Metro laps pandemic-driven sales gains in Q3

Canadian food and drug retailer Metro Inc. built on e-commerce growth but saw sales dip in the fiscal 2021 third quarter as it began cycling last year’s pandemic-fueled increases.

Sales for the 16-week quarter ended July 3 totaled $5.72 billion (Canadian), down 2% from $5.84 billion a year earlier, Montreal-based Metro said yesterday. That came after an 11.6% year-over-year gain in the fiscal 2020 third quarter, when sales peaked from COVID-19-driven consumer demand. On a two-year stack basis, sales were up 9.4%, the company noted.

Comparable sales for grocery stores declined 3.6%, with food basket inflation at about 1%. The comp sales gain compared with a 15.6% increase in the 2020 quarter, for two-year growth of 11.4%.

Metro’s two-year performance comparisons are “more indicative of our underlying performance” due to the pandemic’s impact, according to President and CEO Eric La Flèche (left).

“Food same-store sales were down 3.6% but up 11.4% when compared to fiscal 2019. Our internal food basket inflation was 1%, half of what we experienced in Q2,” La Flèche told analysts Wednesday in a conference call. “With the rollout of the vaccine and the gradual lifting of restrictions, we saw traffic improve year-over-year for the first time since the beginning of the pandemic. Basket size, however, was down as customers increased their store visits. Promotional penetration continues to increase quarter over quarter, and we are getting close to pre-pandemic levels.”

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On top of a 280% gain in the 2020 third quarter, Metro saw online food sales grow another 19% in the 2021 quarter.

“Online grocery sales increased by 19% versus last year and more than five times over 2019 as we added capacity by expanding the service to new regions, deploying click-and-collect and with our partnership with Cornershop,” said La Flèche. “In June, we opened our first dedicated online store to serve customers in Montréal, replacing three of our hub stores. This centralized facility will offer more delivery windows to customers and improved operating efficiencies while delivering the same quality assortment and freshness that customers expect when shopping in-store.”

Metro is on track to deploy 170 pickup sites by the end of fiscal 2021, with 119 stores now offering click-and-collect service.

“This, along with the recent expansion of home delivery and click-and-collect in the Ottawa region, will expand our reach to more than 75% of Quebec and half of the Ontario population,” La Flèche said. “We remain confident in our strategy, which allows us to add capacity with reasonable investments to meet the pace of demand growth.”

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In Metro’s drugstores, comparable sales rose 7.6% in the 2021 third quarter, coming atop a 1% uptick a year ago and driving two-year growth of 8.6%. The comp sales gain reflects increases of 3.8% in the front end (-2.5% in 2020 quarter) and 9.3% in prescription drugs ( 1% in 2020 quarter).

La Flèche noted that the pharmacy increase stems from higher prescription counts as doctor’s office visits have resumed.

“Commercial [front-end] sales were up 3.8%, with most pharmacies gradually returning to regular opening hours,” he said. “Our pharma performance was also positively impacted by the administration of vaccines and the new medical services now offered by pharmacists. We proudly contributed to the vaccination effort through our network of pharmacies and four central vaccination sites we sponsored with other corporate partners, which altogether administered over 500,000 doses.”

Metro said its semi-automated produce distribution center in Toronto is now fully operational, and all stores have been transitioned from the old facility.

Metro also has made progress in grocery and pharmacy distribution center initiatives, including for fresh produce, frozen food, and health and beauty aids.

“Our new semi-automated produce DC in Toronto is now fully operational, as we completed the transfer of all of our stores from the old produce warehouse. The transition and ramp up of the new facility generated additional costs in the quarter, which we expect will partially remain in Q4 and hopefully be behind us by the end of the fiscal year,” La Flèche said in the analyst call. “The new fully automated frozen DC is almost complete, and we will soon start the commissioning of the new automation systems in time for a January 2022 opening.”

In June, Metro completed the shift of its Brunet pharmacies to the Jean Coutu distribution center and retail systems. The transition represented the last phase of the company’s three-year integration plan after the $4.5 billion acquisition of Jean Coutu Group in May 2018.

“We anticipate annual recurring savings of about $10 million starting next year in distribution and warehousing costs, as we will service our pharma network as well as the Metro and Super C stores in Quebec for health and beauty products from one facility,” added La Flèche.

On the earnings side, Metro posted third-quarter 2021 net income of $252.4 million, or $1.03 per diluted share, compared with $263.5 million, or $1.04 per diluted share, a year ago. Excluding $8.8 million (after tax) in amortization of intangible assets from the Jean Coutu Group acquisition, adjusted net earnings were $261.2 million, or $1.06 per diluted share, versus $272.3 million, or $1.08 per diluted share, in the 2020 quarter.

Analysts, on average, had projected Metro’s third-quarter adjusted earnings per share at $1.13, with estimates ranging from $1.10 to $1.19, according to Refinitiv.

“Looking ahead, while we can’t predict exactly how the pandemic will evolve, we expect our food sales to decline in Q4 versus last year’s high levels but to compare favorably to fiscal 2019,” La Flèche told analysts. “In our pharmacy division, we expect continued growth from prescriptions and the easing of restrictions will have a positive impact on certain categories that were negatively affected by the pandemic, such as beauty, cosmetics, and cold and flu products.”

Through the first 40 weeks of fiscal 2021, Metro opened four stores, relocated one store and completed major expansions and/or renovations of eight stores. Overall, the company’s retail network in Quebec and Ontario includes 951 food stores under the Metro, Metro Plus, Super C, Food Basics, Marché Richelieu and Première Moisson banners as well as 618 drugstores under the Jean Coutu, Brunet, Metro Pharmacy and Food Basics Pharmacy banners.