Loblaw Companies Limited · TSX:L
Loblaw Companies — Investor Presentation (February 2008)
78 slides from Loblaw Companies's investor presentation, Feb 19, 2008
Slide 1: 2008 Investor Meeting
2008 Investor Meeting February 19, 2008
Slide 2: Forward-Looking Statements
Forward-Looking Statements This publication for Loblaw These forward-looking statements are Company to indentify obsolete or Companies Limited and its subject to a number of risks and excess inventory and to control shrink; subsidiaries (collectively, the uncertainties that could cause actual failur
Slide 3: Forward-Looking Statements (continued)
Forward-Looking Statements (continued) relating to its common shares; In addition to these risks and Readers are cautioned not to place changes in the Company’s tax uncertainties, the material undue reliance on these forward- liabilities resulting from changes in tax assumptions used in making the l
Slide 4: Non-GAAP Financial Measures
Non-GAAP Financial Measures The Company reports its Sales and Sales Growth Excluding Adjusted Operating Income and financial results in accordance the Impact of Tobacco Sales and Margin The table on page 4 of the with Canadian GAAP. VIEs These financial measures exclude Company’s Fourth Quarter 2007
Slide 5: Non-GAAP Financial Measures (continued)
Non-GAAP Financial Measures (continued) Adjusted EBITDA and Margin Adjusted Basic Net Earnings per Free Cash Flow The Company The table on page 4 of the Common Share The table “Basic Net calculates free cash flow as cash flows Company’s Fourth Quarter 2007 Earnings (Loss) Per Common Share and from o
Slide 6: Investor Meeting Agenda
Investor Meeting Agenda Making Loblaw the Best Again 2007 Progress & 2008 Priorities Deep Dive into 2008 Priorities Financial Update Wrap-up Your Questions 6
Slide 7: Investor Meeting Agenda
Investor Meeting Agenda Making Loblaw the Best Again 2007 Progress & 2008 Priorities Deep Dive into 2008 Priorities Financial Update Wrap-up Your Questions 7
Slide 8: Making Loblaw the Best Again
Making Loblaw the Best Again….. We are here GROW (Loblaw is the Best Again) INNOVATE SIMPLIFY Restore Simplify and sharpen innovation to Loblaw by making the heart of our FINANCIAL accountabilities clear and ASPIRATIONS* culture in food centralizing where it counts ▪ 5% SALES Grow Loblaw and a
Slide 9: 2007 indications of progress
2007 … indications of progress 9
Slide 10: Food volumes are strong despite inflation
Food volumes are strong despite inflation LCL Food Sales and LCL Food Inflation (Percent growth) LCL Food Sales Growth Retail Item Count Growth P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13 LCL Food Price Inflation 10
Slide 11: Margin begins to flatten out
Margin begins to flatten out Food Front End Gross Profit 2007 by Week (Percent) FEGP % Rolling 4 Week FEGP % 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 34 37 39 41 43 45 47 49 51 Weeks * Front end gross profit includes product margin, some vendor funding and some transportation costs 11
Slide 12: Shrink trends are positive
Shrink trends are positive National Shrink Trend by Period 2006 vs. 2007 (Shrink as a % of sales) 2006 Shrink % 2007 Shrink % P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13 12
Slide 13: Labour trend is positive
Labour trend is positive Retail Labour Cost Growth 2007 vs. 2006 (Percent growth) P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13 13
Slide 14: Customer satisfaction holding steady nationally
Customer satisfaction holding steady nationally … Satisfaction with Store Attributes – National 68 66 64 62 60 Front End 58 Staff 56 Availability/ 54 Selection 52 50 Value 48 46 Q2 Q2 Q3 Q3 Q4 Q4 Top 2 Box % scores Source: Loblaw National Customer Satisfaction survey April to December 2007 n = 218,4
