Loblaw Companies Limited (TSX: L) reported a 40 per cent drop in net earnings to $103 million mainly due to financing charges, but reported slightly higher revenues helped by its financial services division.

Net earnings per share were 37 cents compared with 61 cents per share on earnings of $171 million in the same quarter of 2013.

Adjusted net profits increased slightly in its latest quarter, as it continued to deal with an intensely competitive grocery environment and deflationary pressure from prescription drugs reform.

The country's largest food retailer said it earned an adjusted profit of $139 million, or 49 cents in the first quarter, a 3.7 per cent hike from $134 million or 48 cents in the same period a year earlier.

Analysts on average had expected net income of $122 million, or 46 cents per share, on $7.32 billion of revenues, according estimates compiled by Thomson Reuters.

Revenues were up 1.2 per cent to $7.29 billion in the three-month period ended March 22, compared with $7.2 billion in the same quarter in 2013.

The grocery store giant also said it will be increasing its quarterly dividend by about 2.1 per cent to 24.5 cents per common share.

"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, " executive chairman Galen Weston said in a statement on Wednesday.

In its financial services segment, Loblaw said revenue for the first quarter increased by 9.1 per cent compared with the first quarter of 2013, driven by higher interest income from credit card receivable balances and an increased interest income yield, and higher other service fee related income.

The company also said its drugstore business was impacted in the last quarter, as it saw a general decline in the use of generic drugs and a drop in the value of reimbursement rates for generic drugs as a result of ongoing regulatory reforms.

Loblaw said it expects the competitive environment to continue into the second quarter against rivals including Sobeys, Metro (TSX:MRU), Walmart and newcomer Target.

It's anticipating a $25 million charge in the next quarter, as it transitions some of its stores to more cost effective and efficient operating terms under collective agreements.

The grocer has been experimenting with ways to differentiate itself from competitors, including an expansion of its e-commerce platform with a test pilot of a "click-and-collect" program at three of its Toronto stores. The option, which is popular in the U.K., will allow shoppers to buy food online and later pick up their order at the store.

It's also adding fresh juice bars in 100 of its locations in Ontario, Atlantic Canada and Quebec this spring and will be a cost-effective way to use up fruit from its supermarkets.

Loblaw has also placed an emphasis on its "fresh" foods offering, by increasing its assortment, merchandising and sourcing efforts to bring more customers into the stores.

Besides, its main grocery store business, Loblaw also operates the clothing line Joe Fresh, the real estate trust Choice Properties and acquired the drug store chain, Shoppers Drug Mart, which was finalized last month.