GWL's 2022 Second Quarter Report has been filed on SEDAR and is available at sedar.com and in the Investor Centre section of the Company's website at weston.ca.
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Loblaw Companies Limited ("Loblaw") delivered strong operational and financial results as it continued to execute on retail excellence in its core businesses, while advancing its growth and efficiencies initiatives. Loblaw's drug retail performance continued to drive overall margin expansion, as sales benefited from growth in higher margin front store categories. Loblaw's positive trend in food retail continued with its conventional stores performing well relative to peers and sales growth in its discount banners, heightened by the strength of No Frills® and Maxi® hard-discount stores and Loblaw's value focused control brand no name®. In the quarter, Loblaw continued to pursue its strategic growth agenda by completing the acquisition of
Choice Properties Real Estate Investment Trust ("
2022 SECOND QUARTER HIGHLIGHTS
Adjusted net earnings available to common shareholders of the Company(1) from continuing operations were $328 million in the second quarter of 2022, an increase of $53 million, or 19.3%, compared to the second quarter of 2021. The increase was primarily due to the improvement in the underlying operating performance of Loblaw and lower adjusted net interest expense and other financing charges(1), partially offset by an increase in the adjusted effective tax rate(1).
Adjusted diluted net earnings per common share(1) from continuing operations were
CONSOLIDATED RESULTS OF OPERATIONS
The Company's results reflect the year-over-year impact of the fair value adjustment of the Trust Unit liability as a result of the significant changes in
In 2021, the Company sold its entire
(unaudited) ($ millions except where otherwise For the periods ended as indicated | ||||||||||||||||||||
12 Weeks Ended | 24 Weeks Ended | |||||||||||||||||||
$ Change | % Change | $ Change | % Change | |||||||||||||||||
Revenue | $ | 12,979 | $ 342 | 2.7 % | $ | 25,386 | $ 732 | 3.0 % | ||||||||||||
Operating income | $ | 649 | $ 1,065 | $ (416) | (39.1) % | $ | 1,815 | $ 1,893 | $ (78) | (4.1) % | ||||||||||
Adjusted EBITDA(1) | $ | 1,588 | $ 1,462 | $ 126 | 8.6 % | $ | 3,010 | $ 2,762 | $ 248 | 9.0 % | ||||||||||
Adjusted EBITDA margin(1) | 12.2 % | 11.6 % | 11.9 % | 11.2 % | ||||||||||||||||
Net earnings attributable to | $ | 650 | $ 125 | $ 525 | 420.0 % | $ | 1,023 | $ 73 | $ 950 | 1,301.4 % | ||||||||||
Net earnings (loss) available to | $ | 634 | $ 108 | $ 526 | 487.0 % | $ | 997 | $ 46 | $ 951 | 2,067.4 % | ||||||||||
Continuing operations | $ | 640 | $ 115 | $ 525 | 456.5 % | $ | 1,003 | $ 53 | $ 950 | 1,792.5 % | ||||||||||
Discontinued operations | $ | (6) | $ (7) | $ 1 | 14.3 % | $ | (6) | $ (7) | $ 1 | 14.3 % | ||||||||||
Adjusted net earnings available | $ | 328 | $ 275 | $ 53 | 19.3 % | $ | 610 | $ 520 | $ 90 | 17.3 % | ||||||||||
Diluted net earnings (loss) per | $ | 4.32 | $ 0.70 | $ 3.62 | 517.1 % | $ | 6.77 | $ 0.28 | $ 6.49 | 2,317.9 % | ||||||||||
Continuing operations | $ | 4.36 | $ 0.74 | $ 3.62 | 489.2 % | $ | 6.81 | $ 0.33 | $ 6.48 | 1,963.6 % | ||||||||||
Discontinued operations | $ | (0.04) | $ (0.04) | $ — | — % | $ | (0.04) | $ (0.05) | $ 0.01 | 20.0 % | ||||||||||
Adjusted diluted net earnings | $ | 2.23 | $ 1.80 | $ 0.43 | 23.9 % | $ | 4.13 | $ 3.40 | $ 0.73 | 21.5 % | ||||||||||
In the second quarter of 2022, the Company recorded net earnings available to common shareholders of the Company from continuing operations of $640 million (
- The favourable year-over-year net impact of adjusting items totaling
$472 million ($3.19 per common share) was primarily due to: - the favourable year-over-year impact of the fair value adjustment of the Trust Unit liability of
$764 million ($5.18 per common share) as a result of the decrease inChoice Properties' unit price in the second quarter of 2022; - the favourable year-over-year impact of the prior year fair value adjustment of the forward sale agreement of Loblaw common shares of
$50 million ($0.33 per common share). The Company settled the net debt associated with the forward sale agreement in the fourth quarter of 2021; and - the income tax recovery related to the remeasurement of deferred tax balances for the
Choice Properties' disposition of six office assets (the "Office Asset Sale") to Allied Properties Real Estate Investment Trust ("Allied") of$46 million ($0.31 per common share). See "Choice Properties Other Business Matters" section of this News Release for further information;
partially offset by,
- the unfavourable year-over-year impact of the fair value adjustment on investment properties of
$210 million ($1.39 per common share) primarily driven byChoice Properties , net of consolidation adjustments in Other and Intersegment; - the unfavourable impact of the fair value adjustment on
Choice Properties' investment in real estate securities of Allied of$146 million ($0.99 per common share) as a result of a decrease in Allied's ClassB Unit price since the closing of the Office Asset Sale onMarch 31, 2022 to the end of the second quarter of 2022; and - the unfavourable impact of the charge related to the commodity tax matter at Loblaw of $45 million (
$0.31 per common share). See "Loblaw Other Business Matters" section of this News Release for further information.
- The improvement in the Company's consolidated underlying operating performance of
$53 million ($0.43 per common share) was due to: - the favourable underlying operating performance of Loblaw; and
- a decrease in adjusted net interest expense and other financing charges(1);
partially offset by,
- an increase in the adjusted effective tax rate(1) primarily attributable to an increase in tax expense as a result of GWL's participation in Loblaw's Normal Course Issuer Bid ("NCIB") program.
