Loblaw Companies Limited Reports 2014 First Quarter Results and Announces 2.1% Increase to Quarterly Common Share Dividend(1)

BRAMPTON, ON, April 30, 2014 /CNW/ - Loblaw Companies Limited (TSX: L) ("Loblaw" or the "Company") today announced its unaudited financial results for the first quarter ended March 22, 2014. The Company's first quarter report will be available in the Investor Centre section of the Company's website at loblaw.ca and will be filed with SEDAR and available at sedar.com.

On March 28, 2014, subsequent to the end of the first quarter of 2014, the Company completed the acquisition of Shoppers Drug Mart Corporation ("Shoppers Drug Mart"). A summary of Shoppers Drug Mart operating results for the first quarter ended March 22, 2014 is included as an addendum to this News Release.

2014 First Quarter Highlights⁽¹⁾

• Revenue of $7,292 million, an increase of 1.2% over the first quarter of 2013.
  
  
• Adjusted EBITDA⁽²⁾ up 5.0% to $463 million compared to $441 million in the first quarter of 2013.
  

• Adjusted basic net earnings per common share⁽²⁾ up 2.1% to $0.49 compared to $0.48 in the first quarter of 2013.
• Basic net earnings per common share⁽³⁾ down 39.3% to $0.37 compared to $0.61 in the first quarter of 2013, with 2013 positively impacted by a gain related to defined benefit plan amendments.

• Retail sales growth of 0.8% and same-store sales⁽³⁾ growth of 0.9% compared to the first quarter of 2013. Retail same-store sales⁽³⁾ growth was negatively impacted by approximately 0.2% due to the shift in the timing of Easter. Normalized for the shift, same-store sales⁽³⁾ growth for the quarter was approximately 1.1%.

• Financial Services revenue increased by 9.1% over the first quarter of 2013.
• Quarterly common share dividend increase of approximately 2.1%, from $0.24 per common share to $0.245 per common share.

"The first quarter of 2014 marked another quarter of steady progress in our core business," said Galen G. Weston, Executive Chairman, Loblaw Companies Limited. "We remained focused on balancing our commitment to competitiveness and financial performance, achieving positive same-store sales and growing adjusted operating income. While the industry backdrop continues to be challenging with the intensely competitive market environment and the continued impact of drug reform, we still expect to advance our combined business both financially and operationally this year."

"With the acquisition of Shoppers Drug Mart completed, we are able to move into the next chapter for Loblaw, as we continue to build a portfolio of strong, complementary and independent businesses," continued Mr. Weston. "The near-term financial benefits, as well as the long-term strategic rationale of this transaction are extremely compelling."

(1)	This News Release contains forward-looking information. See Forward-Looking Statements in 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 in this News Release.
(3)	For financial definitions and ratios refer to the Glossary of Terms on page 109 of the 2013 Annual Report.

Consolidated Quarterly Results of Operations

For the periods ended March 22, 2014 and March 23, 2013 (unaudited)		2014						2013^(1)
(millions of Canadian dollars except where otherwise indicated)		(12 weeks)						(12 weeks)					$ Change				% Change
Revenue		$	7,292					$	7,202				$	90			1.2%
Operating income		253						309					(56)				(18.1)%
Adjusted operating income^(2)		268						258					10				3.9%
Adjusted operating margin^(2)		3.7%						3.6%
Adjusted EBITDA^(2)		$	463					$	441				$	22			5.0%
Adjusted EBITDA margin^(2)		6.3%						6.1%
Net interest expense and other financing charges		$	115					$	76				$	39			51.3%
Net earnings		103						171					(68)				(39.8)%
Adjusted net earnings^(2)		139						134					5				3.7%
Basic net earnings per common share ($)		0.37						0.61					(0.24)				(39.3)%
Adjusted basic net earnings per common share^(2) ($)		0.49						0.48					0.01				2.1%

• The $90 million increase in revenue compared to the first quarter of 2013 was primarily driven by an increase in the Company's Retail segment. Revenue also increased in the Company's Financial Services segment.

• Operating income decreased by $56 million compared to the first quarter of 2013. The change in operating income was negatively impacted by the gain related to defined benefit plan amendments recorded in the first quarter of 2013, costs related to the acquisition of Shoppers Drug Mart, general and administrative costs related to Choice Properties Real Estate Investment Trust ("Choice Properties") and unfavourable year-over-year changes in fixed asset and other related impairments. Adjusted operating income⁽²⁾ increased by $10 million compared to the first quarter of 2013, primarily driven by an increase in adjusted operating income⁽²⁾ in the Company's Financial Services segment.

• Adjusted operating margin⁽²⁾ was 3.7% for the first quarter of 2014 compared to 3.6% in the same quarter in 2013. Adjusted EBITDA margin⁽²⁾ was 6.3% for the first quarter of 2014 compared to 6.1%in the same quarter in 2013.

• Net interest expense and other financing charges increased by $39 million compared to the first quarter of 2013 and included net interest of $15 million related to indebtedness incurred to finance the acquisition of Shoppers Drug Mart, and an unfavourable $12 million fair value adjustment related to the Trust Unit Liability for the change in the fair value of Choice Properties' Trust Units ("Units") held by unitholders other than the Company. Excluding these impacts net interest expense and other financing charges increased by $12 million, driven primarily by distributions paid by Choice Properties on its Units and by higher interest on long term debt.

