available to common shareholders of the
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
441
|
$
|
393
|
$
|
1,799
|
$
|
1,655
|
|
Diluted weighted average common shares outstanding (millions)
|
|
390.5
|
405.6
|
397.3
|
409.1
|
|
|
|
|
|
|
The following table reconciles adjusted net earnings available to common shareholders of the Company and adjusted diluted net
earnings per common share to net earnings available to common shareholders of the Company and diluted net earnings per common
share for the periods ended as indicated.
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
(12 weeks)
|
|
(12 weeks)
|
|
(52 weeks)
|
|
(52 weeks)
|
|
For the periods ended December 30, 2017
and December 31, 2016
(millions of Canadian dollars/Canadian dollars)
|
Net Earnings
Available to
Common
Shareholders
of the
Company
|
Diluted
Net
Earnings
Per
Common
Share
|
Net Earnings
Available to
Common
Shareholders
of the
Company
|
Diluted
Net
Earnings
Per
Common
Share
|
Net Earnings
Available to
Common
Shareholders
of the
Company
|
Diluted
Net
Earnings
Per
Common
Share
|
Net Earnings
Available to
Common
Shareholders
of the
Company
|
Diluted
Net
Earnings
Per
Common
Share
|
|
As reported
|
$
|
19
|
$
|
0.05
|
$
|
201
|
$
|
0.50
|
$
|
1,490
|
$
|
3.75
|
$
|
971
|
$
|
2.37
|
|
Add (deduct) impact of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquired with Shoppers Drug Mart
|
$
|
89
|
$
|
0.23
|
$
|
90
|
$
|
0.22
|
$
|
384
|
$
|
0.97
|
$
|
395
|
$
|
0.97
|
|
PC Optimum Program
|
154
|
0.39
|
—
|
—
|
154
|
0.39
|
—
|
—
|
|
Restructuring and other related costs
|
126
|
0.32
|
3
|
0.01
|
126
|
0.32
|
44
|
0.11
|
|
Loblaw Card Program
|
79
|
0.20
|
—
|
—
|
79
|
0.20
|
—
|
—
|
|
Asset impairments, net of recoveries
|
40
|
0.10
|
93
|
0.22
|
40
|
0.10
|
97
|
0.24
|
|
Fair value adjustment on fuel and foreign
|
|
|
|
|
|
|
|
|
|
|
currency contracts
|
(4)
|
(0.01)
|
(4)
|
(0.01)
|
14
|
0.04
|
4
|
0.01
|
|
Pension annuities and buy-outs
|
—
|
—
|
15
|
0.04
|
9
|
0.02
|
17
|
0.04
|
|
Charges related to retail locations in Fort
|
|
|
|
|
|
|
|
|
|
|
McMurray, net of recoveries
|
—
|
—
|
(3)
|
(0.01)
|
—
|
—
|
2
|
—
|
|
Statutory corporate income tax rate
|
|
|
|
|
|
|
|
|
|
|
change
|
—
|
—
|
—
|
—
|
—
|
—
|
3
|
0.01
|
|
Net impairment (impairment reversals)
|
|
|
|
|
|
|
|
|
|
|
related to Drug retail ancillary assets
|
—
|
—
|
—
|
—
|
—
|
—
|
(3)
|
(0.01)
|
|
Prior year land transfer tax assessment
|
|
|
|
|
|
|
|
|
|
|
(recovery)
|
(7)
|
(0.02)
|
—
|
—
|
(7)
|
(0.02)
|
7
|
0.02
|
|
Fair value adjustment to the Trust Unit
|
|
|
|
|
|
|
|
|
|
Liability(I)
|
(12)
|
(0.03)
|
(2)
|
—
|
(10)
|
(0.03)
|
118
|
0.29
|
|
Certain prior period items
|
(13)
|
(0.03)
|
—
|
—
|
(13)
|
(0.03)
|
—
|
—
|
|
Remeasurement of deferred tax balances
|
(17)
|
(0.04)
|
—
|
—
|
(17)
|
(0.04)
|
—
|
—
|
|
Wind-down of PC Financial banking
|
|
|
|
|
|
|
|
|
|
|
services
|
(13)
|
(0.03)
|
—
|
—
|
(18)
|
(0.05)
|
—
|
—
|
|
Gain on disposition of gas bar
|
|
|
|
|
|
|
|
|
|
|
operations
|
—
|
—
|
—
|
—
|
(432)
|
(1.09)
|
—
|
—
|
|
Adjusting items
|
$
|
422
|
$
|
1.08
|
$
|
192
|
$
|
0.47
|
$
|
309
|
$
|
0.78
|
$
|
684
|
$
|
1.68
|
|
Adjusted
|
$
|
441
|
$
|
1.13
|
$
|
393
|
$
|
0.97
|
$
|
1,799
|
$
|
4.53
|
$
|
1,655
|
$
|
4.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
Gains or losses related to the fair value adjustment to the Trust Unit
Liability are not subject to tax.
