Financial Ratios

First, choose two public companies that are listed on the TSX. WE HAVE CHOSEN PIZZA PIZZA AND SHOPPERS DRUG MART

About Us – Pizza Pizza

Our company | Shoppers Drug Mart

Second, obtain the most recent annual financial statements for each company. You can get this either from the companies’ websites (usually under “Investor Relations” or from

www.sedar.com

). Print off the balance sheet and the income statement for each company.

Third, calculate 3 ratios (in each of the five Ratio Categories listed below), for each company and briefly describe the results for each section (a brief paragraph for each section):

(i) Short term Solvency / Liquidity

(ii) Long term Solvency / Leverage

(iii) Asset Utilization

(iv) Profitability

(v) Market Value

Finally, Briefly give your overall impression of each company based on your analysis and choose which one you think would make a better investment option. Explain your answer.

Managerial Accounting and Finance
Group Assignment: Pizza Pizza & Shoppers Drug Mart
Introduction and Overview
Pizza Pizza
A quick-service restaurant chain is operated and franchised by Pizza Pizza Ltd (PPL). Pizza
Pizza and Pizza 73 are the brand names under which the company has operated since 1967.
The menu items offered by the establishment consist of pizza, wings, salads, panzos,
quesadillas, drinks, desserts, appetizers, sides, and breadbasket items. It provides mobile
websites that work with any smartphone and mobile apps for iPhone, iPad, iPod Touch, and
Android devices for online meal ordering. The company offers gift cards, organizes all kinds of
events, and advertises school lunch programs and corporate catering. PPL runs eateries in
Ontario, Quebec, and Alberta using the franchising concept. The head office of PPL is in
Toronto, Canada.
(https://explorer-globaldata-com.ezproxy.humber.ca/Company/Summary/pizza-pizza-limited)
Shoppers Drug Mart
Operated by Loblaw Companies Ltd., shoppers Drug Mart Inc. (Shoppers) is a full-service retail
drug store operator and licensee. The company sells and services assisted-living devices, home
care items, medical equipment, and mobility equipment to institutional and retail consumers. It
also operates luxury beauty destinations and pharmacies for medical clinics. Branded
pharmaceuticals, over-the-counter medications, cosmetics, health and beauty supplies,
seasonal goods, and household necessities are available to customers through its outlets.
Shoppers Drug Mart and Shoppers Simply Pharmacy are two of its retail formats. Additionally,
under the names Wellwise, PC Health, Medical Cannabis, Shoppers Home Health Care,
Specialty Health Network, and MediSystem Pharmacy, Shoppers offer a range of specialty
services. It provides private label brands as well. The main office of Shoppers is located in
Toronto, Ontario, Canada.
Shoppers Drug Mart Inc – Global Data Intelligence Center – Explorer (humber.ca)
Ratio Calculations
Pizza Pizza: Ratios are calculated using Figure 1, 2 and 3 provided below.
Short Term Solvency or Liquidity Ratios
Current Ratio= Current assets / Current Liabilities
For Year 2022,
For Year 2021,
Current asset = 40,658
Current asset =42,371
Current Liabilities= 71,768
Current Liabilities= 70,782
Current Ratio = 0.5674
Current Ratio = 0.5986
Quick Ratio= (Current assets – Inventory) / Current Liabilities
Current asset = 40,658
Current asset =
Inventory=7,921
42,371
Inventory= 6,290
Current Liabilities= 71,768
Current Liabilities= 70,782
Quick Ratio = 0.4562
Quick Ratio = 0.5148
Cash Ratio= Cash / Current Liabilities
Cash= 7748
Cash=8723
Current Liabilities= 71,768
Current Liabilities= 70,782
Cash Ratio = 0.108
Cash Ratio= 0.1232
Net Working Capital Ratio= Net Working Capital / Total Assets
Net working capital = -31,110
Net working capital= -28,411
Total Assests= 240,509
Total Assests= 233,168
Net Working Capital= 0.1294
Net Working Capital= 0.1218
Interval Measure= Current Assets / Average Daily Operating Costs
Current asset = 40,658
Current asset =
42,371
Daily operating cost = -263724
Daily operating cost = -269633
Interval Measure = – 0.1542
Interval Measure= – 0.1571
Asset Utilization Turnover Ratio
Inventory Turnover= Cost of Goods Sold / Inventory
Inventory=7,921
Inventory= 6,290
Cost of Goods Sold = Cost of food sales +store service expenditure
Cost of Goods Sold=(-122,267)+ (-73,270)
Cost of Goods Sold = (-121,308)+ (-75,854)
= -195537
Inventory Turnover= -24.6859
= -197162
Inventory Turnover= -31.3453
Day’s Sales in Inventory= 365 days / Inventory Turnover
Day’s Sales in Inventory = -14.7858
Day’s Sales in Inventory = – 11.6445
Receivables Turnover= Sales / Accounts Receivable
Sales = 261,811
Accounts Receivable = 10,884
Receivables Turnover = 24.0547
Sales= 263,792
Accounts Receivable = 11,232
Receivables Turnover = 23.4857
Day Sales in Receivable= 365 days / Receivable Turnover
Day Sales in Receivable= 15.1737
Day Sales in Receivable= 15.5414
NWC Turnover= Sales / NWC
Sales = 261,811
Sales= 263,792
Net working capital = -31,110
Net working capital= -28,411
NWC turnover= – 8.4156
NWC turnover= – 9.2848
Fixed Asset Turnover= Sales / Net Fixed Assets
Sales = 261,811
Sales= 263,792
Net Fixed Assests= 199,851
Net Fixed Assests= 190,797
Fixed Asset Turnover= 1.3100
Fixed Asset Turnover= 1.3826
Total Asset turnover= Sales / Total Assets
Sales = 261,811
Sales= 263,792
Total Assests= 240,509
Total Assests= 233,168
Total Asset turnover= 1.0886
Profitability Ratio
Profit Margin= Net Income / Sales * 100
Net Income= – 859
Net Income = – 3835
Sales = 261,811
Sales = 263,792
Profit Margin = -0.33
Profit Margin = -1.45
Total Asset turnover=1.1313
Return on Assets (ROA)= Net Income / Total Assets * 100
Net Income= – 859
Net Income = – 3835
Total Assests= 240,509
Total Assests= 233,168
ROA = – 0.36
ROA = -1.64
Return on Equity= Net Income / Total Equity * 100
Net Income= – 859
Net Income = – 3835
Total Equity = – 105502
Return on Equity = -0.0081
Total Equity = -105381
Return on Equity= -0.0364
Dupont Identity or ROE= (Net Income / Sales) * (Sales / Assets) * (Assets / Equity)
Net Income= – 859
Net Income = – 3835
Sales = 261,811
Sales = 263,792
Total Equity = -105502
Total Equity = -105381
Total assest = Non current + current assest
Total assest= 240,509
Total assest= 233,168
Dupont identity=(-0.0033)*(1.0886)*(-2.2797) Dupont identity = (-0.0145)*(1.1313) (-2.2126)
Dupont identity = 0.0082
Dupont identity = 0.0362
Figure 1- page 1, Balance sheet
Figure 2- page 2, Income statement
Figure 3- page 5, statement of cash flow
2022 Annual Report
25%
10%
$1 billion +
On average savings by
switching from comparable
brand to no name ®
Amount fully-engaged
PC Optimum™ members
can save on their grocery bills
Value of PC Optimum™ Points
redeemed by customers
4.4 million
3.7 million
250
COVID vaccinations
administered
COVID tests and screenings
administered
Carbon reduction
projects completed
$3 billion
50%
30 minutes
E-commerce revenue
for the year
PC Express™ Delivery
coverage across the country
Launched PC Express™ Rapid
Delivery, with delivery in as little
as 30 minutes
Table of Contents
2 Our Stores, Our Colleagues,
Our Strategy
4 Financial Highlights
5 Chairman’s Message
8 Environmental, Social and
Governance
10 Our Divisions
12 Our Leading Assets
14 Corporate Governance Practices
16 Board of Directors
16 Leadership
17 Financial Review
Helping Canadians
Live Life Well
®
In 2022, we once again proved that our business is uniquely positioned to help address
the prevailing forces of the day. As Canadians demonstrated an eagerness to return to
school, work and play, we were there – with cosmetic, cough and cold sales reaching
record levels. As Canadians faced an inflationary crisis unseen in decades, we were there
– with an unprecedented freeze on no name® prices and over 1 billion in PC Optimum™
point awards and redemptions. As Canadians continued to demand more engagement
around the issues that matter most to them and their families, we were there – actively
fighting climate change and advancing social equity. Being a purpose-led organization is
tough but important work, and we’re unapologetically proud of our efforts.
None of this is possible without our 221,000 colleagues and employees, who serve their
communities with pride and passion every day, and the millions of Canadians who offer
us their trust each and every week. To all of you, we say thank you.
2022 ANNUAL REPORT
LOBLAW COMPANIES LIMITED
1
Our Stores
Our Colleagues
Our Strategy
As a purpose-driven organization, we exist to help Canadians Live Life Well ®.
This commitment factors into how we operate our stores and pharmacies
day-to-day, and how we deliver on our long-term organizational strategy.
Our strategy keeps us intently focused on the realities of today,
the opportunities of tomorrow, and the needs and expectations
of consumers decades from now. Our efforts are underpinned by
a solid foundation – an energetic colleague base working in great
stores and pharmacies that operate efficiently and effectively from
one day to the next. From there, we layer on value – everyday digital
retail solutions, meaningful payment options, and outstanding
loyalty offerings. And looking to the future, we envision connecting
Canadians to healthcare solutions, both in our stores and online.
Retail Excellence
Through disciplined execution within our core retail operations,
and by leveraging our scale and strategic assets, we are able to
grow sales, optimize gross margins, and reduce operating costs
– all while captivating and engaging customers. This requires
promotional effectiveness, personalized value, quality service, and
continued network investment and optimization to not only meet
customer needs but improve overall profitability.
Investing for the Future
Capital investments in the modernization and automation of our
supply chain, the expansion of our retail network, and the evolution
of our Connected Healthcare strategy are all examples of Loblaw
investing for long-term success.
Environment, Social and Governance (ESG)
We have a number of commitments within our two ESG priorities
– fighting climate change and advancing social equity – that guide
our support for the communities we serve.
Colleagues, Culture and CORE Values
An engaged and collaborative workforce is a key to our success,
which is why we welcome authenticity, encourage strong
connections, value trust, and make daily decisions with our CORE
values – Care, Ownership, Respect, Excellence – top of mind.
Driving Business Growth
We continue to invest in three targeted growth areas to further
differentiate our portfolio of assets and generate competitive
advantage: Digital Retail, Loblaw Media™, and PC Optimum™.
Our CORE values
guide how we think, act and
interact with one another.
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2022 ANNUAL REPORT
LOBLAW COMPANIES LIMITED
care
ownership
respect
excellence
CORE values
Adarsh’s
Curiosity Makes
a Big Impact
Adarsh Soomal, Senior Regional Maintenance Manager for
the Western Region noticed plastic wrap was getting caught
in the gears on loading machines, melting, and causing drive
train units to fail. He designed a small deflector piece that
could be added to the loading machine and prevent plastic
from getting sucked into the gears. The next year’s avoidable
cost dropped from $70,000 to $24,000 and in the next two
years there were no single drive train unit failures at all.