•  Income tax expense for the first quarter of 2014 was $35 million (2013 - $62 million) and the effective income tax rate was 25.4% (2013 - 26.6%). The decrease in the effective tax rate over the first quarter of 2013 was primarily due to an increase in income tax recoveries related to prior year tax matters, partially offset by an increase in non-deductible amounts, including fair value adjustments on the Trust Unit Liability. After excluding the tax impact of items excluded from adjusted net earnings⁽²⁾, the effective income tax rate on adjusted net earnings⁽²⁾ was 22.8% (2013 - 26.4%).

• Net earnings decreased by $68 million compared to the first quarter of 2013, primarily driven by the decrease in operating income and the increase in net interest expense and other financing charges described above, partially offset by a lower income tax expense. Adjusted net earnings⁽²⁾ increased by $5 million compared to the first quarter of 2013, primarily driven by higher adjusted operating income⁽²⁾ and a lower effective income tax rate on adjusted net earnings⁽²⁾, partially offset by higher net interest and other financing charges after excluding certain items described above.
  
  
• Basic net earnings per common share⁽³⁾ were $0.37 in the first quarter of 2014 compared to $0.61 in the first quarter of 2013. Adjusted basic net earnings per common share⁽²⁾ were $0.49 in the first quarter of 2014 compared to $0.48 in the first quarter of 2013.
  
  
• In the first quarter of 2014, the Company invested $116 million (2013 - $119 million) in capital expenditures.

(1)	Certain 2013 non-GAAP financial measures have been restated to conform with the current year's presentation. See Non-GAAP Financial Measures in this News Release.
(2)	See Non-GAAP Financial Measures in this News Release.
(3)	For financial definitions and ratios refer to the Glossary of Terms on page 109 of the 2013 Annual Report.

Retail Segment

For the periods ended March 22, 2014 and March 23, 2013 (unaudited)		2014				2013^(1)
(millions of Canadian dollars except where otherwise indicated)		(12 weeks)				(12 weeks)				$ Change				% Change
Sales		$	7,095			$	7,037			$	58			0.8%
Gross profit		1,580				1,576				4				0.3%
Operating income		217				279				(62)				(22.2)%
Adjusted operating income^(2)		226				228				(2)				(0.9)%
Adjusted EBITDA^(2)		416				408				8				2.0%
										2014				2013^(1)
For the periods ended March 22, 2014 and March 23, 2013 (unaudited)										(12 weeks)				(12 weeks)
Same-store sales^(3) growth										0.9%				2.8%
Gross profit percentage										22.3%				22.4%
Adjusted operating margin^(2)										3.2%				3.2%
Adjusted EBITDA margin^(2)										5.9%				5.8%

• In the first quarter of 2014, the increase in Retail sales of $58 million, or 0.8%, over the same period in the prior year was a result of the following factors:
  • Same-store sales⁽³⁾ growth was 0.9% (2013 - 2.8%) and was negatively impacted by approximately 0.2% due to the shift in the timing of Easter. Normalized for the shift, same-store sales⁽³⁾ growth for the quarter was approximately 1.1%. Same-store sales⁽³⁾ growth excluding gas bar for the quarter was 0.8% (2013 - 2.8%) and normalized for the effect of the shift in the timing of Easter, was approximately 1.0%;
    
    
  • Sales growth in food was moderate;
    
    
  • Sales in drugstore declined marginally;
    
    
  • Sales growth in gas bar was moderate;
    
    
  • Sales in general merchandise, excluding apparel, were flat;
    
    
  • Sales in apparel were flat;
    
    
  • The Company's average quarterly internal food price index was slightly higher (2013 - lower) than the average quarterly national food price inflation of 1.2% (2013 - 1.4%) 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 Loblaw stores; and
    
    
  • 23 corporate and franchise stores were opened and 12 corporate and franchise stores were closed in the last 12 months, resulting in a net increase of 0.4 million square feet, or 0.8%.

• In the first quarter of 2014, gross profit percentage was 22.3%, down 10 basis points compared to the first quarter of 2013.The decline was primarily driven by higher shrink due to the investment in fresh assortment and increased transportation costs, which were mainly the result of higher fuel prices. Gross profit dollars increased by $4 million, or 0.3%, compared to the same period in 2013, driven by higher sales partially offset by the decline in gross profit percentage.
  
  
• Operating income decreased by $62 million compared to the first quarter of 2013, and was negatively impacted by the gain related to defined benefit plan amendments recorded in the first quarter of 2013, costs related to the acquisition of Shoppers Drug Mart and unfavourable year-over-year changes in fixed asset and other related impairments. Adjusted operating income⁽¹⁾ decreased by $2 million compared to the first quarter of 2013, primarily driven by increased other operating costs, including depreciation and amortization, higher foreign exchange losses and costs related to certain of the Company's emerging businesses, partially offset by supply chain and labour efficiencies, and higher gross profit. For the first quarter of 2014, adjusted operating margin⁽²⁾ was 3.2%, flat compared to the same period in 2013.
  
  
• Adjusted EBITDA⁽¹⁾ increased by $8 million compared to the first quarter of 2013. For the first quarter of 2014 adjusted EBITDA margin⁽¹⁾ was 5.9% compared to 5.8% in the same period in 2013. Retail segment depreciation and amortization increased by $10 million compared to the first quarter of 2013.

