Metro misses expectations as Q4 earnings drop to $83.6 million on lower revenues

MONTREAL – Metro Inc. (TSX:MRU) is trading near a seven-month low after the Montreal-based supermarket operator and one of its biggest rivals issued quarterly results showing the impact of intense competition.

Metro’s stock was down nearly five per cent in the first half hour of trading and had been even lower shortly after the open.

The stock was down $3.17 at $62.54 but had been as low as $61.51, a level that hasn’t been seen by Metro since early April.

The Quebec-based supermarket chain, as well as long-time rival Loblaw Co. (TSX:L) said in separate financial reports Wednesday that said they were being pressed by increased competition, especially in Ontario.

Metro expressed confidence in its efforts to control costs and reorganize its store network but its fourth-quarter results for the 12 weeks ended Sept. 28 were below analyst estimates.

Metro Inc. had $83.6 million or 88 cents per diluted share of net income under standard accounting for the quarter, which had one week less than usual.

After adjustments, Metro earned $113 million or $1.19 per share from continuing operations, which was improved from last year but three cents short of analyst forecasts polled by Thomson Reuters.

In the comparable period of 2012, Metro earned $145.1 million or $1.46 per share during 13 weeks. Over 12 weeks, the adjusted profit in the 2012 fourth quarter was $112.8 million or $1.14 per share.

Metro’s revenues were $2.61 billion in this year’s fourth quarter. Adjusting the year-earlier results, the revenue was down 1.1 per cent from the fourth quarter of 2012.

Canada’s retail sector has been in flux due to the arrival of Target, a U.S. chain that began its entry into the Canadian market last spring with store openings in Ontario.

Target’s discount department stores offer a selection of grocery items, putting added pressure on grocerer already competing with each other and more general retailers, including Walmart and Costco.

For the full year, Metro earned $721.6 million including a $266.4-million gain from the sale of shares in Alimentation Couche-Tard. Adjusted profits from continuing operations were $478.4 million or $4.92 per share. That compared to $471.5 million or $4.66 per share a year earlier or $460.5 million and $4.55 per share for 52 weeks of activity.

Annual revenues for 2013 were $11.4 billion, down 2.3 per cent from $11.67 billion during 53 weeks of business a year earlier.

In addition to intense competition particularly in Ontario from supermarket rivals such as Loblaw’s (TSX:L) and Sobeys (TSX:EMP), Metro’s discount banner Food Basics is fending off expansion by Walmart (NYSE:TGT) and the first wave of openings by U.S. retailer Target.

During the quarter, Metro continued to face cautious consumer spending and intense promotional activity.

Metro is Quebec’s leading grocery chain with nearly 34 per cent market share. It has more than 65,000 employees in Quebec and Ontario, with more than 600 food stores under several banners including Metro, Metro Plus, GP, Super C and Food Basics, as well as over 250 drugstores under the Brunet, Brunet Plus, Clini Plus, The Pharmacy and Drug Basics banners.