- Diluted net earnings per common share from continuing operations also included the favourable impact of shares purchased for cancellation over the last 12 months (
$0.08 per common share) pursuant to the Company's NCIB.
Adjusted net earnings available to common shareholders of the Company(1) from continuing operations were $328 million, an increase of $53 million, or 19.3%, compared to the same period in 2021 due to the improvement in the Company's consolidated underlying operating performance described above. Adjusted diluted net earnings per common share(1) from continuing operations were
CONSOLIDATED OTHER BUSINESS MATTERS
GWL CORPORATE(4) FINANCING ACTIVITIES The Company completed the following financing activities during the periods indicated below. The cash impacts of these activities are set out below:
(unaudited) ($ millions) | 12 Weeks Ended | 24 Weeks Ended | |||||||||||
GWL's NCIB – purchased and cancelled | $ | (278) | $ (141) | $ | (325) | $ (166) | |||||||
GWL's participation in Loblaw's NCIB | 309 | 172 | 319 | 338 | |||||||||
GWL's credit facility repayment | — | — | (121) | — | |||||||||
Settlement of net debt associated with equity forward | — | (53) | — | (53) | |||||||||
Net cash flow from (used in) above activities | $ | 31 | $ (22) | $ | (127) | $ 119 | |||||||
GWL's NCIB – Purchased and Cancelled Shares In the second quarter of 2022, the Company purchased and cancelled 1.8 million shares (2021 – 1.2 million shares) under its NCIB. As at
In the second quarter of 2022, the Company entered into an automatic share purchase plan ("ASPP") with a broker in order to facilitate the repurchase of the Company's common shares under its NCIB. During the effective period of the ASPP, the Company's broker may purchase common shares at times when the Company would not be active in the market.
Refer to Section 3.6, "Share Capital" of the MD&A in the Company's 2022 Second Quarter Report for more information.
GWL's Participation in Loblaw's NCIB The Company participates in Loblaw's NCIB in order to maintain its proportionate percentage ownership interest. During the second quarter of 2022, GWL received proceeds of $309 million (2021 –
REPORTABLE OPERATING SEGMENTS
The Company operates through its two reportable operating segments:
Loblaw has two reportable operating segments, retail and financial services. Loblaw's retail segment consists primarily of food retail and drug retail. Loblaw provides Canadians with grocery, pharmacy and healthcare services, health and beauty, apparel, general merchandise and financial services.
Excerpt of Segment Information
The accounting policies of the reportable operating segments are the same as those described in the Company's 2021 audited annual consolidated financial statements. The Company measures each reportable operating segment's performance based on adjusted EBITDA(1) and adjusted operating income(1). No reportable operating segment is reliant on any single external customer.
12 Weeks Ended | ||||||||||||
(unaudited) | Loblaw | Choice Properties | Other and Intersegment | Total | Loblaw | Choice Properties | Other and Intersegment | Total | ||||
Revenue | $ 313 | $ (181) | $ 324 | $ (178) | ||||||||
Operating income (loss) | $ 740 | $ (451) | $ 360 | $ 649 | $ 750 | $ 503 | $ (188) | $ 1,065 | ||||
Net interest expense (income) and other | 152 | (439) | (51) | (338) | 161 | 418 | (76) | 503 | ||||
Earnings (loss) before income taxes from | $ 588 | $ (12) | $ 411 | $ 987 | $ 589 | $ 85 | $ (112) | $ 562 | ||||
Operating income (loss) | $ 740 | $ (451) | $ 360 | $ 649 | $ 750 | $ 503 | $ (188) | $ 1,065 | ||||
Depreciation and amortization | 633 | 1 | (82) | 552 | 614 | 1 | (74) | 541 | ||||
Adjusting items(i) | 124 | 676 | (413) | 387 | 5 | (281) | 132 | (144) | ||||
Adjusted EBITDA(i) | $ 1,497 | $ 226 | $ (135) | $ 1,588 | $ 1,369 | $ 223 | $ (130) | $ 1,462 | ||||
Depreciation and amortization(ii) | 519 | 1 | (82) | 438 | 497 | 1 | (74) | 424 | ||||
Adjusted operating income(i) | $ 978 | $ 225 | $ (53) | $ 1,150 | $ 872 | $ 222 | $ (56) | $ 1,038 | ||||
(i) | Certain items are excluded from operating income to derive adjusted EBITDA(1). Adjusted EBITDA(1) is used internally by management when analyzing segment underlying operating performance. |
(ii) | Excludes |
24 Weeks Ended | ||||||||||||
(unaudited) | Loblaw | Choice Properties | Other and Intersegment | Total | Loblaw | Choice Properties | Other and Intersegment | Total | ||||
Revenue | $ 641 | $ (364) | $ 651 | $ (360) | ||||||||
Operating income | $ 1,476 | $ 178 | $ 161 | $ 1,815 | $ 1,365 | $ 788 | $ (260) | $ 1,893 | ||||
Net interest expense (income) and other | 294 | (197) | (113) | (16) | 321 | 765 | (38) | 1,048 | ||||
Earnings before income taxes from | $ 1,182 | $ 375 | $ 274 | $ 1,831 | $ 1,044 | $ 23 | $ (222) | $ 845 | ||||
Operating income | $ 1,476 | $ 178 | $ 161 | $ 1,815 | $ 1,365 | $ 788 | $ (260) | $ 1,893 | ||||
Depreciation and amortization | 1,264 | 2 | (165) | 1,101 | 1,224 | 2 | (160) | 1,066 | ||||
Adjusting items(i) | 98 | 271 | (275) | 94 | (4) | (342) | 149 | (197) | ||||
Adjusted EBITDA(i) | $ 2,838 | $ 451 | $ (279) | $ 3,010 | $ 2,585 | $ 448 | $ (271) | $ 2,762 | ||||
Depreciation and amortization(ii) | 1,033 | 2 | (165) | 870 | 990 | 2 | (160) | 832 | ||||
