Loblaw Companies Limited said it will close 52 of its unprofitable retail locations in the next 12 months as it looks to boost its operating income at the expense of sales.
Canada’s largest food retailer and the parent company of Joe Fresh will shut down an array of its supermarkets, pharmacies, standalone Joe Fresh stores and gas bars—a move it expects will yield 70 million Canadian dollars ($53.6 million) in the third quarter of this year. The closures are expected to decrease sales by roughly 300 million Canadian dollars ($230 million) on an annualized basis but will result in a 35-40 million Canadian dollar ($26.8 million to $30.6 million) boost in operating income.
But closings aside, Loblaw still expects to bolster its overall store network in the near future.
According to The Globe and Mail, Galen G. Weston, Loblaw president and executive chairman told analysts in a conference call, “When you have a big debt load like we do and your growth is not as significant as perhaps it has been in previous periods in the company’s history, you’re really getting better at managing capital efficiency.”
The company’s retail segment sales in the second quarter ended June 20 totaled the equivalent of $7.9 billion, a $169 million jump over the prior year period.
Operating income totaled $287.5 million in the quarter, $668 million more than the previous year’s $380 million loss.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the second quarter totaled $624 million.
Loblaw said it expects to maintain positive same-store sales and stable gross margin in 2015, grow its operating income and invest in key areas like e-commerce. The company already offers a “click and collect” service that lets shoppers order their groceries online and pick them up at designated Toronto-area stores.
Weston said e-commerce will play an important role in the way retailers do business in the grocery and drug divisions and Loblaw is “well positioned” to compete.
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