Loblaw Companies Limited (TSE:L) posted their Q4 2019 earnings today.

Revenue was $11.59 billion which missed slightly compared with analysts’ estimates of $11.62 billion.

EPS was $1.09 which missed analysts’ estimates of $1.12.

Loblaw remains one of the last Canadian big name companies that’s relatively well-known and well-beloved (**cough cough** Blackberry **cough cough** Bombardier **cough cough** every Canadian cannabis company). The stock has performed decently for a company that is typically considered stable and low-growth, having gone up about 10% in the past one-year timeframe while its dividend sits at a yield of 1.78% with a payout ratio of 43.42%.

 

The Shopper’s Drug Mart Acquisition and Economies of Scope

Investors absolutely loved management’s decision to acquire the popular Canadian pharmacy chain Shoppers Drug Mart back in 2013. Loblaw deduced (correctly) that they would be able to leverage existing systems and logistics to run Shoppers Drug Mart more efficiently.

Many Shoppers locations were already in areas where another Loblaw branded grocery store was in place, and Shoppers had for a while been expanding their product offering beyond prescription drugs and cosmetics by offering more varieties of food and drinks.

This is a textbook example of using “economies of scope” where, for example, Loblaw can send one truck to resupply a Shoppers and a nearby Loblaw store instead of having to rely on two trucks if the two companies remained independent. At the same time, Loblaw also merged the Shoppers Optimum rewards program with the President’s Choice Points Rewards program to create a new program called PC Optimum, which has been well received.

 

A Pure-Play on the Grocery Business

Loblaw purchased the popular Chinese grocery store chain T&T Supermarkets in 2009, a wildly successful acquisition that helped it tap into a market that has massive growth potential.

In 2012, the company announced that it was spinning off its real estate holdings and forming a new company that would be in charge of that called Choice Properties REIT. With the spin-off now complete, Loblaw is now a pure-play on Canadian grocery and retail and is divorced from fluctuations in the real estate markets.

Loblaw also purchased the popular Chinese grocery store chain T&T Supermarkets in 2009, which have also been wildly successful for the company and helped it tap into a market that has massive growth potential due to the rising popularity of Chinese food and other Asian-themed dishes in Canada in the past decade.

In recent years, the company is expanding its online presence with its PC Express grocery pickup and delivery service. As of now, customers can order their groceries online and have them delivered to designated pick-up locations (often Loblaw-owned stores). The company is reported attempting to expand their portfolio of PC Express pick-up locations, with the next push being to condominiums in densely populated Canadian cities like Toronto or Mississauga.

 

What’s Next For Loblaw?

Loblaw remains a good and stable long-term value play on the Canadian consumer retail market. Loblaw’s chain of popular grocery stores will not go away anytime soon. Investors should feel very comfortable holding onto the stock, though it would be a mistake to expect crazy high returns.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.