|
Free Cash Flow The following table reconciles free cash flow to cash flows from operating activities as reported in the
consolidated statements of cash flows for the periods ended as indicated. The Company believes that free cash flow is the
appropriate measure in assessing the Company's cash available for additional financing and investing activities.
|
|
|
|
|
|
|
For the periods ended December 30, 2017 and December 31, 2016
|
|
2017
|
2016
|
2017
|
2016
|
|
(millions of Canadian dollars)
|
|
(12 weeks)
|
(12 weeks)
|
(52 weeks)
|
(52 weeks)
|
|
Cash flows from operating activities
|
|
$
|
1,086
|
$
|
861
|
$
|
3,209
|
$
|
3,519
|
|
Less:
|
|
|
|
|
|
|
Capital investments
|
|
487
|
470
|
1,259
|
1,224
|
|
Interest
paid
|
|
84
|
78
|
471
|
474
|
|
Free cash flow
|
|
$
|
515
|
$
|
313
|
$
|
1,479
|
$
|
1,821
|
|
|
|
|
|
|
|
|
|
|
Choice Properties' Funds from Operations In the first quarter of 2017, Choice Properties discontinued the use of
Adjusted Funds from Operations as a non-GAAP earnings metric. Choice Properties continues the use of Funds from Operations as one
of its non-GAAP earnings metrics. Choice Properties calculates Funds from Operations in accordance with the Real Property
Association of Canada's White Paper on Funds from Operations and Adjusted Funds from Operations
for International Financial Reporting Standards ("IFRS") issued in February 2017.
The following table reconciles Choice Properties' Funds from Operations to net income (loss) for the periods ended as
indicated. Choice Properties considers Funds from Operations to be a useful measure of operating performance as it adjusts for
items included in net income (or net loss) that do not arise from operating activities or do not necessarily provide an accurate
depiction of the Trust's performance.
|
|
|
|
|
|
|
For the periods ended December 30, 2017 and December 31, 2016
|
|
2017
|
2016
|
2017
|
2016
|
|
(millions of Canadian dollars)
|
|
(12 weeks)
|
(12 weeks)
|
(52 weeks)
|
(52 weeks)
|
|
Net income (loss)
|
|
$
|
36
|
$
|
256
|
$
|
405
|
$
|
(223)
|
|
Add (deduct) impact of the following:
|
|
|
|
|
|
|
Fair value adjustments on Class B Limited Partnership units
|
|
19
|
(107)
|
(38)
|
530
|
|
Fair value adjustments on investment properties
|
|
3
|
(102)
|
(160)
|
(109)
|
|
Fair value adjustments on unit-based compensation
|
|
1
|
(1)
|
1
|
4
|
|
Fair value adjustments of investment property held in equity
|
|
|
|
|
|
|
|
accounted joint
venture
|
|
—
|
—
|
1
|
(14)
|
|
Distributions on Class B Limited Partnership units
|
|
59
|
56
|
232
|
219
|
|
Net income attributable to non-controlling interests
|
|
(1)
|
—
|
(1)
|
—
|
|
Amortization of tenant improvement allowances
|
|
—
|
—
|
1
|
—
|
|
Internal expenses for leasing
|
|
—
|
1
|
2
|
3
|
|
Funds from Operations
|
|
$
|
117
|
$
|
103
|
$
|
443
|
$
|
410
|
|
|
|
|
|
|
|
|
|
|
SELECTED FINANCIAL INFORMATION
The following includes selected quarterly and annual financial information, which is prepared by management in
accordance with IFRS and is based on the Company's audited annual consolidated financial statements for the year ended
December 30, 2017. This financial information does not contain all disclosures required by IFRS, and accordingly, should be
read in conjunction with the Company's 2017 Annual Report, which is available in the Investor Centre section of the Company's
website at loblaw.ca and on sedar.com.
