Concerned Facebook shareholders want the company to give them an “equal voice”. The social media platform became public in 2012. However, thanks to a controversial company structure, Mark Zuckerberg kept all power over the corporation, even if he is no longer the main owner.

James McRitchie and Myra K. Young from California, who own 100 Facebook shares, publicly asked the company to change its stock structure last March. “Our company takes our public shareholder money but does not let us have an equal voice in our company’s management,” wrote McRitchie and Young in the last proxy of the company.

The shareholders point out the company dual-class structure as the root of the problem. There are two kinds of Facebook shares: the Class A gives the owner one vote per share and the Class B gives ten votes per share.

The vast majority of Class B common stock is in the CEO’s wallet, Mark Zuckerberg. Therefore, it does not matter if the company is more your property than his, because he will always have more voting power than you.

For Gregory Nazaire, finance lecturer at Dalhousie University, for Facebook to have two types of shares is not surprising. “We see this structure for companies where the CEO or the founder wants to have some latitude with regards to innovation.” By keeping all the voting power in his hand, Zuckerberg can lead Facebook in whenever direction he wants, without being pressured by the shareholders votes, explains Nazaire.

However, the shareholders are not comfortable with the situation: they want more control over their investment. “Without a voice, shareholders cannot hold management accountable,” says MicRitchie and Young in Facebook’s financial documents.

In its answer to McRitchie and Young, the Facebook Board of Directors affirmed that Zuckerberg is the best person to lead the company. The Board is urging the other shareholders to vote against the proposition (even if they don’t have enough vote power to change anything).

Zuckerberg doesn’t have to worry for the moment. With over 60% of the vote power, nobody can oppose him. But at what cost?

A risky game

Between 2004 and 2012, Facebook was a private company. Therefore, Zuckerberg was able to take any decision he wanted and he was not accountable to anyone for it.

Then, the company turned public on March 2012. Its Initial Public Offering (IPO) raised $6.8 billion from the public market. Facebook became the property of over 4,000 shareholders on the planet and Mark Zuckerberg, as CEO, became accountable to them.

As Gregory Nazaire says, Facebook is playing a risky game. Since the shareholders’ votes don’t count, they can’t involve themselves into the company management and probably feel less attached to the company. The finance lecturer at Dalhousie says that it could have a big impact on the price volatility of the shares.

“If the shareholders don’t feel, don’t know or don’t understand what Zuckerberg is doing, it is really easy for them to dump the stock and drop the price,” explains Gregory Nazaire. “Investors don’t have the vote, but they still have a level of control: they can control Facebook through the purse.”

Facebook is aware that the almighty position of Zuckerberg could be prejudicial. The 2013 annual report indicates that Zuckerberg’s “concentrated control could […] discourage a potential investor from acquiring our Class A common stock due to the limited voting power of such stock […] and might harm the trading price of our Class A common stock.”

A study by the Investor Responsibility Research Center Institute, conducted in 2012, compared corporations with two or more classes of shares with corporations with just one type of share. Their results show that companies like Facebook are more profitable for shareholders over a one-year period. However, after three years, it’s the single class companies that bring more money for the shareholders, with higher share price and higher dividends.

Nevertheless, the Facebook Board of Directors still believes that a dual-class structure will help for the long-term success of the company, as long as Mark Zuckerberg will be the main voting owner and the CEO.

Controlled companies: a new trend

The multi-class companies were forbidden on the public markets for a large part of the 21st century, before being allowed in the 80’s and 90’s. Since then, their number increased. Google, LinkedIn, Zynga and Groupon are all public, but tightly controlled companies. Between 2010 and 2012, 20 new companies with a multi-share structure conducted an Initial Public Offering.

Like the Facebook shareholders James McRitchie and Myra K. Young, the Council of Institutional Investors would like the rules to change. Jeff Mahoney, General Counsel of the Council, sent letters to the New York Stock Exchange and the NASDAQ Stock Market, asking them to “prohibit companies seeking an initial listing from having two or more classes of common stock with unequal voting rights.”

However, Gregory Nazaire doesn’t think it will change. As long as Facebook increases its value, the shareholders will close their eyes on the fact that they are powerless, he predicts.

Facebook share price started at $38 in 2012 and is now worth around $70. Moreover, at the last quarter, the company net income increased by 23% between the first and second quater of 2014, as did the cash and cash equivalents by 46%. The liabilities stayed under control with only a 6% increase over the same period of time.

“The vast majority of the shareholders will tell you: we need some kind of democratic process,” says Nazaire. However, for the finance expert, too much pressure from the shareholders could inhibit a CEO to take any decisions. He also adds that a CEO without opposition could lead a company in the wrong direction.

