Shopping carts sit outside a Loblaw Cos. store in Toronto, Ontario, Canada, on Monday, July 15, 2013. Loblaw Cos. agreed to buy Shoppers Drug Mart Corp. for C$12.4 billion ($11.9 billion) in the biggest takeover of a Canadian retailer.Brent Lewin/Bloomberg
Major retailers that fortified their businesses to help fend off the Target Canada invasion are now enjoying the fruits of their labour.
Loblaw Cos. Ltd. and Canadian Tire Corp. Ltd. posted strong fourth-quarter results Thursday, reflecting efforts to shore up their operations in recent years. A week earlier, Wal-Mart Canada Corp. reported higher fourth-quarter sales, reaping the rewards of initiatives such as rapidly expanding its grocery business.
When Target Corp. announced plans to expand to Canada four years ago, retailers here bulked up on acquisitions and other strategic investments to help fight off the big U.S. chain.
Now, as Target prepares to leave Canada, unable to see a path to profit before 2021, its rivals here are enjoying some record results.
"The grocery and pharmacy industries remain intensely competitive," Galen G. Weston, president and executive chairman of Loblaw, told an analyst conference call.
"But looking forward in 2015, as our outlook discusses, we expect adjusted net earnings growth."
Retailers such as Canadian Tire said Target ultimately didn't cut into their businesses much, and the discount retailer's current going-out-of-business sales aren't having a big effect either.
Target "didn't have a material impact before" on Canadian Tire, chief executive officer Michael Medline said Thursday, and "they are not going to have a material impact coming out."
Among its missteps in Canada, Target gave its rivals more than two years' advance notice that it was coming. Many of the big retailers rushed to invest in their operations to gear up for what was seen then as the entry of a savvy cheap-chic discounter ready to snare away business.
Loblaw, whose fourth-quarter profit more than doubled from a year earlier, bolstered its business by acquiring Shoppers Drug Mart Corp. last year, while Canadian Tire took over the country's largest sporting goods retailer, led by Sport Chek, in 2011. The purchases, along with other efforts, are paying off for the chains.
"They prepared well – and quite deliberately and publicly – for the big competitor coming in and they upped their games," said Jim Danahy, chief executive officer of consultancy CustomerLab and director of the Schulich School of Business's centre of excellence in retail leadership.
Loblaw and Canadian Tire were already in the process of updating their operations, but the Target threat gave more urgency to their initiatives, Mr. Danahy said.
On Thursday, Loblaw reported its fourth-quarter profit jumped to $247-million or 60 cents a share from $114-million or 41 cents a year earlier. Excluding one-time items, Loblaw earned 96 cents a share. Revenue rose 49.4 per cent to $11.41-billion. (Loblaw had an extra week in its latest quarter.)
Canadian Tire said its fourth-quarter profit rose to $206.6-million or $2.44 a share from $191-million or $2.32 while revenue grew to $3.6-billion from $3.3-billion, also helped by an additional week in its quarter.
Same-store sales at Canadian Tire stores rose 2.8 per cent and, at its sporting goods division, 4.9 per cent.
Canadian Tire has benefited from focusing on its core segments of auto parts and services, housewares and sporting goods, while investing in its digital and e-commerce operations. Loblaw refocused on food and its discount banners and upgraded its technology; now it's testing e-commerce and fresh food at Shoppers. Both retailers spun off their lucrative real estate into separate public companies.
Despite their progress, the retailers face other headwinds, including higher purchasing costs as a result of a stronger U.S. dollar and an oil price slump that threatens to leave more people jobless and with less money to spend in markets such as Alberta.
Mr. Medline said lower oil prices have not yet had any significant effect on Canadian Tire's business but "you know you're going to see some."
The retailers pointed to the pressures of a stronger U.S. dollar, which makes their inventory more expensive when they buy goods overseas or south of the border in U.S. dollars. "A sustained decline in the dollar can be expected to have an increasing impact over 2015," said Dean McCann, chief financial officer at Canadian Tire.
Loblaw's Mr. Weston and Canadian Tire's Mr. Medline said they're interested in scooping up a limited number of Target's leases. "We have identified a number of stores that we think would be complementary, but don't think of it as anything significant or material," Mr. Weston said.