Consumer goods stock Loblaw to invest $1.2 billion in Canada

The new investment includes construction projects for dozens of new and existing stores. This giant in the consumer goods industry is Canada’s largest retailer providing grocery, pharmacy, health and beauty, apparel, general merchandise, banking, and wireless mobile products and services.

Loblaw Companies Limited (TSX─L) plans to invest more than $1.2 billion into its Canadian business in 2015. The investment includes construction projects for dozens of new and existing stores, e-commerce expansion, and continued investment in supply chain and internet-technology infrastructure. The goals are to create better access to fresh food, wellness solutions close to home, e-commerce convenience and elevated grocery, pharmacy, apparel and banking experiences.

Loblaw Companies is a national food and pharmacy leader, the nation’s largest retailer and the majority unit holder of Choice Properties Real Estate Investment Trust. This blue-chip consumer goods stock provides grocery, pharmacy, health and beauty, apparel, general merchandise, banking, and wireless mobile products and services.

Loblaw had a good year in 2014.  For the year ended Jan. 3, 2015, the company made $1.2 billion, or $3.22 a share, compared with $696 million, or $2.23 a share, in the similar period of 2013. The increase was primarily driven by a rise in adjusted operating income, thanks largely to the contribution of Shoppers Drug Mart, which was acquired in March, 2014.

Revenue rose 31.6 per cent to $42.6 billion, primarily due to Shoppers Drug Mart and the impact of a 53rd week in 2014.

Consumer goods industry trend is positive

In 2015, Loblaw expects to maintain positive same-store sales growth in its retail segment. In 2014, same-store sales growth was 2.0 per cent. Excluding synergies, the company also expects its gross margin in the retail segment to remain stable. In 2014, the segment’s adjusted gross profit margin was 25.7 per cent, up from 22.0 per cent in 2013. Plus, management hopes to achieve synergies approaching $200 million due to the Shoppers’ acquisition.

The stock trades at a reasonable 17.8 times the $3.49 a share that Loblaw will likely earn in 2015. The current annual dividend rate of $0.98 a share yields 1.6 per cent. Loblaw is a buy for growth and some income.

 

Money Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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