Competition and inflation cut into Metro's profit

 

 
 
 

MONTREAL - Metro Inc., the big Quebec and Ontario supermarket chain, posted a good second quarter Wednesday despite fierce competition and lower wholesale food prices, but CEO Eric La Flèche cautioned consumers they may soon pay more at the checkout because of general inflation.

All three major supermarket chains, including Loblaw Co. and Sobeys, are manoeuvring to counter the spread of Walmart Canada’s Supercentres and their full range of foods. Walmart opens centres in Laval East, Laval West and Mascouche this summer and at Vaudreuil, St. Eustache and St. Jérôme later.

La Flèche said Metro is now encountering moderate levels of cost inflation. It is counting on tight cost control, new products, a growing private-label business and its highly successful loyalty rewards program in Quebec to keep up its growth momentum. “You can be sure we’ll remain price-competitive,” he said.

Rising energy and gasoline prices may crimp consumers’ pockets, he added, making them shop a notch lower, “but our Super C and Food Basics discount stores are in good shape and offer the range of fresh goods the times require.”

In the three months ended March 12, including the holiday season, Metro posted sales of $2.57 billion, down 0.4 per cent from a year earlier, mainly because the new Quebec and Ontario generic drug policies lowered Brunet’s and Drug Basics’ revenue.

Earnings were $83.3 million or 80 cents a share, up 3.7 per cent from $80.3 million or 74 cents a share a year earlier. Comparable store sales gained 0.2 per cent and gross margin was steady at 18.6 per cent. The quarter included $8.1 million from Metro’s investment in convenience store giant Alimentation Couche-Tard Inc., up from $6.5 million.

First-half sales were $5.2 billion, down 0.5 per cent from a year earlier, and earnings were $175.3 million or $1.68 a share, down from $178.4 million or $1.65 a share. Metro’s share of ACT’s earnings was included.

The market liked the quarterly results and Metro shares closed up 32 cents at $47.03. in Toronto.

La Flèche said Metro is continuing its fiscal 2011 share-buyback program, though it has slowed recently. From Sept. 8 to April 8, it spent $101 million to buy back 2,299,000 shares at an average price of $43.91.

Metro, with 34 per cent of the Quebec market, runs neck-and-neck with its two competitors. La Flèche said Metro will continue to invest heavily in its 600-store network this year, opening five new stores and renovating 12 others. Capital spending by the company and its dealers will total $200 million to $225 million.

 
 
 
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