Metro (TSE:MRU) reported lower third-quarter earnings as an ongoing strike at its Laval, Quebec, produce distribution center weighed on sales, margins and operating costs, while the grocery and pharmacy retailer outlined network changes intended to improve longer-term returns.
For the quarter ended July 4, Metro recorded sales of CAD 6.97 billion, up 1.4% from a year earlier. Adjusted EBITDA declined 11.3% to CAD 581.4 million, while adjusted diluted earnings per share fell 18.4% to CAD 1.24 from CAD 1.52 in the prior-year period.
Strike Drives Estimated CAD 90 Million Impact
Metro said the Laval strike had an estimated CAD 90 million impact from lost profits and incremental direct costs during the third quarter. That figure was not excluded from adjusted earnings and represented an estimated after-tax impact of CAD 66 million, or CAD 0.32 per share.
Chief Financial Officer Nicolas Amyot said the CAD 90 million estimate includes CAD 3 million in direct costs, primarily security and other immediate expenses, as well as higher costs associated with operating the contingency plan through third-party logistics providers. He said roughly two-thirds of the impact relates to lost margin on reduced sales, while about one-third is tied to direct costs of operating the contingency plan.
Food same-store sales declined 1.5% in the quarter, while total food sales rose 0.5%. La Flèche said food comparable-store sales remained down 1.5% after four weeks of the fourth quarter, and the company expects a continued significant impact on fourth-quarter results without a clear timeline for resolving the dispute.
“As long as we are on strike or as long as our same-store sales remain negative, that is why it is continuing to have an impact on our results,” La Flèche said. He added that Metro’s product assortment has improved each week, though the company still needs to recover customer traffic.
La Flèche said there had been discussions after Metro’s June 25 update, but no formal negotiations for several weeks. He said the company remains prepared to resume talks within what it considers a realistic competitive framework.
Metro said customer transactions declined primarily because of the strike, with about half of lost sales in produce and half associated with lower transaction volumes. Average basket sizes increased slightly.
Pharmacy, E-Commerce Continue to Grow
Metro’s pharmacy business continued to post stronger results than its food segment. Pharmacy same-store sales rose 4.8%, following 5.5% growth a year earlier. Prescription sales increased 6.4%, aided by organic growth, specialty medication and GLP-1 therapies, while front-store commercial sales rose 1.4%.
Jean-Michel Coutu, president of Metro’s Pharmacy Division, said generic semaglutide has created pricing deflation within the GLP-1 category, but volume and contribution trends remain favorable. Metro expects low-teen unit and contribution-dollar growth for the overall GLP-1 category, while sales are expected to grow at a low-single-digit rate. Coutu said this outlook does not include any contribution from Pro Doc.
Online sales increased 16.3%, driven by third-party marketplaces, click-and-collect expansion and delivery at discount banners. The company said consumer demand for same-day delivery is helping shape its e-commerce strategy.
Metro also said consumers remain focused on value, with greater participation in promotions and private-label products. Marc Giroux, chief operating officer, said the company continues to see stronger volume growth in discount stores than conventional formats.
Network Changes Target CAD 15 Million in Annual Earnings
Metro announced plans to convert 10 Metro grocery stores in Ontario to its Food Basics discount banner. The conversions will occur across Ontario, including the Greater Toronto Area and other parts of the province. Management expects the conversions to improve store contribution beginning in fiscal 2027, with benefits increasing over the following two years.
The company will also close its Montreal dark store and move Quebec e-commerce fulfillment to a store-based pick-and-pack model using third-party delivery. Metro expects the transition to expand same-day delivery capacity, improve customer satisfaction and lower fixed costs.
The initiatives produced CAD 25.7 million in pre-tax restructuring expenses and CAD 32.1 million in asset impairments during the quarter. The after-tax adjustment totaled CAD 42.6 million, or CAD 0.20 per share.
Metro expects the network initiatives to be completed by the end of fiscal 2027 and to generate recurring annual after-tax earnings of CAD 15 million by the end of fiscal 2028. Amyot said about half of the projected benefit is expected from the lower-cost e-commerce fulfillment model and the other half from improved contributions at converted Food Basics stores. About half of the total benefit is expected by the end of fiscal 2027.
The required capital is expected to fit within Metro’s annual capital-expenditure range of CAD 500 million to CAD 550 million.
Bakery Sale and Store Investments
Metro also announced a partnership with FGF Brands involving the commercial bakery manufacturing operations of Première Moisson. FGF will acquire Première Moisson’s Baie-D’Urfé production facility for CAD 90 million. Metro said the transaction is expected to close in the fourth quarter.
Première Moisson will remain a Metro subsidiary, retaining its brand and its network of 25 artisanal retail bakeries in Quebec. Metro said the arrangement will allow it to keep offering Première Moisson products in its food stores while focusing investment and resources on food and pharmaceutical retail and distribution.
During the third quarter, Metro opened five discount stores, including one conversion and one relocation, and said it remains on track to open about a dozen discount locations by fiscal year-end. The company also plans 30 pharmacy renovation projects during the year, including seven locations using its new pharmacy concept.
La Flèche, who will retire as CEO at the end of the fiscal year and become chairman in September, said he remained confident Metro’s merchandising, private-label offerings, Moi loyalty program and store execution would support long-term value.
About Metro (TSE:MRU)
With annual sales of more than $22 billion, METRO Inc is a food and pharmacy leader in Québec and Ontario, providing employment to more than 97,000 people. Its purpose is to Nourish the health and well-being of our communities. As a retailer, franchisor, distributor, manufacturer, and provider of eCommerce services, the company operates or services a network of some 1,000 food stores under several banners including Metro, Metro Plus, Super C, Food Basics, Adonis and Première Moisson, and some 640 pharmacies primarily under the Jean Coutu, Brunet, Metro Pharmacy and Food Basics Pharmacy banners.
