Loblaw Reports 2016 Fourth Quarter and Fiscal Year Ended December 31, 2016 Results(1)

02/23/2017

BRAMPTON, ON, Feb. 23, 2017 /CNW/ - Loblaw Companies Limited (TSX: L) ("Loblaw" or the "Company") today announced its unaudited financial results for the fourth quarter ended December 31, 2016 and the release of its 2016 Annual Report ("Annual Report"), which includes the Company's audited consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the fiscal year ended December 31, 2016. The Company's 2016 Annual Report will be available in the Investors section of the Company's website at loblaw.ca and will be filed with SEDAR and available at sedar.com.

"We continued to lower prices, delivering more value to consumers," said Galen G. Weston, Chairman and Chief Executive Officer, Loblaw Companies Limited.

"Our focus on our strategic framework and financial plan delivered solid financial performance in the fourth quarter and demonstrated the strength of our portfolio of businesses amidst a highly competitive food retail environnment, and pressures from healthcare reform."

2016 FOURTH QUARTER HIGHLIGHTS

The following highlights include the impacts of the consolidation of franchises, as set out in "Other Retail Business Matter."

  • Revenue was $11,130 million, an increase of $265 million, or 2.4%, compared to the fourth quarter of 2015.
  • Retail segment sales were $10,845 million, an increase of $239 million, or 2.3%, compared to the fourth quarter of 2015.
    • Food retail (Loblaw) same-store sales growth was 1.1%, excluding gas bar.
    • Drug retail (Shoppers Drug Mart) same-store sales growth was 3.4%, with same-store pharmacy sales increasing by 2.5% and same-store front store sales increasing by 4.1%.
    • Same-store sales growth included the favourable impact of an extra selling day, due to the timing of New Year's day, of approximately 1.0% on Food retail same-store sales and 0.6% on Drug retail same-store sales.
  • Operating Income was $449 million, an increase of $133 million, or 42.1%, compared to the fourth quarter of 2015.
  • Adjusted EBITDA(2) was $956 million, an increase of $75 million, or 8.5%, compared to the fourth quarter of 2015.
  • Net earnings available to common shareholders of the Company were $201 million, an increase of $73 million, or 57.0%, compared to the fourth quarter of 2015. Diluted net earnings per common share were $0.50, an increase of $0.19, or 61.3%, compared to the fourth quarter of 2015.
  • Adjusted net earnings available to common shareholders of the Company(2)  were $393 million, an increase of $30 million, or 8.3%, compared to the fourth quarter of 2015. Adjusted diluted net earnings per common share(2) were $0.97, an increase of $0.10, or 11.5%, compared to the fourth quarter of 2015.
  • The Company repurchased 2.8 million shares for cancellation at a cost of $200 million.
  • In 2016, the Company invested $1,224 million in capital expenditures and generated $1,821 million of free cash flow(2).

     

    See "News Release Endnotes" at the end of this News Release.

    CONSOLIDATED RESULTS OF OPERATIONS












    For the periods ended December 31,












    2016 and January 2, 2016

    2016

    2015




    2016

    2015(6)




    (millions of Canadian dollars except












    where otherwise indicated)

    (12 weeks)

    (12 weeks)

    $ Change

    % Change

    (52 weeks)

    (52 weeks)

    $ Change

    % Change

    Revenue

    $

    11,130

    $

    10,865

    $

    265

    2.4%

    $

    46,385

    $

    45,394

    $

    991

    2.2%

    Operating Income

    449


    316


    133

    42.1%


    2,092

    1,601

    491

    30.7%

    Adjusted EBITDA(2)

    956


    881


    75

    8.5%


    3,852

    3,549

    303

    8.5%

    Adjusted EBITDA margin(2)

    8.6%


    8.1%





    8.3%


    7.8%




    Net earnings attributable to
















    shareholders of the Company

    $

    204

    $

    131

    $

    73

    55.7%

    $

    983

    $

    598

    $

    385

    64.4%

    Net earnings available to common











    shareholders of the Company(i)

    201


    128

    73

    57.0%

    971

    591

    380

    64.3%

    Adjusted net earnings available to











    common shareholders of the











    Company(2)

    393


    363

    30

    8.3%

    1,655

    1,422

    233

    16.4%

    Diluted net earnings per common
















    share ($)

    $

    0.50

    $

    0.31

    $

    0.19

    61.3%

    $

    2.37

    $

    1.42

    $

    0.95

    66.9%

    Adjusted diluted net earnings per











    common share(2) ($)

    0.97


    0.87

    0.10

    11.5%

    4.05

    3.42

    0.63

    18.4%

    Diluted weighted average common











    shares outstanding (millions)

    405.6


    415.2



    409.1

    415.2













     

    (i)   

    Net earnings available to common shareholders of the Company are net earnings attributable to shareholders of the Company net of dividends declared on the Company's Second Preferred Shares, Series B.

     

    Net earnings available to common shareholders of the Company in the fourth quarter of 2016 were $201 million ($0.50 per common share), an increase of $73 million ($0.19 per common share) compared to the fourth quarter of 2015. The increase in net earnings available to common shareholders of the Company was driven by improvements in underlying operating performance of $30 million and the net favourable impact of certain adjusting items totaling $43 million as described below:

    • improvements in underlying operating performance of $30 million ($0.10 per common share), primarily due to the following:
      • the Retail segment, which (excluding the impact of the consolidation of franchises) included achieving higher sales with stable gross margins and lower selling, general and administrative expenses ("SG&A");
      • the Financial Services segment, primarily driven by growth in the credit card portfolio;
      • the Choice Properties segment, primarily resulting from expansion of the property portfolio through development of properties and an increase in base rent from existing properties; and
      • the favourable impact of a decrease in depreciation and amortization, primarily due to a change in the estimated useful life of certain equipment and fixtures in the second quarter of 2016.
    • the net favourable year-over-year impact of certain adjusting items totaling $43 million ($0.09 per common share) including:
      • the impairment of Drug retail ancillary assets held for sale of $82 million ($0.20 per common share) in the prior year;
      • the accelerated finalization of transitioning of certain grocery stores to more cost effective and efficient Labour Agreements of $40 million ($0.10 per common share) incurred in the prior year;
      • the charge related to inventory measurement associated with the conversion of all of its franchised grocery stores to the new IT systems of $24 million ($0.06 per common share) incurred in the prior year; partially offset by
      • an unfavourable impact of asset impairments, net of recoveries, of $90 million ($0.21 per common share); and
      • an unfavourable impact of pension annuities and buy-outs of $10 million ($0.03 per common share).

     

    Adjusted net earnings available to common shareholders of the Company(2) in the fourth quarter of 2016 were $393 million ($0.97 per common share), an increase of $30 million ($0.10 per common share) compared to the fourth quarter of 2015, primarily due to the improvements in underlying operating performance, as described above.

    REPORTABLE OPERATING SEGMENTS

    The Company has three reportable operating segments with all material operations carried out in Canada:

    • The Retail segment consists primarily of corporate and franchise-owned retail food and Associate-owned drug stores, and includes in-store pharmacies and other health and beauty products, gas bars and apparel and other general merchandise. This segment is comprised of several operating segments that are aggregated primarily due to similarities in the nature of products and services offered for sale in the retail operations and the customer base;
    • The Financial Services segment provides credit card services, loyalty programs, insurance brokerage services, personal banking services provided by a major Canadian chartered bank, deposit taking services and telecommunication services; and
    • The Choice Properties segment owns, manages and develops retail and commercial properties across Canada. The Choice Properties segment information presented below reflects the accounting policies of Choice Properties, which may differ from those of the consolidated Company. Differences in policies are eliminated in Consolidation and Eliminations.

