Loblaw Companies Limited Reports 2010 Fourth Quarter and Fiscal Year Ended January 1, 2011 Results(1)

BRAMPTON, ON, Feb. 24 /CNW/ - Loblaw Companies Limited (TSX: L) ("Loblaw" or the "Company") today is announcing its unaudited financial results for the fourth quarter of 2010, and the release of its 2010 Annual Report, including the Company's audited consolidated financial statements and Management's Discussion and Analysis for the fiscal year ended January 1, 2011. The Company's 2010 Annual Report will be available in the Investor Zone section of the Company's website at www.loblaw.ca and will be filed with SEDAR and will be available at www.sedar.com.

Fourth Quarter 2010 Summary

    <<
    -   Basic net earnings per common share of $0.54, which includes various
        charges as described below.

    -   EBITDA margin was 6.2% compared to 5.7% in the fourth quarter of
        2009.

    -   Gross profit of $1.8 billion an increase of 2.7% compared to the
        fourth quarter of 2009. Gross profit as a percentage of sales was
        24.8% compared to 23.6% in the fourth quarter of 2009.

    -   Sales and same-store sales declined 2.1% and 1.6%, respectively, from
        the fourth quarter of 2009.

    For the periods ended
     January 1, 2011 and                   ----------
     January 2, 2010                            2010        2009
    ($ millions except where              (unaudited) (unaudited)
     otherwise indicated)                  (12 weeks)  (12 weeks)     Change
    -------------------------------------------------------------------------
    Sales                                   $  7,161    $  7,311       (2.1%)
    Gross profit                               1,774       1,728        2.7%
    Operating income                             289         277        4.3%
    Net earnings                                 151         165       (8.5%)
    Basic net earnings per common share ($)     0.54        0.60      (10.0%)
    -------------------------------------------------------------------------
    Same-store sales decline (%)               (1.6%)      (7.8%)
    Operating margin                            4.0%        3.8%
    EBITDA(2)                               $    442    $    420        5.2%
    EBITDA margin(2)                            6.2%        5.7%
    -------------------------------------------------------------------------
                                           ----------

                                                2010        2009
                                          (unaudited) (unaudited)
                                           (52 weeks)  (52 weeks)     Change
    -------------------------------------------------------------------------
    Sales                                   $ 30,997    $ 30,735        0.9%
    Gross profit                               7,604       7,196        5.7%
    Operating income                           1,269       1,205        5.3%
    Net earnings                                 681         656        3.8%
    Basic net earnings per common share ($)     2.45        2.39        2.5%
    -------------------------------------------------------------------------
    Same-store sales decline (%)               (0.6%)      (1.1%)
    Operating margin                            4.1%        3.9%
    EBITDA(2)                               $  1,924    $  1,794        7.2%
    EBITDA margin(2)                            6.2%        5.8%
    -------------------------------------------------------------------------
                                           ----------

    (1) This News Release contains forward-looking information. See
        Forward-Looking Statements in this News Release for a
        discussion of material factors that could cause actual results to
        differ materially from the conclusions, forecasts and projections
        herein and of the material assumptions that were used. This News
        Release must be read in conjunction with Loblaw Companies Limited's
        filings with securities regulators made from time to time, all of
        which can be found at www.sedar.com and at www.loblaw.ca.
    (2) See Non-GAAP Financial Measures.
    >>

"2010 was another year of real progress towards completing our renewal plan," said Galen G. Weston, Executive Chairman, Loblaw Companies Limited. "In the year ahead, we expect to continue our focus on executing the plan in a market environment that remains unpredictable and competitively intense. In 2011, the Company plans to continue its investment in information technology and supply chain which will negatively impact operating income by approximately $135 million over 2010, and estimates capital expenditures for the year to be roughly $1.0 billion."

    <<
    -   In the fourth quarter of 2010:

        -   sales in food declined marginally;
        -   sales in drugstore declined moderately, impacted by deflation due
            to regulatory changes in Ontario and the impact of generic
            versions of certain prescription drugs;
        -   sales growth in apparel was moderate while sales of other general
            merchandise declined significantly due to lower discretionary
            consumer spending and reductions in assortment and square
            footage;
        -   gas bar sales growth was strong as a result of higher retail gas
            prices and moderate volume growth; and
        -   the Company's average quarterly internal retail food price index
            was flat. This compared to average quarterly internal retail food
            price deflation in the fourth quarter of 2009.

    -   Gross profit increased by $46 million, or 2.7%, to $1,774 million
        (24.8% of sales) in the fourth quarter of 2010 compared to the fourth
        quarter of 2009 (23.6% of sales). This increase was primarily
        attributable to improved control label profitability and continued
        buying synergies and disciplined vendor management, the shift of
        pharmaceutical vendor rebates from selling and administrative
        expenses to gross profit, improved shrink and a stronger Canadian
        dollar. Increased transportation costs partially offset these
        improvements.

