Loblaw Companies Ltd. (TSX:L) was up 3.4% in early afternoon trading on November 5. Shares are down 17% week-over-week as Loblaws suffered a dramatic plunge on the final trading day last week.
On November 1, Loblaws announced that it had completed the spinout of its 61.6% effective interest in Choice Properties Real Estate Trust. This news, coupled with an analyst downgrade, took its toll on the stock to open the month. Shares are now down 23% in 2018 so far.
Loblaws is expected to release its third-quarter results on November 14. The company’s leadership had projected a difficult year for grocery retailers in 2018. However, rising labour costs may be curbed to some degree by the actions of the new PC government in Ontario.
Major headwinds are still present as Amazon seeks to increase its footprint in online grocery retail. Companies like Loblaws and Metro have sought to introduce e-commerce channels of their own to get ahead of the competition.
In the second quarter, Loblaws saw its revenue drop 1.4% year-over-year to $10.9 billion. Operating income plunged 10.5% to $561 million. The stock currently offers a quarterly dividend of $0.295 per share which represents a 2.1% yield.
Loblaws had forecast that its business would face major challenges in 2018. New business-friendly policies in Ontario should boost its projections marginally, but the long-term threat of e-commerce challengers and an intense competitive environment in Canada remains.
Still, this recent drop has put Loblaws at a four-year low. The company still has a robust retail footprint and the stock offers a 2% dividend yield. Investors may want to consider buying into this sharp dip.