Slide 15: Improving across categories
… improving across categories … Satisfaction 68 with Store Attributes – National 66 Grocery 64 Fresh 62 Health & Beauty 60 58 56 General 54 Merchandise 52 50 48 46 Q2 Q2 Q3 Q3 Q4 Q4 Top 2 Box % scores Source: Loblaw National Customer Satisfaction survey April to December 2007 n = 64,800 15
Slide 16: Improving in Superstore
…and improving in Superstore Satisfaction with Store Attributes – Superstore 68 66 64 62 60 58 Front End Availability/ 56 54 Selection 52 Staff 50 Value 48 46 Q2 Q2 Q3 Q3 Q4 Q4 Top 2 Box % scores Source: Loblaw National Customer Satisfaction survey April to December 2007 n = 218,400 16
Slide 17: In Q4, we gained market share in key regions
In Q4, we gained market share in key regions Market Share – Q4 2006 vs. Q4 2007 – Dollars (Point Change) Gain National +0.5 Atlantic -0.7 Quebec +0.1 Ontario +1.1 West +0.6 2007 2007 market market share share flat flat 17 Source: Nielsen MarketTrack, LCL Market share Flash Report, National All Chann
Slide 18: Industry new square footage growth is slowing
Industry new square footage growth is slowing Market Square Footage (Square Feet Thousands) 4,500 4,000 3,500 3,000 2,500 2,000 STM Retailers 1,500 1,000 500 Competitor 1 0 2004 2005 2006 2007 18 * STM = Supermarket Type Merchandise, i.e., excludes general merchandise
Slide 19: Investor Meeting Agenda
Investor Meeting Agenda Making Loblaw the Best Again 2007 Progress & 2008 Priorities Deep Dive into 2008 Priorities Financial Update Wrap-up Your Questions 19
Slide 20: Two important points
Two important points: 1. 2007 began the process of Making Loblaw the Best Again 2. 2008’s actions balance three important requirements: ¾ Improve competitive position and results ¾ Invest in infrastructure to support future growth ¾ Make progress on each area of the Formula for Growth 20
Slide 21: Stated objectives for 2007
Stated objectives for 2007 Our Timeline for Change GROW (Loblaw is the Best Again) INNOVATE SIMPLIFY Restore Simplify and sharpen innovation to Loblaw by making the heart of our accountabilities clear and culture in food FINANCIAL ASPIRATIONS* centralizing where it and across all counts ▪ 5% SAL
Slide 22: Fix the Basics: simplified organization
Fix the Basics: Successfully complete implementation of simplified organization What We Said What We Did New Central Operations New central teams in and Merchandise teams 9 place Net reduction of 800 – 1,000 positions 9 Reduced positions ~ 900 Faster, simpler more In In Process Process Faster and mo
Slide 23: Fix the Basics: What we learned, effect on 2008
Fix the Basics: Successfully complete implementation of simplified organization What We Learned How It Effects 2008 Central Operations team Ops team focused on key drivers of is a new platform for improved performance: customer consistency and speed of service, availability, shrink execution red
Slide 24: Fix the Basics: Availability, Store Operations, Supply Chain and IT
Fix the Basics: Availability, Store Operations, Supply Chain and Information Technology What We Said What We Did Availability: Focus on store root Implemented program in our 233 causes and roll out improvement program 9 highest volume corporate stores Store Operations: Implement New structure implem
Slide 25: Fix the Basics: Getting credit for value
Fix the Basics: Getting credit for value What We Said What We Did Loblaw will make a major investment in price with a 9 By year end, SS and HD banners operated at target focus on KVI’s price levels. Significant improvements made in Conventional stores. Offset portion of margin impact through increas
Slide 26: Fix Ontario RCSS proposition and economic model
