Loblaws Profit Growth Is Coming From Outside the Grocery Aisle

Loblaw Companies (TSX: L) produced 11.9% adjusted earnings-per-share growth in Q2 despite generating only 1.6% same-store growth from its food retail business.

The difference came from several places outside conventional grocery sales. Pharmacy revenue grew faster than food revenue, newly opened stores expanded Loblaw’s selling space, online delivery continued growing at a double-digit rate, and share repurchases reduced the number of shares among which earnings were divided.

The company also received a final-quarter contribution from PC Financial before completing its sale to EQB on July 1.

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Loblaw’s retail revenue increased by $589 million to $15.05 billion in Q2 2026. Food retail contributed $336 million, or approximately 57%, of that increase. Drug retail supplied the remaining $253 million, or 43%, despite representing less than 30% of total retail revenue.

The strongest component was pharmacy and healthcare services, where revenue increased by $195 million to $2.45 billion. That business alone generated roughly one-third of Loblaw’s total retail revenue growth.

Pharmacy and healthcare same-store sales increased 7.5%. Comparable prescription volumes rose 3.4%, while the average prescription value increased 5.5%. Loblaw attributed the performance to specialty medicines and prescriptions for chronic conditions.

Front-store same-store sales grew a more modest 1.3%, supported by beauty and over-the-counter products.

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Management also said Lifemark’s sales increased at a double-digit rate as patient visits to its clinics grew but did not provide Lifemark’s standalone revenue in its quarterly report.

Food retail revenue increased 3.3% to $10.62 billion, more than double its 1.6% same-store growth rate. The gap reflects contributions from recently opened stores and additional selling space.

Loblaw ended the quarter with 2,523 stores, up from 2,459 one year earlier. Total retail square footage increased 1.8% to 73.8 million square feet. During the quarter, the company opened 14 food and drug stores and closed six.

Seven of the openings were Maxi or No Frills discount stores. Management said same-store sales at its hard-discount banners were close to 4%, while newer stores entering the comparable base were producing double-digit growth. Conventional banners also recorded positive comparable sales.

The expansion is part of a $2.4 billion capital program that includes roughly 75 planned store openings in 2026, renovations, and investments in automated distribution facilities. reuters.com

E-commerce supplied another growth channel. Online sales increased 19.3%, while PC Express delivery grew more than 40%, according to management.

Loblaw’s retail gross profit increased 4.7% to $4.85 billion, slightly faster than revenue. Gross margin reached 32.2%, up 10 basis points, with the company citing continued reductions in inventory shrink.

Selling, general, and administrative expenses increased $124 million, but remained flat at 20% of sales. New-store expenses, distribution-centre costs, and real estate activities offset operating leverage from higher revenue.

Adjusted EBITDA increased 5.3% to $1.84 billion, while operating income rose only 2.9% to $1.20 billion. Depreciation and amortization increased 6.8%, partly because of new stores and distribution investments.

The operational business therefore grew earnings faster than sales, but not at the full 11.9% rate shown by adjusted EPS.

Adjusted net earnings increased 8.6% to $774 million. From continuing operations, adjusted earnings increased only 5.2% to $728 million.

PC Financial, which was classified as a discontinued operation, contributed $46 million of adjusted earnings, up from $21 million. That $25 million increase represented approximately 41% of Loblaw’s total $61 million increase in adjusted earnings.

The remaining difference between earnings growth and EPS growth came largely from share repurchases. Diluted weighted-average shares declined 2.9% to 1.17 billion. Loblaw repurchased 8.8 million shares during the quarter for $552 million and raised its expected 2026 repurchases to approximately $2.1 billion.

That smaller denominator helped turn 8.6% adjusted earnings growth into 11.9% adjusted EPS growth.

Reuters reported that Loblaw’s $0.66 adjusted EPS narrowly exceeded the $0.65 consensus estimate, while retail revenue of $15.05 billion came slightly below the $15.07 billion forecast.