Metro Eyes Acquisitions

BRIAN DUNN

MONTREAL — Less than two years after spending $1.5 billion for A&P's 236 stores in Ontario in 2005, Metro here said it would consider more acquisitions outside its key markets of Quebec and Ontario.

The company's medium-term goal is to become the second-largest grocer in Canada behind Loblaw Cos. and leapfrogging over Sobeys, Pierre Lessard, Metro's chief executive officer, told shareholders at the company's annual meeting here last month.

For fiscal 2006, Metro had sales of $9.6 billion (U.S.), vs. $11.1 billion for Sobeys. Loblaw has not reported 2006 results, but had estimated sales of $26.5 billion last year.

“There are very few acquisition opportunities in Canada, but we are ready,” Lessard said after the meeting. “We have the balance sheet and we have the financial resources.”

As of Dec. 23, Metro had cash and cash equivalents of $105 million and a $340 million line of credit. It could also sell its 10% stake — currently worth $450 million — in Alimentation Couche-Tard, North America's third-largest convenience store chain.

Safeway's stores in western Canada have been cited as one of the few remaining takeover targets.

The purchase of the A&P and Dominion stores has yielded bigger savings than expected, Lessard said. The projected savings over two years was $50 million, but that target has been revised to $67 million.

The company operates under the Metro, Metro Plus and Super C banners in Quebec and as A&P, Dominion, Loeb, Food Basics and Ultra Food & Drug in Ontario.

Lessard said he wants to reduce the number of banners in Ontario and the number of house brands Metro offers in Quebec and Ontario from 20 to a more manageable number.

While Loblaw has been forced to cut between 800 and 1,000 head-office and regional-office jobs due in part to the arrival of Wal-Mart Supercenters in Ontario, Lessard is not planning to adopt any special measures to combat the giant retailer.

“We look at them as another competitor. Our reaction is the same as to any large food operator opening new stores.”

Metro is in the best position of all large-scale competitors to fend off Wal-Mart, according to analyst Perry Caicco of CIBC World Markets, Toronto.

“We would characterize Metro's management in both Ontario and Quebec as experienced, customer-focused street fighters,” he said. “We believe that Metro will defend its business vigorously through a combination of investment pricing and investment capital.”

For the first quarter, which ended Dec. 23, Metro reported a 112% increase in net income, due in part to savings from the integration of A&P stores. The retailer said it earned $57.5 million, or 49 cents per share, during the period, compared with a profit of $32 million, or 28 cents per share, a year earlier. Excluding non-recurring items, the company said it earned $71.6 million, or 62 cents per share, an increase of 44%.

Sales at supermarkets opened for at least a year were $2.11 billion, up 2.3%.

Metro plans to spend $250 million this year to open 20 new stores and renovate up to 50 others.