Fix the Basics: Fix Ontario RCSS proposition and economic model What We Said What We Did Make the store easier to shop 9 Food performance ahead of expectations 9 Consumer feedback indicates improved shopping experience Fix GM 9 Joe Fresh, Baby, Health Selectively reduced non-hero 9 categories – Beau
Slide 27: Focus for 2008
Focus for 2008 1 2 3 Improve Make progress Invest competitive in each area of in position and the formula for Future Growth cost efficiency growth Price Format BEST FORMAT ALWAYS FRESH FIRST Investment Pilots AVAILABLE FRIENDLY COLLEAGUES MOTIVATED PRICED TO SERVE CONTROL LABEL RIGHT ADVANTAGE
Slide 28: 2008: Improving competitive position and cost efficiency
2008: Improving competitive position and cost efficiency Major factors in Results expected to be improving Loblaw supported through cost competitive reduction/ efficiencies position . . . driven by focus on . . . Continued investment Operating cost programs: in price ¾ Labour productivity ¾ Shri
Slide 29: 2008: Invest in future growth
2008: Invest in future growth Action Impact SC2010 program start up 2008 capital cost of ~$115MM – a multi year supply chain IRR% (pre-tax) on total improvement program program investment ~23% IT Roadmap start up – a 2008 capital cost of ~$80 MM multi year investment in 40% IT infrastructure
Slide 30: 2008: Make progress in each area of the Formula for Growth
2008: Make progress in each area of the Formula for Growth BEST FORMAT ALWAYS FRESH FIRST AVAILABLE FRIENDLY COLLEAGUES PRICED MOTIVATED CONTROL LABEL RIGHT TO SERVE ADVANTAGE HEALTH, HOME, 10% JOE & WHOLESOME 30
Slide 31: Market share – a positive trend
Market share – a positive trend Market Share – 2006 vs. 2007 – Tonnage (Point Change and Percentage Growth) 2 Total Food 1.5 Center of Store 1 0.5 0 P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13 -0.5 LCL Food Unit Price % Growth -1 Source: AC Neilson Market Track December 22 Flash Report - Tonnage 31
Slide 32: 2008 ... focus on execution
2008 . . . focus on execution 32
Slide 33: Investor Meeting Agenda
Investor Meeting Agenda Making Loblaw the Best Again 2007 Progress & 2008 Priorities Deep Dive into 2008 Priorities ¾ Pricing ¾ Shop-keeping ¾ Format Pilots ¾ Supply Chain ¾ Information Technology Financial Update Wrap-up Your Questions 33
Slide 34: Investor Meeting Agenda
Investor Meeting Agenda Making Loblaw the Best Again 2007 Progress & 2008 Priorities Deep Dive into 2008 Priorities ¾ Pricing ¾ Shop-keeping ¾ Format Pilots ¾ Supply Chain ¾ Information Technology Financial Update Wrap-up Your Questions 34
Slide 35: Strong price positions gain share at expense of weaker players
Strong price positions gain share at expense of weaker players even as Wal-Mart grows Micromarket – market share Price Price (Percent) index index Houston, Texas Buffalo, New York Winners Winners Other Other 105 109 ALDI Wal-Mart Losers Losers Tops Wal-Mart (Ahold) Albertsons Kroger 125 120 Wegmans
Slide 36: We have a simple yet rigorous approach to pricing
We have a simple yet rigorous approach to pricing Invest in price where it most impacts consumers’ value perceptions Stores operate within a zone structure based on reference trading competitors Each format (HD, SS, GF) has its own price target for each pricing segment 36
Slide 37: Each LCL format has a distinctive price position
Each LCL format has a distinctive price position aligned with its overall strategy HARD DISCOUNT SUPERSTORE GREAT FOOD Lower price position Delivers variety, Best value for justified by limited great food, money among assortment and healthy living Great Food with simple shopping and stylish home dis
Slide 38: LCL HD and SS are competitively priced
LCL HD and SS are competitively priced; additional investment is required to support GF Target nofrills Target Superstore Target Loblaws Price Index 38