“Look at a different way to fix a problem
– that’s the way I approach things,”
he says. “I always recommend being
curious. Ask questions, look at
other possibilities.”
ADARSH SOOMAL
Shirley’s Dream
Comes True
When Shirley Ibe started Madeup Beauty, an inclusive, Blackowned cosmetics brand aimed at women of colour, getting
it on shelves at Shoppers Drug Mart® was an ambitious
goal. Shirley attended a session where the Black Business
Professionals Association connected small businesses with
Loblaw, from there she had several presentations to Loblaw.
All of her hard work paid off. Shirley is proud to see her line
of makeup that prioritizes Black and other women of colour
stocked alongside some of the biggest names in makeup.
“From the time I started Madeup
Beauty, I’ve always said I would love
®
to be in Shoppers Drug Mart stores.
It was one of my top choices because
it’s Canadian owned,” she says.
“And I’m always at Shoppers! I have
about a million PC Optimum™ points.”
SHIRLEY IBE
2022 ANNUAL REPORT
LOBLAW COMPANIES LIMITED
3
Financial
Highlights
+4.7%
+6.9%
+ 8.2%
+ 5.7%
FOOD RETAIL
SAME STORE SALES
DRUG RETAIL
SAME STORE SALES
FRONT OF STORE
PHARMACY
+6.3%
30.9%
+10.6%
10.9%
REVENUE 2
ADJUSTED RETAIL
SEGMENT GROSS PROFIT
MARGIN1,2
CONSOLIDATED
ADJUSTED EBITDA1,2
CONSOLIDATED ADJUSTED
EBITDA MARGIN1,2
2020
29.5%
2020
4,937
($ millions)
2020
51,836
2021
53,170
2022
56,504
2021
30.7%
($ millions)
2022
30.9%
+ 22.0%
+12.9%
ADJUSTED DILUTED NET
EARNINGS PER COMMON
SHARE1,2
DIVIDEND DECLARED
PER COMMON SHARE
2021
5,587
2022
6,181
2020
9.5%
2021
10.5%
2022
10.9%
($)
($)
1
2020
4.09
4
2021
5.59
2022
6.82
2022 ANNUAL REPORT
LOBLAW COMPANIES LIMITED
2020
1.28
2021
1.40
2022
1.58
2
See the Non-GAAP Financial Measures section of the 2022 Annual Report –
Financial Review
Excluding the impact of the 53rd week in 2020
Chairman’s
Message
More than ever, our businesses are
well positioned to serve the everyday
needs of Canadians. In a challenging
year of inflationary pressures, each of
our businesses delivered value, care
and convenience while performing at the
high-end of expectations. Collectively,
our stores, our colleagues and our
employees achieved our purpose
– to help Canadians Live Life Well ® –
in unique and impactful ways.
Galen G. Weston
Chairman and President
Fellow Shareholders,
Our business entered 2022 with momentum, optimism, and a
focus on the fundamentals.
A year later, we remain confident. Our supermarkets are doing
more than ever to offer consumers value. The convenience of
our e-commerce platforms drove $3 billion in revenue, stabilizing
well above pre-pandemic levels. Joe Fresh® made essential style
accessible to everyone. We continued to grow Canada’s most
rewarding no-fee financial services with more than 2 million
PC® Mastercard® and PC Money™ account holders. And, our
pharmacy business is stronger than ever, providing patients
with greater access and choice through new services and
enhanced care.
As we go, we are making meaningful progress against our
Environmental, Social and Governance (ESG) goals, executing
our strategy in pursuit of our purpose.
Supporting Canadians Today
In 2022, we enhanced our core through a commitment to retail
excellence. More specifically, we drove day-to-day operating
efficiency, and focused on being the best buyers in Canada.
This improved our performance, drawing more customers while
delivering solid financial results.
Those successes showed up in many ways. Our no name® price
freeze, which capped the price of 1,500 iconic yellow no name
products for over three months, led to increases in both market
share and customer satisfaction. Our Shoppers Drug Mart®
division had record performance, answering the demand for
cough, cold and cosmetic products while expanding Canadians’
access to primary care.
That retail excellence drove results. We achieved same store
sales growth of +4.7 per cent in food retail and +6.9 per cent in
drug retail, with revenue of $56.5 billion, growing +6.3 per cent.
Consolidated adjusted EBITDA was $6.18 billion, or +10.6 per cent.
Adjusted diluted net earnings per share were $6.82 or +22.0 per
cent. We generated $1.53 billion in free cash flow and continued
to return capital to shareholders by increasing our dividend
+12.9 per cent and by repurchasing 12.1 million shares under
a common share repurchase program.
2022 ANNUAL REPORT
LOBLAW COMPANIES LIMITED
5
Investing for the Future
While delivering today, we invested for tomorrow.
Expanded pharmacy services, the launch of pharmacist-led
clinics, the acquisition of Lifemark, and the growth in PC Health™
app users, all give us increased confidence in our Connected
Healthcare strategy and its ability to improve care for patients.
In 2022, we enhanced our
core through a commitment
to retail excellence.
Our business is also increasingly digital. We integrated our
retail platforms, adding new functionality to improve customer
experiences. And, we advanced Loblaw Media™, providing
more targeted opportunities for our suppliers to reach customers
online and in-store.
PC Optimum™ continues to evolve. Already recognized as a
powerful tool for delivering value, we’re increasing our ability to
engage customers with more meaningful personalized offers
and more effective promotions. As a result, PC Optimum held
its place among the nation’s top 10 most influential brands,
according to an Ipsos survey of Canadians. We were the
highest-ranking Canadian name, alongside many global giants.
6
2022 ANNUAL REPORT
LOBLAW COMPANIES LIMITED
Focused on the Communities We Serve
For decades, Canadians have offered us their trust and confidence.
We know this is a privilege and we take our responsibility to the
communities we serve to heart. That shows up in many ways.
Notably, it underpins our approach to fighting climate change
and advancing social equity – our two Environmental, Social and
Governance (ESG) priorities. These are challenges that matter to
Canadians, and where our efforts can have an impact. We are
well on our way, having already made specific commitments and
progress towards meaningful change.
Looking ahead, we’ll continue to move our business forward.
We’ll invest over $2 billion to grow and improve our store
network, provide more health and wellness care to Canadians,
create jobs, reduce waste and meet our ESG commitments.
And we will do so while delivering consistently against our
long-term financial framework.
We are proud of all that we accomplished in 2022, and with
221,000 committed and hard-working colleagues standing
ready to help Canadians Live Life Well ®, we are well-positioned
for the year ahead.
While the pages that follow offer more detail on our ESG efforts,
our ambitions are clear:
Fighting Climate Change
• Achieve net-zero greenhouse gas emissions for our scope 1
and 2 by the end of 2040, and scope 3 by 2050
• Ensure all of our control brand and in-store plastic packaging
Galen G. Weston
Chairman and President
is either reusable or recyclable by 2025
• Send zero food waste to landfill by the end of 2030
Advancing Social Equity
• Be Canada’s most diverse and inclusive employer by deploying
inclusion training across our entire workforce by 2024
• Support the health of women and children, by feeding 1 million
kids a year by 2025, and providing nation-leading support for
women’s health and access to care
For more specifics, visit our Responsibility page at loblaw.ca.
Looking ahead, we’ll invest over
$2 billion to grow and improve our
store network, provide more health
and wellness care to Canadians,
create jobs, reduce waste and meet
our ESG commitments.
2022 ANNUAL REPORT
LOBLAW COMPANIES LIMITED
7
Environmental,
Social and
Governance
Our purpose-led approach has strong relevance to our Environmental,
Social and Governance (ESG) priorities, guiding us as we work to fight
climate change and advance social equity.
Fighting Climate Change
Eliminating Food Waste Sent to Landfill By 2030
Net-zero scope 1 and 2 by 2040, and scope 3 by 2050
After reaching our goal of cutting food waste by 50% by 2025
(five years early), we set a new target: send zero food to landfill
by 2030 and achieve measurable food waste reductions in every
one of our stores by the end of 2023. In 2022 we:
In 2020, we met our goal of a 30% reduction in our carbon
footprint, ten years early. We have since extended our
focus to net-zero, which includes eliminating our enterprise
green-house gas (GHG) emissions by 2050. In 2022 we:
• Completed 250 carbon reduction projects.
• Completed our climate risk assessment, evaluating our risk
exposure and opportunities across multiple climate scenarios.
• Published our inaugural TCFD-aligned report.
• Ensured 100% of our corporate, food franchise, associate-
owned Shoppers Drug Mart® stores, and distribution centres
were partnered with a food recovery agency and were actively
donating to that partner.
Advancing Social Equity
Be Canada’s most diverse and inclusive employer
Tackling Plastic Waste
Loblaw has a longstanding commitment to tackling plastic waste,
working both at home and internationally on solutions. In 2022 we:
• Assessed over 10,000 control brand and in-store packaging
products relative to the Golden Design Rules; we established
35% compliance and a plan to achieve 100% compliance
by 2025.
• Replaced plastic box corners from banana shipping boxes,
eliminating 220,000 kilograms of plastic waste.
We’ve set goals to achieve industry-leading representation for
Management, Executives and our Board of Directors by 2024.
We have excellent momentum, the specifics of which will be
reported in our 2022 ESG Report.
Support the health and well-being of children and women
We recognize that women and children are the building blocks of
healthy communities, and we are proud to support programs
and partners who work tirelessly to support them. In 2022 we:
• Raised and donated more than $110 million to support research,
charities and non-profits across Canada.
• Announced our commitment to Feed More Families™, with a
pledge to donate one billion pounds of food to charities by 2028.
• Supported Canadians experiencing period poverty though our
Our progress in diverse representation
earned us spots on The Globe and Mail’s
Top 100 Employers for
Young People, and
Best Diversity Employers.
8
2022 ANNUAL REPORT
LOBLAW COMPANIES LIMITED
LOVE YOU by Shoppers Drug Mart™ program; in partnership
with Ontario’s Ministry of Education donated 7,000,000
period products, and an additional 3,250,000 to Manitoba
school divisions.
How We Diverted
the Weight of an
Airplane in Plastics
Sebastian Kmiecik, Director of Bananas, Melons, and
Tropical worked with four banana vendors to replace plastic
cornerboards with cardboard ones. The project required
collaboration and testing but in the end the cardboard
cornerboards were durable, supported the cases of bananas
through transit and could withstand the humidity of the tropics.
When they calculated the savings they found they had already
diverted approximately 220,000 kilograms of plastic from landfill
in less than a year – a little bit heavier than a large airplane.
Empowering
Communities
to Give Food a
Second Life
“Loblaw operates in virtually every community across
Canada, and as such, we have a responsibility to the
communities we serve,” says Alain Brandon, Vice President,
Sustainability, Social Impact and Government Relations.
Loblaw has partnered with Food Banks Canada to distribute
a series of grants totaling $200,000 that have helped five
local food banks purchase refrigeration equipment and
community garden equipment. In October, select Ontario
banners helped raise $174,000 for Second Harvest,
helping to provide fresh, healthy food to social services and
food organizations in our local communities equating to
approximately 348,000 meals. In November the Flashfood®
program reached a milestone of diverting 40 million pounds
of food from landfill while saving Canadians $110 million
on groceries, since launching in 2019. Loblaw remains
committed to zero food waste to landfill by 2030.