So what’s the fine line between the two? For Nazaire, it’s the question finance experts are currently asking themselves to find a more balanced structure that would satisfy both involved investors and strong willing CEOs.

It’s costing Canada’s leading dollar-store retailer more money to do business, according to figures released in its most recent quarterly report. And experts say that could cost consumers more money to shop there.

The cost of sales is a key indicator of a company’s health. It includes all costs directly involved in producing the company’s products. First quarter results for the past five years show that Dollarama’s costs of sales have steadily climbed, at an average rate of 12% per year.

Rather than looking at costs of sales as an absolute number, analysts measure them against actual sales. To do this, they calculate gross margin: the percentage of sales revenue that the company keeps after subtracting its costs of sales. Dollarama likes to keep its gross margin between 36 and 37 per cent, “as they believe this is the range that properly balances returns for shareholders (who want higher margins) and offering a compelling value to the customer (who wants lower prices, and thus lower margins),” James Allison, Scotia Capital retailing associate who follows Dollarama, said in an e-mail.

But this quarter, Dollarama’s gross margin fell slightly below that sweet spot, at 35.4 per cent:

Another way we can see those rising costs is by comparing Dollarama’s year on year growth of sales to cost of sales. The two have been growing at roughly equal rates – until this year, when their costs increased at a slightly faster rate than their sales. In the first quarter of 2014, sales increased by 11.8 per cent compared to a year earlier. But the cost of sales increased by 12.6 per cent, meaning growth in costs is slightly outpacing revenue.

In its most recent Management’s Discussion and Analysis report, Dollarama attributed these climbs in costs to some key factors: a weakening loonie and stronger Chinese renminbi, rising fuel prices that increase their shipping and transportation costs, and the upward climb of the Canadian rental market, which increases lease rates for their stores.

Two years ago, Dollarama started introducing items at $2.50 and $3.00, which it says helps them respond to fluctuating costs of doing business. But its latest annual report, released in April, warns that the company can’t predict whether the $3 price cap will be sustainable in the future. Dollarama “relies heavily on imported goods”, the report says, so economic fluctuations and political instability in their source countries could rapidly cut into its profit margins, especially when it’s working within such a limited price range.

https://www.documentcloud.org/documents/1275201-dollarama-annual-report-2014.html

Kai-Yu Wang, a consumer markets expert at Brock University’s Goodman School of Business, says similar economic factors are leaving dollar stores throughout North America at a crossroads: either keep prices the same by sourcing cheaper goods, or sell higher quality products with higher prices.

Wang believes Dollarama will choose the latter route. He says the company has already been experimenting with introducing a wider array of higher-priced items, and seeing how customers respond. “I think for them it’s trial and error right now,” he says.

If Dollarama decided to break its three dollar cap to stock pricier products, it would move into more direct competition with retailers like Wal-Mart and Target, says Wang. But he expects Dollarama will move slowly and watch “whether their existing target market can accept going to Dollarama if it’s no longer Dollarama”.

But other experts say there’s nothing to worry about in the company’s numbers. “There’s nothing alarming about these costs to me,” says Eric Dolansky, who teaches marketing at Brock University’s Goodman School of Business, saying the fluctuations in costs are relatively small. “To me, their rising costs are simply that they’re selling more stuff, so they have to buy more stuff to sell. ”

Beyond that, Dollarama is still an extremely profitable company, says Brent Barr, a Canadian retailing expert and instructor at Ryerson’s Ted Rogers School of Management. Their net income jumped 17 per cent from the same quarter last year, “It’s good, solid growth,” he says.

Dollarama could not be reached for comment.

Intense competition and high production costs make Lululemon’s new clothing line for men a risky move, says analyst.

Imagine it for a minute: hockey superstar Sidney Crosby sits in the locker room, looking straight at the camera. He’s not here to sell you skates, or cereal, or even that new sports drink. He wants to tell you about his new breathable underwear.

This imaginary commercial might become a reality, if you believe Lululemon’s new growth strategy. Lululemon lists the expansion of its branch of men clothing as a key element in its 2013 annual report.

“The premium quality and technical rigor of our products will continue to appeal to men. There is an opportunity to expand our men’s business as a proportion of our total sales.”

(Lululemon Annual Report, 2013)
 

A strategy described as a “high risk, knee-jerk reaction to sales dropping” by Steve Tissenbaum, a business & marketing professor at the Ted Rogers School of Management in Toronto.

«Branching out at a moment where Lululemon has lost so much brand equity and when the share price is hurt…it think this is high risk. They are going up against other well-established players,” says Steve Tissenbaum.