     

    Retail Segment










    For the periods ended December 31,










    2016 and January 2, 2016

    2016

    2015



    2016

    2015



    (millions of Canadian dollars except










    where otherwise indicated)

    (12 weeks)

    (12 weeks)

    $ Change

    % Change

    (52 weeks)

    (52 weeks)

    $ Change

    % Change

    Sales

    $

    10,845

    $

    10,606

    $

    239

    2.3%

    $

    45,384

    $

    44,469

    $

    915

    2.1%

    Operating Income

    392

    265

    127

    47.9%

    1,902

    1,429

    473

    33.1%

    Adjusted gross profit(2)

    2,945

    2,844

    101

    3.6%

    12,262

    11,747

    515

    4.4%

    Adjusted gross profit %(2)

    27.2%

    26.8%




    27.0%

    26.4%



    Adjusted EBITDA(2)

    $

    889

    $

    823

    $

    66

    8.0%

    $

    3,631

    $

    3,352

    $

    279

    8.3%

    Adjusted EBITDA margin(2)

    8.2%

    7.8%



    8.0%

    7.5%



    Depreciation and amortization

    $

    355

    $

    369

    $

    (14)

    (3.8)%

    $

    1,512

    $

    1,567

    $

    (55)

    (3.5)%
















     














    For the periods ended December 31,














    2016 and January 2, 2016



    2016



    2015



    2016



    2015

    (millions of Canadian dollars except














    where otherwise indicated)



    (12 weeks)



    (12 weeks)



    (52 weeks)



    (52 weeks)


    Sales

    Same-store
    sales

    Sales

    Same-store
    sales

    Sales

    Same-store
    sales

    Sales

    Same-store
    sales

    Food retail

    $

    7,789

    1.1%

    $

    7,631

    2.4%

    $

    33,175

    1.1%

    $

    32,672

    1.9%

    Drug retail

    3,056

    3.4%

    2,975

    5.0%

    12,209

    4.0%

    11,797

    4.3%


    Pharmacy

    1,361

    2.5%

    1,315

    4.2%

    5,730

    2.9%

    5,545

    3.7%


    Front Store

    1,695

    4.1%

    1,660

    5.7%

    6,479

    5.0%

    6,252

    4.7%










     

    Sales, operating income, adjusted gross profit(2), adjusted gross profit percentage(2), adjusted EBITDA(2) and adjusted EBITDA margin(2) in the fourth quarter of 2016 included the impacts of the consolidation of franchises, as set out in "Other Retail Business Matters".

    Sales Retail segment sales in the fourth quarter of 2016 were $10,845 million, an increase of $239 million compared to the fourth quarter of 2015. Excluding the consolidation of franchises, Retail segment sales increased by $168 million primarily driven by the following factors:

    • Food retail same-store sales growth was 1.1% (2015 – 3.1%(5)) for the quarter, after excluding gas bar which had no impact in the fourth quarter of 2016. This same-store sales growth includes the impact of retail promotional investments. Including gas bar, Food retail same-store sales growth was 2.4% in 2015. Food retail same-store sales included the favourable impact of an extra selling day in the fourth quarter of 2016, due to the timing of New Year's Day, of approximately 1.0%.
    • The Company's Food retail average quarterly internal food price index declined and was slightly lower than (2015 – moderately higher than) the average quarterly national food price deflation of 2.3% (2015 – inflation of 4.1%), as measured by The Consumer Price Index for Food Purchased from Stores ("CPI"). CPI does not necessarily reflect the effect of inflation on the specific mix of goods sold in the Company's stores.
    • Drug retail same-store sales growth was 3.4% (2015 – 5.0%) and was comprised of pharmacy same-store sales growth of 2.5% (2015 - 4.2%) and front store same-store sales growth of 4.1% (2015 – 5.7%). Drug retail same-store sales included the favourable impact of an extra selling day in the fourth quarter of 2016, due to the timing of New Year's Day, of approximately 0.6%.
    • In the last 12 months, Retail net square footage increased by 0.3 million square feet, or 0.4%, primarily driven by new store openings partially offset by the Company's store closure plan announced in 2015 and completed in 2016.

     

    Operating Income Operating Income in the fourth quarter of 2016 was $392 million, an increase of $127 million compared to the fourth quarter of 2015. The increase in operating income was driven by improvements in underlying operating performance of $80 million and the net favourable impact of certain adjusting items totaling $47 million as described below: 

    • the improvements in underlying operating performance of $80 million were driven by higher sales with stable gross margins, lower SG&A, lower depreciation and amortization and the favourable impact from the consolidation of franchises; and
    • the net favourable year-over-year impact of certain adjusting items totaling $47 million, including:
      • the impairment of Drug retail ancillary assets held for sale of $112 million in the prior year;
      • the accelerated finalization of transitioning of certain grocery stores to more cost effective and efficient Labour Agreements of $55 million incurred in the prior year;
      • the charge related to inventory measurement associated with the conversion of all of its franchised grocery stores to the new IT systems of $33 million incurred in the prior year; partially offset by
      • an unfavourable impact of asset impairments, net of recoveries, of $126 million; and
      • an unfavourable impact of pension annuities and buy-outs of $15 million.

               

              Adjusted Gross Profit(2) Adjusted gross profit(2) in the fourth quarter of 2016 was $2,945 million, an increase of $101 million compared to the fourth quarter of 2015. Adjusted gross profit percentage(2) of 27.2% increased by 40 basis points compared to the fourth quarter of 2015. Excluding the consolidation of franchises, the adjusted gross profit percentage(2) was 26.4%, a decrease of 20 basis points compared to the fourth quarter of 2015. The decrease in adjusted gross profit percentage(2) was driven by Food retail promotional investments, partially offset by improvements in Drug retail margins due to strong front store performance, and improvements in shrink driven by improved inventory management.

              Adjusted EBITDA(2) Adjusted EBITDA(2) in the fourth quarter of 2016 was $889 million, an increase of $66 million, compared to the fourth quarter of 2015 driven by the increase in adjusted gross profit(2) described above, partially offset by an increase in SG&A of $35 million. SG&A as a percentage of sales was 19.0%, a decrease of 10 basis points compared to the fourth quarter of 2015. Excluding the consolidation of franchises, SG&A decreased $9 million and as a percentage of sales was 18.4%, an improvement of 40 basis points compared to the fourth quarter of 2015, driven by the following factors:

              • lower store support costs;
              • the positive impact of the Company's store closure plan announced in 2015 and completed in 2016;
              • favourable year-over-year foreign exchange impacts; partially offset by
              • higher retail store costs as efficiencies achieved in retail stores were more than offset by an increase in financial support to franchises.

               

              Depreciation and Amortization Depreciation and amortization in the fourth quarter of 2016 was $355 million, a decrease of $14 million compared to the fourth quarter of 2015 primarily attributable to a change in the estimated useful life of certain equipment and fixtures in the second quarter of 2016. Included in depreciation and amortization in the fourth quarter of 2016 was the impact of the amortization of intangible assets related to the acquisition of Shoppers Drug Mart Corporation ("Shoppers Drug Mart") of $124 million (2015 – $124 million).

              Other Retail Business Matters

              Impairment of Ancillary Healthcare Business In the fourth quarter, a Shoppers Drug Mart ancillary healthcare business was triggered for impairment testing due to impacts of Ontario healthcare reform implemented in the long term care industry. The Company recorded a charge of $88 million related to the impairment of fixed assets of $15 million and a customer relationship intangible asset of $73 million.

              Consolidation of Franchises The Company has more than 500 franchise food retail stores in its network. As of the end of the fourth quarter of 2016, 200 of these stores were consolidated for accounting purposes under a new, simplified franchise agreement ("Franchise Agreement") implemented in 2015.

              The Company will convert franchises to the Franchise Agreement as existing agreements expire, at the end of which all franchises will be consolidated. The following table presents the number of franchises consolidated in the fourth quarter of 2016 and year-to-date, and the total impact of the consolidation of franchises included in the consolidated results of the Company:










              For the periods ended December 31, 2016 and January 2, 2016


              2016


              2015


              2016


              2015

              (millions of Canadian dollars unless where otherwise indicated)


              (12 weeks)


              (12 weeks)


              (52 weeks)


              (52 weeks)


              Number of Consolidated Franchise stores, beginning of period


              165


              43



              85




              Add: Net number of Consolidated Franchise stores in the period


              35


              42



              115



              85


              Number of Consolidated Franchise stores, end of period


              200


              85



              200



              85













              Sales


              $

              99


              $

              28


              $

              363


              $

              56


              Adjusted gross profit(2)



              107



              32



              361



              58


              Adjusted EBITDA(2)



              27



              (4)



              20



              (12)


              Depreciation and amortization



              6



              3



              21



              5


              Operating Income



              21



              (7)



              (1)



              (17)


              Net earnings (loss) attributable to Non-Controlling Interests



              28



              (4)



              7



              (9)














               

              Operating Income included in the table above does not significantly impact net earnings available to common shareholders of the Company as this amount is largely attributable to Non-Controlling Interests. 

