Loblaw announces major international Joe Fresh expansion; 120 stores in 4 years

Grocery giant Loblaw Companies Ltd. is bringing its Joe Fresh discount clothing line overseas in a major expansion that will target fashionistas in the Middle East, Eastern Europe and South Korea.

The company said Thursday the plan includes the addition of 120 Joe Fresh stores in 25 countries within the next four years.

“This is representative of what has been a longstanding belief on our part that there is an international level of opportunity for the Joe Fresh brand and lots of people interested in helping us realize that,” said Galen G. Weston, the company’s executive chairman.

Currently, Loblaw sells the apparel brand at more than 300 locations across Canada, including 12 standalone and studio stores, and six U.S. locations in New York and New Jersey.

Loblaw president Vicente Trius said company, which has Canada’s largest grocery business, will also be experimenting with expanding its e-commerce platform, by running a test pilot on a “click and collect” option for food and consumables at three of its Toronto stores.

This online strategy, which has been gaining popularity in the U.K., allows customers to purchase their items online and then pick them up in the store.

Earlier Thursday, Loblaw reported better fourth-quarter financial results than analysts were expecting.

The company had $183 million or 65 cents per share of adjusted net earnings in the fourth quarter, down 1.1 per cent from a year earlier but 10 cents above the general estimate.

Revenue was up 2.3 per cent to $7.64 billion, also better than expected.

Same-store sales, an important measure in the retail industry, edged up 0.6 per cent compared with a year earlier.

Trius said it was important to note that the same-store sales, from locations open at least a year, benefited from the timing of the Thanksgiving holiday but hurt by an ice storm in Eastern Canada and a strike in Alberta.

Analysts had estimated 55 cents of adjusted earnings and less than $7.6 billion of revenue in the fourth quarter, according to Thomson Reuters data.

Among the fastest growing sources of revenue for Loblaw was its Presidents Choice financial services segment, which contributed $204 million in the quarter, up 15.9 per cent from a year earlier.

Its newly spun off Choice Properties real estate trust (TSX:CHP) contributed $165 million of revenue to the parent company in the fourth quarter.

The main retail segment, which operates under several grocery banners and the Joe Fresh clothing chain, had $7.41 billion of sales, up 1.8 per cent or $130 million from $7.29 billion.

The grocery retailer’s net income — which isn’t as closely tracked by analysts — fell to $127 million or 45 cents per share, down 8.6 per cent from $139 million a year earlier.

Loblaw said its net income was down primarily because of higher interest expenses and other financing charges.

Like other Canadian retailers, Loblaw is facing intense competition from its domestic and foreign rivals — including Sobeys, Metro, Walmart and the newcomer Target, which entered the market about a year ago.

Trius says Loblaws expects the environment will remain intense throughout 2014, with some easing in the second half of the year.

“The competitive landscape has fundamentally changed with new competitors growing strongly and incumbents competing to maintain share,” Trius said.

Trius said Loblaw will continue to expand its “fresh” foods, which has been a key driver for customer traffic, through sourcing, assortment and merchandising.

The fresh category — mostly produce — generates higher margins than other food categories and a better fresh offering can also drive other traffic, he said.

“Growing fresh penetration is also a good thing for our bottom line,” Trius said.

Customers will also soon see fresh juice bars pop up in 100 Loblaw stores in Ontario, Atlantic Canada and Quebec beginning the spring.

The fruit bars, which will offer more than 30 different options, will fit in with the grocer’s fresh food push, and also be a cost-effective way for it to use fruit from its markets.

Last month, the company’s Provigo subsidiary announced that it will spend about $110 million this year on renovations and upgrades to its Quebec stores — about $10 million more than it did in 2013.

In addition, Loblaw is in the process of acquiring Shoppers Drug Mart (TSX:SC), which will be operated as a separate division with complementary products.

The company said Thursday that the regulatory process appears to be on track and it expects the deal to be approved by the end of March.