Loblaw Cos. (L), Canada’s largest grocery chain by market value, will cut 700 jobs and take a C$60 million ($60.8 million) charge as it seeks to reduce costs after projecting declining annual profit.
The cuts, mostly in management and administrative positions, will take effect today and be completed in three weeks, the Brampton, Ontario-based company said in a statement. The charge will be recorded in the fourth quarter.
“We’re managing costs where it makes sense by reducing administrative expense,” Loblaw President Vicente Trius said in the statement. “We will continue to invest in driving the business forward by devoting more resources to enhance the customer proposition.”
Loblaw is upgrading its supply chain’s technology and infrastructure in search of savings, and the job cuts are likely tied to the new system, Kenric Tyghe, an analyst with Raymond James Securities (RJF:US), said by telephone from Toronto.
“With their new systems capabilities, certain HR requirements are now redundant and hence the job cuts,” he said. “There was a lot of stuff they had to do to run the business and that required a lot more heads than they will require running the business going forward.”
Tyghe, who rates the shares outperform, the equivalent of a buy, said he viewed the move positively.
Loblaw rose 2.4 percent to C$34.70 at 11:25 a.m. in Toronto and earlier climbed as much as 2.7 percent for the biggest intraday gain since July 3. The shares declined 12 percent this year through yesterday.
Loblaw in July reported second-quarter profit fell 19 percent to C$159 million, or 56 cents a share, amid higher labor and transportation costs, while sales rose 1.3 percent to C$7.38 billion and same-store sales grew 0.2 percent.
Chairman Galen G. Weston said in the report the company continued to expect full-year net earnings would fall from last year.
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