“It’s extraordinary how you can make
such a big impact,” says Sebastian.
“Especially when you work for a
company the size of Loblaw—anything
you do, can have a big, positive
impact on the environment. Cardboard
cornerboards is just one example –
we should all strive to look for
more sustainable solutions across
the enterprise.”
SEBASTIAN KMIECIK
“Unlocking access to perishable
food – whether it’s meals made by
volunteers, fresh produce, meat,
or frozen items – is critical in a time
where food bank use has soared.”
ALAIN BRANDON
2022 ANNUAL REPORT
LOBLAW COMPANIES LIMITED
9
Our
Divisions
We operate more than 2,500 stores across Canada, employing directly or
through our franchisees approximately 221,000 Canadians in full-time and
part-time positions. With 90% of Canadians living within 10 kilometers of one
of our stores, we are immersed in the communities we serve, and welcome
the opportunity to help our customers lead better and healthier lives.
Passionate about food and about creating exceptional customer
experiences, our Market division operates a variety of banners
– including Loblaws®, Loblaw City Market®, Your Independent
Grocer®, Atlantic Superstore®, Zehrs®, Provigo®, Provigo
Le Marché®, Real Canadian Wholesale Club®, Real Canadian
Liquorstore™, Fortinos® and T&T® stores – and ultimately helps
Canadians bring the best to their tables.
Shoppers Drug Mart® is Canada’s leading drug store retailer,
offering customers incredible convenience and the products
and services they need throughout all stages of life. We operate
more than 1,300 Associate-owned locations that deliver care
and wellness to millions of Canadians weekly – both in-store and
virtually making healthcare accessible, convenient and seamless.
We also operate home healthcare and luxury beauty retail outlets,
a specialty drug distribution network, pharmacy services for
long-term care and retirement communities, a generic drug
manufacturer, a unique health app, and an electronic medical
records platform.
Our Discount division – including Real Canadian Superstore®,
Maxi®, Extra Foods® and No Frills® – proudly offers Canadian
families easy, affordable essentials and stands ready to Feed
Everyone by providing fresh, quality products at fantastic value.
Joe Fresh® provides uniquely accessible shopping to Canadians,
mixing modern designs with incredible value. With collections for
women, men and children, shopping is made more convenient and
cost-effective for the entire family.
1 Billion
Customer transactions annually across
grocery, pharmacy and financial services.
10
2022 ANNUAL REPORT
LOBLAW COMPANIES LIMITED
PC Financial® brings value and innovation to Canadians. More
than 2 million PC® Mastercard® cardholders have collectively saved
billions in bank fees while earning trillions of points to redeem
for groceries and other essentials. And in 2022, the PC Money™
Account continued to grow, with Canadians valuing this no monthly
fee account that gets them even more PC Optimum™ points. We
also offer digital verification for authentication, in-platform spend
insights, automatic savings goals, and sophisticated analysis of
how Canadians earn and redeem PC Optimum™ points.
How the Pandemic
Deepened Canada’s
Relationship with
Pharmacists
Alessandra
Mentors the
Business Leaders
of Tomorrow
Alessandra Bisaillon, Director of Marketing, Customer
Management at PC® Bank volunteers with PC Financial’s®
Resilience Project Accelerator which partners six teams
of university students across Canada with an Advisor
and together they are tasked with creating a project that
promotes financial literacy and education in underserved
populations. Alessandra’s team from Capilano University
in Vancouver developed an online platform of financial
modules to educate young people about the fundamentals
of budgeting, taxes, saving, credit and understanding
a balance sheet. The team is actively pitching to school
boards across the country and is coming up on their final
presentation for the ten judges from PC Financial®.
Ruchi Kumar, Senior Director of Pharmacy Services at
Shoppers Drug Mart® says she’s seen a change in how
Canadians view pharmacists and their services coming out
of the pandemic. “More often, patients are seeing Shoppers
Drug Mart® pharmacists as healthcare professionals they
have easy access to, and I think through the pandemic,
pharmacists have demonstrated that they can really help
patients achieve their care goals. The relationship between
patient and pharmacist, and the loyalty that exists there, has
continued to build. Patients’ adoption of digital tools, like
the PC Health™ app, has also accelerated, and I’m looking
forward to seeing how this trend will shape the future delivery
of services in our stores.”
“I’m proud to have played a role in
helping millions of people access
these services, while at the same
time, keeping Canadians and our
pharmacy teams safe and healthy.”
RUCHI KUMAR
“Knowing that I’m helping to make
a difference in terms of building
financial literacy for students
and really supporting Canada’s
future leaders is very inspiring
and motivating.”
ALESSANDRA BISAILLON
2022 ANNUAL REPORT
LOBLAW COMPANIES LIMITED
11
Our
Leading Assets
We deliver on our purpose – to help Canadians Live Life Well ® – through an
exceptional internal infrastructure, a unique and customer-centric culture,
and a clear set of expectations for colleagues at all levels of the organization.
Brands
Supply Chain
Our control brands – including President’s Choice , no name ,
Farmer’s Market™ and Life Brand® – are trusted by Canadians.
Our product developers surprise and delight our customers
with new and unique experiences and innovations.
®
®
PC Optimum™
With over 15.5 million active annual members, PC Optimum™ is
unique in its reach and customer engagement. The program
is continually refined and enhanced, to provide our customers
with greater value and the personalization they seek.
Technology & Analytics
We use technology and analytics to connect our customers to the
things that matter most: food, health, and money. We enable our
business strategy with world class data products and services,
including: our agile framework, artificial intelligence and machine
learning programs, and an ongoing journey to the cloud – all in
an attempt to enhance our customers’ experience.
3
Of the country’s top 10 brands
– President’s Choice®,
no name®, Farmer’s Market™.
12
2022 ANNUAL REPORT
LOBLAW COMPANIES LIMITED
As one of the largest supply chain networks in North America,
we are committed to efficiency, responsiveness, and serving
the evolving needs of our stores and customers. Continually
adopting new technology, embracing automation, and refining
our processes allow us to increase our capacity, source with
integrity, and reliably serve Canadians across the country.
Compliance and Ethical Conduct
Our commitment to compliance ensures our colleagues
understand our regulatory and legal obligations and have
the knowledge they need to comply with those rules.
We encourage colleagues and vendors to speak up and
take action when necessary, and our policies and training
ensure they can conduct themselves in an ethical and
compliant manner.
Les Becomes More
Independent at Work
When Les Alexander works part-time in the health and beauty
department at the East Village Real Canadian Superstore®,
he is usually found with his support worker Brent. Les has a
lifelong learning disability that means he cannot read or write,
so Brent – through an organization called Vecova – helps Les
navigate his tasks. Recently Brent discovered the OrCam
Read, a small pen-shaped device that reads and then recites
any printed type. Les’ store bought one in the hopes it would
better accommodate Les’s disability at work, and it has been
a game-changer. Now, Les wears the OrCam Read on a
lanyard around his neck throughout his whole shift, pulling it
out when he needs to read something. It works so well he
feels much closer to working his shifts solo.
Driverless Vehicles
Hit the Road
“I like having a tool that allows me to
do things myself instead of having
to ask for help because it makes me
feel like I have more ownership over
my responsibilities.”
LES ALEXANDER
In our company’s century-long history, we have led the
way with many ground-breaking innovations aimed at
serving Canadians. Recently, we added to our list of firsts,
making history by deploying the first fully driverless delivery
on a public road, in partnership with Gatik, a technology
company specializing in autonomous vehicles (AVs).
In our journey to build and operate a customer-centred
supply chain, embracing cutting-edge technology plays a
key role in improving our day-to-day function. We believe
autonomous delivery enables Loblaw to operate more
routes and make more frequent trips, establishing a supply
chain that is safer, more sustainable and more resilient.
“Working with Gatik, we’ve
demonstrated that autonomous
driving technology enables supply
chain efficiency, moving more orders
more frequently for our customers.”
DAVID MARKWELL
CHIEF TECHNOLOGY AND ANALYTICS OFFICER
LOBLAW COMPANIES LIMITED
2022 ANNUAL REPORT
LOBLAW COMPANIES LIMITED
13
Corporate Governance
Practices
The Board of Directors and senior executives of Loblaw Companies Limited
are committed to strong corporate governance practices as a foundation to
the effective management of the Company and its achievement of strategic,
financial, and operational objectives.
The Governance Committee regularly reviews the Company’s
corporate governance practices to ensure they reflect evolving
best practices in a rapidly changing environment. The Company’s
website, loblaw.ca, includes additional governance information,
including the Company’s Code of Conduct (the “Code”), Disclosure
Policy, Majority Voting Policy, the position description for the
Chairman and President and mandates of the Board of Directors
(the “Board”) and of its committees.
Director Independence
The Canadian Securities Administrators’ Corporate Governance
Guidelines provide that a director is independent if he or she
has no material relationship with the Company or its affiliates that
could reasonably be expected to interfere with the exercise of
the director’s independent judgment. Approximately 82% of the
directors on the Board are independent. The independent directors
meet separately following each Board meeting. Information
relating to each of the directors, including their independence,
committee memberships, other public company boards on which
they serve, as well as their attendance record for all Board and
committee meetings, can be found in the Company’s Management
Proxy Circular.
Board Leadership
Galen G. Weston is the Chairman of the Board. The Chairman
directs the operations of the Board. He chairs each meeting of
the Board, is responsible for the management and effective
functioning of the Board generally and provides leadership to
the Board in all matters. These and other key responsibilities of
the Chairman are set out in a position description established
by the Board. The Board has also appointed an independent
director, William A. Downe, to serve as lead director. The lead
director provides leadership to the Board and particularly to
the independent directors. He ensures that the Board operates
independently of management and that directors have an
independent leadership contact.
14
2022 ANNUAL REPORT
LOBLAW COMPANIES LIMITED
Board Responsibilities and Duties
The Board, directly and through its committees, supervises
and oversees the management of the business and affairs
of the Company. A copy of the Board’s mandate can be found
on the Company’s website, loblaw.ca. The Board reviews
the Company’s strategic direction, assigns responsibility to
management for the achievement of the strategy, approves
major policy decisions, delegates to management the authority
and responsibility of handling day-to-day affairs, and reviews
management’s performance and effectiveness. The Board’s
expectations of management are communicated to
management directly and through committees of the Board.
The Board regularly receives reports on the operating results
of the Company as well as reports on certain non-operational
matters, including insurance, pensions, corporate governance,
environmental, social, workplace health and safety, legal,
compliance and treasury matters. The Board also oversees
the enterprise risk management (ERM) process, which is
designed to assist all areas of the business in managing
appropriate levels of risk tolerance by bringing a systematic
approach, a methodology and tools for evaluating, measuring
and monitoring key risks. The results of the ERM program
and other business planning processes are used to identify
emerging risks to the Company, prioritize risk management
activities and develop a risk-based internal audit plan.