(1)	Certain 2013 non-GAAP financial measures have been restated to conform with the current year's presentation. See Non-GAAP Financial Measures in this News Release.
(2)	See Non-GAAP Financial Measures in this News Release.
(3)	For financial definitions and ratios refer to the Glossary of Terms on page 109 of the 2013 Annual Report.

Financial Services Segment

For the periods ended March 22, 2014 and March 23, 2013 (unaudited)		2014				2013
(millions of Canadian dollars except where otherwise indicated)		(12 weeks)				(12 weeks)				$ Change				% Change
Revenue		$	180			$	165			$	15			9.1%
Operating income		36				30				6				20.0%
Earnings before income taxes		23				19				4				21.1%
(millions of Canadian dollars except where otherwise indicated)		As at				As at
(unaudited)		March 22, 2014				March 23, 2013				$ Change				% Change
Average quarterly net credit card receivables		$	2,469			$	2,240			$	229			10.2%
Credit card receivables		2,399				2,175				224				10.3%
Allowance for credit card receivables		47				43				4				9.3%
Annualized yield on average quarterly gross credit card receivables^(2)		14.2%				13.5%
Annualized credit loss rate on average quarterly gross credit card receivables^(2)		4.5%				4.2%

• Revenue for the first quarter of 2014 increased by 9.1% compared to the first quarter of 2013. This increase was primarily driven by higher interest income from higher credit card receivable balances and an increased interest income yield, and higher other service fee related income.
  
  
• Operating income and earnings before income taxes increased by $6 million and $4 million, respectively, compared to the first quarter of 2013. These increases were mainly attributable to higher revenue as described above, partially offset by higher operating costs as a result of an increase in the active customer base, and higher credit losses.
  
  
• As at March 22, 2014, credit card receivables were $2,399 million, an increase of $224 million compared to March 23, 2013. This increase was primarily driven by growth in the active customer base as a result of continued investments in customer acquisitions and marketing initiatives over the past two years. As at March 22, 2014, the allowance for credit card receivables was $47 million, an increase of $4 million compared to March 23, 2013, primarily due to the growth in the credit card portfolio.

(1)	See Non-GAAP Financial Measures in this News Release.
(2)	For financial definitions and ratios refer to the Glossary of Terms on page 109 of the 2013 Annual Report.

Choice Properties Segment

For the periods ended March 22, 2014 and March 23, 2013 (unaudited)		2014^(1)				2013
(millions of Canadian dollars)		(12 weeks)				(12 weeks)
Revenue		$	167			$	—
Operating income		118				—
Adjusted operating income^(2)		124					—
Net interest expense and other financing charges		126					—
For the periods ended March 22, 2014 and March 23, 2013 (unaudited)		2014^(1)				2013
(millions of Canadian dollars except where otherwise indicated)		(12 weeks)				(12 weeks)
Net operating income^(2)		$	115			$	—
Funds from operations^(2)		87				—
Adjusted funds from operations^(2)		69				—
Adjusted funds from operations per unit diluted^(2) ($)		0.19				—
Adjusted funds from operations payout ratio^(2)		87.8%				—%

• Revenue for the first quarter of 2014 was $167 million, of which $150 million was received from the Retail segment. Revenue consists of base rent, operating cost and property tax recoveries.
  
  
• Operating income for the first quarter of 2014 was $118 million and included $5 million of general and administrative costs. Adjusted operating income⁽²⁾ was $124 million.
  
  
• Net operating income⁽²⁾ for the first quarter of 2014 was $115 million, which consisted of cash rental revenue less property operating costs.
  
  
• Funds from operations⁽²⁾ and adjusted funds from operations⁽²⁾ for the first quarter of 2014 were $87 million and $69 million, respectively.
  
  
• Results of Choice Properties operations for the first quarter of 2014 were slightly better than the financial forecast included in Choice Properties' equity and debt prospectuses dated June 26, 2013, primarily driven by incremental income from properties acquired since that date.
  
  
• In the first quarter of 2014, Choice Properties completed the issuance of $450 million aggregate principal amount of senior unsecured debentures. The majority of the proceeds were used to repay $440 million of transferor notes held by Loblaw.
  
  
• Also in the first quarter of 2014, Choice Properties acquired an industrial property in Mississauga, Ontario, for approximately $16 million. The acquisition was funded entirely with cash. This property is fully leased to a related party.

(1)	Results are for the period ended March 31, 2014, consistent with Choice Properties' fiscal calendar. Adjustments to March 22, 2014 are included in Consolidation and Eliminations.
(2)	See Non-GAAP Financial Measures in this News Release.

Acquisition of Shoppers Drug Mart Corporation

On March 28, 2014, subsequent to the end of the first quarter, the Company acquired all of the outstanding shares of Shoppers Drug Mart for total consideration of $12.3 billion, comprised of approximately $6.6 billion of cash and the issuance of approximately 119.5 million common shares of the Company.

The cash portion of the acquisition was financed as follows:

• $3.5 billion was obtained through an unsecured term loan facility bearing interest at a rate equal to the Bankers' Acceptance rate plus 1.75% and maturing March 28, 2019;
  
  
• $1.6 billion of proceeds from the issuance of unsecured notes in the third quarter of 2013 were released from escrow;
  
  
• $500 million was received in consideration of the issuance of 10.5 million common shares to George Weston Limited; and
  
  
• approximately $1.0 billion was used from cash on hand.

