Metro caps off first half with strong Q2

Canadian food and drug retailer Metro Inc. closed out its fiscal 2023 first half with further sales and earnings gains in the second quarter.

For the 12 weeks ended March 11, net sales totaled $4.55 billion (Canadian), up 6.6% from $4.27 billion a year earlier, Metro reported on Wednesday. The Montreal-based company noted that the uptick came atop elevated sales last year driven by COVID-related restrictions.

On a same-store basis, food sales climbed 5.5% year over year in the second quarter, building on a prior-year gain of 0.8%, fueled mainly by higher inflation. Metro noted that food basket inflation fell to 9% in the quarter from 10% in Q1. Bolstered by new third-party partnerships and added capacity, online food sales for Q2 surged 41% atop a 6% increase in the 2022 quarter, the retailer said.

Comparable pharmacy sales advanced 7.3% in Q2, building on a 9.4% gain in the year-ago period, and were driven by a 5% uptick in prescription drug sales and a 12.2% rise in front-end sales, mainly from over-the-counter health care, cosmetics and beauty products, Metro said.

“Building on our strong start in fiscal 2023, we are pleased with our results in the second quarter, as our teams continued to deliver value to our customers in the current high food inflation environment with competitive everyday prices, our full range of private-label products, effective promotional strategies and our loyalty programs. Our commercial programs continued to resonate well with our customers, resulting in market share gains,” President and CEO Eric La Flèche told analysts in a conference call on Wednesday. “Compared to last year, traffic was up, while the average basket came down slightly. Promotional penetration remains very high as consumers search for value,” he added. (Call transcript provided by AlphaSense.)

The second-quarter results kept up momentum from a strong first-quarter performance, when Metro tallied increases of 8.2% in net sales, 7.5% in food comp sales and 7.7% in pharmacy comp sales. Overall sales for the 24-week first half came in at $9.23 billion, up 7.4% year over year.

Entering the second half, Metro expects a boost from the launch of its MOI upgraded rewards program. Announced in September, the new loyalty plan marks “an evolution” of the retailer’s metro&moi program and will bring more customized and “generous” rewards for grocery customers and pharmacy patients, according to the company. Plans call for MOI to initially go live at more than 700 Metro, Jean Coutu, Super C and Première Moisson stores across Quebec.

“While we are not able to predict how the current macro environment will evolve, we expect some moderation in food inflation,” Metro CEO Eric La Flèche said in a conference call. / Photo courtesy of Metro.

“We are looking forward to the launch of the MOI loyalty program later this spring across our Quebec banners,” La Flèche said. “MOI will leverage the strength of our food and pharmacy networks, where over 95% of Quebec households already shop during the year, offer more points collection and redemption opportunities, and enable more personalized promotions and greater customer engagement.”

At the bottom line, 2023 second-quarter net income was $218.8 million, or 93 cents per diluted share, compared with $198.1 million, or 82 cents per diluted share, a year earlier. Adjusted net earnings were $225.4 million, or 96 cents per diluted share, versus $204.7 million, or 84 cents per diluted share, in the year-ago span.

Analysts, on average, had projected adjusted EPS of 94, with estimates ranging from a low of 91 cents to a high of 98 cents, according to Refinitiv.

Distribution network upgrades are progressing, according to La Flèche. The company opened a Toronto-area fresh and frozen distribution, located in Etobicoke, Ontario, in early January 2022, while a $420 million project in Quebec to build an automated DC for fresh and frozen products is nearing completion. An existing produce and dairy DC also is being enlarged. The fresh/frozen facility in Terrebonne, Quebec, just north of Montreal, is due to open in the summer, and the expansion of the produce/dairy facility, in Laval, Quebec, is earmarked for completion in 2024.

“Turning to the modernization of our supply chain, we are pleased with the operations of both fresh phase one and the new freezer in Toronto. Our frozen DC is exceeding expectations in terms of productivity and capacity,” said La Flèche. “About 95% of frozen products are now shipped through the DC versus 70% previously. This results in improved on-shelf availability for our customers and more efficient operations. In the province of Quebec, construction activities are now completed for the new fresh and frozen DC in Terrebonne, and the installation of the automated systems is on track to start operations at the end of this summer.”

Looking ahead, La Flèche told analysts in the call that he expects a letup in food price inflation.

“As we begin our third quarter, we remain focused on delivering value to our customers with quality products at competitive prices, as higher-than-normal inflation and market challenges persist,” he said. “Compared to last year, the number of price-increase requests received from suppliers in the months of February and March came down, as well as the size of those increases. While we are not able to predict how the current macro environment will evolve, we expect some moderation in food inflation.”

Overall, Metro’s retail base in Quebec, Ontario and New Brunswick includes more than 960 food stores under the Metro, Metro Plus, Super C, Food Basics, Adonis, Marché Richelieu and Première Moisson banners as well as about 650 drugstores and pharmacies under the Jean Coutu, Brunet, Metro Pharmacy and Food Basics Pharmacy banners.