              The Company expects that the estimated impact in 2017 of new and current consolidated franchises will be revenue of approximately $680 million, adjusted EBITDA(2) of approximately $55 million, depreciation and amortization of approximately $45 million and net earnings attributable to Non-Controlling Interests of approximately $10 million.

              Financial Services Segment(3)










              For the periods ended December 31,










              2016 and January 2, 2016

              2016

              2015



              2016

              2015



              (millions of Canadian dollars except










              where otherwise indicated)

              (12 weeks)

              (12 weeks)

              $ Change

              % Change

              (52 weeks)

              (52 weeks)

              $ Change

              % Change

              Revenue

              $

              261

              $

              240

              $

              21

              8.8%

              $

              911

              $

              849

              $

              62

              7.3%

              Earnings before income taxes

              39

              33

              6

              18.2%

              124

              106

              18

              17.0%










               











              As at


              As at




              (millions of Canadian dollars except where otherwise indicated)

              December 31, 2016

              January 2, 2016

              $ Change

              % Change

              Average quarterly net credit card receivables

              $

              2,769

              $

              2,642

              $

              127

              4.8%

              Credit card receivables

              2,926

              2,790

              136

              4.9%

              Allowance for credit card receivables

              52

              54

              (2)

              (3.7)%

              Annualized yield on average quarterly gross credit card receivables

              13.5%


              13.6%




              Annualized credit loss rate on average quarterly gross credit card receivables

              4.3%


              4.3%











               

              Earnings Before Income Taxes Earnings before income taxes in the fourth quarter of 2016 were $39 million, an increase of $6 million compared to the fourth quarter of 2015, primarily driven by:

              • higher net interest and net interchange income attributable to growth in the credit card portfolio;
              • higher sales attributable to The Mobile Shop; and
              • lower credit card losses; partially offset by
              • higher costs associated with the Financial Services' loyalty program; and
              • higher operating costs as a result of an increase in the active customer base.

               

              Credit Card Receivables As at December 31, 2016, credit card receivables were $2,926 million, an increase of $136 million compared to January 2, 2016. This increase was primarily driven by growth in the active customer base as a result of continued investments in customer acquisition, marketing and product initiatives. As at December 31, 2016, the allowance for credit card receivables was $52 million, a decrease of $2 million compared to January 2, 2016.

              Choice Properties Segment(3)










              For the periods ended December 31,










              2016 and January 2, 2016

              2016

              2015



              2016

              2015



              (millions of Canadian dollars except










              where otherwise indicated)

              (12 weeks)

              (12 weeks)

              $ Change

              % Change

              (52 weeks)

              (52 weeks)

              $ Change

              % Change

              Revenue

              $

              198

              $

              191

              $

              7

              3.7%

              $

              784

              $

              743

              $

              41

              5.5%

              Net interest expense and other










              financing charges

              (11)

              184

              (195)

              (106.0)%

              900

              756

              144

              19.0%

              Net income (loss)(i)

              256

              41

              215

              524.4%

              (223)

              (155)

              (68)

              (43.9)%

              Adjusted funds from operations(2)

              82

              82

              —%

              330

              313

              17

              5.4%










               

              (i)   

              Choice Properties qualifies as a "mutual fund trust" under the Income Tax Act (Canada) and therefore net income (loss) is equal to earnings before income taxes. 

               

              Net income (loss) Net income in the fourth quarter of 2016 was $256 million, an increase of $215 million compared to the fourth quarter of 2015.  The increase was primarily driven by:

              • the change in fair value adjustment on Class B Limited Partnership units;
              • the change in fair value adjustment on investment properties;
              • additional net operating income generated from tenant openings in newly developed leasable space; and
              • an increase in base rent from existing properties.

               

              Adjusted Funds from Operations(2) Adjusted funds from operations(2) in the fourth quarter of 2016 were $82 million, flat compared to the fourth quarter of 2015. 

              Other Matters In the fourth quarter of 2016, Choice Properties Real Estate Investment Trust ("Choice Properties") acquired two investment properties from third-parties for a purchase price of approximately $14 million, excluding acquisition costs, which was fully settled in cash.

              Subsequent to the end of 2016, Choice Properties redeemed, at par, the $200 million Series 6 senior unsecured debentures with an original maturity date of April 20, 2017.

              DECLARATION OF DIVIDENDS
              Subsequent to the end of the fourth quarter of 2016, the Board of Directors declared a quarterly dividend on Common Shares and Second Preferred Shares, Series B.

               

              Common Shares


              $0.26 per common share, payable on April 1, 2017 to shareholders of record on March 15, 2017




              Second Preferred Shares, Series B


              $0.33 per share, payable on March 31, 2017 to shareholders of record on March 15, 2017

               

              OUTLOOK(4)
              Loblaw remains focused on its strategic framework, delivering the best in food, best in health and beauty, operational excellence and growth. This framework is supported by our financial plan of maintaining a stable trading environment that targets positive same-store sales and stable gross margin, surfacing efficiencies to deliver operating leverage, and returning capital to shareholders. 

              In 2017, on a full year comparative basis, despite the current deflationary environment, the Company expects to: 

              • deliver positive same-store sales and stable gross margin in its Retail segment in a highly competitive grocery market, with continued negative pressure from healthcare reform;
              • grow adjusted net earnings;
              • invest approximately $1.3 billion in capital expenditures, including $1.0 billion in its Retail segment; and
              • return capital to shareholders by allocating a significant portion of free cash flow to share repurchases.

               

              NON-GAAP FINANCIAL MEASURES
              The Company uses the following non-GAAP financial measures: Retail segment gross profit; Retail segment adjusted gross profit; Retail segment adjusted gross profit percentage; adjusted earnings before income taxes, net interest expense and other financing charges and depreciation and amortization ("adjusted EBITDA"); adjusted EBITDA margin; adjusted operating income; adjusted net interest expense and other financing charges; adjusted income taxes; adjusted income tax rate; adjusted net earnings available to common shareholders; adjusted diluted net earnings per common share; free cash flow; and with respect to Choice Properties: adjusted funds from operations. The Company believes these non-GAAP financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the Company for the reasons outlined below.

              Management uses these and other non-GAAP financial measures to exclude the impact of certain expenses and income that must be recognized under GAAP when analyzing underlying consolidated and segment operating performance, as the excluded items are not necessarily reflective of the Company's underlying operating performance and make comparisons of underlying financial performance between periods difficult. The Company excludes additional items if it believes doing so would result in a more effective analysis of underlying operating performance. The exclusion of certain items does not imply that they are non-recurring.

              These measures do not have a standardized meaning prescribed by GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with GAAP.

              For details on the nature of items excluded in the calculation of any of the non-GAAP financial measures detailed below see the "Non-GAAP Financial Measures" section of the Company's 2016 Annual Report.

              Retail Segment Gross Profit, Retail Segment Adjusted Gross Profit and Retail Segment Adjusted Gross Profit Percentage The following table reconciles revenue and cost of merchandise inventories sold to gross profit by segment and then to adjusted gross profit by segment. The Company believes that Retail segment gross profit and Retail segment adjusted gross profit are useful in assessing the Retail segment's underlying operating performance and in making decisions regarding the ongoing operations of the business.

              Retail segment adjusted gross profit percentage is calculated as Retail segment adjusted gross profit divided by Retail segment revenue. 


















