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Metro gets third-quarter lift from Jean Coutu

Acquisition added $467 million in sales to quarterly results

Metro Inc. got a sales boost in its fiscal 2018 third quarter from the recently closed acquisition of Jean Coutu Group, while earnings were in line with analysts’ forecast.

For the 16-week quarter ended July 7, revenue totaled $4.64 billion (Canadian), up 13.8% from $4.07 billion a year earlier.

Metro said the quarter included slightly more than eight weeks of results from the Jean Coutu acquisition, which closed May 11. Excluding $467 million in sales from Jean Coutu, Metro’s third-quarter sales were up 2.4%.

Food same-store sales edged up 2% in the third quarter, compared with a 0.2% dip a year ago. Metro said its food basket experienced inflation of about 0.5%.

“We had a good quarter overall, as we achieved strong same-store sales growth despite low inflation in a very competitive environment,” Metro President and CEO Eric La Flèche told analysts in a conference call Wednesday. “We experienced an increase in traffic, average basket and tonnage. Our internal food basket inflation was 0.5%, a bit lower than our previous quarter but slightly higher than the CPI average. Our teams did a great job to mitigate the impact of increasing operating expenses, mainly minimum wage and higher transportation costs.”

Comparable pharmacy sales rose 1.8% in the third quarter, reflecting gains of 3.8% for the front of the store and 0.4% for prescription drugs. The prescription count increased 2.4%. Pharmacy same-store figures represent a weighted average of Jean Coutu and Brunet results.

“Our strategy following the acquisition is to maintain our two banners, Jean Coutu and Brunet, both supported by a strong pharmacy division with state-of-the art facilities, systems and a first-rate management team. We are confident in our ability to achieve our synergy target of $75 million in three years focusing on three main categories: procurement, SG&A and distribution,” La Flèche said. “We will begin to report on our progress starting next quarter.

“To conclude, we had a good quarter overall with a bit more noise than usual,” he added.

Third-quarter net income came in at $167.5 million, or 69 cents per diluted share, compared with $183 million, or 78 cents per diluted share, a year ago. Results in the 2018 quarter were impacted by $25.1 million in expenses from the Jean Coutu acquisition, $6.3 million in interest income, $7.1 million in interest expense and $6 million in amortization of intangible assets acquired with the Jean Coutu deal, partially offset by a $9.2 million tax gain from Metro’s disposal of its investment in Alimentation Couche-Tard.

On an adjusted basis, net earnings were $183.4 million, or 75 cents per diluted share, for the third quarter versus $165.1 million, or 70 cents per diluted share, in the prior-year period. Analysts, on average, projected adjusted earnings per share (EPS) of 75 cents, according to Zacks Investment Research.

Through the end of the fiscal 2018 third quarter, Metro opened five new stores, expanded and/or remodeled 20 stores and closed four stores. Total retail square footage rose 0.3%.

Including the 418 stores from the Jean Coutu acquisition, Metro operates or franchises more than 1,300 stores in Quebec and eastern Canada, including about 600 supermarkets under such banners as Metro, Metro Plus, Super C and Food Basics and 700 drug stores under the Jean Coutu, Brunet, Metro Pharmacy and Drug Basics banners.

This past June, Metro rolled out same-day delivery for its online grocery service across Quebec after a pilot in three stores starting in October 2016 and subsequent expansion to greater Montreal and Quebec City.

“On the e-commerce front, we recently launched same-day delivery as our e-commerce offer continues to evolve and adapt to our customers’ demands,” La Flèche said in the conference call. “We are still planning to offer an e-commerce service in Ontario in fiscal 2019, starting in the greater Toronto area.”

Management didn’t provide earnings guidance for the full 2018 fiscal year. Analysts’ consensus forecast is for adjusted EPS of $2.56. For fiscal 2017, Metro had adjusted EPS (diluted) from continuing operations of $2.57.

“Going forward, we expect the competitive environment to remain highly promotional with continued pressure on our labor and transportation costs. Recently announced tariffs are an additional headwind facing our industry, and we will do everything to mitigate their impact in our ongoing negotiations with our suppliers. That said, we expect to see some retail price inflation as a result of all those cost pressures,” La Flèche told analysts. “Finally, in the coming quarters, we will continue to execute our business plan and focus on the Jean Coutu Group integration, and we are confident to grow our business.”

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