Consolidated Statements of Earnings
|
|
|
|
|
|
|
|
December 30, 2017
|
December 31, 2016
|
2017
|
2016
|
|
|
(12 weeks)
|
(12 weeks)
|
(52 weeks)
|
(52 weeks)
|
|
(millions of Canadian dollars except where otherwise indicated)
|
|
(unaudited)
|
(unaudited)
|
(audited)
|
(audited)
|
|
Revenue
|
|
$
|
11,030
|
$
|
11,130
|
$
|
46,702
|
$
|
46,385
|
|
Cost of Merchandise Inventories Sold
|
|
7,657
|
7,923
|
32,913
|
33,213
|
|
Selling, General and Administrative Expenses
|
|
3,233
|
2,758
|
11,295
|
11,080
|
|
Operating Income
|
|
$
|
140
|
$
|
449
|
$
|
2,494
|
$
|
2,092
|
|
Net interest expense and other financing charges
|
|
118
|
128
|
525
|
653
|
|
Earnings Before Income Taxes
|
|
$
|
22
|
$
|
321
|
$
|
1,969
|
$
|
1,439
|
|
Income taxes
|
|
(14)
|
89
|
443
|
449
|
|
Net Earnings
|
|
$
|
36
|
$
|
232
|
$
|
1,526
|
$
|
990
|
|
Attributable to:
|
|
|
|
|
|
|
Shareholders of the Company
|
|
$
|
22
|
$
|
204
|
$
|
1,502
|
$
|
983
|
|
Non-Controlling Interests
|
|
14
|
28
|
24
|
7
|
|
Net Earnings
|
|
$
|
36
|
$
|
232
|
$
|
1,526
|
$
|
990
|
|
|
|
|
|
|
|
Net Earnings per Common Share ($)
|
|
|
|
|
|
|
Basic
|
|
$
|
0.05
|
$
|
0.50
|
$
|
3.78
|
$
|
2.40
|
|
Diluted
|
|
$
|
0.05
|
$
|
0.50
|
$
|
3.75
|
$
|
2.37
|
|
Weighted Average Common Shares Outstanding (millions)
|
|
|
|
|
|
|
Basic
|
|
387.3
|
401.9
|
393.8
|
405.1
|
|
Diluted
|
|
390.5
|
405.6
|
397.3
|
409.1
|
|
|
|
|
|
|
|
Consolidated Balance Sheets
|
|
|
|
|
|
As at
|
As at
|
|
(millions of Canadian dollars)
|
|
December 30, 2017
|
December 31, 2016
|
|
Assets
|
|
|
|
|
Current Assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,798
|
$
|
1,314
|
|
Short term investments
|
|
546
|
241
|
|
Accounts receivable
|
|
1,188
|
1,122
|
|
Credit card receivables
|
|
3,100
|
2,926
|
|
Inventories
|
|
4,438
|
4,371
|
|
Prepaid expenses and other assets
|
|
224
|
190
|
|
Assets held for sale
|
|
33
|
40
|
|
Total Current Assets
|
|
$
|
11,327
|
$
|
10,204
|
|
Fixed Assets
|
|
10,669
|
10,559
|
|
Investment Properties
|
|
235
|
218
|
|
Intangible Assets
|
|
8,251
|
8,745
|
|
Goodwill
|
|
3,922
|
3,895
|
|
Deferred Income Tax Assets
|
|
134
|
130
|
|
Franchise Loans Receivable
|
|
166
|
233
|
|
Other Assets
|
|
402
|
452
|
|
Total Assets
|
|
$
|
35,106
|
$
|
34,436
|
|
Liabilities
|
|
|
|
|
Current Liabilities
|
|
|
|
|
Bank indebtedness
|
|
$
|
110
|
$
|
115
|
|
Trade payables and other liabilities
|
|
5,646
|
5,091
|
|
Provisions
|
|
283
|
99
|
|
Income taxes payable
|
|
117
|
329
|
|
Short term debt
|
|
640
|
665
|
|
Long term debt due within one year
|
|
1,635
|
400
|
|
Associate interest
|
|
263
|
243
|
|
Total Current Liabilities
|
|
$
|
8,694
|
$
|
6,942
|
|
Provisions
|
|
169
|
120
|
|
Long Term Debt
|
|
9,542
|
10,470
|
|
Trust Unit Liability
|
|
972
|
959
|
|
Deferred Income Tax Liabilities
|
|
1,977
|
2,190
|
|
Other Liabilities
|
|
700
|
727
|
|
Total Liabilities
|
|
$
|
22,054
|
$
|
21,408
|
|
Equity
|
|
|
|
|
Share Capital
|
|
$
|
7,666
|
$
|
7,913
|
|
Retained Earnings
|
|
5,198
|
4,944
|
|
Contributed Surplus
|
|
110
|
112
|
|
Accumulated Other Comprehensive Income
|
|
38
|
33
|
|
Total Equity Attributable to Shareholders of the Company
|
|
$
|
13,012
|
$
|
13,002
|
|
Non-Controlling Interests
|
|
40
|
26
|
|
Total Equity
|
|
$
|
13,052
|
$
|
13,028
|
|