Adjusted operating income(i) | $ 1,805 | $ 449 | $ (114) | $ 2,140 | $ 1,595 | $ 446 | $ (111) | $ 1,930 | ||||
(i) | Certain items are excluded from operating income to derive adjusted EBITDA(1). Adjusted EBITDA(1) is used internally by management when analyzing segment underlying operating performance. |
(ii) | Excludes |
Other and Intersegment includes the following items:
12 Weeks Ended | ||||||||||
(unaudited) | Revenue | Operating Income | Net Expense and Other Financing Charges | Revenue | Operating Income | Net Expense and Other Financing Charges | ||||
Elimination of internal lease arrangements | $ (125) | $ (35) | $ (23) | $ (127) | $ (36) | $ (25) | ||||
Elimination of cost recovery | (56) | — | — | (51) | — | — | ||||
Recognition of depreciation on | — | (12) | — | — | (18) | — | ||||
Fair value adjustment on investment properties | — | 415 | (5) | — | (132) | — | ||||
Fair value adjustment on | — | — | 570 | — | — | (289) | ||||
Fair value adjustment on Trust Unit liability | — | — | (576) | — | — | 188 | ||||
Unit distributions on Exchangeable Units paid by | — | — | (73) | — | — | (72) | ||||
Unit distributions on Trust Units paid by Choice | — | — | 52 | — | — | 51 | ||||
Fair value adjustment of the forward sale agreement | — | — | — | — | — | 58 | ||||
Other | — | (8) | 4 | — | (2) | 13 | ||||
Total | $ (181) | $ 360 | $ (51) | $ (178) | $ (188) | $ (76) | ||||
24 Weeks Ended | ||||||||||
(unaudited) | Revenue | Operating Income | Net Expense and Other Financing Charges | Revenue | Operating Income | Net Expense and Other Financing Charges | ||||
Elimination of internal lease arrangements | $ (253) | $ (73) | $ (45) | $ (255) | $ (75) | $ (50) | ||||
Elimination of cost recovery | (111) | — | — | (105) | — | — | ||||
Recognition of depreciation on | — | (22) | — | — | (24) | — | ||||
Fair value adjustment on investment properties | — | 296 | (2) | — | (147) | — | ||||
Fair value adjustment on | — | — | 451 | — | — | (507) | ||||
Fair value adjustment on Trust Unit liability | — | — | (483) | — | — | 427 | ||||
Unit distributions on Exchangeable Units paid by | — | — | (146) | — | — | (146) | ||||
Unit distributions on Trust Units paid by Choice | — | — | 103 | — | — | 102 | ||||
Fair value adjustment of the forward sale agreement | — | — | — | — | — | 111 | ||||
Reversal of Loblaw gain on the sale of disposition of | — | (19) | — | — | — | — | ||||
Other | — | (21) | 9 | — | (14) | 25 | ||||
Total | $ (364) | $ 161 | $ (113) | $ (360) | $ (260) | $ (38) | ||||
Loblaw Operating Results
(unaudited) ($ millions except where otherwise For the periods ended as indicated | ||||||||||||||||||||
12 Weeks Ended | 24 Weeks Ended | |||||||||||||||||||
$ Change | % Change | $ Change | % Change | |||||||||||||||||
Revenue | $ 12,491 | $ 356 | 2.9 % | $ 746 | 3.1 % | |||||||||||||||
Operating income | $ 740 | $ 750 | $ (10) | (1.3) % | $ 1,476 | $ 1,365 | $ 111 | 8.1 % | ||||||||||||
Adjusted EBITDA(1) | $ 1,497 | $ 1,369 | $ 128 | 9.3 % | $ 2,838 | $ 2,585 | $ 253 | 9.8 % | ||||||||||||
Adjusted EBITDA margin(1) | 11.7 % | 11.0 % | 11.3 % | 10.6 % | ||||||||||||||||
Depreciation and | $ 633 | $ 614 | $ 19 | 3.1 % | $ 1,264 | $ 1,224 | $ 40 | 3.3 % | ||||||||||||
(i) | Depreciation and amortization in the second quarter of 2022 includes |
Revenue Loblaw revenue in the second quarter of 2022 was
Retail sales were
- food retail sales were
$8,981 million (2021 –$8,878 million ) and food retail same-store sales grew by 0.9% (2021 – declined by 0.1%) for the quarter; - the Consumer Price Index as measured by The Consumer Price Index for Food Purchased from Stores was 9.6% (2021 – 0.5%) which was generally in line with Loblaw's internal food inflation; and
- food retail basket size decreased and traffic increased in the quarter when compared to the second quarter of 2021.
- drug retail sales were
$3,642 million (2021 –$3,404 million ) and drug retail same-store sales grew by 5.6% (2021 – 9.6%) for the quarter; - pharmacy and healthcare services same-store sales growth was 6.1% (2021 – 17.2%), benefiting from an increase in acute and chronic prescription volumes from the continued economic re-opening. The number of prescriptions dispensed increased by 2.3% (2021 – 1.9%). On a same-store basis, the number of prescriptions dispensed increased by 2.3% (2021 – 0.3%) and the average prescription value increased by 3.6% (2021 – 15.9%);
- pharmacy and healthcare services sales included Lifemark revenues from the date of acquisition of
$49 million . Lifemark revenues are excluded from same-store sales; and - front store same-store sales increased by 5.2% (2021 – 3.6%), benefiting from the continued economic re-opening.
During the second quarter of 2022, one food and drug store was opened, and one food and drug store was closed, resulting in a net increase in retail square footage of 0.1 million square feet, or 0.1%.
Financial services revenue in the second quarter of 2022 increased by $25 million compared to the same period in 2021. The increase was primarily driven by higher interest income and credit card related fees from normalizing credit card receivable balances and higher interchange income from an increase in customer spending, partially offset by lower sales attributable to The Mobile Shop.