Loblaw expects to achieve annualized synergies of $300 million in the third full year following the close of the transaction (net of related costs), phased in evenly over three years. First year synergies are expected to be generated primarily from improved cost of goods sold and from purchasing efficiencies in goods not for resale.

Pursuant to a Consent Agreement reached with the Competition Bureau in the first quarter of 2014, the Company is required to divest of 14 Shoppers Drug Mart stores and four of the Company's franchise grocery stores, as well as nine pharmacy operations of the Company. The divestitures are not expected to have a material impact on the operations of the Company or the planned synergies.

Based on a preliminary assessment, the Company expects to recognize the following amounts of net tangible assets, goodwill and intangible assets in the second quarter of 2014:

(millions of Canadian dollars except where otherwise indicated) (unaudited)		$			Estimated Useful Life
Fair Value of Net Tangible Assets Acquired		$	552
Goodwill		2,251
	Prescription files	5,040			11 years
	Brands	3,340			indefinite
	Optimum loyalty program	490			18 years
	Other	600			5 to 10 years
Total Intangible Assets		9,470
Total Net Assets Acquired		$	12,273

The Company anticipates annual amortization of approximately $550 million relating to the intangible assets identified above. In addition, other purchase-related fair value adjustments will be recognized, including a fair value adjustment to inventory of approximately $800 million, representing the difference between inventory cost and its fair value. This difference will be recognized in cost of sales as the inventory is sold over the remainder of 2014, with a resulting negative impact on gross profit. The Company will exclude these impacts in calculating adjusted operating income⁽¹⁾, as management does not consider them to be reflective of the Company's underlying operating performance.

In the first quarter of 2014, the Company incurred costs related to the acquisition of $23 million, of which $8 million was recorded in selling, general and administrative expenses and $15 million was recorded in net interest expense and other financing charges.

Upon closing of the acquisition, all amounts owing on Shoppers Drug Mart's revolving bank credit facility were repaid and the facility was cancelled. In addition, upon closing, the Company guaranteed the outstanding principal amount of Shoppers Drug Mart medium term notes of $500 million, along with any accrued interest. The Company has also provided guarantees to various Canadian banks in support of the financing obtained by Shoppers Drug Mart associates.

Declaration of Dividends

Subsequent to the end of the first quarter of 2014, the Board of Directors declared a quarterly dividend on Loblaw Companies Limited common shares of $0.245 payable July 1, 2014 to shareholders of record on June 15, 2014 and a dividend on the Second Preferred Shares, Series A of $0.37 per share payable July 31, 2014 to shareholders of record on July 15, 2014.

(1)	See Non-GAAP Financial Measures in this News Release.

Outlook⁽¹⁾

The Company expects to update this outlook in the second quarter earnings announcement, which will reflect the impacts of:

• Accounting policies alignment and the purchase price allocation with respect to the acquisition of Shoppers Drug Mart; and
  
  
• Synergies expected to be achieved in 2014. The Company's overall synergy targets remain unchanged.

The Company expects the competitive environment and industry square footage to remain at historically high levels in the second quarter, and also expects deflationary pressure from regulatory drug reform - the impacts of which are expected to moderate in the second half of the year. During the second quarter, the Company also anticipates to be negatively impacted by the timing of charges related to the transition of certain stores to more cost effective and efficient operating terms under collective agreements. These charges are anticipated to be approximately $25 million. Expectations for the full year with respect to these charges are approximately $35 million. In 2013, the charges were $8 million and $24 million, for the second quarter and full year, respectively.

(1)	See Forward-Looking Statements in this News Release.

Forward-Looking Statements

This News Release for the Company contains forward-looking statements about the Company's objectives, plans, goals, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects and opportunities. Specific forward-looking statements in this News Release include, but are not limited to, statements with respect to the Company's anticipated future results and events, targeted synergies expected following the acquisition of Shoppers Drug Mart, future liquidity, planned capital expenditures, amount of pension plan contributions, status and impact of information technology ("IT") systems implementation and future plans. 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 2014 is based on certain assumptions including assumptions about revenue growth, anticipated cost savings and operating efficiencies, and competitive square footage growth. 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 the Enterprise Risks and Risk Management section of the MD&A on pages 28 to 35 of the 2013 Annual Report - Financial Review ("2013 Annual Report") and the Enterprise Risks and Risk Management section of the MD&A included in the Company's 2014 First Quarter Report to Shareholders. Such risks and uncertainties include:

• failure by the Company to realize the anticipated strategic benefits or operational, competitive and cost synergies expected following the acquisition of Shoppers Drug Mart;
  
  
• failure to realize benefits from investments in the Company's IT systems, including the Company's IT systems implementation, or unanticipated results from these initiatives;
  
  
• failure to realize anticipated results, including revenue growth, anticipated cost savings or operating efficiencies from the Company's major initiatives, including those from restructuring;
  
  
• the inability of the Company's IT infrastructure to support the requirements of the Company's business;
  
  
• failure to achieve desired results in labour negotiations, including the terms of future collective bargaining agreements, which could lead to work stoppages;
  
  
• public health events including those related to food safety;
  
  
• heightened competition, whether from current competitors or new entrants to the marketplace;
  
  
• changes in economic conditions, including the rate of inflation or deflation, changes in interest and currency exchange rates and derivative and commodity prices;
  
  
• changes in the Company's income, capital, commodity, property and other tax and regulatory liabilities including changes in tax laws, regulations or future assessments;
  
  
• changes to the regulation of generic prescription drug prices and the reduction of reimbursements under public drug benefit plans and the elimination or reduction of professional allowances paid by drug manufacturers;
  
  
• the inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory and to control shrink; and
  
  
• changes in the Company's estimate of inventory cost as a result of its IT system upgrade.