              2016






              2015





              (12 weeks)




              (12 weeks)

              For the periods ended













              December 31, 2016 and




              Consolidation





              Consolidation




              January 2, 2016


              Financial

              Choice

              and




              Financial

              Choice

              and



              (millions of Canadian dollars)

              Retail

              Services(3)

              Properties(3)

              Eliminations

              Total

              Retail

              Services(3)

              Properties(3)

              Eliminations


              Total

              Revenue

              $

              10,845

              $

              261

              $

              198

              $

              (174)

              $

              11,130

              $

              10,606

              $

              240

              $

              191

              $

              (172)

              $

              10,865

              Cost of Merchandise












              Inventories Sold

              7,896

              27

              7,923

              7,812

              19

              7,831

              Gross Profit

              $

              2,949

              $

              234

              $

              198

              $

              (174)

              $

              3,207

              $

              2,794

              $

              221

              $

              191

              $

              (172)

              $

              3,034

              Add (deduct) impact of the












              following:












              Charges related to retail













              locations in Fort McMurray,













              net of recoveries

              (4)

              (4)


              Net impairment (impairment













              reversals) related to Drug













              retail ancillary assets

              46

              46


              Charge related to inventory













              measurement and other













              conversion differences

              4

              4

              Adjusted Gross Profit

              $

              2,945

              $

              234

              $

              198

              $

              (174)

              $

              3,203

              $

              2,844

              $

              221

              $

              191

              $

              (172)

              $

              3,084


















































              2016





              2015





              (52 weeks)




              (52 weeks)

              For the periods ended












              December 31, 2016 and




              Consolidation





              Consolidation



              January 2, 2016


              Financial

              Choice

              and




              Financial

              Choice

              and



              (millions of Canadian dollars)

              Retail

              Services(3)

              Properties(3)

              Eliminations

              Total

              Retail

              Services(3)

              Properties(3)

              Eliminations

              Total

              Revenue

              $

              45,384

              $

              911

              $

              784

              $

              (694)

              $

              46,385

              $

              44,469

              $

              849

              $

              743

              $

              (667)

              $

              45,394

              Cost of Merchandise












              Inventories Sold

              33,130

              83

              33,213

              32,780

              66

              32,846

              Gross Profit

              $

              12,254

              $

              828

              $

              784

              $

              (694)

              $

              13,172

              $

              11,689

              $

              783

              $

              743

              $

              (667)

              $

              12,548

              Add (deduct) impact of the












              following:












              Charges related to retail













              locations in Fort McMurray,













              net of recoveries

              1

              1


              Restructuring and other













              related costs

              3

              3


              Net impairment (impairment













              reversals) related to Drug













              retail ancillary assets

              4

              4

              46

              46


              Charge related to inventory













              measurement and other













              conversion differences

              4

              4


              Charge related to apparel













              inventory

              8

              8

              Adjusted Gross Profit

              $

              12,262

              $

              828

              $

              784

              $

              (694)

              $

              13,180

              $

              11,747

              $

              783

              $

              743

              $

              (667)

              $

              12,606






















               

              Adjusted Operating Income, Adjusted EBITDA and Adjusted EBITDA Margin The following tables reconcile adjusted operating income and adjusted EBITDA to operating income, which is reconciled to GAAP net earnings measures reported in the consolidated statements of earnings for the periods ended December 31, 2016 and January 2, 2016. The Company believes that adjusted EBITDA is useful in assessing the performance of its ongoing operations and its ability to generate cash flows to fund its cash requirements, including the Company's capital investment program.

              Adjusted EBITDA margin is calculated as adjusted EBITDA divided by revenue.
































              2016










              2015









              (12 weeks)








              (12 weeks)

              (millions of Canadian dollars)

              Retail

              Financial Services(3)

              Choice Properties(3)

              Consolidation and Eliminations

              Consolidated

              Retail

              Financial Services(3)

              Choice Properties(3)

              Consolidation and Eliminations

              Consolidated

              Net earnings attributable to














              shareholders of the Company





              $

              204





              $

              131

              Add (deduct) impact of the












              following:












              Non-Controlling Interests





              28





              (4)


              Net interest expense and












              other financing charges





              128





              141


              Income taxes





              89





              48

              Operating income

              $

              392

              $

              52

              $

              245

              $

              (240)

              $

              449

              $

              265

              $

              48

              $

              224

              $

              (221)

              $

              316












              Add (deduct) impact of the












              following:












              Amortization of intangible













              assets acquired with













              Shoppers Drug Mart

              124

              124

              124

              124


              Restructuring and other













              related costs

              2

              2

              (7)

              (7)


              Charges related to retail













              locations in Fort McMurray,













              net of recoveries

              (5)

              (5)


              Fair value adjustment on













              fuel and foreign













              currency contracts

              (6)

              (6)

              (6)

              (6)


              Net impairment (impairment













              reversals) related to Drug













              retail ancillary assets

              112

              112


              Charge related to inventory













              measurement and other













              conversion differences

              33

              33


              Asset impairments, net of













              recoveries

              130

              130

              4

              4


              Labour agreements

              55

              55


              Pension annuities and













              buy-outs

              21

              21

              6

              6


              Modifications to certain













              franchise fee arrangements

              (8)

              (8)

              Adjusting Items

              $

              266

              $

              $

              $

              $

              266

              $

              313

              $

              $

              $

              $

              313

              Adjusted operating income

              $

              658

              $

              52

              $

              245

              $

              (240)

              $

              715

              $

              578

              $

              48

              $

              224

              $

              (221)

              $

              629

              Depreciation and






















              amortization

              355

              4

              6

              365

              369

              3

              4

              376

              Less: Amortization of












              intangible assets acquired












              with Shoppers Drug Mart

              (124)

              (124)

              (124)

              (124)

              Adjusted EBITDA

              $

              889

              $

              56

              $

              245

              $

              (234)

              $

              956

              $

              823

              $

              51

              $

              224

              $

              (217)

              $

              881































































































              2016










              2015(6)









              (52 weeks)








              (52 weeks)

              (millions of Canadian dollars)

              Retail

              Financial
              Services(3)

              Choice
              Properties(3)

              Consolidation
              and
              Eliminations

              Consolidated

              Retail

              Financial
              Services(3)

              Choice
              Properties(3)

              Consolidation
              and
              Eliminations

              Consolidated

              Net earnings attributable to






















              shareholders of the Company









              $

              983









              $

              598

              Add (deduct) impact of the






















              following:






















              Non-Controlling Interests










              7










              (9)


              Net interest expense and























              other financing charges










              653










              644


              Income taxes










              449










              368

              Operating income

              $

              1,902

              $

              175

              $

              677

              $

              (662)

              $

              2,092

              $

              1,429

              $

              163

              $

              601

              $

              (592)

              $

              1,601












              Add (deduct) impact of the












              following:












              Amortization of intangible













              assets acquired with













              Shoppers Drug Mart

              535

              535

              536

              536


              Restructuring and other













              related costs

              46

              46

              154

              154


              Fair value adjustment on













              fuel and foreign currency













              contracts

              5

              5

              (21)

              (21)


              Charges related to retail













              locations in Fort McMurray,













              net of recoveries

              2

              2


              Prior year tax assessment

              10

              10


              Net impairment (impairment













              reversals) related to Drug













              retail ancillary assets

              (4)

              (4)

              112

              112


              Asset impairments, net of













              recoveries

              135

              135

              13

              13


              Pension annuities and













              buy-outs

              23

              23

              8

              8


              Charge related to apparel













              inventory

              8

              8


              Shoppers Drug Mart













              acquisition-related cost, net













              of impact from divestitures

              2

              2


              Labour agreements

              55

              55


              Charge related to inventory













              measurement and other













              conversion differences

              33

              33


              Modifications to certain













              franchise fee arrangements

              (8)

              (8)

              Adjusting Items

              $

              752

              $

              $

              $

              $

              752

              $

              892

              $

              $

              $

              $

              892

              Adjusted operating income

              $

              2,654

              $

              175

              $

              677

              $

              (662)

              $

              2,844

              $

              2,321

              $

              163

              $

              601

              $

              (592)

              $

              2,493

              Depreciation and












              amortization

              1,512

              13

              1

              17

              1,543

              1,567

              10

              1

              14

              1,592

              Less: Amortization of












              intangible assets acquired












              with Shoppers Drug Mart

              (535)

              (535)

              (536)

              (536)

              Adjusted EBITDA

              $

              3,631

              $

              188

              $

              678

              $

              (645)

              $

              3,852

              $

              3,352

              $

              173

              $

              602

              $

              (578)

              $

              3,549






















               

              Adjusted Net Interest Expense and Other Financing Charges The following table reconciles adjusted net interest expense and other financing charges to net interest expense and other financing charges in the consolidated statements of earnings for the periods ended December 31, 2016 and January 2, 2016. The Company believes that adjusted net interest expense and other financing charges is useful in assessing the Company's underlying financial performance and in making decisions regarding the financial operations of the business.

