MONTREAL - Cost synergies related to the integration of A&P Canada by Metro here are running ahead of schedule, Metro executives said last week.
The retailer realized $8 million (U.S.) in synergies during its fiscal second quarter, and is on target to realize $35 million during the fiscal year, up from previous forecasts of $26 million, Eric Richer La Fleche, Metro's executive vice president and chief operating officer, told analysts in a conference call last week. The majority of the savings
came as a result of lower cost of goods, he said.
Metro purchased 236 stores and five distribution centers from A&P last summer. Their addition helped spark a 75.5% increase in sales and 27.5% earnings growth during the 12-week second quarter, which ended March 11.
Metro targeted around $52 million in synergies related to the integration of A&P Canada over two years. That figure today looks more like it will be $56.7 million, La Fleche said. Savings related to a common information technology platform, distribution and common services are largely still ahead, he added.
The company incurred integration costs of $2.4 million during the quarter, some related to paring down staff in A&P's former Toronto headquarters and setting up a new national buying and private-brand office based in Montreal. The change reduced the number of vice presidents in Toronto from 30 to 20, LaFleche said.
"The restructure was well received," LaFleche said. "It has been a difficult year for the people there [in Toronto] with the sale going on, the uncertainty, the new ownership and the integration process that started in the fall. I think everybody is relieved, happy to turn the page and looking with optimism toward the future."
Metro has also begun converting its Ontario-based Super C discount stores to A&P's more dominant Food Basics banner, LaFleche said. Those conversions are expected to be complete next month.
The company also anticipates sharing the best features of their respective banners. For example, an in-store chef program at Metro Plus stores in Quebec will be imported to some Dominion stores in Ontario, while Dominion has a cut-fruit program Metro will import to its Metro and Loeb stores in Quebec, LaFleche explained.
Pierre Lessard, Metro's president and chief executive officer, said the board of directors has extended his contract through April 2008. "This extension will enable me to complete a successful integration of A&P Canada," he said.
Around $1 billion in new sales from A&P Canada increased Metro's total sales to $2.1 billion (U.S.) for the quarter and $4.3 billion for 24 weeks. Same-store sales increased by 1.6% in the quarter, or 0.5% without A&P Canada, the company added.
Earnings were $49.8 million, or 49 Canadian cents per share. Earnings before interest, taxes, depreciation and amortization were $122.5 million, or 5.8% of sales. Excluding integration costs, EBITDA margins were 5.9%, even with last year.
