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Loblaw Companies Ltd., Canada’s largest grocery chain, raised its dividend the most in more than a decade after profits surged last quarter.

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The company, controlled by the billionaire Weston family, said it would pay an extra four cents a share, an 11% increase that takes the quarterly dividend to 40.5 cents, widening the gap with rivals in the Canadian industry from the grocery store. The announcement was part of a May 4 earnings update, in which Loblaw reported a 41% increase in profit on revenue of $12.3 billion.

Loblaw said its higher profits were the result of operational improvements and looser pandemic restrictions that allowed more people to walk out, boosting demand for high-margin products such as cosmetics; not the largest increase in food price inflation in 13 years.

“We started the year with momentum in our core retail businesses, a clear strategic agenda and continued traction in our growth initiatives,” Chief Executive Galen Weston said in a press release.

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Investors were mostly numb to the results as stocks were little changed from earlier in the week. Metro Inc. and Empire Co. Ltd., the other two members of the Canadian grocery oligopoly, pay dividends of 27.5 cents per share and 15 cents per share, respectively.

Loblaw, a network of more than 2,400 stores that includes No Frills, Shoppers Drug Mart and Real Canadian Superstore, said it has increased its dividend 11 times in a row since 2012. During that period, it has never increased the dividend. by 11%. Last year, the increase was nine percent. Between 2012 and 2022, annual dividend increases at Loblaw have averaged 6.2%.

As inflationary pressures mount, retailers and food companies are jostling over who should absorb the brunt of cost increases, and major players such as PepsiCo Inc. and Oreos owner Mondelēz International Inc. have temporarily withdrawn their products off the shelves to protest Loblaw’s refusal to accept price increases.

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Inflation pressure has prompted Metro to admit that it will have to start absorbing price increases by cutting its margins in order to stay competitive and not risk losing sales. But Weston said he believes Loblaw can maintain margins going forward. In the quarter ended March 26, the company’s gross margin for food and drug retailing improved to 31.1% from 30.3% in the same period in 2021 .

We see signs that inflation is moderating

Galen Weston

“We are seeing signs that inflation is moderating,” Weston said on a call with analysts. “However, the external forces are large and complex, making accurate predictions difficult.”

Maple Leaf Foods Inc., the Canadian poultry and pork processor, also suggested that the challenges facing the food system may begin to stabilize, but only after a volatile period that will leave prices high as increases in Year-to-date costs are “now in the market,” CEO Michael McCain said.

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“In fact, I don’t remember ever having to deal with the extraordinary instability that we all see: a global pandemic, soaring inflation the likes of which we haven’t seen in decades, extreme disruption of the chains of ‘global sourcing, and now the emergence of direct conflict (in Ukraine),’ McCain said on a May 4 conference call to discuss his company’s quarterly results with analysts.

In fact, I don’t remember being confronted with the extraordinary instability that we all see

Michael McCain

McCain described the food industry’s last quarter as “attempting to run a business with a third of your employees missing one day, half your ingredient supply not showing up the next, and suppliers raising the price by 15 % of another set of ingredients the next day, all repeating over and over and over again.

Loblaw’s internal price inflation indicator is slightly higher than Statistics Canada’s Consumer Price Index, which measured food inflation at 7.5% in the quarter. Weston, who took over as CEO last year, said one of the reasons for the change was Loblaw’s recent move to stop running promotions that didn’t attract customers to stores or give the retailer another return on his investment. One example was the sale of cases of bottled water at less than cost, a spokesperson confirmed.

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“We’re coming out of what we call low calorie sales, stuff that just wasn’t giving us our money’s worth,” Weston said. “As you optimize your promotional effectiveness, you essentially spend less to get the equivalent value in the mind of the consumer.”

Loblaw reported net income of $473 million in the quarter, up from $335 million in the same period last year. According to RBC analyst Irene Nattel, the better-than-expected adjusted earnings per share of $1.36 was “driven by a stronger-than-expected gross margin in retail.”

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Loblaw said earnings growth was helped by the favorable effects of restructuring as well as valuation adjustments on fuel and foreign currency. On an adjusted basis, net income available to common shareholders was $459 million, an increase of approximately 17% year over year.

Retail revenue reached approximately $12 billion in the quarter, an increase of $375 million or 3.2% from a year ago. Same-store sales — a retail metric that paints a clear picture of year-over-year growth ignoring results from new locations — rose 2.1% in Loblaw’s food division.

“Food sales continued to benefit from higher than normal levels of at-home consumption,” Loblaw said in a May 4 press release.

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