Two grocery retailers — 1 buy & 1 hold

Article Excerpt

Fierce price competition in Ontario has hurt earnings growth at Loblaw and Metro in the past year. While both are doing a good job controlling costs, we see only one a buy right now. LOBLAW COMPANIES LTD. $28 (Toronto symbol L; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 274.2 million; Market cap: $7.7 billion; SI Rating: Above average) is Canada’s largest grocery store operator, with over 1,000 company-owned and franchised stores. Major banners include Loblaw, No Frills, Provigo and Real Canadian Superstore. George Weston Ltd. owns 61% of Loblaw’s stock. Loblaw is currently restructuring its operations, as it de-emphasizes general merchandise and focuses on food. This includes overhauling its supply chain and computerized inventory systems to improve in-store availability and product freshness. The company also aims to make better use of its size to secure lower purchase prices from its suppliers. It will take several months before Loblaw realizes the benefits from improving productivity. Its operating margin (earnings after regular operating costs divided…