In the same annual report, the company recognizes that branching out comes with a number of risk factors, citing “increasing product costs, intense competition and the increased complexity of the business” as potential problems.

Free underwear and hockey star gossip

The company began its men seduction tour in 2013 with a publicity stunt involving − you guessed it − hockey players. “A lot of top hockey players wear our underwears,” CEO Christine Day told the attendees during a Toronto Board of Trade speech, while handing out Game On Boxer Briefs to men in the audience. Day wouldn’t name any athlete wearing the company’s garments, saying it might conflict with their other product endorsements.

Thousands of Breathable Boxer Briefs and No Sweat Tanks later, the company has expanded its men’s offerings and seen encouraging results.

Men’s revenue was up 9 per cent in the company’s last quarterly report, from a current level of 13 per cent of overall sales.

In the United States, there are plans to expand men stores in Miami, Vancouver, and Santa Monica. As for Canada, “all 45 Lululemon stores in the country already feature some items of men clothing in their showrooms,” according to Lululemon’s website and helpline staff.

At the helm of this new venture is Lululemon’s new CEO, Laurent Potdevin. An MBA graduate from France, Potdevin was until recently President of TOMS Shoes. Prior to TOMS, he held numerous positions at Burton Snowboards, rising all the way to the top as CEO in his last 5 years. Potdevin has also worked for French high-end retail stores Louis Vuitton.

The high cost of diversification

This operation comes with a high price. So far this fiscal year, Lululemon has spent over $750 million making yoga clothes for women and men, a rise of 40 per cent up the $600 million spent during fiscal year 2013. Meanwhile, net revenu has increased at a slower pace, stopping just shy of $1,5 billion in 2014.

While costs were climbing, Lululemon’s stock price was plunging. All due to the March 2013 transparent yoga pants recall and the controversial declarations made by Dennis ” Chip ” Wilson, founder of Lululemon.

After stepping down as Lululemon’s CEO and selling half of his stake in the company, Wilson spoke out against the company’s new management who, he thinks, is investing “too much in short-term, high risk initiatives.”

Business professor Steve Tissenbaum agrees with the former CEO. “Branching out is a risky gamble, it takes years of research and development to come up with a viable strategy and edge,” he says. “What is Lululemon going to provide that is different to anyone else? I am guessing they will try to develop their yoga clothing technology to bring that to men. But their competitors like Nike, Under Armour, Adidas, they all have worked with those technologies.”   Fierce competitors While Lululemon was busy untangling itself from its annus horribilis, direct competitors such as Nike and Under Armour started eating away at its share of the women market. Revenue from women’s sportswear represented a fifth of Nike’s wholesale revenue in its last quarterly report. Women’s clothing is up 11 per cent from the last fiscal year, the second biggest growth after young athletes. Meanwhile, Under Armour’s CEO Kevin Plank has named women’s business their number one priority in a Q&A included with the company’s last quarterly report, stating ” Women’s can be as large, if not bigger than our men’s business.” Under Armour also reports that their women’s business grew by 26 per cent this past quarter.  

Finding an edge

Does Lululemon have what it takes to compete? “They have to work on their image,” stresses Steve Tissenbaum.

“They have to build their brand equity back up and let things blow over. They should start strategically plan what it is they want to do and plan for the long run,” he adds.

The marketing professor, who worked with Sears Canada and The Bay, thinks the company still has time on its side. “Time to take a step back and finds its edge in this highly competitive market.”

As for the possibility of seeing Sidney Crosby in breathable underwear anytime soon, Tissenbaum has a piece of free advice. “It is very high risk and very expensive to look for athlete endorsement. We all know how that worked out for Nike and Tiger Woods.”

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Potash Corp Saskatchewan deferred paying most of their income tax in 2013, largely because they put a lot of money into new equipment. They say their larger contribution to their property, plant and equipment is because they are increasing their potash production.

Canadian potash exports in 2013 were close to $5.7 billion and Potash Corp. contributed with nearly $1.5 billion in offshore potash sales last year alone. In their 2013 annual integrated report they recorded their income taxes for the year to be $687 million.

Even though deferring taxes sounds like they are trying to avoid paying what they owe, Heather Sceles, an accounting lecturer at Saint Mary’s University, says it is a perfectly legal and common thing for a business to do.

Thanks to various deductions and assets, including those gained through their new property, plant and equipment increases, Potash Corp is able to put off paying a portion of their taxes for an undetermined amount of time.

Even though they do not have to pay all their taxes right now, Potash Corp still has to record what they owe for taxes in their 2013 annual report. That way it is clear to investors and accountants what the company’s financial obligations are in the future.