    -   Operating income increased by $12 million, or 4.3%, to $289 million
        in the fourth quarter of 2010 compared to the fourth quarter of 2009.
        Operating margin was 4.0% for the fourth quarter of 2010 compared to
        3.8% in 2009. In addition to the increase in gross profit described
        above, the following items influenced the Company's operating income
        in the fourth quarter of 2010 compared to 2009:

        -   a charge related to the effect of stock-based compensation net of
            equity forwards of $7 million (2009 - $5 million). The effect on
            basic net earnings per common share was a charge of $0.02
            (2009 - $0.01);
        -   incremental costs of $27 million related to its investment in
            information technology and supply chain, which negatively
            impacted basic net earnings per common share by $0.07; and
        -   a charge of $28 million (2009 - $27 million) for fixed asset
            impairments related to asset carrying values in excess of fair
            values for certain stores which negatively impacted basic net
            earnings per common share by $0.07 (2009 - $0.07).

    -   Due to changes in the federal tax legislation that resulted in the
        elimination of the Company's ability to deduct costs associated with
        cash-settled stock options the Company has recognized a tax expense
        of $12 million in the fourth quarter of 2010. The effect on basic
        net earnings per common share was a charge of $0.04.

    -   The Company invested $1.3 billion in capital in 2010 and estimates
        capital expenditures to be approximately $1.0 billion for 2011.

    -   Subsequent to year-end, the Board of Directors approved discontinuing
        the Company's dividend reinvestment plan after the dividend payment
        on April 1, 2011 when approximately $300 million in common share
        equity will be raised through the program as planned.
    >>

Forward-Looking Statements

This News Release for Loblaw Companies Limited contains forward-looking statements about the Company's objectives, plans, goals, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects and opportunities. Words such as "anticipate", "expect", "believe", "foresee", "could", "estimate", "goal", "intend", "plan", "seek", "strive", "will", "may" and "should" and similar expressions, as they relate to the Company and its management, are intended to identify forward-looking statements. These forward-looking statements are not historical facts but reflect the Company's current expectations concerning future results and events.

These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations, including, but not limited to:

    <<
    -   the possibility that the Company's plans and objectives will not be
        achieved;
    -   changes in economic conditions including the rate of inflation or
        deflation and changes in interest and currency exchange rates;
    -   changes in consumer spending and preferences;
    -   heightened competition, whether from new competitors or current
        competitors;
    -   changes in the Company's or its competitors' pricing strategies;
    -   failure of the Company's franchised stores to perform as expected;
    -   failure to realize sales growth, anticipated cost savings or
        operating efficiencies from the Company's major initiatives,
        including investments in the Company's information technology
        systems, supply chain investments and other cost reduction
        initiatives, or unanticipated results from these initiatives;
    -   increased costs relating to utilities, including electricity and
        fuel;
    -   the inability of the Company to successfully implement its
        infrastructure and information technology components of its plan;
    -   the inability of the Company's information technology infrastructure
        to support the requirements of the Company's business;
    -   the inability of the Company to manage inventory to minimize the
        impact of obsolete or excess inventory and to control shrink;
    -   failure to execute successfully and in a timely manner the Company's
        introduction of innovative and reformulated products or new and
        renovated stores;
    -   the inability of the Company's supply chain to service the needs of
        the Company's stores;
    -   failure to achieve desired results in labour negotiations, including
        the terms of future collective bargaining agreements, which could
        lead to work stoppages;
    -   changes to and failure to comply with the legislative/regulatory
        environment in which the Company operates, including failure to
        comply with environmental laws and regulations;
    -   the adoption of new accounting standards and changes in the Company's
        use of accounting estimates;
    -   fluctuations in the Company's earnings due to changes in the value of
        stock based compensation and equity forward contracts relating to its
        Common Shares;
    -   changes in the Company's income, commodity and other tax liabilities
        including changes in tax laws or future assessments;
    -   reliance on the performance and retention of third-party service
        providers including those associated with the Company's supply chain
        and apparel business;
    -   public health events including those related to food safety;
    -   the inability of the Company to collect on its credit card
        receivables;
    -   any requirement of the Company to make contributions to its
        registered funded defined benefit pension plans in excess of those
        currently contemplated;
    -   the inability of the Company to attract and retain key executives;
    -   supply and quality control issues with vendors; and
    -   failure by the Company to maintain appropriate documentation to
        support its compliance with accounting, tax or legal rules,
        regulations and policies.
    >>

These and other risks and uncertainties are discussed in the Company's materials filed with the Canadian securities regulatory authorities from time to time, including the Enterprise Risks and Risk Management section of the Management's Discussion and Analysis ("MD&A") included in the Company's 2010 Annual Report - Financial Review. These forward looking statements reflect management's current assumptions regarding these risks and uncertainties and their respective impact on the Company.

