LOBLAW COMPANIES LTD. $50 (Toronto symbol L; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 274.2 million; Market cap: $13.7 billion; SI Rating: Above average) is Canada’s largest supermarket operator, with over 1,500 stores under several banners including Loblaws, No Frills and Provigo.

In the past few years, Loblaw has re-modeled many of its stores to handle a wider selection of non-food merchandise, such as clothing and household goods. The company felt these moves would help it compete with Wal-Mart, which is now carrying more grocery items in its stores.

As part of the plan, Loblaw also restructured its warehousing and distribution, but this is taking longer than forecast and has led to shortages at some stores. Loblaw now plans to cut its non-food merchandise, and streamline its inventory systems.

If you exclude restructuring costs, Loblaw earned $0.46 a share in the three months ended March 24, 2007, down 14.8% from $0.54 a year earlier. Sales rose 3.3%, to $6.3 billion from $6.1 billion, while same-store sales grew 2.4%.

Strong price competition, particularly in Ontario and Quebec, has forced Loblaw to cut prices. That will hurt the company’s ability to hit its sales growth targets for 2007. It will take Loblaw several more months to complete its restructuring, but the savings should help it compete over the next few years.

The stock trades at 19.3 times the $2.59 a share it should earn in 2007, but its earnings are depressed due to restructuring costs. The $0.84 dividend is probably safe, and yields 1.7%.

Loblaw is a hold.