Discount banners, inflation drive Metro sales in Q1

Canadian retailer Metro Inc. said sales for the first fiscal quarter were up 8.2% vs. a year ago, although its margins were squeezed by higher food costs.

Metro’s Super and Food Basics discount banners outperformed the company’s conventional banners in the quarter, and also outperformed their competitors, said Eric La Flèche, president and CEO, in a conference call with analysts.

“People are looking for value and stretching their dollars,” he said.

Consumers have also been gravitating to sale items and private labels, he said, noting that private label sales grew “significantly” better than conventional product sales.

Net income for the 12-week first quarter, which ended Dec. 17, was up 11.3%, to C$231.1 million (US$172.8 million), on sales of C$4.7 billion (US$3.5 billion), compared with the year-ago first quarter. Adjusted for gains related to the Jean Coutu Group acquisition, net income for the first fiscal quarter rose 10.9%, to US$177.7 million.

Food same-store sales were up 7.5%, driven by 10% internal basket inflation. Pharmacy same-store sales were up 7.7%, driven by a 6.5% increase in prescription drug sales and a 10.2% increase in front-of-store sales, such as HBC.

La Flèche said Metro’s gross margins were under pressure in the quarter, however, as the company was unable to pass along all of the food-cost increases it was experiencing. Margin pressures were particularly acute in produce categories, he said, citing higher costs from weather-related impacts such as the flooding in California.

The company also said its vendors continue to implement price increases, indicating ongoing inflationary pressures in the near term.

“The root causes of worldwide food price increases are still there,” said La Flèche.

Gross margin for the first quarter was 19.6% of sales, vs. 19.9% in the first quarter of 2022.

The company was able to reduce operating expenses as a percentage of sales, however, which it attributed to strong cost controls and execution. Operating expenses were 9.8%, vs. 10.2% in the year-ago quarter. The company attributed the decrease to cost controls and leverage on higher sales.

After expanding its agreements with third-party delivery companies Instacart and Cornershop, Metro said its online food sales were up 40% over a year ago. The expansion of click-and-collect services at Super C stores also contributed to the online sales growth, La Flèche said.

He also said the company’s ongoing effort to modernize its supply chain with technology, including automated distribution centers, is yielding good results.

“We are doing more volume with less people,” he said.

The company opened one automated DC in each of the last two years, including a warehouse for frozen foods. A third automated DC for meat, seafood and dairy is expected to open this fall in Quebec.