Total Liabilities and Equity
|
|
$
|
35,106
|
$
|
34,436
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows
|
|
|
|
|
|
December 30, 2017
|
December 31, 2016
|
2017
|
2016
|
|
(millions of Canadian dollars)
|
(12 weeks)
|
(12 weeks)
|
(52 weeks)
|
(52 weeks)
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
Net earnings
|
$
|
36
|
$
|
232
|
$
|
1,526
|
$
|
990
|
|
Add (Deduct):
|
|
|
|
|
|
|
Income taxes
|
(14)
|
89
|
443
|
449
|
|
|
Net interest expense and other financing charges
|
118
|
128
|
525
|
653
|
|
|
Depreciation and amortization
|
372
|
365
|
1,568
|
1,543
|
|
|
Asset impairments, net of recoveries
|
89
|
130
|
97
|
139
|
|
|
Gain on disposition of gas bar operations
|
—
|
—
|
(501)
|
—
|
|
|
Change in provisions
|
255
|
(8)
|
233
|
(39)
|
|
|
PC Optimum Program
|
189
|
—
|
189
|
—
|
|
$
|
1,045
|
$
|
936
|
$
|
4,080
|
$
|
3,735
|
|
Change in non-cash working capital
|
317
|
104
|
132
|
173
|
|
Change in credit card receivables
|
(182)
|
(157)
|
(174)
|
(136)
|
|
Income taxes paid
|
(117)
|
(50)
|
(866)
|
(329)
|
|
Interest received
|
6
|
2
|
17
|
9
|
|
Other
|
17
|
26
|
20
|
67
|
|
Cash Flows from Operating Activities
|
$
|
1,086
|
$
|
861
|
$
|
3,209
|
$
|
3,519
|
|
Investing Activities
|
|
|
|
|
|
Fixed asset purchases
|
$
|
(405)
|
$
|
(361)
|
$
|
(979)
|
$
|
(896)
|
|
Intangible asset additions
|
(82)
|
(109)
|
(280)
|
(328)
|
|
Acquisition of QHR Corporation, net of cash acquired
|
—
|
(153)
|
—
|
(153)
|
|
Cash assumed on initial consolidation of franchises
|
8
|
11
|
26
|
42
|
|
Change in short term investments
|
(215)
|
(85)
|
(305)
|
(177)
|
|
Proceeds from disposal of assets
|
10
|
9
|
17
|
62
|
|
Proceeds from disposition of gas bar operations
|
—
|
—
|
540
|
—
|
|
Other
|
(64)
|
12
|
(53)
|
13
|
|
Cash Flows used in Investing Activities
|
$
|
(748)
|
$
|
(676)
|
$
|
(1,034)
|
$
|
(1,437)
|
|
Financing Activities
|
|
|
|
|
|
Change in bank indebtedness
|
$
|
(169)
|
$
|
(142)
|
$
|
(5)
|
$
|
(28)
|
|
Change in short term debt
|
30
|
190
|
(25)
|
115
|
|
Long Term Debt
|
|
|
|
|
|
|
Issued
|
366
|
159
|
686
|
815
|
|
|
Retired
|
(72)
|
(30)
|
(450)
|
(1,049)
|
|
Interest paid
|
(84)
|
(78)
|
(471)
|
(474)
|
|
Dividends paid on common and preferred shares
|
—
|
(104)
|
(327)
|
(425)
|
|
Common Share Capital
|
|
|
|
|
|
|
Issued
|
17
|
4
|
41
|
42
|
|
|
Purchased and held in trust
|
—
|
—
|
(48)
|
(90)
|
|
|
Purchased and cancelled
|
(154)
|
(200)
|
(1,091)
|
(708)
|
|
Other
|
16
|
16
|
5
|
20
|
|
Cash Flows used in Financing Activities
|
$
|
(50)
|
$
|
(185)
|
$
|
(1,685)
|
$
|
(1,782)
|
|
Effect of foreign currency exchange rate changes
|
|
|
|
|
|
|
|
|
|
on cash and cash equivalents
|
$
|
—
|
$
|
2
|
$
|
(6)
|
$
|
(4)
|
|
Change in cash and cash equivalents
|
$
|
288
|
$
|
2
|
$
|
484
|
$
|
296
|
|
Cash and cash equivalents, beginning of period
|
1,510
|
1,312
|
1,314
|
1,018
|
|
Cash and Cash Equivalents, End of Period
|
$
|
1,798
|
$
|
1,314
|
$
|
1,798
|
$
|
1,314
|
|
|
|
|
|
|
|
|
|
SEGMENT INFORMATION
The Company has three reportable operating segments with all material operations carried out in Canada. The Company's chief operating decision maker evaluates segment performance on the basis of adjusted
EBITDA(2) and adjusted operating income(2), as reported to internal management, on a periodic basis.