Ethical Business Conduct
The Code reflects the Company’s long-standing commitment to
high standards of ethical conduct and business practices. The
Code is reviewed annually to ensure it is current and reflects best
practices in the area of ethical business conduct and integrity
and includes a strong “tone from the top” message. All directors,
officers and employees of the Company are required to comply
with the Code and must acknowledge their commitment to abide
by the Code on a periodic basis. The Company encourages
the reporting of violations and potential violations and has
established an Integrity Action Line, a toll-free number that any
director, officer, supplier or employee may use to report conduct
which he or she feels violates the Code or otherwise constitutes
fraudulent or unethical conduct. A fraud reporting protocol has
also been implemented to ensure that fraud is reported to senior
management in a timely manner. In addition, the Audit Committee
has endorsed procedures for the anonymous receipt, retention
and handling of complaints regarding accounting, internal control
or auditing matters. These procedures are available on the
Company’s website, loblaw.ca.
Board Committees
The following is a brief summary of some of the responsibilities
of each committee of the Board.
Audit Committee
The Audit Committee is responsible for the oversight of the
integrity of the Company’s financial statements and related
public disclosure, as well as the adequacy and effectiveness of
applicable controls related to its ESG disclosures. In doing so,
the Audit Committee reviews management’s administration of the
Company’s internal controls over financial reporting, disclosure
controls and procedures and internal audit function and related
party transactions. The Audit Committee also oversees procedures
for the receipt, retention and follow-up of any complaints regarding
the Company’s accounting, internal controls and auditing matters.
Governance, Employee Development, Nominating and
Compensation Committee
The Governance Committee is responsible for the oversight of the
Company’s governance practices, including the development and
implementation of good governance principles, consistent with high
standards of corporate governance. The Governance Committee
oversees the succession planning and compensation for the Board
and Senior Management. The Chair of the Governance Committee,
who is an independent director, has also been appointed by the
Board to serve as lead director.
Pension Committee
The Pension Committee is responsible for the oversight of the
administration, management, design and governance of the
Company’s pension plans, as well as the administration and
management of the Company’s benefit programs.
Risk and Compliance Committee
The Risk and Compliance Committee is responsible for the
oversight of the Company’s legal and regulatory compliance and
ethics compliance program, ERM program, ESG program, policy,
pharmacy and drug safety matters, food safety and product
safety matters and information systems and technology matters.
ESG Governance
The Board oversees and monitors the Corporation’s approach,
policies and practices related to ESG matters. Management has
established an ESG Steering Committee, comprised of senior
leaders, responsible for setting priorities, tracking metrics and
championing program initiatives across the Corporation. Various
management committees are responsible for setting priorities
and implementing and monitoring ESG-related initiatives across
the organization.
2022 ANNUAL REPORT
LOBLAW COMPANIES LIMITED
15
Board
of Directors
GALEN G. WESTON, B.A., M.B.A.
CHRISTIE J.B. CLARK , B. COMM.,
Chairman and President, Loblaw
Companies Limited; Chairman
and Chief Executive Officer, George
Weston Limited; Chairman of
President’s Choice Bank; Chairman,
Wittington Investments Limited;
and is President of the Weston
Family Foundation.
M.B.A., F.C.A., F.C.P.A.1*,3, 4
SCOTT B. BONHAM, B.Sc., M.B.A.
1, 4
Corporate Director; Co-founder
of Intentional Capital Corp.;
Former Co-Founder of GGV Capital;
Former Vice-President, Capital
Group Companies; Director, The
Bank of Nova Scotia; Board Member
of Canadian Institute of Advanced
Research and the DenmarkBridge.
SHELLEY G. BROADER, B.A.1, 4
Corporate Director; Former President
and Chief Executive Officer of Chicos
FAS, Inc.; former President and
Chief Executive Officer of Walmart
EMEA Ltd. and Walmart Canada;
former President and Chief Operating
Officer of The Michaels Companies,
Inc.; Director, IFCO Systems US LLC;
member of the U.S. Advisory Board
of Amoobi SA; and former director
of Walmart Canada Corporation and
Walmart Mexico.
Corporate Director; Former Chief
Executive Officer and Senior Partner,
PricewaterhouseCoopers LLP;
Director, Air Canada, SNC-Lavalin
Group Inc.; Trustee, Choice Properties
Real Estate Investment Trust; Former
Director, Hydro One Inc., Hydro One
Limited; Board Member, Canadian
Olympic Committee, Canadian
Olympic Foundation, Own the Podium,
the Sunnybrook Foundation.
DANIEL DEBOW, B.A., J.D./M.B.A., L.L.M.
2, 4
Vice President, Product, Shopify Inc.;
Former founder and Chief Executive
Officer, Helpful.com; Co-founder and
former Co-Chief Executive Officer
of Rypple; Founding team member
of Workbrain.
WILLIAM A. DOWNE , C.M., M.B.A.2*
CLAUDIA KOTCHA , B.B.A., C.P.A.2, 4
Corporate Director; Former Chief
Executive Officer, Chief Operating
Officer, Head of BMO Capital Markets,
BMO Financial Group; Former Director,
Bank of Montreal and its subsidiaries,
BMO Nesbitt Burns Holding
Corporation and BMO Financial Corp.;
Lead Director, ManpowerGroup
Inc.; Chairman, Trans Mountain
Corporation; Director, Rush University
System for Health; Board Member,
Social and Economic Policy Advisory
Board, Rand Corporation.
Corporate Director; Former Vice President,
Design Innovation & Strategy, Procter &
Gamble; Former Trustee, Cooper Hewitt
Smithsonian Design Museum; Director,
American Red Cross, Los Angeles Region;
Former Director, American Red Cross,
Greater Miami and the Keys; Former
Trustee of the Cooper Hewitt Smithsonian
Design Museum.
JANICE FUKAKUSA , F.C.P.A., F.C.A.,
B.A., M.B.A.1, 4*
Corporate Director; Former
Chief Financial Officer and Chief
Administrative Officer, Royal Bank
Of Canada; Director, Cineplex Inc.,
Brookfield Asset Management Inc.,
RioCan REIT; Chancellor, Toronto
Metropolitan University.
M. MARIANNE HARRIS, B.Sc., J.D.,
M.B.A.1, 2, 3
Corporate Director; Former Managing
Director and President, Corporate
and Investment Banking, Merrill Lynch
Canada Inc., Former Head of Financial
Institutions Group Americas, Merrill
Lynch Pierce Fenner & Smith; Director,
George Weston Limited, Sun Life
Financial Inc., Public Sector Pension
Investment Board; Former Director,
Hydro One Inc./ Hydro One Limited;
Former Chair, Investment Industry
Regulatory Organization of Canada
(IIROC); Member of Dean’s Advisory
Council, Schulich School of Business;
Advisory Council, Hennick Centre for
Business and Law.
SARAH RAISS, B.S., M.B.A.2, 3*
Corporate Director; Former Executive,
TransCanada Corporation; Lead Director,
Commercial Metals Company; Director,
Ritchie Bros Auctioneers Inc.; Former
Chair, Alberta Electric Systems; Former
Director, Canadian Oil Sands Limited,
Shoppers Drug Mart Corporation,
Vermillion Energy Inc.
CORNELL WRIGHT, B.A., J.D., M.B.A.4
President and Director of Wittington
Investments, Limited; Director, George
Weston Limited, BCE, Inc.; Trustee,
Choice Properties Real Estate Investment
Trust, Former Partner, Torys LLP; Board
Chair, the National Ballet of Canada;
Trustee of University Health Network;
and Executive in Residence at the
University of Toronto’s Rotman School
of Management.
Notes
1
Audit Committee
2
Governance, Employee Development,
Nominating and Compensation Committee
3
Pension Committee
4
Risk and Compliance Committee
*
Chair of the Committee
Leadership
GALEN G. WESTON
NICK HENN
BARRY K. COLUMB
GREG RAMIER
President and Chairman
Executive Vice President,
Chief Legal Officer and Secretary
President, President’s Choice Financial
President, Market Division
IAN FREEDMAN
KEVIN GROH
Chief Financial Officer
DAVID MARKWELL
President, Joe Fresh
ROBERT SAWYER
Executive Vice President,
Chief Technology and Analytics Officer
FRANK GAMBIOLI
Senior Vice President,
Corporate Affairs and Communication
RICHARD DUFRESNE
Chief Operating Officer
ROBERT WIEBE
Chief Administrative Officer
16
2022 ANNUAL REPORT
LOBLAW COMPANIES LIMITED
MARK WILSON
Executive Vice President and
Chief Human Resources Officer
President, Discount Division
JEFF LEGER
President, Shoppers Drug Mart
MARY MACISAAC
Senior Vice President, Marketing
LAUREN STEINBERG
Senior Vice President, Loblaw Digital
2022 Annual Report –
Financial Review
2022 Annual Report – Financial Review
Financial Highlights
Management’s Discussion and Analysis
Financial Results
Notes to the Consolidated Financial Statements
Three Year Summary
Glossary of Terms
1
3
69
80
141
143
Financial Highlights(1)
2022
(52 weeks)
As at or for the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Consolidated Results of Operations
Revenue
Revenue growth
Operating income
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Net interest expense and other financing charges
Adjusted net interest expense and other financing charges(2)
Income taxes
Adjusted income taxes(2)
Adjusted effective tax rate(2)
Net earnings
Net earnings attributable to shareholders of the Company
Net earnings available to common shareholders of the Company(i)
Adjusted net earnings available to common shareholders of the Company(2)
Consolidated per Common Share ($)
Diluted net earnings
Adjusted diluted net earnings(2)
Dividends
Dividends declared per common share ($)
Consolidated Financial Position and Cash Flows
Cash and cash equivalents and short term investments
Cash flows from operating activities
Capital investments
Free cash flow(2)
Financial Measures
Retail debt to retail adjusted EBITDA(2)
Adjusted return on equity(2)
Adjusted return on capital(2)
$ 56,504
6.3 %
$ 3,342
6,181
10.9 %
$
683
694
665
841
26.4 %
$ 1,994
1,921
1,909
2,263
2021
(52 weeks)
$
$
$
$
53,170
0.9 %
2,937
5,587
10.5 %
495
684
466
721
26.3 %
1,976
1,875
1,863
1,911
$
$
5.75
6.82
$
$
5.45
5.59
$
1.580
$
1.400
$
1,934
4,755
1,571
1,528
$
2,440
4,827
1,183
1,959
2.4 x
20.2 %
10.8 %
2.6 x
17.3 %
9.8 %
(i) Net earnings available to common shareholders of the Company are net earnings attributable to shareholders of the Company net of
dividends declared on the Company’s Second Preferred Shares, Series B.
2022 Annual Report – Financial Review Loblaw Companies Limited
1
Financial Highlights(1)
2022
(52 weeks)
2021
(52 weeks)
$ 55,492
3,260
17,165
30.9 %
$ 5,939
10.7 %
$ 2,746
$ 52,269
2,713
16,041
30.7 %
$ 5,322
10.2 %
$ 2,623
4.7 %
6.9 %
5.7 %
8.2 %
71.2
547
551
1,346
0.3 %
5.0 %
8.4 %
2.1 %
71.2
548
551
1,342
As at or for the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Retail Results of Operations
Sales
Operating income
Adjusted gross profit(2)
Adjusted gross profit %(2)
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Depreciation and amortization
Retail Operating Statistics
Food retail same-store sales growth
Drug retail same-store sales growth
Drug retail same-store pharmacy sales growth
Drug retail same-store front store sales growth
Total retail square footage (in millions)
Number of corporate stores(4)
Number of franchise stores
Number of Associate-owned drug stores
Financial Services Results of Operations
Revenue
Earnings (Losses) before income taxes
Financial Services Operating Measures and Statistics
Average quarterly net credit card receivables
Credit card receivables
Allowance for credit card receivables
Annualized yield on average quarterly gross credit card receivables
Annualized credit loss rate on average quarterly gross credit card receivables
2 2022 Annual Report – Financial Review Loblaw Companies Limited
$
1,338
(2)
$
1,182
160
$
3,607
3,954
206
13.0 %
2.7 %
$
3,128
3,443
205
12.7 %
2.5 %
Management’s Discussion and Analysis
1.
