Grocery Business


August 13, 2014


Metro turns to buybacks to boost earnings per share

Tough times and flat performance force grocer’s actions.


Metro Inc. reported disappointing operational results across the board this morning. Almost all of the major third quarter numbers were either down or flat in real terms. The one increase, in earnings per share, came due to stock buybacks, which divided existing net income among fewer shareholders.


Sales at Metro Inc. for the quarter came in at $3.62 billion, up by 1.4 percent over the same period last year. Same store sales increased by 1.0 percent and net earning were flat. However all of these slight percentage increases were dwarfed by Canada’s inflation rate, which ran at 2.36 percent during the 12 months to June 2014. (Metro’s internal inflation rate on its existing sales base ran at 1.5 percent). The upshot was a decline in tonnage sold during the quarter.


Food inflation on the fresh side

Eric La Fleche the company’s chief executive officer, in a conference call with analysts this morning, attributed the lacklustre sales results, to tough competition in Quebec and Ontario and to higher food prices, notably on the fresh side, which could not be fully passed on to consumers due to fears of “sticker shock.” Meats were particularly affected with many consumers changing buying patterns in the category during the quarter in response to the price increases.


Metro’s results were also hit by a rise in the minimum wage in Ontario and increasing energy prices. The latter are leading consumers to take fewer trips to grocery stores, particularly in rural areas. That said an increasing average basket size is somewhat compensating for the traffic decline. La Fleche lauded Metro’s ability to keep selling, general and administrative expenses, roughly in line as a percentage of sales, given these constraints.


Traffic flows continue to discount stores

La Fleche also noted favourable performance in Metro’s recently acquired Adonis chain, which it will continue to grow at a rate of a couple of stores per year and continuing traffic migration from traditional stores to discount outlets.


La Fleche also commented publicly for the first time on the company’s acquisition of controlling interest in Premiere Moisson, a Quebec-based grocery products producer and distributor. He noted that Metro expects to leverage the strong brand that the Colpron-Fiset family had built up for the Premiere Moisson chain and that it would increase both the chain’s retail base and its offerings in Metro stores.


Financial engineering saves the day

That said, the big story at Metro remains the slick financial jiu jitsu which more than compensated for its sluggish operational results. Like many North American firms, that are struggling to grow earnings in a low-growth economic environment, Metro has been take advantage of cheap interest rates, to buy back its own shares and thus boost net income per share. 


The huge stock buyback plan that La Fleche authorized began on September 10th of last year. Between then and August 1, the company bought back 6.64 million common shares, for $424.8 million. This reduction in outstanding shares means that earnings per share increased by 9.4 % during the quarter, compared to the same quarter last year, to $1.63 per share.


La Fleche did not rule out acquisitions to fuel future growth however he noted that none are on the horizon right now. “We are satisfied with our results achieved in an environment that remains challenging” said La Fleche. “We will continue to invest in our network to offer a superior customer experience and to pursue growth.”




Financial highlights:


·        Sales of $3,622.1 million, up 1.4% over last year

·        Same-store sales up 1.0%

·        Net earnings of $144.5 million, flat versus last year

·        Fully diluted net earnings per share of $1.63, up 9.4%

·        Declared dividend of $0.30 per share, up 20%




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