Operating Income Loblaw operating income in the second quarter of 2022 was $740 million, a decrease of $10 million, or 1.3%, compared to the same period in 2021. The decrease included the unfavourable year-over-year net impact of adjusting items totaling $116 million, partially offset by the improvements in underlying operating performance of $106 million described below:
- the unfavourable year-over-year net impact of adjusting items totaling
$116 million was primarily due to: - the unfavourable impact of the charge related to the
President's Choice Bank ("PC Bank ") commodity tax matter of$111 million ; - the unfavourable impact of the Lifemark transaction costs of
$13 million ; and - the unfavourable year-over-year impact of the fair value adjustment of derivatives of
$7 million ;
partially offset by,
- the favourable year-over-year impact of restructuring and other related costs of
$8 million ; and - the favourable year-over-year impact of gain on sale of non-operating properties of
$4 million . - the improvement in underlying operating performance of
$106 million was primarily due to an increase in retail gross profit, partially offset by an increase in retail selling, general and administrative expenses ("SG&A") and depreciation and amortization.
Adjusted EBITDA(1) Loblaw adjusted EBITDA(1) in the second quarter of 2022 was
Retail adjusted EBITDA(1) in the second quarter of 2022 increased by $129 million driven by an increase in retail gross profit of $169 million, partially offset by an unfavourable increase in retail SG&A of
- Retail gross profit percentage of 31.4% increased by 50 basis points compared to the same period in 2021, driven by favourable changes in drug retail sales mix. Food retail margins were stable.
- Retail SG&A as a percentage of sales was 19.9%, a favourable decrease of 30 basis points compared to the same period in 2021. The favourable decrease was primarily due to lower COVID-19 related expenses, partially offset by higher costs from the normalization of post-lockdown expenses.
Financial services adjusted EBITDA(1) decreased by $1 million compared to the same period in 2021. Financial services continues to benefit from the economic re-opening, but earnings have decreased due to the year-over-year impact of the expected credit loss provision from lapping a larger prior year release of
Depreciation and Amortization Loblaw depreciation and amortization in the second quarter of 2022 was $633 million, an increase of $19 million compared to the same period in 2021, primarily driven by an increase in depreciation of information technology ("IT") and leased assets. Included in depreciation and amortization is the amortization of intangible assets acquired with
Consolidation of Franchises Loblaw has more than 500 franchise food retail stores in its network. Non-controlling interests at Loblaw represent the share of earnings that relates to Loblaw'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. Loblaw's net earnings attributable to non-controlling interests were $38 million in the second quarter of 2022. When compared to the second quarter of 2021, this represented a decrease of $18 million, or 32.1%. The decrease in non-controlling interests was primarily driven by a decline in franchisee earnings.
Loblaw Other Business Matters
PC Bank Commodity Tax Matter On
Although Loblaw believes in the merits of its position, it recorded a charge during the second quarter of
Choice Properties Operating Results
(unaudited) ($ millions except where otherwise For the periods ended as indicated | ||||||||||||||||||||
12 Weeks Ended | 24 Weeks Ended | |||||||||||||||||||
$ Change | % Change | $ Change | % Change | |||||||||||||||||
Revenue | $ 313 | $ 324 | $ (11) | (3.4) % | $ 641 | $ 651 | $ (10) | (1.5) % | ||||||||||||
Net interest (income) expense and | $ (439) | $ 418 | $ (857) | (205.0) % | $ (197) | $ 765 | $ (962) | (125.8) % | ||||||||||||
Net (loss) income | $ (12) | $ 85 | $ (97) | (114.1) % | $ 375 | $ 23 | $ 352 | 1,530.4 % | ||||||||||||
Funds from Operations(1) | $ 175 | $ 172 | $ 3 | 1.7 % | $ 350 | $ 342 | $ 8 | 2.3 % | ||||||||||||
(i) | Net interest (income) expense and other financing charges includes a fair value adjustment on Exchangeable Units. |
Revenue Revenue in the second quarter of 2022 was
The decrease in revenue in the second quarter of 2022 was primarily driven by:
- foregone revenue following the Office Asset Sale as described below;
partially offset by,
- higher rental rates in the retail and industrial portfolio; and
- increased capital recoveries.
Net Interest (Income) Expense and Other Financing Charges Net interest income and other financing charges in the second quarter of 2022 were $439 million compared to net interest expense and other financing charges of $418 million in the same period in 2021. The change of $857 million was primarily driven by the favourable year-over-year impact of the fair value adjustment on the
Net (Loss) Income Net loss in the second quarter of 2022 was $12 million, compared to net income of $85 million in the same period in 2021. The change of $97 million was primarily driven by:
- the unfavourable change in the adjustment to fair value of investment properties, including those held within equity accounted joint ventures, due to capitalization rate expansion in the retail portfolio as a result of rising interest rates;
- the unfavourable change in the adjustment to fair value of investment in real estate securities due to the change in Allied's unit price; and
- a decrease in rental revenue as described above;
partially offset by,
- lower net interest expense and other financing charges as described above.
Funds from Operations(1) Funds from Operations(1) in the second quarter of 2022 was $175 million, an increase of $3 million compared to the same period in 2021. The increase was primarily due to distributions from
Choice Properties Other Business Matters
Strategic Disposition On
OUTLOOK(2)
For 2022, the Company expects adjusted net earnings(1) from continuing operations to increase due to the results from its operating segments, and to use excess cash to repurchase shares.
Loblaw Loblaw will continue to execute on retail excellence in its core grocery and pharmacy businesses while advancing its growth initiatives in 2022. In the third year of the pandemic, Loblaw's businesses remain well placed to service the everyday needs of Canadians. However, Loblaw cannot predict the precise impacts of COVID-19, the related industry volatility and inflationary environment on its 2022 financial results.