4
Forward-Looking Statements
2. Overview
6
3.
Strategic Framework
6
4.
Key Financial Performance Indicators
7
5. Overall Financial Performance
5.1
Consolidated Results of Operations
5.2
Selected Financial Information
8
8
12
6. Reportable Operating Segments Results of Operations
6.1
Retail Segment
6.2
Financial Services Segment
14
14
16
7.
17
17
19
20
22
22
22
24
25
Liquidity and Capital Resources
7.1
Cash Flows
7.2
Liquidity and Capital Structure
7.3
Components of Total Debt
7.4
Financial Condition
7.5
Credit Ratings
7.6
Share Capital
7.7
Off-Balance Sheet Arrangements
7.8
Contractual Obligations
8. Financial Derivative Instruments
25
9. Quarterly Results of Operations
9.1
Results by Quarter
9.2
Fourth Quarter Results
27
27
29
10. Disclosure Controls and Procedures
37
11. Internal Control over Financial Reporting
37
12. Enterprise Risks and Risk Management
12.1
Operating Risks and Risk Management
12.2 Financial Risks and Risk Management
38
39
47
13. Related Party Transactions
48
14. Critical Accounting Estimates and Judgments
14.1
Consolidation
14.2 Business Combinations – Valuation of Intangible Assets
14.3 Inventories
14.4 Impairment of Non-Financial Assets
14.5 Impairment of Credit Card Receivables
14.6 Income and Other Taxes
14.7 Segment Information
14.8 Provisions
14.9 Leases
52
52
52
52
52
53
53
53
54
54
15. Accounting Standards
54
16. Strategic Update and Outlook
55
17. Non-GAAP Financial Measures
56
18. Additional Information
68
2022 Annual Report – Financial Review Loblaw Companies Limited
3
Management’s Discussion and Analysis
The following Management’s Discussion and Analysis (“MD&A”) for Loblaw Companies Limited and its subsidiaries
(collectively, the “Company” or “Loblaw”) should be read in conjunction with the audited annual consolidated
financial statements and the accompanying notes included on page 69 to 140 of this Annual Report – Financial
Review (“Annual Report”).
The Company’s annual audited consolidated financial statements and the accompanying notes for the year ended
December 31, 2022 have been prepared in accordance with International Financial Reporting Standards (“IFRS” or
“GAAP”) as issued by the International Accounting Standards Board (“IASB”) and include the accounts of the
Company and other entities that the Company controls and are reported in Canadian dollars, except when
otherwise noted.
Management uses non-GAAP financial measures to exclude the impact of certain expenses and income that must
be recognized under GAAP when analyzing consolidated and segment underlying operating performance, as the
excluded items are not necessarily reflective of the Company’s underlying operating performance and make
comparisons of underlying financial performance between periods difficult. The Company adjusts for these items if
it believes doing so would result in a more effective analysis of underlying operating performance. The exclusion of
certain items does not imply that they are non-recurring. See Section 17 “Non-GAAP Financial Measures”, of this
MD&A for more information on the Company’s non-GAAP financial measures.
The information in this MD&A is current to February 22, 2023, unless otherwise noted. A glossary of terms used
throughout this Annual Report can be found on page 143.
Unless otherwise indicated, all comparisons of results for the fourth quarter of 2022 (12 weeks ended December 31,
2022) are against results for the fourth quarter of 2021 (12 weeks ended January 1, 2022) and all comparisons of
results for the full-year of 2022 (52 weeks ended December 31, 2022) are against the results for the full-year of
2021 (52 weeks ended January 1, 2022).
1. Forward-Looking Statements
This Annual Report, including this MD&A, contains forward-looking statements about the Company’s objectives,
plans, goals, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects,
opportunities and legal and regulatory matters. Specific forward-looking statements in this Annual Report include,
but are not limited to, statements with respect to the Company’s anticipated future results, events and plans,
strategic initiatives and restructuring, regulatory changes including further healthcare reform, future liquidity,
planned capital investments, and the status and impact of information technology (“IT”) systems implementations.
These specific forward-looking statements are contained throughout this Annual Report including, without
limitation, Section 3 “Strategic Framework”, Section 5.1 “Consolidated Results of Operations”, Section 6.1 “Retail
Segment”, Section 6.2 “Financial Services Segment”, Section 7 “Liquidity and Capital Resources”, Section 9
“Quarterly Results of Operations”, Section 12 “Enterprise Risks and Risk Management”, Section 14 “Critical
Accounting Estimates and Judgments”, Section 15 “Accounting Standards”, Section 16 “Strategic Update and
Outlook” and Section 17 “Non-GAAP Financial Measures”. Forward-looking statements are typically identified by
words such as “expect”, “anticipate”, “believe”, “foresee”, “could”, “estimate”, “goal”, “intend”, “plan”, “seek”,
“strive”, “will”, “may”, “should” and similar expressions, as they relate to the Company and its management.
Forward-looking statements reflect the Company’s estimates, beliefs and assumptions, which are based on
management’s perception of historical trends, current conditions and expected future developments, as well as
other factors it believes are appropriate in the circumstances. The Company’s estimates, beliefs and assumptions
are inherently subject to significant business, economic, competitive and other uncertainties and contingencies
regarding future events and, as such, are subject to change. The Company can give no assurance that such
estimates, beliefs and assumptions will prove to be correct.
4 2022 Annual Report – Financial Review Loblaw Companies Limited
Numerous risks and uncertainties could cause the Company’s actual results to differ materially from those
expressed, implied or projected in the forward-looking statements, including those described in the Company’s
MD&A in the 2022 Annual Report, and the Company’s 2022 Annual Information Form (“AIF”) for the year ended
December 31, 2022. Such risks and uncertainties include:
•
changes in economic conditions, including inflation, levels of employment, costs of borrowing, household debt,
political uncertainty and government regulation, the impact of natural disasters, war or acts of terrorism,
pandemics, changes in interest rates, tax rates, or exchange rates, and access to consumer credit;
•
failure to attract and retain colleagues may impact the Company’s ability to effectively operate and achieve
financial performance goals;
•
inability of the Company’s IT infrastructure to support the requirements of the Company’s business, or the
occurrence of any internal or external security breaches, denial of service attacks, viruses, worms and other
known or unknown cybersecurity or data breaches;
•
failure to maintain an effective supply chain and consequently an appropriate assortment of available product
at the store and digital retail level;
•
changes to the regulation of generic prescription drug prices, the reduction of reimbursements under public
drug benefit plans and the elimination or reduction of professional allowances paid by drug manufacturers;
•
•
•
•
changes to any of the laws, rules, regulations or policies applicable to the Company’s business;
•
failure to achieve desired results in labour negotiations, including the terms of future collective bargaining
agreements;
•
•
adverse outcomes of legal and regulatory proceedings and related matters;
•
failure to execute the Company’s e-commerce initiatives or to adapt its business model to shifts in the retail
landscape caused by digital advances;
•
failure to realize the anticipated benefits associated with the Company’s strategic priorities and major
initiatives, including revenue growth, anticipated cost savings and operating efficiencies, or organizational
changes that may impact the relationships with franchisees and Associates (as defined within);
•
•
failure to realize benefits from investments in the Company’s new IT systems and related processes;
•
reliance on the performance and retention of third party service providers, including those associated with the
Company’s supply chain and apparel business and located in both advanced and developing markets.
public health events including those related to food and drug safety;
errors made through medication dispensing or errors related to patient services or consultation;
failure to adapt to environmental and social risks, including failure to execute against the Company’s climate
change and social equity initiatives;
failure to effectively respond to consumer trends or heightened competition, whether from current competitors
or new entrants to the marketplace;
inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory or control
shrink; and
This is not an exhaustive list of the factors that may affect the Company’s forward-looking statements. 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.
Additional risks and uncertainties are discussed in the Company’s materials filed with the Canadian securities
regulatory authorities (“securities regulators”) from time to time, including, without limitation, the section entitled
“Risks” in the Company’s 2022 AIF (for the year ended December 31, 2022). 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 MD&A. Except as required by law, the Company does not undertake to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
2022 Annual Report – Financial Review Loblaw Companies Limited
5
Management’s Discussion and Analysis
2. Overview
Loblaw Companies Limited is a Canadian public company incorporated in 1956 and is Canada’s food and pharmacy
leader, and the nation’s largest retailer. The Company has two operating segments: Retail and Financial Services.
The Retail segment consists primarily of corporate and franchise-owned retail food and Associate-owned drug
stores, which includes in-store pharmacies, health care services and other health and beauty products, apparel and
other general merchandise. The Company’s Financial Services segment provides credit card and everyday banking
services, the PC Optimum™ Program, insurance brokerage services, and telecommunication services. The
businesses are underpinned by the PC Optimum Program, a customer loyalty program that provides more than a
billion dollars in annual rewards and is unique to each consumer across their network-wide purchases.
3. Strategic Framework
Loblaw is driven by its purpose to help Canadians Live Life Well® which guides the Company’s strategic framework.
This framework centres around a passion for customers and drives investments in three key strategic priorities:
Everyday Digital Retail, Payments and Rewards, and Connected Healthcare. Enabling these investments comes
from a sharp focus on leveraging data driven insights and process efficiency excellence to deliver strong financial
performance. The framework is supported by colleagues with a shared set of CORE values and culture principles
that encourages colleagues to be authentic, build trust and make connections.
The Company strives to be the “best in food, health and beauty” and with its focus on retail excellence, it is
constantly improving its retail operations to differentiate its customer offerings and deliver scale through its national
logistics infrastructure. Building for the future, its purpose guides its investments in strategic growth initiatives to
further differentiate its portfolio of assets, generate competitive advantages in products, services and price,
improve its operational efficiencies, and create new areas of growth. Retail operations benefit from more than one
billion customer touchpoints annually and deliver a unique customer experience driven by industry leading control
brands, healthy alternatives and a choice of in-store shopping, pick-up and delivery. The approach to being “best in
food” is driven by fresh food selection, competitive value and customized assortments across banners. The
approach to being “best in health and beauty” is supported by high quality health and wellness products, an
expanding offer of healthcare services, and a diverse and differentiated beauty offering.
Loblaw’s purpose-led approach to addressing environmental, social and governance issues focuses on two
priorities: fighting climate change and advancing social equity. Environmental, social and governance (“ESG”)
considerations are central to decisions made across the Company. By integrating consideration of environmental
and social risks and good governance practices in its day-to-day business activities, implementing robust
compliance and ethics programs and supporting its colleagues and the communities in which it operates, the
Company aims to be a leading contributor to Canadian society both today and for generations to come.
