Newspaper article The Canadian Press

Canadian Grocers Exceed U.S. and Europe in Margins, Credit Metrics

Newspaper article The Canadian Press

Canadian Grocers Exceed U.S. and Europe in Margins, Credit Metrics

Article excerpt

Canadian grocers see strong profit margins

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TORONTO - Canadian supermarkets exceed their U.S. and European counterparts when it comes to profit margins and credit metrics, according to a Moody's analysis released Tuesday.

The big three Canadian grocers -- Loblaw Companies Ltd. (TSX:L), Empire's Sobeys (TSX:EMP.A) and Metro Inc. (TSX:MRU) -- are seeing an improving trend in their earnings margins while four European peers are watching them shrink and margins are flat at two comparable U.S. companies.

The Canadian grocers also operate with lower leverage, or borrowed money, than their international peers, Moody's said.

"While we do not rate any of the Canadian supermarkets, we are nevertheless asked for our views on the sector, especially given Loblaw's July 15 announcement that it would acquire Shoppers Drug Mart Corp., Canada's No. 1 pharmacy retailer, for $12.4 billion and Sobeys' pending acquisition of Canada Safeway for $5.8 billion," Moody's said.

"Our main finding is that although the Canadians are smaller and less diverse, they have good margins and superior credit metrics."

It says Loblaw's leverage will rise following the Shoppers deal, which will be paid in cash and stock, but should come down within two years.

Comparable European supermarkets -- which include Tesco PLC, Carrefour S.A., Koninklijke Ahold N.V. and Delhaize Group -- are much larger and more geographically diverse than Canadian and U.S. grocery chains.

Moody's says scale is positive for credit quality because it gives the stores bargaining power when dealing with suppliers, and increases their ability to leverage costs.

But the exposure of European supermarkets to non-food products, such as clothing and consumer electronics, has left them vulnerable to economic conditions, which have been poor lately. …

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