On a full year basis, Loblaw continues to expect:
- its retail business to grow earnings faster than sales;
- to invest approximately
$1.4 billion in capital expenditures, net of proceeds from property disposals, reflecting incremental store and distribution network investments; and - to return capital to shareholders by allocating a significant portion of free cash flow to share repurchases.
Based on its year to date operating and financial performance and momentum exiting the second quarter, Loblaw expects full year adjusted net earnings per common share(1) growth in the mid-to-high teens.
At the end of the second quarter of 2022,
In 2021,
Since the start of the year, concerns over inflation have resulted in a significant increase in interest rates with the
DECLARATION OF QUARTERLY DIVIDENDS
Subsequent to the end of the second quarter of 2022, the Company's Board of Directors declared a quarterly dividend on GWL Common Shares, Preferred Shares, Series I, Preferred Shares, Series III, Preferred Shares, Series IV and Preferred Shares, Series V payable as follows:
Common Shares | record | ||
Preferred Shares, Series I | shareholders of record | ||
Preferred Shares, Series III |
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Preferred Shares, Series IV |
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Preferred Shares, Series V |
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NON-GAAP FINANCIAL MEASURES
The Company uses non-GAAP financial measures and ratios as it believes these measures and ratios provide useful information to both management and investors with regard to accurately assessing the Company's financial performance and financial condition.
Further, certain non-GAAP measures of
Management uses these and other non-GAAP financial measures to exclude the impact of certain expenses and income that must be recognized under GAAP when analyzing underlying consolidated and segment 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 excludes additional 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.
These measures do not have a standardized meaning prescribed by GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies, and should not be construed as an alternative to other financial measures determined in accordance with GAAP. Unless otherwise indicated, all financial information represents the Company's results from continuing operations.
ADJUSTED EBITDA The Company believes adjusted EBITDA is useful in assessing and making decisions regarding the underlying operating performance of the Company's ongoing operations and in assessing the Company's ability to generate cash flows to fund its cash requirements, including its capital investment program.
The following table reconciles adjusted EBITDA to operating income, which is reconciled to GAAP net earnings attributable to shareholders of the Company from continuing operations reported for the periods ended as indicated.
12 Weeks Ended | ||||||||||||
(unaudited) ($ millions) | Loblaw | Choice | Other & | Consolidated | Loblaw | Choice | Other & | Consolidated | ||||
Net earnings attributable to shareholders of the | $ 650 | $ 125 | ||||||||||
Add impact of the following: | ||||||||||||
Non-controlling interests | 224 | 236 | ||||||||||
Income taxes | 113 | 201 | ||||||||||
Net interest (income) expense and other | (338) | 503 | ||||||||||
Operating income (loss) | $ 740 | $ 360 | $ 649 | $ 750 | $ 503 | $ (188) | ||||||
Add (deduct) impact of the following: | ||||||||||||
Amortization of intangible assets acquired | $ 111 | $ — | $ — | $ 111 | $ 117 | $ — | $ — | $ 117 | ||||
Amortization of intangible assets acquired | 3 | — | — | 3 | — | — | — | — | ||||
Fair value adjustment of investment in real | — | 159 | — | 159 | — | — | — | — | ||||
Charge related to | 111 | — | — | 111 | — | — | — | — | ||||
Fair value adjustment on investment | — | 517 | (415) | 102 | — | (281) | 132 | (149) | ||||
Transaction costs and other related expenses | 13 | — | — | 13 | — | — | — | — | ||||
Fair value adjustment of derivatives | 4 | — | — | 4 | (3) | — | — | (3) | ||||
Restructuring and other related costs | — | — | — | — | 8 | — | — | 8 | ||||
Gain on sale of non-operating properties | (4) | — | — | (4) | — | — | — | — | ||||
Foreign currency translation and other | — | — | 2 | 2 | — | — | — | — | ||||
Adjusting items | $ 238 | $ 676 | $ (413) | $ 501 | $ 122 | $ (281) | $ 132 | $ (27) | ||||
Adjusted operating income | $ 978 | $ 225 | $ (53) | $ 872 | $ 222 | $ (56) | ||||||
Depreciation and amortization excluding the | 519 | 1 | (82) | 438 | 497 | 1 | (74) | 424 | ||||
Adjusted EBITDA | $ 226 | $ (135) | $ 223 | $ (130) | ||||||||
(i) | Depreciation and amortization for the calculation of adjusted EBITDA excludes |
24 Weeks Ended | ||||||||||||
(unaudited) ($ millions) | Loblaw | Choice Properties | Other & Intersegment | Consolidated | Loblaw | Choice Properties | Other & Intersegment | Consolidated | ||||
Net earnings attributable to shareholders of the | $ 73 | |||||||||||
Add impact of the following: | ||||||||||||
Non-controlling interests | 466 | 406 | ||||||||||
Income taxes | 342 | 366 | ||||||||||
Net interest (income) expense and other | (16) | 1,048 | ||||||||||
Operating income | $ 178 | $ 161 | $ 1,815 | $ (260) | ||||||||
Add (deduct) impact of the following: | ||||||||||||
Amortization of intangible assets acquired | $ 228 | $ — | $ — | $ 228 | $ 234 | $ — | $ — | $ 234 | ||||
Amortization of intangible assets acquired | 3 | — | — | 3 | — | — | — | — | ||||
Fair value adjustment of investment in real | — | 159 | — | 159 | — | — | — | — | ||||
Charge related to | 111 | — | — | 111 | — | — | — | — | ||||
Fair value adjustment on investment | — | 107 | (296) | (189) | — | (342) | 147 | (195) | ||||
Transaction costs and other related expenses | 16 | 5 | — | 21 | — | — | — | — | ||||
Fair value adjustment of derivatives | (10) | — | — | (10) | (11) | — | — | (11) | ||||
Restructuring and other related | (15) | — | 19 | 4 | 12 | — | — | 12 | ||||
Gain on sale of non-operating properties | (4) | — | — | (4) | (5) | — | 2 | (3) | ||||
Foreign currency translation and other | — | — | 2 | 2 | — | — | — | — | ||||
Adjusting items | $ 329 | $ 271 | $ (275) | $ 325 | $ 230 | $ 149 | $ 37 | |||||
Adjusted operating income | $ 1,805 | $ 449 | $ (114) | $ 446 | $ (111) | |||||||
Depreciation and amortization excluding the | 1,033 | 2 | (165) | 870 | 990 | 2 | (160) | 832 | ||||
Adjusted EBITDA | $ 2,838 | $ 451 | $ (279) | $ 448 | $ (271) | |||||||
(i) | Depreciation and amortization for the calculation of adjusted EBITDA excludes |
The following items impacted adjusted EBITDA in 2022 and 2021:
Amortization of intangible assets acquired with Shoppers Drug Mart The acquisition of
Amortization of intangible assets acquired with Lifemark The acquisition of Lifemark in the second quarter of 2022 included approximately
Fair value adjustment of investment in real estate securities Choice Properties received Allied Class
Charge related to
Fair value adjustment on investment properties The Company measures investment properties at fair value. Under the fair value model, investment properties are initially measured at cost and subsequently measured at fair value. Fair value is determined based on available market evidence. If market evidence is not readily available in less active markets, the Company uses alternative valuation methods such as discounted cash flow projections or recent transaction prices. Gains and losses on fair value are recognized in operating income in the period in which they are incurred. Gains and losses from disposal of investment properties are determined by comparing the fair value of disposal proceeds and the carrying amount and are recognized in operating income.