In 2013, Potash Corp made $2.4 billion before taxes. Through a combination of federal and provincial taxes that amount to almost 27 percent all together, they owe a grand total of $687 million in taxes for the year. But they only paid a little over a third of that number. In 2012 they paid $676 million in full.

So how could they hold off on paying the other $489 million?

There are a couple factors that play into that including their investment in their property, plant and equipment to help increase their potash production.

Potash Corp’s taxes came to $687 million in 2013, however, they only owe $290 million right away, but they only paid $189 million according to their annual report.

Sceles says a company’s income tax is based on an estimated income influenced by what they made in the past. So when the final numbers come out in the year end statement it is possible that too much or too little was paid in tax because the estimation could be more or less than a company’s actual income.

“They may have overpaid their taxes in the prior year, then they have less to pay this year,” says Sceles.

Because Potash Corp’s income in 2013 was less than 2012, the estimation was off so they only had to pay $189 million in taxes last year.

Then there is what is called deferred income tax, which is where the other $397 million owed in taxes comes. This is also where the investments in their property, plants and equipment is a benefit tax wise.

Sceles admits that deferred taxes are complicated and often hard to wrap your head around. “It’s a bit of a confusing topic,” says Sceles. “Our accounting majors even find deferred taxes a bit challenging.”

The main contributor to Potash Corp deferring their taxes in 2013 is their property, plants and equipment assets. $325 million of their deferred taxes comes new investments in their property, plants and equipment.

In 2013 Potash Corp transferred, which means either bought or built, more than $1.9 billion in machinery and equipment. In their annual report Potash Corp says 71 percent of

that went towards increasing potash production. From that new equipment Potash Corp gained tax deductions that can be spread over a number of years.

According to Potash Corp in a statement about their goals, “we initiated expansion and debottlenecking projects at all six of our potash mines.” This expansion includes a new mine and expanded mill in New Brunswick that is expected to be finished this year.

Equipment for the increase of potash production, however, is an asset that depreciates over time. The equipment gets older and depreciates and so does the tax deduction that comes with it. Potash Corp lists their equipment life span to be between three and 60 years.

Deferred taxes come in when a company’s accounting of depreciation for tax deductions is done differently than how the government accounts for it. Sceles explains that companies will spread the depreciation and deductions evenly over a number of years. The government, however, starts with a higher deduction in the beginning and it lessens over time as the piece of equipment depreciates.

Potash Corp put almost $2 billion into property, plant and equipment in 2013, and according to Sceles, their accountants recorded it at a lower depreciation than what their taxes show. So they are able to defer paying the difference. However, in the future they will have to pay more taxes because their accountant’s depreciation and deductions will be lower than what their taxes show.

“We kind of get a flavour that they are investing in their business,” says Sceles. “They have a lot of new equipment they’re putting into service and we know that for tax purposes you get a larger deduction when you’re equipment is newer in the earlier years because of this diminishing balance calculation.”

Even though Potash Corp was able to defer a large portion of their income tax in 2013 because they put more money into property, plant and equipment to expand their potash production, in the future they will potentially have to pay more in taxes because as the equipment ages, the tax deduction diminish.

The maker of Kleenex tissues, Kimberley-Clark, has posted a three per cent decrease of its second-quarter earnings. While the company is selling more products, it is also costing it more money to produce them.

During the months of April, May and June of this year, it sold $5.3 billion worth of products, including diapers, tissues, hand sanitizers and gowns for doctors. The figure represents a 1.4 per cent increase from the same period last year.

However, costs of input also went up by 1.9 per cent, which grows at a faster rate than the rate for sales. As a result, the company’s second-quarter revenue only edged up by half a per cent.

Accroding to the latest earnings report, product costs increased $60 million over all. Seventy-five per cent of that was contributed by higher non-fiber raw material costs and the rest by higher fiber costs. The report says the price hike was in part due to the weakening of several foreign currencies against the U.S. dollar.

Peter Secord, who teaches accounting at Saint Mary’s University, says cost increase is the main reason for the three per cent revenue slip.

Over all, unfavorable foreign currency exchange rates brought up the second quarter input costs by two per cent. Kimberley-Clark is particularly vulnerable to currency exchange rate fluctuations in foreign markets because the 86-year-old business has manufacturing facilities in 38 countries, sells products in more than 175 countries.

Mark Buthman, the company’s senior vice president and chief financial officer, told reporters during a conference call that there was “significant currency headwind” during the second quarter, which brought down earnings by about $0.11 per share.

Meanwhile, Buthman says the price inflation of raw materials is likely to continue so he expects input costs for the whole year to be “towards the high end of the previously estimated range of $150-250 million.” That’s about 11 per cent of last year’s profit.