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 from time to time. Information on risks and uncertainties related to Shoppers Drug Mart are disclosed in the Information Statement filed by the Company on August 20, 2013, and the Shoppers Drug Mart 2013 annual MD&A filed by Shoppers Drug Mart on February 20, 2014. 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.

Non-GAAP Financial Measures

The Company uses the following non-GAAP financial measures: adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net earnings, adjusted basic net earnings per common share,and with respect to Choice Properties, net operating income, funds from operations, adjusted funds from operations, adjusted funds from operations per unit diluted and adjusted funds from operations payout ratio. 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 consolidated and segment underlying 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. From time to time, the Company may exclude 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.

Beginning in the first quarter of 2014, the Company no longer excludes the impact of share-based compensation when analyzing consolidated and segment underlying operating performance. As a result, prior year adjusted operating income and adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin, and adjusted net earnings and adjusted basic net earnings per common share were restated to conform with the current year's presentation.

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.

Adjusted Operating Income, Adjusted Operating Margin, Adjusted EBITDA and Adjusted EBITDA Margin The following table reconciles adjusted operating income and adjusted earnings before income taxes, net interest expense and other financing charges and depreciation and amortization ("adjusted EBITDA") to operating income, which is reconciled to GAAP net earnings measures reported in the condensed consolidated statements of earnings for the 12 weeks ended March 22, 2014 and March 23, 2013. The Company believes that adjusted operating income is useful in assessing the Company's underlying operating performance and in making decisions regarding the ongoing operations of the business. The Company believes that adjusted EBITDA is also 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 operating margin is calculated as adjusted operating income divided by revenue. Adjusted EBITDA margin is calculated as adjusted EBITDA divided by revenue.

		2014 (12 weeks)																2013 (12 weeks)
(millions of Canadian dollars) (unaudited)			Retail			Financial Services			Choice Properties^(1)			Consolidation and Eliminations			Consolidated			Retail			Financial Services			Choice Properties			Consolidation and Eliminations			Consolidated
Net earnings															$	103														$	171
Add impact of the following:
	Net interest expense and other   financing charges														115															76
Income taxes															35															62
Operating income			$	217		$	36		$	118		$	(118)		$	253		$	279		$	30		$	—		$	—		$	309
Add (deduct) impact of the following:
	Defined benefit plan amendments		—			—			—			—			—			(51)			—			—			—			(51)
	Shoppers Drug Mart related costs		8			—			—			—			8			—			—			—			—			—
	Choice Properties general and   administrative costs		(1)			—			5			—			4			—			—			—			—			—
	Fixed asset and other related   impairments		2			—			1			—			3			—			—			—			—			—
Adjusted operating income			$	226		$	36		$	124		$	(118)		$	268		$	228		$	30		$	—		$	—		$	258
Depreciation and amortization			190			2			—				3		195			180			3			—			—			183
Adjusted EBITDA			$	416		$	38		$	124		$	(115)		$	463		$	408		$	33		$	—		$	—		$	441

(1)	Results are for the period ended March 31, 2014, consistent with Choice Properties' fiscal calendar. Adjustments to March 22, 2014 are included in Consolidation and Eliminations.

Defined benefit plan amendments During the first quarter of 2013, the Company announced amendments to certain of its defined benefit plans impacting certain employees retiring after January 1, 2015. As a result, the Company recorded a gain of $51 million in the first quarter of 2013.

Shoppers Drug Mart related costs In connection with the agreement to acquire all of the outstanding common shares of Shoppers Drug Mart, in the first quarter of 2014 the Company recorded $8 million of acquisition costs in operating income.

Choice Properties general and administrative costs During the first quarter of 2014, the Company recorded $4 million of incremental general and administrative costs incurred by Choice Properties in operating income.

Fixed asset and other related impairments At each balance sheet date, the Company assesses and, when required, records impairments and recoveries of previous impairments related to the carrying value of its fixed assets, investment properties and intangible assets. In the first quarter of 2014, the Company recorded a charge of $3 million (2013 - nil) related to fixed asset and other related impairments.

Adjusted Net Earnings and Adjusted Basic Net Earnings Per Common Share The Company believes adjusted net earnings and adjusted basic 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 adjusted net earnings and adjusted basic net earnings per common share to GAAP net earnings and basic net earnings per common share reported for the 12 week periods ended March 22, 2014 and March 23, 2013:

(millions of Canadian dollars/Canadian dollars) (unaudited)			2014 (12 weeks)							2013 (12 weeks)
Net earnings/basic net earnings per common share			$	103		$	0.37			$	171		$	0.61
Add (deduct) impact of the following:
	Defined benefit plan amendments		—			—				(37)			(0.13)
	Shoppers Drug Mart related costs		19			0.06				—			—
	Choice Properties general and administrative costs		3			0.01				—			—
	Fixed asset and other related impairments		2			0.01				—			—
	Fair value adjustment of Trust Unit Liability		12			0.04				—			—
Adjusted net earnings/adjusted basic net earnings per common share			$	139		$	0.49			$	134		$	0.48

Shoppers Drug Mart related costs In addition to the related costs recorded in operating income noted above, during the first quarter of 2014, $15 million of additional net interest expense on a pre-tax basis was incurred in connection with the financing related to the acquisition. These financing charges were recorded in net interest expense and other financing charges.