Together, each of these components forms a part of the strategic framework that guides our direction now and into
the future.
6 2022 Annual Report – Financial Review Loblaw Companies Limited
4. Key Financial Performance Indicators(1)
The Company has identified key financial performance indicators to measure the progress of short and long term
objectives. Certain key financial performance indicators are set out below:
As at or for the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Consolidated
Revenue growth
Operating income
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Net earnings
Net earnings attributable to shareholders of the Company
Net earnings available to common shareholders of the Company(i)
Adjusted net earnings available to common shareholders of the Company(2)
Diluted net earnings per common share ($)
Adjusted diluted net earnings per common share(2) ($)
Cash and cash equivalents and short term investments
Cash flows from operating activities
Free cash flow(2)
Financial Measures
Retail debt to retail adjusted EBITDA(2)
Adjusted return on equity(2)
Adjusted return on capital(2)
Retail Segment
Food retail same-store sales growth
Drug retail same-store sales growth
Operating income
Adjusted gross profit(2)
Adjusted gross profit %(2)
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Financial Services Segment
Earnings (Losses) before income taxes
Annualized yield on average quarterly gross credit card receivables
Annualized credit loss rate on average quarterly gross credit card receivables
$
$
$
$
$
2022
(52 weeks)
2021
(52 weeks)
6.3 %
3,342
6,181
10.9 %
1,994
1,921
1,909
2,263
5.75
6.82
1,934
4,755
1,528
0.9 %
2,937
5,587
10.5 %
1,976
1,875
1,863
1,911
5.45
5.59
2,440
4,827
1,959
$
$
$
$
$
2.4 x
20.2 %
10.8 %
2.6 x
17.3 %
9.8 %
4.7 %
6.9 %
$ 3,260
17,165
0.3 %
5.0 %
2,713
16,041
$
30.9 %
5,939
$
$
10.7 %
$
(2)
13.0 %
2.7 %
30.7 %
5,322
10.2 %
$
160
12.7 %
2.5 %
(i) Net earnings available to common shareholders of the Company are net earnings attributable to shareholders of the Company net of
dividends declared on the Company’s Second Preferred Shares, Series B.
2022 Annual Report – Financial Review Loblaw Companies Limited
7
Management’s Discussion and Analysis
5. Overall Financial Performance
5.1 Consolidated Results of Operations
The following is a summary of selected consolidated financial information for 2022:
2022
(52 weeks)
As at or for the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Revenue
Operating income
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Depreciation and amortization
Net interest expense and other financing charges
Adjusted net interest expense and other financing charges(2)
Income taxes
Adjusted income taxes(2)
Adjusted effective tax rate(2)
Net earnings attributable to non-controlling interests
Net earnings attributable to shareholders of the Company
Net earnings available to common shareholders of the
Company(i)
Adjusted net earnings available to common shareholders of
the Company(2)
Diluted net earnings per common share ($)
Adjusted diluted net earnings per common share(2) ($)
Diluted weighted average common shares outstanding
(in millions)
$ 56,504
3,342
6,181
10.9 %
$ 2,795
683
694
665
841
26.4 %
$
73
$ 1,921
$
$
2021
(52 weeks)
$
$
$
$
53,170
2,937
5,587
10.5 %
2,664
495
684
466
721
26.3 %
101
1,875
$ Change % Change
$ 3,334
405
594
6.3 %
13.8 %
10.6 %
$
131
188
10
199
120
4.9 %
38.0 %
1.5 %
42.7 %
16.6 %
$
$
(28)
46
(27.7)%
2.5 %
1,909
1,863
46
2.5 %
2,263
5.75
6.82
1,911
5.45
5.59
352
0.30
1.23
18.4 %
5.5 %
22.0 %
331.7
$
$
$
$
341.8
(i) Net earnings available to common shareholders of the Company are net earnings attributable to shareholders of the Company net of
dividends declared on the Company’s Second Preferred Shares, Series B.
Loblaw continued to deliver strong and consistent financial and operating results across its various businesses in
2022. Global inflationary pressures and lessened impact from COVID-19 influenced consumer behaviours and
positively impacted Retail sales. Loblaw’s portfolio of best in class assets was well positioned to meet customer’s
everyday needs across food, health and wellness, further bolstered by its acquisition of Lifemark Health Group
(“Lifemark”) during the year. The Company’s relentless focus on retail excellence leveraged these assets to deliver
strong sales growth, gross margin improvements, and leverage its operating costs.
8 2022 Annual Report – Financial Review Loblaw Companies Limited
Net Earnings Available to Common Shareholders of the Company and Diluted Net Earnings Per Common Share
Net earnings available to common shareholders of the Company were $1,909 million ($5.75 per common share) in
2022. This represented an increase of $46 million ($0.30 per common share) or 2.5% when compared to 2021. The
increase included an improvement in underlying operating performance of $352 million which was partially offset
by the unfavourable change in adjusting items totaling $306 million, as described below:
•
the improvement in underlying operating performance of $352 million ($1.03 per common share) was primarily
due to the following:
◦
◦
an improvement in the underlying operating performance in the Retail segment driven by an increase in
adjusted gross profit(2), partially offset by an increase in selling, general and administrative expenses
(“SG&A”) and depreciation and amortization; and
the favourable impact from non-controlling interests;
partially offset by,
◦ a decline in the Financial Services segment primarily due to the year-over-year impact of the expected
credit loss provision from lapping a larger prior year release versus the current year increase and from
lapping a prior year reversal of certain commodity tax accrued.
•
the unfavourable change in adjusting items totaling $306 million ($0.93 per common share) was primarily due
to the following:
◦
◦
the year-over-year unfavourable impact of the recovery related to Glenhuron Bank Limited (“Glenhuron”)
of $271 million ($0.79 per common share);
the unfavourable impact of the charge related to a President’s Choice Bank (“PC Bank”) commodity tax
matter of $86 million ($0.25 per common share); and
◦ the unfavourable impact of the Lifemark transaction costs of $12 million ($0.04 per common share);
partially offset by,
◦
◦
•
the year-over-year favourable impact from the gains on the sale of non-operating properties of
$35 million ($0.11 per common share); and
the year-over-year favourable change in restructuring and other related costs of $24 million ($0.07 per
common share).
diluted net earnings per common share also included the favourable impact of the repurchase of common
shares over the last 12 months ($0.20 per common share).
In July 2022, the Tax Court of Canada (“Tax Court”) released a decision relating to PC Bank, a subsidiary of the
Company. The Tax Court ruled that PC Bank is not entitled to claim notional input tax credits for certain payments it
made to Loblaws Inc. in respect of redemptions of loyalty points. On September 29th, 2022, PC Bank filed a Notice
of Appeal with the Federal Court of Appeal. Although the Company believes in the merits of its position, the
Company recorded a charge of $111 million, inclusive of interest, in the second quarter of 2022. The Company
believes that this provision is sufficient to cover its liability, if the appeal is ultimately unsuccessful.
Between 2015 and 2019, the Company was reassessed by the Canada Revenue Agency and the Ontario Ministry of
Finance on the basis that certain income earned by Glenhuron, a wholly owned Barbadian subsidiary of the
Company that was wound up in 2013, should be treated, and taxed, as income in Canada. In the fourth quarter of
2021, the Supreme Court of Canada (“Supreme Court”) ruled in favour of the Company on the Glenhuron matter
and the Company reversed $301 million of previously recorded charges, of which $173 million was recorded as
interest income and $128 million was recorded as income tax recovery, and an additional $16 million, before taxes,
was also recorded in respect of interest income earned on expected cash tax refunds. As a result of related
reassessments received during the first quarter of 2022, the Company reversed another $35 million of previously
recorded charges, of which $2 million was recorded as interest income and $33 million was recorded as an income
tax recovery, and an additional $9 million, before taxes, was recorded in respect of interest income earned on
expected cash tax refunds.
Adjusted net earnings available to common shareholders of the Company(2) were $2,263 million, an increase of
$352 million or 18.4% compared to 2021. Adjusted net earnings per common share(2) in 2022 were $6.82 per
common share, an increase of $1.23 or 22.0%. The increase includes the favourable impact of the repurchase of
common shares.
2022 Annual Report – Financial Review Loblaw Companies Limited
9
Management’s Discussion and Analysis
Revenue
2022
(52 weeks)
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Retail
Financial Services
Eliminations
Revenue
$
55,492
1,338
(326)
56,504
$
2021
(52 weeks)
$
$ Change
% Change
3,223
156
(45)
3,334
6.2 %
13.2 %
(16.0)%
6.3 %
52,269 $
1,182
(281)
53,170 $
$
Revenue was $56,504 million in 2022, an increase of $3,334 million, or 6.3% compared to 2021. The increase was
primarily driven by an increase in Retail segment sales of $3,223 million, due to positive same-store sales growth
and Lifemark revenue since the date of acquisition. Furthermore, there was an improvement in Financial Services
segment sales of $156 million.
Operating Income Operating income was $3,342 million in 2022, an increase of $405 million, or 13.8% compared
to 2021. The increase in operating income was driven by an improvement in underlying operating performance of
$454 million, partially offset by an unfavourable change in certain adjusting items totaling $49 million as described
below:
•
the improvement in the underlying operating performance of $454 million was primarily due to the following:
◦ an improvement in the underlying operating performance of the Retail segment due to an increase in
adjusted gross profit(2), partially offset by an increase in SG&A and depreciation and amortization;
partially offset by,
◦
•
a decline in the Financial Services segment primarily due to the year-over-year impact of the expected
credit loss provision from lapping a larger prior year release versus the current year increase and from
lapping a prior year reversal of certain commodity tax accrued.
the unfavourable year-over-year impact of certain adjusting items totaling $49 million was primarily due to the
following:
◦
◦
the unfavourable impact of the charge related to a PC Bank commodity tax matter of $111 million; and
the unfavourable impact of the Lifemark transaction costs of $16 million;
partially offset by,
◦
◦
the year-over-year favourable impact from the gains on the sale of non-operating properties of
$45 million; and
the year-over-year favourable change in restructuring and other related costs of $28 million.
Adjusted EBITDA(2)
2022
(52 weeks)
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Retail
Financial Services
Adjusted EBITDA(2)
$
$
5,939
242
6,181
2021
(52 weeks)
$
$
$ Change % Change
5,322 $
265
5,587 $
617
(23)
594
11.6 %
(8.7)%
10.6 %
Adjusted EBITDA(2) was $6,181 million in 2022, an increase of $594 million, or 10.6% compared to 2021. The
increase in adjusted EBITDA(2) was primarily due to an increase in the Retail segment of $617 million which was
partially offset by a decrease in the Financial Services segment of $23 million.
Depreciation and Amortization Depreciation and amortization was $2,795 million in 2022, an increase of
$131 million or 4.9% compared to 2021. The increase in depreciation and amortization in 2022 was primarily driven
by an increase in IT assets and leased assets. Included in depreciation and amortization was accelerated
depreciation of $24 million (2021 – nil) due to the reassessment of the estimated useful life of certain IT assets, and
the amortization of intangible assets related to the acquisition of Shoppers Drug Mart Corporation (“Shoppers Drug
Mart”) and Lifemark of $497 million (2021 – $506 million).
