Metro Inc. is stepping up its omnichannel investment as it continued to reap COVID-driven gains in brick-and-mortar and online food sales in its fiscal 2020 fourth quarter.
For the 12-week quarter ended Sept. 26, sales climbed 7.4% to $4.14 billion (Canadian) from $3.86 billion a year earlier, Metro reported yesterday. Excluding the impact of IFRS 16 leases adopted in the first quarter, sales were up 7.7% to $4.16 billion, the Montreal-based food and drug retailer said.
“After a strong first half of the year, our performance in the second half of the year was fueled in part by the sales growth caused by the pandemic,” Metro President and CEO Eric La Flèche told analysts in a conference call on Thursday. “This performance was also the result of sustained investments in our store network, our supply chain, our merchandising programs, e-commerce and, of course, the dedication of our employees.”
Food same-store sales jumped 10% year over year, compared with a 4.1% uptick in the fiscal 2019 quarter. Food basket inflation was approximately 2.8%.
Online grocery sales jumped 160% in the quarter, La Flèche noted. The company aims to drive e-commerce growth via a “hub store” model, in which selected locations are adapted to serve as fulfillment points for online grocery orders in the surrounding area.
“We are now accelerating our investments in e-commerce to add capacity as demand grows. First, we just opened a third hub store in the greater Toronto area in Scarborough [Ontario], and it’s off to a good start,” La Flèche said. “Second, we will be opening a dedicated store for online grocery next summer to serve the island of Montreal. This dedicated store will leverage our key learnings and technology investments made over the last four years. This store will offer the same variety and freshness found in our regular Metro stores for next-day home delivery, with the option of same day delivery. Third, we will be deploying click-and-collect to most Metro stores, increasing the number of stores offering click-and-collect from the 40 planned to more than 100 by the end of fiscal 2021.”
The Montreal online-only store will be a stand-alone facility designed to process digital orders, La Flèche explained to analysts.
“This is an existing facility in an industrial location. It’s a building of about 100,000 square feet that needs some modifications to adapt to an e-commerce store operation. So changes to receiving, shipping, etc., everything inside needs to be done to build a food store that will be efficient for an e-comm model. That’s why we need a few months to build it out and start operations next spring and ramping up to next summer,” he said. More automation could be added down the road, he added. “The building will allow us to incorporate micro-fulfillment if and when we choose to do so, but that’s not the way we’re going to start.”
In late April, Metro announced a partnership with on-demand grocery service Cornershop to provide same-day grocery delivery in Quebec and Ontario. Orders are picked and packed by a personal shopper in a Metro store and delivered in one to two hours. “We will continue to work with Cornershop, a third-party delivery partner offering two-hour delivery, which adds flexibility to our online capacity,” La Flèche said in the call.
“These investments will be part of our regular capex and will enable the company to increase its online grocery capacity, gain efficiencies and better meet our customers’ evolving needs,” he said of Metro’s e-commerce strategy.
In fiscal 2020, Metro opened seven stores, including two conversions, and completed 17 major remodels and two relocations, for a 0.8% net increase in food retail space versus a year ago.
“We saw traffic trends improving compared to our third quarter but still significantly down year-over-year. A larger basket continued to more than offset the decrease in traffic,” La Flèche said of the fourth-quarter food retail results. “We are pleased with the performance of both Metro and our discount stores Super C and Food Basics. Our Metro stores continued to grow more than our discount stores again this quarter, although the gap between them has narrowed significantly. This strong performance resulted in market share gains in both of our markets.”
Comparable pharmacy sales rose 5.5% in the fourth quarter, reflecting gains of 6% in the front end and 5.3% in the pharmacy.
“We are pleased that the labor conflict at the Jean Coutu warehouse in Varennes [Quebec] that started on Sept. 23 was resolved last week. Employees returned to work on Sunday [Nov. 15], and we expect a gradual return to normal operations over the next few weeks,” said La Flèche. “We achieved our target of $75 million in cost synergies related to the Coutu acquisition. There is still room for additional synergies with the transfer of operations from our McMahon distribution center to the Varennes center. These activities can resume now that the labor conflict is behind us, and we expect them to be completed at the end of fiscal 2021.”
Metro’s retail network includes about 950 food stores under the Metro, Metro Plus, Super C, Food Basics and other banners in Quebec and Ontario, as well as 650 drugstores, mainly under the Jean Coutu, Brunet, Metro Pharmacy and Food Basics Pharmacy banners.
At the bottom line, Metro reported fourth-quarter net earnings of $186.5 million, or 74 cents per diluted share, compared with $167.4 million, or 66 cents per diluted share, a year ago. Excluding accelerated amortization related to the opening of a new fresh products distribution center in Ontario, adjusted net income was $193.1 million, or 77 cents per diluted share, the company said.
Analysts, on average, projected adjusted earnings per share of 79 cents, with estimates ranging from 77 cents to 83 cents, according to Refinitiv/Thomson Reuters.
For the full 2020 fiscal year, Metro’s sales rose 7.3% to nearly $18 billion from $16.77 billion in fiscal 2019. The gain was 7.7% excluding the impact of IFRS 16 leases, according to the company. Net income came in at $796.4 million, or $3.14 per diluted share, up from $714.4 million, or $2.78 per diluted share, in 2019. Adjusted earnings were $829.1 million, or $3.27 per diluted share, compared with $731.6 million, or $2.84, per diluted share, a year ago.
Analysts’ consensus full-year forecast was for adjusted EPS of $3.28, with projections running from $3.23 to $3.34, according to Refinitiv/Thomson Reuters.
“Looking ahead, while we can’t predict how long the pandemic will last or exactly how it will evolve, we expect that in the short-term, food revenues will continue to grow at higher than normal rates versus last year, as a portion of restaurant and food service sales continue to transfer to the grocery channel,” La Flèche said in the call.
In the first four weeks of fiscal 2021, food same-store sales were up by about 11% year over year, he said. During that time span, the pharmacy business has seen comp-sales growth of 3.6% in prescriptions and a 3.4% decrease in the front end.
“On the pharmacy side, we are pleased that our contingency plan secured the supply of prescriptions and OTC products to our pharmacy network, although commercial sales were negatively impacted,” La Flèche said. “We expect front-end sales will remain under pressure during the first quarter as we gradually ramp up inventories and promotional activity, and this will negatively impact our pharmacy division results in the first quarter of fiscal 2021.”