Fair value adjustment of Trust Unit Liability The Company is exposed to market price fluctuations as a result of the Choice Properties Units held by unitholders other than the Company. These Units are presented as a liability on the Company's condensed consolidated balance sheets as they are redeemable for cash at the option of the holder, subject to certain restrictions. This liability is recorded at fair value at each reporting period based on the market price of Units at the end of the period. In the first quarter of 2014, the Company recorded a loss of $12 million (2013 - nil) related to the fair value adjustment on the Trust Unit Liability.

Choice Properties Net Operating Income The following table reconciles Choice Properties net operating income to GAAP measures for the 12 week periods ended March 22, 2014 and March 23, 2013. The Company believes net operating income is useful in measuring Choice Properties operating performance and the performance of the real estate properties.

		2014^(1)				2013
(millions of Canadian dollars) (unaudited)		(12 weeks)				(12 weeks)
Rental revenue		$	167			$	—
Reverse - Straight-line rental revenue		(9)				—
		158				—
Property Operating Costs		(43)				—
Net Operating Income		$	115			$	—

Choice Properties Funds from Operations, Adjusted Funds from Operations, Adjusted Funds from Operations per Unit Diluted and Adjusted Funds from Operations Payout Ratio The following table reconciles Choice Properties funds from operations and adjusted funds from operations to GAAP measures for the 12 week periods ended March 22, 2014 and March 23, 2013. The Company believes funds from operations is useful in measuring Choice Properties operating performance and the performance of the real estate properties, and that adjusted funds from operations is useful in measuring economic performance and is indicative of Choice Properties ability to pay distributions.

			2014^(1)				2013
(millions of Canadian dollars) (unaudited)			(12 weeks)				(12 weeks)
Net income			$	(8)			$	—
	Fair value adjustments on Class B Limited Partnership units		48				—
	Distributions on Class B Limited Partnership units		46				—
	Amortization of tenant improvement allowances		1				—
Funds from Operations			$	87			$	—
	Straight-line rental revenue		(9)				—
	Amortization of finance charges		(1)				—
	Sustaining capital expenditures^(2)		(8)				—
Adjusted Funds from Operations			$	69			$	—

Adjusted funds from operations per unit diluted is calculated as adjusted funds from operations divided by Choice Properties' diluted weighted average units outstanding, which were 372.1 million in the first quarter of 2014.

Adjusted funds from operations payout ratio is calculated as Choice Properties' distribution per unit, which was $0.162501 in the first quarter of 2014, divided by adjusted funds from operations per unit diluted.

(1)	Results are for the period ended March 31, 2014, consistent with Choice Properties' fiscal calendar. Adjustments to March 22, 2014 are included in Consolidation and Eliminations.
(2)	Anticipated property and leasing capital expenditures for the first quarter of 2014 was $8 million, however only $2 million was spent as winter weather impacted the start date of new projects.

Selected Financial Information

The following includes selected quarterly financial information, which is prepared by management in accordance with International Financial Reporting Standards ("IFRS") and is based on the Company's 2014 First Quarter Report to Shareholders. This financial information does not contain all interim period disclosures required by IFRS, and accordingly, should be read in conjunction with the Company's 2013 Annual Report and 2014 First Quarter Report to Shareholders, which are available in the Investor Centre section of the Company's website at loblaw.ca.

Condensed Consolidated Statements of Earnings

(millions of Canadian dollars except where otherwise indicated)		March 22, 2014					March 23, 2013
(unaudited)		(12 weeks)					(12 weeks)
Revenue			$	7,292			$	7,202
Cost of Merchandise Inventories Sold			5,528				5,474
Selling, General and Administrative Expenses			1,511				1,419
Operating Income			$	253			$	309
Net interest expense and other financing charges			115				76
Earnings Before Income Taxes			$	138			$	233
Income taxes			35				62
Net Earnings			$	103			$	171
Net Earnings per Common Share ($)
	Basic		$	0.37			$	0.61
	Diluted		$	0.36			$	0.60

Condensed Consolidated Balance Sheets

			As at				As at				As at
(millions of Canadian dollars) (unaudited)			March 22, 2014				March 23, 2013				December 28, 2013
Assets
Current Assets
	Cash and cash equivalents		$	2,537			$	689			$	2,260
	Short term investments		39				854				290
	Accounts receivable		621				519				618
	Credit card receivables		2,399				2,175				2,538
	Inventories		2,084				1,951				2,084
	Prepaid expenses and other assets		123				109				75
	Assets held for sale		23				35				22
Total Current Assets			$	7,826			$	6,332			$	7,887
Fixed Assets			9,034				8,919				9,105
Investment Properties			115				95				99
Goodwill and Intangible Assets			1,052				1,062				1,054
Deferred Income Taxes			292				249				253
Security Deposits			1,697				207				1,701
Franchise Loans Receivable			363				372				375
Other Assets			237				224				285
Total Assets			$	20,616			$	17,460			$	20,759
Liabilities
Current Liabilities
	Trade payables and other liabilities		$	3,297			$	3,211			$	3,797
	Provisions		53				64				66
	Income taxes payable		3				19				37
	Short term debt		605				905				605
	Long term debt due within one year		902				772				1,008
Total Current Liabilities			$	4,860			$	4,971			$	5,513
Provisions			56				64				56
Long Term Debt			7,155				4,901				6,672
Trust Unit Liability			703				—				688
Deferred Income Taxes			36				18				34
Capital Securities			224				223				224
Other Liabilities			578				741				554
Total Liabilities			$	13,612			$	10,918			$	13,741
Shareholders' Equity
Common Share Capital			$	1,656			$	1,574			$	1,642
Retained Earnings			5,264				4,895				5,289
Contributed Surplus			80				68				87
Accumulated Other Comprehensive Income			4				5				—
Total Shareholders' Equity			$	7,004			$	6,542			$	7,018
Total Liabilities and Shareholders' Equity			$	20,616			$	17,460			$	20,759

