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Metro Gains From Easing of Competitive Pressures

Turning strong sales in a comparatively benign competitive environment helped Metro Inc. here post quarterly sales and earnings that exceeded analyst expectations. In results announced last week for the fiscal second quarter that ended March 14, Metro posted net earnings of $61.8 million (U.S.) on sales of $2.1 billion. Earnings increased 41.3% from the same period last year. Sales improved

MONTREAL — Turning strong sales in a comparatively benign competitive environment helped Metro Inc. here post quarterly sales and earnings that exceeded analyst expectations.

In results announced last week for the fiscal second quarter that ended March 14, Metro posted net earnings of $61.8 million (U.S.) on sales of $2.1 billion. Earnings increased 41.3% from the same period last year. Sales improved by 7.5%, and same-store sales grew 7.3%. Earnings of 68 Canadian cents per share exceeded consensus estimates of 61 cents.

David Hartley, an analyst with BMO Capital Markets, Toronto, said Metro benefited some from a quieter competitive market than existed a year ago and from food price inflation that Metro estimated to be about 4%. Results also showed that Metro is making a strong recovery from technology issues that hampered results last year.

“Ultimately, the comparison between this year and last year are night and day because of the problems they were having last year,” Hartley told SN.

Competitive pressure has relaxed some since a year ago, when Loblaw's aggressive programs at its discount banners sparked price wars among retailers.

“The sales were higher than we anticipated and there was somewhat less pressure to trade down than we thought there might be,” Hartley told SN.

Metro officials credited the results to strong merchandising and execution, and to efficient spending. The chain built on its strong market position in Quebec — gaining some as a result of a strike against some stores operated by Loblaw there — and improved its standing in Ontario, where it is converting its stores to the Metro banner, said Eric La Flèche, president and chief executive officer, in a conference call with analysts.

La Flèche said conversions were on schedule, with the first group of stores in the Ottawa market operating under the Loeb banner beginning their conversions last week. The renovations include new decor and service departments and an emphasis on Metro's private brands. He declined to quantify the performance of the converted stores other than to say they are performing as well as or better than the stores they replace.

“In general, I think the new product introductions and the new layouts have worked well and been well-received,” La Flèche said. “[Home meal replacement] is always a challenge, so we're adjusting and making sure we have the right assortment and right pricing there.”

La Flèche said he felt inflation would continue for this year, particularly as suppliers work through the pinch of the sliding Canadian dollar. He said Metro began to see a shift toward its discount banners — particularly Food Basics in Ontario — late in the quarter, and the trend has continued into the current period.