Transaction costs and other related expenses In connection with the acquisition of Lifemark, in the second quarter of 2022 and year-to-date Loblaw recorded
During the first quarter of 2022 and year-to-date,
Fair value adjustment of derivatives Loblaw is exposed to commodity price and
Restructuring and other related costs The Company continuously evaluates strategic and cost reduction initiatives related to its store infrastructure, distribution networks and administrative infrastructure with the objective of ensuring a low cost operating structure. Only restructuring activities that are publicly announced related to these initiatives are considered adjusting items.
In the second quarter of 2022, Loblaw did not record any restructuring and other related recoveries or charges (2021 – a charge of
Included in Loblaw's restructuring and other related recoveries was a gain of
Gain on sale of non-operating properties In the second quarter of 2022 and year-to-date, Loblaw disposed of non-operating properties to a third party and recorded a gain of
In 2021,
ADJUSTED NET INTEREST EXPENSE AND OTHER FINANCING CHARGES The Company believes adjusted net interest expense and other financing charges is useful in assessing the ongoing net financing costs of the Company.
The following table reconciles adjusted net interest expense and other financing charges to GAAP net interest (income) expense and other financing charges reported for the periods ended as indicated.
(unaudited) ($ millions) | 12 Weeks Ended | 24 Weeks Ended | ||||||||||
Net interest (income) expense and other financing | $ (338) | $ 503 | $ | (16) | $ 1,048 | |||||||
Add: Fair value adjustment of the Trust Unit liability | 576 | (188) | 483 | (427) | ||||||||
Recovery related to Glenhuron | — | — | 11 | — | ||||||||
Fair value adjustment of the forward sale | — | (58) | — | (111) | ||||||||
Adjusted net interest expense and other | $ 238 | $ 257 | $ | 478 | $ 510 | |||||||
In addition to certain items described in the "Adjusted EBITDA" section above, the following items impacted adjusted net interest expense and other financing charges in 2022 and 2021:
Fair value adjustment of the Trust Unit liability The Company is exposed to market price fluctuations as a result of the
Recovery related to Glenhuron In the first quarter of 2022, Loblaw reversed
Fair value adjustment of the forward sale agreement for Loblaw common shares The fair value adjustment of the forward sale agreement for Loblaw common shares is included in net interest expense and other financing charges. The adjustment is determined by changes in the value of the underlying Loblaw common shares. An increase (decrease) in the market price of Loblaw common shares results in a charge (income) to net interest expense and other financing charges. The Company settled the net debt associated with the forward sale agreement in the fourth quarter of 2021.
ADJUSTED INCOME TAXES AND ADJUSTED EFFECTIVE TAX RATE The Company believes the adjusted effective tax rate applicable to adjusted earnings before taxes is useful in assessing the underlying operating performance of its business.
The following table reconciles the effective tax rate applicable to adjusted earnings before taxes to the GAAP effective tax rate applicable to earnings before taxes as reported for the periods ended as indicated.
(unaudited) ($ millions except where otherwise indicated) | 12 Weeks Ended | 24 Weeks Ended | ||||||||||||
Adjusted operating income(i) | $ 1,150 | $ 1,038 | $ 2,140 | $ 1,930 | ||||||||||
Adjusted net interest expense and other | 238 | 257 | 478 | 510 | ||||||||||
Adjusted earnings before taxes | $ 912 | $ 781 | $ 1,662 | $ 1,420 | ||||||||||
Income taxes | $ 113 | $ 201 | $ 342 | $ 366 | ||||||||||
Add: | Tax impact of items excluded from adjusted | 89 | 17 | 69 | 45 | |||||||||
Remeasurement of deferred tax balances | 46 | — | 46 | — | ||||||||||
Outside basis difference in certain | 18 | — | (19) | (16) | ||||||||||
Recovery related to Glenhuron | — | — | 33 | — | ||||||||||
Adjusted income taxes | $ 266 | $ 218 | $ 471 | $ 395 | ||||||||||
Effective tax rate applicable to earnings before taxes | 11.4 % | 35.8 % | 18.7 % | 43.3 % | ||||||||||
Adjusted effective tax rate applicable to adjusted | 29.2 % | 27.9 % | 28.3 % | 27.8 % | ||||||||||
(i) | See reconciliations of adjusted operating income and adjusted net interest expense and other financing charges above. |
(ii) | See the adjusted EBITDA table and the adjusted net interest expense and other financing charges table above for a complete list of items excluded from adjusted earnings before taxes. |
In addition to certain items described in the "Adjusted EBITDA" and "Adjusted Net Interest Expense and Other Financing Charges" sections above, the following items impacted adjusted income taxes and the adjusted effective tax rate in 2022 and 2021:
Remeasurement of deferred tax balances As a result of the Office Asset Sale, the Company revalued certain deferred tax balances which resulted in an income tax recovery of
Outside basis difference in certain Loblaw shares The Company recorded a deferred tax recovery of
Recovery related to Glenhuron In the first quarter of 2022, Loblaw reversed
ADJUSTED NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS FROM CONTINUING OPERATIONS AND ADJUSTED DILUTED NET EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS The Company believes that adjusted net earnings available to common shareholders from continuing operations and adjusted diluted net earnings per common share from continuing operations are useful in assessing the Company's underlying operating performance and in making decisions regarding the ongoing operations of its business.