Kimberley-Clark’s second-quarter cost increase is also due to the fact that the company spent $15 million more in advertising. Tom Falk, chairman and chief executive officer of the company, says spending has helped brands, such as Poise, Depend, U by Kotex, Viva and Huggies baby wipes, to have a solid market position in North America. In its latest annual report, the company says it competes against other “well-known, branded products and low-cost or private label products” in both domestic and international markets. As a result, it has to lower product prices and spend more on advertising, both of which could adversely affect the financial results.

To stay competitive in the long term, the company announced a plan last November to spin off its health care unit. It hopes to turn the smallest division, which is not performing very well, into a separate, tax-free company so that Kimberley-Clark pays less tax.

The health care division, which offers products, including medical gloves, masks, generates about $1.7 billion annually – the lowest compared to the other three units. And it is the only business that saw a decrease in net sales in the second quarter than the same period last year.

However, things didn’t go as the company had planed. Last year, the U.S. Internal Revenue Service stopped offering tax-free arrangements for companies wanting to unload business divisions. That means Kimberley-Clark can’t avoid tax payments as it had hoped.

Instead, the company has been footing the bills since it started transition last year. During the second-quarter, it paid $68 million for the spin-off process, which amounts for 13 per cent of its quarterly revenue.

However, the company still wants to continue with plan. During the conference call, Falk says Kimberley-Clark is aiming to complete the transaction by the end of October, and it’s in the process of assessing the impact of the separation on its other business operations.

Earlier this year, the company said the new publicly traded company, Halyard Health, Inc., would be based outside of Atlanta, Georgia.

Professor Secord says a lot of the costs related to the health care unit that Kimberley-Clark is paying now wouldn’t go away after the creation of the new company. It’s called “stranded costs.” But at the same time, the company can no long collecting revenues from the new health care company to pay for those costs. So it could further reduce Kimberley-Clark’s profitability.

Falk estimates the stranded costs could amount to about two to three per cent of the company’s annual operating profit, but he says they plan to offset the cost by repurchasing more of its own shares and charge the new company with fees for the transition services it provides.

Professor Secord says, in the long run, it still makes sense for Kimberley-Clark to put forward the new company because stock markets have been on an upward stretch for a couple of years now, which means most investors are looking to buy shares. And he says, hopefully, by getting rid of the least profitable unit, the company could eventually focus on increasing the competitiveness of its traditional business, such as diapers and tissues.

Secord says three per cent decrease in last quarter’s profit isn’t significant enough to alarm investors, and it did not appear to have an impact on its stock prices.

Kimberley-Clark’s shares have reversed to an upward trend from its lowest point two weeks ago after the second-quarter earnings report came out. The company’s stocks closed at $108 per share yesterday, up from $103 a share on July 31, a week after the release of its latest earnings report.

Food Basics is Metro inc’s discount store in Ontario. Photo: Wikimedia Commons

Honey let’s go grocery shopping, milk is on sale!

You may have noticed that discount grocery stores in Ontario have been blasting out aggressive front-page ads lately featuring everyday items like milk, juice, bread, bananas and sugar at lower than expected prices, this high-cost/low-profit battle has led to Metro Inc.’s sluggish numbers in 2014.

In fact Metro Inc. might be close to losing the discount grocery market battle in Ontario because of it. It could also work out to being a smart move that decreases sales, but increases profits.

For years Metro’s Food Basics was a major force in the cheap food business, but heavy competition from Sobeys’ FreshCo, Loblaws’ No Frills and Wal-Mart has pushed their market share down.

Food Basic’s re-entered the staple-item-driven front-page flyer advertisements once again this year after the banner took a significant hit in market share in 2013. Basic’s went toe to toe with competitor’s ads, but three quarters into 2014 they are once again rethinking the strategy to preserve profits.

Perry Caicco is an analyst for CIBC who researches Metro for investors. He notes that Metro had stayed in the fight throughout the first half of 2014, but has significantly reduced their aggressive ads this summer.

This can be seen in their Canada Day ad that was less note-worthy than their competitors.

The impact seems to be most evident in their EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) across the board which is down in Q3 and annually from 2012 and 2013.  EBITDA is down 3.5 per-cent from last year.

According to their third quarter report net income is up slightly from a year ago, but Metro has not met the earnings projections made by CIBC. In Q3 sales were up 1.4 per-cent from 2013.

Rising commodity prices factor into cost and may be responsible for the sluggish stock price following the release of the third quarter results this week.

Generally stores keep prices in line with the competition and try to avoid shocking consumers with fluctuating prices every week, but over time they tend to sway with the longer market trends.

