April 20, 2016
Metro won’t change course, despite Sobeys price cuts
Quebec-based grocer records strong sales numbers as industry square footage shrinks
Metro Inc. reported strong across-the-board second quarter results this morning. In a conference call with analysts following the announcement, Eric La Flèche, the company’s CEO, described the rising revenue, net income and earnings per share numbers as “excellent,”
“We’ll take 5% same-store-sales growth every day of the week,” said La Flèche, who denied that Metro’s performance on that key metric, its best since 2009, was a “one quarter wonder.” Metro’s CEO cited several reasons for the strong performance which included “effective merchandizing strategies, strong execution and sustained investments in our network.”
Metro’s revenues increased a respectable 6.5% during the quarter. Strong promotional sales, which accounted for nearly half of Metro’s $2.88 billion in revenues, also played a key role.
Metro’s discount banners are doing particularly well, said La Flèche, as are private label products, which are outperforming supplier brands. On a category basis, tonnage continues to increase in fresh offerings, while center-store dry goods offerings are holding their own. Metro’s Adonis and Première Moisson brands also contributed. The company is in the process of launching its 11th Adonis outlet, and will soon be opening its first Première Moisson store outside of Quebec City.
Loblaw’s stumbles, Metro gains ground
Stabilizing industry square footage also worked to drive increased traffic into Metro stores during the quarter. The company’s growing market share came as Loblaw’s continued the shuttering of 52 of its less profitable stores, which it announced last year. These include a dozen outlets in Quebec, Metro’s home turf, notably its downtown Montreal Provigo store, which closed during the quarter. Metro is also benefitting from customer uncertainty amidst Loblaw’s move away from the Loblaw’s brand in Quebec, in favor of the Provigo identity, which has better traction among French shoppers.
That said, the biggest driver of Metro’s increasing sales, continues to be price increases. Internal food inflation at Metro came in at 3% during the quarter, meaning that higher prices, accounted for fully 60% of the company’s same-store-sales performance improvement. However according to La Flèche that trend is unlikely to be as favorable during the coming months, as Metro turns increasingly to Canadian suppliers, to counter the effects of higher import prices caused by the weak loonie.
Work continues on E-Commerce pilot
The near-term outlook for Metro is likely to be mixed on two levels. As Michael Van Aelst, an analyst for TD Securities noted in a recent report to the broker’s customers, the battle for tonnage share should become more rational, as industry square footage trends at, or slightly below population growth, during 2016.
On the other hand, Sobeys’ announcement earlier this month that it would be cutting prices by between 5% and 7% on 8,500 items in the Quebec market, where it has no discount banner, will target Metro stores directly. La Flèche however was unimpressed, noting that Metro has already cut prices last fall and that the company “will not change strategy.”
La Flèche also confirmed that internal staff continue to do work on an E-Commerce pilot project. The company has a small team dedicated to the effort which is set to launch later this year.
METRO Q2 HIGHLIGHTS
• Sales of $2,882.0 million, up 6.5%
• Same-store sales up 5.0%
• Net earnings of $124.9 million, up 11.9%
• Fully diluted net earnings per share of $0.51, up 18.6%
• Declared dividend of $0.14 per share, up 20.0%
Peter (at) peterdiekmeyer (dot) com
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