               









              2016

              2015

              2016

              2015

              (millions of Canadian dollars)


              (12 weeks)

              (12 weeks)

              (52 weeks)

              (52 weeks)

              Net interest expense and other financing charges


              $

              128

              $

              141

              $

              653

              $

              644

              Add (deduct) impact of the following:







              Fair value adjustment to the Trust Unit Liability


              2

              (7)

              (118)

              (81)


              Accelerated amortization of deferred financing costs


              (15)

              Adjusted net interest expense and other financing charges


              $

              130

              $

              134

              $

              535

              $

              548











               

              Adjusted Income Taxes and Adjusted Income Tax Rate The Company believes adjusted income taxes is useful in assessing the Company's underlying operating performance and in making decisions regarding the ongoing operations of its business. 







              For the periods ended December 31, 2016 and January 2, 2016


              2016

              2015

              2016

              2015(6)

              (millions of Canadian dollars except where otherwise indicated)


              (12 weeks)

              (12 weeks)

              (52 weeks)

              (52 weeks)

              Adjusted operating income(i)


              $

              715

              $

              629

              $

              2,844

              $

              2,493

              Adjusted net interest expense and other financing charges(i)


              130

              134

              535

              548

              Adjusted earnings before taxes


              $

              585

              $

              495

              $

              2,309

              $

              1,945

              Income taxes


              $

              89

              $

              48

              $

              449

              $

              368

              Add (deduct) impact of the following:







              Tax impact of items included in adjusted earnings before taxes(ii)


              72

              85

              189

              229


              Statutory corporate income tax rate change


              (3)

              (72)

              Adjusted income taxes


              $

              161

              $

              133

              $

              635

              $

              525

              Effective tax rate


              27.7%

              27.4%

              31.2%

              38.5%

              Adjusted income tax rate


              27.5%

              26.9%

              27.5%

              27.0%







               

              (i)    

              See reconciliations of adjusted operating income and adjusted net interest expense and other financing charges in the tables above.

              (ii)   

              See the adjusted operating income, adjusted EBITDA and adjusted EBITDA margin table and the adjusted net interest expense and other financing charges table above for a complete list of items included in adjusted earnings before taxes.

               

              Adjusted income tax rate is calculated as adjusted income taxes divided by the sum of adjusted operating income less adjusted net interest expense and other financing charges.

              Adjusted Net Earnings Available to Common Shareholders and Adjusted Diluted Net Earnings Per Common Share The Company believes adjusted net earnings available to common shareholders and adjusted diluted net earnings per common share are useful in assessing the Company's underlying operating performance and in making decisions regarding the ongoing operations of its business.

              The following table reconciles net earnings attributable to shareholders of the Company to net earnings available to common shareholders of the Company and then to adjusted net earnings available to common shareholders of the Company for the periods ended December 31, 2016 and January 2, 2016:









              2016

              2015

              2016

              2015(6)

              (millions of Canadian dollars except where otherwise indicated)


              (12 weeks)

              (12 weeks)

              (52 weeks)

              (52 weeks)

              Net earnings attributable to shareholders of the Company


              $

              204

              $

              131

              $

              983

              $

              598

              Less: Prescribed dividends on preferred shares in share capital


              (3)

              (3)

              (12)

              (7)

              Net earnings available to common shareholders of the Company


              $

              201

              $

              128

              $

              971

              $

              591











              Net earnings attributable to shareholders of the Company


              $

              204

              $

              131

              $

              983

              $

              598

              Adjusting items (refer to the following table)


              192

              235

              684

              831

              Adjusted net earnings attributable to shareholders of the Company


              $

              396

              $

              366

              $

              1,667

              $

              1,429

              Less: Prescribed dividends on preferred shares in share capital


              (3)

              (3)

              (12)

              (7)

              Adjusted net earnings available to common shareholders of the Company


              $

              393

              $

              363

              $

              1,655

              $

              1,422

              Diluted weighted average common shares outstanding (millions)


              405.6

              415.2

              409.1

              415.2







               

              The following table reconciles adjusted net earnings available to common shareholders of the Company and adjusted diluted net earnings per common share to GAAP net earnings available to common shareholders of the Company and diluted net earnings per common share as reported for the periods ended December 31, 2016 and January 2, 2016:












              2016


              2015


              2016


              2015(6)



              (12 weeks)


              (12 weeks)


              (52 weeks)


              (52 weeks)

              (millions of Canadian dollars/
              Canadian dollars)

              Net Earnings
              Available to
              Common
              Shareholders
              of the
              Company

              Diluted Net
              Earnings
              Per
              Common
              Share

              Net Earnings
              Available to
              Common
              Shareholders
              of the
              Company

              Diluted Net
              Earnings
              Per
              Common
              Share

              Net Earnings
              Available to
              Common
              Shareholders
              of the
              Company

              Diluted Net
              Earnings
              Per
              Common
              Share

              Net Earnings
              Available to
              Common
              Shareholders
              of the
              Company

              Diluted Net
              Earnings
              Per
              Common
              Share


















              As reported

              $

              201

              $

              0.50

              $

              128

              $

              0.31

              $

              971

              $

              2.37

              $

              591

              $

              1.42

              Add (deduct) impact of the following:


















              Fair value adjustment to the











              Trust Unit Liability(i)

              (2)

              7

              0.01

              118

              0.29

              81

              0.20


              Amortization of intangible assets











              acquired with Shoppers Drug Mart

              90

              0.22

              92

              0.21

              395

              0.97

              394

              0.95


              Restructuring and other











              related costs

              3

              0.01

              (5)

              (0.01)

              44

              0.11

              127

              0.31


              Fair value adjustment on fuel











              and foreign currency contracts

              (4)

              (0.01)

              (5)

              (0.01)

              4

              0.01

              (16)

              (0.04)


              Charges related to retail locations











              in Fort McMurray, net of recoveries

              (3)

              (0.01)

              2


              Net impairment (impairment











              reversals) related to Drug retail











              ancillary assets

              82

              0.20

              (3)

              (0.01)

              82

              0.20


              Statutory corporate income tax











              rate change

              3

              0.01

              72

              0.17


              Asset impairments, net of











              recoveries

              93

              0.22

              3

              0.01

              97

              0.24

              10

              0.02


              Charge related to apparel inventory

              6

              0.01


              Accelerated amortization of











              deferred financing costs

              11

              0.03


              Prior year tax assessment

              7

              0.02


              Pension annuities and buy-outs

              15

              0.04

              5

              0.01

              17

              0.04

              6

              0.01


              Labour agreements

              40

              0.10

              40

              0.10


              Modifications to certain











              franchise fee arrangements

              (8)

              (0.02)

              (8)

              (0.02)


              Shoppers Drug Mart acquisition-











              related cost, net of impact from











              divestitures

              2


              Charge related to inventory











              measurement and other











              conversion differences

              24

              0.06

              24

              0.06

              Adjusting items

              $

              192

              $

              0.47

              $

              235

              $

              0.56

              $

              684

              $

              1.68

              $

              831

              $

              2.00

              Adjusted

              $

              393

              $

              0.97

              $

              363

              $

              0.87

              $

              1,655

              $

              4.05

              $

              1,422

              $

              3.42


















               

              (i)  

              Gains or losses related to the fair value adjustment to the Trust Unit Liability are not subject to tax.

