Metro posts 5.1% sales gain for second quarter

Metro Inc. upheld strong food retail sales growth in its fiscal 2021 second quarter, as the Canadian food and drug retailer began to cycle a prior-year sales surge from the coronavirus outbreak.

For the 12-week quarter ended March 13, sales totaled $4.19 billion (Canadian), up 5.1% from $3.99 billion a year earlier, Montreal-based Metro said yesterday.

A year ago, Metro reported a 7.8% sales gain for the fiscal 2020 second quarter, noting that the COVID-19 pandemic impacted results in the last two weeks of the quarter, raising sales by about $125 million.

Food same-store sales in the fiscal 2021 second quarter rose 5.5%. Metro said the first 10 weeks of the period — excluding the “unprecedented” pandemic-fueled gain in the year-ago quarter’s final two weeks — were up 10.1%. In the 2020 quarter, sales advanced 9.7% but were up 5.2% excluding the COVID-19 impact.

“We continue to gain market share, and the market environment is very competitive, as always. Our internal food basket inflation was 2%, down from 2.5% in the first quarter,” Metro President and CEO Eric La Flèche told analysts Wednesday in a conference call on fiscal 2021 Q2 results.

“Transaction count remains significantly down versus last year but is, again, more than offset by the larger basket size,” he said. “Promotional ratios trended up quarter over quarter but are still below pre-pandemic levels, due mostly to the larger basket.”

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Metro saw online food sales climb about 240% year over year, compared with 170% in the first quarter. In the last two weeks of the fiscal 2020 quarter, the grocer had “more than doubled our online volume overnight,” La Flèche reported at the time.

Transaction count versus a year ago remains down but is more than offset by the larger shopper purchases, Metro CEO Eric La Flèche said.

E-commerce growth is being supported by Metro’s “hub store” model, in which the company adapts selected stores to serve as fulfillment points for digital orders in the surrounding area. Metro also is building an online-only store in Montreal that will be dedicated to processing e-commerce orders.

“Volumes in our hub stores remain strong. We are on track to have 170 click-and-collect stores by the end of September,” La Flèche said in yesterday’s call. “Our partnership with [online grocery delivery provider] Cornershop continues to grow, and we recently added our Adonis [store] banner to this same-day delivery service. The Montreal dark store will open this summer as planned and provide us additional capacity. Finally, we will be expanding our online home delivery service to the Ottawa market this summer, with the opening of one hub store and several click-and-collect stores.”

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Meanwhile, comparable pharmacy sales dipped 0.8%, compared with a 7.9% gain a year ago. The fiscal 2021 quarter’s decline reflected a 10.5% decrease in the front end and a 4.2% increase in the pharmacy. The decrease stems primarily from restrictions on sales of non-essential products in Quebec for a six-week period during the quarter, a milder cold and flu season, and the pandemic-driven increase in sales at the end of the fiscal 2020 second quarter, according to Metro.

“At the end of March, our affiliated pharmacists in Quebec started to administer COVID vaccines, albeit in very small quantities due to limited supply,” said La Flèche. “Some 450 of our pharmacies in Quebec and most of our pharmacists in Ontario and New Brunswick will participate in the vaccination effort. And we are working closely with the authorities to accelerate the pace of vaccination as more supply becomes available in the coming weeks."

Metro has begun shifting its Brunet pharmacies to the Jean Coutu distribution center, as well as its Metro and Super C stores for health and beauty products, and expects to complete the process in June. La Flèche said the transition marks the last phase of its three-year integration plan following the $4.5 billion acquisition of Jean Coutu Group, which closed in May 2018.

“One of our strategic priorities is the modernization of our supply chain. In February, we started the operations in phase one of our new semi-automated produce DC in Toronto. About two thirds of our stores are now supplied from this facility, and the transfer will be completed in the next few weeks,” La Flèche told analysts. “Post ramp-up, this new facility will provide increased capacity and better quality for our stores. It is always challenging to start a new DC, even more so during a pandemic. But our team is doing a good job to manage the expected transition costs. The new fully automated frozen DC is in the final stages of construction, and systems will be commissioned over the next months in time for a January 2022 opening.”

This summer, Metro plans to expand its online home delivery service to the Ottawa market.

At the bottom line, Metro posted fiscal 2021 second-quarter net income of $188.1 million, or 75 cents per diluted share, compared with $176.2 million, or 69 cents per diluted share, a year ago. Adjusted net earnings, excluding amortization of intangible assets related to the Jean Coutu acquisition, came in at $194.7 million, or 78 cents per diluted share, versus $182.8 million, or 72 per diluted share, a year earlier. Metro noted that second-quarter 2020 net earnings reflected a positive impact from the pandemic-triggered sales surge, but with no incremental COVID-related expenses.

Analysts, on average, had forecast second-quarter 2021 adjusted earnings per share at 76 cents, with estimates ranging from 74 cents to 81 cents, according to Refinitiv.

“Looking ahead, the recent lockdown measures in Ontario and parts of Quebec continue to favor food-at-home consumption. In Q3, we expect food sales to stay elevated compared to pre-pandemic levels, but as we cycled the peak sales of the start of the pandemic, we expect comp sales to be negative for the quarter,” La Flèche said. “In our pharmacy division, we expect continued growth from prescription drugs. And subject to the evolution of the public health measures, we expect front-end sales in the short term to compare favorably to last year, given the serious restrictions to access to pharmacies that were in place during the first wave of the pandemic.”

During the 2021 first half, Metro opened one new store, completed major expansions and/or remodels of seven stores, and relocated one store. Overall, the company’s retail base includes about 950 food stores under the Metro, Metro Plus, Super C, Food Basics and other banners in Quebec and Ontario, as well as 650 drugstores, mainly under the Jean Coutu, Brunet, Metro Pharmacy and Food Basics Pharmacy banners.