Loblaw Companies (TSX: L) reported consolidated revenues of $14.14 billion for Q1 of fiscal year 2025, up 4.1% from $13.58 billion in Q1 2024. While this top-line growth outpaced expectations of $14.06 billion, a closer look reveals concerning underlying weaknesses.
Food retail sales grew modestly by 4.0% to $9.79 billion, but same-store sales rose only 2.2%, a deceleration from 3.4% in the prior year, and significantly lagging Canada’s food inflation of 2.6%. Critically, traffic was flat while average basket size increased, suggesting reliance on price rather than growth in customer base.
Drug retail held steadier, with total sales up 4.3% to $4.05 billion and same-store pharmacy growth at 6.4%, down from 7.3%.
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Gross profit increased by 3.7% to $4.62 billion, but gross margin slipped to 32.6%, continuing a decline from 32.8% in Q1 2024.
Operating income also rose 5.2% to $906 million, but adjusted operating income increased only 3.5% to $1.00 billion.
This led to net income landing at $503 million, or $1.66 per share, up from $459 million or $1.47 per share last year. Adjusted net earnings rose 6.1% to $570 million. However, much of the adjustment came from non-cash amortization ($116 million) and modest gains from property disposals and the Wellwise exit. The company continues to include questionable non-operating adjustments (e.g., fair value on fuel derivatives and a minor $5 million gain on a discontinued business line).
On an adjusted basis, diluted EPS rose to $1.88 from $1.72—a modest 9.3% increase, largely driven by cost controls rather than operating leverage. This beat the street expectation of $1.86 per share.
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Notably, EPS growth was also partially aided by a lower diluted weighted average share count of 302.6 million verses 311.9 million a year ago, reflecting Loblaw’s ongoing buybacks.
Adjusted EBITDA came in at $1.59 billion, up 3.0% from $1.54 billion in 2024, but EBITDA margin shrank slightly to 11.3% from 11.4%.
The company reported consolidated free cash flow of $215 million for Q1 2025, a significant improvement over the meager $2 million in Q1 2024. However, this headline figure masks a continued cash burn in the core Retail segment, which posted free cash outflow of $264 million, only slightly better than last year’s outflow of $359 million. The overall gain came almost entirely from Financial Services, which posted $479 million in free cash, up from $361 million in the prior year.
Looking ahead, Loblaw forecasts high single-digit adjusted EPS growth for FY2025, boosted in part by a 53rd week that alone is expected to inflate earnings per share by roughly 2%. The company also announced capital spending of $2.2 billion for FY2025, continuing its push to open 80 new stores and 100 clinics, funded partially by $300 million in property disposals. Furthermore, the chain also plans to continue “returning capital to shareholders” via repurchases, though this is arguably sustaining EPS optics more than generating organic growth.
Loblaw last traded at $218.36 on the TSX.
Information for this briefing was found via the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
