Loblaw aims to keep growing with U.S. clothing deal

LOBLAW COMPANIES LTD. (Toronto symbol L; www.loblaw.ca) recently formed a partnership with J.C. Penney (New York symbol JCP). Under this deal, Loblaw will build Joe Fresh casual-clothing boutiques inside 700 of Penney’s 1,100 department stores in the U.S. These outlets should open in April 2013. Penney will also sell Joe Fresh products through its website. Loblaw started selling its popular Joe Fresh clothing in supermarkets in 2006. It is now sold in 300 of Loblaw’s stores, up from 40 five years ago. It also has 12 stand-alone Joe Fresh stores in Canada and six in the New York City area. Loblaw plans to open 13 more Joe Fresh stores (eight in Canada plus five in the U.S.) by the end of this year. These new stores will help Loblaw compete with U.S.-based discount retailer Target, which plans to expand to Canada in 2013.

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Canadian stocks: New efficiency initiatives push down Loblaw’s earnings

Also, Loblaw continues to invest in new computers as part of a plan to improve its efficiency and avoid product shortages in its supermarkets. In the three months ended June 16, 2012, the company spent $20 million on these initiatives. That is the main reason why Loblaw’s earnings fell 19.3% in the quarter, to $159 million, or $0.56 a share, from $197 million, or $0.69 a share, a year earlier. Sales rose 1.3%, to $7.4 billion from $7.3 billion. Same-store sales increased 0.2%. Revenue from the company’s financial services division, which mainly issues credit cards, rose 14.9%. Loblaw trades at 14.2 times its likely 2012 earnings of $2.47 a share. The $0.84 dividend yields 2.4%. In the latest edition of The Successful Investor, we look at what impact the J.C. Penney deal is likely to have on Loblaw’s earnings. We also consider the risk and potential benefits of the company’s ongoing efficiency plan. We conclude with our clear buy-sell-hold advice on the stock. COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members Loblaw has had several setbacks in recent years and its shares are still 20% below where they were five years ago. Will you stick with an established stock when it is down, draw the dividend and look for profitable long-term returns? Do you buy more shares when the stock is down? If you have given up on a stock like this, what triggered the decision? Let us know what you think.

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