Information for each reportable operating segment is included below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
2016
|
|
|
|
|
|
(12 weeks)
|
|
|
|
|
(12 weeks)
|
|
For the periods ended December 30, 2017
and December 31, 2016
(millions of Canadian dollars)
|
Retail
|
Financial
Services
|
Choice
Properties
|
Consolidation
& Eliminations(I)
|
Total
|
Retail
|
Financial
Services
|
Choice
Properties
|
Consolidation
& Eliminations(I)
|
Total
|
|
Revenue(ii)
|
$
|
10,718
|
$
|
281
|
$
|
211
|
$
|
(180)
|
$
|
11,030
|
$
|
10,845
|
$
|
261
|
$
|
198
|
$
|
(174)
|
$
|
11,130
|
|
Operating income
|
$
|
56
|
$
|
74
|
$
|
152
|
$
|
(142)
|
$
|
140
|
$
|
392
|
$
|
52
|
$
|
245
|
$
|
(240)
|
$
|
449
|
|
Net interest expense and other
|
|
|
|
|
|
|
|
|
|
|
|
financing
charges
|
74
|
15
|
116
|
(87)
|
118
|
76
|
13
|
(11)
|
50
|
128
|
|
Earnings before Income Taxes
|
$
|
(18)
|
$
|
59
|
$
|
36
|
$
|
(55)
|
$
|
22
|
$
|
316
|
$
|
39
|
$
|
256
|
$
|
(290)
|
$
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
$
|
56
|
$
|
74
|
$
|
152
|
$
|
(142)
|
$
|
140
|
$
|
392
|
$
|
52
|
$
|
245
|
$
|
(240)
|
$
|
449
|
|
Depreciation and Amortization
|
362
|
3
|
—
|
7
|
372
|
355
|
4
|
—
|
6
|
365
|
|
Adjusting items(iii)
|
639
|
(17)
|
—
|
—
|
622
|
266
|
—
|
—
|
—
|
266
|
|
Less: amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
acquired with Shoppers Drug Mart
|
(121)
|
—
|
—
|
—
|
(121)
|
(124)
|
—
|
—
|
—
|
(124)
|
|
Adjusted EBITDA(iii)
|
$
|
936
|
$
|
60
|
$
|
152
|
$
|
(135)
|
$
|
1,013
|
$
|
889
|
$
|
56
|
$
|
245
|
$
|
(234)
|
$
|
956
|
|
Depreciation and Amortization(iv)
|
241
|
3
|
—
|
7
|
251
|
231
|
4
|
—
|
6
|
241
|
|
Adjusted Operating Income
|
$
|
695
|
$
|
57
|
$
|
152
|
$
|
(142)
|
$
|
762
|
$
|
658
|
$
|
52
|
$
|
245
|
$
|
(240)
|
$
|
715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
Consolidation and Eliminations includes the following items:
|
|
•
|
Revenue includes the elimination of $132 million (2016 – $133 million) of
rental revenue, $42 million (2016 – $41 million) of cost recovery, and $6 million (2016 - nil) of lease surrender which
includes surrender revenue of $1 million (2016 - nil) attributable to non-controlling interest, recognized by Choice
Properties generated from the Retail Segment
|
|
•
|
Adjusted operating income includes the elimination of the $132 million
(2016 – $133 million) of rental revenue described above, lease surrender revenue of $5 million (2016 - nil) excluding the
impact of above described non-controlling interest; the elimination of a $3 million loss (2016 – $102 million gain)
recognized by Choice Properties related to the fair value adjustments on investment properties, which are classified as
Fixed Assets or Investment Properties by the Company and measured at cost; the recognition of $1 million gain (2016 -
nil) on disposal of asset, which are classified as Fixed Assets or Investment Properties by the Company and measured at
cost; the recognition of $7 million (2016 – $6 million) of depreciation expense for certain investment properties
recorded by Choice Properties; and the elimination of intercompany charges of $2 million (2016 - recovery of $1
million).
