Canadian food and drug retailer Metro Inc. topped analysts’ earnings forecast in the fiscal 2020 third quarter, with coronavirus-fueled demand driving double-digit gains in food same-store sales and tripled-digit growth in online food sales.
Sales for the 16-week quarter ended July 4 climbed 11.6% to $5.84 billion (Canadian) from $5.23 billion a year earlier, Montreal-based Metro reported yesterday. Excluding the impact of IFRS 16 leases, adopted in the first quarter, sales rose 11.9% to $5.85 billion.
Comparable sales for grocery stores jumped 15.6% year over year, with food basket inflation at about 3%, up from 2.5% in the fiscal 2019 quarter.
“Our food business experienced high levels of sales, as the large portion of restaurant and foodservice sales transferred to the grocery channel,” Metro President and CEO Eric La Flèche (left) told analysts in a conference call on Wednesday. “We disclosed last April that our same-store sales for the first four-week period of our third quarter were up 25%. And we realized same-store sales of 15.6% for the entire 16-week third quarter. We continue to see fewer visits, more than compensated by a larger basket size.”
The strong performance reflects Metro’s expanding market share in Quebec and Ontario, La Flèche noted. “Sales of our conventional banner in both provinces continue to perform very well, as many customers opt to shop more locally and are still growing faster than our discount store sales, which are doing quite well also. The growth gap between conventional and discount has narrowed, and we expect that it will continue to do so.”
Online food sales skyrocketed 280% in the third quarter, “albeit from a very small base last year,” La Flèche said. “Today, the size of that business is at a level we had forecasted to reach in two or three years.”
As a result, Metro is accelerating efforts to add online capacity and evolve its “hub store” omnichannel model to better meet escalating demand.
“We have learned a lot in the last four years, and we will be deleveraging the investments we made in building teams and expertise in the delivery of a full fresh basket to the homes of Quebecers and Ontarians, including robust technologies and competencies and customer web interface, picking and home delivery,” La Flèche explained. “In the short-term, after adding a second hub store in Quebec City earlier this year, we have just added a new hub store in Sherbrooke, Quebec, bringing to nine the total of number of stores in Quebec offering our online service. In Ontario, we will be adding a third hub store in Scarborough in October to serve the East End of the GTA [greater Toronto area].
“We will also be expanding our click-and-collect offer, with some 30 additional stores in Quebec and Ontario offering this service in fiscal 2021. These stores will not offer a delivery service,” he added. “Finally, as previously announced, we have partnered with Cornershop for Quebec and Ontario to serve customers wanting same-day, two-hour delivery service, and we are pleased with the results so far.”
In Metro’s drug stores, comparable sales fell 2.5% in the front end and edge up 1% in the pharmacy, which saw a 2.7% uptick in prescription count.
“Our pharmacy business delivered a balanced performance of +1% total same-store sales growth in the third quarter. We are pleased with this result, given the very challenging operating conditions of our pharmacies in the first half of the quarter,” La Flèche said. “Our pharmacists’ ability to maintain the quality of service through this period — notably through expanding home delivery services and leveraging our expanded online pharmacy capabilities — was key in delivering prescription same-store sales growth of 2.7%.”
April front-end sales in the drugstore segment declined 9% following consumer pantry stock-ups of essential items late in the second quarter, the rollout of COVID-19 safety measures and reduced promotional activity, La Flèche reported. “While we are still seeing lower in-store traffic, larger baskets driven by key categories, including OTC and duty, have helped offset some of this impact in the latter part of the quarter.”
On the bottom line for the third quarter, Metro’s net income totaled $263.5 million, or $1.04 per diluted share, compared with $222.4 million, or 86 cents per diluted share, a year ago. Excluding $8.8 million (after tax) in amortization of intangible assets from the Jean Coutu Group acquisition, adjusted net earnings came in at $272.3 million, or $1.08 per diluted share, versus $230.3 million, or 90 cents per diluted share, in the 2019 quarter.
Metro said COVID-19-related costs were $107 million in the third quarter, and that during the period it realized synergies of $23 million from the Jean Coutu acquisition.
Analysts, on average, had projected Metro’s third-quarter adjusted earnings at $1.04 per share, according to Zacks Investment Research.
So far in fiscal 2020, Metro has opened six new stores, relocated two stores and remodeled 11 stores.
“Investments in technology at the retail level are also ongoing, and by the end of this fiscal year, we expect to have about 100 stores equipped with electronic shelf labels, plus another 100 stores coming in fiscal 2021,” said La Flèche. “Also, 200 stores will have self-checkouts at the end of the year, and another 120 stores are planned for 2021. Customer use of self-checkouts is increasing steadily, and we are meeting our ROI targets.”
Overall, Metro operates or serves a network of 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.
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