George Weston Limited Navigates Fair Value Headwinds with Operational Strength in Q1 2025

George Weston Limited (GWL) delivered a mixed but strategically telling performance in its Q1 2025 earnings report, with net earnings declining sharply due to non-operational factors while core operational metrics and capital returns signaled resilience. The Toronto-based conglomerate, which operates through its subsidiaries Loblaw Companies Limited and Choice Properties REIT, reported a 65% drop in net earnings attributable to common shareholders to $83 million amid a $222 million fair value adjustment on Choice Properties’ Exchangeable Units. However, adjusted earnings surged 8.7% to $339 million, reflecting robust underlying performance across its retail and real estate divisions.

Financial Highlights: Adjusted Strength Amid Volatility
The quarter’s net earnings decline was entirely tied to accounting fluctuations, particularly a rise in Choice Properties’ unit prices, which triggered an unfavorable fair value adjustment. Excluding this and other non-recurring items, GWL’s adjusted diluted EPS rose 12.2% to $2.58, outperforming the prior-year period’s $2.30. Total revenue grew 4.0% to $14.29 billion, driven by Loblaw’s retail expansion and Choice Properties’ real estate activities.

Loblaw: Retail Dominance and Strategic Expansion
Loblaw, Canada’s largest food and pharmacy retailer, posted a 4.1% revenue increase to $14.14 billion, fueled by same-store sales growth in food (2.2%) and drug retail (3.8%). Pharmacy performance was bolstered by a 2.1% rise in prescription volumes and a 4.4% increase in average prescription values. Front-store sales benefited from beauty and over-the-counter (OTC) products, even as Loblaw exited low-margin electronics to focus on profitable categories.

Adjusted EBITDA for Loblaw rose 3.0% to $1.59 billion, while operating income increased 5.2% to $904 million. The division also expanded its footprint, opening 80 new stores and 100 clinics in 2025, including new hard-discount banners and a second T&T Supermarket in Toronto. This growth underscores Loblaw’s strategy to capture market share through format diversification and geographic expansion.

Choice Properties: Real Estate Resilience and Strategic Acquisitions
Choice Properties reported a net loss of $96 million (vs. $142 million profit in Q1 2024) due to a $304 million fair value adjustment on its Exchangeable Units. However, funds from operations (FFO) grew 2.1% to $191 million, reflecting strong occupancy rates and same-asset net operating income (NOI) growth. The REIT also acquired $340 million in industrial properties post-quarter-end, aligning with its focus on high-demand sectors.

While residential inventory sales skewed prior-year comparisons, Choice Properties reaffirmed its 2025 FFO per unit growth target of 2-3%, supported by its industrial portfolio and disciplined capital allocation.

Capital Allocation and Shareholder Returns
GWL demonstrated confidence in its cash flow by raising its quarterly dividend 9.0% to $0.8938 per share, marking the 12th consecutive year of dividend increases. The company also repurchased 0.8 million common shares ($181 million) under its NCIB, reducing outstanding shares to 129.3 million. Additionally, GWL extended its revolving credit facility to March 2028, securing liquidity for future investments.

Outlook and Risks
GWL remains on track to achieve its 2025 adjusted earnings growth targets, with Loblaw targeting high single-digit EPS growth (excluding a 53rd week’s 2% boost) and Choice Properties aiming for FFO per unit expansion. Risks persist, however, including economic uncertainty, regulatory changes, and fair value volatility tied to real estate markets.

Conclusion: A Solid Foundation for Growth Amid Volatility
George Weston Limited’s Q1 results highlight its ability to navigate non-operational headwinds while executing on core strategies. The 8.7% rise in adjusted earnings and 4.0% revenue growth underscore operational discipline, while Loblaw’s store expansion and Choice Properties’ industrial investments position GWL to capitalize on long-term trends. The 9.0% dividend hike and $181 million in buybacks further signal management’s confidence in sustainable cash flows.

Despite fair value fluctuations, GWL’s fundamentals remain strong: its retail and real estate segments are generating consistent FFO growth, and its balance sheet flexibility (with debt-to-EBITDAFV below 7.5x for Choice Properties) provides a buffer against economic swings. For investors, GWL’s focus on shareholder returns and strategic investments in high-margin segments like pharmacy and industrial real estate makes it a compelling play on Canadian consumer and commercial real estate resilience.

In a quarter defined by volatility, GWL’s operational execution and capital allocation discipline reinforce its standing as a key player in Canada’s retail and real estate sectors.