10 2022 Annual Report – Financial Review Loblaw Companies Limited
Net Interest Expense and Other Financing Charges Net interest expense and other financing charges were
$683 million in 2022, an increase of $188 million or 38.0% compared to 2021. The increase was primarily driven by
prior year interest income related to Glenhuron as discussed in the Income Taxes section below, an increase in
interest expense from higher interest rates, and an increase in long term debt and borrowings related to credit card
receivables. This was partially offset by higher interest income on certain short term investments and postemployment and other long term employee benefits due to higher interest rates. Included in interest expense from
long term debt is an early repayment premium charge of $7 million recorded in 2022.
Income Taxes
2022
(52 weeks)
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Income taxes
Add impact of the following
Tax impact of items included in adjusted earnings
before taxes
Recovery related to Glenhuron
Adjusted income taxes(2)
Effective tax rate
Adjusted effective tax rate(2)
$
665
2021
(52 weeks)
$
143
33
$
841
25.0 %
26.4 %
$
466
$ Change % Change
$
199
42.7 %
127
128
16
(95)
12.6 %
(74.2)%
721
$
19.1 %
26.3 %
120
16.6 %
Income tax expense was $665 million (2021 – $466 million) and the effective tax rate was 25.0% (2021 – 19.1%).
The increase in the effective tax rate was primarily attributable to the recovery of income taxes related to
Glenhuron in 2021 and the impact of the reversal of the non-deductible interest related to Glenhuron in 2021.
Adjusted income tax expense(2) in 2022 was $841 million (2021 – $721 million) and the adjusted effective tax rate(2)
was 26.4% (2021 – 26.3%). The increase in the adjusted effective tax rate(2) was primarily attributable to the impact
of certain non-deductible items.
Between 2015 and 2019, the Company was reassessed by the Canada Revenue Agency and the Ontario Ministry of
Finance on the basis that certain income earned by Glenhuron, a wholly owned Barbadian subsidiary of the
Company that was wound up in 2013, should be treated, and taxed, as income in Canada. In the fourth quarter of
2021, the Supreme Court ruled in favour of the Company on the Glenhuron matter and the Company reversed
$301 million of previously recorded charges, of which $173 million was recorded as interest income and
$128 million was recorded as income tax recovery, and an additional $16 million, before taxes, was also recorded in
respect of interest income earned on expected cash tax refunds. As a result of related reassessments received
during the first quarter of 2022, the Company reversed another $35 million of previously recorded charges, of
which $2 million was recorded as interest income and $33 million was recorded as an income tax recovery, and an
additional $9 million, before taxes, was recorded in respect of interest income earned on expected cash tax
refunds.
Net Earnings Attributable to Non-Controlling Interests Net earnings attributable to non-controlling interests were
$73 million in 2022, a decrease of $28 million or 27.7% compared to 2021. Non-controlling interests represent the
share of earnings that relates to the Company’s Food Retail franchisees and is impacted by the timing of when
profit sharing with franchisees is agreed and finalized under the terms of the agreements. The decrease in noncontrolling interests was primarily driven by the normalizing of franchisee earnings after profit sharing.
2022 Annual Report – Financial Review Loblaw Companies Limited
11
Management’s Discussion and Analysis
5.2 Selected Financial Information
The selected information presented below has been derived from and should be read in conjunction with the
annual consolidated financial statements of the Company dated December 31, 2022, January 1, 2022, and
January 2, 2021. The analysis of the data contained in the table focuses on the trends and significant events or
items affecting the financial condition and results of the Company’s operations over the most recent three years.
For the years ended December 31, 2022 and January 1, 2022 and January 2, 2021
(millions of Canadian dollars except where otherwise indicated)
2022
(52 weeks)
2021
(52 weeks)
Revenue
Operating income
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Depreciation and amortization
Adjusted net interest expense and other financing charges(2)
Adjusted effective tax rate(2)
Net earnings
Net earnings attributable to the shareholders of the Company
Net earnings available to common shareholders of the Company(i)
Adjusted net earnings available to common shareholders of the
Company(2)
Basic net earnings per common share ($)
Diluted net earnings per common share ($)
Adjusted diluted net earnings per common share(2) ($)
$ 56,504
3,342
6,181
10.9 %
$ 2,795
694
26.4 %
$ 1,994
1,921
1,909
2,263
$
5.82
$
5.75
$
6.82
$
$
$
Diluted weighted average common shares (in millions)
Dividends declared per common share ($)
Dividends declared per Second Preferred Share, Series B ($)
Total assets
Total long term debt
Lease liabilities
Long term financial liabilities
331.7
$ 1.580
$ 1.325
$ 38,147
$ 7,783
9,115
$ 16,898
341.8
$ 1.400
$ 1.325
$ 36,614
$ 7,213
8,839
$ 16,052
2020
(53 weeks)
$ 53,170
$ 52,714
2,937
2,365
5,587
5,004
10.5 %
9.5 %
$ 2,664
$ 2,596
684
742
26.3 %
26.7 %
$ 1,976
$
1,192
1,875
1,108
1,863
1,096
1,911
5.49
5.45
5.59
$
$
$
1,499
3.08
3.06
4.18
$ 358.2
$ 1.280
$ 1.325
$ 35,873
$ 7,046
8,901
$ 15,947
(i) Net earnings available to common shareholders of the Company are net earnings attributable to shareholders of the Company net of
dividends declared on the Company’s Second Preferred Shares, Series B.
Revenue Revenue was $56,504 million in 2022, an increase of $3,334 million when compared to 2021. Food retail
same-store sales growth was 4.7% (2021 – 0.3%). Drug retail same-store sales growth was 6.9% (2021 – 5.0%).
Revenue was $53,170 million in 2021, an increase of $456 million when compared to 2020, which was negatively
impacted by $878 million due to the 53rd week in 2020. Food retail same-store sales growth was 0.3% (2020 –
8.6%). Drug retail same-store sales growth was 5.0% (2020 – 4.9%).
12 2022 Annual Report – Financial Review Loblaw Companies Limited
The Company’s Retail segment sales have continued to grow despite the pressure of a competitive retail market,
impacts of global economic uncertainties, and regulatory environment over the last three years. In 2020, the
COVID-19 pandemic had a significant impact on the Company’s colleagues, customers, suppliers and other
stakeholders. The Company experienced sales volatility and changes in sales mix as the pandemic impacted
consumer behaviour throughout the year. In 2021, COVID-19 continued to have a significant impact on the
Company, continuing to accelerate some long-term trends, enabling the Company to advance its strategic growth
areas of Everyday Digital Retail, Connected Healthcare and Payments and Rewards. In Food Retail, sales remained
strong as eat-at-home trends remained elevated even in period where social restrictions loosened. In Drug Retail,
sales benefited from growth in pharmacy services as COVID-19 testing and vaccinations ramped up throughout the
year. Higher margin front-store categories within Drug Retail, that had previously negatively impacted earnings,
increased sales momentum as the economy opened up. In 2022, COVID-19 continued to impact Retail segment
sales through the first half of the year. Food Retail benefited from elevated eat-at-home trends, and Drug Retail
from strong cosmetics and over-the-counter (“OTC”) product sales, as customers returned to pre-pandemic
activities, while COVID-19 related testing and vaccines continued at elevated levels. Retail segment sales growth in
the second half of 2022 benefited from global inflationary pressures and reflected continued strength in cosmetics
and OTC sales in Drug Retail.
The Financial Services segment sales have continued to grow, however, have been impacted by the COVID-19
pandemic. During 2020, the Company’s Financial Services segment sales were negatively impacted by the
COVID-19 pandemic from lower credit card related revenues from lower customer spending and lower sales
attributable to the partial closure of The Mobile Shop™ kiosks during the second quarter of 2020. The Financial
Services segment also launched the PC Money™ Account in the third quarter of 2020, an everyday banking product
that allows account holders to earn PC Optimum points by making payments. The underlying operating
performance of the Company’s Financial Services segment improved in 2021. In 2021, the Financial Services
segment benefited from an increase in customer spending and higher sales attributable to The Mobile Shop kiosks.
In 2022, the Financial Services segment continued to benefit from an increase in customer spending. Further, the
segment benefited from growing credit card receivables in 2022 driven by growth in the active customer base.
Net Earnings Available to Common Shareholders of the Company and Diluted Net Earnings Per Common Share
Net earnings available to common shareholders of the Company and diluted net earnings per common share
fluctuated over the past three years and were impacted by certain adjusting items set out in Section 17 “Non-GAAP
Financial Measures,” and the changes in the underlying operating performance of the Company. The fluctuations in
net earnings available to common shareholders of the Company and diluted net earnings per common share were
primarily due to:
•
•
the impact of the 53rd week in fiscal year 2020;
•
•
cost savings and operating efficiencies and investments in and benefits from strategic initiatives;
•
•
the favourable impact of the repurchase of common shares for cancellation; and
changes in underlying operating performance of the Retail segment due to COVID-19. The Company’s financial
results for the year ended December 31, 2022 and January 1, 2022 had higher revenue and cost of sales when
compared to 2020. In addition, SG&A increased in 2020 as a result of the incremental cost of COVID-19 related
investments to benefit and protect colleagues and customers which have stabilized in 2021 and 2022;
fluctuations in the performance of the Financial Services segment driven by the impact of the increase in
customer spending, the reversal of certain commodity taxes accrued, and year-over-year movement of the
expected credit loss provision;
the impact of certain adjusting items, including:
◦
◦
◦
◦
◦
◦
◦
charge related to PC Bank commodity tax matter;
Lifemark transaction costs;
the recovery relating to Glenhuron;
fair value adjustment on non-operating properties;
fair value adjustment on fuel and foreign currency;
restructuring and other related recoveries and costs; and
the gain on sale of non-operating properties.
2022 Annual Report – Financial Review Loblaw Companies Limited
13
Management’s Discussion and Analysis
Total Assets and Long Term Financial Liabilities In 2022, total assets of $38,147 million increased by 4.2%
compared to 2021. The increase was primarily driven by an increase in inventory, credit card receivables, and
goodwill. This was partially offset by a decrease in cash and cash equivalents and a decrease in income tax
recoverable due to collection of income tax refunds from Glenhuron. Long term financial liabilities of $16,898
million, increased by 5.3% compared to 2021. This was primarily driven by an increase in lease liability and long
term debt driven by an increase in guaranteed investment certificates (“GIC”).
In 2021, total assets of $36,614 million increased by 2.1% compared to 2020. The increase was primarily driven by
an increase in receivables due to the recovery of taxes and interest from Glenhuron, an increase in credit card
receivables and an increase in cash and cash equivalents. Long term financial liabilities of $16,052 million
increased by 0.7% compared to 2020. This was primarily driven by an increase in long term debt due to
Eagle Credit Card Trust® (“Eagle”) Eagle issuance of $300 million of senior and subordinated term notes with a
maturity date of June 17, 2026 at a weighted average interest rate of 1.61%. The increase was also due to an
increase in the independent funding trust, partially offset by a decrease in GICs.