Condensed Consolidated Statements of Cash Flows

				March 22, 2014				March 23, 2013
(millions of Canadian dollars) (unaudited)				(12 weeks)				(12 weeks)
Operating Activities
	Net earnings			$	103			$	171
	Income taxes			35				62
	Net interest expense and other financing charges			115				76
	Depreciation and amortization			195				183
	Income taxes paid			(81)				(64)
	Interest received			8				10
	Settlement of equity forward contracts			—				(16)
	Change in credit card receivables			139				130
	Change in non-cash working capital			(568)				(529)
	Fixed asset and other related impairments			3				—
	Gain on disposal of assets			—				(1)
	Gain on defined benefit plan amendments			—				(51)
	Other			5				—
Cash Flows used in Operating Activities				(46)				(29)
Investing Activities
	Fixed asset purchases			(116)				(119)
	Change in short term investments			251				(118)
	Proceeds from fixed asset sales			10				2
	Change in franchise investments and other receivables			6				8
	Change in security deposits			4				47
	Intangible asset additions			(1)				(9)
Cash Flows from (used in) Investing Activities				154				(189)
Financing Activities
	Long term debt
		Issued		469				10
		Retired		(126)				(26)
	Interest paid			(119)				(64)
	Dividends paid			(68)				(62)
	Common shares
		Issued		10				11
		Purchased and held in trust		—				(46)
Cash Flows from (used in) Financing Activities				166				(177)
Effect of foreign currency exchange rate changes on cash and cash equivalents				3				5
Change in cash and cash equivalents				277				(390)
Cash and cash equivalents, beginning of period				2,260				1,079
Cash and Cash Equivalents, End of Period				$	2,537			$	689

Segment Information

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

• The Retail segment, which consists primarily of retail food, drugstore, gas bar, apparel and other general merchandise operations;
  
  
• The Financial Services segment, which provides credit card services, a retail loyalty program, insurance brokerage services, personal banking services provided by a major Canadian chartered bank, deposit taking services and telecommunication services; and
  
  
• The Choice Properties segment, which owns and leases income‑producing commercial properties. The Choice Properties segment information presented below reflects the accounting policies of Choice Properties, which may differ from those of the consolidated Company. Any differences in policies are eliminated in Consolidation and Eliminations.

The Company's chief operating decision maker evaluates segment performance on the basis of adjusted operating income⁽¹⁾ and adjusted EBITDA⁽¹⁾, as reported to internal management, on a periodic basis.

Information for each reportable operating segment is included below:

		March 22, 2014																March 23, 2013
		(12 weeks)																(12 weeks)
(millions of Canadian dollars)		Retail			Financial Services^(i)			Choice Properties^(2)			Consolidation and Eliminations^(ii)			Total				Retail			Financial Services^(i)			Choice Properties			Consolidation and Eliminations^(ii)			Total
(unaudited)
Revenue		$	7,095		$	180		$	167		$	(150)		$	7,292			$	7,037		$	165		$	—		$	—		$	7,202
Operating Income		$	217		$	36		$	118		$	(118)		$	253			$	279		$	30		$	—		$	—		$	309
Adjusting Items^(1)		9			—			6			—			15				(51)			—			—			—			(51)
Adjusted Operating Income^(1)		226			36			124			(118)			268				228			30			—			—			258
Depreciation and Amortization		$	190		$	2		$	—		$	3		$	195			$	180		$	3		$	—		$	—		$	183
Adjusted EBITDA^(1)		416			38			124			(115)			463				408			33			—			—			441
Net interest expense and other   financing charges		70			13			126			(94)			115				65			11			—			—			76

(i)	Included in Financial Services revenue is $89 million (March 23, 2013 - $77 million) of interest income.
(ii)	Consolidation and Eliminations includes the following items:
	Revenue includes the elimination of $115 million of rental revenue and $35 million of cost recovery recognized by Choice Properties, received from the Retail segment Operating income includes the elimination of the $115 million impact of rental revenue described above and the recognition of $3 million of depreciation expense for certain investment properties recorded by Choice Properties and measured at fair value. Net interest expense and other financing charges includes the elimination of $69 million of interest expense included in Choice Properties related to debt owing to the Company; Unit distributions to external unitholders of $11 million, which excludes distributions paid to the Company, which are reflected as a reduction of equity in Choice Properties, and presented as interest expense for the consolidated Company; the elimination of a $48 million fair value loss recognized by Choice Properties on Class B Limited Partnership units held by the Company; and a $12 million fair value loss on the Company's Trust Unit Liability.