The following table reconciles adjusted net earnings available to common shareholders of the Company from continuing operations and adjusted net earnings attributable to shareholders of the Company from continuing operations to net earnings attributable to shareholders of the Company and then to net earnings available to common shareholders of the Company from continuing operations reported for the periods ended as indicated.
(unaudited) ($ millions except where otherwise indicated) | 12 Weeks Ended | 24 Weeks Ended | ||||||||||
Net earnings attributable to shareholders of the Company | $ 644 | $ 118 | $ 1,017 | $ 66 | ||||||||
Less: Net loss from discontinued operations | (6) | (7) | (6) | (7) | ||||||||
Net earnings attributable to shareholders of the Company | $ 650 | $ 125 | $ 1,023 | $ 73 | ||||||||
Less: Prescribed dividends on preferred shares in | (10) | (10) | (20) | (20) | ||||||||
Net earnings available to common shareholders | $ 640 | $ 115 | $ 1,003 | $ 53 | ||||||||
Less: Reduction in net earnings due to dilution at Loblaw | (2) | (2) | (4) | (3) | ||||||||
Net earnings available to common shareholders from | $ 638 | $ 113 | $ 999 | $ 50 | ||||||||
Net earnings attributable to shareholders of the Company | $ 650 | $ 125 | $ 1,023 | $ 73 | ||||||||
Adjusting items (refer to the following table) | (312) | 160 | (393) | 467 | ||||||||
Adjusted net earnings attributable to shareholders | $ 338 | $ 285 | $ 630 | $ 540 | ||||||||
Less: Prescribed dividends on preferred shares in | (10) | (10) | (20) | (20) | ||||||||
Adjusted net earnings available to common shareholders | $ 328 | $ 275 | $ 610 | $ 520 | ||||||||
Less: Reduction in net earnings due to dilution at Loblaw | (2) | (2) | (4) | (3) | ||||||||
Adjusted net earnings available to common shareholders | $ 326 | $ 273 | $ 606 | $ 517 | ||||||||
Diluted weighted average common shares outstanding | 146.3 | 151.8 | 146.8 | 152.0 | ||||||||
The following table reconciles adjusted net earnings available to common shareholders of the Company from continuing operations and adjusted diluted net earnings per common share from continuing operations to GAAP net earnings available to common shareholders of the Company from continuing operations and diluted net earnings per common share from continuing operations as reported for the periods ended as indicated.
12 Weeks Ended | ||||||||||
(unaudited) ($ except where otherwise indicated) | Net | Diluted | Net Earnings Available to ($ millions) | Diluted | ||||||
Continuing Operations | $ 640 | $ 4.36 | $ 115 | $ 0.74 | ||||||
Add (deduct) impact of the following(i): | ||||||||||
Amortization of intangible assets acquired with Shoppers | $ 43 | $ 0.30 | $ 46 | $ 0.30 | ||||||
Amortization of intangible assets acquired with Lifemark | 1 | 0.01 | — | — | ||||||
Fair value adjustment of investment in real estate securities | 146 | 0.99 | — | — | ||||||
Charge related to | 45 | 0.31 | — | — | ||||||
Fair value adjustment on investment properties | 85 | 0.58 | (125) | (0.81) | ||||||
Transaction costs and other related expenses | 7 | 0.05 | — | — | ||||||
Fair value adjustment of derivatives | 2 | 0.01 | (1) | (0.01) | ||||||
Restructuring and other related costs | — | — | 2 | 0.01 | ||||||
Gain on sale of non-operating properties | (2) | (0.02) | — | — | ||||||
Fair value adjustment of the Trust Unit liability | (576) | (3.94) | 188 | 1.24 | ||||||
Fair value adjustment of the forward sale agreement for Loblaw | — | — | 50 | 0.33 | ||||||
Remeasurement of deferred tax balances | (46) | (0.31) | — | — | ||||||
Outside basis difference in certain Loblaw shares | (18) | (0.12) | — | — | ||||||
Foreign currency translation and other company level activities | 1 | 0.01 | — | — | ||||||
Adjusting items Continuing Operations | $ (312) | $ (2.13) | $ 160 | $ 1.06 | ||||||
Adjusted Continuing Operations | $ 328 | $ 2.23 | $ 275 | $ 1.80 | ||||||
(i) | Net of income taxes and non-controlling interests, as applicable. |
24 Weeks Ended | ||||||||||
(unaudited) ($ except where otherwise indicated) | Net | Diluted | Net Earnings Available to Common Shareholders of the Company ($ millions) | Diluted | ||||||
Continuing Operations | $ 1,003 | $ 6.81 | $ 53 | $ 0.33 | ||||||
Add (deduct) impact of the following(i): | ||||||||||
Amortization of intangible assets acquired with Shoppers | $ 89 | $ 0.60 | $ 91 | $ 0.59 | ||||||
Amortization of intangible assets acquired with Lifemark | 1 | 0.01 | — | — | ||||||
Fair value adjustment of investment in real estate securities | 146 | 0.99 | — | — | ||||||
Charge related to | 45 | 0.31 | — | — | ||||||
Fair value adjustment on investment properties | (158) | (1.08) | (163) | (1.07) | ||||||
Transaction costs and other related expenses | 12 | 0.08 | — | — | ||||||
Fair value adjustment of derivatives | (4) | (0.03) | (4) | (0.03) | ||||||
Restructuring and other related costs | 10 | 0.08 | 4 | 0.03 | ||||||
Gain on sale of non-operating properties | (2) | (0.02) | — | — | ||||||
Fair value adjustment of the Trust Unit liability | (483) | (3.29) | 427 | 2.81 | ||||||
Fair value adjustment of the forward sale agreement for Loblaw | — | — | 96 | 0.63 | ||||||
Remeasurement of deferred tax balances | (46) | (0.31) | — | — | ||||||
Outside basis difference in certain Loblaw shares | 19 | 0.13 | 16 | 0.11 | ||||||
Recovery related to Glenhuron | (23) | (0.16) | — | — | ||||||
Foreign currency translation and other company level activities | 1 | 0.01 | — | — | ||||||
Adjusting items Continuing Operations | $ (393) | $ (2.68) | $ 467 | $ 3.07 | ||||||
Adjusted Continuing Operations | $ 610 | $ 4.13 | $ 520 | $ 3.40 | ||||||
(i) | Net of income taxes and non-controlling interests, as applicable. |
FREE CASH FLOW FROM CONTINUING OPERATIONS The Company believes free cash flow is useful in assessing the Company's cash available for additional financing and investing activities.