Other risks and uncertainties not presently known to the Company or that the Company presently believes are not material could also cause actual results or events to differ materially from those expressed in its forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect the Company's expectations only as of the date of this News Release. The Company disclaims any intention or obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

    <<
    Consolidated Statements of Earnings

    For the periods ended
     January 1, 2011 and       ----------              ----------
     January 2, 2010                2010        2009        2010        2009
    ($ millions except where  (unaudited) (unaudited) (unaudited) (unaudited)
     otherwise indicated)      (12 weeks)  (12 weeks)  (52 weeks)  (52 weeks)
    -------------------------------------------------------------------------
    Sales                       $  7,161    $  7,311    $ 30,997    $ 30,735
    Cost of Merchandise
     Inventories Sold              5,387       5,583      23,393      23,539
    -------------------------------------------------------------------------
    Gross Profit                   1,774       1,728       7,604       7,196
    -------------------------------------------------------------------------
    Operating Expenses
      Selling and administrative
       expenses                    1,332       1,308       5,680       5,402
      Depreciation and
       amortization                  153         143         655         589
    -------------------------------------------------------------------------
                                   1,485       1,451       6,335       5,991
    -------------------------------------------------------------------------
    Operating Income                 289         277       1,269       1,205
    Interest expense and other
     financing charges                63          64         273         269
    -------------------------------------------------------------------------
    Earnings before Income Taxes
     and Minority Interest           226         213         996         936
    Income Taxes                      71          39         297         269
    -------------------------------------------------------------------------
    Net Earnings before Minority
     Interest                        155         174         699         667
    Minority Interest                  4           9          18          11
    -------------------------------------------------------------------------
    Net Earnings                $    151    $    165    $    681    $    656
    -------------------------------------------------------------------------
    Net Earnings Per Common
     Share ($)
    Basic                       $   0.54    $   0.60    $   2.45    $   2.39
    Diluted                     $   0.54    $   0.59    $   2.44    $   2.38
    -------------------------------------------------------------------------
                               ----------              ----------



    Consolidated Balance Sheets

    As at January 1, 2011 and January 2, 2010          ----------
    ($ millions)                                            2010        2009
    -------------------------------------------------------------------------
    Assets
    Current Assets
      Cash and cash equivalents                         $    932    $    776
      Short term investments                                 735         614
      Accounts receivable                                    724         774
      Inventories                                          2,114       2,112
      Future income taxes                                     39          38
      Prepaid expenses and other assets                       82          92
    -------------------------------------------------------------------------
    Total Current Assets                                   4,626       4,406
    Fixed Assets                                           9,123       8,559
    Goodwill and Intangible Assets                         1,029       1,026
    Security Deposits                                        354         250
    Other Assets                                             787         750
    -------------------------------------------------------------------------
    Total Assets                                        $ 15,919    $ 14,991
    -------------------------------------------------------------------------
    Liabilities
    Current Liabilities
      Bank indebtedness                                 $      3    $      2
      Accounts payable and accrued liabilities             3,416       3,279
      Income taxes payable                                     -          41
      Long term debt due within one year                     433         343
    -------------------------------------------------------------------------
    Total Current Liabilities                              3,852       3,665
    Long Term Debt                                         4,213       4,162
    Other Liabilities                                        534         497
    Future Income Taxes                                      178         143
    Capital Securities                                       221         220
    Minority Interest                                         41          31
    -------------------------------------------------------------------------
    Total Liabilities                                      9,039       8,718
    -------------------------------------------------------------------------
    Shareholders' Equity
    Common Share Capital                                   1,475       1,308
    Retained Earnings                                      5,395       4,948
    Accumulated Other Comprehensive Income                    10          17
    -------------------------------------------------------------------------
    Total Shareholders' Equity                             6,880       6,273
    -------------------------------------------------------------------------
    Total Liabilities and Shareholders' Equity          $ 15,919    $ 14,991
    -------------------------------------------------------------------------
                                                       ----------



