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Higher food prices give supermarket chain Loblaw 73 profit boost in first quarter

TORONTO — Shoppers are paying more for their groceries as food price inflation tears through the supermarket aisles, and that helped Loblaw Cos. Ltd. (TSX:L) power to a 73 per cent profit increase in the first three months of 2009.

Canada's largest supermarket operator said Tuesday its net earnings climbed to $109 million for the quarter ended March 28, up from a year-earlier profit of $63 million.

Its share price gained more than eight per cent on the news.

"Food inflation in Canada is the highest it's been in 27 years, and most of the food retailers in Canada and around the world are showing pretty good (first-quarter results) - that's not a coincidence," Loblaw president and deputy chairman Alan Leighton said in a conference call with analysts.

According to the latest data from Statistics Canada, food prices in March were 7.9 per cent above year-earlier levels, the steepest increase since 1986, and the cost of food purchased from stores surged even more, by 9.5 per cent.

Couple that with a weak economy, which encourages people to eat at home rather than in restaurants, and supermarkets are racking up financial rewards.

Loblaw said its quarterly sales rose to $6.72 billion, up 2.9 per cent from $6.53 billion a year earlier. Sales at stores open a year or longer rose 2.1 per cent.

The bottom line was worth 40 cents per share, up from 23 cents per share a year ago and topping the Thomson Reuters analyst consensus expectation of 34 cents per share.

Loblaw stock rose $2.92 to $35.75 at midafternoon on the TSX, a gain of 8.9 per cent. Parent company George Weston Ltd. (TSX:WN) advanced $1.07 to $63.

Leighton was cautious over future food price trends, and said he doesn't consider inflation to be a reliable basis for profit growth.

"I'm a hawk on inflation," he declared. "We are very cautious about what happens when inflation unwinds in the second half."

"The real measure, for me, is what's happening to our volume, because that's the only thing you know as a constant. Inflation will come and go and be what it is."

For now, shoppers appear to be responding to higher prices and economic anxiety by stripping down their shopping lists and buying lower-priced items - including Loblaw store brands. The company said sales of its President's Choice food and beverage options are outpacing national brands.

However, strong food and drug sales were offset somewhat by a weaker performance from its gas bar operations, where lower prices offset a modest volume increase.

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