Metro reports $275M profit as more customers turn to discount brands

·3 min read
TORONTO, ONTARIO, CANADA - 2015/05/06: Billboard with a different advertisements in a mall square in a day with a blue sky in the background. 

Food Basics is a discount Canadian supermarket chain owned by Metro Inc. with all stores located within Ontario. (Photo by Roberto Machado Noa/LightRocket via Getty Images)
Metro says more customers are shopping at its discount brands such as Food Basics due to inflation. (Photo by Roberto Machado Noa/LightRocket via Getty Images)

Metro Inc. (MRU.TO) reported a profit of $275 million in its most recent quarter, an increase of 9 per cent from last year, as more customers turn to discount brands and promotions amid soaring inflation.

The Montreal-based grocery retailer says sales in the three-month period ending July 2 reached $5.86 billion, up 2.5 per cent from the same period last year when the company saw "elevated sales" of $5.72 billion due to the COVID-19 pandemic. Food same-store sales, a key metric in the retail industry that excludes sales at newly opened stores, rose 1.1 per cent in the quarter while pharmacy same-store sales were up 7.2 per cent.

The sales increase came as inflation continues to run hot in Canada, with prices of food at grocery stores increasing 9.4 per cent in June, according to Statistics Canada. Metro said on Wednesday that its internal measure of food basket inflation climbed 8.5 per cent in the quarter, above the 5 per cent jump in the previous quarter. That increase has fuelled a shift towards Metro's discount brands, such as Food Basics and Super C, as well as a rise in purchases of promotional items.

"The shift to private label, trading down proteins, all of the above is happening in our stores. Consumers are feeling it," chief executive Eric La Flèche said on a conference call with analysts on Wednesday.

"A lot of consumers are on budgets and fixed income and we've worked extremely hard in all of our banners to provide great value."

Canadians have been cutting back on spending on items including groceries, a new Yahoo/Maru Public Opinion poll has found. Nearly half of respondents (49 per cent) say they are worried about the impact inflation will have on their ability to buy necessities.

Although Canadians are seeing prices go up at the grocery store, La Flèche says Metro has not passed all the cost increases it's facing to customers and that high inflation is putting pressures on the company's margins. He adds that grocery retailers' costs have gone up "significantly" amid rising inflation, and that the company is "absorbing some of those costs and not passing on all of our cost increases."

"There are pressures (such as) transportation, fuel, labour, labour contracts... labour shortages are causing pressure too, because that increases overtime to supply our stores," La Flèche said.

"There are a lot of open positions out there and there are not enough workers to fill them."

La Flèche says the company expects it will continue to face higher-than-normal inflation and labour shortage pressures.

"It is difficult to predict how long this situation will last," he said.

On an adjusted basis, Metro earned a profit of $1.18 per share in the quarter, up from $1.06 per share last year.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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