|
|
•
|
Net interest expense and other financing charges includes the elimination
of $71 million (2016 – $68 million) of interest expense included in Choice Properties related to debt owing to the
Company and a fair value loss of $19 million (2016 – gain of $107 million) recognized by Choice Properties on Class B
Limited Partnership units held by the Company. Net interest and other financing charges also includes Unit distributions
to external unitholders of $15 million (2016 – $13 million), which excludes distributions paid to the Company and a $12
million fair value gain (2016 – gain of $2 million) on the Company's Trust Unit Liability.
|
|
(ii)
|
Included in Financial Services revenue is $101 million (2016 – $97 million)
of interest income.
|
|
(iii)
|
Certain items are excluded from operating income to derive adjusted
EBITDA(2). Adjusted EBITDA(2) is used internally by management when analyzing segment underlying
performance.
|
|
(iv)
|
Depreciation and amortization for the calculation of adjusted
EBITDA(2) excludes $121 million (2016 – $124 million) of amortization of intangible assets acquired with
Shoppers Drug Mart.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
2016
|
|
|
|
|
|
(52 weeks)
|
|
|
|
|
(52 weeks)
|
|
For the periods ended December 30, 2017
and December 31, 2016
(millions of Canadian dollars)
|
Retail
|
Financial
Services
|
Choice
Properties
|
Consolidation
& Eliminations(I)
|
Total
|
Retail
|
Financial
Services
|
Choice
Properties
|
Consolidation
& Eliminations(I)
|
Total
|
|
Revenue(ii)
|
$
|
45,634
|
$
|
956
|
$
|
830
|
$
|
(718)
|
$
|
46,702
|
$
|
45,384
|
$
|
911
|
$
|
784
|
$
|
(694)
|
$
|
46,385
|
|
Operating income
|
$
|
2,248
|
$
|
209
|
$
|
756
|
$
|
(719)
|
$
|
2,494
|
$
|
1,902
|
$
|
175
|
$
|
677
|
$
|
(662)
|
$
|
2,092
|
|
Net interest expense and other
|
|
|
|
|
|
|
|
|
|
|
|
financing
charges
|
318
|
56
|
351
|
(200)
|
525
|
332
|
51
|
900
|
(630)
|
653
|
|
Earnings before Income Taxes
|
$
|
1,930
|
$
|
153
|
$
|
405
|
$
|
(519)
|
$
|
1,969
|
$
|
1,570
|
$
|
124
|
$
|
(223)
|
$
|
(32)
|
$
|
1,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
$
|
2,248
|
$
|
209
|
$
|
756
|
$
|
(719)
|
$
|
2,494
|
$
|
1,902
|
$
|
175
|
$
|
677
|
$
|
(662)
|
$
|
2,092
|
|
Depreciation and Amortization
|
1,534
|
10
|
1
|
23
|
1,568
|
1,512
|
13
|
1
|
17
|
1,543
|
|
Adjusting items(iii)
|
578
|
(24)
|
—
|
—
|
554
|
752
|
—
|
—
|
—
|
752
|
|
Less: amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
acquired with Shoppers Drug Mart
|
(524)
|
—
|
—
|
—
|
(524)
|
(535)
|
—
|
—
|
—
|
(535)
|
|
Adjusted EBITDA(iii)
|
$
|
3,836
|
$
|
195
|
$
|
757
|
$
|
(696)
|
$
|
4,092
|
$
|
3,631
|
$
|
188
|
$
|
678
|
$
|
(645)
|
$
|
3,852
|
|
Depreciation and Amortization(iv)
|
1,010
|
10
|
1
|
23
|
1,044
|
977
|
13
|
1
|
17
|
1,008
|
|
Adjusted Operating Income
|
$
|
2,826
|
$
|
185
|
$
|
756
|
$
|
(719)
|
$
|
3,048
|
$
|
2,654
|
$
|
175
|
$
|
677
|
$
|
(662)
|
$
|
2,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
Consolidation and Eliminations includes the following items:
|
|
•
|
Revenue includes the elimination of $529 million (2016 – $520 million) of
rental revenue, $183 million (2016 – $174 million) of cost recovery, and $6 million (2016 - nil) of lease surrender which
includes $1 million (2016 - nil) attributable to non-controlling interest, recognized by Choice Properties generated from
the Retail Segment.
