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TORONTO -- Loblaw Cos., Ltd. said yesterday it had appointed William Wells to the position of c.f.o., effective April, 2, 2007. At that time, Richard Mavrinac will step down as e.v.p. of the company. Steve Smith, e.v.p., financial control, will also leave the retailer, effective today.
George Weston, Loblaw's parent company, said Robert Vaux, s.v.p., corporate development at Weston for the past eight years, would succeed Mavrinac by the company's May 16 annual meeting, Reuters reported.
A Canadian citizen, Wells most recently served as C.F.O. of Bunge, Ltd., a White Plains, N.Y.-based global food-processing company. Wells led Bunge's initial public offering and listing on the NYSE, as well as the company's subsequent acquisition of French oil processor Cereol. Before joining Bunge, he held senior financial roles at McDonald's Corp. in North and South America, eventually becoming chief executive of McDonald's dedicated finance company, System Capital Corp.
"Bill has a proven track record and reputation within the North American financial and business community and will be a welcome addition to our executive team," noted Loblaw Cos. executive chairman Galen G. Weston in a statement.
Also yesterday, Loblaw reported preliminary results for the fourth quarter and fiscal year ended Dec. 30, 2006, which it said would be adversely affected by a goodwill impairment of $600 million to $900 million related to its acquisition of the Provigo banner.
Loblaw said last November it would close 19 underperforming locations in the province of Quebec, most of them Provigo stores, as well as eight stores in the Atlantic region and 24 cash & carry and wholesale club outlets. The closures are expected to cost $54 million, $35 million of which was recorded in the fourth quarter.
"Fundamentally, there is a structural weakness in the profitability of our business in Quebec, and the impairment reflects that underlying issue," admitted a company official during the company's conference call yesterday. "However, we still believe very firmly in the potential of that market, and sales are, in fact, moving in the right direction in all of our formats at the moment."
The charge in connection with the expected goodwill impairment will result in a negative impact to basic net earnings per common share for the fourth quarter and the full year of $2.19 to $3.28 per share, according to the company. After the impact of this charge, Loblaw anticipates a basic net loss per common share in the range of $2.03 to $3.12 in the fourth quarter. For the year, after the impact of the charge, the retailer expects a basic net loss per common share of seven cents to $1.16.
Loblaw's sales for the fourth quarter of 2006 grew 3.5 percent, or $232 million, to $6.8 billion, from the $6.6 billion reported in year-ago period. For the full year, sales of $28.6 billion were 3.7 percent higher than last year. Sales growth occurred across all regions of the country and in all areas of food, general merchandise, and drug store. Same-store sales rose 1.3 percent for the quarter and 0.8 percent year-to-date.
Operating income for the fourth quarter, before the expected goodwill impairment charge, declined $289 million, or 73.4 percent, from last year, to $105 million. Operating margin before the expected goodwill charge fell 1.5 percent, from 6.0 percent, in the comparable period of 2005. After the impact of the expected goodwill impairment charge, Loblaw expects operating loss for the fourth quarter to be in the range of $495 million to $795 million, and operating margin in the range of -7.3 percent to -11.7 percent.
Several factors adversely affected operating income before the expected fourth-quarter goodwill impairment charge, the company noted, among them higher inventory shrink and store labor costs; higher general merchandise markdowns to clear inventory through retail stores; an investment of about 0.5 percent in food pricing; a fixed asset impairment charge of $24 million, partly due to a decision to suspend plans for some sites slated for future development; and incremental supply chain costs and information technology investments.
The company is in the midst of its "Formula for Growth," a reorganization of the business under three themes: Simplify, Innovate, and Grow. Streamlining efforts include redesigning processes and structures to make the business more efficient and agile, and facilitating more product and service innovation and strategic growth.
Of this initiative which is expected to result in costs in the range of $150 million to $200 million, the substantial portion of which should be recorded in the first quarter of 2007, Loblaw said: "Although the Company has many strengths, there is no escaping the fact that the retailing basics of availability, accountability, value, and format economics are in poorer shape than expected. There is still much hard work to be done."
Further financial details will be revealed at an analysts' meeting scheduled for Feb. 21, and full financial results are due from the company in early to mid-March.
Loblaw, Canada's largest food distributor and a leading provider of general merchandise products, drug store, and financial products and services, operates over 1,000 corporate and franchised stores across that country.