Slide 39: Clear value signage assists in improving price perceptions
Clear value signage assists in improving customer price perceptions From To 39
Slide 40: Investor Meeting Agenda
Investor Meeting Agenda Making Loblaw the Best Again 2007 Progress & 2008 Priorities Deep Dive into 2008 Priorities ¾ Pricing ¾ Shop-keeping ¾ Format Pilots ¾ Supply Chain ¾ Information Technology Financial Update Wrap-up Your Questions 40
Slide 41: Hole counts have decreased by 73-77%
Hole counts have decreased by 73-77% 74% 77% 76% 73% Baseline Week 6 Baseline Week 6 Baseline Week 6 Baseline Week 6 West Atlantic Ontario Quebec 41
Slide 42: Customers finding improved in-stock of 7-9% points
Customers finding improved in-stock of 7~9% points On Always Available Not on Always Available 3 HOLES 8 HOLES 42
Slide 43: Focus on scheduling is yielding results
Focus on scheduling is yielding results Loblaw Labour Productivity (Percent growth vs. LY) Labour $ Items Per Labour Hour Hours Pd 6 Pd 7 Pd 8 Pd 9 Pd 10 Pd 11 Pd 12 Pd 13 43
Slide 44: Cashiers are getting more productive
Cashiers are getting more productive National Items Per Minute Scanning Rate (Items Per Minute) Items Per Minute Trend line Pd 6 Pd 7 Pd 8 Pd 9 Pd 10 Pd 11 Pd 12 Pd 13 44
Slide 45: Four programs to reduce shrink
Four programs to reduce shrink 1 L.A.R. 2 (Loblaw Accountability Backcheck Report) 3 ARCP 4 (At Risk Coupon Fresh Shrink Initiative Program) 45
Slide 46: Shrink focus improves freshness
Shrink focus improves freshness On Shrink Program Stores Stores on on the the program program have have reduced reduced throwaways throwaways by by 30% 30% Not on Shrink Program 46
Slide 47: Investing in our colleagues
Investing in our colleagues Learning Stores Classroom Facilitators are Shopfloor-based practical training former Store Managers by former Department Managers Colleague Discount Commencing Q1 2008 a 10% colleague discount will be offered 47
Slide 48: Investor Meeting Agenda
Investor Meeting Agenda Making Loblaw the Best Again 2007 Progress & 2008 Priorities Deep Dive into 2008 Priorities ¾ Pricing ¾ Shop-keeping ¾ Format Pilots ¾ Supply Chain ¾ Information Technology Financial Update Wrap-up Your Questions 48
Slide 49: Loblaw Pilot Projects - Superstore
Loblaw Pilot Projects - Superstore Superstore Will Will offer offer great great value value in in an an innovative innovative and and fun fun one-stop one-stop shop shop for for great great food, food, healthy healthy living living and and aa stylish stylish home home 49
Slide 50: Superstore pilots – encouraging initial results
Superstore pilots – encouraging initial results Status Results Rollout Increased productivity Apply to other (bakery, apparel & drug); Superstores, in more work (beauty, home less costly box Milton & electronics) Success Superstore Operational, front end & customer service improvements Improve
Slide 51: Milton holding opening week sales ahead of average
Milton holding opening week sales ahead of the average Ontario Superstore Indexed Sales Performance (First Full Week of Operation =100) 110 Pre-Holiday Holiday Post-Holiday 100 Indexed Sales 90 Milton +7% +5% 80 Average Ontario Superstore 70 1 3 5 7 9 11 13 15 17 19 21 23 25 Weeks of Operation Used
Slide 52: Loblaw Pilot Projects – Great Food
Loblaw Pilot Projects – Great Food Great Food Will Will offer offer the the best best fresh fresh and and packaged packaged food, food, knowledgeable knowledgeable staff, staff, outstanding outstanding customer customer service, service, and and an an exciting exciting shopping shopping experience e
Slide 53: Great Food pilots – started, but more to come