|
|
•
|
Adjusted operating income includes the elimination of the $529 million
(2016 – $520 million) of rental revenue described above; lease surrender revenue of $5 million (2016 - nil) excluding the
impact of above described non-controlling interest; the elimination of a $160 million gain (2016 – $109 million gain)
recognized by Choice Properties related to the fair value adjustments on investment properties, which are classified as
Fixed Assets or Investment Properties by the Company and measured at cost; the elimination of a $1 million loss (2016 –
$14 million gain) recognized by Choice Properties related to the fair value adjustments on investment properties in the
joint venture; the recognition of $1 million gain (2016 - nil) on disposal of asset, which are classified as Fixed Assets
or Investment Properties by the Company and measured at cost; the recognition of $23 million (2016 – $17 million) of
depreciation expense for certain investment properties recorded by Choice Properties; and the elimination of intercompany
charges of $4 million (2016 – $2 million).
|
|
•
|
Net interest expense and other financing charges includes the elimination
of $282 million (2016 – $267 million) of interest expense included in Choice Properties related to debt owing to the
Company and a $38 million fair value gain (2016 – loss of $530 million) recognized by Choice Properties on Class B
Limited Partnership units held by the Company. Net interest and other financing charges also includes Unit distributions
to external unitholders of $54 million (2016 – $49 million), which excludes distributions paid to the Company and a $10
million fair value gain (2016 – loss of $118 million) on the Company's Trust Unit Liability.
|
|
(ii)
|
Included in Financial Services revenue is $393 million (2016 – $383
million) of interest income.
|
|
(iii)
|
Certain items are excluded from operating income to derive adjusted
EBITDA(2). Adjusted EBITDA(2) is used internally by management when analyzing segment underlying
performance.
|
|
(iv)
|
Depreciation and amortization for the calculation of adjusted
EBITDA(2) excludes $524 million (2016 – $535 million) of amortization of intangible assets acquired with
Shoppers Drug Mart.
|
FORWARD-LOOKING STATEMENTS
This News Release contains forward-looking statements about the Company's objectives, plans, goals, aspirations,
strategies, financial condition, results of operations, cash flows, performance, prospects, opportunities and legal and
regulatory matters. Specific forward-looking statements in this News Release include, but are not limited to, statements with
respect to the Company's anticipated future results, events and plans, strategic initiatives and restructuring, regulatory
changes including minimum wage increases and further healthcare reform, future liquidity, planned capital investments, and the
status and impact of IT systems implementations. These specific forward-looking statements are contained throughout this News
Release including, without limitation, in the "Outlook" section of this News Release. Forward-looking statements are typically
identified by words such as "expect", "anticipate", "believe", "foresee", "could", "estimate", "goal", "intend", "plan", "seek",
"strive", "will", "may", "should" and similar expressions, as they relate to the Company and its management.
Forward-looking statements reflect the Company's estimates, beliefs and assumptions, which are based on management's
perception of historical trends, current conditions and expected future developments, as well as other factors it believes are
appropriate in the circumstances. The Company's expectation of operating and financial performance in 2018 is based on certain
assumptions including assumptions about anticipated minimum wage increases, healthcare reform impacts, cost savings, operating
efficiencies and anticipated benefits from strategic initiatives. The Company's estimates, beliefs and assumptions are inherently
subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events, and as
such, are subject to change. The Company can give no assurance that such estimates, beliefs and assumptions will prove to be
correct.
