Metro Q3 2024 Financials: 14.6% Earnings Decline Amid Revenue Growth
Metro Inc. (TSX: MRU) has reported a mixed bag of results for the third quarter of its fiscal year 2024. While the company experienced an uptick in sales, profits took a significant hit compared to the same period last year.
For the fiscal three-month period ending July 6, 2024, Metro Inc. reported a 3.5% increase in sales, bringing the total to $6.65 billion compared to $6.43 billion in the corresponding quarter of 2023. This growth was driven by steady gains across both the grocery and pharmacy segments, with food same-store sales rising by 2.4% and pharmacy same-store sales up by 5.2%.
Metro’s CEO, Eric La Flèche, attributed the sales growth to effective merchandising and robust execution across the company’s banners. “We recorded solid comparable sales growth in the third quarter, on top of a very strong quarter last year, reflecting effective merchandising and good execution in our food and pharmacy banners,” La Flèche said in a statement.
Despite the overall sales growth, the pace of increase in food same-store sales showed a significant slowdown from the 9.4% growth recorded in Q3 2023. Pharmacy sales, particularly prescription drugs, continued to show resilience, with a 6.3% increase, supported by a 3.0% rise in front-store sales driven by products such as over-the-counter medications, cosmetics, and health and beauty items.
However, the rise in sales did not translate into higher profits. Metro’s net earnings for the quarter dropped by 14.6% year-over-year to $296.2 million, down from $346.7 million in Q3 2023. This decline is mirrored in the company’s earnings per share (EPS), which fell to $1.31 from $1.49 a year ago, representing a 12.1% decrease.
On an adjusted basis, which excludes certain one-time items, Metro reported net earnings of $305 million, a 3.1% decline from the previous year. Adjusted EPS remained flat at $1.35, narrowly beating analysts’ expectations of $1.34 per share.
The decrease in profitability has been attributed to a variety of factors, including increased depreciation and amortization expenses related to Metro’s ongoing investment in automated distribution centers, as well as higher operating costs.
The company is in the final stages of transitioning to new automated distribution centers in Terrebonne, Quebec, and Toronto, Ontario. While these facilities are expected to drive long-term efficiencies and growth, they have introduced temporary costs and inefficiencies during the transition period.
Metro’s earnings call highlighted the growing competition in the discount grocery space, particularly in Quebec and Ontario, where rivals such as Loblaw are aggressively expanding their discount banners like No Frills and Maxi. This has put pressure on Metro’s conventional stores to differentiate themselves through enhanced customer experiences, broader assortments, and superior services.
La Flèche acknowledged this competitive landscape, stating, “Clearly, there’s been a little more pressure on conventional these last couple of years with this shift, but we anticipate that at the end of the conversion wave, our Metro banner will be on a good footing to grow again.” He emphasized that while discount banners continue to drive growth, Metro is committed to investing in its conventional stores and loyalty programs to maintain competitiveness.
Metro’s discount stores, particularly in Quebec, have been growing faster than in Ontario, a trend that La Flèche linked to “massive conversions” by competitors. Although he did not name Loblaw explicitly, it is widely recognized that Loblaw’s aggressive discount expansion has reshaped the market dynamics, compelling Metro to adapt and innovate.
In addition to the competitive pressures, Metro is also grappling with the challenges of food inflation, which, although declining, continues to affect consumer behavior and margins. The company’s gross margin for the quarter was stable at 19.6%, reflecting a slight contraction from the previous year, while operating expenses as a percentage of sales inched up slightly, partly due to the costs associated with the new distribution centers.
Looking ahead, Metro anticipates that the financial impacts of its distribution center transitions will continue to weigh on profitability for the remainder of fiscal 2024. The company projects that its operating income before depreciation and amortization and impairments will grow by less than 2%, and adjusted EPS could be flat or decrease slightly compared to fiscal 2023. However, Metro remains optimistic about its long-term growth prospects, targeting an annual EPS growth of 8% to 10% over the medium and long term.
Under its current normal course issuer bid, the company plans to buy back up to 7 million of its common shares by November 24, 2024. As of August 2, 2024, Metro has already repurchased 6.045 million shares at an average price of $71.14, amounting to $430 million.
Furthermore, the company’s Board of Directors declared a quarterly dividend of $0.3350 per share on August 13, 2024, maintaining the same payout as the previous quarter.
Information for this briefing was found via Sedar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