Great Food pilots – started, but more to come Status Results Rollout Initial 27% produce sales lift 5 stores Burnhamthorpe Success #3 Joe in country identified; Revised signage ~100 potential package @ $2-5MM More fresh work capital each needed Conversion In Improved fresh sales Convert as
Slide 54: Loblaw Pilot Projects – Hard Discount
Loblaw Pilot Projects – Hard Discount Hard Discount Will Will deliver deliver the the lowest lowest effective effective prices prices and and traffic traffic oriented oriented promotions promotions forfor customers customers willing willing to to make make thethe trade trade off off on on brands bra
Slide 55: Hard Discount pilot – encouraged by initial results
Hard Discount pilot – encouraged by initial results Status Results Rollout Initial Strong value ~70 potential nofrills in West success offering in conversions competitive market @ $0.5-1.5MM capital each Positive sales growth Also test non- Tonnage up converted Extra considerably Foods with
Slide 56: Loblaw – largest STM footprint in the market
Loblaw – largest STM footprint in the market 2004 to 2007 STM* Total Square Footage (Percent) 100% 100% 100% 100% Competitor 1 5 6 6 7 Competitor 2 14 14 14 14 Competitor 3 18 18 18 19 All Others 31 30 30 29 Loblaw Companies 32 32 32 31 Limited 2004 2005 2006 2007 In In 2007, 2007, Loblaw Loblaw mai
Slide 57: Investor Meeting Agenda
Investor Meeting Agenda Making Loblaw the Best Again 2007 Progress & 2008 Priorities Deep Dive into 2008 Priorities ¾ Pricing ¾ Shop-keeping ¾ Format Pilots ¾ Supply Chain ¾ Information Technology Financial Update Wrap-up Your Questions 57
Slide 58: Supply Chain 2010
Supply Chain 2010 Today 2007/2008 Tomorrow Stock & Ship Model 60% Flow Model Inventory Storage Capacity Constrained Not Responsive Enough Poor Forecasting 2008 Easier for Stores Faster New DC Capacity Fresher Improved Forecasting Less Inventory Transport Efficiencies Easy
Slide 59: SC2010: Fundamentally Changing Product Flow
SC2010: Fundamentally Changing Product Flow Seamless Flow Customers Stores LCL Enterprise Vendors Improved Fresh Everyday Growth Collaborative Service & Quick to Shelf Enabled & Integrated & Freshness & Simple Helping to enable “Shop Floor Easy” 59
Slide 60: Transformation Roadmap
Transformation Roadmap Future Distribution Mix Flow Flow Storage Storage Next 12 to 18 Mos. Next 2 Years Integrate the Lay the Foundation Build the Core End-to-End Solution • Store Store service service levels levels • New New end-to-end end-to-end • Advanced Advanced flow flow & & replenishment rep
Slide 61: Investor Meeting Agenda
Investor Meeting Agenda Making Loblaw the Best Again 2007 Progress & 2008 Priorities Deep Dive into 2008 Priorities ¾ Pricing ¾ Shop-keeping ¾ Format Pilots ¾ Supply Chain ¾ Information Technology Financial Update Wrap-up Your Questions 61
Slide 62: Information Technology Transformation
Information Technology Transformation From To Tactical Strategic roadmap Strategy Build it ourselves Buy & integrate, Do it ourselves Outsource non-core Investment Appli- Aging, inflexible or National, modern, cations non-existent Governance flexible Collaboration Timely & actionable Data Difficult
Slide 63: New capabilities organized into three main categories
New capabilities have been organized into three main categories 1 2 3 Core Retail Supporting Enabling 63
Slide 64: New capabilities drive strategic and financial value
New capabilities drive strategic and financial value Core Retail Value Store Quicker to shelf Operations Greater shop-floor efficiency Better availability, freshness Supply Chain Decreased inventory and cost Increased traffic & sales Merchandising Improved ad effectiveness 64
Slide 65: New capabilities drive strategic and financial value
