Loblaw Cos. Ltd.

Shoppers Drug Mart retail SSS was negative 1.7% in first-quarter 2021, driven by the reduced sales of high-margin products in the of front store. However, the engagement of the pharmacy network for vaccine administration should increase traffic and uplift front-store sales. Shoppers Drug Mart has already vaccinated more than 700,000 Canadians through first-quarter 2021, and has the capacity to provide 1 million vaccines per week moving forward. Overall, we expect the second half of 2021 to witness a shift from eat-at-home spurred by the opening of restaurants and workplaces, which could pressure SSS for food retail. However, increased sales of high-margin products both at food (such as salad bars and bakery) and drug stores should sustain the company's retail EBITDA

...Post-pandemic, Loblaw should continue to benefit from food and pharmacy channels. With Loblaw Cos. Ltd.'s unprecedented same store sales (SSS) in 2020, S&P Global Ratings expects comparison with this year's SSS will be tough; however, on a two-year stacked basis, first-quarter 2021 showed a SSS growth of 4.9%, slightly lower than first-quarter 2020 at 5.8%. Overall, we expect Loblaw will realize revenue growth in the low-single-digit percent area over the next two years. With many provinces under lockdown mandates in the first half of 2021, we anticipate food and grocery sales will remain elevated as consumers continue their robust eat-at-home practices. As the vaccination roll-out rate rises and customer mobility increases, we expect shopping patterns will normalize, with the SSS gap narrowing between discount and conventional stores. With a significant portion of its retail banners operating in the discount space, Loblaw should be well-positioned as customers take advantage of value proposition...

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