With staple items seemingly on the front-page of every competitor’s flyer every week, it remains to be seen how sales will be affected by Food Basics’ lack of aggression.

For example a 4L bag of milk may cost the customer $3.97 at a discount grocery store, but the company is losing nearly 2$ on that same bag.

For Food Basics this loss in margin might be too much to stomach.

Metro inc. declined to comment citing “competitive reasons” .

Price matching

Sorry we don’t do that here.

Another difference between Food Basics and their foes in the discount grocery business in Ontario is their price-matching policy.

Unlike FreshCo, No Frills and Walmart, Basics is not in the business of price matching competitors’ specials.

Where a customer can bring in a major competitor’s flyer into these stores and receive the advertised price, they can’t do this at Basics.

Walmart and No Frills have the most aggressive price-matching policies and FreshCo has a limited one. This may be causing a riff with Basics shoppers.

A 2013 poll done done by Redflagdeals.com, a popular consumer information website found that 60 per-cent of shoppers preferred No Frills, 29 per-cent FreshCo/Price Chopper and only 11 per-cent said they preferred Food Basics. Although the sample size was small it is likely indicative of Basic’s perception in the eyes of consumers.

Red Flag Deals visitors and commentators are informed consumers that care about getting a deal. Commenters are required to provide significant personal information to comment and partake in polls on the site including location. Many of the commenters on this subject have posted thousands of times on the site. The commenters praise FreshCo and No Frills’ price match policies as why they shop where they do.

Price-matching is costly to stores, but they know it is a strong factor in customer retention.

Both FreshCo, Walmart and No Frills advertise price matching on the front-page of their flyers every week.

Many retail companies see price-matching as a cost of doing business.

Cost of food and the front page

Bringing home the bacon might not be as easy as it used to be.

Recently released data from Statistics Canada shows that bacon prices in Canada are up over 25 per-cent in 2014 from a year ago.

Despite the aggressive advertising, as a whole Canadians are paying more for many staple food items in 2014.

Of the top ten food items costing Canadians more in 2014, 9 of 10 were meats, including hot dogs up nearly 18 per-cent and ground beef up 15 per-cent from 2013.

This might be why chicken has been a prominent front-page item amongst the discount banners this year. Chicken is costing consumers only one per-cent more this year.

Meat items are frequently featured on front-pages of flyers because they are not considered to be “Pantry Items”, meaning that customers are less likely to stockpile significant quantities as they would cans of soup.

The overall higher prices of these items increases the importance of aggressive promotions on them to shock and awe would-be customers.

Celery was the product that saw the biggest decline in price, costing consumers more than 20 per-cent less than a year ago.

Of the 10 food items costing Canadians less none were meats and 8 of 10 are pantry items including: peanut butter, flour and coffee.

Celery and Grapefruit were the only fresh items to make the list.

The grocery store chain Loblaw lost $12 million in the last quarter of 2013 compared to the last quarter of 2012, a decrease of six per cent.

According to the company’s management discussion and analysis for the year, shown below, the loss was because of operating costs. There were many different costs that Loblaw incurred due to expanding its operations, but by far the biggest was its acquisition of Shoppers’ Drug Mart.

That deal cost Loblaw over twelve billion dollars. It closed on March 28th of this year,

But it’s not just the purchase price that will cost them.

Loblaw will have to get rid of nine stand-alone pharmacies and 18 stores.

Despite these losses, revenues are actually up. Revenue increased 2.3 per cent from the fourth quarter of the previous year.

Over the whole year, this pattern has been the same, with an increase in revenue and slight losses due to operating costs.

According to the management discussion and analysis, the impact of the losses were ameliorated by growth in their gas bar sales and growth in their clothing line, Joe Fresh, as driven by online sales. Their financial services segment has also done well.

These increases just weren’t enough to offset the expenses.

But even though the merger with Shoppers will cost Loblaw in the short term, in the long term it could set them up for more success. Ian Lee, a business analyst and professor at Carleton University, says Loblaw’s strategy in purchasing Shoppers was a good one, and tied to changing demographics.

He says the two companies tapped into different portions of the market, and therefore a merger was a win-win for both.

“Loblaws is very strong in the suburbs because land is much cheaper there,” said Lee. “The nature of grocery retailing has always been big box stores in the suburbs.”

But Shoppers’ business model has always been exactly the opposite, said Lee.

They have always had many small stores in downtown, urban areas.

According to Lee, the merger will allow Loblaw to “penetrate the urban core,” which has become home to increasing numbers of young people over the past two decades.

It will also allow Shoppers to move their branded products into the suburbs.

It is crucial for grocery stores to be able to diversify, says Lee, because of the low profit margin involved in selling food.