6. Reportable Operating Segments Results of Operations
The Company has two reportable operating segments, with all material operations carried out in Canada:
•
The Retail segment consists primarily of corporate and franchise-owned retail food and Associate-owned drug
stores, which includes in-store pharmacies, health care services and other health and beauty products, apparel
and other general merchandise. This segment is comprised of several operating segments that are aggregated
primarily due to similarities in the nature of products and services offered for sale in the retail operations and
the customer base; and
•
The Financial Services segment provides credit card and everyday banking services, the PC Optimum Program,
insurance brokerage services, and telecommunication services.
6.1 Retail Segment
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Sales
Operating income
Adjusted gross profit(2)
Adjusted gross profit %(2)
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
Depreciation and amortization
2022
(52 weeks)
$ 55,492
3,260
17,165
30.9 %
$ 5,939
10.7 %
$ 2,746
14 2022 Annual Report – Financial Review Loblaw Companies Limited
$ Change % Change
$ 52,269
$ 3,223
2,713
547
16,041
1,124
30.7 %
$ 5,322
$
617
10.2 %
$ 2,623
$
123
Sales
2022
(52 weeks)
Same-store
sales
$ 39,398
16,094
7,944
8,150
4.7 %
6.9 %
5.7 %
8.2 %
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Food retail
Drug retail
Pharmacy and healthcare services
Front store
2021
(52 weeks)
6.2 %
20.2 %
7.0 %
11.6 %
4.7 %
2021
(52 weeks)
Same-store
Sales
sales
$
37,481
14,788
7,224
7,564
0.3 %
5.0 %
8.4 %
2.1 %
Sales Retail segment sales were $55,492 million in 2022, an increase of $3,223 million, or 6.2% compared to 2021,
primarily driven by the following factors:
•
•
Food retail same-store sales growth was 4.7% (2021 – 0.3%) for 2022.
◦
◦
◦
Sales growth in food was strong, mainly due to higher than normal inflation;
◦
Food Retail traffic increased and basket size decreased.
Sales growth in pharmacy was modest;
The Consumer Price Index as measured by The Consumer Price Index for Food Purchased From Stores
was 9.7% (2021 – 2.2%) which was generally in line with the Company’s internal food inflation; and
Drug retail same-store sales growth was 6.9% (2021 – 5.0%).
◦
◦
◦
Pharmacy same-store sales growth was 5.7% (2021 – 8.4%). Pharmacy and healthcare services samestore sales growth benefited from an increase in acute and chronic prescription volumes from the
economic re-opening. The number of prescriptions dispensed increased by 2.5% (2021 – 0.9%). On a
same-store basis, the number of prescriptions dispensed increased by 2.6% (2021 – 2.7%) and the
average prescription value increased by 2.4% (2021 – 4.7%);
Pharmacy and healthcare services sales include Lifemark revenues of $279 million. Lifemark revenues
are excluded from same-store sales; and
Front store same-store sales growth was 8.2% (2021 – 2.1%). Front store same-store sales growth
benefited from the economic re-opening and higher consumer spending.
In 2022, 13 food and drug stores were opened, and 10 food and drug stores were closed, and net retail square
footage has remained constant at 71.2 million square feet.
Operating Income Operating income was $3,260 million in 2022, an increase of $547 million, or 20.2% compared
to 2021. The increase was driven by an improvement in underlying operating performance of $485 million and the
favourable change in adjusting items totaling $62 million, as described below:
•
the improvement in underlying operating performance of $485 million was primarily from an increase in
adjusted gross profit(2), partially offset by an increase in SG&A and an increase in depreciation and
amortization; and
•
the favourable change in adjusting items totaling $62 million was primarily due to the following:
◦
the year-over-year favourable impact from the gains on the sale of non-operating properties of
$45 million; and
◦ the year-over-year favourable change in restructuring and other related costs of $28 million;
partially offset by,
◦
the unfavourable impact of the Lifemark transaction costs of $16 million.
Adjusted Gross Profit(2) Adjusted gross profit(2) was $17,165 million in 2022, an increase of $1,124 million, or 7.0%
compared to 2021. Adjusted gross profit percentage(2) of 30.9% increased by 20 basis points when compared to
2021, driven by growth in higher margin Drug Retail front store categories. Compared to 2021, when inflation
started to accelerate, Food Retail gross margins were flat.
Adjusted EBITDA(2) Adjusted EBITDA(2) was $5,939 million in 2022, an increase of $617 million, or 11.6% compared
to 2021. The increase was driven by an increase in adjusted gross profit(2) of $1,124 million, partially offset by an
increase in SG&A of $507 million. SG&A as a percentage of sales was 20.2%, a decrease of 30 basis points when
compared to 2021. The favourable decrease of 30 basis points was primarily due to operating leverage gained
from higher sales and lower COVID-19 related expenses.
Depreciation and Amortization Depreciation and amortization was $2,746 million in 2022, an increase of
$123 million when compared to 2021. The increase in depreciation and amortization was primarily driven by an
increase in IT and leased assets. Included in depreciation and amortization in 2022 was accelerated depreciation
of $24 million (2021 – nil) due to the reassessment of the estimated useful life of certain IT assets, and the
amortization of intangibles assets related to the acquisitions of Shoppers Drug Mart and Lifemark of $497 million
(2021 – $506 million).
2022 Annual Report – Financial Review Loblaw Companies Limited
15
Management’s Discussion and Analysis
Lifemark Health Group On May 10, 2022, the Company acquired all of the outstanding common shares of Lifemark
for total cash purchase consideration of $829 million. Lifemark is the Canadian leading provider of outpatient
physiotherapy, massage therapy, occupational therapy, chiropractic, mental health, and other ancillary
rehabilitation services through its more than 300 clinics across Canada. The acquisition of Lifemark adds to the
Company’s growing role as a healthcare service provider, with a network of health and wellness solutions,
accessible in-person and digitally. Revenue of $279 million and nominal net earnings were contributed by Lifemark
from the date of acquisition. In 2022, net earnings includes amortization related to the acquired intangible assets of
$8 million.
6.2 Financial Services Segment
2022
(52 weeks)
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
Revenue
Earnings (Losses) before income taxes
(millions of Canadian dollars except where otherwise indicated)
Average quarterly net credit card receivables
Credit card receivables
Allowance for credit card receivables
Annualized yield on average quarterly gross credit
card receivables
Annualized credit loss rate on average quarterly
gross credit card receivables
$
2021
(52 weeks)
1,338
(2)
$
1,182
160
$ Change % Change
$
156
(162)
13.2 %
(101.3)%
As at
December 31, 2022
As at
January 1, 2022
$ Change % Change
$
$
$
3,607
3,954
206
3,128
3,443
205
13.0 %
12.7 %
2.7 %
2.5 %
479
511
1
15.3 %
14.8 %
0.5 %
Revenue Revenue was $1,338 million in 2022, an increase of $156 million compared to 2021. The increase was
primarily driven by:
•
•
higher interest income from growth in credit card receivables; and
higher interchange income and credit card related fees from an increase in customer spending;
partially offset by,
• lower sales attributable to The Mobile Shop.
Earnings (Losses) before income taxes Losses before income taxes were $2 million in 2022, a decrease of
$162 million compared to 2021. The decrease was primarily driven by:
•
•
a charge related to a commodity tax matter of $111 million recorded in the second quarter of 2022;
higher loyalty program costs, operating costs, contractual charge-off and funding costs from an increase in
customer spending and an increase in interest rates;
• prior year reversal of certain commodity tax accrued in the amount of $37 million; and
• the year-over-year impact of the expected credit loss provision from lapping a larger prior year release of
$32 million versus the current year increase of $1 million;
partially offset by,
•
higher revenue as described above.
In July 2022, the Tax Court released a decision relating to PC Bank, a subsidiary of the Company. The Tax Court
ruled that PC Bank is not entitled to claim notional input tax credits for certain payments it made to Loblaws Inc. in
respect of redemptions of loyalty points. On September 29th, 2022, PC Bank filed a Notice of Appeal with the
Federal Court of Appeal. Although the Company believes in the merits of its position, the Company recorded a
charge of $111 million, inclusive of interest, in the second quarter of 2022. The Company believes that this provision
is sufficient to cover its liability, if the appeal is ultimately unsuccessful.
Credit Card Receivables As at December 31, 2022, credit card receivables were $3,954 million, an increase of
$511 million compared to January 1, 2022. This increase was primarily driven by growth in the active customer base
and an increase in customer spending. The allowance for credit card receivables was $206 million, an increase of
$1 million compared to January 1, 2022.
16 2022 Annual Report – Financial Review Loblaw Companies Limited
7. Liquidity and Capital Resources
7.1 Cash Flows
Major Cash Flow Components
2022
(52 weeks)
For the years ended December 31, 2022 and January 1, 2022
(millions of Canadian dollars except where otherwise indicated)
2021
(52 weeks)
$ Change % Change
Cash and cash equivalents, beginning of year
Cash flows from (used in):
$
1,976
$
1,668
$
308
18.5 %
Operating activities
$
4,755
$
4,827
$
(72)
(1.5)%
Investing activities
(2,368)
(1,271)
(1,097)
(86.3)%
Financing activities
Effect of foreign currency exchange rate changes on
cash and cash equivalents
Change in cash and cash equivalents
Cash and cash equivalents, end of year
(2,751)
(3,249)
498
15.3 %
$
$
(4)
(368)
1,608
$
$
1
308
1,976
$
$
(5) (500.0)%
(676) (219.5)%
(368)
(18.6)%
Cash Flows from Operating Activities Cash flows from operating activities were $4,755 million, a decrease of
$72 million compared to 2021. The decrease in cash flows from operating activities was primarily driven by an
unfavourable change in non-cash working capital and growth in credit card receivables from a rise in customer
spending, partially offset by higher cash earnings and net lower income taxes paid due to the recovery of cash
taxes related to Glenhuron.
Cash Flows used in Investing Activities Cash flows used in investing activities were $2,368 million, an increase of
$1,097 million compared to 2021. The increase in cash flows used in investing activities was primarily driven by the
acquisition of Lifemark and an increase in investments in fixed and intangible assets, partially offset by a decrease
in short term investments.
Capital Investments and Store Activity
As at or for the periods ended December 31, 2022 and January 1, 2022
Corporate square footage (in millions)
Franchise square footage (in millions)
Associate-owned drug store square footage (in millions)
Total retail square footage (in millions)
Number of corporate stores
Number of franchise stores
Number of Associate-owned drug stores
Total number of stores
Average store size (square feet)
Corporate
Franchise
Associate-owned drug store
(i)
2022
(52 weeks)
2021(i)
(52 weeks)
% Change
34.9
17.3
19.0
71.2
547
551
1,346
2,444
35.1
17.2
18.9
71.2
548
551
1,342
2,441
(0.6)%
0.6 %
0.5 %
—%
(0.2)%
—%
0.3 %
0.1 %
63,800
31,400
14,100
64,100
31,200
14,100
(0.5)%
0.6 %
—%
Comparative figures for the number of corporate stores has been restated to conform with current year presentation, which separately
counts in-store health clinics.
2022 Annual Report – Financial Review Loblaw Companies Limited
17
Management’s Discussion and Analysis
Capital Investments Capital investments were $1,571 million, an increase of $388 million or 32.8%, compared
to 2021.
Cash Flows used in Financing Activities Cash flows used in financing activities were $2,751 million, a decrease of
$498 million compared to 2021. The decrease in cash flows used in financing activities was pri…