Metro Warns of Higher Costs in Fiscal 2024

Metro, the Canadian retail grocer, has reported a decline in earnings but an increase in per-share income in its fiscal first quarter, with revenue growth surpassing expectations. However, the company has warned that costs will be higher in fiscal 2024.

In the three months ending on December 23, Metro's net income stood at 228.5 million Canadian dollars ($170.3 million), down from C$231.1 million in the same quarter of the previous year. On a per-share basis, net earnings rose to C$0.99 from C$0.97.

Adjusted earnings reached C$1.02 per share, exceeding analysts' expectations of C$0.99 per share according to FactSet.

The company's sales experienced a 6.5% increase, reaching C$4.97 billion, which also exceeded analyst projections of C$4.91 billion. Food same-store sales rose by 6.1%, showing a slight decrease in growth compared to the previous year (7.5%), while adjusting for the Christmas shift, sales were up by 3.4%. Pharmacy same-store sales increased by 3.9%, compared to the 7.7% growth observed in the year-ago period.

In terms of online food sales, Metro experienced more than a doubling compared to last year's growth of 40%, primarily due to partnership sales.

Looking ahead to the new fiscal year, Metro anticipates significant challenges associated with the launches of its automated distribution center in Terrebonne, Quebec, as well as the final phase of its automated fresh-produce plant in Toronto. As a result, the company expects duplicated costs, learning-curve inefficiencies, higher depreciation, and lower capitalized interest.

Metro's President and Chief Executive, Eric La Flèche, explains that the company cannot absorb these additional expenses in the current fiscal year. Therefore, the company forecasts that operating income before depreciation and amortization will grow by less than 2% and adjusted net earnings per share will remain flat or decline by C$0.10 in the fiscal year.

However, La Flèche remains confident that the company will resume its profit growth after fiscal 2024. Metro is maintaining its publicly disclosed annual growth target of between 8% and 10% for net earnings per share over the medium and long term.