Numerous risks and uncertainties could cause the Company's actual results to differ materially from those expressed, implied
or projected in the forward-looking statements, including those described in Section 12 "Enterprise Risks and Risk Management" of
the Management Discussion and Analysis in the 2017 Annual Report and the Company's 2017 Annual Information Form ("AIF") (for the
year ended December 30, 2017). Such risks and uncertainties include:
- changes to the regulation of generic prescription drug prices, the reduction of reimbursements under public drug benefit
plans and the elimination or reduction of professional allowances paid by drug manufacturers;
- failure to effectively manage or combine the Company's loyalty programs;
- the inability of the Company's IT infrastructure to support the requirements of the Company's business, or the occurrence
of any internal or external security breaches, denial of service attacks, viruses, worms and other known or unknown
cybersecurity or data breaches;
- failure to execute the Company's e-commerce initiative or to adapt its business model to the shifts in the retail landscape
caused by digital advances;
- failure to realize benefits from investments in the Company's new IT systems;
- failure to effectively respond to consumer trends or heightened competition, whether from current competitors or new
entrants to the marketplace;
- changes to any of the laws, rules, regulations or policies applicable to the Company's business, including increases to
minimum wage;
- public health events including those related to food and drug safety;
- failure to realize the anticipated benefits, including revenue growth, anticipated cost savings or operating efficiencies,
associated with the Company's investment in major initiatives that support its strategic priorities;
- adverse outcomes of legal and regulatory proceedings and related matters;
- reliance on the performance and retention of third party service providers, including those associated with the Company's
supply chain and apparel business, including issues with vendors in both advanced and developing markets;
- failure to achieve desired results in labour negotiations, including the terms of future collective bargaining
agreements;
- the inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory and to control
shrink; and
- changes in economic conditions, including economic recession or changes in the rate of inflation or deflation, employment
rates and household debt, political uncertainty, interest rates, currency exchange rates or derivative and commodity
prices.
This is not an exhaustive list of the factors that may affect the Company's forward-looking statements. Other risks and
uncertainties not presently known to the Company or that the Company presently believes are not material could also cause actual
results or events to differ materially from those expressed in its forward-looking statements. Additional risks and uncertainties
are discussed in the Company's materials filed with the Canadian securities regulatory authorities ("securities regulators") from
time to time, including, without limitation, the section entitled "Risks" in the Company's 2017 AIF (for the year ended
December 30, 2017). Readers are cautioned not to place undue reliance on these forward-looking statements, which
reflect the Company's expectations only as of the date of this News Release. Except as required by law, the Company does not
undertake to update or revise any forward-looking statements, whether as a result of new information, future events or
otherwise.
CORPORATE PROFILE
2017 Annual Report
The Company's 2017 Annual Report is available in the "Investors" section of the Company's website at loblaw.ca and on
sedar.com.
Additional financial information has been filed electronically with various securities regulators in Canada through the System for Electronic Document Analysis and Retrieval (SEDAR) and with the Office of the
Superintendent of Financial Institutions (OSFI) as the primary regulator for the Company's subsidiary, President's Choice Bank.
The Company holds an analyst call shortly following the release of its quarterly results. These calls are archived in the
"Investors" section of the Company's website at loblaw.ca.
Conference Call and Webcast
Loblaw Companies Limited will host a conference call as well as an audio webcast on February 22,
2018 at 10:00 a.m. (ET).
To access via tele-conference, please dial (647) 427-7450 or (888) 231-8191. The playback will be made available approximately
three hours after the event at (416) 849-0833 or (855) 859-2056, access code: 3779674. To access via audio webcast, please go to
the "Investors" section of loblaw.ca. Pre-registration will be available.
Full details about the conference call and webcast are available on the Loblaw Companies Limited website at loblaw.ca.
|
|
News Release Endnotes
|
|
|
|
(1)
|
This News Release contains forward-looking information. See
"Forward-Looking Statements" section of this News Release for a discussion of material factors that could cause actual
results to differ materially from the forecasts and projections herein and of the material factors and assumptions that
were used when making these statements. This News Release should be read in conjunction with Loblaw Companies Limited's
filings with securities regulators made from time to time, all of which can be found at sedar.com and at
loblaw.ca.
|
|
(2)
|
See "Non-GAAP Financial Measures" section of this News Release, which
includes the reconciliation of such non-GAAP measures to the most directly comparable GAAP measures.
|
|
(3)
|
To be read in conjunction with the "Forward-Looking Statements" section of
this News Release.
|
|
|
SOURCE Loblaw Companies Limited
View original content: http://www.newswire.ca/en/releases/archive/February2018/22/c7385.html