               

              Free Cash Flow The following table reconciles free cash flow used in assessing the Company's financial condition to GAAP measures for the periods ended December 31, 2016 and January 2, 2016. The Company believes that free cash flow is the appropriate measure in assessing the Company's cash available for additional financing and investing activities.







              2016

              2015

              2016

              2015

              (millions of Canadian dollars)

              (12 weeks)

              (12 weeks)

              (52 weeks)

              (52 weeks)

              Cash flows from operating activities

              $

              861

              $

              564

              $

              3,519

              $

              3,079

              Less:






              Capital investments

              470

              433

              1,224

              1,241


              Interest paid

              78

              95

              474

              491

              Free cash flow

              $

              313

              $

              36

              $

              1,821

              $

              1,347






               

              Choice Properties' Adjusted Funds from Operations The following table reconciles Choice Properties' adjusted funds from operations to GAAP measures for the periods ended December 31, 2016 and January 2, 2016. The Company believes adjusted funds from operations is useful in measuring economic performance and is indicative of Choice Properties' ability to pay distributions.









              2016

              2015

              2016

              2015

              (millions of Canadian dollars)

              (12 weeks)

              (12 weeks)

              (52 weeks)

              (52 weeks)

              Net income (loss)

              $

              256

              $

              41

              $

              (223)

              $

              (155)


              Fair value adjustments on Class B Limited Partnership units

              (107)

              96

              530

              411


              Fair value adjustments on investment properties

              (102)

              (88)

              (109)

              (72)


              Fair value adjustments on unit-based compensation

              (1)

              4

              1


              Fair value adjustments of investment property held in equity accounted joint venture

              (14)


              Distributions on Class B Limited Partnership units

              56

              52

              219

              203


              Internal expenses for leasing

              1

              3

              1

              Funds from Operations

              $

              103

              $

              101

              $

              410

              $

              389


              Straight-line rental revenue

              (9)

              (10)

              (36)

              (37)


              Amortization of finance charges

              1

              1

              (1)


              Unit-based compensation expense

              1

              3

              2


              Sustaining property and leasing capital expenditures, normalized(i)

              (14)

              (9)

              (48)

              (40)

              Adjusted Funds from Operations

              $

              82

              $

              82

              $

              330

              $

              313









              (i)  

              Seasonality impacts the timing of capital expenditures. The adjusted funds from operations calculation has been adjusted for this factor to make the quarters more comparable.

               

              SELECTED FINANCIAL INFORMATION
              The following includes selected quarterly and annual financial information, which is prepared by management in accordance with International Financial Reporting Standards ("IFRS") and is based on the Company's audited annual consolidated financial statements for the year ended December 31, 2016. This financial information does not contain all disclosures required by IFRS, and accordingly, should be read in conjunction with the Company's 2016 Annual Report, which is available in the Investor Centre section of the Company's website at loblaw.ca and on sedar.com.

              Consolidated Statements of Earnings







              December 31, 2016

              January 2, 2016

              2016

              2015(6)


              (12 weeks)

              (12 weeks)

              (52 weeks)

              (52 weeks)

              (millions of Canadian dollars except where otherwise indicated)


              (unaudited)


              (unaudited)


              (audited)


              (audited)

              Revenue

              $

              11,130

              $

              10,865

              $

              46,385

              $

              45,394

              Cost of Merchandise Inventories Sold

              7,923

              7,831

              33,213

              32,846

              Selling, General and Administrative Expenses

              2,758

              2,718

              11,080

              10,947

              Operating Income

              $

              449

              $

              316

              $

              2,092

              $

              1,601

              Net interest expense and other financing charges

              128

              141

              653

              644

              Earnings Before Income Taxes

              $

              321

              $

              175

              $

              1,439

              $

              957

              Income taxes

              89

              48

              449

              368

              Net Earnings

              $

              232

              $

              127

              $

              990

              $

              589

              Attributable to:









              Shareholders of the Company

              $

              204

              $

              131

              $

              983

              $

              598


              Non-Controlling Interests

              28

              (4)

              7

              (9)

              Net Earnings

              $

              232

              $

              127

              $

              990

              $

              589






              Net Earnings per Common Share ($)






              Basic

              $

              0.50

              $

              0.31

              $

              2.40

              $

              1.44


              Diluted

              $

              0.50

              $

              0.31

              $

              2.37

              $

              1.42

              Weighted Average Common Shares Outstanding (millions)






              Basic

              401.9

              410.7

              405.1

              411.5


              Diluted

              405.6

              415.2

              409.1

              415.2









               

              Consolidated Balance Sheets






              As at

              As at

              (millions of Canadian dollars)

              December 31, 2016

              January 2, 2016(6)

              Assets



              Current Assets




              Cash and cash equivalents

              $

              1,314

              $

              1,018


              Short term investments

              241

              64


              Accounts receivable

              1,122

              1,325


              Credit card receivables

              2,926

              2,790


              Inventories

              4,371

              4,322


              Prepaid expenses and other assets                                

              190

              265


              Assets held for sale

              40

              71

              Total Current Assets

              $

              10,204

              $

              9,855

              Fixed Assets

              10,559

              10,480

              Investment Properties

              218

              160

              Intangible Assets

              8,745

              9,164

              Goodwill

              3,895

              3,780

              Deferred Income Tax Assets

              130

              132

              Franchise Loans Receivable

              233

              329

              Other Assets

              452

              457

              Total Assets

              $

              34,436

              $

              34,357

              Liabilities



              Current Liabilities




              Bank indebtedness

              $

              115

              $

              143


              Trade payables and other liabilities

              5,091

              5,106


              Provisions

              99

              127


              Income taxes payable

              329

              82


              Short term debt

              665

              550


              Long term debt due within one year

              400

              998


              Associate interest

              243

              216

              Total Current Liabilities

              $

              6,942

              $

              7,222

              Provisions

              120

              131

              Long Term Debt

              10,470

              10,013

              Trust Unit Liability

              959

              821

              Deferred Income Tax Liabilities

              2,190

              2,292

              Other Liabilities

              727

              754

              Total Liabilities

              $

              21,408

              $

              21,233

              Equity



              Share Capital

              $

              7,913

              $

              8,072

              Retained Earnings

              4,944

              4,914

              Contributed Surplus

              112

              102

              Accumulated Other Comprehensive Income

              33

              23

              Total Equity Attributable to Shareholders of the Company

              $

              13,002

              $

              13,111

              Non-Controlling Interests

              26

              13

              Total Equity

              $

              13,028

              $

              13,124

              Total Liabilities and Equity

              $

              34,436

              $

              34,357




               

              Consolidated Statements of Cash Flows







              December 31, 2016

              January 2, 2016

              2016

              2015(6)

              (millions of Canadian dollars)

              (12 weeks)

              (12 weeks)

              (52 weeks)

              (52 weeks)

              Operating Activities






              Net earnings

              $

              232

              $

              127

              $

              990

              $

              589


              Add (Deduct):







              Income taxes

              89

              48

              449

              368



              Net interest expense and other financing charges

              128

              141

              653

              644



              Depreciation and amortization

              365

              376

              1,543

              1,592



              Asset impairments, net of recoveries

              130

              26

              139

              73



              (Gain) Loss on disposal of assets

              (2)

              2

              (5)



               Charge related to inventory measurement and other conversion differences

              4

              4


              $

              942

              $

              724

              $

              3,774

              $

              3,265


              Change in non-cash working capital

              95

              100

              134

              235


              Change in credit card receivables

              (157)

              (127)

              (136)

              (160)


              Income taxes paid

              (50)

              (65)

              (329)

              (296)


              Interest received

              2

              2

              9

              7


              Other

              29

              (70)

              67

              28

              Cash Flows from Operating Activities

              $

              861

              $

              564

              $

              3,519

              $

              3,079

              Investing Activities





              Fixed asset purchases

              $

              (361)

              $

              (329)

              $

              (896)

              $

              (1,008)


              Intangible asset additions

              (109)

              (104)

              (328)

              (233)


              Acquisition of QHR, net of cash acquired

              (153)

              (153)


              Cash assumed on initial consolidation of franchises

              11

              31

              42

              33


              Change in short term investments

              (85)