(1)	Certain items are excluded from operating income and EBITDA to derive adjusted operating income and adjusted EBITDA, respectively. Adjusted operating income and adjusted EBITDA are used internally by management when analyzing segment underlying performance.
(2)	Results are for the period ended March 31, 2014, consistent with Choice Properties' fiscal calendar. Adjustments to March 22, 2014 are included in Consolidation and Eliminations.

Addendum - Shoppers Drug Mart Corporation Results

On March 28, 2014, subsequent to the end of the first quarter of 2014, the Company completed the acquisition of Shoppers Drug Mart. As Shoppers Drug Mart is no longer a public issuer, it was not required to file a quarterly report for the first quarter of 2014. Below is a summary of Shoppers Drug Mart operating results for the first quarter ended March 22, 2014. Beginning in the second quarter of 2014, Shoppers Drug Mart operating results will be included within the Retail operating segment of the Company.

For the periods ended March 22, 2014 and March 23, 2013 (unaudited)			2014					2013
(millions of Canadian dollars)			(12 weeks)					(12 weeks)
Sales		$	2,518				$	2,486
Cost of goods sold			1,552					1,529
Gross profit		$	966				$	957
Operating and administrative expenses			796					782
Operating income		$	170				$	175
Adjusted operating income^(1)		$	177				$	175
EBITDA		$	243				$	250
Adjusted EBITDA^(1)		$	250				$	250

(1)	Adjusted to exclude $7 million of transaction costs related to the acquisition of Shoppers Drug Mart by Loblaw.

The following provides an overview of Shoppers Drug Mart's operating performance for the quarter ended March 22, 2014 compared to the quarter ended March 23, 2013:

• Sales were $2.5 billion, an increase of 1.3% over the same period of the prior year, driven by sales gains in the front of the store and continued strength in prescription count growth. On a same-store basis, sales increased 1.4% in the quarter.
  
  
• Pharmacy sales were $1.2 billion, an increase of 0.5% compared to the same period of the prior year, as strong growth in the number of prescriptions filled at retail was partially offset by a further reduction in average prescription value. On a same-store basis, pharmacy sales increased by 0.4% in the quarter. During the first quarter of 2014, the number of prescriptions dispensed at retail increased by 4.1% compared to the same period of the prior year and was up 4.0% on a same-store basis. Year-over-year, average prescription value at retail declined by 3.0% during the first quarter of 2014, largely as a result of further reductions in generic prescription reimbursement rates due to ongoing drug system reform initiatives, along with increasing generic prescription utilization rates. Generic molecules comprised 62.5% of the prescriptions dispensed in the first quarter of 2014 compared to 60.7% in the same period last year.
  
  
• Front store sales were $1.3 billion, an increase of 2.1% compared to the same period of the prior year, led by strong growth in cosmetics, food and confection and beverage. On a same-store basis, front store sales increased by 2.2% during the first quarter of 2014.
  
  
• During the first quarter, four new drug stores were opened, one of which was a relocation, one drug store was acquired and four smaller pharmacy formats were closed. Year-over-year, retail selling square footage increased by 2.1%.

Operating income, inclusive of transaction-related costs of $7 million associated with the acquisition of Shoppers Drug Mart by Loblaw, was $170 million in the first quarter of 2014. Excluding the impact of these transaction-related costs, adjusted operating income for the first quarter of 2014 was $177 million compared to adjusted operating income of $175 million in the same period of the prior year. Year-over-year, gross profit dollars increased by 0.9% in the first quarter of 2014, as the level of promotional intensity in the market remained high. Operating and administrative expenses, including depreciation and amortization expense, increased 1.7% compared to the same period last year. Excluding the impact of the aforementioned transaction-related costs of $7 million, first quarter adjusted operating and administrative expenses were up 0.9% year-over-year, driven largely by higher store-level expenses, primarily occupancy and wages and benefits.

2013 Annual Report and 2014 First Quarter Report to Shareholders

The Company's 2013 Annual Report and 2014 First Quarter Report to Shareholders are available in the Investor Centre section of the Company's website at loblaw.ca or at 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.

Conference Call and Webcast

Loblaw Companies Limited will host a conference call as well as an audio webcast on April 30, 2014 at 11:00 a.m. (EST).

To access via tele-conference please dial [phone]. The playback will be made available two hours after the event at [phone], access code: 6056008. To access via audio webcast please visit loblaw.ca, go to Investor Centre and click on webcast. Pre-registration will be available.

Full details about the conference call and webcast, as well as a summary presentation of first quarter 2014 highlights, are available on the Loblaw Companies Limited website at loblaw.ca.

Annual Meeting of Shareholders

The 2014 Annual Meeting of Shareholders of Loblaw Companies Limited will be held on Thursday, May 1, 2014 at 11:00 a.m. (EST) at the Mattamy Athletic Centre, 50 Carlton Street, Toronto, Canada M5B 1J2.

To access via tele-conference, please dial [phone]. The playback will be available two hours after the event at [phone], access code: 7521292. To access via audio webcast please visit the Investor Centre section of loblaw.ca. Pre-registration will be available. 

SOURCE: Loblaw Companies Limited

Investor Relations

Investor inquiries, contact: 
Dennis Fong
Investor Relations
[phone]
[email protected]

Media inquiries, contact:
Kevin Groh
Vice President, Corporate Affairs and Communication
[phone]
[email protected]