“Grocery stores make money…because we all have to buy groceries every week,” said Lee. But he said that in order to succeed, the stores need to have things with a better profit margin than food.

That’s another area where the Shoppers merger can help both companies.

“It’s not that they’re trying to take over another industry,” said Lee, “but they need things that will bring up their profit margin.”

But Lee says that despite the success that comes from expanding the pharmacy brand and merging the two companies, he is wary of Loblaw trying to diversify too much.

He is wary of pinning too many hopes on the Joe Fresh clothing line, which offset much of the loss in 2013’s fourth quarter. Although the clothing line helped them in the short term, he is not as optimistic about its long-term success.

“It’s too soon to say,” said Lee. “It may become a niche product.”

Clothing is also more profitable than food, but Lee worries the clothes take too much floor space in stores and distract from Loblaw’s core product.

“I don’t think most people want to go to the grocery store to buy clothes,” said Lee.

Loblaw itself seems to have every confidence in its clothing line. Joe Fresh

The co-chairperson of the world’s biggest gold mining corporation earned more than four times the compensation of its chairperson, reveal public documents.

Peter Munk, 86, who will step down as chairperson of the Barrick Gold Corporation before this year’s upcoming shareholder’s meeting, earned little more than $4-million in 2012. For the same year, the corporation’s co-chairperson John Thornton, 60, earned $17-million in his one year on the board.

Thornton’s compensation for 2012 is also more than Munk’s amount for the last four years.

Munk founded the Toronto-based corporation in 1983. The gold mining company met trouble in 2012 when its stock price fell dramatically on the Toronto Stock Exchange. The stock has fallen 60 per cent from January 2011 to January 2012.

Shareholders have put pressure on the board to make changes, such as appointing more independent directors. It is because of this pressure that the gold corporation announced in July that Munk would step down and be replaced by Thornton.

Heavy with debt, Barrick Gold stock has not done well with falling gold prices over the last few years. It has also spent more than expected on a South American mine. In November, the corporation had a difficult time selling off $3-billion in stock meant to pay off its $1,848-billion of debt to be paid in the next year.

While the corporation’s revenue over the last five years has grown year-to-year, its growth declined sharply in 2012. The high was 35 per cent growth from 2009 to 2010. Revenue growth for 2012 stands at two per cent.

Thornton spent 23 years at Goldman Sachs and was seen as a top contender there to succeed Henry Paulson as CEO in the early 2000’s. But he left the firm in 2003 and turned his attention to Chinese economic policy.

Thornton said to Chinese media that China learns about the United States more than the U.S. learns about China. He said he wants to be a bridge of understanding between the two countries.

He became a professor teaching business leadership courses at Tsinghua University, in Beijing. His annual salary from the university was a dollar, a detail the Chinese media characterize as proof of his sincerity.

In 2008, the Chinese government gave Thornton the Friendship Award. However, after more than 20 years of rubbing shoulders with China’s policy makers, the greater reward for him and Barrick Gold may be the social connections he cultivated, which include China’s premier and central bank chief.

Zhu Guangming, an economist in Wuxi, China, says selecting Thornton is “a smart move” for Barrick Gold, because of the increasing demand for gold from a more urbanized population.

“It is believed by many Chinese people that gold is likely to be devalued, so a large number of people buy it as another form of saving,” Zhu said. “The increasing variety of gold investment products also encourages more people to buy gold.”

According to the World Gold Council, demand for gold in China has grown more than five times in the decade. In 2003, demand for gold in China was more than $30-billion. In 2012, demand grew to $170-billion.

A former titan in the department store market is licking its wounds on the eve of completing its first recovery year.

J.C. Penney faced third quarter losses of 298 percent and year-to-date losses of 229 percent compared to 2012, as illustrated in the annotated document below. Stock prices have spiraled down more than 80 percent in the past two years.

The only hope for the retailer may be to declare bankruptcy on hundreds of stores, says Columbia business professor and former Sears CEO Mark Cohen.

They can choose whether or not they face the closures head on and begin anew, or remain in denial and be “forced into bankruptcy without regards to whether or not they can ever come out.”

Though the company announced mid-January that it will close 33 stores for a projected savings of 65 million, Cohen isn’t confident that will be enough.

“There are various financial analysts who are opining about how they can get the four to five billion dollars back. They’re getting some of it back, but they need to get most of it back, and I don’t think that’s going to happen.”

What began as a brand revitalization exercise wound up doing serious damage to the company that had been sleeping at the wheel for quite some time.

