Loblaw takes PC Optimum charge in Q4 as more customers redeem loyalty points

People shop at a Loblaws store in Toronto on Thursday, May 3, 2018. THE CANADIAN PRESS/Nathan Denette

Loblaw Companies Ltd. is seeing more participation in its popular PC Optimum loyalty program — and more points being redeemed at checkout.

Customers redeemed more than a billion dollars' worth of Optimum points in 2024, according to Loblaw’s annual report. There are more than 17 million active Optimum users.

The strength of the program caused the grocery retailer to take a non-cash charge of $129 million in its fourth quarter that drove profits lower year over year, as the company re-evaluated the program’s liability for outstanding Optimum points to reflect the higher use.

“We increased this liability based on our expectation that more customers will redeem more of their ... points going forward,” said chief financial officer Richard Durfresne on a conference call discussing the results.

“What it reflects is that more and more consumers are liking PC Optimum, are using it, and so from our perspective ... we’re more than happy to do it because it reflects what’s happening in our stores.”

The parent company of Loblaws and Shoppers Drug Mart says its net earnings available to common shareholders amounted to $462 million or $1.52 per diluted share for the quarter ended Dec. 28.

The result was down from a profit of $541 million or $1.72 per diluted share in the fourth quarter of 2023.

Loblaw to open 80 stores in 2025 as part of $10-billion investment over five years

Amid a looming trade war with the U.S. that could see import tariffs on both sides of the border, Loblaw has been highlighting domestic products in its stores as shoppers look to buy Canadian. It also added a “swap and shop” feature to its loyalty app to help shoppers find Canadian products more easily.

The efforts appear to be paying off.

“As we continue to expand this feature, we are already seeing a significant uplift in sales (of) products identified as prepared in Canada,” said CEO Per Bank.

Loblaw is also monitoring how tariffs could affect prices on its U.S. products. If Trump brings in tariffs and Canada retaliates, it may have to pay more for items it brings in from south of the border, which would also put upward pressure on retail prices.

Less than 10 per cent of the company’s supply comes from the U.S., said Bank, with most of it being produce. Canada is particularly reliant on produce imports in the winter.

“If tariffs are applied on produce, there’s where we will be mostly impacted,” said Bank.

The company has some plans to mitigate the effects of tariffs, but produce is the hardest thing to replace, said Bank, estimating Loblaw could mitigate the impact on about half of the U.S. produce the company buys.

“We are seeing these tariffs as a kind of tax on products that will hurt consumers on both sides,” he said.

But in other areas, the company is better positioned to offer consumers an alternative, Bank said. For example, Loblaw carriers household and cleaning products from more than 30 U.S. vendors but also has a strong array of products in that category among its private-label brands No Name and President’s Choice, he said.

“If the tariffs will be applied on household and cleaning, then of course, those products will not be competitive anymore, and all the sales will go to our control brands, and they’re all produce in Canada,” he said.

“So that’s good for Canada, it’s good for customers, and it’s good for us.”

The weakness of the Canadian dollar is adding further inflationary pressure at a time when Canada relies on the U.S. for fresh produce, added Dufresne.

“That is inflationary, and we’ve been starting to feel it quite seriously over the last few weeks.”

The loonie’s decline is also compounding the fact that Loblaw continues to see higher-than-normal price increase requests from large global suppliers, he said.

On Wednesday Loblaw announced it plans to spend $2.2 billion in 2025, opening 80 new grocery and pharmacy stores with about 50 of them being discount grocers. Bank says many will be smaller-format stores, building the company’s network of those types of grocers after launching small-format No Frills stores for the first time last May.

The investment, which is part of about $10 billion over five years, will also add 100 pharmacy care clinics to the company’s network.

The company is also planning to open the first phase of its new automated distribution centre in East Gwillimbury, Ont. The ramp-up starts with frozen products, said Bank.

Loblaw opened 52 new stores in 2024 as well as 78 new clinics.

On an adjusted basis, Loblaw says it earned $2.20 per diluted share in its latest quarter, up from an adjusted profit of $2 per diluted share a year earlier.

Revenue for the quarter totalled $14.9 billion, up from $14.5 billion, as food retail same-stores sales rose by 2.5 per cent. Excluding the favourable impact of the timing of Thanksgiving, Loblaw says food retail same-store sales were up about 1.5 per cent.

Consumers continue to favour discount stores over conventional stores, though the gap is stabilizing, said Dufresne.

Drug retail same-store sales rose 1.3 per cent, with pharmacy and health care services same-store sales up 6.3 per cent, offset in part by a 3.1 per cent drop in front store same-store sales.

Loblaw shares fell 2.6 per cent to $174.75 Thursday on the Toronto Stock Exchange.

This report by The Canadian Press was first published Feb. 20, 2025.

Rosa Saba, The Canadian Press