Loblaw Companies Ltd. (L.TO) says it is seeing signs that inflation "has or will soon peak", as supply chain issues normalize and central banks take aggressive action to tame skyrocketing prices.
Canada's largest grocery chain said following the release of second-quarter fiscal results on Wednesday that the company expects inflation to moderate in the second half of the year, as commodity prices decline from highs, freight costs shrink and supply chain issues continue to normalize.
"Inflation remains a significant external force shaping business performance. However... we are seeing some signs of stabilization," Loblaw's chairman and president Galen Weston said on a conference call with analysts.
"Having said that, supplier costs are still high, putting sustained pressure on retail prices. We continue to work hard to reduce their effect for our customers."
Food prices have soared through 2022, putting pressure on many Canadian households and forcing many to cut back to purchasing just essential goods. Statistics Canada's Consumer Price Index (CPI) showed that the cost of food at the grocery store increased 9.4 per cent in June. Loblaw says its internal food inflation rate, which it measures based on a basket of food items similar to Statistics Canada's, was "generally in line" with CPI.
Loblaw says rising prices mean more customers are shifting towards its discount brands, including No Frills and Maxi. The company adds that its low-priced No Name brand is seeing historic growth.
"The shift to discount continues at pace. Price sensitivity is growing," Weston said.
The comments came as Loblaw reported an increase in its second-quarter profit and revenue, thanks to strong drugstore sales. Net income available to common shareholders hit $387 million, or $1.16 per diluted share, up 3.2 per cent from $375 million, or $1.09 per share, in 2021. Total sales reached $12.85 billion, a 2.9 per cent increase from $12.49 billion during the same time last year, which fell short of what analysts were expecting. According to IBES data from Refinitiv, analysts on average were expecting revenue of $12.98 billion.
Loblaw's stock was down approximately 2 per cent as at 12:45 p.m. ET, trading at $118.87 per share.
The company says same-store sales – a key metric in the retail industry that excludes sales at new stores – at its grocery chains increased 0.9 per cent compared to last year. However, same-store sales at its drug retail business jumped 5.6 per cent annually, driven by sales growth in over-the-counter products and cosmetics. The company's chief financial officer Richard Dufresne says sales of beauty products and cosmetics are back to pre-pandemic levels.
"Shoppers Drug Mart had an excellent quarter generating high-margin sales in beauty and cough and cold while expanding pharmacy services created for Canadian patients," Weston said, noting that the impact of inflation is different in its drugstore retail business.
"There's not as much inflation in health and beauty but certainly we see the same inflationary pressures on all the consumable goods in the front shop of Shoppers Drug Mart."
With files from Reuters
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.