New capabilities drive strategic and financial value Supporting Value Reduce cycle time and effort Finance Improved data/information access Human Resources Improve resource allocation Property Improved property/asset Management management Corporate Greater employee productivity 65
Slide 66: New capabilities drive strategic and financial value
New capabilities drive strategic and financial value Enabling Value Information & Common, consistent data Data Management Improve decision-making Critical Maintain reliable, secure operations Infrastructure Reduce outage costs Delivery Enhanced speed-to-market Capabilities Improved opera
Slide 67: Investor Meeting Agenda
Investor Meeting Agenda Making Loblaw the Best Again 2007 Progress & 2008 Priorities Deep Dive into 2008 Priorities Financial Update Wrap-up Your Questions 67
Slide 68: Superstore and Hard Discount comprised 57% of 2007 retail sales
Superstore and Hard Discount comprised 57% of 2007 total retail sales 2007 Total Retail Sales(1) Breakdown by Format (Percentage of Total Sales) 100 32 Principal pricing investments in 25 Q3 & Q4 of 2007 32 11 Total Loblaw Superstore Hard Discount Great Food Wholesale & Other (2) Notes: (1) Retail s
Slide 69: Superstore and Hard Discount had highest same-store sales growth
Superstore and Hard Discount experienced the highest same-store sales growth in 2007 2007 Same-Store Sales(1) Growth (Percentage Growth vs. LY) 4.6 3.8 2.4 0.4 Total Loblaw Superstore Hard Discount Great Food Pricing investments supported sales growth 69
Slide 70: 2007 earnings were pressured
2007 earnings were pressured 2007 LCL Adjusted Operating Income* Analysis ($ Million) Notable $1326 EPS 91 $2.72 34 37 75 25 11 11 24 6 $1034 EPS $2.05 ‘06 Adj. Sales, Op. Admin Consul Pharm- Est. Office Bonus Fixed ‘07 Adj. Op. Margin Exp. & -ting acy Adjust- Bldg Plan Asset Op. Income* Effects Oth
Slide 71: Strong cash flow improvements were achieved in 2007
Strong cash flow improvements were achieved in 2007 ‘06 Actual vs. ‘07 Estimated LCL Free Cash Flow* ($ Million) 75 2007 FCF* estimated in range of $375 to $450 million 375 70 2006 2007 * See Non-GAAP Financial Measures 71
Slide 72: Capital is being redeployed to infrastructure and existing stores
Capital is being redeployed to infrastructure and existing store assets in the near-term LCL Gross Capital Expenditure ($ million) $937 Infrastructure 100 $825 New Store Development, 362 $613 280 Expansions & Land 160 162 187 Conversions 475 Remodels 383 266 2006 2007 2008E New New store store devel
Slide 73: Ownership of retail square footage increased
Ownership of retail square footage increased from 2006 to 2007 LCL Owned Retail Real Estate (Millions of Square Feet) 32.8 33.3 Franchise 5.0 5.3 Stores 27.8 28.0 Corporate Stores 2006 2007 We We consider consider owning owning our our retail retail stores stores aa core core strategic strategic adv
Slide 74: Uneven progress in 2007 towards financial aspirations
Uneven progress in 2007 towards delivering financial aspirations for turnaround FINANCIAL ASPIRATIONS* ▪5% SALES GROWTH – 2.6% total sales growth, with 2.4% same-store sales growth ▪10% ADJUSTED NET EARNINGS GROWTH 8 -24.6% growth due to transformation costs and pricing investments ahead of cost red
Slide 75: Investor Meeting Agenda
Investor Meeting Agenda Making Loblaw the Best Again 2007 Progress & 2008 Priorities Deep Dive into 2008 Priorities Financial Update Wrap-up Your Questions 75
Slide 76: 2008 Investor Meeting
2008 Investor Meeting February 19, 2008
Slide 77: Investor Meeting Agenda
Investor Meeting Agenda Making Loblaw the Best Again 2007 Progress & 2008 Priorities Deep Dive into 2008 Priorities Financial Update Wrap-up Your Questions 77
Slide 78: 2008 Investor Meeting
2008 Investor Meeting February 19, 2008
Loblaw Companies — Investor Presentation (February 2008) on 6ix