Metro gives strike update in reporting strong Q3 results

Metro Inc. President and CEO Eric La Flèche said labor negotiations are continuing as the Canadian food and drug retailer entered day 12 of a strike at 27 Toronto-area stores.

La Flèche gave an update on the work stoppage in a conference call Wednesday on fiscal 2023 third-quarter results, which showed Metro posting robust food retail sales growth and topping the high end of analysts’ earnings-per-share forecast.

Some 3,700 Metro grocery store workers represented by Unifor Local 414 walked off the job on July 29 after rejecting a tentative contract agreement reached on July 19. Montreal-based Metro said the stores, located in 13 greater Toronto communities, would be closed for the duration of the strike.

“As you know, the employees at 27 of our Metro stores in the greater Toronto area have been on strike since July 29. We are clearly disappointed, given that we had worked constructively with the union and the employees bargaining committee to reach a very good agreement, providing significant pay increases that they unanimously recommended to the employees,” La Flèche told analysts in the call. (Call transcript provided by AlphaSense.)

“We remain committed to the bargaining process,” he said, “and look forward to a resolution and the reopening of our stores, as soon as possible, while ensuring the long-term competitiveness of our company.”

Unifor last week informed striking Metro workers their benefits would be cut during the work stoppage, and the union would offer group insurance benefits via Green Shield Canada. And in a social media post on X (formerly Twitter) Wednesday morning, Unifor National President Lana Payne criticized Metro for the contract impasse as it reported strong Q3 financial results.

“Metro workers are fighting for decent work and pay. It is the minimum every worker should expect,” Payne said in the posting. “And there are no excuses. Take a look at those profits.”  

Top line surges in Q3

For the 16 weeks ended July 1, net sales climbed 9.6% to $6.43 billion (Canadian) from $5.87 billion a year earlier, Montreal-based Metro reported. The gain upped the momentum from a 6.6% increase in the second quarter and built on a 2.5% gain in the fiscal 2022 third quarter.

“We delivered solid results in the third quarter, fueled by strong same-store sales and good operating leverage,” La Flèche said in the Q3 call. “While food inflation remains stubbornly high, our teams did an excellent job to offer good value to our customers in all of our banners, resulting in market share gains for the network in tonnage and dollars, driven by our discount food stores.”

On a same-store basis, food sales jumped 9.4% in the third quarter atop a 1.1% uptick in the prior-year period. Metro noted that food basket inflation decelerated to 8%, continuing a downward trend from 9% in Q2 and 10% in Q1.

Metro has converted some conventional supermarkets to discount formats based on customer demand. / Photo: Shutterstock

An ongoing shift to Metro’s discount grocery stores provided one of the food comparable-sales catalysts for Q3, according to La Flèche.

“Traffic was up significantly, while the average basket remained flat. Promotional penetration remains high, and private label sales continue to outpace national brands,” he explained. “Our food gross margins came in lower than last year, again this quarter, as we continue to absorb a portion of the cost increases we incurred.”

After flat year-ago e-commerce comp sales, Metro saw a significant jump in the 2023 quarter, driven by third-party e-grocery providers.

“Our online food sales were up 99% versus last year, mostly driven by new partnership sales,” La Flèche said. “Demand for our own online services has been stable, and we continue to add capacity with more click-and-collect stores.

Comparable pharmacy sales rose 5.9% in Q3 2023, building on a 7.2% gain from a year earlier, and were fueled by a 5.6% increase in prescription drugs supported by COVID-related activities, such as the distribution of rapid tests, and by a 10.7% surge in front-end sales, mainly from over-the-counter health care items and cosmetics, Metro said.

Comparable pharmacy sales advanced 7.2% in Q3 2022, building on a 7.6% gain in the year-ago period, and were fueled by a 6.7% rise in prescription drug sales and a 4.1% increase in front-end sales.

“In pharmacy, we delivered strong, balanced performance despite the expected decrease in cough and cold demand,” La Flèche noted, adding that strong performances in cosmetics and health and beauty care primarily drove the front-of-store sales uptick.

Also among Q3 highlights, the rollout of the new Moi rewards program this spring to about 900 stores has shown promising results so far, the CEO said. In announcing the launch back in May, Metro said Moi marks an evolution of the metro&moi loyalty program, introduced in 2010, and will bring more personalized and “generous” rewards for grocery customers and pharmacy patients.
 
“We successfully launched our Moi loyalty program in late May, and early results are very encouraging, with more than 1 million new members joining the program, which now has 2.2 million members and still growing across our five banners,” La Flèche told analysts. “The swipe rate in all banners is healthy and overall customer response has been positive. Also, we see a higher basket spend from Moi customers across all banners.”

E-commerce sales jumped 99% in Q3, fueled mainly by third-party providers as demand for Metro's own e-grocery service remained stable. / Photo: Shutterstock

Earnings exceed estimates, capital projects move forward

At the bottom line, 2023 third-quarter net income totaled $346.7 million, or $1.49 per diluted share, compared with $275 million, or $1.14 per diluted share, a year earlier, according to Metro.

“Adjusted net earnings were $314.8 million compared to $283.8 million last year, a 10.9% increase,” Chief Financial Officer François Thibault said in the call. “And our adjusted net earnings per share amounted to $1.35, up 14.4% versus last year’s adjusted EPS of $1.18.”

Analysts, on average, had projected adjusted EPS of $1.29, with estimates ranging from a low of $1.25 to a high of $1.32, according to Refinitiv.

“Turning to the modernization of our supply chain, we continue to see productivity improve in both our fresh phase one and frozen distribution centers in Toronto,” La Flèche reported. “We look forward to the launch of our state-of-the-art fresh and frozen automated distribution center in Terrebonne, north of Montreal, in the coming weeks to serve our Quebec stores.”

Metro broke ground on a Toronto-area frozen DC in Etobicoke, Ontario, in September 2019 and opened the facility in early January 2022. The automated fresh and frozen DC in Terrebonne, due to open in 2023, is part of a $420 million project in Quebec that also includes the enlargement of an existing produce and dairy DC in Laval, slated for completion in 2024.

Brick-and-mortar grocery retail projects during the 2023 quarter also included conversions to discount formats.

“On the retail side, we opened five new stores so far this year—one Metro store in the province of Quebec, two Super Cs and one Food Basics, while converting a Metro to a Super C in Gatineau,” Thibault said. “We also carried out major renovations in seven stores, representing a net increase of 153,000 square feet ,or 0.7% of our food retail network.”

Overall, Metro’s retail network includes 975 food stores under the Metro, Metro Plus, Super C, Food Basics, Adonis, Marché Richelieu and Première Moisson banners, as well as 645 drugstores and pharmacies under the Jean Coutu, Brunet, Metro Pharmacy and Food Basics Pharmacy banners in Quebec, Ontario and New Brunswick.