The following table reconciles free cash flow to GAAP measures reported for the periods ended as indicated.
(unaudited) ($ millions) | 12 Weeks Ended | 24 Weeks Ended | ||||||||||||||
$ Change | $ Change | |||||||||||||||
Cash flows from operating activities | $ 1,118 | $ 1,702 | $ (584) | $ 1,875 | $ 2,613 | $ (738) | ||||||||||
Less: Cash flows from operating activities from | — | 19 | (19) | — | 16 | (16) | ||||||||||
Cash flows from operating activities from | $ 1,118 | $ 1,683 | $ (565) | $ 1,875 | $ 2,597 | $ (722) | ||||||||||
Less: Interest paid | 184 | 195 | (11) | 398 | 439 | (41) | ||||||||||
Capital investments(i) | 362 | 278 | 84 | 569 | 501 | 68 | ||||||||||
Lease payments, net | 203 | 198 | 5 | 346 | 338 | 8 | ||||||||||
Free cash flow from continuing operations | $ 369 | $ 1,012 | $ (643) | $ 562 | $ 1,319 | $ (757) | ||||||||||
(i) | During 2022, there were no additions to fixed assets in Loblaw related to prepayments that were made in 2021 and transferred from other assets. During 2021, additions to fixed assets in Loblaw included prepayments that were made in 2020 and transferred from other assets of nil in the second quarter of 2021 and |
CHOICE PROPERTIES' FUNDS FROM OPERATIONS
Funds from operations is calculated in accordance with the
The following table reconciles
(unaudited) ($ millions) | 12 Weeks Ended | 24 Weeks Ended | ||||||||||
Net (loss) income | $ (12) | $ 85 | $ 375 | $ 22 | ||||||||
Add (deduct) impact of the following: | ||||||||||||
Amortization of intangible assets | — | — | 1 | 1 | ||||||||
Transaction costs and other related expenses | — | — | 5 | — | ||||||||
Other fair value gains, net | (2) | 3 | (1) | 2 | ||||||||
Fair value adjustment on Exchangeable Units | (570) | 289 | (451) | 507 | ||||||||
Fair value adjustment on investment properties | 524 | (269) | 221 | (328) | ||||||||
Fair value adjustment on investment property held in | (1) | (12) | (112) | (14) | ||||||||
Fair value adjustment of investment in real estate | 159 | — | 159 | — | ||||||||
Capitalized interest on equity accounted joint ventures | 2 | 1 | 3 | 2 | ||||||||
Unit distributions on Exchangeable Units | 73 | 73 | 146 | 146 | ||||||||
Internal expenses for leasing | 2 | 2 | 4 | 4 | ||||||||
Funds from Operations | $ 175 | $ 172 | $ 350 | $ 342 | ||||||||
FORWARD-LOOKING STATEMENTS
This News Release 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 News Release 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, and economic conditions. These specific forward-looking statements are contained throughout this News Release including, without limitation, in the "Outlook" section of this News Release. 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.
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 "Enterprise Risks and Risk Management" section, of the MD&A in the Company's 2021 Annual Report and the Company's Annual Information Form for the year ended
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 News Release. 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 SECOND QUARTER REPORT
The Company's 2021 Annual Report and 2022 Second Quarter Report are available in the Investor Centre section of the Company's website at www.weston.ca and have been filed on SEDAR and are available at www.sedar.com.
INVESTOR RELATIONS
Shareholders, security analysts and investment professionals should direct their requests to
Additional financial information has been filed electronically with various securities regulators in
This News Release also includes selected information on
Ce rapport est disponible en français.
Endnotes | |
(1) | See the "Non-GAAP Financial Measures" section of this News Release, which includes the reconciliation of such non-GAAP measures to the most directly comparable GAAP measures. |
(2) | This News Release contains forward-looking information. See "Forward-Looking Statements" section of this News Release and the Company's 2022 Second Quarter Report for a discussion of material factors that could cause actual results to differ materially from the forecasts and projections herein and of the material factors and assumptions that were used when making these statements. This News Release should be read in conjunction with GWL's filings with securities regulators made from time to time, all of which can be found at www.weston.ca and www.sedar.com. |
(3) | Comparative figures have been restated to conform with current year presentation. |
(4) | GWL Corporate refers to the non-consolidated financial results and metrics of GWL. GWL Corporate is a subset of Other and Intersegment. |
SOURCE
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