              (18)

              (177)

              (43)


              Proceeds from disposal of assets

              9

              2

              62

              36


              Change in security deposits

              (2)

              209

              (2)

              5


              Other

              14

              36

              15

              (28)

              Cash Flows used in Investing Activities

              $

              (676)

              $

              (173)

              $

              (1,437)

              $

              (1,238)

              Financing Activities





              Change in bank indebtedness

              $

              (142)

              $

              (100)

              $

              (28)

              $

              (19)


              Change in short term debt

              190

              (30)

              115

              (55)


              Long Term Debt







              Issued

              159

              338

              815

              1,186



              Retired

              (30)

              (502)

              (1,049)

              (1,783)


              Interest paid

              (78)

              (95)

              (474)

              (491)


              Dividends paid on common and preferred shares

              (104)

              (105)

              (425)

              (416)


              Common Share Capital






              Issued

              4

              15

              42

              63



              Purchased and held in trust

              (6)

              (90)

              (63)



              Purchased and cancelled

              (200)

              (186)

              (708)

              (280)


              Preferred Share Capital Issued

              221


              Redemption of Capital Securities

              (225)


              Other

              16

              16

              20

              23

              Cash Flows used in Financing Activities

              $

              (185)

              $

              (655)

              $

              (1,782)

              $

              (1,839)

              Effect of foreign currency exchange rate changes on cash and cash equivalents

              $

              2

              $

              7

              $

              (4)

              $

              17

              Change in cash and cash equivalents

              $

              2

              $

              (257)

              $

              296

              $

              19

              Cash and cash equivalents, beginning of period

              1,312

              1,275

              1,018

              999

              Cash and Cash Equivalents, End of Period

              $

              1,314

              $

              1,018

              $

              1,314

              $

              1,018











               

              SEGMENT INFORMATION
              The Company has three reportable operating segments with all material operations carried out in Canada. The Company's chief operating decision maker evaluates segment performance on the basis of adjusted EBITDA(2) and adjusted operating income(2), as reported to internal management, on a periodic basis.

              Information for each reportable operating segment is included below:





              December 31, 2016

              January 2, 2016


              (12 weeks)

              (12 weeks)

              (millions of Canadian dollars)

              Retail

              Financial Services(3)

              Choice Properties(3)

              Consolidation and Eliminations(i)

              Total

              Retail

              Financial Services(3)

              Choice Properties(3)

              Consolidation and Eliminations(i)

              Total

              Revenue(ii)

              $

              10,845

              $

              261

              $

              198

              $

              (174)

              $

              11,130

              $

              10,606

              $

              240

              $

              191

              $

              (172)

              $

              10,865

              Operating Income

              $

              392

              $

              52

              $

              245

              $

              (240)

              $

              449

              $

              265

              $

              48

              $

              224

              $

              (221)

              $

              316

              Net interest expense and other financing charges

              76

              13

              (11)

              50

              128

              82

              15

              184

              (140)

              141

              Earnings before Income Taxes

              $

              316

              $

              39

              $

              256

              $

              (290)

              $

              321

              $

              183

              $

              33

              $

              40

              $

              (81)

              $

              175












              Operating Income

              $

              392

              $

              52

              $

              245

              $

              (240)

              $

              449

              $

              265

              $

              48

              $

              224

              $

              (221)

              $

              316

              Depreciation and Amortization

              355

              4

              6

              365

              369

              3

              4

              376

              Adjusting items(iii)

              266

              266

              313

              313

              Less: amortization of intangible assets acquired with Shoppers Drug Mart

              (124)

              (124)

              (124)

              (124)

              Adjusted EBITDA(iii)

              $

              889

              $

              56

              $

              245

              $

              (234)

              $

              956

              $

              823

              $

              51

              $

              224

              $

              (217)

              $

              881

              Depreciation and Amortization(iv)

              231

              4

              6

              241

              245

              3

              4

              252

              Adjusted Operating Income

              $

              658

              $

              52

              $

              245

              $

              (240)

              $

              715

              $

              578

              $

              48

              $

              224

              $

              (221)

              $

              629
























              (i)    

              Consolidation and Eliminations includes the following items:


              • Revenue includes the elimination of $133 million (2015 – $128 million) of rental revenue and $41 million (2015 – $44 million) of cost recovery recognized by Choice Properties, generated from the Retail segment.
              • Adjusted operating income includes the elimination of the $133 million (2015 – $128 million) impact of rental revenue described above; the elimination of a $102 million gain (2015 – $88 million gain ) recognized by Choice Properties related to the fair value adjustments on investment properties, which are classified as Fixed Assets or Investment Properties by the Company and measured at cost; the recognition of $6 million (2015 – $4 million) of depreciation expense for certain investment properties recorded by Choice Properties; and the elimination of intercompany recoveries of $1 million (2015 – charges of $1 million).
              • Net interest expense and other financing charges includes the elimination of $68 million (2015 – $63 million) of interest expense included in Choice Properties related to debt owing to the Company and a $107 million fair value gain (2015 – loss of $96 million) recognized by Choice Properties on Class B Limited Partnership units held by the Company. Net interest and other financing charges also includes Unit distributions to external unitholders of $13 million (2015 – $12 million), which excludes distributions paid to the Company and a $2 million fair value gain (2015 – $7 million loss) on the Company's Trust Unit Liability.

              (ii)   

              Included in Financial Services revenue is $97 million (2015 – $94 million) of interest income.

              (iii)  

              Certain items are excluded from operating income to derive adjusted EBITDA(2). Adjusted EBITDA(2) is used internally by management when analyzing segment underlying performance.

              (iv)  

              Depreciation and amortization for the calculation of adjusted EBITDA(2) excludes $124 million (2015 – $124 million) of amortization of intangible assets acquired with Shoppers Drug Mart.

               























              December 31, 2016

              January 2, 2016



              (52 weeks)

              (52 weeks)



              Retail

              Financial
              Services(3)

              Choice
              Properties(3)

              Consolidation
              and
              Eliminations(i)


              Total

              Retail

              Financial
              Services(3)

              Choice
              Properties(3)

              Consolidation
              and
              Eliminations(i)

              Total

              (millions of Canadian dollars)


              Revenue(ii)


              $

              45,384

              $

              911

              $

              784

              $

              (694)

              $

              46,385

              $

              44,469

              $

              849

              $

              743

              $

              (667)

              $

              45,394

              Operating Income


              $

              1,902

              $

              175

              $

              677

              $

              (662)

              $

              2,092

              $

              1,429

              $

              163

              $

              601

              $

              (592)

              $

              1,601

              Net interest expense and other financing charges



              332


              51


              900


              (630)


              653


              367


              57


              756


              (536)


              644

              Earnings before Income Taxes


              $

              1,570

              $

              124

              $

              (223)

              $

              (32)

              $

              1,439

              $

              1,062

              $

              106

              $

              (155)

              $

              (56)

              $

              957























              Operating Income


              $

              1,902

              $

              175

              $

              677

              $

              (662)

              $

              2,092

              $

              1,429

              $

              163

              $

              601

              $

              (592)

              $

              1,601

              Depreciation and Amortization



              1,512


              13


              1


              17


              1,543


              1,567


              10


              1


              14


              1,592

              Adjusting items(iii)



              752





              752


              892





              892

              Less: amortization of intangible assets acquired with Shoppers Drug Mart



              (535)





              (535)


              (536)





              (536)

              Adjusted EBITDA(iii)


              $

              3,631

              $

              188

              $

              678

              $

              (645)

              $

              3,852

              $

              3,352

              $

              173

              $

              602

              $

              (578)

              $

              3,549

              Depreciation and Amortization(iv)



              977


              13


              1


              17


              1,008


              1,031


              10


              1


              14


              1,056

              Adjusted Operating Income


              $

              2,654

              $

              175

              $

              677

              $

              (662)

              $

              2,844

              $

              2,321

              $

              163

              $

              601

              $

              (592)

              $

              2,493
























              (i)

              Consolidation and Eliminations includes the following items:


              • Revenue includes the elimination of $520 million (2015 – $502 million) of rental revenue and $174 million (2015 – $165 million) of cost recovery recognized by Choice Properties, generated from the Retail segment.
              • Adjusted operating income includes the elimination of the $520 million (2015 – $502 million) impact of rental revenue described above; the elimination of a $109 million gain (2015 – $72 million gain) recognized by Choice Properties related to the fair value adjustments on investment properties, which are classified as Fixed Assets or Investment Properties by the Company and measured at cost; the elimination of a $14 million gain (2015 – nil) recognized by Choice Properties related to the fair value adjustments on investment properties in the joint venture; the recognition of $17 million (2015 – $14 million) of depreciation expense for certain investment properties recorded by Choice Properties; and the elimination of intercompany charges of $2 million (2015 – $4 million).
              • Net interest expense and other financing charges includes the elimination of $267 million (2015 – $251 million) of interest expense included in Choice Properties related to debt owing to the Company and a $530 million fair value loss (2015 – loss of $411 million) recognized by Choice Properties on Class B Limited Partnership units held by the Company. Net interest and other financing charges also includes Unit distributions to external unitholders of $49 million (2015 – $45 million), which excludes distributions paid to the Company and a $118 million fair value loss (2015 – loss of $81 million) on the Company's Trust Unit Liability.

              (ii)

              Included in Financial Services revenue is $383 million (2015 – $368 million) of interest income.

              (iii)

              Certain items are excluded from operating income to derive adjusted EBITDA(2). Adjusted EBITDA(2) is used internally by management when analyzing segment underlying performance.

              (iv)

              Depreciation and amortization for the calculation of adjusted EBITDA(2) excludes $535 million (2015 – $536 million) of amortization of intangible assets acquired with Shoppers Drug Mart.



               

              FORWARD-LOOKING STATEMENTS
              This News Release contains forward-looking statements about the Company's objectives, plans, goals, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects, opportunities and legal and regulatory matters. Specific forward-looking statements in this News Release include, but are not limited to, statements with respect to the Company's anticipated future results, events and plans, synergies and other benefits associated with the acquisition of Shoppers Drug Mart, anticipated insurance recoveries, future liquidity, planned capital investments, and the status and impact of information technology ("IT") systems implementation. These specific forward-looking statements are contained throughout this News Release including, without limitation, in the "Outlook" section of this News Release. Forward-looking statements are typically identified by words such as "expect", "anticipate", "believe", "foresee", "could", "estimate", "goal", "intend", "plan", "seek", "strive", "will", "may" and "should" and similar expressions, as they relate to the Company and its management.

              Forward-looking statements reflect the Company's current estimates, beliefs and assumptions, which are based on management's perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. The Company's expectation of operating and financial performance in 2017 is based on certain assumptions including assumptions about anticipated cost savings, operating efficiencies and continued growth from current initiatives. The Company's estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events, and as such, are subject to change. The Company can give no assurance that such estimates, beliefs and assumptions will prove to be correct.

              Numerous risks and uncertainties could cause the Company's actual results to differ materially from those expressed, implied or projected in the forward-looking statements, including those described in Section 12 "Enterprise Risks and Risk Management" of the Management Discussion and Analysis in the 2016 Annual Report – Financial Review ("2016 Annual Report") and the Company's 2016 Annual Information Form ("AIF") (for the year ended December 31, 2016). Such risks and uncertainties include:

              • changes to the regulation of generic prescription drug prices, the reduction of reimbursements under public drug benefit plans and the elimination or reduction of professional allowances paid by drug manufacturers;
              • failure to effectively manage the Company's loyalty programs;
              • the inability of the Company's IT infrastructure to support the requirements of the Company's business, or the occurrence of any internal or external security breaches, denial of service attacks, viruses, worms and other known or unknown cybersecurity or data breaches;
              • failure to realize benefits from investments in the Company's new IT systems;
              • failure to effectively respond to consumer trends or heightened competition, whether from current competitors or new entrants to the marketplace;
              • public health events including those related to food and drug safety;
              • changes to any of the laws, rules, regulations or policies applicable to the Company's business;
              • failure to merchandise effectively, to execute the Company's e-commerce initiative or to adapt its business model to the shifts in the retail landscape caused by digital advances;
              • failure to realize the anticipated benefits, including revenue growth, anticipated cost savings or operating efficiencies, associated with the Company's investment in major initiatives that support its strategic priorities;
              • changes in economic conditions, including economic recession or changes in the rate of inflation or deflation, employment rates and household debt, interest rates, currency exchange rates or derivative and commodity prices;
              • failure to achieve desired results in labour negotiations, including the terms of future collective bargaining agreements;
              • adverse outcomes of legal and regulatory proceedings and related matters;
              • reliance on the performance and retention of third party service providers, including those associated with the Company's supply chain and apparel business, including issues with vendors in both advanced and developing markets; and
              • the inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory and to control shrink.

               

              This is not an exhaustive list of the factors that may affect the Company's forward-looking statements. Other risks and uncertainties not presently known to the Company or that the Company presently believes are not material could also cause actual results or events to differ materially from those expressed in its forward-looking statements. Additional risks and uncertainties are discussed in the Company's materials filed with the Canadian securities regulatory authorities ("securities regulators") from time to time, including, without limitation, the section entitled "Risks" in the Company's 2016 AIF (for the year ended December 31, 2016). Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect the Company's expectations only as of the date of this News Release. Except as required by law, the Company does not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

              CORPORATE PROFILE

              2016 Annual Report

              The Company's 2016 Annual Report is available in the "Investors" section of the Company's website at loblaw.ca and on sedar.com.

              Additional financial information has been filed electronically with various securities regulators in Canada through the System for Electronic Document Analysis and Retrieval (SEDAR) and with the Office of the Superintendent of Financial Institutions (OSFI) as the primary regulator for the Company's subsidiary, President's Choice Bank. The Company holds an analyst call shortly following the release of its quarterly results. These calls are archived in the "Investors" section of the Company's website at loblaw.ca.

              Conference Call and Webcast

              Loblaw Companies Limited will host a conference call as well as an audio webcast on February 23, 2017 at 10:00 a.m. (ET).

              To access via tele-conference, please dial (416) 642-5209. The playback will be made available approximately two hours after the event at (647) 436-0148, access code: 9000693. To access via audio webcast, please go to the "Investors" section of loblaw.ca. Pre-registration will be available.

              Full details about the conference call and webcast are available on the Loblaw Companies Limited website at loblaw.ca.


              News Release Endnotes



              (1)

              This News Release contains forward-looking information. See "Forward-Looking Statements" section of this News Release for a discussion of material factors that could cause actual results to differ materially from the forecasts and projections herein and of the material factors and assumptions that were used when making these statements. This News Release should be read in conjunction with Loblaw Companies Limited's filings with securities regulators made from time to time, all of which can be found at sedar.com and at loblaw.ca.

              (2)

              See "Non-GAAP Financial Measures" section of this News Release, which includes the reconciliation of such non-GAAP measures to the most directly comparable GAAP measures.

              (3)

              The results for the Financial Services and Choice Properties segments are for the periods ended December 31, consistent with the segments' fiscal calendars. Adjustments to align Financial Services' and Choice Properties' results to the Company's fiscal calendar are included in Consolidation and Eliminations. See the "Non-GAAP Financial Measures" and the "Segment Information" sections of this News Release.

              (4)

              To be read in conjunction with the "Forward-Looking Statements" section of this News Release.

              (5)

              2015 comparative Food retail same-store sales growth also excludes the negative impact of a change in distribution model by a tobacco supplier, which had no impact in the current period.

              (6)

              Certain figures have been restated as a result of the IFRS Interpretations Committee's agenda decision on IAS 12, "Income Taxes". See Note 2 in the Company's 2016 consolidated financial statements.

              SOURCE Loblaw Companies Limited

              Investor Relations: Investor inquiries, contact: Sophia Bisoukis, Vice President, Investor Relations, (905) 861-2436, investor@loblaw.ca; Media inquiries, contact: Kevin Groh, Vice President, Corporate Affairs and Communication, (905) 861-2437, pr@loblaw.ca