“The prior management of J.C. Penney—the management led by Mike Ullman—before Ron Johnson showed up had basically driven the company off the road into a ditch. It wasn’t catastrophic, but it resulted in the fact that the business was basically going nowhere.” Cohen said.

After several years of stagnating numbers, the company hired Johnson, former Apple senior vice-president of retail operations, to replace Ullman as CEO. Johnson had recently garnered attention with his retail strategies for Apple, which included the concept for the Apple retail store and Genius Bar. Prior to Apple, Johnson was vice president of merchandising for Target where his Michael Graves housewares line pioneered the long list of Target collaborations that have come to define the chain.

Johnson entered the company to fanfare and his vision for the store resulted in a 24 percent increase in stock price upon its announcement in January 2012.

High hopes were dashed within the year after Johnson’s installation of hip, upscale shops within the JC Penney alienated old customers and failed to attract new. The company endured losses of nearly one billion dollars and a revenue drop of 25 percent.

Johnson was fired in April 2013 and replaced by Ullman.

Though Ullman is optimistic about the company’s growth, third quarter numbers suggest that the company hold its applause, and Cohen agrees. Their gross margin—the difference in what the company pays for goods and what they sell them for—remains low.

“Their margins were declining when Mike Ullman was running the thing the first time—what is it that suggests that he has some sort of magic potion that will enable him to get back, let alone become prosperous in that regard?”

Ullman said in a statement issued alongside the results that he was proud of the company’s progress and that their “strategies to reconnect with customers are beginning to take hold.”

When compared to the year-to-date financials from the 2012 third quarter report, it would appear that J.C. Penney is indeed recovering. In 2012, the company’s net income plummeted by 566 percent.

Cohen says that the best the company can hope for is to be back where it began, which may not be worth hoping for.

“The right answer of course is that if they are successful, they will merely bring themselves back to that mediocre place that wasn’t going anywhere in the first place.”

The company reiterated their positive outlook after the holiday season, but January’s store closure announcement suggests that the annual report may tell a different story.

Its release has yet to be announced.

Consistency is key in the pipeline business and for one Calgary-based company, bettering consistency means securing funding for a new project.

A 10 percent volume increase in conventional oil transportation was amongst the positive numbers outlined by Pembina Pipeline Corporation, or Pembina, in the company’s Management Discussion and Analysis. The company released the document in November of last year.

Pembina Pipeline MD&A (Text)
Conventional oil refers to petroleum, or crude oil, which is pumped to the ground surface as a liquid, then processed to remove contaminants and transformed into products we consume, such as gasoline.

According to the document, Pembina transports half of the conventional crude oil in Alberta. The company has been in operation for 60 years.

The volume of crude oil transported increased from 443,900 barrels per day in the third quarter of 2012 to 489,100 barrels per day in the same quarter of 2013.

The increase means more good news for Pembina, who reported an incredibly strong year in 2012 after acquiring Provident Energy Ltd.

2013 followed suit with Pembina announcing that the company had gained commercial support to construct a $2 billion pipeline expansion that would add 540 kilometres of pipeline between British Columbia and Alberta.

The project will add new pipeline to existing pipeline structures owned by the company. The new expansion is expected to take two to three years to build.

The segment of the company’s existing pipeline system that will experience the most expansion under the project is located at Fox Creek, a town approximately 250 kilometres northwest of Edmonton.

In a recent news release, Pembina says that post-construction, the company will have three pipelines between Fox Creek and the provincial capital city.

Haskayne School of Business professor Bob Schulz says that for pipelines, the numbers should be consistent quarter to quarter, year to year. He says that the fact Pembina’s numbers are up from 2012 is a good sign.

The announcement of the new pipeline project is a logical move for Pembina, given the company’s strong financial standing, Schulz says.

“So you get the cash, the regulatory approval, then you get the pipe in the ground and three years later you start counting the money,” he says, with reference to the increase in revenue that will be generated by the new pipeline.

Before they can start counting the money, Pembina must sign a 10-year contact and obtain environmental and regulatory approval. After the company receives the approval, the project can proceed to the construction stage.

“An automobile dealer has to sell cars every year,” Schulz says with reference to the 10-year contract. “At Pembina, they just need to move the products around the pipeline.”

According to Schulz, the future is bright for Pembina. If the price of oil remains steady, Schulz says he anticipates the company will experience a substantial jump in revenue due to the additional 320,000 barrels per day transported by the new pipeline.

The transported volume of oil projected to be moving through the pipeline in the next few years, in addition to the product already being moved by existing pipelines, will mean good business for Pembina in the years ahead, says Schulz.

The projected dates of completion for the pipeline expansion are 2015 or 2016.

Pembina will release the company’s fourth quarter results and annual report on February 26.