    Consolidated Cash Flow Statements

    For the periods ended      ----------              ----------
     January 1, 2011 and            2010        2009        2010        2009
     January 2, 2010          (unaudited) (unaudited) (unaudited) (unaudited)
    ($ millions)               (12 weeks)  (12 weeks)  (52 weeks)  (52 weeks)
    -------------------------------------------------------------------------
    Operating Activities
      Net earnings before
       minority interest        $    155    $    174    $    699    $    667
      Depreciation and
       amortization                  153         143         655         589
      Future income taxes             34         (33)         42         (29)
      Settlement of equity
       forward contracts               -         (17)          -         (55)
      Change in non-cash
       working capital               245         298          66         707
      Fixed assets and other
       related impairments            32          36          72          46
      Other                          (16)         14          60          20
    -------------------------------------------------------------------------
    Cash Flows from Operating
     Activities                      603         615       1,594       1,945
    -------------------------------------------------------------------------
    Investing Activities
      Fixed asset purchases         (453)       (365)     (1,280)       (971)
      Short term investments          56         (98)       (159)       (181)
      Proceeds from asset sales       53          17          90          27
      Credit card receivables,
       after securitization         (138)       (228)          7           8
      Business acquisitions -
       net of cash acquired            -         (10)          -        (204)
      Franchise investments
       and other receivables           2          10         (11)          6
      Security deposits               (6)         34        (115)        148
      Other                            5          (7)         20         (45)
    -------------------------------------------------------------------------
    Cash Flows used in
     Investing Activities           (481)       (647)     (1,448)     (1,212)
    -------------------------------------------------------------------------
    Financing Activities
      Bank indebtedness                2           1           1         (50)
      Short term debt                  -           -           -        (190)
      Long term debt
        Issued                        45          32         450         402
        Retired                      (26)        (10)       (368)       (167)
      Common shares retired            -         (56)          -         (56)
      Dividends                      (15)        (18)        (65)       (112)
    -------------------------------------------------------------------------
    Cash Flows from (used in)
     Financing Activities              6         (51)         18        (173)
    -------------------------------------------------------------------------
    Effect of foreign currency
     exchange rate changes on
     cash and cash equivalents        (4)          5          (8)        (27)
    -------------------------------------------------------------------------
    Change in Cash and Cash
     Equivalents                     124         (78)        156         533
    Cash and Cash Equivalents,
     Beginning of Period             808         854         776         243
    -------------------------------------------------------------------------
    Cash and Cash Equivalents,
     End of Period              $    932    $    776    $    932    $    776
    -------------------------------------------------------------------------
                               ----------              ----------
    >>

Non-GAAP Financial Measures

The Company uses the following non-GAAP financial measures: EBITDA and EBITDA margin. The Company believes these non-GAAP financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the Company for the reasons outlined below. These measures do not have a standardized meaning prescribed by Canadian GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies, and they should not be construed as an alternative to other financial measures determined in accordance with Canadian GAAP.

EBITDA and EBITDA Margin

The following table reconciles earnings before minority interest, income taxes, interest expense and depreciation and amortization ("EBITDA") to operating income which is reconciled to Canadian GAAP net earnings measures reported in the consolidated statements of earnings for the 12 weeks and 52 weeks ended January 1, 2011 and January 2, 2010, respectively. EBITDA is useful to management in assessing the Company's performance of its ongoing operations and its ability to generate cash flows to fund its cash requirements, including the Company's capital investment program.

    <<
                               ----------              ----------
                                    2010        2009        2010        2009
                              (unaudited) (unaudited) (unaudited) (unaudited)
    ($ millions)               (12 weeks)  (12 weeks)  (52 weeks)  (52 weeks)
    -------------------------------------------------------------------------
    Net earnings                $    151    $    165    $    681    $    656
    Add impact of the following:
      Minority interest                4           9          18          11
      Income taxes                    71          39         297         269
      Interest expense and other
       financing charges              63          64         273         269
    -------------------------------------------------------------------------
    Operating income                 289         277       1,269       1,205
    Add impact of the following:
      Depreciation and
       amortization                  153         143         655         589
    -------------------------------------------------------------------------
    EBITDA                      $    442    $    420    $  1,924    $  1,794
    -------------------------------------------------------------------------
                               ----------              ----------
    >>

EBITDA margin is calculated as EBITDA divided by sales.

2010 Annual Consolidated Financial Statements and MD&A

The Company's 2010 Annual Report will be available in the Investor Zone section of the Company's website at www.loblaw.ca or at www.sedar.com.

Investor Relations

Shareholders, security analysts and investment professionals should direct their requests to Kim Lee, Vice President, Investor Relations at the Company's National Head Office or by e-mail at investor@loblaw.ca.

Additional information has been filed electronically with various securities regulators in Canada through the System for Electronic Document Analysis and Retrieval (SEDAR) and with the Office of the Superintendent of Financial Institutions (OSFI) as the primary regulator for the Company's subsidiary, President's Choice Bank.

Conference Call and Webcast

Loblaw Companies Limited will host a conference call as well as an audio webcast on February 24, 2011 at 11:00 a.m. (EST).

To access via tele-conference please dial (647) 427-7450. The playback will be made available one hour after the event at (416) 849-0833, passcode: 35155003 followed by the number sign. To access via webcast please visit www.loblaw.ca, go to Investor Zone and click on webcast. Pre-registration will be available.

Full details are available on the Loblaw Companies Limited website at www.loblaw.ca.

SOURCE Loblaw Companies Limited

For further information: Kim Lee, Vice President, Investor Relations at the Company's National Head Office or by e-mail at investor@loblaw.ca


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