01:00 PM EDT, 04/11/2025 (MT Newswires) -- Canadian grocers were navigating a challenging backdrop in the first quarter, notes UBS.

The tariff situation is adding to an already soft consumer confidence environment. The loonie was also down ~6% relative to the greenback, impacting consumer purchasing power.

Still, there were some glimmers of improvement. Statistics Canada's Food & Beverage Store Retail Sales climbed at its fastest pace in over a year in January (latest month available). UBS believes retailers like Loblaw ( LBLCF ) are likely benefitting from their "Buy Canadian" store initiatives. Both Loblaw ( LBLCF ) and Metro have said ~10% of their products are sourced from the U.S.

Empire, not rated by UBS, is the most recent major public grocer to report results. In its fiscal third-quarter, it reported a 2.6% increase in SSS. This was up from the second quarter's 1.8%. The company's positive industry commentary on its earnings call last month, suggests the first quarter might be supportive of further stabilization in industry SSS. Empire's February 1st quarter-end provides an extra month of visibility for Metro and Loblaw ( LBLCF ) which had their fiscal quarters end on December 21 and 28, respectively., UBS added.

On its third-quarter call, Empire noted that "for the first time since 1Q'24, we see growth in our year-over-year basket size," and further noted "we saw outsized growth in our fresh department, which indicates customers are starting to trade up."

Drug retail continues to be a source of strength in a choppy macro backdrop. Loblaw's ( LBLCF ) and Metro's drug retail segments continue to be driven by pharmaceuticals and health services. UBS expects an increased focus on their front stores, which is more discretionary in nature and may be impacted by the uncertain economic environment.

In its most recent fourth-quarter, Loblaw ( LBLCF ) saw a 1.3% increase in drug retail SSS, driven by 6.3% growth in pharmacy & healthcare services vs -3.1% in its front store. In Metro's first-quarter, it saw 5.1% growth in drug retail led by 7.3% in prescription drugs vs 0.5% growth in its front store.

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