Andrew Willis: After a nearly 70% rise in net income at Loblaws (L) last year, Canadian grocer tycoon Galen Weston kindly offered a price freeze on private-branded “No-Name” items until January of next year to fight inflation. But perhaps it should instead be seen as a deadline for when prices rise again on food and household staples – because it’s something the company may need.
Weston was right that much of the price hikes are out of his control. Senior equity analyst Dan Wasiolek points out that most costs at the company are fixed – leaving the cost of goods sold. And those higher margins goods, like private-label products, can have their profits evaporated through investments required to compete with brand names.
Because of costs and spending, net income at Loblaws has been trending down for the past few quarters, but we believe brands like No Name have grown to become among the best-selling brands in Canada - and something tells me they’re looking to increase prices in the new year.
For Morningstar, I’m Andrew Willis.
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